GRAIL Inc

Previous wording

We are an innovative commercial-stage healthcare company focused on saving lives and shifting the paradigm in early cancer detection. We believe screening individuals for many types of cancer with a single test represents a significant opportunity to reduce the global burden of cancer. Our Galleri test is a commercially available screening test for early detection of multiple types of cancer, which we termed multi-cancer early detection (“MCED”). We believe Galleri is clinically validated based on the results of its clinical studies completed to date, including the results of its foundational case-control Circulating Cell-free Genome Atlas (“CCGA”) study and interventional PATHFINDER study which together enrolled more than 21,000 participants. In these studies, Galleri demonstrated an ability to detect a shared cancer signal across more than 50 types of cancer, accurately predict the specific organ or tissue type where the cancer signal originated, and yield high positive predictive values and low false positive rates, all from a simple blood draw. See “Business—Our Products: Galleri and Beyond” and “—Our Clinical Studies” sections of our final Information Statement filed with our Registration Statement on Form 10, as amended (the “Form 10”), as filed with the SEC. Galleri results can help guide next steps for diagnosis of cancer by healthcare providers in required follow-up diagnostic testing. Galleri is not a diagnostic test and has not been approved or cleared by the U.S. Food and Drug Administration. We launched Galleri in the United States in mid-2021. As of June 30, 2024, we have sold more than 215,000 commercial tests and established over 140 commercial partnerships, including leading healthcare systems, employers, payors, and life insurance providers. Commercial use of Galleri has detected some of the most aggressive cancers in early stages including, among others, endometrial, esophageal, gastrointestinal stromal, head and neck, liver, pancreatic, and rectal cancers.

Current wording

We are an innovative commercial-stage healthcare company focused on saving lives and shifting the paradigm in early cancer detection. We believe screening individuals for many types of cancer with a single test represents a significant opportunity to reduce the global burden of cancer. Our Galleri test is a commercially available screening test for early detection of multiple types of cancer, which we termed multi-cancer early detection (“MCED”). We believe Galleri is clinically validated based on the results of its clinical studies completed to date, including the results of its foundational case-control Circulating Cell-free Genome Atlas (“CCGA”) study and interventional PATHFINDER study which together enrolled more than 21,000 participants. In these studies, Galleri demonstrated an ability to detect a shared cancer signal across more than 50 types of cancer, accurately predict the specific organ or tissue type where the cancer signal originated, and yield high positive predictive values and low false positive rates, all from a simple blood draw. See “Business—Our Products: Galleri and Beyond” and “—Our Clinical Studies” sections of our final Information Statement filed with our Registration Statement on Form 10, as amended (the “Form 10”), as filed with the SEC. Galleri results can help guide next steps for diagnosis of cancer by healthcare providers in required follow-up diagnostic testing. Galleri is not a diagnostic test and has not been approved or cleared by the U.S. Food and Drug Administration. We launched Galleri in the United States in mid-2021. We have sold more than 250,000 commercial tests which have detected some of the most aggressive cancers in early stages including, among others, endometrial, esophageal, gastrointestinal stromal, head and neck, liver, pancreatic, and rectal cancers.

Previous wording

Since our inception, we have incurred net losses each year. We incurred net losses of$1.6 billion and $193.0 million for the three months ended June 30, 2024 and July 2, 2023, respectively and$1.8 billion and $386.7 million for the six months ended June 30, 2024 and July 2, 2023, respectively (see “Basis of Presentation” below for a description of applicable fiscal periods). Adjusted EBITDA was $(139.4) million and $(136.5) million for the three months ended June 30, 2024 and July 2, 2023, respectively and $(291.4) million and $(274.3) million for the six months ended June 30, 2024 and July 2, 2023, respectively. Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of Adjusted EBITDA to the most directly comparable U.S. generally accepted accounting principle (“GAAP”) financial measure, information about why we consider Adjusted EBITDA useful and a discussion of the material risks and limitations of these measures, please see “Non-GAAP Financial Measures” below. Substantially all of our net losses resulted from the application of pushdown accounting, including goodwill and intangible asset impairment, amortization of intangible assets, as well as our research and development programs, general and administrative (“G&A”) expenses 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 included goodwill and 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 of new and existing products.

Current wording

Since our inception, we have incurred net losses each year. We incurred net losses of$125.7 million and $891.4 million for the three months ended September 30, 2024 and October 1, 2023, respectively and$1.9 billion and $1.3 billion for the nine months ended September 30, 2024 and October 1, 2023, respectively (see “Basis of Presentation” below for a description of applicable fiscal periods). Adjusted EBITDA was $(108.2) million and $(126.1) million for the three months ended September 30, 2024 and October 1, 2023, respectively and $(399.5) million and $(400.4) million for the nine months ended September 30, 2024 and October 1, 2023, respectively. Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of Adjusted EBITDA to the most directly comparable U.S. generally accepted accounting principle (“GAAP”) financial measure, information about why we consider Adjusted EBITDA useful and a discussion of the material risks and limitations of these measures, please see “Non-GAAP Financial Measures” below. Substantially all of our net losses resulted from the application of pushdown accounting, including goodwill and intangible asset impairment, amortization of intangible assets, as well as our research and development programs, general and administrative (“G&A”) expenses 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 included goodwill and 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.

Previous wording

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 Businessfor details. In connection with the Spin-Off, certain equity and liability classified awards were converted in accordance with the employee matters agreement, as further described in Note 5 — Stock-Based Compensation. As a result of the separation, our member’s equity balance was reclassified to additional paid-in capital.

Current wording

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 Businessfor 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.

Previous wording

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 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 2023, we spent $121.7 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.

Current wording

On June 21, 2024, in connection with the Spin-Off, we received a cash contribution of $932.3 million from Illumina. In connection with the Spin-Off, we incurred $22.2 million of legal and professional fees in the nine month period ended September 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” details. In addition, from 2021 to 2023, we spent $121.7 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.

Previous wording

As a result, we are streamlining our commercial sales forces and focusing its field-based activities on the current customers expected to be more productive and high priority opportunities. We are maintaining sales force coverage for the majority of our current Galleri volume and active prescribers. As part of this approach,we are also streamlining investments in its enterprise business, which includes our employer and life insurance businesses. Reductions in the commercial organization include management layers and commercial roles without sales responsibilities. In addition to reductions in the commercial organization, we are making reductions in medical affairs teams involved with U.S. Galleri provider engagement.

Current wording

As a result, we took action in the period ended September 30, 2024 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.

Previous wording

We are substantially decreasing investment in research and development activities related to our product programs beyond Galleri, including our diagnostic aid for cancer and minimal residual disease programs. In addition, we are making 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.

Current wording

We also substantially decreased investment and planned investment in research and development activities related to our product programs beyond Galleri, including our diagnostic aid for cancer and minimal residual disease programs. In addition, we made reductions in general and administrative expenses to reflect the focus on the MCED opportunity. We plan to continue to invest in our biopharmaceutical partnerships and work with our partners to leverage our proprietary methylation technology in precision oncology applications.

Previous wording

The Board’s decision was based on cost-reduction initiatives intended to reduce the Company’s ongoing operating expenses and maximize shareholder value.

Current wording

The decision was based on cost-reduction initiatives intended to reduce our ongoing operating expenses and maximize shareholder value.

Previous wording

The Restructuring Plan includes a reduction in our existing headcount and planned 2024 hires of approximately 30%, inclusive of 350 current full-time employees, or approximately 25% of the existing workforce as of June 30, 2024.

Current wording

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.

Previous wording

In connection with the Restructuring Planto be effected in the third and fourth quarters of 2024, we estimate that we will incur a restructuring charge in Q3 2024 in the range of approximately $18 to $23 million which consists ofseverance, benefits, payroll taxes, and other termination related costs, excluding an estimated net benefit in stock based compensation due to the reversal of previously recorded stock-based compensation expenses related to award cancellations. We expect the headcount reductions to enable future cost savings of approximately $120 million on an annual basis, with approximately $27 million in savings, net of severance and benefits, in 2024. We estimate that the Restructuring Plan extends our anticipated cash runway from the second half of 2026 into 2028.

Current wording

The Restructuring Plan is expected to be substantially completed in the fourth quarter of 2024, and we expect to incur approximately $19.0 million to $23.0 million of total charges through the fourth quarter of 2024, consisting primarily of employee severance, benefits, payroll taxes, and other associated costs. We expect the headcount reductions to enable future cost savings of approximately $120 million on an annual basis, with approximately $27 million in savings, net of severance and benefits, in 2024. We estimate that the Restructuring Plan extends our anticipated cash runway from the second half of 2026 into 2028. For thethree and nine months ended September 30, 2024, we incurred restructuring charges of$19.0 million.

Previous wording

While GRAIL was a subsidiary of Illumina, GRAIL’s fiscal year was the 52 or 53 weeks ending the Sunday closest to December 31, with quarters of 13 or 14 weeks ending the Sunday closest to March 31, June 30, September 30, and December 31. References to Q2 2024 and Q2 2023 refer to the three and six months ended June 30, 2024 and July 2, 2023, respectively, which were both 13 weeks. Upon the closing of the Spin-Off, GRAIL adopted a fiscal year end of December 31.

Current wording

While GRAIL was a subsidiary of Illumina, GRAIL’s fiscal year was the 52 or 53 weeks ending the Sunday closest to December 31, with quarters of 13 or 14 weeks ending the Sunday closest to March 31, June 30, September 30, and December 31. References to Q3 2024 and Q3 2023 refer to the three months ended September 30, 2024 and October 1, 2023, respectively, which were both 13 weeks. Upon the closing of the Spin-Off, GRAIL adopted a fiscal year end of December 31.

Previous wording

•Demand for our products and customer mix. A key factor to our future success is and will be our ability to increase demand for, and sales of, Galleri from new and existing customers. Our commercial strategy is focused on innovative value-oriented partnerships and targets health systems, employers, payors, and life insurance providers. As Galleri is not currently broadly reimbursed, our ability to drive demand from these customers is directly linked to our ability to demonstrate the clinical and economic value of our test through clinical validation and real-world experience. As of June 30, 2024, we have entered into over 140 commercial partnerships, including with leading healthcare systems, employers, payors, and life insurance providers, and have established a network of over 11,000 prescribers across the United States in a pre-reimbursement setting. We believe this commercial network represents a significant opportunity to drive further demand for Galleri. The mix of customers from which we generate revenue from period to period has an impact on our revenue and gross margin. Galleri test pricing is generally based on our list price or, for certain customers, such as larger, higher-volume customers, negotiated contractual rates. For certain customers, we also offer rebates or discounts from time to time. Revenue generated from customers with negotiated contractual rates, or with rebates or discounts, is generally lower margin as compared to revenue generated based on list pricing. In addition, we have entered into a number of biopharmaceutical research partnerships for our research-use-only (“RUO”) offering under our precision oncology portfolio. Large customers, such as healthcare systems, employers, and biopharmaceutical partners, generally begin using our products by initiating pilots involving a limited number of tests. We believe that our ability to convert these initial pilots into long-term customer relationships has the potential to drive substantial long-term revenue. We also expect to increase demand from new customers through our efforts to further develop the market for MCED testing.

Current wording

•Demand for our products and customer mix. A key factor to our future success is and will be our ability to increase demand for, and sales of, Galleri from new and existing customers. Our commercial strategy is focused on innovative value-oriented partnerships and targets health systems, employers, payors, and life insurance providers. As Galleri is not currently broadly reimbursed, our ability to drive demand from these customers is directly linked to our ability to demonstrate the clinical and economic value of our test through clinical validation and real-world experience. As of September 30, 2024, we have entered into commercial partnerships, including with leading healthcare systems, employers, payors, and life insurance providers, and have established a network of over 12,000 prescribers across the United States in a pre-reimbursement setting. We believe this commercial network represents a significant opportunity to drive further demand for Galleri. The mix of customers from which we generate revenue from period to period has an impact on our revenue and gross margin. Galleri test pricing is generally based on our list price or, for certain customers, such as larger, higher-volume customers, negotiated contractual rates. For certain customers, we also offer rebates or discounts from time to time. Revenue generated from customers with negotiated contractual rates, or with rebates or discounts, is generally lower margin as compared to revenue generated based on list pricing. In addition, we have entered into a number of biopharmaceutical research partnerships for our research-use-only (“RUO”) offering under our precision oncology portfolio. Large customers, such as healthcare systems, employers, and biopharmaceutical partners, generally begin using our products by initiating pilots involving a limited number of tests. We believe that our ability to convert these initial pilots into long-term customer relationships has the potential to drive substantial long-term revenue. We also expect to increase demand from new customers through our efforts to further develop the market for MCED testing.

Previous wording

•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: NHS-Galleri, CCGA, SUMMIT, STRIVE, SYMPLIFY, PATHFINDER, PATHFINDER 2, REFLECTION and REACH/Galleri-Medicare. 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 studies and development of our automated platform are expected to conclude over the next three years. We will continue to prioritize key objectives for Galleri, including completion of our registrational studies and our premarket approval application.

Current wording

•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: NHS-Galleri, CCGA, SUMMIT, STRIVE, SYMPLIFY, PATHFINDER, PATHFINDER 2, REFLECTION and REACH/Galleri-Medicare. We have established and maintained a leading voice in conversations regarding the early detection of multiple cancer types in the peer-reviewed literature. We have published data from these studies in high-profile journals and have presented such data at renowned medical conferences. We believe these studies are critical to driving adoption of our tests, as well as favorable coverage decisions, and expect to continue investment in data generation. In addition, we have invested heavily in the development of our methylation platform and extensive technological infrastructure. We expect our research and development expenses to decrease over the next three years as, in conjunction with our portfolio review, we determined to decrease investment in product programs beyond Galleri. Additionally, some of our large clinical trials are moving into follow-up phase and the development of our automated platform is expected to substantially conclude next year. We will continue to prioritize key objectives for Galleri, including completion of our registrational studies and our premarket approval application.

Previous wording

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 this Quarterly Report on Form 10-Q for more information.

Current wording

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 this Quarterly Report on Form 10-Q for more information. Seasonal fluctuations, 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. These seasonal trends have caused, and will likely continue to cause, fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates.

Previous wording

G&A expenses consist of personnel expenses, including salaries, benefits and stock-based compensation expense, for executive, finance and accounting, legal, human resources, business development, corporate communications, medical affairs and management information systems personnel. Also included are professional fees, legal costs, including patent and trademark-related expenses and educational activities. The related party amount represents allocated stock administration expenses from Illumina. We 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 expensesto decrease following implementation of the Restructuring Plan and to decrease as a percentage of revenue over the next three years and long term.

Current wording

G&A expenses consist of personnel expenses, including salaries, benefits and stock-based compensation expense, for executive, finance and accounting, legal, human resources, business development, corporate communications, medical affairs and management information systems personnel. Also included are professional fees, legal costs, including patent and trademark-related expenses and educational activities. The related party amount represents allocated stock administration expenses from Illumina. We have incurred and will incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, director and officer insurance premiums, investor relations activities, and other expenses related to administrative and professional services. We expect our G&A expensesto decrease following implementation of the Restructuring Plan and to decrease as a percentage of revenue over the next three years and long term.

Previous wording

Comparisons of the Three and Six Months Ended June 30, 2024 and July 2, 2023

Current wording

Comparisons of the Three and Nine Months Ended September 30, 2024 and October 1, 2023

Previous wording

The following table summarizes our results of operations for the three and six months ended June 30, 2024 and July 2, 2023.

Current wording

The following table summarizes our results of operations for the three and nine months ended September 30, 2024 and October 1, 2023.

Previous wording

The increase in screening revenue of $8.1 million was primarily attributable to an increase in Galleri sales volume. The Galleri sales volume increased in 2024 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.

Current wording

The increase in screening revenue of $8.6 million was primarily attributable to a 57% increase in Galleri sales volume, offset by a 3% decrease in average selling price (“ASP”). The Galleri sales volume increased in 2024 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.

Previous wording

The increase in development services revenue of $1.4 million was primarily driven by an increase of $1.0 million in clinical development revenue, an increase of $0.6 million in revenue earned from research services and an increase of $0.3 million in revenue from pilots with biopharmaceutical partners, partially offset by a decrease of $0.5 million in other services revenue.

Current wording

The decrease in development services revenue of $0.7 million was primarily due to a decrease of $0.6 million in revenue from pilots with biopharmaceutical partners, a decrease of $0.2 million in revenue earned from research services, and a decrease of $0.5 million in other services revenue, partially offset by an increase of $0.6 million in clinical development revenue.

Previous wording

The increase in cost of screening revenue (exclusive of amortization of intangible assets) and cost of screening revenue — related parties of $4.7 million was primarily attributable to an increase in test volume. Cost of screening revenue (exclusive of amortization of intangible assets) and cost of screening revenue — related parties as a percent of revenue decreased in the second quarter of 2024 compared to the same period in 2023 primarily due to improved efficiency in Galleri testing related to increased Galleri sales volume.

Current wording

The increase in cost of screening revenue (exclusive of amortization of intangible assets) and cost of screening revenue — related parties of $3.1 million was primarily attributable to an increase in test volume. Cost of screening revenue (exclusive of amortization of intangible assets) and cost of screening revenue — related parties as a percent of revenue decreased in the third quarter of 2024 compared to the same period in 2023 primarily due to improved efficiency in Galleri testing related to increased Galleri sales volume.

Previous wording

The cost of development services revenue and cost of development services revenue — related parties decreased due to an decrease in labor costs associated with development services projects completed during the periods.

Current wording

The cost of development services revenue and cost of development services revenue — related parties decreased due to a decrease in labor costs associated with development services projects completed during the periods.

Previous wording

The increase in interest income of $1.0 million was primarily driven by an increase in interest earned on our money market funds primarily due to an increase in the balance of money market funds held.

Current wording

The increase in interest income of $9.1 million was primarily driven by an increase in interest earned on our money market funds primarily due to an increase in the balance of money market funds held.

Previous wording

The increase in other income was primarily a result the fluctuation of foreign currency exchange rates.

Current wording

The increase in other expense, net was primarily a result of the fluctuation of foreign currency exchange rates.

Previous wording

The increase in benefit from income taxes was primarily driven by the increase in pretax tax book losses for the three months ended June 30, 2024 when compared to the three months ended July, 2, 2023, including the impairments of intangibles that reduced the Company’s net deferred tax liabilities.

Current wording

The increase in benefit from income taxes was primarily driven by the increase in pretax tax book losses for the three months ended September 30, 2024 when compared to the three months ended October 1, 2023, with consideration to the impact of the valuation allowance against pre-tax losses.

Previous wording

The increase in screening revenue of $16.1 million was primarily attributable to an increase in Galleri sales volume. The Galleri sales volume increased in 2024 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.

Current wording

The increase in screening revenue of $24.7 million was primarily attributable to a 47% increase in Galleri sales volume, as ASP remained consistent period over period. The Galleri sales volume increased in the first nine months of 2024 as a result of the continued ramp in our commercial activity and partnerships, expansion of our network of ordering providers, and new promotional campaigns.

Previous wording

The increase in development services revenue of $0.5 million was primarily driven by an increase in revenue earned from research and clinical development revenue, partially offset by a decrease in revenue from pilots with biopharmaceutical partners as a result of milestones earned in 2023 that did not reoccur.

Current wording

The decrease in development services revenue of $0.2 million was primarily due to a decrease of $1.8 million in revenue from pilots with biopharmaceutical partners as a result of milestones earned in 2023 that did not reoccur and a decrease of $0.6 million in other services revenue, partially offset by an increase of $1.8 million in clinical development revenue and an increase of $0.4 million in revenue earned from research services.

Previous wording

The increase in cost of screening revenue (exclusive of amortization of intangible assets) and cost of screening revenue — related parties of $8.0 million was primarily attributable to an increase in test volume. Cost of screening revenue (exclusive of amortization of intangible assets) and cost of screening revenue — related parties as a percent of revenue decreased in the first half of 2024 primarily due to improved efficiency in Galleri testing related to increased Galleri sales volume.

Current wording

The increase in cost of screening revenue (exclusive of amortization of intangible assets) and cost of screening revenue — related parties of $11.1 million was primarily attributable to an increase in test volume. Cost of screening revenue (exclusive of amortization of intangible assets) and cost of screening revenue — related parties as a percent of revenue decreased in the nine months ended September 30, 2024 primarily due to improved efficiency in Galleri testing related to increased Galleri sales volume.

Previous wording

The cost of development services revenue and cost of development services revenue — related parties decreased due to an decrease in labor costs associated with development services projects completed during the periods.

Current wording

The cost of development services revenue and cost of development services revenue — related parties decreased due to a decrease in labor costs associated with development services projects completed during the periods.

Previous wording

Research and development and research and development — related parties expenses for the six months ended June 30, 2024 and July 2, 2023 were as follows:

Current wording

Research and development and research and development — related parties expenses for the nine months ended September 30, 2024 and October 1, 2023 were as follows:

Previous wording

The increase in research and development expenses by $21.2 million was primarily attributable to the increase in laboratory supplies and expenses, other expenses, and compensation expenses. The increase in laboratory supplies and expenses of $7.0 million was primarily driven by increased clinical study sample processing, development and validation testing of our automated platform. The increase of $6.7 million in other expenses was primarily driven by an increase of $2.1 million in professional services expenses, an increase of $3.5 million driven by higher software, IT, and facilities expenses being allocated to the research and development function, and an increase of $1.1 million in the use of contractors and temporary labor. The increase in the compensation expenses of $6.2 million was primarily attributable to increased headcount and employee long-term incentive awards. The increase in clinical studies and research collaboration expenses of $1.3 million was primarily driven by an increase in clinical study enrollment activity and an increase in research collaboration expenses.

Current wording

The increase in research and development expenses by $19.4 million was primarily attributable to the increase in laboratory supplies and expenses, other expenses, and compensation expenses. The increase in laboratory supplies and expenses of $7.7 million was primarily driven by increased sample processing to support our clinical studies as well as development and validation testing of our automated platform. The increase of $6.9 million in other expenses was primarily driven by an increase of $2.3 million in professional services expenses, an increase of $3.5 million driven by higher software, IT, and facilities expenses being allocated to the research and development function, and an increase of $1.1 million in the use of contractors and temporary labor. The increase of $6.5 million in compensation expenses was primarily related to an increase of $9.0 million in severance and benefits related to the Restructuring Plan and an increase of $1.1 million in salaries and wages primarily due to a reduction in labor allocated to development services projects, offset by decreases of $2.0 million in variable compensation expense and $1.6 million in stock-based compensation primarily due to the reduction in workforce related to the Restructuring Plan. The decrease in clinical studies and research collaboration expenses of $1.7 million was primarily due to completion of enrollment in our Pathfinder 2 study and completion of final study visits in our NHS Galleri Trial.

Previous wording

The increase in sales and marketing expenses of $0.3 million was primarily attributable to an increase of $0.8 million in compensation expenses, primarily due to increased headcount. This increase was partially offset by a decrease of $0.5 million in third-party marketing and professional services expenses as well as decreases in allocated facilities expenses.

Current wording

The increase in sales and marketing expenses of $0.3 million was primarily attributable to an increase of $4.2 million in compensation expenses primarily related to a $4.8 million increase in severance and benefits related to the Restructuring Plan and a $0.1 million increase in salaries and wages, offset by decreases of $0.4 million in stock-based compensation and $0.3 million in variable compensation expense primarily due to the reduction in workforce related to the Restructuring Plan. This increase was partially offset by a decrease of $2.3 million in other expenses including decreases in allocated facilities expenses and a decrease of $1.6 million in third-party marketing and professional services expenses.

Previous wording

The increase in general and administrative expenses of $16.6 million was primarily attributable to an increase of $13.6 million in legal and professional services expenses associated with divestiture related costs related to our Spin-Off completed on June 24, 2024. Compensation costs increased by $1.5 million due to increased headcount and employee long-term incentive awards. Costs associated with the use of contractors and temporary labor increased by $0.7 million. Other expenses increased by $0.8 million primarily driven by increases in corporate IT expenses and facilities costs, net of allocated expenses.

Current wording

The increase in general and administrative expenses of $24.2 million was primarily attributable to an increase of $15.1 million in legal and professional services expenses primarily associated with divestiture related advisory costs related to our Spin-Off completed on June 24, 2024. Compensation expenses increased by $8.7 million primarily driven by an increase of $4.0 million in severance and benefits related to the Restructuring Plan, an increase of $2.0 million in stock-based compensation, an increase of $1.7 million in salaries and wages primarily related to an increase in headcount, and an increase of $1.7 million of severance expenses (unrelated to the Restructuring Plan), offset by a decrease of $0.7 million in variable compensation expense primarily due to the reduction in workforce related to the Restructuring Plan. Costs associated with the use of contractors and temporary labor increased by $1.1 million. Other expenses decreased by $0.7 million primarily due to decreases in facilities costs, net of allocated expenses.

Previous wording

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 theforecast 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 tochanges to revenue projections and the discount rate utilized.

Current wording

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 theforecast of GRAIL’s value and the method for valuing GRAIL. In conjunction with the goodwill impairment assessment, an impairment assessment for our IPR&D intangible assets was performed by Illumina which resulted an impairment charge of $420.0 million primarily due tochanges to revenue projections and the discount rate utilized. Subsequent to the Spin-Off, in conjunction with a portfolio review, we determined to reduce investment in the development of the IPR&D asset, which impacted the amount and timing of expected future cash flows attributable to IPR&D which we concluded was a possible indicator of impairment and another IPR&D impairment test was performed. The impairment assessment resulted in an additional impairment charge of $112.0 million primarily due to a decrease in projected cash flows.

Previous wording

The increase in interest income of $1.6 million was primarily driven by an increase in interest earned on our money market accounts primarily due an increase in the balance of money market funds held.

Current wording

The increase in interest income of $10.8 million was primarily driven by an increase in interest earned on our money market accounts primarily due to an increase in the balance of money market funds held.

Previous wording

The increase in other income was primarily a result the fluctuation of foreign currency exchange rates.

Current wording

The increase in other expense was primarily a result the fluctuation of foreign currency exchange rates.

Previous wording

The increase in benefit from income taxes was primarily driven by the increase in pretax tax book losses for the six months ended June 30, 2024 when compared to the six months ended July, 2, 2023, including the impairments of intangibles that reduced the Company’s net deferred tax liabilities.

Current wording

The increase in benefit from income taxes was primarily driven by the increase in pretax tax book losses for the nine months ended September 30, 2024 when compared to the nine months ended October 1, 2023, with consideration to the impact of the valuation allowance against pre-tax losses, as well as the impairments of intangibles that reduced the Company’s net deferred tax liabilities.

Previous wording

In addition to our results provided throughout this Quarterly Report on Form 10-Q that are determined in accordance with GAAP, this Quarterly Report on Form 10-Q also includes the following non-GAAP financial measures for the three and six months ended June 30, 2024 and July 2, 2023, which information should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the related notes and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q:

Current wording

In addition to our results provided throughout this Quarterly Report on Form 10-Q that are determined in accordance with GAAP, this Quarterly Report on Form 10-Q also includes the following non-GAAP financial measures for the three and nine months ended September 30, 2024 and October 1, 2023, which information should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the related notes and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q:

Previous wording

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, 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.

Current wording

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.

Previous wording

From inception through the closing date of Illumina’s acquisition of GRAIL, we had funded our operations primarily through the sale and issuance of redeemable convertible preferred stock and receipt of continuation payments from Illumina. Post- Acquisition until completion of the Spin-Off, we received funding on a quarterly basis directly from Illumina. On June 21, 2024, in connection with the Spin-Off we received a cash contribution of $932.3 million from Illumina. As of June 30, 2024, our cash and cash equivalents totaled $958.8 million.

Current wording

From inception through the closing date of Illumina’s acquisition of GRAIL, we had funded our operations primarily through the sale and issuance of redeemable convertible preferred stock and receipt of continuation payments from Illumina. Post- Acquisition until completion of the Spin-Off, we received funding on a quarterly basis directly from Illumina. On June 21, 2024, in connection with the Spin-Off we received a cash contribution of $932.3 million from Illumina. As of September 30, 2024, our cash and cash equivalents totaled $853.6 million.

Previous wording

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 $9.6 billion which include charges for impairment of goodwill and intangible assets and amortization of intangible assets. We expect to incur additional losses as we conduct our research and development efforts and seek to achieve broad reimbursement of our current commercialized products. We believe that our existing cash and cash equivalents, including the funding that Illumina provided in connection with the Spin-Off, 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 Quarterly Report on Form 10-Q. However, we anticipate that we will need to raise additional financing in the future to fund our operations. Our future capital requirements will depend on many factors, including the timing and costs of obtaining regulatory approvals, the timing of broad reimbursement, market acceptance of our products prior to broad reimbursement, the timing and extent of spending to support commercialization, launch of pipeline products, and the efficiency of our operations. 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, which may require additional financing.

Current wording

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 $9.7 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 and cash equivalents, including the funding that Illumina provided in connection with the Spin-Off, 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 Quarterly Report on Form 10-Q. However, we anticipate that we will need to raise additional financing in the future to fund our operations. Our future capital requirements will depend on many factors, including the timing and costs of obtaining regulatory approvals, the timing of broad reimbursement, market acceptance of our products prior to broad reimbursement, the timing and extent of spending to support commercialization, launch of pipeline products, and the efficiency of our operations. 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, which may require additional financing.

Previous wording

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 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.

Current wording

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.