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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended April 4, 2021
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from             to            
Commission File Number 001-35406 
ilmn-20210404_g1.jpg
Illumina, Inc.
(Exact name of registrant as specified in its charter)
Delaware33-0804655
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
5200 Illumina Way, San Diego, CA 92122
(Address of principal executive offices) (Zip code)
(858) 202-4500
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueILMNThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerþAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13a of the Exchange Act.     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No   þ
As of April 23, 2021, there were 146.0 million shares of the registrant’s common stock outstanding.


ILLUMINA, INC.
FORM 10-Q
FOR THE FISCAL QUARTER ENDED APRIL 4, 2021
TABLE OF CONTENTS

See “Form 10-Q Cross-Reference Index” within Other Key Information for a cross-reference to the parts and items requirements of the Securities and Exchange Commission Quarterly Report on Form 10-Q.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTSPAGE
MANAGEMENT’S DISCUSSION & ANALYSIS
OTHER KEY INFORMATION
2

Consideration Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains, and our officers and representatives may from time to time make, “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “continue,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “potential,” “predict,” “should,” “will,” or similar words or phrases, or the negatives of these words, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward looking.  Examples of forward-looking statements include, among others, statements we make regarding:
our expectations as to our future financial performance, results of operations, or other operational results or metrics;
our expectations regarding the launch of new products or services;
the benefits that we expect will result from our business activities and certain transactions we have completed, such as product introductions, increased revenue, decreased expenses, and avoided expenses and expenditures;
our expectations of the effect on our financial condition of claims, litigation, contingent liabilities, and governmental investigations, proceedings, and regulations;
our strategies or expectations for product development, market position, financial results, and reserves;
our expectations regarding the pending acquisition of GRAIL, Inc. (GRAIL);
our expectations regarding the integration of any acquired technologies with our existing technology; and
other expectations, beliefs, plans, strategies, anticipated developments, and other matters that are not historical facts.

Forward-looking statements are neither historical facts nor assurances of future performance.  Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions.  Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control.  Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.  Therefore, you should not rely on any of these forward-looking statements.  Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
the impact to our business and operating results caused by the COVID-19 pandemic;
our expectations and beliefs regarding prospects and growth for our business and the markets in which we operate;
the timing and mix of customer orders among our products and services;
challenges inherent in developing, manufacturing, and launching new products and services, including expanding manufacturing operations and reliance on third-party suppliers for critical components;
the impact of recently launched or pre-announced products and services on existing products and services;
our ability to develop and commercialize our instruments and consumables, to deploy new products, services, and applications, and to expand the markets for our technology platforms;
our ability to manufacture robust instrumentation and consumables;
our ability to identify and acquire technologies and integrate them into our products or businesses successfully;
risks and uncertainties regarding the pending acquisition of GRAIL and our ability to achieve the expected benefits of such acquisition;
the assumptions underlying our critical accounting policies and estimates;
our assessments and estimates that determine our effective tax rate;
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our assessments and beliefs regarding the outcome of pending legal proceedings and any liability that we may incur as a result of those proceedings;
uncertainty, or adverse economic and business conditions, including as a result of slowing or uncertain economic growth in the United States or worldwide; and
other factors detailed in our filings with the SEC, including the risks, uncertainties, and assumptions described in “Risk Factors” within the Business and Market Information section of our Annual Report on Form 10-K for the fiscal year ended January 3, 2021, or in information disclosed in public conference calls, the date and time of which are released beforehand.

The foregoing factors should be considered together with other factors detailed in our filings with the Securities and Exchange Commission, including our most recent filings on Forms 10-K and 10-Q, or in information disclosed in public conference calls, the date and time of which are released beforehand.  We undertake no obligation, and do not intend, to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, or to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of any current financial quarter, in each case whether as a result of new information, future developments, or otherwise.
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CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ILLUMINA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
April 4,
2021
January 3,
2021
 (Unaudited) 
ASSETS
Current assets:
Cash and cash equivalents$4,433 $1,810 
Short-term investments197 1,662 
Accounts receivable, net517 487 
Inventory364 372 
Prepaid expenses and other current assets131 152 
Total current assets5,642 4,483 
Property and equipment, net915 922 
Operating lease right-of-use assets529 532 
Goodwill897 897 
Intangible assets, net134 142 
Other assets638 609 
Total assets$8,755 $7,585 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$178 $192 
Accrued liabilities602 541 
Convertible senior notes, current portion488 511 
Total current liabilities1,268 1,244 
Operating lease liabilities664 671 
Term notes992  
Convertible senior notes680 673 
Other long-term liabilities229 303 
Stockholders’ equity:
Common stock2 2 
Additional paid-in capital3,914 3,815 
Accumulated other comprehensive income8 2 
Retained earnings4,870 4,723 
Treasury stock, at cost(3,872)(3,848)
Total stockholders’ equity4,922 4,694 
Total liabilities and stockholders’ equity$8,755 $7,585 
See accompanying notes to condensed consolidated financial statements.

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ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except per share amounts)
 
 Three Months Ended
 April 4,
2021
March 29,
2020
Revenue:
Product revenue$953 $701 
Service and other revenue140 158 
Total revenue1,093 859 
Cost of revenue:
Cost of product revenue265 174 
Cost of service and other revenue58 59 
Amortization of acquired intangible assets6 7 
Total cost of revenue329 240 
Gross profit764 619 
Operating expense:
Research and development197 156 
Selling, general and administrative374 274 
Total operating expense571 430 
Income from operations193 189 
Other income (expense):
Interest income1 14 
Interest expense(19)(11)
Other expense, net(6)(14)
Total other expense, net(24)(11)
Income before income taxes169 178 
Provision for income taxes22 5 
Net income$147 $173 
Earnings per share:
Basic$1.01 $1.18 
Diluted$1.00 $1.17 
Shares used in computing earnings per share:
Basic 146 147 
Diluted147 148 
See accompanying notes to condensed consolidated financial statements.

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ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 
 Three Months Ended
 April 4,
2021
March 29,
2020
Net income$147 $173 
Unrealized (loss) gain on available-for-sale debt securities, net of deferred tax(1)1 
Unrealized gain on cash flow hedges, net of deferred tax7  
Total comprehensive income $153 $174 
See accompanying notes to condensed consolidated financial statements.

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ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions)
AdditionalAccumulated OtherTotal
 Common StockPaid-InComprehensiveRetainedTreasury StockStockholders’
 SharesAmountCapitalIncomeEarningsSharesAmountEquity
Balance as of December 29, 2019194 $2 $3,560 $5 $4,067 (47)$(3,021)$4,613 
Net income— — — — 173 — — 173 
Unrealized gain on available-for-sale debt securities, net of deferred tax— — — 1 — — — 1 
Issuance of common stock, net of repurchases— — 32 — — — (223)(191)
Share-based compensation— — 39 — — — — 39 
Balance as of March 29, 2020194 2 3,631 6 4,240 (47)(3,244)4,635 
Net income— — — — 47 — — 47 
Unrealized gain on available-for-sale debt securities, net of deferred tax— — — 8 — — — 8 
Issuance of common stock, net of repurchases— — 2 — — (1)(145)(143)
Share-based compensation— — 16 — — — — 16 
Balance as of June 28, 2020194 2 3,649 14 4,287 (48)(3,389)4,563 
Net income— — — — 179 — — 179 
Unrealized loss on available-for-sale debt securities, net of deferred tax— — — (2)— — — (2)
Issuance of common stock, net of repurchases— — 27 — — — (128)(101)
Share-based compensation— — 61 — — — — 61 
Balance as of September 27, 2020194 2 3,737 12 4,466 (48)(3,517)4,700 
Net income— — — — 257 — — 257 
Unrealized loss on available-for-sale debt securities, net of deferred tax— — — (10)— — — (10)
Issuance of common stock, net of repurchases1 — — — — (1)(331)(331)
Share-based compensation— — 78 — — — — 78 
Balance as of January 3, 2021195 2 3,815 2 4,723 (49)(3,848)4,694 
Net income    147   147 
Unrealized loss on available-for-sale debt securities, net of deferred tax   (1)   (1)
Unrealized gain on cash flow hedges, net of deferred tax   7    7 
Issuance of common stock, net of repurchases  31    (24)7 
Share-based compensation  68     68 
Balance as of April 4, 2021195 $2 $3,914 $8 $4,870 (49)$(3,872)$4,922 
See accompanying notes to condensed consolidated financial statements.
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ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 Three Months Ended
 April 4,
2021
March 29,
2020
Cash flows from operating activities:
Net income$147 $173 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense41 37 
Amortization of intangible assets7 7 
Share-based compensation expense67 39 
Accretion of debt discount10 10 
Deferred income taxes(79)(29)
Losses (gains) on marketable equity securities72 (3)
(Gain) loss on derivative assets related to terminated acquisition(26)95 
Other(19)(2)
Changes in operating assets and liabilities:
Accounts receivable(39)99 
Inventory8 (24)
Prepaid expenses and other current assets7 (14)
Operating lease right-of-use assets and liabilities, net(3)(1)
Other assets(4)(11)
Accounts payable(8)(16)
Accrued liabilities105 (103)
Other long-term liabilities(4)24 
Net cash provided by operating activities282 281 
Cash flows from investing activities:
Maturities of available-for-sale securities331 107 
Purchases of available-for-sale securities(77)(256)
Sales of available-for-sale securities1,031 186 
Cash received (paid for) derivative assets related to terminated acquisition52 (132)
Purchases of property and equipment(42)(40)
Purchases of strategic investments(3) 
Sales of strategic investments84  
Net cash provided by (used in) investing activities1,376 (135)
Cash flows from financing activities:
Net proceeds from issuance of debt988  
Payments on convertible senior notes(27) 
Common stock repurchases (188)
Taxes paid related to net share settlement of equity awards(24)(35)
Proceeds from issuance of common stock31 32 
Net cash provided by (used in) financing activities968 (191)
Effect of exchange rate changes on cash and cash equivalents(3)(6)
Net increase (decrease) in cash and cash equivalents2,623 (51)
Cash and cash equivalents at beginning of period1,810 2,042 
Cash and cash equivalents at end of period$4,433 $1,991 
See accompanying notes to condensed consolidated financial statements.
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ILLUMINA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Unless the context requires otherwise, references in this report toIllumina,” “we,” “us,” the “Company,” and “our” refer to Illumina, Inc. and its consolidated subsidiaries.

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Business Overview

We are a provider of sequencing- and array-based solutions, serving customers in the research, clinical and applied markets.  Our products are used for applications in the life sciences, oncology, reproductive health, agriculture and other emerging segments. Our customers include leading genomic research centers, academic institutions, government laboratories, and hospitals, as well as pharmaceutical, biotechnology, commercial molecular diagnostic laboratories, and consumer genomics companies.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the fiscal year ended January 3, 2021, from which the prior year balance sheet information herein was derived. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expense, and related disclosure of contingent assets and liabilities. Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to inform our critical accounting estimates. Actual results could differ from those estimates.

The unaudited condensed consolidated financial statements include our accounts, our wholly-owned subsidiaries, and majority-owned or controlled companies. All intercompany transactions and balances have been eliminated in consolidation. We operate under one operating segment and report under one reportable segment. Certain prior period amounts have been reclassified to conform to the current period presentation. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented.

Fiscal Year

Our fiscal year is 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 Q1 2021 and Q1 2020 refer to the three months ended April 4, 2021 and March 29, 2020, respectively, which were both 13 weeks.

Significant Accounting Policies

During Q1 2021, there were no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021.

Accounting Pronouncements Pending Adoption

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The new standard reduces the number of accounting models for convertible debt instruments, amends the accounting for certain contracts in an entity’s own equity, and modifies how certain convertible instruments and contracts that may be settled in cash or shares impact the calculation of diluted EPS. The standard is effective for us beginning in the first quarter of 2022,
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with early adoption permitted in Q1 2021. We did not elect to early adopt the standard in Q1 2021. We are currently evaluating the impact of ASU 2020-06 on our consolidated financial statements.

Earnings per Share

Basic earnings per share is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period.

Potentially dilutive common shares consist of shares issuable under convertible senior notes and equity awards. Convertible senior notes have a dilutive impact when the average market price of our common stock exceeds the applicable conversion price of the respective notes. Potentially dilutive common shares from equity awards are determined using the average share price for each period under the treasury stock method. In addition, proceeds from exercise of equity awards and the average amount of unrecognized compensation expense for equity awards are assumed to be used to repurchase shares.

The following table presents the calculation of weighted average shares used to calculate basic and diluted earnings per share:
In millionsQ1 2021Q1 2020
Weighted average shares outstanding146 147 
Effect of potentially dilutive common shares from:
Equity awards 1 
Convertible senior notes1  
Weighted average shares used in calculating diluted earnings per share147 148 
Potentially dilutive shares excluded from calculation due to anti-dilutive effect 1 

2. REVENUE
Our revenue is generated primarily from the sale of products and services. Product revenue primarily consists of sales of instruments and consumables used in genetic analysis. Service and other revenue primarily consists of revenue generated from genotyping and sequencing services, instrument service contracts, and development and licensing agreements.

Revenue by Source

Q1 2021Q1 2020
In millionsSequencingMicroarrayTotalSequencingMicroarrayTotal
Consumables$695 $79 $774 $553 $67 $620 
Instruments176 3 179 79 2 81 
Total product revenue871 82 953 632 69 701 
Service and other revenue108 32 140 128 30 158 
Total revenue$979 $114 $1,093 $760 $99 $859 

Revenue by Geographic Area

Based on region of destination (in millions)Q1 2021Q1 2020
Americas$562 $477 
Europe, Middle East, and Africa305 221 
Greater China (1)127 84 
Asia-Pacific99 77 
Total revenue$1,093 $859 
(1) Region includes revenue from China, Taiwan, and Hong Kong.
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Performance Obligations

We regularly enter into contracts with multiple performance obligations. Most performance obligations are generally satisfied within a short time frame, approximately three to six months, after the contract execution date. As of April 4, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $1,129 million, of which approximately 91% is expected to be converted to revenue in the next twelve months, approximately 8% in the following twelve months, and the remainder thereafter.

Contract Liabilities

Contract liabilities, which consist of deferred revenue and customer deposits, as of April 4, 2021 and January 3, 2021 were $232 million and $230 million, respectively, of which the short-term portions of $188 million and $186 million, respectively, were recorded in accrued liabilities and the remaining long-term portions were recorded in other long-term liabilities. Revenue recorded in Q1 2021 included $83 million of previously deferred revenue that was included in contract liabilities as of January 3, 2021.

3. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Debt Securities

Our short-term investments include available-for-sale debt securities that consisted of the following:

 April 4, 2021January 3, 2021
In millionsAmortized
Cost
Gross
Unrealized
Gains
Estimated
Fair Value
Amortized
Cost
Gross
Unrealized
Gains
Estimated
Fair Value
Debt securities in government-sponsored entities$ $ $ $10 $ $10 
Corporate debt securities   445  445 
U.S. Treasury securities   830 1 831 
Total$ $ $ $1,285 $1 $1,286 

During Q1 2021, we sold all of our available-for-sale debt securities in anticipation of funding the pending GRAIL acquisition. See Pending Acquisition below for further details. Realized gains and losses are determined based on the specific-identification method and are reported in interest income.

Strategic Investments

Marketable Equity Securities

As of April 4, 2021 and January 3, 2021, the fair value of our marketable equity securities, included in short-term investments, totaled $197 million and $376 million, respectively. Total unrealized losses on our marketable equity securities, included in other expense, net, were $58 million in Q1 2021. Total unrealized gains on our marketable equity securities were $3 million in Q1 2020. Total losses on marketable equity securities sold, included in other expense, net, were $14 million in Q1 2021. There were no sales of our marketable equity securities in Q1 2020.

Non-Marketable Equity Securities

As of April 4, 2021 and January 3, 2021, the aggregate carrying amounts of our non-marketable equity securities without readily determinable fair values, included in other assets, were $314 million in both periods.

One of our investments, GRAIL, is a VIE for which we have concluded that we are not the primary beneficiary and, therefore, we do not consolidate GRAIL in our consolidated financial statements. In September 2020, we entered into an agreement to acquire GRAIL, as described in Pending Acquisition below. We have determined our maximum exposure to loss, excluding any amounts associated with the pending acquisition, to be the carrying value of our investment, which was $250 million as of both April 4, 2021 and January 3, 2021.
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Revenue recognized from transactions with our strategic investees was $13 million for both Q1 2021 and Q1 2020.

Venture Funds

We invest in two venture capital investment funds (the Funds) with capital commitments of $100 million, callable through April 2026, and up to $160 million, callable through July 2029, respectively, of which $32 million and up to $140 million, respectively, remained callable as of April 4, 2021. Our investments in the Funds are accounted for as equity-method investments. The aggregate carrying amounts of the Funds, included in other assets, were $139 million and $104 million as of April 4, 2021 and January 3, 2021, respectively.

Contingent Value Right

In conjunction with the deconsolidation of Helix Holdings I, LLC (Helix) in April 2019, we received a contingent value right with a 7-year term that entitles us to consideration dependent upon the outcome of Helix’s future financing and/or liquidity events. Changes in the fair value of the contingent value right resulted in an unrealized gain of $10 million in Q1 2021 and an unrealized loss of $3 million in Q1 2020, included in other expense, net.

Derivative Assets Related to Terminated Acquisition

On November 1, 2018, we entered into an Agreement and Plan of Merger (the PacBio Merger Agreement) to acquire Pacific Biosciences of California, Inc. (PacBio) for an all-cash price of approximately $1.2 billion (or $8.00 per share). On January 2, 2020, we entered into an agreement to terminate the PacBio Merger Agreement (the Termination Agreement). Pursuant to the Termination Agreement, we made a cash payment to PacBio of $98 million on January 2, 2020, which represented the Reverse Termination Fee (as defined in the PacBio Merger Agreement). The Reverse Termination Fee was repayable, without interest, if PacBio entered into a definitive agreement providing for, or consummating, a Change of Control Transaction by September 30, 2020 (as defined in the Termination Agreement), and such transaction was consummated by the two-year anniversary of the execution of the definitive agreement for such Change of Control Transaction. PacBio did not enter into a definitive agreement that provided for, or consummated, a Change of Control Transaction by September 30, 2020 (as defined in the Termination Agreement); therefore, the Reverse Termination Fee is no longer repayable.

In addition, we made cash payments to PacBio of $18 million in Q4 2019, pursuant to Amendment No. 1 to the PacBio Merger Agreement, and $34 million in Q1 2020, pursuant to the Termination Agreement, collectively referred to as the Continuation Advances. Up to the $52 million of Continuation Advances is repayable, without interest, if, within two years of March 31, 2020, PacBio enters into a Change of Control Transaction or raises at least $100 million in equity or debt financing in a single transaction (with the amount repayable dependent on the amount raised by PacBio). In February 2021, PacBio entered into an investment agreement with SB Northstar LP for the issuance and sale of $900 million in aggregate principal amount of PacBio’s convertible notes. Pursuant to the PacBio Merger Agreement, PacBio repaid to us the $52 million of Continuation Advances and we recorded a gain of $26 million in Q1 2021, included in other expense, net.

The potential repayments of the Continuation Advances and Reverse Termination Fee met the definition of derivative assets and were recorded at fair value. The $92 million difference between the $132 million in cash paid during Q1 2020 for the Continuation Advances and Reverse Termination Fee and the $40 million fair value of these derivative assets on the payment dates was recorded as selling, general and administrative expenses in Q1 2020. Changes in the fair value of the derivative assets were included in other expense, net. An unrealized loss of $4 million was recorded in Q1 2020.

Pending Acquisition

On September 20, 2020, we entered into an Agreement and Plan of Merger (the GRAIL Merger Agreement) to acquire GRAIL for $8 billion, consisting of $3.5 billion in cash and $4.5 billion in shares of Illumina common stock, subject to a collar. The cash consideration for the transaction is expected to be funded using existing cash of both Illumina and GRAIL, plus up to $1 billion in capital raised through the issuance of term debt. Refer to note, “4. Debt” for details. The transaction, which is expected to close in the second half of 2021, is subject to certain customary closing conditions, including GRAIL shareholder approval and receipt of required regulatory approvals. Refer to note, “7. Legal Proceedings” for further details.
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In connection with the transaction, GRAIL stockholders will receive contingent value rights, which will entitle holders to receive future payments representing a pro rata portion of certain revenues each year for a 12-year period. This will reflect a 2.5% payment right to the first $1 billion of revenue each year for 12 years. Revenue above $1 billion each year will be subject to a 9% contingent payment right during this same period. Pursuant to the GRAIL Merger Agreement, we have offered GRAIL stockholders the option to receive additional stock consideration in lieu of the contingent value rights. Such additional stock consideration would be a number of shares valued, pursuant to an agreed formula, at $850 million in aggregate, subject to a cap of 3,035,714 shares.

We are required to make monthly cash payments to GRAIL of $35 million (the Continuation Payments), beginning in December 2020, until the earlier of the consummation of the acquisition or termination of the GRAIL Merger Agreement, subject to certain exceptions. We made Continuation Payments to GRAIL totaling $105 million in Q1 2021, which were recorded as selling, general and administrative expenses. In April 2021, we made an additional monthly payment of $35 million. If the GRAIL Merger Agreement is terminated, we will receive shares of non-voting GRAIL preferred stock in respect of all Continuation Payments in excess of $315 million, subject to certain terms and conditions.

The GRAIL Merger Agreement contains certain termination rights if the consummation of the acquisition does not occur on or before September 20, 2021, subject to a three-month extension related to obtaining certain required regulatory clearances. Upon termination of the GRAIL Merger Agreement under specified circumstances, we would be required to pay a termination fee of $300 million and make an additional $300 million investment in GRAIL in exchange for shares of non-voting GRAIL preferred stock, subject to certain terms and conditions.

Fair Value Measurements

The following table presents the hierarchy for assets and liabilities measured at fair value on a recurring basis:

April 4, 2021January 3, 2021
In millionsLevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:
Money market funds (cash equivalents)$4,041 $ $ $4,041 $1,512 $ $ $1,512 
Debt securities in government-sponsored entities     10  10 
Corporate debt securities     445  445 
U.S. Treasury securities    831   831