Hi, welcome to the Canaccord Genuity Growth Conference. I'm Kyle Mixon. I cover life science tools and diagnostics for Canaccord. Please welcome you to a fireside chat with GRAIL here with us today. GRAIL is offering the first of its kind, first commercialized, MCED test for multicancer early detection. We'll talk more about that today. With the company, we have Bob Ragusa, CEO, and then Aaron Freidin, CFO. Thanks guys for joining us today. Appreciate it. Maybe Bob and Aaron, just talk about the second quarter results. You announced those last night. Pretty good quarter. Maybe just start there at a high level.
Sure. Thanks, Kyle, for having us here. It'd be great to talk about the GRAIL story with you. Yesterday we announced, in Q2, we had strong demand for our Galleri tests. U.S. Galleri grew more than 20% to $34 million. From a test number, we grew the test number to 45,000, about 29% growth. As you remember, Q2 and Q4 tend to be our strongest quarters, so it was nice to see that step up in Q2. From a guidance perspective, we reiterated guidance of 20%- 30% U.S. Galleri commercial growth. From a cash burn perspective, we had gone out at $320 million as the guide for the year of cash burn. We've actually dropped that down to $310 million. We've really seen good progress since our restructuring. Just about a year ago, we did a major restructuring, and we're seeing the fruits of that.
On the study side, with Pathfinder 2, we're planning on presenting the detailed data from Pathfinder 2 at ESMO in October of this year. If you recall, in June, we put out the top line results where we showed substantially better positive predictive value, as well as substantially better cancer detection rate compared to our Pathfinder study. We also saw a consistent cancer signal of origin and specificity or false positive rate, compared to the Pathfinder study. In both studies, Pathfinder 2 and Pathfinder, there were no serious adverse events. We're now looking forward to having the readout of our two large registrational studies, both Pathfinder 2 and NHS-Galleri. For NHS-Galleri, we'll do a full data readout for that mid next year. Those are both the studies that we're going to use to file our PMA.
One of the important things that we wanted to put out there is that we've done, between Pathfinder, Pathfinder 2, NHS-Galleri, the large prospective studies in the intended use population. You're seeing now data sets coming out from various companies at earlier stages and trying to make comparisons against those. We think that's kind of apples and oranges. You have to really look at what stage the studies are in, and are they in the intended use population? Great, anything?
In the quarter, you said, you know, a lot there that I'd love to kind of touch on. In the quarter, though, there was elevated, like, repeat testing. I think if you look at the ASP, a little bit, like lower quarter- to- quarter, still in that, I think it was like nearly $8,800 per test. I think that was because there was like higher or more repeat testing from customers, and that was 25%. The rate of repeat testing was 25%, which compares to 20%, which I think is a number that stood for a year or so. What happened in the quarter on that front?
Yeah, we're pretty happy with the repeat test rate. Last quarter, it was the first time we talked more publicly about it, at 20%. We've seen a steady increase over time, and this past quarter, the 25% is something we're pretty happy with and seeing that progress. From the ASP front, we actually went out and contracted a number of the providers since that was the biggest driver of ASP drop, kind of large scale contracting of everybody at a little bit lower price. I think your point, there is some effect to repeat testing in some of the channels that would bring that down as well.
Okay. There was also a sequential decline in COGS per test. How did the Galleri 2.0 rollout affect that?
Yeah, so if you recall at the very end of last year, we made, for multiple years, we made a substantial investment in the new, you know, P2 Galleri . What that really was, is GRAIL's been built from the very beginning as a population scale testing company. We recognize that in order to do, you know, hundreds of thousands, millions and then tens of millions, we needed a scalable platform. We operate a sequencing-based test, so fairly complex. We decided to make the investment to nearly fully automate that entire process. That's what was launched at the end of last year. One other key element with that is we really use all the data we've taken over several hundred thousand samples, both commercial and research, to really optimize the panel. We made a substantial optimization based on the new knowledge we had.
That basically made more efficient use of a flow cell, is the easiest way to think of it. So more samples per flow cell.
On the COGS note, I think the 2.0, was that pretty smooth in the quarter in terms of your turnaround times and things like that, or what can still be worked out?
Yeah, we had talked about last year when we came into 2025 that we'd made a substantial investment, and that investment would continue into 2025 because we knew bringing up a large scale system like that would require a lot of effort. In terms of turnaround time and reprocessing rates, those are still higher than we would have wanted at this point in time. We think we're narrowing in now on that, but it has taken a little bit longer than we would have expected.
Okay, so just stepping back at a higher level, the revenue number may have sort of missed the street, what we were estimating, but that's mainly because in the screening number, the Galleri note is pretty solid, but the development services, the biopharma side, that was a million or two short of what we had, for example. What drives that line? Is that part of the restructuring? Is it maybe that line? Is it going to be decelerating or kind of contracting a little bit?
Do you want to maybe talk to that one?
Yeah, so as part of the restructuring, we wanted to really just focus on our MCED, you know, Galleri test, right? That's what GRAIL was built for, large population scale screening for early cancer detection. In doing so, we've allocated resources there so we can get through our main inflection points, you know, clinical utility data, readout from NHS, FDA approval, and so on. As a result, we're not expanding the pharma bio revenue PDX program. We're supporting and continuing to work with the partners that we've already had agreements with. That revenue stream is about where it will be. As you all know, it's a lumpy revenue stream given biopharma partners can move their priorities around themselves, which is some of the explanation for why you see that lumpiness.
Makes sense. Okay. On the restructure, which was August of a year ago almost, you cut by a lot. You cut cost by a lot. You cut a lot of programs as well. It really hasn't affected the ability to grow too much. It's still growing 20%+ on that core kind of Galleri business. Has that been quite the effort to maintain productivity, or is the demand just so strong that it doesn't even matter?
Yeah, so I think it's the mix. Internally, it was a very major restructuring. There was a lot of kind of internal effort, and as Aaron Freidin mentioned, the real focus was on Galleri to make sure we had the funds to get us through the milestones in Galleri. You see the results. PDX has definitely suffered a little bit from that, but we've been really diligent in trying in the cash management process. That's why part of the guide coming down is we feel more confident this year in terms of our cash burn. We think that the efforts we took last year have really been effective, and importantly, they've given us flexibility. We're in a new field of MCED. We're pioneering it. We know we're going to face some uncertain challenges. Having the flexibility there is going to be really important.
Great. On the cash flow note, just, you know, the EBITDA was also, there's a loss of like $80 million or so, which, again, kind of like beat most expectations. In the quarter, from an operating expense side of things, unless you beat on gross margin, from the OpEx side of things, where did you come in better than expected? You know, what, again, what's being more, what's more efficient than you kind of anticipated? Aaron, do you want to?
Yeah, so we were a little bit under our plan for the first half. Not very significant, but enough for us to bring down the guide for the rest of the year. I think we're really just realizing some certainties in the restructuring plan that we went through. We had to implement it. We had to make sure we continued to hit the milestones and the goals that we had, the growth that we had, and that's realizing a little bit more efficiently than we thought we would. We had a little bit of cost savings that we implemented at the beginning of the year that we're seeing flow through for the year as well.
Gotcha. Bob, the data now, the GRAIL report, and it's everything that's, you know, it's been on track, which is good to see, and your milestones are coming up. You have Pathfinder 2 readout at ESMO 2025 pretty soon in the fall. You have the NHS-Galleri longitudinal data kind of mid year, mid year next year. PPV is the main metric that you guys kind of point to, kind of tell us to focus on. Maybe just talk about why PPV matters for Galleri, for MCED, and then you've, you know, it's going to be substantially higher than prior studies you've said, which was 43% as the kind of the bogey. Is substantial like double 43%? How should we think about that where it's substantial?
Yeah, I think it's hard to put more color on that. We'll get real clarity when we do the full readouts. We're going to preserve that for ESMO 2024 and then for 2026. I think you can read into the word substantial, you know, and why we think it's important is, and it's not just PPV, it's our low false positive rate or high specificity of 99.5%, as well as our cancer signal of origin. If you think about as you implement it into actual medical practice, there's a physician and a patient at the other end of this. Having a very high positive predictive value means that as you're screening populations, and it's a very low prevalence, right? As you're screening, you get a positive, the probability that this person actually has cancer is very, very high.
In our test, even at 43%, it's an order of magnitude higher than many of the other single cancer screens. Fit testing, Cologuard, mammography, all those things have single- digit positive predictive values. That's why from a physician perspective, when you get a positive and they say, don't worry, but we have to go check it out. Whereas when you have a Galleri, when you're close to, at 43%, you're close to a coin flip, you're like, no, we got to really go check this out. In fact, we've seen some areas like Mayo Clinic where they're up near, nearly 70%. They recently published on, because they now know that you really, if you see a positive, go look, and they've figured out the right protocols and got to a very high positive predictive value.
That, again, coupled with the cancer signal of origin, so it's directing and guiding the workup. We think this makes for a really powerful diagnostic system for the practitioner.
Mayo has published 70% PPV, you said?
Is right around 70%.
Seventy-three, I think.
All right. Interesting. Yeah, so when you guys announce the data, like at the ESMO website, will you be able to break it out by cancer type, and even stage maybe? Because that's, again, I think what the stage shift is, the main question kind of for MCED.
Yeah, so the Pathfinder 2 study is going to show performance and safety for this single year screen. When we get to NHS-Galleri, that's where you'll see clinical utility stage shift, because that was three years, three successive years with a year of follow-up across 140,000 people, again, in the intended use population.
Okay, great. From the broader landscape, to the extent that you can comment on this, maybe just how are you thinking about the other data that you've seen from multiple tests out there? The sample sizes aren't large. You know, perspective versus case control, things like that. Just, again, tell us why we should be more comfortable or confident in your data relative to others.
Yeah, so if you just look at the progression, one of the things that we're really comfortable with is our case control data replicated in Pathfinder very well. Pathfinder was about 6,600 people, and then, you know, we now have two large prospective studies in the intended use population. With Pathfinder 2, it's 35,000 people. NHS-Galleri, it's 140,000 people. These are large studies. At the top line results that we've already put out on both of them, not only are they replicating, they've actually gotten better on a couple of key parameters as we've brought them into the intended use population. You recall in many of these studies, case control data doesn't replicate in the intended use population. In fact, it usually deteriorates.
As you're looking at these other data sets that are much earlier in the process, you have to handicap them by the fact that they're not in the intended use population and they're not prospective studies.
Yeah, so we have an MCED test being launched in like a month or so. Anything, any feedback from customers, maybe they're, they've either they're asking more questions about that or about your test or, you know, comparison stuff, or maybe less ordering, kind of the market might be frozen or something possibly, you know, even though there is like a need for this, I guess, but still given there's like going to be options, any impact from that?
Not a lot of impact yet. Like you said, it's going to launch next month. I think a couple of things is we've had discussions. The much higher false positive rate, we thought it was going to be 3x. It looks like it's going to be closer to 5x the false positive rate of Galleri just based on their published specs. We think that, coupled with no cancer signal of origin capability, makes the implementation into real world medical practice just much, much more difficult.
Yeah, another competitor got breakthrough device designation in the past few months. Galleri had got out in 2019, I think. Maybe does it help to have more in the news flow and maybe this helps the Medicare process or the FDA or the guideline process too eventually?
Yeah, competition, excuse me, competition in general, it's actually a good thing. I think over the last, you know, last decade, GRAIL's been kind of out there pushing it on their own, you know, so we're kind of pushing the rock uphill single-handedly. I think the more people out there talking positively about MCED, talking about the potential of it is really helpful for us and for the entire field. I think that part of it is really useful. We really welcome that element. We also do have levels of concern around just how it gets, how it gets implemented is also important too, so that we make sure the MCED field stays positive and really has rigorous, the rigorous work that we've done, in studies to be able to show the effectiveness and the clinical validation of the test.
Yeah, so in terms of adoption, you've targeted the concierge, you've targeted now, I think like, you know, kind of partnering with more payers, commercial payers, obviously like, you know, Medicare is still out there. Maybe not first on the kind of partner note, you've announced a bunch kind of recently. Quest, you have a longstanding partnership with them. I think that was like high single- digit percentage of the volume maybe in the second quarter was through Quest, which is obviously a pretty good number. The Athenahealth, you have more EMR integration. I'm sure there's more coming possibly with that to make ordering more streamlined. Then, you know, Function Health, Everlywel l, and all these companies. How is that, has that been helping lift volume at all? I mean, are we seeing that play out in the P&L now or is that like a future benefit?
Yeah, some of them are early days, but things like the Quest integration that you mentioned, we find that any time you take friction out of the system, we see uplift. It's almost as simple as that. In our first responders and some of our employers, when we do large events, we get a significant number of blood draws in one day. Any time you take friction out, it improves it. In Quest in particular, in the first half, we saw over 500 healthcare professionals order through the Quest platform. That was really great to see. Then 7% of the volume in Q2 came through the Quest integration platform. We're seeing more people coming onto that. Some of the providers are kind of automatically hooked in. The Galleri test is already there for them to order, but for the majority, they have to do a short integration.
It's typically a few weeks to be able to do that integration, so we should see a steady increase. The nice thing about it is the Quest providers that are on the platform, we're really seeing an increased ordering volume per provider in those. It's the higher volume people who tend to really utilize that, and that ease and lack of friction really helps. Maybe on Athenahealth, 160,000 providers are on that platform. Importantly, for where we are today, a lot of concierge physicians heavily use that platform, and so it's a nice integration for us. We think that's early days for that one numerically, but we expect that one to play out well for us. Aaron, any other?
We're really excited to be working with Function Health. They're growing their membership base. We're a very close partner of theirs, and I think them, plus all the other telemedicine longevity providers like Everlywell and so on, will provide us a really nice, efficient way to grow with them as they're making their mark.
Yeah, I think the wellness longevity trend definitely aligns with Galleri, so that could be helpful. On the Medicare side, we've had the Nancy Sewell Act, which has been ongoing for a number of years. There's been a lot of support, honestly, but it's never just passed through Congress totally. Do you have optimism that that will succeed relatively soon? Can you just talk about what you're doing to lobby, I guess quote unquote lobbying, and reducing the pricing in anticipation of maybe that being passed given the price point? I think it's like $500 or so. Just overall, how you think about Medicare.
Yeah, so, you know, we're optimistic, but as you mentioned, it has been a while, but we are optimistic that the end of year funding bill will be a great vehicle for it. You know, it has unprecedented support. You know, it's one of the few bipartisan issues that everybody gets behind in terms of finding cancer in asymptomatic patients. The Medicare population is the most impacted by cancer, so there's a lot of support. We have more than, you know, more than half of the House and more than half of the Senate are co-sponsors on the bill. So they're not just supportive, but they're actually co-sponsors. In terms of the numbers, it's the third most co-sponsored bill in Congress, and it's the number one co-sponsored healthcare bill. It's really looking for the right funding vehicle because I think there's a tremendous amount of support behind it.
From an advocacy standpoint, there's over 700 advocacy groups that are pushing for this because, again, everybody's family has been impacted by cancer. It's just something that's really obvious to get behind. The important element kind of ties back to other people entering the field. It's not a GRAIL bill. This is an MCED category bill. We've seen in other screening modalities that when reimbursement becomes clarified, you see a lot more innovation in the field. That's what we're excited about as well, as having that reimbursement and more clarity on that pathway will definitely encourage a lot of innovation in the field.
Okay. This is again, kind of like not a very fair question, but do you think that that will, that milestone will happen first to get coverage, or do you think you need the FDA approval and the USPSTF guideline inclusion? Those two things can get you Medicare coverage as well, I think, right?
Yeah, there's multiple ways of getting there. We're not really in a position to handicap one versus the other. We have time for one, and the first focus is really on the MCED legislation. We think that's the fastest pathway, and we're still hopeful for that one.
Yeah, I mean, we will need FDA approval for both of those paths, and there's nothing preventing us from running both paths at the same time.
Yeah. Now in terms of the FDA process, the timeline I believe is what, is like first half of 2026. Yeah, and you'll have, yeah, you have NHS and Pathfinder 2. That's the data, the data sounds like it's going to be ready by that time. That milestone should occur. What, how do you, I mean, this is like an unprecedented situation. This is like the first of a novel test. There probably will be an ad com. This could be an extended period of time. Do you think that the ultimate label could be contested in terms of how many cancers are in this label or, you know, could you be approved for, like, 20 or something like that? How does that, how's that going to work?
Yeah, so a couple of things. We're planning on submitting, you know, or we're doing a modular submission and we anticipate having the last module submitted in the first half of next year. Because we're the first one for a PMA on an MCED, we expect an advisory board to say, so we expect the overall approval process to take about a year. That fast forwards into 2027. In terms of the labeling and stuff, it's unclear how many, how many we'll get, but from the advisory, from the early advisory board, they've given the indication that we're going to be able to report out all the cancers we find.
It's really a first, kind of a first page, second page on the report out, because what they want to do is be able to know, let providers know if we found something there, they want to let them know, but then there'll be the cancers that we have enough data and evidence behind, and then there'll be another subset where they found that there's not necessarily enough evidence to show all the specifications on that, but you're able to show that the cancer is there. For us, commercially, that's probably the most important element to be able to show providers all the cancers that we're finding.
Right. To be honest, not every cancer type, you know, Galleri doesn't have great performance for every cancer type, to be fair, but most tests probably don't for, you know, breast cancer, for example. It's tougher blood, but either way, the main concern maybe if you don't have as many cancers on the label would be the price point. The value proposition could be, you know, reduced, let's say, or let's say favorable. Is that possible or just given it's so novel, this could be like an ADLT payment rate situation and you would be at the list price, you know, how do you got to think about that, you know, again, the price point possibly?
Yeah, we think the value, you know, we're already showing the value out in the market today, so we don't think that's too much of an issue. From a sensitivity standpoint, you know, in Pathfinder, we showed that we detect more than twice the number of cancers of standard of care, is adding to standard of care of screening. We already had 2X. We said our cancer detection rate is substantially better. The follow-on data should show an improvement even on that spec. In terms of the actual cancers we detect, we preferentially detect highly shedding cancers, highly aggressive cancers. From a clinical significance, the cancers we're finding are the ones that you really have to do something with. Where we're not finding cancers is indolent prostate and indolent more breast cancers, so things that are far less aggressive that aren't shedding into the blood.
There is some publication on it as well that shows that the cancers we're detecting are the very aggressive ones, which is why when providers aren't really understanding that feature, they get much more comfortable with the overall performance of the test.
Got it. On the cash note, we're talking about some milestones here, FDA and Medicare. These could be completed in the next few years. I assume those are obviously critical to get that run rate to 2028. Again, given the runway is only a few years, you're going to need, it's going to take more probably to scale this thereafter. The stock is up 80% year- to- date. As last I checked, what's your thoughts on raising capital in this environment and just funds in general?
Yeah. Aaron, maybe you want to?
Yeah, I mean, we're funded into 2028, which is well past some of these near-term readouts for NHS-Galleri, for PMA submission and so on. We've read out top line data for those things. We're confident in the studies and the data that we've ran, and we don't have a need to raise right now. We might as well get through those things and see what we need for the business going forward.
Okay. Got it. I guess as we look to 2026, we already talked about a lot that, you know, to expect in terms of milestones and catalysts and stuff, but anything else that people aren't really appreciating or, you know, following that we should monitor going into next year?
No, I think we covered, I think the questions really covered everything quite well. Probably the one thing I'd add is that these discussions by their very nature are always what's going to happen in the future. I think it's important to remind, like today, today, this week, next week, every week, over the last year, we're detecting a significant number of asymptomatic cancers. For patients and providers, that's real time now happening. We're just happy to be able to really provide that service for patients and providers at this point.
Perfect. Okay. Great. We've ended. Thanks, guys, for joining us. Appreciate it. Thanks, guys.