Ex­clu­sive: Il­lu­mi­na CEO Fran­cis deS­ouza re­signs, fol­low­ing chal­lenge by ac­tivist in­vestor

Fran­cis deS­ouza has stepped down as CEO of Il­lu­mi­na, ac­cord­ing to the com­pa­ny, just weeks af­ter he sur­vived an ac­tivist in­vestor’s cam­paign to re­move him from the DNA se­quenc­ing gi­ant’s board.

His res­ig­na­tion as CEO and from the board is ef­fec­tive im­me­di­ate­ly, though he’ll stay on as an ad­vis­er un­til the end of Ju­ly. Il­lu­mi­na gen­er­al coun­sel Charles Dadswell will be­come in­ter­im CEO while the board con­ducts a search.

DeS­ouza’s de­par­ture fol­lows the com­pa­ny’s re­cent and at times in­tense fight with Carl Ic­ahn, the prick­ly ac­tivist in­vestor who tar­get­ed the board and CEO af­ter years of lack­lus­ter share per­for­mance and a ma­jor ac­qui­si­tion that has been blocked by an­titrust au­thor­i­ties. The proxy bat­tle, which con­clud­ed last month, led to the ouster of board chair­man John Thomp­son and his re­place­ment with an al­ly of Ic­ahn’s. While deS­ouza sur­vived, it was with a less-than-over­whelm­ing show of sup­port.

DeS­ouza start­ed as CEO in 2016 when Il­lu­mi­na was a fast-growth com­pa­ny with a firm grip over the DNA se­quenc­ing mar­ket. Un­der his watch, it fur­ther ex­pand­ed its reach be­yond re­search labs and in­to hos­pi­tals and clin­ics, and brought to mar­ket new se­quenc­ing tools that have cut the cost of DNA analy­sis. But the San Diego-based com­pa­ny in re­cent years has been bogged down by emerg­ing ri­vals and an­titrust is­sues, chief among them the stalled $7.1 bil­lion ac­qui­si­tion of the can­cer-di­ag­nos­tics com­pa­ny Grail, which Il­lu­mi­na has been forced to keep sep­a­rate dur­ing the an­titrust process.

Those chal­lenges have been play­ing out for years. But they quick­ly came to a head as the proxy fight with Ic­ahn gained in in­ten­si­ty this year, end­ing with the May 25 vote by share­hold­ers to re­place Thomp­son, the chair­man.

In the weeks that fol­lowed the share­hold­er vote, deS­ouza raised the idea with the board of step­ping down as CEO, ac­cord­ing to peo­ple fa­mil­iar with those con­ver­sa­tions. Those talks re­mained in­for­mal un­til this Thurs­day, when deS­ouza sub­mit­ted his res­ig­na­tion.

What fol­lowed was an in­tense 48-hour pe­ri­od dur­ing which the board and deS­ouza ne­go­ti­at­ed the terms of his ex­it, in­clud­ing how it would be an­nounced pub­licly by the com­pa­ny. There was dis­cus­sion about hav­ing him stay on as CEO in a near­ly two-month tran­si­tion pe­ri­od, un­til the end of Ju­ly, ac­cord­ing to the peo­ple. But it was even­tu­al­ly de­cid­ed that a faster de­par­ture was bet­ter, and that his time as CEO would end with the an­nounce­ment.

By late Fri­day, it was done, and the com­pa­ny put plans in mo­tion to an­nounce the ex­it first thing Sun­day morn­ing.

“It has been the priv­i­lege of a life­time to serve Il­lu­mi­na,” deS­ouza said in a state­ment from the com­pa­ny an­nounc­ing his de­par­ture. “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.”

Un­der the terms of his com­pen­sa­tion agree­ment de­scribed in the com­pa­ny’s proxy fil­ing, deS­ouza won’t re­ceive a pay­out re­lat­ed to his ex­it, and peo­ple fa­mil­iar with the sit­u­a­tion con­firmed that deS­ouza didn’t try to ne­go­ti­ate for one.

Scott Got­tlieb, for­mer FDA com­mis­sion­er and an Il­lu­mi­na board mem­ber, in a Tweet said deS­ouza helped shape a new era where Il­lu­mi­na’s “in­no­va­tions tran­si­tioned from a re­search tool to an es­sen­tial part of pa­tient care.”

An­titrust strug­gles

A new CEO will face one of the biggest ques­tions about Il­lu­mi­na’s fu­ture: What hap­pens with Grail?

The Grail deal came af­ter deS­ouza and Il­lu­mi­na tried in 2018 to buy the se­quenc­ing com­pa­ny Pa­cif­ic Bio­sciences, al­so known as PacBio, for $1.2 bil­lion. That trans­ac­tion be­came mired in an­titrust scruti­ny and the two com­pa­nies agreed in Jan­u­ary 2020 to walk away from the merg­er.

In Sep­tem­ber 2020, Il­lu­mi­na made an even big­ger bet — a $7.1 bil­lion ac­qui­si­tion of can­cer-test­ing com­pa­ny Grail.

An­titrust au­thor­i­ties ob­ject­ed to that deal, as well — but Il­lu­mi­na took the risky step of clos­ing on the trans­ac­tion any­way. The Eu­ro­pean Union blocked the takeover and the FTC has or­dered the com­pa­ny to un­wind it. While Il­lu­mi­na is chal­leng­ing these reg­u­la­to­ry moves, Grail has been forced to op­er­ate as a sep­a­rate, un­in­te­grat­ed com­pa­ny while the mat­ter plays out.

The bogged-down takeover was a key tar­get of Ic­ahn’s crit­i­cism. The ac­tivist called the de­ci­sion to close over reg­u­la­tors’ ob­jec­tions a mis­take and a dis­trac­tion. In an in­ter­view with End­points News ear­li­er this year, deS­ouza de­fend­ed the de­ci­sion, call­ing Grail a linch­pin of the com­pa­ny’s long-term strat­e­gy. He has al­so point­ed to a strong launch for the com­pa­ny’s newest DNA se­quencer.

An­oth­er point of at­tack for Ic­ahn was deS­ouza’s com­pen­sa­tion, which reached $26.7 mil­lion in 2022, an 86% in­crease from the pri­or year, de­spite the com­pa­ny’s stock los­ing rough­ly half of its val­ue over the last two years.

“I am hap­py to see all of the re­cent events oc­cur­ring at Il­lu­mi­na. While ob­vi­ous­ly I be­lieve the change of CEO should have come mean­ing­ful­ly soon­er, it is still a very pos­i­tive oc­cur­rence,” Ic­ahn said in a Tweet af­ter the an­nounce­ment.

Ic­ahn had called for deS­ouza to be re­placed and said he want­ed for­mer CEO Jay Flat­ley to re­sume run­ning the com­pa­ny. His vic­to­ry with share­hold­ers was par­tial: Thomp­son, the chair­man, was vot­ed off, though Robert Ep­stein, an­oth­er Il­lu­mi­na board mem­ber tar­get­ed by Ic­ahn, sur­vived with 76% sup­port from share­hold­ers. DeS­ouza got on­ly 71% sup­port from share­hold­ers. Ic­ahn gained a foothold by adding An­drew Teno, a port­fo­lio man­ag­er at Ic­ahn Cap­i­tal, who re­ceived 60% sup­port.

Ed­i­tor’s note: Drew Arm­strong con­tributed re­port­ing.

This ar­ti­cle was up­dat­ed with com­ments from Ic­ahn and Got­tlieb.