Illumina, Inc. (NASDAQ: ILMN) recently completed the tax-free spin-off of GRAIL, Inc. (NASDAQ: GRAL) on June 25, 2024. The two stocks began regular trading with Illumina opening at $108.24 and closing at $109.84, while GRAIL opened at $18.63 and closed at $17.00. Following the spin-off, Illumina will focus on its core business of consumables, instruments, and services, while GRAIL will focus on early cancer detection with its Galleri test.
The board of directors approved the spin-off on June 3, 2024, with details on the timeline shared in advance. Illumina filed the initial Form-10 on May 6, 2024, and an amended Form-10 on June 3, 2024, providing additional details on the separation process. GRAIL also filed the initial Form-10 on May 6, 2024, and an amended Form-10 on June 3, 2024, disclosing revised separation terms. The spin-off was completed through the distribution of 85.5% of outstanding shares of GRAIL to ILMN shareholders on a pro rata basis.
With a fair value estimate of $85.11 per share, a 22.5% downside from current levels, Illumina maintains a SELL rating. However, GRAIL continues to hold a BUY rating with a fair value estimate of $36.66 per share. GRAIL has a strong cash position of nearly $1.0 billion, giving it ample liquidity to cover product development costs in the near term. The company’s potential in the unmet cancer detection market makes it an attractive investment opportunity despite near-term concerns.
Illumina’s strategic move to acquire GRAIL in 2021 aimed to leverage GRAIL’s innovative approach to early cancer detection with Illumina’s expertise in genomics. However, the acquisition faced challenges, prompting a divestment plan to unlock shareholder value. The completion of the spin-off marks a pivotal milestone in the process, allowing Illumina shareholders to maintain ownership of GRAIL. The separation also enables Illumina and GRAIL to independently focus on their respective growth opportunities.
GRAIL’s Galleri test has shown promising results in identifying over 50 types of cancer with a false positive rate of less than 1%. The company is gearing up for significant developments, including the NHS Galleri study and the PATHFINDER 2 study, which are expected to generate preliminary findings in the coming years. The reimbursement of the Multi-Cancer Early Detection test by governments is anticipated to unlock significant opportunities for GRAIL in the future.
Investors can expect exciting developments from both Illumina and GRAIL post-spin-off, with each company poised for growth in their respective markets. Illumina’s leadership in genomic medicine and GRAIL’s focus on early cancer detection present compelling investment opportunities for shareholders. Despite near-term challenges, the companies are strategically positioned to capitalize on their strengths and drive sustainable growth in the long run.
