GRAIL, Inc. Q3 FY2024 earnings call

• Demand for Galleri remains strong with over 250,000 commercial Galleri tests prescribed by over 12,000 healthcare providers since launch.
• GRAIL will launch the next version of the Galleri test at the end of 2024, which integrates significant automation and efficiencies to support volume at scale and reduce costs over time.
• The large laboratory facility in Research Triangle Park, North Carolina, enables scaling of laboratory capacity.
• Evidence of Galleri's performance is presented at medical conferences and published in peer-reviewed publications, such as a sub-analysis in JCO Precision Oncology on prostate cancer in September.
• Early results from the Reflection real-world evidence study of Galleri were presented in October, showing a cancer signal detection rate of 1.3% and a positive predictive value of 42.9% among veterans with no cancer symptoms.

In the third quarter of 2024, GRAIL reported revenue of $28.7 million, which is an increase of $7.9 million or 38% compared to Q3 2023. Screening revenue accounted for $25.4 million, and development services revenue was $3.3 million. Non-GAAP adjusted gross profit for the third quarter of 2024 was $11.8 million, a $4.8 million or 68% increase compared to Q3 2023. Adjusted EBITDA was a negative $108.2 million, an improvement of $17.9 million or 14% compared to Q3 2023. The cash position at the end of the quarter was $853.6 million.

• Lowered second half cash burn guidance from $250 million to $220 million in August.
• Guided full-year cash burn for 2025 to be approximately $325 million.
• Narrowed Galleri sales growth guidance for 2024 to between 40% and 50% compared to 2023.
• Plan for more moderate growth in Galleri revenue after 2024 until broad reimbursement is achieved.
• Cash balance provides runway into 2028.

Forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from those projected. Risks and uncertainties are detailed in GRAIL's SEC filings, including the Risk Factors section in the most recent quarterly report on Form 10-Q.

Q: A decade into the GRAIL journey, can you walk through some of the progress that's been made and give a little bit more color on the outlook for Galleri reimbursement, the test FDA regulatory pathway? And then just your commercial strategy in general, especially if it comes to new test. What comes next? And specifically, when do you expect to be in front of the FDA regulatory pathway? And how long after would you envision CMS reimbursement?

A: Thanks for the question. A fair amount to unpack there. So I guess, maybe focusing first on the FDA pathway. So we're now in July, completed the study visits for our two key registrational studies. So PATHFINDER 2, where we've enrolled 35,000 people, and the NHS-Galleri study were enrolled 140,000 people in that. That's the clinical data across that 175,000 people, where we will use to submit for our PMA and the submission time is the first half -- first half of 2026. And so from that, we do expect an advisory committee at the FDA. And so we expect about a 1-year time line from that, which would drive us into first half 2027 for FDA approval, is the tentative time line that we're working towards. As mentioned in the question, the next version of the assay, so one of the things we recognize is that the Galleri test has always been built for population scale. And with the next version of the assay, we really looked to two things: one, nearly fully automate the assay itself till it gets great scalability. And with that also comes cost reduction. So we expect near-term variable cost reduction from the assay. And then longer term, as we get volume, we expect fixed cost leverage from the assay. So we're looking to transition to that new assay at the end of this year. And then on the reimbursement pathway, clearly, CMS is an important element of that. There is the MSE law in going through Congress right now. In the summer, it had a markup in the House Ways and Means Committee, where we had a rather rare and unusual unanimous vote for it, 38 to 0, and so we're very encouraged by that. We're encouraged by the large stakeholder groups that are advocating for the bill. One of the things that's very clear is that cancer is not a partisan issue. So we have bipartisan, bicameral support for the bill. And so we're really highly encouraged by that plus just the support networks that are -- and sponsors for the bill. But given the nature of our Congress and any of the lack of productivity in Congress in the last year or so, it's difficult to predict timing on that. But we're hopeful that before we get FDA approval, we will have the bill pass, and that would give CMS the authority to be able to cover an FDA-approved MCED test.

Q: GRAIL is going to be the first mover in the MCED market. Obviously, the market right now is very nascent, and you have to build awareness for a technology for both physicians and patients. So with potential FDA approval in establishing reimbursement two years away, give or take, can you talk about any plans you have to build the MCED market in the next year or two before reimbursement?

A: Sure. So over -- both over the last couple of years, while it's going into the near future, we're going to look to -- we've looked to really build out how the ecosystem works. And so what we want -- part of wanting to drive the commercial experience here is to get providers, health systems, very comfortable with the test, know how to how to operate with the test and really integrate it into their standard practices. And so we've been very successful at that aspect of it. And so we will continue to push on that and understand what resonates with providers, what resonates with patients in terms of how we describe the test. And then from a very practical standpoint, making sure our laboratory is able to deliver high-quality tests in a very timely manner. So just kind of exercising the whole ecosystem is very important. Because, again, this is a population scale test that's been designed and so we expect to operate at very high volumes. And so while we're already upgrading at reasonably high volumes, when we get to the next stage of broad reimbursement, the volumes will go up exponentially, and we'll need to be prepared for that.

Q: Just another question on cash burn. How should we be thinking about phasing of that through 2025? I know you gave us a number, but is this something that's going to be spread evenly across the quarters? Or do you expect that to improve sequentially throughout the year?

A: Yes. So I think one of the things we did in the restructuring in August is we looked at our spend across the organization and really focused on our North Star of getting Galleri FDA approved and reimbursed. Within that, we've recognized that as an early-stage unreimbursed test that the -- it's really an investment in commercial. And as you can see, from this quarter's results. We know that if we invest in commercial, we can drive sales and drive sales rapidly. In August, we looked at moderating that, the amount of investment in there in order to extend our cash runway out into 2028. And so right now, we're prioritizing that cash runway. And on the commercial side, what we're really looking to do is to drive that to be more cost neutral so that the margin generated by the tests that they're selling can cover the -- at least cover the commercial expenses. So -- so it's a more moderate approach. We were -- we've learned a lot about what works and doesn't work. So we've been able to concentrate our commercial efforts on the most productive areas and pull back from some of the other areas. And so we think we’ll continue to learn as we go even at a more moderated pace but that is the expectation.