GRAIL Q3 2024 Earnings Report

GRAIL EPS Results

• Actual EPS: -$3.94
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

GRAIL Revenue Results

• Actual Revenue: $28.65 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

GRAIL Announcement Details

• Quarter: Q3 2024
• Date: 11/12/2024
• Time: After Market Closes
• Conference Call Date: Tuesday, November 12, 2024
• Conference Call Time: 4:30PM ET

GRAIL (NASDAQ:GRAL) is a healthcare company focused on developing blood-based tests for the early detection of cancer. Its technology uses genomic and epigenomic signals, including patterns of DNA methylation, to identify signals associated with multiple cancer types from a single blood sample.

The company’s primary product is Galleri, a prescription blood test designed to screen for signals of more than 50 types of cancer, including cancers that currently lack recommended screening methods. Galleri is intended to complement, not replace, guideline-recommended cancer screenings, and a positive result requires follow-up diagnostic testing to determine whether cancer is present and where it may be located.

GRAIL was founded in 2016 as a subsidiary of Illumina and became an independent publicly traded company following its separation from Illumina in 2021. The company is headquartered in Menlo Park, California, and primarily serves the U.S. market. GRAIL has also participated in research and commercial initiatives involving health systems, employers, and international partners to evaluate the use of multi-cancer early detection testing.

GRAIL Q3 2024 Earnings Call Transcript

Key Takeaways

• GRAIL reported 38% year-over-year revenue growth in Q3 to $28.7 million, driven by 32,600 Galleri tests sold during its slowest quarter.
• Net loss of $125.7 million improved by 86% year-over-year, while non-GAAP adjusted gross profit grew 68% and adjusted EBITDA improved 14%, supporting a cash runway into 2028 after lowering cash burn guidance.
• A next-generation Galleri test with integrated automation will launch by year-end to enhance scalability and drive long-term cost reductions at scale.
• GRAIL plans to submit its PMA for Galleri in 1H 2026 with FDA approval anticipated in 1H 2027, while CMS reimbursement hinges on pending bipartisan MSED legislation of uncertain timing.
• Recent peer-reviewed data show Galleri preferentially detects high-grade, clinically significant cancers and veteran real-world evidence demonstrated a 42.9% positive predictive value with over half of cases found at early stages.

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to the GRAIL Q3 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that this conference call is being recorded. GRAIL Investor Relations, please begin.

[Alex Dobbin, Investor Relations Contact at GRAIL]

Thank you, and thank you all for joining us today. On the call are Bob Ragusa, our Chief Executive Officer, Aaron Freidin, our Chief Financial Officer, Dr. Joshua Ofman, our President, and Sir Harpal Kumar, our President, International Business and Biopharma. Before we get underway, I'd like to remind everyone that we'll be making forward-looking statements on this call based on current expectations. It's our intent that all statements, other than statements of historical fact made during today's call, including statements regarding our anticipated financial results and commercial activity, will be covered by the Safe Harbor Provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21 of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from those projected or discussed.

[Alex Dobbin, Investor Relations Contact at GRAIL]

All forward-looking statements are based upon currently available information, and GRAIL assumes no obligation to update these statements. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that GRAIL files with the SEC, including the Risk Factor section in GRAIL's most recent quarterly report on Form 10-Q. This call will also include a discussion of GAAP results and certain non-GAAP financial measures, including adjusted gross profit or loss and adjusted EBITDA, which are adjusted to exclude certain specified items. Our non-GAAP financial measures are intended to supplement your understanding of GRAIL's financials. Reconciliations of the non-GAAP measures to most directly comparable GAAP financial measures are available in the press release issued today, which is posted to our website. And with that, I'll hand the call to Bob.

[Bob Ragusa, CEO at GRAIL]

Good afternoon, everyone, and thank you for joining us to review results for the Q3. We remain pleased with the demand for Galleri that we are seeing in the pre-reimbursement environment. Through September 30 of this year, more than 250,000 commercial Galleri tests have been prescribed by more than 12,000 healthcare providers since launch. GRAIL is an established market leader in the field, and we are proud of the demonstrated impact that Galleri is having on patients' lives. Galleri was designed for population scale, and GRAIL continues to optimize our technology and laboratory infrastructure to enable future growth. At the end of this year, we will launch the next version of the Galleri test. With the new assay, we have integrated a significant level of automation, among other efficiencies, to support volume at scale and enable reductions in cost over time.

[Bob Ragusa, CEO at GRAIL]

Additionally, our large laboratory facility of approximately 200,000 sq ft in Research Triangle Park, North Carolina, enables us to scale laboratory capacity substantially for multiple years of growth. We continue to present evidence demonstrating Galleri's performance at renowned medical conferences and publish the results in leading peer-reviewed publications. In September, JCO Precision Oncology published a sub-analysis from our CCGA and Pathfinder studies in prostate cancer. For prostate cancer in general, overdiagnosis of indolent cancers is a particular concern. The analysis demonstrated that when Galleri detected prostate cancer, most were high-grade and clinically significant and usually indicative of aggressive disease where additional diagnostic evaluation is necessary. These data, previously shared at AACR in March, build on earlier findings regarding Galleri's preferential detection of aggressive, deadly cancers.

[Bob Ragusa, CEO at GRAIL]

This is important because any screening paradigm, when designed for population scale, in addition to standard of care of screening, should not exacerbate overdiagnosis of indolent cancers. In October, GRAIL presented early results from the Reflection Real-World Evidence Study of Galleri at the Early Detection of Cancer Conference. In this study, a diverse population of approximately 2,800 veterans from the U.S. Department of Veterans Affairs sites with toxic exposure but with no symptoms suggestive of cancer were evaluated. Initial results showed that among study participants, the veteran cohort had a cancer signal detection rate of 1.3% and a positive predictive value of 42.9%. More than half of the cases were identified at early stage of 1 to 3. To discuss our Q2 financial results, I'll turn it over to GRAIL's Chief Financial Officer, Aaron Freidin.

[Aaron Freidin, CFO at GRAIL]

Thanks, Bob, and good afternoon, everyone. I'm pleased to present our results for the Q3. Q3 results were strong, with revenue of $28.7 million, up $7.9 million, or 38%, as compared to Q3 2023. Total revenue for the quarter is comprised of $25.4 million of screening revenue and $3.3 million of development services revenue. Development services revenue includes services we provide to biopharmaceutical and clinical customers, including support of clinical studies, pilot testing, research, and therapy development. We see continued demand for our Galleri test and sold approximately 32,600 tests in the Q3, which historically has been our slowest quarter of the calendar due to summer holidays. Screening revenue of $25.4 million in the Q3 was up 52% as compared with the Q3 of 2023, primarily based on an increase in sales volume in Q3 2024 as compared to the same quarter last year.

[Aaron Freidin, CFO at GRAIL]

Net loss for the quarter was $125.7 million, an improvement of 86% as compared to Q2 2023, which was impacted by a large goodwill and intangible asset impairment. We additionally report non-GAAP financial measures to enhance investors' understanding of our business. These measures include Adjusted gross profit or loss and Adjusted EBITDA, and exclude accounting impacts related to Illumina's acquisition of GRAIL. We encourage investors to carefully consider results under GAAP in conjunction with our supplemental non-GAAP information and the reconciliation between these presentations available in our Q3 earnings press release. Non-GAAP Adjusted gross profit for the Q2 of 2024 was $11.8 million, an increase of $4.8 million, or 68%, as compared with Q3 2023. Primary drivers of the increased margin were revenue mix and the efficiencies of scale related to increased Galleri volume.

[Aaron Freidin, CFO at GRAIL]

Adjusted EBITDA for the Q2 of 2024 was a negative $108.2 million, representing an improvement of $17.9 million, or 14%, as compared to Q3 2023, and we ended the quarter with a cash position of $853.6 million. We continue to expect reductions in our cash burn in line with the guidance we provided last quarter. In August, we lowered our second-half cash burn guidance from $250 million to $220 million. Additionally, we guided full-year burn for 2025 expected to be approximately $325 million. Given our experience through the first nine months, we are narrowing our guidance for Galleri sales for 2024 to be between 40% and 50% growth when compared to 2023. As a reminder of the expected impact of the restructuring we announced in the last quarter, we plan for Galleri revenue to grow more moderately after 2024 until we receive broad reimbursement.

[Aaron Freidin, CFO at GRAIL]

With our reduced spending profile, our cash balance provides runway into 2028. I will turn it back to Bob for concluding remarks.

[Bob Ragusa, CEO at GRAIL]

Thank you, Aaron. We are a mission-driven company, and we are focused on improving cancer care and enabling broad use of Galleri. We are focused on our strategic goals, seeking FDA approval of Galleri and pursuing broad reimbursement for Galleri. In terms of upcoming milestones, this year, we expect to continue enrollment in the Galleri Medicare or REACH study, drive access to Galleri, and advance our commercial and research partnerships. We also anticipate transitioning to a new version of Galleri, which will enable us to scale efficiently as Galleri demand increases. We are looking forward to the expected readouts of our registrational studies and anticipate results from the first 25,000 participants in the Pathfinder II study in the second half of 2025 and the full results from the NHS-Galleri study in 2026. With that, we'll turn the call over to Q&A. Operator, please go ahead.

[Operator]

Thank you. At this time, if you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When called upon, you may unmute your line and ask your question. We will wait one moment to allow the queue to form. Our first question will come from, excuse me, our first question will come from Subbu Nambi with Guggenheim.

[Analyst at Guggenheim]

Hey, guys. It's Thomas on for Subbu. Thanks for taking the questions. 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's FDA regulatory pathway, and then just your commercial strategy in general, especially as it comes to that new test? You know, 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?

[Bob Ragusa, CEO at GRAIL]

Hi, thanks for the question. You know, fair amount of unpacked there, so you know, I guess maybe focusing first on the FDA pathway. You know, so we've now, in July, completed the study visits for our two key registrational studies, so Pathfinder II, where we've enrolled 35,000 people, and the NHS-Galleri study, where we've 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 of 2026, and so you know, from that, we do expect an advisory committee at the FDA, and so we expect about a one-year timeline from that, which would drive us into first half 2027 for FDA approval is the, you know, it's the tentative timeline that we're working towards.

[Bob Ragusa, CEO at GRAIL]

You know, 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 look to two things. One, nearly fully automate the assay itself to get 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, you know, clearly CMS is an important element of that. There is the MCED law going through Congress right now.

[Bob Ragusa, CEO at GRAIL]

In the summer, it had a markup in the House Ways and Means Committee where we had a, you know, rather rare and unusual unanimous vote for it, 38 to 0, and so we were very encouraged by that. We're encouraged by the large stakeholder groups that are advocating for the bill. You know, one of the things that's very clear is that, you know, 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.

[Bob Ragusa, CEO at GRAIL]

But, you know, given the nature of our Congress and, you know, any of the, you know, lack of productivity in Congress in the last year or so, it's difficult to predict timing on that, but, you know, we're hopeful that before we get to, you know, before we get FDA approval, we will have the bill pass, and that will give CMS the authority to be able to cover an FDA-approved MCED test. So, maybe I'll stop there and see if there's any follow-on.

[Analyst at Guggenheim]

Awesome. Thanks for that color. And then just one more building off of that. You mentioned cash balance. How do you manage your commercial efforts, given everything that you just said and that spend?

[Bob Ragusa, CEO at GRAIL]

Yeah, so I think, you know, 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 invest, you know, it's really an investment in commercial, and as you can see, you know, from this quarter's results, we know that if we invest in commercial, we can drive sales and drive sales rapidly. You know, in August, we looked at moderating 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.

[Bob Ragusa, CEO at GRAIL]

On the commercial side, what we're really looking to do is to drive that to be more cost-neutral so that the, you know, margin generated by the tests that they're selling can cover the, you know, at least cover the commercial expenses. So, it's a more moderate approach. We've, you know, 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, you know, pull back from some of the other areas. So, we think we'll continue to learn as we go, even at a more moderated pace, but that is the expectation.

[Operator]

Our next question will come from Tejas Savant with Morgan Stanley. Please go ahead.

[Joshua J. Ofman, President at GRAIL]

Hi, this is Joshua Ofman, Tejas. Thank you for taking our questions. So, 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 technology for both physicians and patients. So, with potential FDA approval and 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? Thank you.

[Bob Ragusa, CEO at GRAIL]

Sure, so over, you know, both over the last couple of years, as well as going into, you know, the near future, we're going to look to, you know, we've looked to really build out, you know, how the ecosystem works, and so what we wanted, part of wanting to drive the commercial experience here is to get providers, health systems, you know, very comfortable with the test and know how to operate with the test and really integrate it into their, you know, standard practices, and so we've been very successful at that aspect of it, and so we will continue to push on that and, you know, understand, you know, what resonates with providers, what resonates with patients in terms of, you know, how we describe the test.

[Bob Ragusa, CEO at GRAIL]

And then, you know, from a very practical standpoint, you know, 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 operating at reasonably high volumes, you know, 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.

[Joshua J. Ofman, President at GRAIL]

Got it. Thank you for that. And then, as a follow-up on version two of Galleri, you've mentioned that the main goal is to produce a scalable version of the test. Can you confirm if you anticipate any major performance differences for version two compared to the current version? And additionally, can you confirm what bridging studies you might need to do with respect to the studies you're submitting as part of the PMA submission? Thank you.

[Bob Ragusa, CEO at GRAIL]

Yeah, so we, you know, while we expect some, you know, minor improvements in the performance, you know, from a, you know, end-user perspective, we would not expect a significant difference in the actual performance of the test. The main drivers here are, as we mentioned, scalability and cost. On both studies, and, you know, in terms of, you know, from an FDA perspective, we're in discussions with them on the appropriate bridging studies for the next version of the assay from the current version. And as we go later on, we'll have, you know, similar discussions with the NHS, you know, if they want to move forward in the full-scale deployment.

[Joshua J. Ofman, President at GRAIL]

Great. Appreciate the time.

[Operator]

Our last question comes from Vijay Kumar with Evercore ISI. Please go ahead.

[Analyst at Evercore ISI]

Hi, guys. This is Mackenzie on for Vijay. 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?

[Bob Ragusa, CEO at GRAIL]

Aaron, you want to take that one? Yeah, great question. So, you know, we'd expect cash burn to decrease in subsequent years as we continue to grow revenues and, you know, investments in some of the programs that we've been talking about, getting to PMA submission, getting to the next version of the test rollout.

[Analyst at Evercore ISI]

Okay, great. That's helpful. And then I know you talked about in the new version of Galleri, this is supposed to reduce your COGS, but it sounds like it's going to take a little bit of time for that to ramp. So, how should we be thinking about how long that ramp to sort of a normalized COGS run rate will take, and what can we expect on the margin front there?

[Bob Ragusa, CEO at GRAIL]

Yeah, so hard to predict right now from a timing perspective, but it's going to be a, there'll be an impact to begin with on the variable front. You know, part of the main driver for that program was to bring down the cost of the test and then increase the throughput. So, there'll be some pickup to begin with, but we won't realize, you know, the entire benefits of that test, of the cost of that test until we get into, you know, significantly more volume than we're at today. You know, that's something as we, you know, transition to that test at the end of this year, run it for the, you know, following quarters, we'll be able to give more line of sight to that.

[Analyst at Evercore ISI]

Got it. Thank you. There are no further questions at this time. I will now turn the call back to GRAIL for closing remarks.

[Bob Ragusa, CEO at GRAIL]

I want to thank everyone for joining today's call.

[Operator]

Ladies and gentlemen, this concludes the call. You may now disconnect.

Participants

Executives

• Aaron Freidin, CFO
• Alex Dobbin, Investor Relations Contact
• Bob Ragusa, CEO
• Joshua J. Ofman, President

Analysts

• Analyst at Evercore ISI
• Analyst at Guggenheim