We test goodwill for impairment annually, as of May, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We performed our annual impairment test in Q2 2023, as of May 2023. We performed a quantitative assessment for our two reporting units: Core Illumina and GRAIL. No impairment was recorded for either Core Illumina or GRAIL in Q2 2023.
In Q3 2023, we concluded the sustained decrease in the Company’s stock price and overall market capitalization during the quarter was a triggering event indicating the fair value of a reporting unit might be less than its carrying amount and that an interim goodwill and intangible impairment test was required.
Based on our interim assessment, we concluded that our GRAIL reporting unit’s carrying value exceeded its estimated fair value. As a result, we recorded $712 million of goodwill impairment related to our GRAIL reporting unit in Q3 2023, primarily due to a decrease in the company’s consolidated market capitalization and a higher discount rate selected for the fair value calculation of the GRAIL reporting unit. No impairment was recorded for our Core Illumina reporting unit, noting its fair value exceeded its carrying value.
We performed our impairment test using a combination of an income and a market approach to determine the fair value of each reporting unit. The income approach utilized the estimated discounted cash flows for each reporting unit, while the market approach utilized comparable company information. Estimates and assumptions used in the income approach included projected cash flows and a discount rate for each reporting unit. Discount rates were determined using a weighted average cost of capital for risk factors specific to each reporting unit and other market and industry data. For GRAIL, the selected discount rate was 24.0%. The estimates and assumptions used in our assessment represent a Level 3 measurement because they are supported by little or no market activity and reflect our own assumptions in measuring fair value. The assumptions used are inherently subject to uncertainty and we note that small changes in these assumptions could have a significant impact on the concluded value. In order to further validate the reasonableness of the fair values concluded for our reporting units, a reconciliation to market capitalization was performed by estimating a reasonable implied control premium and other market factors.
In conjunction with the Q3 2023 interim goodwill impairment test, we also evaluated the in-process research and development (IPR&D) asset assigned to the GRAIL reporting unit for potential impairment. We performed our impairment test by comparing the carrying value of the IPR&D asset to its estimated fair value, which was determined by the income approach, using a discounted cash flow model. Estimates and assumptions used in the income approach, which represent a Level 3 measurement, included projected cash flows and a selected discount rate of 19.0%. Based on our Q3 2023 impairment test, the carrying value of the GRAIL IPR&D asset exceeded its estimated fair value and we recorded an impairment of $109 million in Q3 2023, primarily due to a decrease in projected cash flows and a higher discount rate selected for the fair value calculation of the GRAIL IPR&D asset. As of December 31, 2023, the carrying value of the GRAIL IPR&D asset was $561 million. We also performed a recoverability test for the definite-lived intangible assets assigned to GRAIL, which includes developed technology and trade name, noting no impairment. No impairment was noted for Core Illumina definite-lived intangible assets.
ILLUMINA, INC.