Illumina to Acquire Grail for $8 billion, Shares Down Over 8%

Illumina Inc, a global leader in genomics, said on Monday that it would acquire Grail, a healthcare company whose mission is focused on early detection of multi-cancer, for cash and stock consideration of $8 billion.

Under the terms of the deal, at closing, GRAIL stockholders (including Illumina) will receive total consideration of $8 billion, consisting of $3.5 billion in cash and $4.5 billion in shares of Illumina common stock, subject to a collar. Illumina currently holds 14.5% of GRAIL’s shares outstanding and approximately 12% on a fully diluted basis, the company said.

Illumina’s shares plunged more than 8% to $270.13 on Monday; the stock is up down about 20% so far this year.

“While we think Grail’s liquid biopsy technology to detect cancers in very early stages holds significant promise in a preventative-care setting, the stock market has questioned that valuation being paid, pushing down Illumina’s stock 18% since last week when rumors initially started swirling around this deal, “said Julie Utterback, senior equity analyst at Morningstar.

“The shares appear to be under pressure in pre-market trading as well, but at first glance, we do not expect to significantly change our fair value estimate. Illumina shares are currently trading near fair value,” Utterback added.

Executive comments

“Over the last four years, GRAIL’s talented team has made exceptional progress in developing the technology and clinical data required to launch the GalleriTM multi-cancer screening test. Galleri is among the most promising new tools in the fight against cancer, and we are thrilled to welcome GRAIL back to Illumina to help transform cancer care using genomics and our NGS platform,” said Francis deSouza, Illumina’s President and Chief Executive Officer.

“Together, we have an important opportunity to introduce routine and broadly available blood-based screening that enables early cancer detection when treatment can be more effective and less costly. Multi-cancer early detection is better for patients, their physicians, and payors. As we accelerate our path to clinical leadership and the path to multi-cancer early detection, we will continue to drive significant value creation for our stockholders.”

Illumina stock forecast

Ten analysts forecast the average price in 12 months at $346.00 with a high forecast of $400.00 and a low forecast of $280.00. The average price target represents a 28.09% increase from the last price of $270.13. All those ten equity analysts, three rated “Buy”, six rated “Hold” and one rated “Sell”, according to Tipranks.

On Monday, Canaccord Genuity lowered their target price to $300 from $350; Evercore ISI cut shares of Illumina to $225 from $310 and JP Morgan cuts to neutral from overweight, lowering the target price to $280 from $390.

Other equity analysts also recently updated their stock outlook. Argus reiterated a “reduce” rating and set a $380 price target on shares of Illumina. JP Morgan Chase & Co. lifted their target price on shares of Illumina to $390 from $340 and gave the company an “overweight” rating in July. Piper Sandler downgraded shares of Illumina from an “overweight” rating to a “neutral” rating and lowered their target price for the company to $340 from $356 in August.

At last, Morgan Stanley started coverage on shares of Illumina on September 9th. They issued an “equal weight” rating and a $400 price objective for the company.

Analyst views

“GRAIL is bold, very dilutive, and an unclear fit with ILMN’s core competencies; also the long term strategic fit needs to be better articulated. That said, we believe the risk/reward for ILMN is getting much more compelling in the mid-$200s. GRAIL will likely attract non-specialist fund flow, could be part of a bigger clinical value re-capture strategy, and in the worst case could lead to a sale,” said Doug Schenkel, equity analyst at Cowen and Company.

Check out FX Empire’s earnings calendar