All right. I think we'll go ahead and get started. Okay. I'm Puneet Souda. I cover life science tools and diagnostics here at Leerink, and my pleasure to be hosting.
Thank you for having me.
It is my pleasure to be hosting Team Guardant here, Puneet Souda. Leerink tools and diagnostics, just for the saying that for the webcast. Let me first of all, AmirAli, Co-CEO, Mike Bell, CFO. Welcome to our conference. Thanks for being here.
Thanks for having us.
Just to kick off, news this morning, ADLT. It's the main question we're getting today. Maybe I'll just turn it over to you. It's a pleasant surprise, I must say. We were expecting some time in 2025. It came in ahead of that expectation slightly. Maybe just tell us sort of the mechanism, sort of the next steps, timing of it. When does it get implemented, and what does it involve? Fee for service, Medicare, Medicare Advantage. Maybe just talk through a couple of those points.
Yeah. Maybe I start, then I ask Mike to add some stuff in terms of the financial impact. We are very happy with this development. Effectively, now the Medicare pricing for Shield is going to get upgraded to $1,495, effective April 1 of this year. That would be in place for nine months. We go based on PAMA ruling and PAMA pricing for Shield. We are very confident of what would happen for next round of ADLT pricing. That would be in place from January of next year till two years after. After that, it would be annual cycles based on what's the PAMA market rate. That would be our ADLT pricing. It's been in works, actually, for some time. First started with our FDA approval. Then we got our PLA code, and then we submitted for this application.
We are very pleased that CMS recognized this test as an innovation test. It was also FDA approved and qualified for this designation. What it means for us is this is something that we didn't count on in our P&L management for 2025. This additional rate would give us more opportunity to be more aggressive on the build-out of our commercial infrastructure coast to coast and make sure more patients would get access to this life-saving, innovative test.
Yeah. Maybe to add, as AmirAli said, we did not include this in our guidance. In our guidance, we assumed an ASP of around $600 for the year. We estimate it is going to have something like a $200 impact starting 1st of April. ASP should be around $800. Of course, over the remainder of the year, it is going to depend on the mix, the mix between Medicare, Medicare Advantage, and commercial. We feel very confident that we will have an improvement in ASP from 1st of April. We will have an improvement in gross margin. At the end of last year, we were effectively gross margin break-even. Moving up to an ASP of $800 from 1st of April is going to make us gross margin positive.
As AmirAli said, then we can start to reinvest that positive gross margin back into the sales and marketing line to really drive the commercial ramp-up.
Got it. In terms of the ADLT process, can you just elaborate a bit on how long do you have it, and then at what point the median payer rate would be looked at, and then sort of how that plays out into 2027?
Do you want to take that?
Sure. It would be in place for nine months initially. Then we have to go through the reporting cycle. Effectively, what we are going to do from April till end of the year is to capture the commercial data in terms of at what rate Shield is getting paid at. That would be the PAMA rate that the test is going to get reimbursed for starting January of 2026. That is going to continue till end of December of 2027 for two years. After that would be annual cycle. The PAMA rate is going to get market price is going to get adjusted. Effectively, though, the way that process works is it is going to be based on the claims that are fully adjudicated during the period of reporting, which effectively for the first cycle would be for the commercial claims, which are fully adjudicated.
Effectively, what it means for a first cycle would be the Medicare Advantage cases that are paid for, and we did not take them to the appeal. We are satisfied with the level of the payment, which effectively would be the MA cases that are getting paid at the rate of Medicare rate. Because if it is not, we are going to take them to the appeal process. Effectively, this is giving us a lot of high confidence that we are confident we can preserve this rate and keep it for the next two years starting January of 2026. After that, we have good control over it in terms of we can make business decisions at what time, at what price we contract with commercial payers, which could impact our PAMA rate effectively. That is the way it works. We have done it for 360.
We defended the ADLT pricing a couple of times now at a rate of $5,000. We are very experienced with how that process works.
Where would you put USPSTF within that construct?
USPSTF would impact the accessibility of the test for younger patients, right? For initial phase at this time that we are focusing on the Medicare patients, effectively for PAMA rate, it's going to be kind of locked based on really in initial days what Medicare Advantage plans are paying for this test. Again, the ones that we are not happy with the level of payment, they're going to go through the appeal process. Sometimes or as appeal process could take multiple years to settle on the final payment. When you exclude the $0 payments, they don't get counted in the PAMA rate. Also, you exclude the ones which are still not fully adjudicated. That basically gives you an indication of the level of control that we have over the process and how that rate can get defended over long term.
You talked about ACS guidelines. Maybe just give us a sense of when should we expect an update on that, and how significant are those within this sort of screening or with commercial payers?
Yeah. We have been in conversation with the team at American Cancer Society for some time now. They've been big supporters of Shield during our FDA review cycle. The AdCom advisory panel that we went to, they supported Shield with some statements in that meeting. We have been very pleased with the tone and the conversation that we had with that team and the value of the Shield that they see in terms of improving the screening rate for colorectal cancer. We are very optimistic that they would include Shield. In terms of timing, we are pretty confident. Actually, it would be sometime in 2025. It's very hard to know exactly when that would be. Our understanding is that research phase of updating the CRC screening has already started for them.
We'll see actually when they would be finished with the process and if they would make a decision to include Shield in the guideline. Definitely being in guideline would help with, for instance, appeal process when we are dealing with some of the commercial claims. More importantly, there are about 10 states that have state-level mandates that as long as ACS guidelines recommend a specific colorectal cancer screening test, the regional payers need to cover that test. That could be an interesting opportunity for us. It would be effective with the next expansion plan of going beyond Medicare beneficiaries and opening up access of Shield to younger patient population within those states.
Okay. Just on that point, today, can you talk a little bit about the feedback that you're getting from the field in terms of the assay, where you're getting the most traction, where is and again, as you target some of the Medicare fee for service, maybe just talk to us about where the assay is resonating. Because I think that's one of the key questions in the space given the multiple modalities.
We are actually very confident about the product-market fit of the Shield test as it is today. The feedback has been very positive and continues to be positive, both by prescribing physician and the patients. When the physician is ordering the test, they're really completing the test. It's been very good to continue to see the level of enthusiasm in the market. There is definitely interest in physicians to use Shield in younger patient population too. In fact, Medicare beneficiaries were a minor part of the volume that we were testing during the LDT phase of Shield before we get FDA approval and before our target launch of Shield IVD targeting these Medicare beneficiaries. With our launch plan, actually, we showed a huge success of really making the vast majority of our samples coming from Medicare beneficiaries, which include fee for service and Medicare Advantage both.
There is definitely a big opportunity for younger patients. We are hoping at some point younger patients would get access to this test. It would be life-saving. We would see those days. At this time, there is a huge opportunity just in this Medicare segment of the business. We are developing and mining that business while we are waiting for guideline inclusion to open up access for younger patients.
By younger patient, I just want to clarify. When you say is this 50 and below, 45 and below?
45 to 64.
45 to 64.
Effectively right now, what we are like the test is accessible and available for all. Younger patient, meaning 45 to 64, they know that physician knows and patient know that if they use this test, it could have a lot of financial responsibility for them since their insurance most probably would not cover this test. As a result of this, effectively, the ordering pattern, payer mix became very more favorable. Effectively, patient at age 65 and above are vast majority of the patients that we are screening today with Shield. When I talk about younger patient and the commercial opportunity in younger patient, I'm referring to 45 to 64 and not like younger than 45, let's say. That would be still a long way to go.
Yeah. Got it. Sales reps, I think you were targeting 150 sales reps by the end of this year. Maybe just tell us where you are now and how should we think about sort of the productivity within those reps ramping up through the year now that you have ADLT payment?
It was fall of 2023 that we talked about some of our ramp plan on the commercial investment building the field force. At the time, we mentioned we would exit this year 2025 with about 150 people in the field. There are some developments that happened since then, which were better than what we expected. One was the gap fill rate by Medicare became $920, much higher than what we expected. That kind of opened up our plan to hire a little bit more than 150 by end of this year. Now that this ADLT pricing actually got activated, the additional gross profit that we are going to generate, we are planning to reinvest it in building and accelerating our commercial infrastructure build-out. We are going to see a ramp rate of the volume, how much more gross profit we are going to generate.
You can expect that we are going to have a bigger team than 150. Maybe talking about what we have today. We launched this test with 50 people in the field back in August of last year. We expanded the team to 100 people by end of last year. Majority of those, vast majority, almost all the people that we hired, were hired like right after Thanksgiving time and got trained and got deployed to the field. Typically in diagnostic, we don't expect productivity during the first, let's say, one quarter when you hire these new reps. Still, they schedule accounts and stuff. It's going to take some time. Six months after, we start kind of expecting some material contribution. Really, it takes them even sometimes up to 18 months to get to their productivity that you have in mind.
I think in terms of our forecasting of volume throughout the year, we are very mindful of the productivity expectation from the reps that we have, the 50 original reps, new reps that we hired, and some additional hires that we are going to continue to hire throughout this year.
Got it. In terms of just last one, maybe on Shield, just given the overall competitiveness in this space, you are well ahead of the curve. You have first liquid biopsy assay in the market. There is a competitor who's potentially going to launch an assay 2027. Others have talked about wanting to be in this market on the path to MCED maybe. Maybe just help us understand how are you thinking about the overall competitive environment. You obviously have a lead. One part is you are capturing ahead of being in diagnostics, being ahead is half the battle. You're winning that already. Maybe just help us understand how you think about this market longer term.
We are very confident actually with the competitive position that we are sitting on right now. On one side, more competition is better for patient. And it's actually good for us to see even competition put us more on the edge of being more innovative and more aggressive in building the best-in-class products. Having said that, when we look at the competitive landscape, we don't expect anybody to have an FDA-approved CMS reimbursed test within the next two years. So effectively, we have two to two and a half years' time advantage to really build this market and build a lot of brand for Shield as the platform of choice for blood-based colorectal cancer screening. And we are not just going to invest this time in building the commercial infrastructure, but also further improving this test on both CRC front.
We are talking about Shield V2 and the upgrades there, which we are excited about, but also going beyond CRC to multicancer detection. Our vision from the beginning was not to just build a blood test that can detect colorectal cancer screening or do colorectal cancer, but a blood test that can do a panel of cancer types all at the same time. CRC was our lead indication to enable reimbursement pathway, regulatory pathway. I think over time, we are going to figure out that Guardant strategy established five years ago was the best strategy to build a multicancer detection blood-based cancer screening. When you look at two, three years from today, maybe there would be maybe there would be some other competing CRC tests.
By the time, the competition would be a Shield test that can do multicancer detection with tumor of origin all at the same time. We are very excited to see those things.
Mike, actually, I have just two more questions on Shield. I would love to understand what are some of the levers that you have as one is volume that's on gross margin side for Shield. Trying to understand, I mean, what are some of the other levers you have to potentially improve obviously gross margin? You have pricing coming in that's going to help you. Maybe just talk to us on the gross margin side. What are some of the things you can work with?
Yeah. I think, yeah, definitely ADLT getting this higher ASP definitely helps the gross margins. We've said that when we get to scale a million tests annually, then our cost per test will be $200. At the end of last year, we were at $600. Really, the way we're going to drive that cost per test down, one is going to be driven by volume. We're still in the very early days. As the volume ramps, we'll obviously take the benefit of that, and that'll reduce the cost per test. There are the technology and workflow efficiencies that we're working on. They can have a material impact on the cost per test. We're very focused on automation and taking as much labor out of the process as we possibly can. We've got really strong technical and automation teams in-house now.
That's where we're spending quite a bit of our R&D dollars. We expect over time, volume's going to continually impact us. We will see a couple of steps down with automation going live, with workflow improvements going live. I think we've got a lot of levers to pull to reduce cost per test and to improve gross margins. Maybe one other thing, when we gave our Investor Day presentation in September 2023, we talked about gross margins, getting to gross margins of 60%. That assumed an ASP of $500 and a cost per test of $200. With now our ADLT at $1,495, which is higher than our expectation then, I think there's a good possibility that we can get gross margins north of 60% when we're at scale. Yeah, we're very excited to sort of drive those through.
In terms of overall sort of capacity expansion, if the demand was strong, can you talk a little bit about where the capacity is today and just remind us where your capacity plans were?
Yeah. We've got ample capacity today to manage significant uplift in volume without going into specific numbers. From a space perspective, we've got a large lab space in Palo Alto. That is enough to manage the capacity for quite a number of years. Of course, we'll take this at the right cadence. We'll invest in the instrumentation and the automation at the right times. Yeah, we feel very comfortable with the capacity today and our plans going forward to manage whatever sort of the volume is going to be over the next few years.
Got it. Okay. Just wanted to touch briefly on obviously a number of questions today are Shield, but wanted to touch briefly on Reveal as well. Maybe just can you talk about we clearly outlined at the quarterly call in terms of now with the reimbursement, you can push aggressively, Reveal more aggressively into the market. I do not know if there is any early sort of feedback that you received from the market. Obviously, maybe tell us how is this assay resonating versus a tumor-informed, which is products that are well established in the market already.
I think we talked about actually 2025 to be an inflection year for Reveal. In fact, there are a bunch of stuff that we've done at Guardant historically like during last few years that a bunch of them are coming to harvesting in 2025. We are very excited about what we can do this year. On Reveal side, going from a gross margin negative test of last year to a gross margin positive test enabled by 50% reduction in the COGS and then this CRC surveillance reimbursement that we got from Medicare. Effectively, what we were doing before, which was capping our Reveal growth through multiple mechanisms, we now uncapped it. If we were doing more growth, it was gross margin negative, more burn. That was not desirable for us. Effectively, we uncapped it.
We had some kind of expectation in terms of when we uncapped it, we are going to start seeing some acceleration. As you could imagine, we are pleased with actually some of the early signs of it. We see how this quarter would end and how we can execute 2025. So far, so good.
Great. Any feedback on the NCCN guidelines that recommended against the surveillance? It seems a bit of a debate in that space among the oncologists that CEA is recommended, but MRD has gotten a lot more evidence and is still not in NCCN guidelines. Just wondering any sort of thoughts on that. That was a little bit of a surprise for the practitioners in the field.
I think when you look at that language, we are pleased that step by step, it's just getting better. It's not perfect there. It's not there yet, but what we are seeing, it's good and it's a good trend. We are hoping that actually it continues on this trend of positivity. Hopefully, it can become a solid recommendation down the road.
Okay. I missed one question that I do want to return back to is what's the contribution for Abu Dhabi this year? Because that's something that wasn't clear from the last quarterly call. You obviously sized the TAM, I think, 100,000 cases, but pricing is, I suppose, lower in that market.
Actually, I mean, the pricing won't be dilutive to our ASP. So it's good pricing there. Yeah, this pilot program, it's 10,000 tests in the first year. We expect that's going to take quite a bit of time to get up and running with our distributor and the process in Abu Dhabi. So we're looking at this as volume-wise, relatively minimal impact in 2025 with a lot of that volume coming backhanded in the start of 2026. So potentially, it could go better, but we're baking into our guidance a pretty small number for Abu Dhabi this year.
Okay. Sorry, I keep coming back to Shield, but anything on Shield V2? When can we see more on that and potentially any sense on sort of the improvement that you expect with that?
It is an active program for us now. The timeline continues to be as we talked about before. We are expecting to see the data read out, hopefully approval and launch of that version before end of the year. In terms of our expectation, analytically, we know Shield V2, like for some of the people who have maybe less background on what we are talking about, is just the next generation of Shield that based on additional data and biological insight we got, it got improved. It is the same assay, same chemistry. It is just a better algorithm trained on more data. We are using some of these learning-based algorithms that when you feed more and higher quality data, just over time gets better. We know analytically, it is two to three times more sensitive than Shield V1. What does that mean clinically?
That's the part that we have to see. We showed some data a while back in a case control, but it's again, case control and all issues associated with case control. We are hoping that our stage one CRC to get better with V2, but we have to do the clinical validation and see what the data is going to show us. We don't expect any change in advanced adenoma with our Shield V2.
How would you slot that assay into the current? Would it be considered an upgrade? I mean, you would have to do a full clinical trial for that for FDA approval, or would you be able to do a bridging study and then be able to submit? What are some of the options?
The pathway is a supplemental PMA. Already we aligned with FDA how we are going to go about it. In terms of the scope of this study, maybe as we get to the end of it, please stay tuned. As part of Eclipse, as a reminder, we continued the trial enrollment to the extent that even we had another Eclipse cohort completely in our biobank already. We do not need and we have not done any new trial enrollment. We have all the samples in the freezer. More details hopefully to come at the time we show the data.
Okay. Just given in the last few minutes, maybe I could switch to G360. Mike, ASP has been a study, and it's helpful to know that with the ADLT rate has increased and there's more tailwind behind it. There were a few questions around G360 growth itself that I think you have addressed over the last two quarters. Maybe just give us a sense on the overall sort of how should we think about the volume growth and that business? Because it is a mature market, and we had a company right before this, and even last night when the panel, the feedback is there's concurrent testing ongoing. There's multiple lines of expansion. The market is growing. Maybe just give a sense of the volume growth that you expect there in ASP contribution.
Yeah. I mean, we definitely agree that the market's growing with concurrent testing, with increased testing per patient and potential monitoring of patients. Yeah, I mean, we look at the core business very, very favorably. From a volume perspective, last year, the first half of the year, we had a very difficult comp compared to 2023 when we had the impact of the ESR1. In the back half of the year, following the launch of Smart Liquid Biopsy, so Guardant 360 LDT on Smart Liquid Biopsy we started to see a very nice acceleration of volume growth. We have sort of seen that as we were coming out of 2024 into 2025. I think Guardant 360 is doing very nicely. Last year, just to be a bit more specific, the annual growth for volume was low double digits for Guardant 360.
We have been talking about this year that growing something like 200 basis points to low teens growth. We are definitely seeing an acceleration. I think maybe the other thing to talk about in our core business is also on the tissue side. We had an upgraded tissue test middle of last year. We started to see more traction. We have talked about having, again, another upgrade, a significant upgrade coming soon. We feel that is going to really accelerate our growth on tissue. We are very excited about this. It is going to give us at least an equivalent best-in-class and a very sort of competitive offering. We think that together then with best-in-class liquid, we are going to have a very, very solid offering in therapy selection. Both on the liquid side and the tissue side, I think we are very excited about 2025.
Just on the ASP side?
On the ASP, last year was a real significant year in ASP. We saw the increase of the Medicare rate for LDT go to $5,000. Then we saw the follow-on of Medicare Advantage throughout the year. In a year from Q4 2023 to Q4 2024, our ASP went from $2,750 to $3,000. Very nice. We won't see that level of increase in 2025, but there are still opportunities over the next few years to continue to increase the ASP. It's going to be focused, our efforts are going to be focused on the commercial payers and where we've got gaps in coverage. There is still additional ASP to go for. We think ultimately over time now this could get to sort of $3,200-$3,300 over the next couple of years.
Okay. That's helpful. Maybe in the last minute here, G360 recovering, I mean, doing well, and now pressing on Reveal, you have Shield ADLT payments, and that's going to grow. Maybe from a CFO seat, when you get requests of, "Okay, we want to invest here and invest here," and you have to set the priority, maybe just help me understand how are you setting that across the organization.
Yeah, no, I mean, we're firing on all cylinders. There's a lot of areas that we can make investment in. I think one of the key things that's not always appreciated is that we have built out now a huge amount of operating leverage in the core business, and we can apply that to Reveal. The incremental investments to continue to grow the core business and Reveal aren't significant. Where we're really investing this year and where you'll see the growth in our OpEx line is going to be on the screening side. That's where we're going to be driving the ramp up on the commercial side and really driving the Shield volume.
Just lastly, on the Shield side, any thoughts on marketing, direct-to-consumer marketing, any other approaches that you're thinking about?
The biggest actually investment would be on building the field force. There is going to be obviously some campaigns and marketing programs that we are going to have in place. Some of them would be pilots, but we are not going to do right off the bat some very big DTC campaigns at this time. Probably we are going to pilot some of the campaigns that we are very excited about.
Okay. All right. Okay, guys, thank you for the time here. This was great.