GRAIL, Inc. 10-Q

Item 1A. Risk Factors Our business, financial condition and operating results are affected by a number of factors, whether currently known or unknown, including risks specific to us or the healthcare industry as well as risks that affect businesses in general. In addition to the information set forth in this Form 10-Q, you should consider carefully the factors discussed in Part I, Item 1A, “Risk Factors” in our 2024 Form 10-K (filed with the SEC on March 5, 2025). The risks and uncertainties disclosed in such Annual Report and in this Form 10-Q could materially adversely affect our business, financial condition, cash flows or results of operations and thus our stock price. These risk factors may be important to understanding other statements in this Form 10-Q and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q. Because of such risk factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. Our products or future products may not perform as expected, and the results of our clinical studies may not support the launch or use of our products or future products and may not comply with the requirements, or be replicated in later studies or in the post-market or real-world setting, required to support a commercial opportunity or for any necessary or desirable regulatory clearances, approvals, or certifications, or reimbursement or coverage. Our success depends on our ability to provide reliable, high-quality products that perform as indicated in our product labeling, marketing, and advertising material, as well as our ability to complete clinical studies and comply with applicable regulatory requirements that enable us to commercialize our products and future products. Our commercial product, Galleri, which we have launched as a laboratory developed test (“LDT”) in the United States and for which we are pursuing a premarket approval application (“PMA”) with the U.S. Food and Drug Administration (the “FDA”) and our precision oncology portfolio, which we currently offer on a research-use-only basis, and any future products in development, may not perform as expected. Results from our ongoing or future studies, or from the post-market or real-world setting, involving current or future products or our methylation platform may be inconsistent with certain results obtained from our previous studies, or from interim results initially reported on those studies. In addition, results from our ongoing or future studies may not support certain product launch opportunities. GRAIL intends to submit data from the prevalent screening round of the NHS-Galleri trial as part of its evidence package for FDA premarket approval. 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. The first early analysis was prepared for the NHS to determine whether the results were compelling enough to commence an implementation pilot in England prior to the final trial results. In May 2024, the NHS determined not to initiate the pilot on the basis of those available data and 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 disclosed information from the prevalent screening round from the NHS-Galleri Trial. e plan to submit the full prevalent screening analysis from NHS-Galleri, together with data from 25,000 participants in the PATHFINDER 2 study, and a bridging study (comparing the version of Galleri used in the NHS-Galleri and PATHFINDER 2 trial and the updated version that we plan to submit to the FDA for premarket approval) as part of our premarket approval application in the first half of 2026. Various factors are likely to cause the final results to differ from a review of the first round results only. For example, cancer screening trials designed to show clinical utility are commonly conducted over three years with an annual 46 screening period, because data from the first screening round only can be influenced by the fact that screening detects many prevalent late-stage asymptomatic cancers that have not yet been diagnosed. It is possible that the final results will be unsuitable or unavailable, which could have a significant adverse impact on the success of our commercial efforts for Galleri, our ability to achieve FDA authorization at all or within our anticipated timelines, our brand and reputation, our business, and our growth prospects. Furthermore, other studies have been or may be conducted in populations (such as our SUMMIT study which was conducted in a population of tobacco users) or under other circumstances which make their results more complicated to interpret or result in data that is more difficult to compare. In addition, as Galleri and our research-use-only offering are currently available to customers and others, any analyses or studies, including those conducted by third parties, that use our current or future products, or that examine elements of our methylation platform, may produce results that are inconsistent to evaluate independently or comparatively from our own studies. If any such inconsistent results were to be produced, either before or after launch of a product or future product, our reputation, business, financial condition, results of operations, and growth prospects would suffer. Our products require a number of complex and sophisticated biochemical and bioinformatics processes, which could be adversely impacted by a number of different factors. An operational or technological failure in one of these complex processes or fluctuations in external variables may result in performance characteristics, such as sensitivity or specificity rates, that are lower than we anticipate or that vary between test runs or in a higher than anticipated number of tests that fail to produce results. In addition, we continue to evaluate and refine our algorithms and other processes under development. These refinements may inadvertently result in unanticipated issues that may reduce our performance characteristics, such as sensitivity or specificity rates, or otherwise adversely affect the performance of our tests and their results. Galleri was launched in the United States as an LDT in mid-2021 and an updated version was launched in December 2024. The FDA has granted breakthrough device designation for Galleri. We plan to complete a PMA submission for a further updated version of our Galleri test. We may also be required or decide voluntarily to seek clearance or approval from the FDA for future products. In 2024, the FDA finalized a regulation pursuant to which LDTs would be subject to the FDA’s medical device requirements through a phase-out of its historical policy of enforcement discretion over LDTs over a period of four years (the “LDT Final Rule”). On March 31, 2025, the United States District Court for the Eastern District of Texas vacated the LDT Final Rule, reasoning that LDTs are not medical devices subject to the Federal Food, Drug, and Cosmetic Act (“FD&C Act”), and remanded the matter to the FDA for further consideration. It remains uncertain what impact this ruling may have on the FDA’s authority to review marketing applications for LDTs or to take enforcement action against LDTs. If FDA imposed new or different requirements for marketing applications of LDTs to be reviewable in light of the District Court’s decision, LDT manufacturers seeking FDA review may be required to establish that the test is a medical device subject to the FD&C Act, which could involve significant modification to test configurations, processes, or operations. If we could not ultimately obtain marketing authorization for our Galleri test or other tests where required or appropriate, our business would be substantially harmed. PMAs for tests that may be considered to fall within the court’s definition of laboratory developed tests, including those tests that are in the process of pursuing PMA approval, or if any changes or additional activities may need to be performed by GRAIL to support FDA review and PMA approval as a result of this ruling. Moreover, FDA, other regulators, and notified bodies may require that we generate additional clinical data to support any clearance, approval, or certification we may seek, which could result in delays, increased costs, or other limitations or negative impacts on our ability to receive such clearance, approval, or certification, if at all, including narrowed indication or labeling than expected or desired. For additional information, see “-Risks Relating to Regulation and Legal Compliance-The regulatory clearance, approval, or certification processes of the FDA and comparable foreign regulatory authorities are lengthy, time-consuming, and unpredictable. If we are ultimately unable to obtain any necessary or desirable regulatory approvals, clearances, or certifications, or if such approvals, clearances, or certifications are significantly delayed, our business will be substantially harmed.” in our 2024 Form 10-K. Further, we plan to improve our products to enhance performance, offerings, scalability, and/or cost of goods. However, we may not be successful in transitioning our products to a new or enhanced version or iteration. Product development involves a lengthy and complex process and we may be unable to commercialize, validate, or improve performance of any of our products on a timely basis, or at all. For example, to the extent an enhanced version of an existing product is developed, we may be required to conduct a non-inferiority study involving such 47 enhanced version as compared to the relevant then-current version of the test using data (for example, clinical data and/or real world evidence data obtained through Galleri’s commercial use as an LDT), or could be required to undertake other regulatory requirements if the enhanced version is not considered similar enough to the then- current version to conduct a non-inferiority study. With respect to Galleri, we intend to conduct one or more bridging studies to measure and evaluate concordance, performance and safety of the subsequent, updated version of Galleri (for which we are submitting our PMA) using previously collected clinical study data and other samples. Any such bridging study will need to be agreed upon with regulatory authorities and may be unsuccessful or insufficient to support approval. If unsuccessful or insufficient, we would be required to revert to the existing version of the test and forego, or be delayed in, implementing any perceived or potential updates, including enhancements. Reverting to the existing version of the test may cause delays in our PMA submission timeline. Additionally, planned improvements to our products may cause unintentional technical, logistical or other issues. For example, in late 2024, we began use of a new version of Galleri, for which we are submitting our PMA, in commercial channels which incorporates 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. If we are unable to adequately prevent these issues from occurring, or to adequately identify and remedy these issues, we may experience reputational harm, lose customers and revenue, need to offer discounts, require additional expenditures, delay our PMA application, or suffer other negative consequences. Our failure to successfully develop new and/or improved products (including new versions of existing products) on a timely basis could have a material adverse effect on our results of operations and business. Data from our clinical trials that we announce or publish from time to time before our trials are complete may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. From time to time, we may publicly disclose preliminary or topline data from our clinical studies, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline and preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the topline or preliminary data we previously published. As a result, topline and preliminary data should be viewed with caution until the final data are available. Audits, internal or external, including by the FDA’s Bioresearch Monitoring (“BIMO”) program, of our studies or associated data, can require substantial amounts of time, personnel, and other resources to comply with, and may not be anticipated. From time to time, we may also disclose interim data from our clinical studies. Interim data from these studies that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as subject enrollment continues and more data become available. Adverse differences between interim data and top-line, preliminary, or final data could significantly harm our business prospects. Further, disclosure of interim data by us or by third parties could result in volatility in the price of our common stock. In particular, in the United Kingdom, we are working with NHS England to complete our NHS-Galleri Trial. In May 2024, the NHS determined, based on data from an early analysis of Galleri test performance results in the intervention arm from the prevalent screening round of the NHS-Galleri trial, not to initiate an implementation pilot in England prior to the final trial results. We disclosed information from the prevalent screening round. Various factors are likely to cause the final results to differ from the prevalent screening round results. Further, it is possible that the early preliminary, interim or final data may not be as we expect, may be inconsistent with prior NHS-Galleri data, or with other studies we have conducted, or may be unsuitable to the NHS or FDA, any of which could have a significant adverse impact on the success of our commercial efforts for Galleri, our ability to achieve FDA authorization at all or within our anticipated timelines, our ability to achieve CMS or private payor reimbursement or coverage, our brand and reputation, our business, and our growth prospects. Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could 48 impact the value of the particular program, and our ability to receive regulatory clearance or approval or commercialize a particular product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical study is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding our business. If the data that we report differ from final results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to commercialize or obtain regulatory clearance or approval for our products may be harmed, which could harm our reputation, business, operating results, prospects or financial condition. We face risks associated with tariffs and other trade and global macroeconomic restrictions, which may have a material adverse impact on our results of operations and financial condition. Our business is subject to risks associated with conducting business internationally. For example, some parties with whom we have collaborative relationships are located outside the United States, including in the United Kingdom and Israel. Additionally, while a significant majority of our supplier spend is with vendors located within the United States, whose products are produced in the United States, we also rely on suppliers and vendors located outside of the United States or who produce the products that we use outside the United States, including in China, Mexico, South Africa and various European Union member states. We expect to continue to increase our international presence over time, which could increase these risks or introduce new risks. Accordingly, our future results could be harmed by a variety of factors, including: • economic weakness, including inflation, or political instability, in particular non-U.S. economies and markets; • challenges enforcing our contractual and intellectual property rights, especially in those foreign jurisdictions that do not respect and protect intellectual property rights to the same extent as the United States; • trade protection measures, import or export controls and licensing requirements (including possible restrictions on licensing intellectual property to certain non-U.S. persons) or other restrictive actions by U.S. or non-U.S. governments; • changes in non-U.S. laws, regulations and customs, tariffs, and trade barriers; • changes in non-U.S. laws, regulations, and policies related to data privacy, data protection, and cybersecurity in the transfer or transmittal of data across boundaries and geographies; • exchange rate risk we may face from denominating a portion of our transactions in currencies other than the U.S. dollar; • changes in a specific country’s or region’s political or economic environment; • negative consequences from changes in tax laws; • negative consequences from changes in U.S. national security laws, including those governing non-U.S. investors’ ownership of U.S. biotech and other technology companies and U.S. companies’ ability to enter into joint ventures with non-U.S. entities; • compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad, or for employee non-U.S. employees in the United States; • workforce uncertainty in countries where labor unrest is more common than in the United States; • difficulties associated with staffing and managing international operations, including differing labor relations; 49 • potential liability under the Foreign Corrupt Practices Act (“FCPA”) or comparable foreign laws; and • business interruptions resulting from geopolitical actions, including war and terrorism, such as recent conflicts in the Middle East, pandemics, or natural disasters more common in certain regions, including earthquakes, typhoons, floods, and fires; and • negative consequences to our relationships with our customers, partners, and other collaborators in the event of impact to suppliers or our business internationally due to restrictive actions by U.S. or non-U.S. governments or changes in U.S. or non-U.S. laws. In addition, in recent years, U.S. administrations have publicly supported potential trade proposals that may affect U.S. trade relations with other countries. It is unclear at this point how, if at all, such actions or other potential actions, including under the new U.S. Presidential administration, may impact our business or operations, and the uncertainty surrounding these matters might create difficulties in our efforts to partner with certain healthcare providers, suppliers, and insurance carriers. For example, the United States has signaled its intention to change U.S. trade policy, including renegotiating or terminating existing trade agreements and leveraging tariffs. In April 2025, the United States imposed additional tariffs on imports from China and announced reciprocal and sectorial tariffs on imports from other countries. In July 2025, the United States announced that certain tariff rates, which were initially set to expire on July 9, 2025, will now expire on August 1, 2025 and new reciprocal tariff rates will take effect on August 1, 2025. Should these tariffs be implemented and sustained for an extended period of time, they could increase our expenses, reduce our margins or increase our prices, make it difficult to obtain inputs we need for our products or have a material adverse effect on the broader economy. These risks and impacts may be exacerbated by additional tariffs in the United States or retaliatory tariffs imposed by other governments. Moreover, future operational expansion into other geographies will subject us to additional political and regulatory regimes that will require us to invest further in compliance efforts and may result in additional risks, including, among others, exposure to various and potentially conflicting regulations, international sanctions and compliance rules, country-specific requirements for testing, approval, and processing of patient information and biological samples, as well as the risks associated with political and macroeconomic climates in any such geographies. For example, the potential commercialization of Galleri with the NHS, subject to the results of the NHS-Galleri Trial, may be delayed or otherwise impacted if there is a change in the government in the United Kingdom. These and other risks associated with our planned international operations may materially and adversely affect our business, costs and growth prospects. We also face risks from our international operations for Galleri, our precision oncology portfolio and other products we may develop. Our clinical trials to date have been conducted in the United States and the United Kingdom, and use of our tests in populations outside of these regions could result in differences in performance. Any performance differences experienced in screening populations outside of the United States or United Kingdom could result in customer dissatisfaction, reputational harm, real world data or adverse events that would be reportable to the FDA or other regulators, regulatory actions by regulators in international jurisdictions and other risks, all of which could have a material and adverse impact on our business, regulatory pathway, results of operations and growth prospects. Our ability to successfully and efficiently conduct any required in-country studies in other countries or regions in which we seek to expand may also be impacted, or may be impossible, due to the regulatory requirements of such countries. Some countries may require that we carry out testing of our products or future products through government partnerships, which may be difficult to navigate or which may limit our ability to deliver the results we intend. Moreover, the demographics in other countries or regions may differ vastly, such that study results may not appear as successful, due to, for example, a lower incidence of cancer in the local population. Such outcomes may adversely impact demand for our products in other countries. Finally, our ability to expand internationally may be limited by the availability of international laboratory space or requirements that will permit us to store, collect, and analyze biological samples required for current or future products, including space that could be made available through potential partners in such countries or regions. These and other unknown risks make it difficult for us to assess the potential success of our international expansion and the costs associated therewith. For additional information, see “—Risks Relating to Regulation and Legal Compliance.” 50 We have launched Galleri as an LDT in the United States. In 2024, the FDA finalized a regulation that has been successfully challenged in federal court, pursuant to which the FDA planned to subject LDTs to medical device requirements through a phase-out of its historical policy of enforcement discretion over LDTs over a period of four years. A federal court recently vacated this rule. While we plan to complete our PMA submission seeking regulatory approval from the FDA for Galleri, we launched Galleri in the United States as an LDT. LDTs are in vitro diagnostic (“IVD”) tests that are intended for clinical use and are designed, manufactured, and used within a single laboratory certified for high complexity testing under CLIA. The FDA has historically exercised enforcement discretion and has not enforced certain otherwise applicable FDA requirements, including premarket review, with respect to LDTs, with certain exceptions such as in the case of tests for public health emergencies, where the tests are available directly to the consumer, where the tests represented a significant public health concern, or where the FDA has concerns that a company’s performance claims related to its tests are not sufficiently validated by clinical data. Even under that enforcement discretion policy, the FDA has issued warning letters to and safety communications about IVD device manufacturers for commercializing laboratory tests that were purported to be LDTs but that the FDA alleged failed to meet the definition of an LDT or otherwise were not subject to the FDA’s enforcement discretion policy. Even for those LDTs that were subject to the historical enforcement discretion policy, the FDA for a number of years stated its intention to modify this policy and impose applicable medical device requirements to LDTs more broadly. To this end, on May 6, 2024, the FDA issued the LDT Final Rule in an effort to clarify the FDA’s historical view that LDTs are medical devices subject to the requirements applicable to other IVDs, and to phase out its enforcement discretion policy over a period of four years from issuance of the LDT Final Rule. However, on March 31, 2025, the United States District Court for the Eastern District of Texas vacated the LDT Final Rule, reasoning that LDTs are not medical devices, and remanded the matter to the FDA for further consideration (the “LDT Final Rule Decision”). The decision was not appealed. Further, if the FDA is unable to review LDTs, we may be required to make changes to our PMA application, our laboratory testing or other elements of our test platform, or otherwise take actions to allow the FDA to treat Galleri or future tests as medical devices, notwithstanding the LDT Final Rule Decision. These changes could require us to change the PMA application we have begun, which could delay our PMA application or any potential approval, require additional expenditures, require additional development and validation on the changes we may decide to make and could subject us to additional regulation by the FDA. If we are not able to manage these risks and changes, there could be a material adverse effect on our business and operations. In addition, further efforts by the FDA or Congress to impose more regulation on LDTs could create a negative public perception about the validity, safety, effectiveness, or performance of LDTs, including our products, that could adversely affect patient, provider, and customer perception about, and confidence in, our products. Moreover, the FDA may assert that we are improperly marketing our tests, including Galleri, as LDTs and may assert we do not comply with applicable medical device requirements, and in such cases may take enforcement action against us and/or require us to seek premarket review and obtain marketing authorizations, which may require that we cease marketing any LDT products until such marketing authorizations are obtained or the relevant applications are submitted. There can be no assurance that we will be able to obtain any required marketing authorization for our tests or that any labeling claims will be consistent with the claims we have made or intend to make for such products when launched as LDTs, or that such claims would be adequate to support continued adoption of and reimbursement for our products. In the event we are required to seek FDA marketing authorization for any current or planned products, the FDA may request that we provide additional analyses and information beyond that which we intend to produce based on the designs of our current and planned clinical studies, or that we modify or narrow our intended use or product claims. It is possible that the FDA, among other things, could disagree with our interpretation of data we have relied on to support our LDT launches for our intended uses. If we are required to provide additional analyses or additional data or perform additional clinical studies beyond those we currently contemplate to support the intended uses of our products or future products, our planned commercial launches may be delayed and we may be required to cease commercialization of any products we currently market as LDTs. A delay in the launch of our products or new versions of existing products, 51 or significantly narrowing their intended uses, could negatively impact our financial condition and results of operations. In addition, Congress has, for over the past decade, considered a number of proposals, which if enacted, would subject LDTs to additional regulatory requirements. For example, in recent years, Congress has worked on legislation to create a novel regulatory framework governing a new category of FDA-regulated products, referred to as in vitro clinical tests (“IVCTs”), which would govern LDTs and would be separate and distinct from the existing medical device regulatory framework. For example, most recently, in March 2023, the Verifying Accurate Leading-edge IVCT Development Act of 2023 (the “VALID Act”) was introduced. The bill would have established a risk-based approach to imposing requirements related to premarket review, quality systems, and labeling requirements on all IVCTs, including LDTs, but would grandfather certain LDTs marketed before the effective date of the bill and exempt them from certain requirements. It is unclear whether legislative proposals such as the VALID Act (including any proposals that would, in contrast, reduce FDA oversight of LDTs) will be introduced or passed by Congress or signed into law by the President. Depending on the approach adopted under any potential legislation or regulation, certain LDTs (likely those of higher risk) may be required to undergo some form of premarket review, potentially with a transition period for compliance and a grandfathering provision. Any such legislation could substantially alter our commercial offering and marketing of LDTs and negatively impact our financial condition and results of operations. Additionally, as a result of the District Court decision the regulatory environment around LDTs could be significantly relaxed, which could increase competition and reduce the effectiveness of our regulatory and reimbursement strategy. If the FDA does not have authority to regulate LDTs as medical devices, there could be significant impacts to us and our industry, and our ability to compete could be impaired. We have invested significantly in pursuing a PMA for Galleri, including conducting our NHS-Galleri and PATHFINDER 2 studies to support our PMA. We believe PMA approval for Galleri, if obtained, could bolster our position in the MCED market, and increase or accelerate provider and patient adoption, commercial and government reimbursement and coverage, and international opportunities. In the event the FDA is not able to exercise its medical device authority with respect to LDTs, our competitors or potential competitors in the MCED market may face less stringent regulatory requirements to enter the market or to continue to market their tests and we may face increased competition in our industry, and adapting to the new regulatory and competitive environment could be difficult, costly and time-consuming. If we are not able to adapt to the changed regulatory environment and increased competition, our business and prospects could be materially impacted. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not applicable.