GRAIL, Inc. 10-Q

Item 2. 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 unaudited condensed consolidated financial statements and the notes thereto included under Item 1. “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 sections entitled “Risk Factors” in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K (filed on March 5, 2025) for the year ended December 31, 2024 (the “2024 Form 10-K”) and the section entitled “Cautionary Statement Concerning Forward-Looking Statements” of this Form 10-Q. 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 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. In 2021, in connection with the Acquisition, the European Commission accepted a request for a referral of the Acquisition for European Union merger review. Although the European Commission’s assertion of jurisdiction was set aside by the Court of Justice of the European Union on September 3, 2024, GRAIL was held separate from Illumina from October 29, 2021 until the completion of the Distribution under binding hold separate commitments implemented pursuant to orders issued by the European Commission. 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. 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 in the intended use population, 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 (“PPV”) and low false positive rates, all from a simple blood draw. As announced in May 2025 and June 2025, respectively, data from the NHS-Galleri prevalent screening round and initial data from approximately 25,000 PATHFINDER 2 participants demonstrated consistent performance as 26 compared to PATHFINDER in c ancer signal of origin (“ CSO”) accuracy and specificity, and substantially higher PPV. 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 370,000 commercial tests to-date, including more than 80,000 in the first half of 2025, 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. Since our inception, we have incurred net losses each year. We incurred net losses of $114.0 million and $1.6 billion for the three months ended June 30, 2025 and June 30, 2024, respectively and $220.2 million and $1.8 billion for the six months ended June 30, 2025 and June 30, 2024, respectively (see “Basis of Presentation” below for a description of applicable fiscal periods). Adjusted EBITDA was $(78.3) million and $(139.4) million for the three months ended June 30, 2025 and June 30, 2024, respectively and $(177.1) million and $(291.4) million for the six months ended June 30, 2025 and June 30, 2024 , respectively . Adjusted EBITDA is a n on-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 impairments, 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 previously announced spin-off of GRAIL (the “Spin-Off”). The Spin-Off was completed 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”), which resulted in the issuance of 31,049,148 shares of common stock. As a result of this Distribution, GRAIL became an independent public entity. GRAIL’s common stock is listed under the ticker symbol “GRAL” on the Nasdaq Stock Exchange. We entered into or adopted agreements that provide a framework for the relationship between us and Illumina in connection with the Spin-Off. 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 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 $21.9 million of legal and professional fees in the six month period ended June 30, 2024 related to the 2021 acquisition of GRAIL by Illumina, and corresponding antitrust litigation, including compliance with the hold separate arrangements imposed by the European Commission, 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 Augu st 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 27 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 (“DAC”) 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. 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 $18.3 million of total charges through the fourth quarter of 2024, consisting primarily of employee severance, benefits, payroll taxes, and other associated costs . For the three and six months ended June 30, 2025 , we incurred an immaterial amount of restructuring charges. Prevalent Screening Round Results from the NHS-Galleri Trial In May 2025, we completed a review of Galleri test performance results in the intervention arm from the prevalent screening round of the registrational NHS-Galleri trial. The prevalent screening round is the first round of blood draws (of the three total blood draw rounds in the trial) with one year of follow up. Data from the prevalent screening round showed a substantially higher PPV than that observed in the PATHFINDER study, which was previously published in The Lancet . CSO accuracy and specificity were consistent with that observed in the PATHFINDER study. In PATHFINDER, Galleri demonstrated a PPV of 43%, CSO accuracy of 88%, and specificity of 99.5%. There were no serious safety concerns in the NHS-Galleri prevalent screening round. The NHS-Galleri trial is a clinical utility trial of over 140,000 participants to evaluate the implementation of Galleri alongside the existing NHS standard of care screenings. The NHS-Galleri trial was designed as three annual blood draws, plus 12 months follow up, in order to evaluate Galleri’s ability to move forward the stage of cancer diagnosis relative to standard of care (primary endpoint). Cancer screening trials designed to show clinical utility are commonly conducted over three years with an annual screening interval, because data can be influenced by the fact that the first screening round detects many prevalent late-stage asymptomatic cancers that have not yet been diagnosed. This and other factors are likely to cause final results of the three year trial to differ from a review of the first round results. We plan to submit data from the prevalent screening round of the NHS-Galleri trial, the first 25,000 participants in the PATHFINDER 2 study, and a bridging study (comparing the version of Galleri used in the NHS-Galleri and the PATHFINDER 2 trials to the updated version that we plan to submit to the FDA for premarket approval) as part of our PMA in the first half of 2026. Final clinical utility results from all three years of the trial are expected in mid-2026. 28 Top-Line Results from the PATHFINDER 2 Registrational Study In June 2025, we announced positive top-line performance and safety results from a pre-specified analysis of the first 25,578 participants in the registrational PATHFINDER 2 study. PATHFINDER 2 was initiated in 2021 to evaluate the safety and performance of the Galleri test when added to standard of care single cancer screening in 35,878 adults over 50 years of age with no clinical suspicion of cancer. In the previously published PATHFINDER study, adding Galleri to standard of care cancer screening more than doubled the overall number of cancers detected by screening. Data from evaluable PATHFINDER 2 participants with 12 months of follow-up showed that adding Galleri to standard of care screening demonstrated substantially greater additional cancer detection than in the original PATHFINDER study. In addition, Galleri’s PPV was substantially higher than the 43% observed in the PATHFINDER study, with consistent specificity and CSO accuracy. There were no serious safety concerns reported in PATHFINDER 2. PATHFINDER 2 study results will be submitted to the FDA as part of the Galleri PMA, along with a bridging analysis to compare performance of the version of Galleri used in the PATHFINDER 2 study to the updated version that GRAIL plans to submit to the FDA for premarket approval. Detailed results from the pre-specified analysis of the first 25,000 patients in the registrational PATHFINDER 2 study will be submitted for presentation at the European Society for Medical Oncologists Congress 2025. Real World Evidence Results In April 2025, we presented results from more than 100,000 patients at the American Association for Cancer Research Annual Meeting collected in a real-world setting from over 9,000 healthcare providers across the U.S. who ordered Galleri tests and had results returned to their patients. Clinical cancer outcomes were voluntarily provided by ordering providers to GRAIL. In this population, 1,011 patients received a positive Galleri test result. Of those, 459 patients had follow up information reported to us by their provider. 411 of those patients had a completed diagnostic workup, 259 of whom had received their Galleri test for asymptomatic screening. Test performance in these 259 patients was consistent with that observed in our prior clinical studies for asymptomatic screening, with a PPV of the Galleri test of 49% and CSO accuracy of 87%. Because of differences in sample size, age distributions, the limitations of collecting data in a real-world setting through voluntary reporting, the importance of work ups and other factors, these results are not directly comparable to the results of our clinical studies, such as our PATHFINDER or PATHFINDER 2 trials or the prevalent screening round or full trial results of our NHS-Galleri trial. Basis of Presentation The accompanying unaudited condensed 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 unaudited condensed consolidated financial statements reflect our consolidated historical financial position, results of operations and cash flows as historically managed, in accordance with GAAP. The unaudited condensed consolidated financial statements may not be indicative of our 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 prior to the Spin-Off. 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. The three months ended June 30, 2025 and June 30, 2024, respectively, were both 13 weeks. Upon the closing of the Spin-Off, GRAIL adopted a fiscal year end of December 31. 29 Illumina’s acquisition of GRAIL on August 18, 2021 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 have incurred and expect to incur additional costs as a separate public company, and particularly as we transition to a large accelerated filer as of December 31, 2025 and are subject to enhanced reporting and internal control requirements under the Sarbanes-Oxley Act of 2002. 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 • 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, including coverage from TRICARE, but we do not currently have broader coverage and reimbursement by Medicare or large commercial insurers. 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 30 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 or at all. Moreover, the regulatory requirements surrounding the pathway to PMA for LDTs may be subject to change, including through a recent court decision that has successfully challenged the FDA’s authority to implement medical device requirements with respect to LDTs. 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 (the “NHS”) 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 mid-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 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 primary care physicians, 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 June 30, 2025, we have entered into commercial partnerships, including with leading healthcare systems, employers, payors, and life insurance providers, and have established a network of over 15,000 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. 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. We expect the number or magnitude of these rates, discounts and rebates to reduce our average selling price (“ASP”) over time. 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 31 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 the data 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 submission of our PMA application. • Leverage our operational infrastructure . We have made significant investments to build a scalable infrastructure capable of meeting significant demand of up to one million tests per year while satisfying applicable certification and licensing requirements and accreditation standards. Our Durham, North Carolina facility 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 late 2024, we began use of a new version of Galleri, for which we are submitting our PMA, in commercial channels that incorporates an industrial scale platform with significant automation and is intended to enable us to scale more efficiently with future demand. In connection with implementation of this new version of Galleri, we have experienced and may continue to experience increased turnaround times, re-processing costs and sample failures. We continually monitor and evaluate laboratory operations and performance in an effort to achieve our intended sample processing metrics and costs; however from time to time, processing issues may arise that could impact our operations. 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 the “Risk Factors” section of our 2024 Form 10-K (filed on March 5, 2025) and the “Risk Factors” section of this Form 10-Q, alongside other information set forth in this Form 10-Q and in other documents that we file with the SEC, for more information. Seasonal fluctuations and underlying business trends have also affected, and are likely to continue to affect, our business. We may experience this seasonality, in particular in the third quarter due to primary care physician and patient summer vacation period, with relatively lower volume in the first and third quarters, and relatively higher volume in the second and fourth quarters. These seasonal trends have caused, and will likely continue to cause, fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates. 32 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 filings 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 years of age, as well as our 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 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. 33 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 developm ent 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 expense s to decrease in the near term as a result of the implementation of the Restructuring Plan, 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 in the prior year period represents allocated stock administration expenses from Illumina. W e 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 to 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. We evaluate 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 filed with our 2024 Form 10-K. 34 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, between the closing of the Acquisition and the Spin-Off, we 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 period ending June 30, 2024 has 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 prior to the Spin-Off, 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 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 t he 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. Beginning in 2024 after the Spin-off, as a standalone entity, GRAIL will file tax returns on its own behalf and its deferred taxes and actual income tax rate may differ from those in historical periods. During 2025 the Company is no longer a subsidiary of Illumina and computes its tax provision in accordance with ASC 740 and has computed the income tax provision, including the current and deferred taxes under Grail, Inc., as a publicly traded company. 35 Results of Operations Comparisons of the Three and Six Months Ended June 30, 2025 and June 30, 2024 The following table summarizes our results of operations for the three and six months ended June 30, 2025 and June 30, 2024. Three Months Ended Six Months Ended (in thousands) June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 Revenue: Screening revenue $ 34,379 $ 28,163 $ 63,512 $ 51,702 Development services revenue 1,165 3,807 3,869 6,989 Total revenue 35,544 31,970 67,381 58,691 Costs and operating expenses: Cost of screening revenue (exclusive of amortization of intangible assets) 19,346 15,789 36,469 29,511 Cost of development services revenue 501 621 1,672 2,057 Cost of revenue — amortization of intangible assets 33,472 33,472 66,944 66,944 Research and development 46,626 94,196 100,251 195,821 Sales and marketing 28,539 40,989 63,518 87,808 General and administrative 37,914 67,258 82,988 124,327 Goodwill and intangible impairment 28,000 1,420,936 28,000 1,420,936 Total costs and operating expenses 194,398 1,673,261 379,842 1,927,404 Loss from operations (158,854) (1,641,291) (312,461) (1,868,713) Other income: Interest income 6,809 2,805 14,588 5,706 Other income (expense), net (811) 5 (1,395) 47 Total other income, net 5,998 2,810 13,193 5,753 Loss before income taxes (152,856) (1,638,481) (299,268) (1,862,960) Benefit from income taxes 38,871 53,144 79,070 58,709 Net loss $ (113,985) $ (1,585,337) $ (220,198) $ (1,804,251) Comparison of the Three Months Ended June 30, 2025 and June 30, 2024 Revenue Three Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Screening revenue $ 34,379 $ 28,163 $ 6,216 22 % Development services revenue 1,165 3,807 (2,642) (69 %) Total revenue 35,544 31,970 3,574 11 % Screening Revenue The increase in screening revenue of $6.2 million was primarily attributable to a 29% increase in Galleri sales volume, offset by a 6% decrease in ASP. The Galleri sales volume increased in the second quarter of 2025 as a result of the continued ramp in our commercial activity, expansion of our network of ordering providers, additional commercial partnerships and new promotional campaigns. Development Services Revenue The decrease in development services revenue of $2.6 million was primarily due to a decrease of $1.2 million in revenue from pilots with biopharmaceutical partners, a decrease of $0.7 million in revenue earned from research services, and a decrease of $0.5 million in other services revenue. Cost of Screening Revenue (Exclusive of Amortization of Intangible Assets) Three Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Cost of screening revenue (exclusive of amortization of intangible assets) $ 19,346 $ 15,789 $ 3,557 23 % The increase in cost of screening revenue (exclusive of amortization of intangible assets) of $3.6 million was primarily attributable to an increase in test volume. Cost of screening revenue (exclusive of amortization of intangible assets) as a percent of revenue decreased in the second quarter of 2025 compared to the same period in 2024 primarily due to the reduction in variable costs of Galleri testing performed on our automated platform; however, this decrease was offset by the 6% decrease in ASP and additional sample reprocessing costs. Research and Development Research and development expenses for the three months ended June 30, 2025 and June 30, 2024 were as follows: Three Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Compensation expenses $ 23,982 $ 44,790 $ (20,808) (46 %) Clinical studies 6,263 16,327 (10,064) (62) % Laboratory supplies and research collaboration expenses 4,607 12,026 (7,419) (62 %) Allocated expenses 4,541 9,930 (5,389) (54) % Depreciation expenses 2,663 2,766 (103) (4 %) Other expenses 4,570 8,357 (3,787) (45) % Total research and development $ 46,626 $ 94,196 $ (47,570) (51 %) The decrease in research and development expenses by $47.6 million was primarily attributable to decreases in compensation expenses, clinical study expenses, and laboratory supplies and research collaboration expenses. The decrease of $20.8 million in compensation expenses was primarily related to a decrease of $13.2 million in salaries and wages, a decrease of $5.9 million in stock-based compensation, and a decrease of $1.7 million in variable compensation expense primarily due to the reduction in workforce related to the Restructuring Plan. The decrease in clinical studies of $10.1 million was primarily due to a decrease of $11.0 million primarily related to completion of enrollment in our PATHFINDER 2 study and completion of final study visits in our NHS-Galleri Trial, partially offset by an increase of $0.9 million due to enrollment in our REACH/Galleri-Medicare study. The decrease in laboratory supplies and research collaboration expenses of $7.4 million was primarily driven by the completion of the development and validation of our automated platform at the end of 2024 as well as the completion of enrollment in our PATHFINDER 2 study and completion of final study visits in our NHS-Galleri Trial. The decrease of $5.4 million in allocated expenses was primarily attributable to lower software, IT, and facilities expenses being allocated to the research and development function. The decrease of $3.8 million in other expenses was primarily driven by a decrease in professional services and in the use of contractors and temporary labor due to cost optimization efforts. Sales and Marketing Three Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Sales and marketing $ 28,539 $ 40,989 $ (12,450) (30 %) The decrease in sales and marketing expenses of $12.5 million was primarily attributable to a decrease of $9.3 million in compensation expenses primarily related to a decrease in salaries and wages of $6.8 million and a decrease in stock-based compensation of $2.1 million primarily due to the reduction in workforce related to the Restructuring Plan. Third-party marketing professional services expenses decreased by $2.7 million due to cost optimization efforts. General and Administrative Three Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % General and administrative $ 37,914 $ 67,258 $ (29,344) (44 %) The decrease in general and administrative expenses of $29.3 million was primarily attributable to a decrease of $19.1 million in legal and professional services expenses due to no longer incurring legal and professional service fees related to compliance with the European Commission hold separate order and transaction costs related to our Spin-Off, which completed on June 24, 2024. Compensation expenses decreased by $7.5 million primarily related to a decrease of $3.7 million in stock-based compensation, a decrease in salaries and wages of $3.0 million, and a decrease of $0.8 million in variable compensation primarily due to the reduction in workforce related to the Restructuring Plan. Costs associated with the use of contractors and temporary labor decreased by $2.5 million due to cost optimization efforts. Goodwill and Intangible Assets Impairment Three Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Goodwill and intangible impairment $ 28,000 $ 1,420,936 $ (1,392,936) (98 %) In the second quarter of 2025, we identified a change in market conditions in relation to our IPR&D asset which is in development, which represented a potential impairment indicator. An impairment assessment was performed which resulted in an impairment charge of $28 million primarily due to a decrease in projected cash flows and a higher discount rate. 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 in 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 the second quarter of 2024, 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 . Interest Income Three Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Interest income $ 6,809 $ 2,805 $ 4,004 143 % The increase in interest income of $4.0 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. Benefit from Income Taxes Three Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Benefit from income taxes $ 38,871 $ 53,144 $ (14,273) (27 %) The decrease in benefit from income taxes of $14.3 million was primarily driven by the increase in effective tax rate for the three months ended June 30, 2025 when compared to the effective tax rate for the three months ended June 30, 2024. The increase in effective tax rate for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 primarily relates to the Company’s 2024 valuation allowance impacts against pre-tax losses prior to the Spin-off. Comparison of the Six Months Ended June 30, 2025 and June 30, 2024 Revenue Six Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Screening revenue $ 63,512 $ 51,702 $ 11,810 23 % Development services revenue 3,869 6,989 (3,120) (45 %) Total revenue 67,381 58,691 8,690 15 % Screening Revenue The increase in screening revenue of $11.8 million was primarily attributable to a 30% increase in Galleri sales volume, offset by a 5% decrease in ASP. The Galleri sales volume increased in the first six months of 2025 as a result of the continued ramp in our commercial activity and partnerships, expansion of our network of ordering providers, and new promotional campaigns. Development Services Revenue The decrease in development services revenue of $3.1 million was primarily due to a decrease of $1.5 million in revenue from pilots with biopharmaceutical partners, a decrease of $0.6 million in revenue earned from research services, a decrease of $0.5 million in clinical development revenue, and a decrease of $0.5 million in other services revenue. 36 Cost of Screening Revenue (Exclusive of Amortization of Intangible Assets) Six Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Cost of screening revenue (exclusive of amortization of intangible assets) $ 36,469 $ 29,511 $ 6,958 24 % The increase in cost of screening revenue (exclusive of amortization of intangible assets) of $7.0 million was primarily attributable to an increase in test volume. Cost of screening revenue (exclusive of amortization of intangible assets) as a percent of revenue decreased in 2025 primarily due to the reduction in variable costs of Galleri testing performed on our automated platform; however, this decrease was offset by the 5% decrease in ASP and increased sample re-processing costs. Research and Development Research and development expenses for the six months ended June 30, 2025 and June 30, 2024 were as follows: Six Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Compensation expenses $ 53,687 $ 95,081 $ (41,394) (44 %) Clinical studies 12,185 31,232 (19,047) (61 %) Allocated expenses 10,731 19,718 (8,987) (46) % Laboratory supplies and research collaboration expenses 9,136 29,437 (20,301) (69 %) Depreciation expenses 5,406 6,047 (641) (11 %) Other expenses 9,106 14,306 (5,200) (36 %) Total research and development $ 100,251 $ 195,821 $ (95,570) (49 %) The decrease in research and development expenses by $95.6 million was primarily attributable to decreases in compensation expenses, laboratory supplies and research collaboration expenses, and clinical study expenses. The decrease of $41.4 million in compensation expenses was primarily related to a decrease of $26.1 million in salaries and wages, a decrease of $13.3 million in stock-based compensation, and a decrease of $2.7 million in variable compensation expense primarily due to the reduction in workforce related to the Restructuring Plan, partially offset by an increase of $0.7 million in severance and benefits. The decrease in laboratory supplies and research collaboration expenses of $20.3 million was primarily driven by the completion of the development and validation of our automated platform at the end of 2024 as well as the completion of enrollment in our PATHFINDER 2 study and completion of final study visits in our NHS-Galleri Trial. The decrease in clinical studies of $19.0 million was primarily due to a decrease of $21.0 million primarily related to completion of enrollment in our PATHFINDER 2 study and completion of final study visits in our NHS-Galleri Trial, partially offset by an increase of $2.0 million due to enrollment in our REACH/Galleri-Medicare study. The decrease of $9.0 million in allocated expenses was primarily attributable to lower software, IT, and facilities expenses being allocated to the research and development function. The decrease of $5.2 million in other expenses was primarily driven by a decrease of $2.3 million in the use of contractors and temporary labor, a decrease of $1.7 million in professional services, and a decrease of $0.9 million in cloud computing expenses due to cost optimization efforts. 37 Sales and Marketing Six Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Sales and marketing $ 63,518 $ 87,808 (24,290) (28) % The decrease in sales and marketing expenses of $24.3 million was primarily attributable to a decrease of $18.9 million in compensation expenses primarily related to a decrease in salaries and wages of $14.0 million and a decrease in stock-based compensation of $4.6 million primarily due to the reduction in workforce related to the Restructuring Plan. Third-party marketing professional services expenses decreased by $4.3 million due to cost optimization efforts. General and Administrative Six Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % General and administrative $ 82,988 $ 124,327 $ (41,339) (33 %) The decrease in general and administrative expenses of $41.3 million was primarily attributable to a decrease of $21.7 million in legal and professional services expenses due to no longer incurring legal and professional service fees related to compliance with the European Commission hold separate order and transaction costs related to our Spin-Off, which completed on June 24, 2024. Compensation expenses decreased by $16.6 million primarily related to a decrease in salaries and wages of $8.2 million and a decrease of $7.0 million in stock-based compensation primarily due to the reduction in workforce related to the Restructuring Plan. Other general and administrative costs decreased by $3.0 million primarily driven by decreases in the use of contractors and temporary labor due to cost optimization efforts. Goodwill and Intangible Impairment Six Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Goodwill and intangible impairment $ 28,000 $ 1,420,936 $ (1,392,936) (98 %) In the second quarter of 2025, we identified a change in market conditions in relation to our IPR&D asset which is in development, which represented a potential impairment indicator. An impairment assessment was performed which resulted in an impairment charge of $28 million primarily due to a decrease in projected cash flows and a higher discount rate. 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 in 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 the second quarter of 2024, 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 . 38 Interest Income Six Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Interest income $ 14,588 $ 5,706 $ 8,882 156 % The increase in interest income of $8.9 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. Other Income (Expense) Six Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Other income (expense), net $ (1,395) $ 47 $ (1,442) (3068 %) The decrease in other income of $1.4 million was primarily a result the fluctuation of foreign currency exchange rates. Benefit from Income Taxes Six Months Ended Change (in thousands) June 30, 2025 June 30, 2024 $ % Benefit from income taxes $ 79,070 $ 58,709 $ 20,361 35 % The increase in benefit from income taxes of $20.4 million was primarily driven by the increase in effective tax rate for the six months ended June 30, 2025 when compared to the effective tax rate for the six months ended June 30, 2024. The increase in effective tax rate for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 primarily relates to the Company’s 2024 valuation allowance impacts against pre-tax losses prior to the Spin-off. Non-GAAP Financial Measures In addition to our results provided throughout this Form 10-Q that are determined in accordance with GAAP, this Form 10-Q also includes the following non-GAAP financial measures for the three and six months ended June 30, 2025 and June 30, 2024, which information should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the related notes included elsewhere in this Form 10-Q: 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. 39 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. Three Months Ended Six Months Ended (in thousands) June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 Gross loss (1) $ (17,775) $ (17,912) $ (37,704) $ (39,821) Amortization of intangible assets 33,472 33,472 66,944 66,944 Stock-based compensation 417 463 1,179 944 Adjusted Gross Profit $ 16,114 $ 16,023 $ 30,419 $ 28,067 (1) Gross loss is calculated as total revenue less cost of screening revenue (exclusive of amortization of intangible assets), cost of development services revenue, and cost of revenue — amortization of intangible assets . 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. 40 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. Three Months Ended Six Months Ended (in thousands) June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 Net loss $ (113,985) $ (1,585,337) $ (220,198) $ (1,804,251) Adjusted to exclude the following: Interest income (6,809) (2,805) (14,588) (5,706) Benefit from income tax expense (38,871) (53,144) (79,070) (58,709) Amortization of intangible assets (1) 34,583 34,583 69,167 69,167 Depreciation 4,592 4,805 9,287 10,218 Goodwill and intangible impairment (2) 28,000 1,420,936 28,000 1,420,936 Illumina/GRAIL merger & divestiture legal and professional services costs (3) — 15,624 — 21,932 Stock-based compensation (4) 14,168 25,947 30,379 55,053 Restructuring (5) — — (34) — Adjusted EBITDA $ (78,322) $ (139,391) $ (177,057) $ (291,360) (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. (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. While we generate revenue from screening and development services, these revenues have not been sufficient to fund all operations. On June 21, 2024, in connection with the Spin-Off we received a cash contribution of $932.3 million from Illumina. As of June 30, 2025, our cash, cash equivalents and restricted cash totaled $130.8 million and our short-term marketable securities totaled $475.3 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 of GRAIL by Illumina, we have incurred net losses of $10 billion which include charges for impairment of goodwill and intangible assets and amortization of intangible assets. 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 seek to achieve broad reimbursement of our current commercialized products. We believe that our existing cash, 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 Form 10-Q. However, we anticipate that we will need to raise additional financing in the future to fund our 41 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. The following table summarizes our cash flows for the periods presented: Six Months Ended (in thousands) June 30, 2025 June 30, 2024 Net cash used in operating activities $ (171,977) $ (379,085) Net cash provided by (used in) investing activities 84,980 (3,934) Net cash provided by financing activities — 1,244,300 Effect of exchange rate changes on cash, cash equivalents, and restricted cash 190 (30) Net (decrease) increase in cash, cash equivalents, and restricted cash $ (86,807) $ 861,251 Generally, our net cash provided by financing activities is used to fund our day to day operating activities. First quarter operating cash requirements are generally higher due to payment in the first quarter of our annual bonuses accrued during the prior year. During the six months ended June 30, 2025 and June 30, 2024, cash paid for annual bonuses accrued during the prior year was $24.2 million and $25.9 million, respectively. Net Cash Used in Operating Activities During the six months ended June 30, 2025, net cash used in operating activities consisted of a net loss of $220.2 million offset by non-cash charges of $47.5 million and cash provided by changes in our operating assets and liabilities of $0.8 million. The non-cash adjustments primarily consisted of depreciation and amortization of $78.5 million, stock-based compensation expense of $30.4 million, and intangible impairment expense of $28.0 million, which was partially offset by a non-cash benefit of $79.1 million relating to deferred taxes and amortization of discount on marketable securities of $11.8 million. Changes in operating assets and liabilities was predominantly driven by a decrease in prepaids and other current assets of $4.8 million, a decrease in accounts receivable of $3.6 million, an increase in accounts payable of $1.4 million and a decrease in net operating lease assets and liabilities of $0.4 million, partially offset by a decrease in accrued and other liabilities of $8.5 million and an increase in supplies of $0.9 million. During the six months ended June 30, 2024, net cash used in operating activities consisted of a net loss of $1.8 billion, $53.8 million cash payments for equity awards, and cash used by changes in our operating assets and liabilities of $18.8 million, partially offset by non-cash charges of $1.5 billion. The non-cash adjustments primarily consisted of goodwill and intangible impairment expense of $1.4 billion, depreciation and amortization of $79.4 million and stock-based compensation expense of $55.1 million, which was partially offset by a non-cash 42 benefit of $57.9 million relating to deferred taxes. Changes in operating assets and liabilities was predominantly driven by a decrease in accrued and other liabilities of $14.3 million, an increase in supplies of $3.8 million, a decrease in accounts payable of $3.3 million, and an increase in prepaids and other current assets of $2.5 million, partially offset by a decrease in accounts receivable of $3.5 million, and a decrease in net operating lease assets and liabilities of $1.6 million. Net Cash Provided by (Used in) Investing Activities During the six months ended June 30, 2025, net cash provided by investing activities primarily consisted of proceeds from maturities of marketable securities of $587.9 million, partially offset by purchases of marketable securities of $502.5 million and $0.4 million for capital expenditures primarily related to purchases of machinery and equipment for use in our laboratories. During the six months ended June 30, 2024, net cash used in investing activities primarily consisted of $3.9 million for capital expenditures primarily related to purchases of machinery and equipment for use in our laboratories. Net Cash Provided by Financing Activities During the six months ended June 30, 2025, there was no cash provided by or used in financing activities. During the six months ended June 30, 2024, net cash provided by financing activities primarily consisted of $1.2 billion in funding received from Illumina. Material Cash Requirements There have been no material changes to our material cash requirements from those disclosed in our 2024 Form 10-K. Refer to Notes 8 and 9 to our Consolidated Financial Statements for a discussion of our operating lease obligations and purchase commitments, respectively. Critical Accounting Policies and Estimates This discussion and analysis of our financial condition and results of operations is based on our unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited Condensed 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 unaudited Condensed 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. During the six months ended June 30, 2025, there were no material changes to our critical accounting policies and estimates from those disclosed within the consolidated financial statements for the year ended December 31, 2024 included in our 2024 Form 10-K (filed on March 5, 2025), except as described below. Stock- Based Compensation Expense - 2024 Employee Stock Purchase Plan Our first ESPP offering period began in May 2025 with the first purchase date expected to take place in November 2025. The fair value of shares to be issued under our ESPP is determined using the Black-Scholes-Merton option-pricing model at the commencement of 6-month purchase periods in May and November of each year. The model assumptions include expected volatility, term, dividends, and the risk-free interest rate. The expected stock price volatility assumption was estimated using the average of our historical volatility and average volatility of our peer companies. The average of our peer companies and our own volatility is more representative of future stock price trends than our historical volatility due to our limited history as a public company. The expected term represents the term from the first day of the offering period to the purchase date. The expected dividend yield is determined to be 0% given that we have never declared or paid cash dividends on our common 43 stock and do not anticipate paying such cash dividends. The risk-free interest rate is based upon U.S. Treasury securities with remaining terms similar to the expected term of the share-based awards. Stock-based compensation for our ESPP is expensed using a straight-line attribution method over the offering period. Additionally, forfeitures are accounted for as incurred. Indefinite-Lived Intangible Assets Impairment Indefinite-lived intangible assets consist of GRAIL’s IPR&D and were measured by Illumina at fair value as of the Closing Date. We test 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. Indefinite-lived intangible assets are considered to be impaired when the carrying value of a reporting unit or asset exceeds its fair value. 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. For the indefinite-lived intangible assets impairment analysis performed during the quarter, the discount rate estimate was derived from the American Institute of Certified Public Accountants (“AICPA”) Accounting and Valuation Guide. 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. 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 (“EGC”) 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. As of June 30, 2025, the market value of our common stock that is held by non-affiliates exceeded $700.0 million; therefore, as of December 31, 2025, we expect that we will cease to be an EGC. Recent Accounting Pronouncements See Note 2 — Summary Of Significant Accounting Policies to our unaudited Condensed Consolidated Financial Statements included in Item 1. Financial Statements for details of recent accounting pronouncements.