Great. Thanks, everyone, for joining us this afternoon. I'm Vijay Kumar, the Life Science Device Analyst here at Evercore ISI. A pleasure to have with us the team from GRAIL. We have CEO Bob Ragusa. From Investor Relations . We have Alexis Tosti in the audience. Bob, thanks for spending the time with us.
Thanks for having me here.
So it's been an interesting journey for GRAIL over the years, right? And we've tracked it through all its different permutations, combinations. But now that you had your first quarter out as a public company, I just wanted you to review third quarter. How do you think it went? Was it in line with your plans? Any surprises?
Yeah, so in particular, Galleri commercial sales were quite strong. We were just a little bit over 50% growth year on year. There was a sequential dip in Q3, which we've seen from seasonality. So that was something that was expected. With that, we had guided at the Capital Markets Day and at the end of last quarter on the 30%-50% revenue range for our Galleri product. With that, we tightened the range to 40%-50% going into the end of the year.
Fantastic, and when I look at your test volumes, I think north of 32,000 tests in third quarter, how does that test volume growth compare to your revenue growth?
Yeah, so it's pretty highly correlated at this point. So we see some minor ASP fluctuation, but it's pretty nominal at this point. So most of the volume growth translates pretty directly into revenue growth at this point.
Gotcha. And you're in a pretty unique position, right? It's in a category N of 1, multi-cancer early detection, but you don't have reimbursement. So who's prescribing these tests? Give us a flavor for ordering physicians and what kind of people are ordering these tests.
Yeah, so we look across. It's a primary care physician universe that we're looking at. So it's not the oncology side. In the primary care, we're looking at people who are really predisposed to early detection, predisposed to prevention. So if you looked across the spectrum, our providers would have a heavier emphasis on prevention than maybe the average PCP.
Are those concierge docs, or because, again, my understanding is patients would have to pay out of pocket at this point in time. So give us a flavor for the type of physicians and type of customers who are willing to pay out of pocket.
Yeah, so the test was a $949 list price test. Early on, we saw a lot of traction with concierge doctors because there, I think just the conversation of asking for self-pay was easier. Over time, though, in the most recent quarters, concierge doctors have gone from the predominant to less than half of the prescribers in our clinic channel. And so we're getting just more and more broad appeal. And again, the physicians with that preventative care mindset get more comfortable with having the conversation about paying for a test. On the customer side, they're really looking. It's usually people who've had some interaction with cancer, a family member or friend, themselves personally is a big part of it. And then there's also we have a couple of channels where it's not self-pay. So large self-insured employers are offering the test as a benefit to their employees.
A lot of the larger companies, especially companies that own the employee for a long period of time, have longer tenured employees. They see the benefit because they're paying the ongoing medical bills. And then we also have had good traction in life insurance companies. This is for in-force policyholders where the life insurance company will offer it to them to pay for a Galleri test. And again, the interests there are highly aligned, right? The insurance company and the policyholder both want longevity within that, and they think Galleri is a great way of getting that.
That's really interesting. When you look at those two buckets, right, either large self-insured employers or life insurance, what percentage of volumes are there right now? And where could those numbers go when you look at the medium term?
Yeah, so I think our predominant channel is our clinic channel, the self-pay. That will continue to be that. And so it's both our clinic channel, and then we also have a telemedicine channel, which is a smaller percentage. Both life insurance and employer are on the kind of minority side of the total pie chart of volume.
Gotcha. The other metric you guys disclosed was the number of physicians ordering the test. I think it was 12,000 in Q3. Are you adding new physicians? How is that number tracked over the past few quarters?
Yeah, so at the end of Q2, we put out that we had over 11,000 ordering prescribers. At the end of Q3, over 12,000. So seeing good growth in prescribers. Sales force, we did a restructure in the middle of Q3. And with that, one of the things we wanted to do is really focus on higher performing territories. So we're looking to both add kind of the breadth of prescribers, add prescribers, and also have better depth where each prescriber is prescribing more. So having more focus on some of these areas that are more productive has been useful for us.
Understood. I don't know if it's too early to track what's been the reorder rates, percentage of physicians reordering the test. How's that number tracked for you guys?
Yeah, so we haven't put that out. That's one of the things we're looking at is what's the right kind of right way to portray that. We're still in pretty early days, so reorder is a little more difficult, especially going back just a little time. We ramped our sales pretty quickly, so there's not a lot of time to measure. But we will be looking at putting a measure to see what's happened either over a specified time or overall time for reorders because we do think that'll be an important element.
Gotcha. And maybe the last one here on your early commercial experience. What's gone well? What's been the pressure pain points as you've reached out to physicians and they've been ordering these tests?
Yeah, so I think one of the things, again, you have primary care physicians, you have a prevention mindset. But the odds work against it a little bit in terms of for any individual. On a population scale, it all works out. But if you have roughly a 1% signal detection rate and you're prescribing, you might prescribe 30 prescriptions and not see any positives. And so what we found is getting groups of physicians together that are experienced Galleri users with some less experienced Galleri users and people who have done several hundred where they can describe the experience of finding positives, how the workups went, what that meant to the patients. That really helps bridge the gap for newer prescribers. And it also invigorates the current prescribers. When people see a positive, especially in aggressive cancers, they really understand the value and start to appreciate the technology.
Gotcha. And what's been the real-world test performance? Has it matched generally in line with some of the data that you guys have put out? And especially specificity comes to mind. I think the bar was 99 or 99 and above.
Yeah, so in our case control study, we had a set of specifications and performance. And what we've seen is in both specificity as well as positive predictive value, those numbers continue to repeat both in our case control study as well as Pathfinder there. And then importantly, in the NHS, in the first round where they did an early analysis across 140,000 people in the randomized control trial, they came back and said the data was very promising, which we took to be as good or better than the current published data. And so that would be yet another replication point between CCGA, Pathfinder, and now NHS Galleri, at least in the first round.
That's helpful. And since you brought up NHS, I think the Street perception of NHS was it was different, right? Because I think NHS decided to push out the rollout of tests, I think, towards the end of the trial. So that's 2026. And perhaps that was a negative, but I think the NHS actually said these were good results, right? So maybe walk us through on what happened with NHS and what is this discrepancy between Street perception versus what NHS has communicated to GRAIL?
Yeah, it's maybe bridging the very promising data and the decision not to do the pilot is if you think about going back to 2021 and prior when they were setting up the study. People had a lot of belief and still do, obviously, in the power of the technology, the power of MCED. And so there was a little bit of a what if. What if, even though no other screening study has shown first year to meet some of the really high criteria that they put forth, what if it does? And so they wanted a mechanism to be able to get the technology out there quickly if it were to meet that, even though there wasn't necessarily the expectation.
And so what they looked at is some ambitious prescribed targets around positive predictive value, around number of late-stage cancers found and number of total cancers found in the intervention arm versus the control arm. And when they looked at the data, while the data performance was promising, they didn't trip the exceptional criteria that they had to go forward with the pilot. So we'll look in 2026. They'll look at the full data. And after round three is when we would expect to see some of the reduction in late-stage cancers in particular to show up as they have in other screening studies. And that would enable them to make a decision to be able to potentially roll out to the population there.
And so that would be with rollout there. It would be a very significant opportunity as the intended use population there between 50 and 79 is about 19 million people.
I'm sure the team internally, they've tried to do the modeling exercise, right, based on what NHS said about the test performance. If it mirrors what we've seen in Pathfinder in terms of sensitivity, PPV, and specificity, is three years, is that enough time to show a reduction in late-stage cancer? I think that's what NHS is looking for.
Yeah, so in the modeling, we believe it still has that is enough time. Obviously, the further out you go, we've seen in other studies, the better and better it gets, but we should be able to see it after year three.
Should that meet the bar that NHS is looking for?
We'll have to see where the data comes out.
I'm curious on this NHS study. Does GRAIL get to see the data or do you get to see this at the end of three years?
Yeah, so it's a blinded study. So even we get asked a lot about the early, that early first round look. And so the study is going to remain blinded until the final readout. So we're not going to be able to have any publication on that until 2026.
Gotcha. But do you know what the bar is? What NHS is looking for?
We will know the bars, yeah.
Okay. Understood. And sorry, just to go back on if it does meet the bar and NHS does decide to roll it out, what would the curve look like in terms of adoption?
So the adoption, so the interesting thing there is similar to the study, the way it would roll out is through an invitation system with the NHS. So similar to the way the study was done. So it should be relatively rapid adoption at the rate that they want to get it out there because instead of going physician by physician, they'll actually go directly to the patients and invite them for that screening, similar to the way they do screenings today.
Have they when this is rolled out in 2026, do you have a rough sense on what the revenue opportunity could be? Because I think the one thing that we've struggled with is what the test ASP could look like in 2026.
Yeah, so we haven't gone public with the pricing there. The one thing to think about, though, is the U.K. would be a very different situation because here in the U.S., as you see across all the diagnostic companies, you have relatively high sales and marketing costs. There, the sales and marketing costs would be very minimal because, again, because of that NHS invitation system, you don't have to go physician by physician. You get it not quite for free, but largely for free based on that.
Gotcha. And given those volumes, like I do understand there might be a discrepancy between gross margins because how you're paying, you don't have the sales and marketing costs. But at the operating margin line item, should this be incremental to or in line with your idealized operating margins longer term at the corporate level?
Yeah, we're expecting the operating margin to be similar with what the long-term targets are.
Gotcha, and then switching to the US, just remind us on the FDA timelines. What kind of study is needed, right? Because are we looking at 12 cancers, 30 cancers? What is the FDA asking you?
Yeah, so that's a good question. So on our FDA strategy, so right now we're in a modular PMA process. So we've already submitted several modules. We anticipate having the last module with our clinical data to be submitted in the first half of 2026. So the key clinical data, and it's probably important to know, we've been in breakthrough designation with the FDA. And so we've had lots of discussions and gotten centered on two key registrational studies. One is Pathfinder 2, which is 35,000 people in the U.S. And the other is NHS Galleri, which is 140,000 in the U.K. So 175,000 people total. We expect the submission to be in the first half of 2026. We do expect, since this is the first PMA, we expect to go through the FDA in MCED. So we expect that there will be an advisory board.
And with that, we anticipate it'll take about a 12-month period for an FDA decision on that. So that would put the decision timeframe in the first half of 2027.
Gotcha. And along with that, how should the reimbursement pathway evolve? Is there a regulatory pathway or legislative pathway for reimbursing MCED tests?
Yeah, so right now there's a bill in front of the legislature for the MCED bill, and that would give Medicare the authority to pay for MCED as a screening test. So it would create a coverage category for them, very similar to what was done with colorectal cancer to give coverage authority to Medicare for that. So that bill actually went through a markup this summer within the House Ways and Means Committee. It was unanimously voted on 38 to 0 to move forward. It has bipartisan bicameral support. There's over 600 advocacy groups that are pushing for it. But we do need a legislative vehicle to be able to bring that forward. So from a practical standpoint, we need that prior to FDA approval. Obviously, the sooner it comes, the better.
It would be good for the field because it would definitely embolden the field. From a timing perspective, we need it before our FDA approval. That would give, again, that would give CMS the authority to be able to cover MCED tests.
Gotcha, and given some of the changes here in post-elections, is the new regime going to be more favorable to areas like MCED tests?
Yeah, it's interesting. Again, we had strong bipartisan support. So I think which political party, everybody has been impacted by cancer. And so I don't think that's got a huge impact. It's hard to tell in the detail level, but on a macro level, there's strong support on both sides of the aisle.
Gotcha. And I guess from a P&L perspective, I think post third quarter, you had $850 million of cash. What should the cash burn rate look like when you look at next year? Is that stepping down from Q4 levels? And what is that cash going to support your revenue growth? Is that through 2027, 2028?
Yeah, so that's a good question. So we did a restructuring in August of this year. And really, when we were spun out in June, we were given what was earmarked to be about two and a half years of cash. We looked at the business and really thought our true North Star is MCED and the Galleri test. So we wanted to make sure we had enough runway with that to get through some of these value inflection points around FDA submittal, FDA decision. And so the cash, the restructuring was designed to give us cash into 2028. So with that, we had a cash burn of $105 million in the past quarter. We've guided to $220 million total for the second half of this year and then $325 million for 2025. And the reductions are really driven by the restructuring.
Our two major trials both had their final study visits in July of this year. And so those costs are starting to fall off. And then we also have a new version of the assay that we're transitioning to at the end of this year. And that's brought a lot of automation and a lot of optimization to the assay itself. And with that, there's been a lot of development costs associated with that program over the last several years. And so some of that will start to fall off next year and then in follow-on years, which is what should create the cash runway to 2028.
Understood. Maybe in the last minute here, obviously, public markets have been challenging for small-cap names, especially growth names. What do you think is the Street missing or perhaps not appreciating about GRAIL story? And what gives you the optimism when you look at the business?
Yeah, I think one of the big things is people keep looking way out into the future, which everybody sees the long game here, which is great. But I think what's less recognized is we're literally finding cancers, real cancers in real lives every day. And so that's here and now. So we're already at the volumes where that's a reality, where there's somebody on the other end of our test finding cancer every day. And so I think that's really been the big change.
Fantastic. I think with that, we're out of time. Bob, thank you so much for spending the time with us.
Yeah, thank you.