Illumina CEO resigns following push by activist investor Carl Icahn to remove him
Illumina CEO Francis deSouza has resigned, just weeks after the DNA sequencing company endured a proxy fight with activist investor Carl Icahn.
The resignation came amid mounting shareholder discontent around the company’s $7.1 billion acquisition of early cancer detection startup Grail, which anti-monopoly regulators in the U.S. and Europe are seeking to unwind.
In a LinkedIn post to employees on Sunday, deSouza said Illumina is at a pivotal moment and defended the decision to close the Grail acquisition before getting regulatory approval.
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“Grail brings clinical genomics to mainstream consumers with its revolutionary cancer screening blood test,” said deSouza. “My belief in the potential of Grail potentially life-saving technology and the benefits of merging it with Illumina remains unshakeable. It takes bold moves and courage to ‘improve human health by unlocking the power of the genome.’ That is Illumina’s mission, and it is in our DNA.”
DeSouza also is stepping down from the San Diego company’s board of directors. He joined the company’s executive ranks in 2013 and was named CEO and board member in 2016.
“We thank Francis for his contributions and leadership, and are very excited about embarking on the next chapter of Illumina’s great journey,” said Stephen MacMillan, Illumina’s chairman of the board, in a statement released Sunday. “Illumina’s technology remains at the forefront of DNA sequencing and has continued to set the pace for the industry. We are confident Illumina can continue to execute on its goals while we conduct and complete a CEO search process.”
Icahn’s criticism of the company’s leadership stemmed from Illumina’s handling of its 2020 acquisition of Grail, which makes a diagnostic blood test that screens for 50 types of cancer.
In May’s annual meeting, Icahn tried to oust deSouza and two other of Illumina’s leaders — Chairman John Thompson and Robert Epstein, Illumina’s longest-tenured director. Thompson, 73, was voted off the board, and replaced with one of the three alternative board candidates nominated by Icahn.
DeSouza and Epstein survived with significant shareholder support. And after the proxy fight, Illumina appointed two new independent board members, including MacMillan, the CEO of diagnostic company Hologic, to increase the number of board members from nine to 11.
Even so, shareholders sent a message when they rejected the company’s advisory vote on executive compensation — known as say-on-pay. Icahn had flagged a large stock grant to deSouza with performance targets linked to its core gene sequencing business, excluding potentially large operating losses from Grail as it ramps up.
DeSouza’s departure will be seen by shareholders as potentially creating a faster path to ending the Grail controversy, said Vijay Kumar, a financial analyst with Evercore ISI, in a research note.
“It would have been hard to find a solution to Grail under current management,” wrote Kumar. “Under a new CEO who was not involved in the decision to close Grail ahead of regulatory approval, the potential for a quicker resolution on Grail is possible.”
While there is a lot to like about Grail’s cancer screening technology, its “uncontrolled spending (roughly $700 million a year) is frightening in this environment,” wrote Kumar. “We hope Grail’s management sees changes at Illumina as a warning to right-size its business.”
Illumina named Charles Dadswell, Illumina’s long-time senior vice president and general counsel, interim CEO while the board looks for a new CEO and said deSouza will stay on in an advisory capacity until July 31.
DeSouza called the decision to leave “extremely difficult.” He pointed to accomplishments under his tenure, including lowering the price of sequencing a genome from $5,000 to $200, and increasing the company’s revenue from $1.05 billion in 2012 to $4.58 billion last year.
“It has been the privilege of a lifetime to serve Illumina, said deSouza in a statement. “We have made great progress together, but I believe we are still at the very beginning of the impact Illumina will have on human health by unlocking the power of the genome.”
To date, some 85,000 Grail tests have been performed in the U.S. under its allowed use in federally certified labs. Grail was founded inside lllumina but spun out into a separate company in 2016. Illumina announced plans to re-acquire Grail in September 2020 and closed the transaction in August 2021 — agreeing to hold the company as a separate entity until regulators completed their review.
In September 2022, a U.S. Federal Trade Commission administrative law judge found the transaction was legal. But the four-person Federal Trade Commission overruled the judge and ordered Illumina to divest Grail.
European regulators also rejected the acquisitions as anti-competitive. They are expected to issue a divestiture order and may impose a $450 million fine.
Illumina is appealing in court. It accuses the FTC of overreach and violation of the company’s constitutional due process rights, among other things. In Europe, Illumina argues the European Commission lacks jurisdiction to block a merger between two U.S. companies when Grail does no business within the commission’s boundaries.
Anti-monopoly regulators fear the acquisition would hurt competition because Grail’s potential rivals also rely on Illumina’s gene sequencing equipment. While Illumina offered contractual guarantees to Grail’s competitors to ensure similar pricing and supply for up to 12 years, regulators dismissed the measures as inadequate.
Both legal appeals are expected to wrap up late this year or early next, according to Illumina.
Source: The San Diego Union-Tribune
