GRAIL, Inc. ($GRAL)

Hi, everyone. So I'm Evie Koslosky, the life science tools and diagnostics analyst here at Goldman Sachs. I'm joined here by Aaron Freidin, the CFO of GRAIL. So thank you so much for joining us.

Yes. Thanks for having us.

Maybe to kick us off, start by helping investors get oriented with the story, a quick overview of kind of how you're building out the multi-cancer early detection market and sort of what you're most focused on right now?

Yes, definitely. So we're really excited about what we've built over the last 10 years. Multi-cancer early detection was just an idea but now we've got a product in the market. We've got lots of interventional data. We've got RTP data that we released at ASCO, really showing that this technology works, really the capability to pick up cell-free DNA circulating good blood from tumors at a very, very high specificity, low false positive rate and then tell people where the cancer is coming from. And so we've always been built for population scale. We've got a lab in RTP that can run over 1 million samples, the low false positive rate and so on. And we're now moving forward toward FDA approval and broad access. So really, really big milestones coming up that we're excited to come to achieve.

Great. And then last weekend, at ASCO, you mentioned that you had the full data readout from NHS-Galleri. Maybe talk through at a high level sort of those results versus the original headline and how you think about that?

Yes, definitely. So the full data readout is probably still coming. I mean you got to think about it, it's 140,000 people over 3 years in a randomized controlled trial. What we covered at ASCO were really the primary endpoints and some of the secondary endpoints and what we press released earlier. So we're really excited that we showed a Stage IV reduction essentially between the control arm and the intervention arm. In the second year, it was more than 20%. The third year, it was more than 26%. That's a pretty massive decrease in Stage IV cancer, which is really metastatic cancer, cancer that you really don't treat with curative intent. It's more palliative care. So the oncology community was actually very excited and supportive of the data that we presented. And clinical utility isn't just one thing, right? This isn't a Stage III drug trial, where it didn't actually have a clinical output outcome and it hit some secondary endpoints that said the drug wasn't toxic. This is really the test of the implementation of an MCED test in 140,000 people in RCT. So beyond the stage shift, we found more Stage I and II cancers than the control arm. And if you like go a layer deeper, we actually found more Stage I and II cancers in the screening arm and the control arm than total cancers found by screening in the control arm. So I mean that's a pretty dramatic story to talking about what the current standard of care screening is, which if you think about it makes sense. I mean, standard of care in the U.S. only finds about 14% of cancers. In PATHFINDER 2, we found 3 to 6x more cancers depending on how you compare to USPSTF or just standard of care. So other clinical utility endpoints, I mean, emergency room presentations, right, big decrease there, more than 25% and so on. So this clinical utility package, this clinical utility story was pretty impressive. And it will support national coverage decisions. It will support NHS decisions and so on going forward.

Yes. I think the other thing that was interesting that came out of the data was the Stage III and IV increase in the first year, but then the subsequent declines in years 2 and 3. So maybe talk through that. It kind of implies that with longer follow-up, you could potentially see that kind of decrease further over time. But maybe talk about sort of potential extension of this data another 12 months and any implications there from the cost standpoint.

Yes, definitely. So we are extending the lookout period by 12 months. So there will be no more Galleri tests, right? But we're not going to be giving another test. But what we'll do is we'll allow the data to mature in the control arm essentially because what you're doing with the Galleri test is you're finding cancer in people that you don't have cancer. So they're getting a test, it's not showing up clinically. And then in the original study analysis, we just cut that data off after 12 months. But there are people in the control arm who have cancer that isn't being found because it hasn't presented clinically. So after another 12 months go by, more of those cancers will show up. And we believe that there's -- that will happen because there's just far more cancers in the intervention arm than in the control arm. You'd expect those things to be balanced because it was an RCT where it was randomized and balanced between those 2 things. So we would expect that to happen over that period of time. And then also, you pointed out another really important part, that first year, you're essentially sweeping out all the cancer that's existing in the population in the screening arm. So those are a bunch of people who didn't know they had cancer. There wasn't another clinical way to find it and so on. But when you look at the second and third year, those people have been swept out. And then that's where you see the reductions in Stage IV and also starting to see in Stage III. And over more time, if we would have ran the study for another year, done another intervention, I think that type of data will be modeled and you can -- we'll be looking at it here eventually. But we're definitely going to be in probably the first part of next year, we'll have a follow-up on the additional 12 months, and we'll see what the numbers look like there.

Okay. Maybe taking a step back in the primary endpoint -- from the primary endpoint, and you still saw a 20% reduction in Stage IV. I guess, have you done any sort of analysis on like how this could translate into cost savings for a single payer system like NHS?

Yes. So the NHS will be doing a cost analysis. It's in I think sometime in '28 or '29 with mortality analysis and so on. So yes, we will be looking at that. And then I think other single-payer systems will see a lot of value in that. CMS, U.S. payers. We've got the REACH/Galleri study, where we're doing something similar to HS, where it's a 3 time point 5,000-person study in the Medicare population. They'll have data in the U.S. population when they do an NCD as well. So we think all that put together will give them a very robust data package to make an NCD.

Yes. And then the go/no-go decision on Galleri rollout in the U.K. was kind of contingent on these results. I guess any update on that and how you're thinking about driving scale there?

Yes. So they've just got access to the data. They've seen it, and they're excited by it. So I think no government makes a decision very quickly. We've always expected that to happen over an extended period of time. And there were multiple endpoints that they wanted to look at. One was the primary endpoint, but there were also others. So we'll be working with them to see what the next steps are. And once we have an idea what those are, we'll share that.

Great. And then you also mentioned the 25% reduction in the emergency presentation. Maybe talk through how you think that will impact the decision from like current physicians right now in their ordering practices and any sort of demand you would expect on the back of some of this data?

Yes. I mean one of the things that we heard loud and clear from ASCO and physician sense is they don't -- they're looking for things to do to not treat people with palliative care and treat with curative intent. So a reduction in emergency room presentation is very exciting to them. And we'll see. We're training our sales force now. We would have expanded our sales force. They're all getting trained on the ASCO data currently, and they'll go out and hit the streets, and we'll see what the receptivity is like.

Great. Yes. And actually, my next question was on the sales force. I guess, when would you expect maybe to see an influx in volumes on the back of this...

Toward the...

And is that included in your current guide?

Yes. Our 22% to 32% guide includes that.

Great. And then I guess going to the FDA status, you completed the final module of the PMA in January. You have the breakthrough device designation. And I guess timing should really be any day now. I guess what are your conversations with the agency now and sort of is still convenient at home?

Yes. We've been working with the FDA for quite a while now as a breakthrough device, first MCED test that they're looking at. So a lot of foundation building, a lot of understanding of the technology and so on. They've looked at all of our studies that we've done to date under an IDE, which means they looked at the study, they looked at the SAP, they looked at the results. So they're very familiar with our capabilities and the way we've built our studies. We've submitted our final module of the PMA in January of '26. And we're in an iterative review process with them. They get lots of questions. We have lots of responses. And to date, the clock hasn't stopped. So this is an iterative review process. What we're waiting for now is to really understand if they're going to have an AdCom. We should find out here shortly. Some of those -- their normal time lines are starting to run out if they're not going to have an AdCom. But we're really excited and confident with our submission. And if there's an AdCom, let's have one. If there's not, let's move forward.

Yes. Yes. And on the AdCom, like is there anything you think would be the sticking point for the panel or really the focus for them?

Again, without an MCED test being looked at before, I'm not going to probably give you a satisfying answer. I'd say they did an MCED advisory panel in 2023. It then was really about the space or the application of the technology, but it was very -- it was not the types of questions you would expect on a specific data submission. So if they have an AdCom, I'd expect the AdCom to be focused on the data submission, the data we submitted. But I think it can be often challenging to keep AdCom members focused on that because our package doesn't include the clinical utility data from NHS. It's just the first year data. I'm sure people want to talk about years 2 and 3. So we'll see. But again, I think either way, from the first Advisory Committee, we took all that feedback. We incorporated it in our PMA submission. We've incorporated the feedback from -- sorry, their feedback in everything we've done to date. So we feel good about where we're at.

Great. And then how do you think about the initial label? I mean, will it be broad in kind of asymptomatic adults, 50-plus or maybe more specific to cancer types or maybe even like a risk-adjusted?

So I think if you look at what we've put together from a data package perspective, right, it's all asymptomatic people with no suspicion of cancer between the ages of 50 and 80. So having a label different than that would be hard to understand. I could see the label not including every cancer we find because if the FDA says, well, you only found 2 of this cancer and you found 20 of these, then we'll give you the 20 and not the 2 or however they end up doing that. But at the end of the day, we've been reassured that we'll be able to return all results. So whether it's in the label or whether it's on the second page, a physician, a clinician, a patient will be able to actually act on the report. And as far as where you could restrict would be by age, so maybe 80 of our data, maybe somebody says, well, but 60 to 80 is higher use or high utilization. That's generally not an FDA call. That would be more of a payer call. But the thing that we're most assured by is that we'll be able to return all results because if we can do that, then I think it's an easy clinical commercial story.

Yes. Yes, that was my next question was sort of if it is a more restricted label, what are the economics? It seems like not much has changed or maybe...

Right. I mean I think payers once we get to those conversations may have different views. But at the end of the day, if the test works to finding cancer that you have, whether it's 47 cancers are in the label and 57 or we found over 150 different types of cancer at this point across our studies. You don't know what cancer the person has. And so what you not pay for or not treat 1 that's just rare I mean like something like annual cancer is very, very rare. You have to have a study of more than 1 million people to get like 20 cases. You're never going to do that. So we'll see how it ends up.

Yes. And then if you were to be screening a narrow population like high-risk individuals, I guess, how would you think about your ability to scale and kind of get the unit economics necessary if it's a narrower patient population?

I mean -- so I think I always have to remember at GRAIL and dealing with this population, it's 100 million people in the U.S. Right now, we did 56,000 tests last quarter. So we're in a very low penetration into that population. And that's even before you go globally. So we've got a lab that can do more than 1 million tests. We're going to be able to get to our 50% to 60% margins at lower ASPs closer to what CMS would reimburse the test for per the legislation once we get to scale on the system we have. And so I think we can get to the economics without with reimbursement, we get there faster with it. But given the international opportunity and this growing self-pay market, we'll see.

Yes. Actually, I wanted to ask about that. So reimbursement, maybe walk us through some of the moving pieces there. How critical is it to the business model? And yes, you kind of answered it, but is the sulfate market enough to kind of drive profitability with scale over time?

So I wouldn't go as far as, I would start with -- I don't think any screening company has really demonstrated profitability sometimes even with broad reimbursement. So -- but we do know that we're different than a lot of them. This is just a blood test that happens annually. So the cost to sell, we believe is going to be more efficient and more effective than other screening tests that aren't blood-based or taken annually. But the other side of that equation is who does cholesterol testing. Well, is it going to be that, right? Is it just going to be automatic every year because there's 70 million people that show up to get a physical every year. It's just another checkbox. Maybe eventually, but how that happens, what we have to invest in, in building awareness to get to that level, those are the things that or stopping me from saying we'll be profitable by, that thing. But all I know is we've got over $800 million in the bank, and we've got the capital to really invest in more faster if we're seeing an inflection if we're seeing demand get out ahead of our capabilities. And that would really be from a sales force perspective because we've got the lab.

Yes. And then you mentioned your strategy outside the U.S. I guess, any time line you can provide on getting reimbursement there? I mean we talked a little bit about the NHS but you're also working with Samsung. So I guess, how difficult is it to get coverage in other markets? And are there any major differences in how we should think about getting covered internationally versus domestically?

Yes. So a lot of international markets will, one, look to the FDA, right? They don't just rubber stamp what the FDA does. But having FDA approval is a faster path, a smaller implementation study to do. And so we think once the FDA approval, that will open up more of those markets. But then you would likely have to see some sort of depending on the geography of partnership like Samsung in Korea, and if that goes well, it expands into Japan and then some sort of geo geographic clinical study, small. We're not talking about anything near like what we did at the adjustor even with PATHFINDER because those are really robust strong data sets. So we do have several countries knocking on the door asking us to look at that type of an implementation, but it makes sense to tie it all around getting an FDA approval to speed up that process when it happens and then also the dissemination of the NHS data. So we'll really be growing more focused internationally once those things are broadly out.

Okay, okay. And when we think about CMS coverage, kind of what aspects of the NHS-Galleri test or trial do you think best convey the clinical utility?

So the stage reduction, Stage IV reduction, for sure. The III and IV starts to reduce after the second and third year, the significant increase in Stage I and II cancers found, Stage 1 and 2 cancers or you treat those and they're generally treated with surgery, radiation and so on. the decrease in the emergency room presentation and so on. So those are the things that are really going to drive CMS that they're going to look at is saying when they make their coverage decision.

Yes. And then I guess, you've seen some early adopters in the private space for the Galleri test in terms of payers. After the ASCO data, does that change in the conversations with some of those private players, either small ones or even larger ones as we kind of wait for FDA or CMS? Or is the NHS data just enough to start like pilot programs there?

The commercial payers in the U.S. have been pretty clear that you've got to have an FDA approval, with FDA approval and then with the ASCO data, then those conversations will start to happen. And at the same time, Medicare will be moving along. We know payers like to also follow Medicare. We'll also be leading into the USPSTF path and then it knows where this possible rapid development goes.

Yes. You mentioned NSX, I guess there's a lot of legislation legislative consideration is also the rapid pathway which you mentioned, maybe talk to the puts and takes of these and how we should think about them and we're thinking about the timing of coverage?

Yes. So coverage is generally a long process, as we all know. But I think there's an overwhelming sense, especially after ASCO and other on this FDA path that it's a when, not if now for an MCED, like they will be covered eventually. And how we get there, I think there's multiple paths and there's probably multiple time lines. something like rapid happens, getting to reimbursement will be faster than if you have to get to USPSTF. I don't no one's really even sure what USPSTF is going to look like in a year or 2 or now. So I think it's important, though, for the business given that we've built this large self-pay market, we lean into that. And then these international opportunities are kind of disconnected other than from the FDA approval standpoint to further ramp into a more profitable company.

Yes. Yes. So FDA approval takes longer than what you expect. I guess, could you move into some of these international markets without that? Or would you really need to see the FDA approval first?

So we've got -- we're in international markets now through distributor models which are kind of like building in Canada and Israel, some other countries kind of like the way we started in the U.S., where they've got their concierge or their medical tourism. They've got wealthy individuals who can pay for the test. So we're leaning into that. We're taking advantage of that where these distributors have sold these tests before and we can really do it in a capital-efficient way, where we basically are just running the test and they're managing everything else. So we'll continue to do those. But when you step back and you're going to like, are you in millions of people doing that? Probably by the time we will have FDA approval before we're getting to the millions of people through that type of test deployment.

Yes, yes. Touching on some of the self-pay. I mean, it's obviously you had the majority of your test right now. Maybe walk through the various channels and where you're finding particular success there.

So physicians' offices, not just concierge doctors, but we see continued drive there, continued growth there. That's really where our rep sales reps are focused. And it's not a strategy of blanketing the whole U.S. with the reps. We're really focused in metropolitan areas and where we're finding success. There's a lot of white space out there because we were the only people educating and building awareness up until a couple of quarters ago. and it's an expensive proposition. But now there's more awareness being built. We've just expanded our sales force by about 30 territories, and we'll continue to grow there, really driven by PCPs. The other trend in health care is the consumerization of health care and some of these digital health platforms. So Function Health has been a partner for a couple of years now, and they're a great partner. They continue to drive growth. We've recently announced the pins and herbs loop and others, we'll see how that translates. It's a new thing for us. Those launches are built into our guide as it is but each of them kind of have a captive audience of potentially millions of people who are health seekers, like one of the biggest heart of cells is finding patients who want that. So we'll see how that goes but I think the digital health channel is potentially a large opportunity to expand the self-pay market.

Yes, yes. And maybe talk about some of these direct-to-consumer marketing plans. How much do you expect or how are you balancing this spend in your P&L planning?

So the digital health partners are a very efficient way for us to sell and grow, right, because it's the their marketing dollars. Again, we're running the test, they've got the captive patient and so on. So it's definitely an area that we would continue to lean into given how capital efficient it is. And then on the other spectrum, you can have self-insured employers that can be a little bit more costly to sell tests into because they've got benefits manager, you've got to manage. They've got to get the test out to their people. usually have to do blood draw events to get a bolus of people because I mean people are at work, they don't want to go to a doctor's office, so you just bring the commodity to them. And then you got PCPs, you're somewhere in between. You've got those that are like Eric Sue or Dr. Friedman, who were on our panel, advisory panel. They were on the -- Dr. Sue was on the ASCO Investor Day, where they're prescribing the test to just about everybody in their office. That's an easier one. And there's others that are more dabblers where you've got to talk to them more often.

Yes. That is something I wanted to touch on like kind of how do you think about same-store sales within some of the brick-and-mortar physicians driving that? I guess, what would it take to get a doctor to order this test more often?

I mean, I think, like any other adoption curve, like there's going to be those true believers, right, who are going to be early, early adopters and then the more milestones we achieve to like derisk I think the decision of a physician to prescribe the test more will adopt. So FDA approval that will likely open up a whole another group of physicians. It's interesting because 1 out of 100 people, they're going to find a cancer in. So that's just the incidence of cancer. We do know that when they find a cancer and they find a cancer early, they become believers, and they prescribe more. But if it takes you 100 to find a cancer, there's a lot of time in there to actually not think this works. So we've got a lot of programs around putting physicians together to talk to each other who find cancers and what do they do with it and so on. And I think you're also seeing through like Farber and Mayo some of these other well-respected oncology centers, they're creating their own MCED clinics, where they're publishing on their own data. They've got PPVs of like 70% to 80% because they're looking for the cancer until they find it. It's just -- we find test cancer molecularly and imaging isn't perfect. So is there really -- is it really a false positive? Or is it just a later positive?

Yes, yes. Kind of the same question for patients. At $900 a test, do you see patients coming back for repeat testing? Or is it typically like a onetime thing for them?

No. I mean this last quarter, I think more than 30% of the tests have been repeat tests in the last 18 months. So you could take the test annually, but I mean I never take my physical exactly 12 months after, so we use 18 months. And then just for comparatively, like Cologuard, I think their retest rate is just around 30% for a fully reimbursed FDA-approved test after 10 years. So I think it really speaks -- I mean, Cologuard is a great test. It speaks more towards the form factor of a blood-based test and the ability to pick up cancers, not a cancer.

Yes, definitely. You also have the Epic integration. Maybe if we look at kind of past integration like Quest and athena, how much volume uplift did you get from these within ordering physicians? Or should we expect a similar uplift in Epic?

So we're excited about Epic. We're in the middle of that implementation process. I'd expect that to go live by the end of the quarter -- I mean, by the end of the year. So I wouldn't expect that to be a significant impact this year. But I think as we you're talking about like early adopters and how do we expand. So this makes the physicians who are bought in very easy to order. I don't think we're at a point because it's not an FDA-approved test that is fully reimbursed that just having Epic is going to make a physician go from, I'm not going to order this to order it. I think physicians are a little more thoughtful than just having an easy button. But I think once we have crossed that threshold of FDA approval and so on, then it just becomes much easier to order. We've seen definitely a good uptake from Quest and Athena. Epic is a completely bigger and different beast. And so we're excited to see where that goes.

Awesome. And then maybe turning to competition. The MCED market is obviously -- has a really large patient population. But how are you thinking about increasing competition in the MCED stage with more launches and then also maybe single cancer screening? And just talk through kind of what you're seeing there?

Yes. I mean we've been the only people in this space for a while. And where we welcome others into it. There's over 100 million people. This doesn't need to be a winner take all market. We're very proud of where we're at, though, in that position being the market leader. We're also the only company that has interventional data, clinical data. We're the only company that has data in the intended use population, which is a symptomatic people. We're the only company that has randomized controlled data. We're the only company that showed a Stage IV shift. So like our data package is just so much higher quality and built in the intended population versus case-controlled study that we think we're pretty differentiated there. But people building awareness, people educating on MCED, we more than welcome that. We're really comfortable with where we're at, and we're continually looking at what is new, what could we do differently, how could we -- how are we going to improve the test. We've already that it once. We reduced our cost pretty significantly with the same performance. So we've shown that we can take the data in our system and our commercial data and make the test better. We're going to continue to do that. And I think we've ran close to 1 million total samples now between clinical and commercial studies. So we like where we're at.

Yes. Yes. Do you think that, that data differentiation is something that a lot of the self-pay kind of consumers will understand as they look to who the provider is going to be?

So that's a great question. I think the more awareness we build and the more we are successful in showing physicians in explaining the difference. I think that kind of gets you there. We'll see how many tests somebody like a digital health partner offers or are they going to offer 5 MCED tests or they can offer 1. So we'll see how that all rolls out. I mean, as you guys all know, you're investors in this space and you're an analyst in the space. People like to compare all sorts of data that probably isn't comparable, and it can cause confusion. But at the end of the day, we've got RCP data shows clinical utilities kind of everything kind of understands that.

Yes. Yes. Maybe touching on the financials a bit and on profitability. I guess, how do you think about the OpEx line items moving forward? You recently hired more reps, but then you completed the NHS study. So kind of maybe the moving pieces there?

Yes. So I think we'll burn about $300 million this year, no more than that, and we see cash into 2030. So the growth, the increase in margins, growth in revenue will start to contribute to the bottom line. Sales and marketing will be the area that we do invest in. The R&D are different than we are now. I mean, primarily the majority of the costs in prior years, the testing. That's the most expensive part of it. This is a pretty affordable follow-up stuff. And our innovation and R&D programs, we continue to invest in, but they're not 70,000-person clinical trials.

Yes. Yes, absolutely. You mentioned the cash runway into 2030. I guess maybe talk us through the bridge to EBITDA breakeven eventually, like what revenue scale would be required to kind of get you there?

So we haven't gotten that specific yet. We've got a lab that's capable to do more than 1 million tests. And with all those variables we talked about earlier is about how efficient that can be, how efficiently you can sell will drive whether you get there or not. I also think that what happens internationally because selling in the U.S. is a lot more expensive than selling internationally. If something were to happen with the NHS or any other single payer system, that's not a sales force. They send out text messages and people show up to the doctor. And so our gross margins will be less because the test price will be less, but the cost to sell is close to 0. And so our operating margins will be pretty healthy. So I hate to not answer your question directly, but there's just -- I just know it all and be wrong. There's a lot of variables.

And I guess thinking about your revenue guide for the year, the 22% to 32% for Galleri. You grew 37% in 1Q. I guess how should we think about the cadence throughout the year and why the implied step down?

Yes. So we will be looking at guidance again. We'll see how this quarter goes. We asked the data going out sales force expansion and so on. We'll see how those things -- this transition period works. We were excited by the growth in Q1. Q2 volumes were already higher than Q1 from last year. So the growth is going to be a little bit different. But we still believe we're in that 20% to 30% range. But we, of course, will look at our guidance as we go through the quarter.

Okay. Great. And the upside/downside levers there, sales force I think are on the upside or the downside?

I mean, like any -- there is upside, if it all goes well, there's downside if it doesn't because there's disruption from your existing territories and so on and so on. How is that transitory? Is it permanent? Those are the types of things that you figure out.

Yes, yes. I guess you just have a couple of minutes left. So what do you feel is the most underappreciated part of the GRAIL story? What are you most looking forward to in the few years ahead?

Yes. I mean I think we spent a lot of time talking about NHS-Galleri, right, in clinical utility. Some of the big criticisms we get are, it's not ready for prime time. And I go, I don't know, we just kind of showed a pretty substantial Stage 4 shift in a 2-year period in an RCP. I think these other people have said, you could add up like the last 15 years of therapeutic innovation, and it's nowhere near that. This is ready now, and it's saving lives now. And we're very proud of the data we have. We've been very transparent with it. And we're excited to see where it goes. I think the biggest takeaway I have is the test is saving lives today and saving thousands of lives.

Great. All right. We'll leave it at that. Thank you so much, yes.

Thanks, Evie.