GRAIL, Inc. 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion of our results of operations and financial condition together with our accompanying consolidated financial statements and the notes thereto included under Item 8. “Financial Statements”. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry and our business and financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” in Part I, Item 1A of this Form 10-K and the section titled “Cautionary Statement Concerning Forward-Looking Statements” of this Annual Report on Form 10-K. GRAIL, LLC, previously named SDG Ops, LLC, was formed in the state of Delaware as a wholly owned subsidiary of Illumina, Inc. (“Illumina”). SDG Ops, LLC, along with SDG Ops, Inc., a Delaware corporation and wholly owned subsidiary of Illumina, were formed for the purpose of completing a merger transaction between GRAIL, Inc., and Illumina (the “Acquisition”) in order to carry on the business of GRAIL, Inc. and its subsidiaries. On September 20, 2020, GRAIL, Inc., Illumina and its subsidiaries, SDG Ops, LLC, and SDG Ops, Inc., entered into an agreement and plan of merger (the “Merger Agreement”). On August 18, 2021 (the “Closing Date”), Illumina completed its acquisition of GRAIL, Inc.. According to the terms and conditions of the Merger Agreement, SDG Ops, Inc. and GRAIL, Inc. merged, with GRAIL, Inc. surviving and became a wholly owned subsidiary of Illumina (the “First Merger”). Immediately following the First Merger and as part of the same overall transaction, GRAIL, Inc., as the surviving corporation, merged with SDG Ops, LLC (the “Second Merger”). According to the terms and conditions of the Merger Agreement, SDG Ops, LLC became the surviving company and was renamed GRAIL, LLC. On June 24, 2024, Illumina completed the previously announced spin-off of GRAIL (the “Spin-Off”) through a distribution of approximately 85.5% of our outstanding common stock to the holders of record of Illumina’s common stock as of the close of business on June 13, 2024 (the “Distribution”). As a result of this Distribution, GRAIL became an independent public entity. Unless the context otherwise requires, references to "GRAIL," “we,” “us,” and the "Company" refer to (i) GRAIL, LLC and its consolidated subsidiaries prior to the Spin-Off as a carve-out business of Illumina and (ii) GRAIL, Inc. and its subsidiaries following the Spin-Off. A detailed discussion comparing our results of operations for the years ended December 31, 2023 and January 2, 2022 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our final Information Statement filed with our Registration Statement on Form 10, as amended, as filed with the SEC. Overview Our Business We are an innovative commercial-stage healthcare company focused on saving lives and shifting the paradigm in early cancer detection. We believe screening individuals for many types of cancer with a single test represents a significant opportunity to reduce the global burden of cancer. Our Galleri test is a commercially available screening test for early detection of multiple types of cancer, which we termed multi-cancer early detection (“MCED”). We believe Galleri is clinically validated based on the results of its clinical studies completed to date, including the results of its foundational case-control Circulating Cell-free Genome Atlas (“CCGA”) study and interventional PATHFINDER study which together enrolled more than 21,000 participants. In these studies, Galleri demonstrated an ability to detect a shared cancer signal across more than 50 types of cancer, accurately predict the specific organ or tissue type where the cancer signal originated, and yield high positive predictive values and low false positive rates, all from a simple blood draw. Galleri results can help guide next steps for diagnosis of cancer by healthcare providers in required follow-up diagnostic testing. We launched Galleri in the United States in mid-2021. We have sold more than 290,000 commercial tests which have detected some of the most aggressive cancers in early stages including, among others, endometrial, esophageal, gastric, head and neck, liver, pancreatic, and rectal cancers. 106 Table of Contents Since our inception, we have incurred net losses each year. Our net losses were $2.0 billion for fiscal year 2024 ( which includes $1.4 billion of goodwill and intangible assets impairment), $1.5 billion for fiscal year 2023 (which includes $718.5 million of goodwill and intangible assets impairment), and $5.4 billion for fiscal year 2022 (which includes $4.7 billion in goodwill impairment), (see “Basis of Presentation” below for a description of applicable fiscal periods). Adjusted EBITDA was $(483.5) million for fiscal year 2024, $(523.9) million for fiscal year 2023 , and $(500.1) million for fiscal year 2022 . Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of Adjusted EBITDA to the most directly comparable U.S. generally accepted accounting principle (“GAAP”) financial measure, information about why we consider Adjusted EBITDA useful and a discussion of the material risks and limitations of these measures, please see “Non-GAAP Financial Measures” below. Substantially all of our net losses resulted from the application of pushdown accounting, including goodwill and intangible assets impairment, amortization of intangible assets, as well as our research and development programs, general and administrative (“G&A”) costs associated with our operations and sales and marketing costs associated with commercializing our products. Additionally, due to the application of pushdown accounting, our balance sheet includes intangible assets recognized by Illumina in connection with their acquisition of us that may be subject to additional impairment over time. We expect to continue to incur operating losses over at least the next several years as we continue to invest in research and development and commercialization of existing products. Separation from Illumina On June 24, 2024, Illumina completed the Spin-Off, as described above. See Note 1 — Organization And Description Of Business for details. In connection with the Spin-Off, certain equity and liability classified awards were converted in accordance with the employee matters agreement, as further described in Note 7 — Stock-Based Compensation . As a result of the separation, our member’s equity balance was reclassified to additional paid-in capital. On June 21, 2024, in connection with the Spin-Off, we received a cash contribution of $932.3 million from Illumina. In connection with the Spin-Off, we incurred $22.2 million of legal and professional fees in the year ended December 31, 2024 related to the 2021 acquisition of GRAIL by Illumina, and corresponding antitrust litigation, including compliance and divestiture of GRAIL from Illumina through the Spin-Off. See “Non-GAAP Financial Measures — Adjusted EBITDA” for further details. In addition, from 2021 to 2024, we spent $143.8 million on legal and professional service fees related to the antitrust litigation and compliance with the hold separate order and transaction costs related to Illumina’s acquisition of GRAIL and the Spin-Off. Restructuring Plan On August 9, 2024, following a portfolio review, our Board of Directors (the “Board”) approved a restructuring plan (“Restructuring Plan”) designed to reprioritize our resources to focus on our core MCED business and reduce overall spend as we progress towards completion of registrational studies and premarket approval application (“PMA”) submission to the U.S. Food and Drug Administration (“FDA”) for Galleri. As a result, we have taken actions to streamline our commercial sales forces and focus their field-based activities on the current customers expected to be more productive and high priority opportunities. We maintained sales force coverage for the majority of our current Galleri volume and active prescribers. As part of this approach, we also streamlined our current and planned investment in our enterprise business, which included our employer and life insurance businesses. Reductions in the commercial organization included management layers and commercial roles without sales responsibilities. In addition to reductions in the commercial organization, we made reductions in medical affairs teams involved with U.S. Galleri provider engagement. We also substantially decreased investment and planned investment in research and development activities related to our product programs beyond Galleri, including our diagnostic aid for cancer and minimal residual disease programs. In addition, we made reductions in general and administrative expenses to reflect the focus on the MCED opportunity. We plan to continue to invest in our biopharmaceutical partnerships and work with our partners to leverage our proprietary methylation technology in precision oncology applications. 107 Table of Contents The decision was based on cost-reduction initiatives intended to reduce our ongoing operating expenses and maximize shareholder value. The Restructuring Plan included a reduction in our existing headcount and planned 2024 hires of approximately 30%, inclusive of 350 then full-time employees, or approximately 25% of the workforce in place as of June 30, 2024. The Restructuring Plan was substantially completed in the fourth quarter of 2024, and we incurred approximately $18.3 million of total charges for the year ended December 31, 2024, consisting primarily of employee severance, benefits, payroll taxes, and other associated costs. We expect the headcount reductions to enable future cost savings of approximately $120 million on an annual basis. We estimate that the Restructuring Plan extends our anticipated cash runway from the second half of 2026 into 2028. Basis of Presentation The accompanying consolidated financial statements have been prepared on a standalone basis using the consolidated financial statements and accounting records of Illumina prior to the Spin-Off, and the accounting records of GRAIL, Inc. subsequent to the Spin-Off. These consolidated financial statements reflect GRAIL’s consolidated historical financial position, results of operations and cash flows as historically managed, in accordance with GAAP. The Consolidated Financial Statements may not be indicative of GRAIL’s future performance and do not necessarily reflect what the financial position, results of operations and cash flows would have been, and may not include all expenses that would have been incurred, had GRAIL been operated as an independent, publicly traded company during the periods presented. Certain situations require management to make estimates based on judgments and assumptions, which may affect the reported amounts of assets and respective disclosures at the date of the financial statements. Management’s judgments and assumptions may also affect the reported amounts of net sales and expenses during the reporting periods. Actual results could differ from these management estimates. While GRAIL was a subsidiary of Illumina, GRAIL’s fiscal year was the 52 or 53 weeks ending the Sunday closest to December 31, with quarters of 13 or 14 weeks ending the Sunday closest to March 31, June 30, September 30, and December 31. References to “fiscal year 2023 ” refer to the period from January 2, 2023 to December 31, 2023, and “fiscal year 2024 ” refer to the period from January 1, 2024 to December 31, 2024 . Upon the closing of the Spin-Off, GRAIL adopted a fiscal year end of December 31. Illumina’s acquisition of GRAIL on August 18, 2021 (“the Acquisition”) represented a change of control with respect to GRAIL. Given GRAIL, Inc. merged with SDG Ops, Inc., which then merged with SDG Ops LLC, authoritative guidance (ASC 805-50-30) required pushdown accounting to be applied for the Second Merger amongst entities under common control. As a result of the application of pushdown accounting, the separately issued financial statements of GRAIL reflect Illumina’s basis in the assets and liabilities of GRAIL which were remeasured to fair value as of the Closing Date . Intangible assets included developed technology, in-process research and development, and trade names, as well as goodwill. We expect to incur additional costs as a separate public company. These additional costs are primarily related to certain supporting functions that may differ from and be higher than the costs historically incurred or allocated to us. The additional costs we expect to incur as a separate public company are summarized as follows: • Accounting and audit related costs, professional services, and new systems and software to support the accounting, financial reporting, and audits as a standalone public company; • Professional service costs, for additional support to enhance our capabilities in areas such as investor relations, accounting, financial reporting, treasury, risk management, and equity administration, among others; and 108 Table of Contents • Corporate governance costs, including but not limited to board of directors compensation and expenses, insurance, legal and other professional services fees, annual report and proxy statement costs, SEC filing fees, transfer agent fees, and stock exchange listing fees. In addition, we have entered into a supply and commercialization agreement with Illumina. Under the terms of the agreement, regardless of whether our products incorporate any Illumina technology, we have agreed to pay to Illumina a high single-digit royalty, subject to certain reductions, in perpetuity on net sales generated by our products or revenues otherwise generated or received by us, subject to certain exceptions, in the field of oncology. Per the terms of the Separation and Distribution Agreement with Illumina, the royalty arrangement is suspended until the earlier of December 24, 2026 or any earlier GRAIL Change of Control (as defined in that agreement), at which time the high-single digit royalty will become payable. Certain factors could impact the nature and amount of these separate public company costs, including the finalization of our staffing and infrastructure needs . Key Factors Affecting Performance We believe there are several important factors that have impacted and that we expect will impact our operating performance and results of operations, including: • FDA and other regulatory approval and reimbursement . Our performance will be impacted by the extent to which we can secure reimbursement and coverage for Galleri. Prior to broader coverage and reimbursement in the United States, we will continue our work with clinics and health systems to accelerate utilization, and with self-insured employers and health insurers to offer and cover Galleri. Galleri is currently available as a laboratory developed test (“LDT”) in the United States and we have established private reimbursement from a number of self-insured employers and health plans, but do not currently have broader coverage and reimbursement by government healthcare programs, such as Medicare. While Galleri has not been approved or cleared by the FDA, FDA approval is currently not required to market our test in the United States. We plan to pursue FDA approval to help support broad access for Galleri in the United States. We plan to complete a PMA submission with the FDA in the first half of 2026. The timing of this submission is subject to various risks and other factors, including the completion of clinical studies and our ongoing discussions with the FDA. Obtaining PMA approval can take several years from the time an application is submitted, if at all. Moreover, the FDA requirements that will govern MCED tests, as well as the breadth and nature of data we must provide the FDA to support the proposed intended use, may be subject to change, and as such it is difficult to predict what information we will need to submit to obtain approval of a PMA from the FDA for a proposed intended use. We continue to interact with the FDA regarding the data we must provide the FDA to support our PMA submission for the proposed intended use. We believe that FDA approval, if obtained, could unlock large commercial payors in the United States and we are supporting proposed legislation in the United States to enable coverage of FDA-approved MCED tests by Medicare. If we obtain FDA approval, we expect to pursue inclusion of Galleri in the USPSTF’s guideline recommendation, although such inclusion is not certain even with FDA approval. We believe such inclusion would further increase adoption and market acceptance of our tests. Over time, to the extent Galleri becomes more accessible in the United States, we may opt to reduce pricing in order to access a broader population base and accelerate adoption. In the United Kingdom, we are working with NHS England to complete our NHS-Galleri Trial. The NHS will evaluate the final results from the NHS-Galleri Trial, which are expected to be available in 2026, before determining whether to implement the Galleri test in the NHS. We believe the decision will include considerations such as NHS budget, political priorities, cost-effectiveness and implementation constraints in addition to an evaluation of the final results. We believe our work with the NHS and data generated from our NHS-Galleri Trial, if favorable, could help facilitate adoption in other single-payor systems around the world and support evidence of clinical utility worldwide. • International expansion . A component of our long-term growth strategy is to expand our commercial reach internationally. We have expanded our research internationally into the United Kingdom through our partnership with NHS England in the NHS-Galleri Trial, and we expect to launch Galleri in the United Kingdom subject to the results of our NHS-Galleri Trial. We continue to evaluate international expansion 109 Table of Contents opportunities and we have begun expansion in select additional geographies through distributors. We expect to continue selectively engaging with international opportunities over time. • Continued development of the market for MCED testing . Multi-cancer early detection is a relatively novel technology and the market for MCED tests is evolving. We continue to drive MCED as a solution to one of healthcare’s most important challenges. Our performance depends on the extent to which key stakeholders, including current and potential commercial partners, payors and health systems, regulators, policy makers, academic and community medical centers, and key opinion leaders and advocates, understand and support MCED testing as an effective solution for cancer screening. We make significant efforts to educate these key stakeholders regarding the benefits of MCED and the clinical and economic value of our products, which we believe will continue to drive awareness of MCED and expand the commercial opportunity for our products. • Demand for our products and customer mix . A key factor to our future success is and will be our ability to increase demand for, and sales of, Galleri from new and existing customers. Our commercial strategy is focused on innovative value-oriented partnerships and targets health systems, employers, payors, and life insurance providers. As Galleri is not currently broadly reimbursed, our ability to drive demand from these customers is directly linked to our ability to demonstrate the clinical and economic value of our test through clinical validation and real-world experience. As of December 31, 2024, we have entered into commercial partnerships, including with leading healthcare systems, employers, payors, and life insurance providers, and have established a network of over 13,000 prescribers across the United States in a pre-reimbursement setting. We believe this commercial network represents a significant opportunity to drive further demand for Galleri. The mix of customers from which we generate revenue from period to period has an impact on our revenue and gross margin. Galleri test pricing is generally based on our list price or, for certain customers, such as larger, higher-volume customers, negotiated contractual rates. For certain customers, we also offer rebates or discounts from time to time. Revenue generated from customers with negotiated contractual rates, or with rebates or discounts, is generally lower margin as compared to revenue generated based on list pricing. In addition, we have entered into a number of biopharmaceutical research partnerships for our research-use-only (“RUO”) offering under our precision oncology portfolio. Large customers, such as healthcare systems, employers, and biopharmaceutical partners, generally begin using our products by initiating pilots involving a limited number of tests. We believe that our ability to convert these initial pilots into long-term customer relationships has the potential to drive substantial long-term revenue. We also expect to increase demand from new customers through our efforts to further develop the market for MCED testing. • Investment in clinical studies and innovation to support our strategy and growth . A significant aspect of our business is our investment in research and development and the ongoing evidence generation supporting the clinical performance and utility of Galleri. In particular, we have invested heavily in clinical studies and designed and executed what we believe is the largest clinical program in genomic medicine to date. These studies include: CCGA, NHS-Galleri, PATHFINDER, PATHFINDER 2, REACH/Galleri-Medicare, REFLECTION, STRIVE, SUMMIT, and SYMPLIFY. We have established and maintained a leading voice in conversations regarding the early detection of multiple cancer types in the peer-reviewed literature. We have published data from these studies in high-profile journals and have presented such data at renowned medical conferences. We believe these studies are critical to driving adoption of our tests, as well as favorable coverage decisions, and expect to continue investment in data generation. In addition, we have invested heavily in the development of our methylation platform and extensive technological infrastructure. We expect our research and development expenses to decrease over the next three years as, in conjunction with our portfolio review, we determined to decrease investment in product programs beyond Galleri. Additionally, some of our large clinical trials are moving into follow-up phase and the development of our automated platform is expected to substantially conclude in 2025. We will continue to prioritize key objectives for Galleri, including completion of our registrational studies and our premarket approval application. • Leverage our operational infrastructure . We have made significant investments to build a scalable infrastructure capable of meeting significant demand while satisfying applicable certification requirements. Our Durham, North Carolina facility is able to process a substantial number of tests 110 Table of Contents annually and is CAP-accredited and CLIA-certified. In addition, we engineered custom technology infrastructure and cloud-based tools to enable scalable data collection and analysis capabilities. With this foundational infrastructure in place, we have been able to generate scale efficiencies as the volume of tests sold has increased. As demand for our products increases, we expect to further leverage the scale efficiencies of our infrastructure and platform technology, which we believe will positively impact margins over time. In the future, it is possible that we may invest significant amounts in infrastructure to support new products or existing products in new markets. While each of these areas presents significant opportunities for us, they also pose significant risks and challenges that we must address. See “Risk Factors” for more information. Components of Results of Operations Screening Revenue We currently derive screening revenue through the sale of Galleri primarily within the United States and primarily through primary care physicians, health systems, employers, payors, and life insurance providers. Galleri is not currently broadly reimbursed. The test price is based on the negotiated contractual rate with our contracted customers, otherwise our standard list price applies. We identify each sale of our test to our customer as a single performance obligation; therefore, revenue is recognized at the point of time when the test result report is delivered. For self-pay patients, we have concluded that an implied contract exists, however the transaction price for the implied contract represents variable consideration as there are situations in which we do not expect to collect the full invoiced amounts from self-pay patients due to price concessions. We utilize the expected value approach to estimate the transaction price and apply a constraint for such variable consideration, on a portfolio basis. We monitor the estimated amounts to be collected at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. Development Services Revenue We also derive revenue through our development services, which consist of research services we provide to biopharmaceutical and clinical customers including support of ongoing clinical studies, pilot testing, research, and therapy development. We evaluate the terms and conditions included within our development services contracts with biopharmaceutical customers to ensure appropriate revenue recognition, including whether services are considered distinct performance obligations that should be accounted for separately versus together. Revenue from pilot and research services performed is recognized as performance obligations are achieved. We recognize revenue from development service agreements related to regulatory filing to support clinical study and companion diagnostic device development and regulatory submissions for the developed product(s) using an input method based on costs incurred to measure its progress toward the completion and satisfaction of the performance obligations. Cost of Screening Revenue (Exclusive of Amortization of Intangible Assets) and Cost of Development Services Revenue Cost of revenue represents expenses that are incurred to produce and sell our products and services. For screening revenue, these costs consist of materials, labor including salaries and wages, bonus, benefits and stock-based compensation, blood collection kits and shipping, phlebotomy, royalties, electronic medical records, equipment depreciation, and allocations of overhead expenses such as facilities and information technology costs. For development services, these costs consist of materials and patient sample acquisition, labor including salaries and wages, bonus, benefits and stock-based compensation, royalties, equipment depreciation, and allocations of overhead expenses such as facilities and information technology costs. Cost of Revenue—Amortization of Intangible Assets As a result of the application of pushdown accounting, intangible assets recognized in our standalone financial statements relate to our own technology, and consist of developed technologies and in-process research and development that were measured at fair value upon the Acquisition. Our developed technology includes intangible assets related to Galleri, designed as a cancer screening test for asymptomatic individuals over 50 111 Table of Contents years of age, as well as our diagnostic aid for cancer (“DAC”) that is being designed to accelerate diagnostic resolution for patients for whom there is a clinical suspicion of cancer. As part of our Restructuring Plan, we have reduced, and are further reducing, investment in the development of products beyond Galleri, including DAC. The cost of identifiable intangible assets with finite lives, such as developed technology assets, are amortized on a straight-line basis over the assets’ respective estimated useful lives of 18 years. Research and Development Research and development expenses include costs incurred to develop our technology (prior to establishing technological feasibility), collect clinical samples, and conduct clinical studies to develop and support our products. These costs consist of personnel costs, including salaries, benefits, and stock-based compensation expense associated with our research and development personnel, costs associated with setting up and conducting clinical studies at domestic and international sites, laboratory supplies, consulting costs, depreciation, and allocated overhead including facilities and information technology expenses, which we do not allocate by product. We expense both internal and external research and development costs in the periods in which they are incurred. Nonrefundable advance payments for goods and services that will be used or rendered in future research and development activities are deferred and recognized as expense in the period in which the related goods are delivered or services are performed. We expect our research and development expenses to decrease over the next three years as, in conjunction with our portfolio review, we determined to decrease investment in product programs beyond Galleri. Additionally, some of our large clinical studies and development of our automated platform are expected to substantially conclude in this period . Sales and Marketing Sales and marketing expenses consist primarily of personnel costs, including salaries, benefits and stock- based compensation expense, consulting costs, allocated overhead including facilities and information technology expenses, and travel associated with our commercial organization. Also included are costs associated with advertising programs that consist of brand and product awareness activities and trade events and conferences. Sales and marketing expense also includes amortization of the trade name intangible asset that was recognized upon the Acquisition, which has been recorded in our financial statements as a result of the application of pushdown accounting. The cost of identifiable intangible assets with finite lives, such as trade names, are amortized on a straight-line basis over the assets’ respective estimated useful lives of 9 years. We expect our sales and marketing expenses to decrease in the near term following implementation of the Restructuring Plan in the third and fourth quarter 2024, and then to remain flat-to-increasing and continue to decrease as a percentage of revenue over the next three years and long term . General and Administrative G&A expenses consist of personnel expenses, including salaries, benefits and stock-based compensation expense, for executive, finance and accounting, legal, human resources, business development, corporate communications, medical affairs and management information systems personnel. Also included are professional fees, legal costs, including patent and trademark-related expenses and educational activities. The related party amount represents allocated stock administration expenses from Illumina. We have incurred and will incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, director and officer insurance premiums, investor relations activities, and other expenses related to administrative and professional services. We expect our G&A expenses to decrease in the near term following implementation of the Restructuring Plan in the third and fourth quarter 2024, and then remain flat-to-increasing and continue to decrease as a percentage of revenue over the next three years and long term. Goodwill and Intangible Assets Impairments Upon the Acquisition, excess consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, was recognized by Illumina as goodwill. As a result of the application of pushdown accounting, the separately issued financial statements of GRAIL reflect the goodwill recorded by Illumina upon the Acquisition. 112 Table of Contents On July 13, 2022, the European General Court ruled that the European Commission had jurisdiction under the European Union Merger Regulation to review the Acquisition. Additionally, on September 6, 2022, the European Commission issued a decision prohibiting the Acquisition. These decisions constituted substantive changes in circumstances that would more likely than not reduce the fair value of goodwill. We recognized a goodwill impairment for $4.7 billion in 2022. In the third quarter of 2023, we concluded the sustained decrease in Illumina’s stock price and overall market capitalization during the quarter was a triggering event indicating the fair value of GRAIL might be less than its carrying amount that led us to test goodwill for impairment. We recognized an additional goodwill impairment of $608.5 million in 2023 primarily due to changes to expected timing of revenue and a higher discount rate. In the second quarter of 2024, prior to the Spin-Off, the approval of the Spin-Off by Illumina’s board of directors represented a potential indicator of impairment which also aligned with the timing of Illumina’s annual goodwill impairment test date for 2024. We recognized a goodwill impairment of $888.9 million as a result of the impairment assessment, primarily due to changes to the forecast of GRAIL’s value and the method for valuing GRAIL . In conjunction with the third quarter of 2023 goodwill impairment assessment described above, the Company also evaluated the IPR&D intangible asset for potential impairment. Based on the impairment test performed, the Company recognized an impairment of $110.0 million, primarily due to a decrease in projected cash flows and a higher discount rate selected for the fair value calculation. In conjunction with Illumina’s second quarter of 2024 goodwill impairment assessment, the IPR&D intangible asset of the GRAIL reporting unit was evaluated for potential impairment by Illumina prior to the Spin-Off. Based on the impairment test performed, the Company recognized an impairment of $420.0 million primarily due to changes to revenue projections and the discount rate utilized. Subsequent to the Spin-Off, the Company performed a portfolio review and determined to decrease investment in the development of the IPR&D asset, which impacted the amount and timing of expected future cash flows attributable to IPR&D which represented a potential impairment indicator. Based on the impairment test performed, the Company recognized an additional impairment of $112.0 million, primarily due to a decrease in projected cash flows. We evaluate goodwill and intangible assets for impairment annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount. See “ Note 2 — Summary Of Significant Accounting Policies —Goodwill and Intangible Assets” to our Consolidated Financial Statements. Interest Income Interest income consists primarily of interest income earned on our cash, cash equivalents, and short term marketable securities. Other Income (Expense), Net Other income (expense), net primarily consists of foreign currency gains and losses as a result of our intercompany agreements. Benefit from Income Taxes Upon closing of the Acquisition, as a wholly owned subsidiary of Illumina, we were no longer subject to U.S. income tax on a standalone basis and U.S. income tax was combined into Illumina’s consolidated income tax return as a subsidiary of Illumina. However, for financial statement purposes, we have elected to compute our income tax provision, including current and deferred taxes, as if we filed a separate income tax return and were not included in Illumina’s consolidated return for the period GRAIL was owned by Illumina. Including the provision for income taxes in our standalone financials is more representative of our financial position as a standalone company. As such, the income tax provisions and related deferred tax assets and liabilities reflected in our financial statements for the periods ending December 31, 2023 and January 1, 2023 have been estimated as if we were a separate taxpayer. Under this method, various tax attributes, such as net operating losses and tax credits, are also presented on a separate return basis. For income tax purposes, since we were not a separate taxpayer and merely a subsidiary of Illumina, these tax attributes, including net operating losses and tax credits, are the property of 113 Table of Contents Illumina and have either already been utilized by Illumina in its consolidated or combined income tax returns or will be utilized by Illumina in its returns in the future. Accordingly, such tax attributes will not be available to us as a standalone entity on our income tax returns in the future; therefore, in connection with the Spin-off, we recorded an entry to additional paid in capital in order to remove the tax-effected deferred tax assets, net of any valuation allowance, for the tax attributes that remained the property of Illumina. Following the Spin-off, as a standalone entity, GRAIL files tax returns on its own behalf and its deferred taxes and actual income tax rate may differ from those in historical periods. Results of Operations Comparisons of Fiscal Year 2024 to Fiscal Year 2023 The following table summarizes our results of operations for fiscal year 2024 and fiscal year 2023 . Year Ended Change (in thousands) December 31, 2024 December 31, 2023 $ % Revenue: Screening revenue $ 108,627 $ 74,999 $ 33,628 45 % Development services revenue 16,968 18,106 (1,138) (6 %) Total revenue 125,595 93,105 32,490 35 % Costs and operating expenses: Cost of screening revenue (exclusive of amortization of intangible assets) 63,284 47,966 15,318 32 % Cost of development services revenue 6,444 6,861 (417) (6 %) Cost of revenue — amortization of intangible assets 133,889 133,889 — — % Research and development 322,380 338,745 (16,365) (5 %) Sales and marketing 153,958 162,292 (8,334) (5 %) General and administrative 213,862 200,268 13,594 7 % Goodwill and intangible assets impairment 1,420,936 718,466 702,470 98 % Total costs and operating expenses 2,314,753 1,608,487 706,266 44 % Loss from operations (2,189,158) (1,515,382) (673,776) 44 % Other income: Interest income 26,733 7,954 18,779 236 % Other income (expense), net 64 (208) 272 (131 %) Total other income, net 26,797 7,746 19,051 246 % Loss before income taxes (2,162,361) (1,507,636) (654,725) 43 % Benefit from income taxes 135,356 41,951 93,405 223 % Net loss (2,027,005) (1,465,685) (561,320) 38 % 114 Table of Contents Comparison of Fiscal Year 2024 to Fiscal Year 2023 : Revenue Year Ended Change (in thousands) December 31, 2024 December 31, 2023 $ % Screening revenue $ 108,627 $ 74,999 $ 33,628 45 % Development services revenue 16,968 18,106 (1,138) (6 %) Total revenue 125,595 93,105 32,490 35 % Screening Revenue The increase in screening revenue of $33.6 million was primarily driven by a 46% increase in Galleri sales volume, offset by a 1% decrease in average selling price (“ASP”). The Galleri sales volume increased in 2024 as a result of the continued ramp in our commercial activity and partnerships, expansion of our network of ordering providers, increased orders from existing providers and new promotional campaigns. Development Services Revenue The decrease in development services revenue of $1.1 million was primarily due to a decrease of $0.8 million in revenue from pilots with biopharmaceutical partners as a result of milestones earned in 2023 that did not reoccur and a decrease of $1.1 million in other services revenue, partially offset by an increase of $0.6 million in clinical development revenue and an increase of $0.2 million in revenue earned from research services. Cost of Screening Revenue (Exclusive of Amortization of Intangible Assets) Year Ended Change (in thousands) December 31, 2024 December 31, 2023 $ % Cost of screening revenue (exclusive of amortization of intangible assets) $ 63,284 $ 47,966 $ 15,318 32 % The increase in cost of screening revenue (exclusive of amortization of intangible assets) of $15.3 million was primarily driven by an increase in test volume. Cost of screening revenue (exclusive of amortization of intangible assets) as a percent of revenue decreased in 2024 primarily due to improved efficiency in Galleri testing related to scalability with increased Galleri sales volume. Cost of Development Services Revenue Year Ended Change (in thousands) December 31, 2024 December 31, 2023 $ % Cost of development services revenue $ 6,444 $ 6,861 $ (417) (6 %) The decrease in cost of development services revenue of $0.4 million was primarily due to a decrease in labor costs associated with development services projects completed during the periods, partially offset by increases in overhead and materials expenses . 115 Table of Contents Research and Development Research and development expenses for fiscal years 2024 and 2023 were as follows: Year Ended Change (in thousands) December 31, 2024 December 31, 2023 $ % Compensation expenses $ 162,914 $ 174,469 $ (11,555) (7 %) Clinical studies 43,890 54,590 (10,700) (20 %) Laboratory supplies and research collaboration expenses 43,205 41,863 1,342 3 % Allocated expenses 35,078 32,054 3,024 9 % Depreciation expenses 10,656 12,058 (1,402) (12 %) Other expenses 26,637 23,711 2,926 12 % Total research and development $ 322,380 $ 338,745 $ (16,365) (5 %) The decrease in the research and development expenses of $16.4 million was primarily attributable to the decrease in compensation expenses and clinical studies. The decrease of $11.6 million in compensation expenses was primarily related to a decrease of $9.1 million in stock-based compensation, a decrease of $8.0 million in salaries and wages and a decrease of $3.2 million in variable compensation expense primarily due to the reduction in workforce related to the Restructuring Plan, partially offset by an increase of $8.7 million in severance and benefits related to the Restructuring Plan. The decrease in clinical studies of $10.7 million was primarily due to completion of enrollment in our PATHFINDER 2 study and completion of final study visits in our NHS-Galleri Trial . The increase in laboratory supplies and research collaboration expenses of $1.3 million was primarily driven by the development and validation of our automated platform. The increase of $3.0 million in allocated expenses was primarily attributable to higher software, IT, and facilities expenses being allocated to the research and development function. The decrease in depreciation expenses of $1.4 million was primarily driven by fully depreciated assets. The increase of $2.9 million in other expenses was primarily driven by an increase of $1.9 million in minimum royalty and intellectual property-related expenses, an increase of $1.3 million in the use of contractors and temporary labor, partially offset by a decrease of $0.3 million in cloud computing expenses primarily due to cost optimization efforts. Sales and Marketing Year Ended Change (in thousands) December 31, 2024 December 31, 2023 $ % Sales and marketing $ 153,958 $ 162,292 $ (8,334) (5 %) The decrease in sales and marketing expenses of $8.3 million was primarily attributable to a decrease of $2.5 million in compensation expenses primarily related to a decrease in salaries and wages of $4.9 million, a decrease in stock-based compensation of $2.2 million, and a decrease of $0.3 million in variable compensation expense primarily due to the reduction in workforce related to the Restructuring Plan , partially offset by a $4.9 million increase in severance and benefits related to the Restructuring Plan. Third-party marketing professional services expenses decreased by $2.2 million primarily due to a reduction in marketing event activities. Other expenses decreased by $3.6 million primarily due to decreases in allocated facilities expenses as a result of reductions in sales and marketing headcount. 116 Table of Contents General and Administrative Year Ended Change (in thousands) December 31, 2024 December 31, 2023 $ % General and administrative $ 213,862 $ 200,268 $ 13,594 7 % The increase in general and administrative expenses of $13.6 million was primarily attributable to an increase of $12.3 million in legal and professional services expenses primarily associated with divestiture related advisory costs related to our Spin-Off completed on June 24, 2024. Compensation expenses increased by $1.8 million primarily driven by an increase of $4.0 million in severance and benefits related to the Restructuring Plan, an increase of $0.1 million in stock-based compensation, offset by decreases of $1.4 million in salaries and wages and $0.9 million in variable compensation expense primarily due to the reduction in workforce related to the Restructuring Plan. Costs associated with the use of contractors and temporary labor increased by $0.8 million. Other expenses decreased by $1.3 million primarily due to decreases in facilities costs, net of allocated expenses. Goodwill and Intangible Assets Impairment Year Ended Change (in thousands) December 31, 2024 December 31, 2023 $ % Goodwill and intangible assets impairment $ 1,420,936 $ 718,466 $ 702,470 98 % As a result of a goodwill impairment assessment performed by Illumina in the second quarter of 2024, a goodwill impairment charge of $888.9 million was recorded, which represents the amount by which the net carrying value of GRAIL exceeded the fair value of GRAIL at the time the quantitative test was performed, primarily due to changes to the forecast of GRAIL’s value and the method for valuing GRAIL . In conjunction with the goodwill impairment assessment, an impairment assessment for our IPR&D intangible assets was performed by Illumina which resulted an impairment charge of $420.0 million primarily due to changes to revenue projections and the discount rate utilized. Subsequent to the Spin-Off, in conjunction with a portfolio review, we determined to reduce investment in the development of the IPR&D asset, which impacted the amount and timing of expected future cash flows attributable to IPR&D which we concluded was a possible indicator of impairment and another IPR&D impairment test was performed. The impairment assessment resulted in an additional impairment charge of $112.0 million primarily due to a decrease in projected cash flows. As a result of an impairment assessment performed by Illumina in the third quarter of 2023, a goodwill impairment charge of $608.5 million was recorded which represents the amount by which the carrying value of GRAIL exceeded the fair value of GRAIL upon performing a quantitative test, primarily due to changes to expected timing of revenue and a higher discount rate. In conjunction with the 2023 impairment assessment, an impairment charge of $110.0 million was recorded to the IPR&D intangible asset. Interest Income Year Ended Change (in thousands) December 31, 2024 December 31, 2023 $ % Interest income $ 26,733 $ 7,954 $ 18,779 236 % The increase in interest income of $18.8 million was primarily driven by an increase in interest earned on our money market funds and short-term marketable securities primarily due to an increase in the balance on hand as a result of the disposal funding provided by Illumina in connection with the Spin-Off . 117 Table of Contents Other Expense, net Year Ended Change (in thousands) December 31, 2024 December 31, 2023 $ % Other expense, net $ 64 $ (208) $ 272 (131 %) The decrease in other expense of $0.3 million was primarily a result of the fluctuation of foreign currency exchange rates . Benefit from Income Taxes Year Ended Change (in thousands) December 31, 2024 December 31, 2023 $ % Benefit from income taxes $ 135,356 $ 41,951 $ 93,405 223 % The increase in benefit from income taxes of $93.4 million was primarily driven by an increase in pretax tax book losses for fiscal year 2024 when compared to fiscal year 2023, with consideration to the impact of the valuation allowance against pre-tax losses, as well as the impairments of intangible assets that reduced the Company’s net deferred tax liabilities. Non-GAAP Financial Measures In addition to our results provided throughout this Annual Report on Form 10-K that are determined in accordance with GAAP, this Annual Report on Form 10-K also includes the following non-GAAP financial measures for fiscal year 2024 and fiscal year 2023 , which information should be read in conjunction with our audited Consolidated Financial Statements and the related notes and accompanying notes included elsewhere in this Annual Report on Form 10-K: Adjusted Gross Profit/(Loss) Adjusted Gross Profit/(Loss) is a key performance measure that our management uses to assess our operational performance, as it represents the results of revenues and direct costs, which are key components of our operations. We believe that this non-GAAP financial measure is useful to investors and other interested parties in analyzing our financial performance because it reflects the gross profitability of our operations, and excludes the costs associated with our sales and marketing, product development, general and administrative activities, and depreciation and amortization, and the impact of our financing methods and income taxes. We calculate Adjusted Gross Profit/(Loss) as gross profit/(loss) (as defined below) adjusted to exclude amortization of intangible assets and stock-based compensation allocated to cost of revenue. Adjusted Gross Profit/(Loss) should be viewed as a measure of operating performance that is a supplement to, and not a substitute for, operating income or loss from operations, net earnings or loss and other GAAP measures of income (loss) or profitability. The following table presents a reconciliation of gross loss, the most directly comparable financial measure calculated in accordance with GAAP, to Adjusted Gross Profit. Year Ended (in thousands) December 31, 2024 December 31, 2023 Gross loss (1) $ (78,022) $ (95,611) Amortization of intangible assets 133,889 133,889 Stock-based compensation 1,954 1,970 Adjusted Gross Profit $ 57,821 $ 40,248 (1) Gross loss is calculated as total revenue less cost of revenue (exclusive of amortization of intangible assets) and cost of revenue — amortization of intangible assets. 118 Table of Contents Adjusted EBITDA Adjusted EBITDA is a key performance measure that our management uses to assess our financial performance and is also used for internal planning and forecasting purposes. We believe that this non-GAAP financial measure is useful to investors and other interested parties in analyzing our financial performance because it provides a comparable overview of our operations across historical periods. In addition, we believe that providing Adjusted EBITDA, together with a reconciliation of net income (loss) to Adjusted EBITDA, helps investors make comparisons between our company and other companies that may have different capital structures, different tax rates, different operational and ownership histories, and/or different forms of employee compensation. Adjusted EBITDA is used by our management team as an additional measure of our performance for purposes of business decision-making, including managing expenditures. Period-to-period comparisons of Adjusted EBITDA help our management identify additional trends in our financial results that may not be shown solely by period-to-period comparisons of net income or income from operations. Our Management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items, and may not be directly comparable to similarly titled metrics used by other companies. We calculate Adjusted EBITDA as net income (loss) adjusted to exclude interest (income) expense, income tax expense (benefit), depreciation, impairment of goodwill and intangible assets, and amortization of intangible assets, which represent intangible assets resulting from pushdown accounting, legal and professional services fees related to the Acquisition and corresponding antitrust litigation, including compliance with the hold separate arrangements imposed by the European Commission and our divestment from Illumina, restructuring charges, and stock-based compensation. We believe that the items subject to these further adjustments are not indicative of our ongoing operations due to their nature, especially considering the impact of certain items as a result of the Acquisition. Adjusted EBITDA should be viewed as a measure of operating performance that is a supplement to, and not a substitute for, operating income or loss from operations, net earnings or loss and other U.S. GAAP measures of income (loss). Additionally, it is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest and tax payments. Further, our definition of Adjusted EBITDA may differ from similarly titled measures used by other companies and therefore may not be comparable among companies. The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with U.S. GAAP, to Adjusted EBITDA on a consolidated basis. Year Ended (in thousands) December 31, 2024 December 31, 2023 Net loss $ (2,027,005) $ (1,465,685) Adjusted to exclude the following: Interest income (26,733) (7,954) Benefit from income taxes (135,356) (41,951) Amortization of intangible assets (1) 138,333 138,333 Depreciation 19,723 20,364 Goodwill and intangible assets impairment (2) 1,420,936 718,466 Illumina/GRAIL merger & divestiture legal and professional services costs (3) 22,158 17,320 Stock-based compensation (4) 86,084 97,235 Restructuring (5) 18,313 — Adjusted EBITDA $ (483,547) $ (523,872) (1) Represents amortization of intangible assets, including developed technology and trade names. (2) Reflects impairment of goodwill and intangible assets recognized as a result of the Acquisition. 119 Table of Contents (3) Represents legal and professional services costs associated with the Acquisition and corresponding antitrust litigation, including compliance with the hold separate arrangements imposed by the European Commission, and legal and professional services costs associated with the divestiture. (4) Represents all stock-based compensation recognized on our standalone financial statements for the periods presented. (5) Represents employee severance, benefits, payroll taxes, and other costs associated with the Restructuring Plan. Liquidity and Capital Resources Sources of Liquidity From inception through the closing date of Illumina’s acquisition of GRAIL, we had funded our operations primarily through the sale and issuance of redeemable convertible preferred stock and receipt of continuation payments from Illumina. Post- Acquisition until completion of the Spin-Off, we received funding on a quarterly basis directly from Illumina. On June 21, 2024, in connection with the Spin-Off, we received a cash contribution of $932.3 million from Illumina. As of December 31, 2024 , our cash and cash equivalents totaled $214.2 million and our short-term marketable securities totaled $549.2 million . Future Funding Requirements We began generating revenue in mid-2021, but we have continued to incur significant losses and negative cash flows from operations. Subsequent to the Acquisition, we have incurred net losses of $(9.8) billion which includes cumulative charges for impairment of goodwill and intangible assets of $(6.8) billion as well as $(461.1) million of cumulative intangible asset amortization expense as a result of pushdown accounting. We expect to incur additional losses as we conduct our research and development efforts and seek to achieve broad reimbursement of our current commercialized products. We believe that our existing cash and cash equivalents and short-term marketable securities, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months, as of the date of this Annual Report on Form 10-K. However, we anticipate that we will need to raise additional financing in the future to fund our operations. Our future capital requirements will depend on many factors, including the timing and extent of spending to support commercialization, market acceptance of our products prior to broad reimbursement, the timing of broad reimbursement, and launch of pipeline products. We are subject to typical risks associated with an early-stage commercial company and are developing the market for multi-cancer early detection. We may encounter complications with executing our business plans that may cause unforeseen expenses and adversely affect our business. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies, and intellectual property rights. We may be required to seek additional capital through equity or debt financing. In the event that additional financing is required, we may not be able to raise it on terms acceptable to us or at all. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders, increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations. We are also restricted in our ability to raise money through certain transactions or with certain parties pursuant to the terms of the Tax Matters Agreement we entered into with Illumina on June 24, 2024 in connection with the Spin-Off. We may also choose to raise funds through collaborations and licensing arrangements, in which case we may relinquish significant rights or grant licenses on terms that are not favorable to us. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected. 120 Table of Contents The following table summarizes our cash flows for the periods presented: Year Ended (in thousands) December 31, 2024 December 31, 2023 Net cash used by operating activities $ (577,156) $ (595,800) Net cash used by investing activities (551,011) (12,887) Net cash provided by financing activities 1,244,300 463,766 Effect of exchange rate changes on cash, cash equivalents, and restricted cash (62) 305 Net increase (decrease) in cash, cash equivalents, and restricted cash $ 116,071 $ (144,616) Net Cash Used by Operating Activities During fiscal year 2024 , net cash used by operating activities consisted of a net loss of $2.0 billion , adjusted by non-cash charges of $1.5 billion, $53.8 million cash payments for equity awards, and cash used by changes in our operating assets and liabilities of $24.3 million . The non-cash adjustments primarily consisted of goodwill and intangible assets impairment of $1.4 billion , depreciation and amortization of $158.1 million , and stock-based compensation expense of $86.1 million , which was partially offset by a non-cash benefit of $134.3 million relating to deferred taxes. Changes in operating assets and liabilities was predominantly driven by a decrease in accounts payable of $14.6 million, a decrease in accrued and other liabilities of $12.9 million, and an increase in accounts receivable of $3.4 million, partially offset by a decrease in supplies of $3.1 million, a decrease in prepaid expenses and other current assets of $1.8 million, and a decrease in operating lease assets and liabilities of $1.7 million. During fiscal year 2023, net cash used by operating activities consisted of a net loss of $1.5 billion, adjusted by non-cash charges of $939.1 million, $76.9 million cash payments for equity awards, and cash provided by changes in our operating assets and liabilities of $7.7 million. The non-cash adjustments primarily consisted of goodwill and intangible assets impairment of $718.5 million, depreciation and amortization of $158.7 million, and stock-based compensation expense of $97.2 million, which was partially offset by a non-cash benefit of $38.2 million relating to deferred taxes. Changes in operating assets and liabilities was predominantly driven by a decrease in operating lease assets and liabilities of $6.7 million, an increase in accounts payable of $2.9 million, and an increase in accrued and other liabilities of $2.4 million, partially offset by an increase in supplies of $1.9 million, an increase in accounts receivable of $1.4 million, and an increase in prepaid expenses and other current assets of $0.9 million. Net Cash Used by Investing Activities During fiscal year 2024 , net cash used by investing activities primarily consisted of purchases of marketable securities of $545.8 million and $5.2 million for capital expenditures primarily related to purchases of machinery and equipment for use in our laboratories. During fiscal year 2023, net cash used by investing activities primarily consisted of $12.9 million for capital expenditures primarily related to purchases of machinery and equipment for use in our laboratories. Net Cash Provided by Financing Activities During fiscal year 2024, net cash provided by financing activities primarily consisted of $1.2 billion in funding received from Illumina. During fiscal year 2023, net cash provided by financing activities primarily consisted of $464.0 million in funding received from Illumina, offset by $0.2 million of taxes paid related to net share settlement of equity awards. 121 Table of Contents Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements. Material Cash Requirements Our material cash requirements include the following contractual and other obligations as of December 31, 2024: Leases Historically, we have entered into operating leases for facilities and equipment used for research and development. Operating leases have remaining lease terms which range from 1 year to 9 years, and often include one or more options to renew. These renewal terms can extend the lease term from 5 to 15 years and are included in the lease term when it is reasonably certain that the option will be exercised. The exercise of lease renewal and termination options are at the sole discretion of GRAIL. We also have variable lease payments that are primarily comprised of common area maintenance and utility charges. As of December 31, 2024, we had undiscounted operating lease payment obligations of $86.0 million , with $15.2 million payable within twelve months of December 31, 2024. Purchase Commitments Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude purchase orders for goods and services that are cancellable. Our non-cancelable purchase orders represent authorizations to purchase rather than binding agreements. The Company’s contractual commitment amounts are associated with agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum services to be used; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. The purchase commitments primarily relate to contractual commitments for future use of web services, laboratory supplies and marketing events in the normal course of business. As of December 31, 2024, we had non-cancelable purchase obligations of $60.3 million , with $21.1 million payable within twelve months of December 31, 2024. Minimum Royalties Minimum royalty payments are associated with licensing agreements related to research efforts. Minimum annual royalty payments do not include royalties that would be payable on net sales of Galleri or any future products, pursuant to existing agreements and licenses with Illumina, The Chinese University of Hong Kong, and other third parties in excess of minimum annual royalty payments. As of December 31, 2024, we had minimum royalties of $6.8 million , with $1.0 million payable within twelve months of December 31, 2024. Critical Accounting Estimates This discussion and analysis of our financial condition and results of operations is based on our audited Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these audited Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the audited Consolidated Financial Statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our audited Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. 122 Table of Contents Revenue Our revenue is derived from screening and development services. Screening revenue includes cancer screening testing services provided to patients. Patients obtain tests via their employers, healthcare systems, payors, concierge medicine practices, or life insurance providers, or they can order the test via telemedicine (collectively referred to as our direct customers). Screening Revenue We recognize screening revenue from the sale of cancer screening testing services for patients. The test price is based on the negotiated contractual rate with our direct customers, otherwise our standard list price applies. For each specimen received, testing services are performed and test results are electronically delivered to the ordering physician. We identify each sale of our test to a customer as a single performance obligation; therefore, revenue is recognized at the point of time when the test result report is delivered. For self-pay patients, we have concluded that an implied contract exists, however the transaction price for the implied contract represents variable consideration as there are situations in which we do not expect to collect the full invoiced amounts from self-pay patients due to price concessions. We utilize the expected value approach to estimate the transaction price and apply a constraint for such variable consideration, on a portfolio basis. We monitor the estimated amounts to be collected at each reporting period and assess whether a revision to the estimate is required based on the actual cash collections. Both the estimate and any subsequent revisions are subject to uncertainty and require significant judgment in the estimation and application of the constraint for such variable consideration. We analyze our actual cash collections over the expected collection period and compare it with the estimated variable consideration for each portfolio. The difference is then recognized as an adjustment to revenue when we do not believe there is a probable revenue reversal. Development Services Revenue We have developed a breakthrough methylation-based technology which is utilized by biopharmaceutical companies in research and clinical studies, and companion diagnostic development. For contracts with multiple performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine standalone selling price by considering the historical selling price of these performance obligations in similar transactions as well as other factors, including, but not limited to, the price that customers in the market would be willing to pay, competitive pricing of other vendors, industry publications and current pricing practices, and expected costs of satisfying each performance obligation plus appropriate margin; or by using the residual approach if standalone selling price is not observable, by reference to the total transaction price less the sum of the observable standalone selling prices of other performance obligations promised in the contract. Biopharmaceutical partners engage with us to run pilot and research studies by sending patient samples and comparing our test result to their expected result for evaluation of performance and application. We recognize revenue as performance obligations are completed. Following favorable results from pilot and research studies, biopharmaceutical partners may enter into development service agreements with us related to clinical study and companion diagnostic device development and regulatory submissions for the developed product(s). These agreements typically have multiple commitments of services and therefore, have longer performance periods. We use an input method based on costs incurred to measure our progress toward the completion and satisfaction of the performance obligations. We assess the changes to the total expected cost estimates as well as any incremental fees negotiated resulting from changes to the scope of the original contract in determining the revenue recognized at each reporting period. Accrued Clinical Studies and Research and Development Expenses We accrue for estimated costs of research and development activities conducted by third-party service providers, including those conducting clinical studies. We record the estimated costs of research and development activities based upon the estimated amount of services provided and include these costs in accrued liabilities in our consolidated balance sheets and within research and development expenses in our consolidated 123 Table of Contents statements of operations. These costs are a significant component of our research and development expenses. We accrue for these costs based on factors such as estimates of the work completed and in accordance with agreements established with our third-party service providers. We make judgments and estimates in determining the accrued liabilities balance in each reporting period. Stock-Based Compensation Prior to the Spin-Off, we compensated our employees through a long-term incentive program that included GRAIL cash-based equity incentive awards (“Cash-Based Equity Awards”). As these awards were indexed to the value of GRAIL and settled in cash, they were accounted for under ASC 718 Compensation - Stock Compensation as a liability- classified award because the substantive terms of the award required cash settlement on each vesting date. Under ASC 718, we elected to expense the compensation cost over the life of the award via a straight-line method, recognized in stock-based compensation expense. This method resulted in the amount of compensation cost recognized as of any date being at least equal to the earned portion of the expected fair value of the awards on the vest date. Since we did not have actively traded standalone stock, GRAIL’s standalone value calculation was estimated by the Company based on its internal analysis and on input from our independent valuation advisors. To estimate the value of GRAIL, various assumptions were used, including assumptions related to our long-range financial projections, applicable discount rate and terminal growth rate. While we believe the assumptions used were reasonable, assumptions are inherently subject to uncertainty and, as previously noted, small variations in these assumptions could have had a significant impact on the concluded value. The value of the Cash-Based Equity Awards was recorded over the respective vesting periods of the Cash-Based Equity Awards, with recognition of a corresponding liability recorded in incentive plan liabilities in the consolidated balance sheets. The Cash-Based Equity Awards were remeasured at each reporting date until settlement, with changes in value recognized in stock-based compensation expense. On April 30, 2024, Illumina’s Compensation Committee approved an adjustment of the ordinary course payouts of the Cash-Based Equity Awards providing that the Cash-Based Equity Awards would be paid based on their nominal (face) value without adjustment based on changes in equity value. Subsequent to this adjustment to the Cash-Based Equity Awards and continuing until the Spin-Off, the Cash-Based Equity Awards expensed based on such nominal (face) value in accordance with their applicable vesting schedules. In connection with the Spin-Off, pursuant to the Employee Matters Agreement, our Cash-Based Equity Awards were modified (the “Award Modification”). Our cash settled, liability-classified awards were modified into RSUs that will be settled in shares of our common stock upon vesting. The unvested performance stock options held by certain GRAIL employees to purchase Illumina stock were converted to options to purchase our common stock. See Note 7 — Stock-Based Compensation for further details of the Award Modification. The grant date fair value of RSUs and deferred stock units (“DSUs”) are determined based on the closing market price of our common stock on the date of the grant, but (i) in the case of RSUs resulting from the Award Modification, were based on the closing market price of GRAIL’s common stock on the date of the Award Modification, and (ii) in the case of DSUs resulting from deferrals of director cash fees, are determined based on the closing market price of GRAIL’s common stock on the date on which such fees would have been otherwise paid). Stock-based compensation expense is recognized based on the fair value on a straight-line basis over the requisite service periods of the RSUs and DSUs. The fair value of performance stock options with service conditions is determined using the Black-Scholes-Merton option-pricing model. The model assumptions include expected volatility, term, dividends, and the risk-free interest rate. The expected volatility is generally determined by weighing the historical and implied volatility of peer companies’ common stock. The expected term is our best estimates based on the vesting period and contractual term. Given that cash dividends were never declared or paid on the Illumina nor our common stock, the expected dividend yield is determined to be 0%. We do not anticipate paying cash dividends in the foreseeable future. The risk-free interest rate is based upon U.S. Treasury securities with remaining terms similar to the expected term of the stock-based awards. The fair value of the performance stock options begins to be recognized when it is probable that the performance-based condition will be met. 124 Table of Contents Goodwill and Indefinite-Lived Intangible Assets Impairment Goodwill represents the costs in excess of the fair value of net assets of GRAIL acquired by Illumina in August 2021. Indefinite-lived intangible assets consist of GRAIL’s in-process research and development (“IPR&D”) and were measured by Illumina at fair value as of the Closing Date. We test goodwill and indefinite-lived intangible assets for impairment annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount. Goodwill and indefinite-lived intangible assets are considered to be impaired when the carrying value of a reporting unit or asset exceeds its fair value. GRAIL currently has only one reporting unit; and therefore, we measure the carrying value against the fair value of the Company. In the evaluation of goodwill for impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying value. If we determine that it is more likely than not for a reporting unit’s fair value to be greater than its carrying value, a calculation of the fair value is not performed. If we determine that it is more likely than not for a reporting unit’s fair value to be less than its carrying value, a calculation of the fair value is performed and compared to the carrying value of that reporting unit. In certain instances, we may elect to forgo the qualitative assessment and proceed directly to the quantitative impairment test. If the carrying value of a reporting unit exceeds its fair value, goodwill of that reporting unit is impaired and an impairment loss is recorded equal to the excess of the carrying value over its fair value. Generally, we measure the fair value of the reporting unit based on a present value of future discounted cash flows. The discounted cash flow models indicate the fair value of the reporting units based on the present value of the cash flows that the reporting units are expected to generate in the future. Significant estimates in the discounted cash flow models include the weighted average cost of capital, revenue growth rates, long-term rate of growth, and profitability of our business. Discount rates were determined using a weighted average cost of capital for risk factors specific to us and other market and industry data. In the most recent analysis, a discount rate of 51.5% was used for the goodwill assessment and 46.5% and 20% was used for the intangible assets assessments. The estimates and assumptions used in our assessment represent a Level 3 measurement because they are supported by little or no market activity and reflect our own assumptions in measuring fair value. Specifically for the recent goodwill impairment analysis, valuation estimates from financial advisors derived from revenue multiples from peer public companies was used. For the recent indefinite-lived intangible assets impairment analysis, discount rate estimates derived from the American Institute of Certified Public Accountants (“AICPA”) Accounting and Valuation Guide were used. The assumptions used are inherently subject to uncertainty and we note that small changes in these assumptions could have a significant impact on the concluded value. Income Taxes Our provision for income taxes, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated future taxes to be paid. Judgments and estimates based on interpretations of existing tax laws or regulations in the United States and foreign jurisdictions where we are subject to income tax are required in determining our provision for income taxes. Changes in tax laws, regulations, or statutory tax rates (including the implementation of global minimum tax rates in certain jurisdictions), and estimates of our future taxable income could impact the deferred tax assets and liabilities provided for in the consolidated financial statements and would require an adjustment to the provision for income taxes. Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating our ability to recover deferred tax assets within the jurisdiction which they arise, we consider all available positive and negative evidence. We recognize the impact of a tax position in our consolidated financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that 125 Table of Contents are materially different from our current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined. JOBS Act We are an emerging growth company under the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have nonetheless irrevocably elected not to avail ourselves of this exemption and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. We will remain an emerging growth company until the earliest to occur of the following: (i) the last day of the fiscal year in which our total annual gross revenues first meet or exceed at least $1.235 billion (as adjusted for inflation), (ii) the date on which we have, during the prior three-year period, issued more than $1.0 billion in non-convertible debt, (iii) the last day of the fiscal year in which we (a) have an aggregate worldwide market value of common stock held by non-affiliates of $700 million or more (measured at the end of each fiscal year) as of the last business day of our most recently completed second fiscal quarter and (b) have been a reporting company under the Exchange Act for at least one year (and have filed at least one annual report under the Exchange Act), or (iv) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act. Recent Accounting Pronouncements See Note 2 — Summary Of Significant Accounting Policies to our audited Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for details of recent accounting pronouncements. 126 Table of Contents