Guardant Health Inc

NASDAQ:GH

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon, and thank you for joining the Guardant Health Q1 2024 Earnings Call. My name is Kate, and I will be the moderator for today's call. [Operator Instructions]

I would now like to turn the call over to [ Zaric ] with Guardant Health. You may proceed.

[Unknown Executive]

Thank you. Earlier today, Guardant Health released financial results for the quarter ended March 31, 2024. Joining me today from Guardant are Helmy Eltoukhy, Co-CEO; AmirAli Talasaz, Co-CEO; and Mike Bell, Chief Financial Officer.

Before we begin, I'd like to remind you that during this call, management will make forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. This call will also include a discussion of non-GAAP financial measures, which are adjusted to exclude certain specific items.

Additional information regarding material risks and uncertainties as well as reconciliation to most directly comparable GAAP financial measures are available in the press release Guardant issued today as well as in our 10-K and other filings with the SEC. Guardant disclaims any intention or obligation to update or revise financial projections and forward-looking statements, whether because of new information, future events or otherwise. The information in this conference call is accurate only as of the live broadcast.

With that, I would like to turn the call over to Helmy.

[Helmy Eltoukhy, executive]

Thanks, [ Zaric ]. Good afternoon, and thank you for joining our first quarter 2024 earnings call.

Starting on Slide 3. Guardant is a liquid biopsy leader for therapy selection with a robust pipeline of opportunities in tissue-free MRD and cancer screening. With our comprehensive suite of tests, we are transforming patient lives across the continuum of care. We are just scratching the surface of what we believe is a massive opportunity in front of us.

At Guardant, every action is fueled by our dedication to serving patients and fulfilling our bold mission to give everyone more time free from cancer. In line with admission, I'd like to share a story of the impact our test have on patients.

In March 2022, a male in his 40 is diagnosed with Stage IV non-small cell lung cancer after he visited the hospital for gastrointestinal distress and back pain. That very same day, he was given a Guardant360 CDx liquid biopsy test at his hospital bedside and his oncologists later followed up with the tissue test. Within days, the Guardant360 CDx test results came back, identifying an ALK-genomic rearrangement.

With this information, the patient was started on alectinib, a first-line TKI treatment just 10 days after his diagnosis. Within just 2 weeks after starting treatment, the patient reported his back pain was resolved. Notably, the in-house tissue test results also confirm the ALK-positive mutation, but the results were received 5 weeks after the patient had already started therapy. The rapid turnaround time enabled by Guardant360 helped result in life-saving record time to treatment. I am pleased to share that the therapy has been successful in managing this cancer and the patient continues to do well today.

Turning to top line performance on Slide 4. We had a fantastic start to the year with total revenue growing 31% to $168.5 million in the first quarter of 2024. This was driven by very strong precision oncology revenue, which increased 38% in the quarter, supported by significant Guardant360 reimbursement tailwinds as well as strong growth in clinical and biopharma volumes.

Turning to Slide 5. Clinical test volume for the first quarter grew 20% year-over-year, reaching 46,900 tests. We achieved a record number of average tests for oncologists, driven by continued growth in both breadth and depth of ordering. Guardant360 continues to be the primary driver of clinical volume growth with increasing contributions from newer products such as TissueNext and Response. Reveal also continued to grow nicely despite our continued management of volumes ahead of broader reimbursement.

Biopharma volumes were incredibly strong in the first quarter, supported by strong collaborations with our growing number of biopharma partners. We now have over 170 lifetime partners. Test volume grew 37% year-over-year, reaching 8,450 tests. Despite discussion of biopharma headwinds across the sector, biopharma continues to be a bright spot for Guardant. We continue to see a lot of excitement for GuardantINFINITY, our newest biopharma offering, powered by our smart liquid biopsy platform. This is an important leading indicator for future demand for our clinical tests.

Looking more closely at some of the recent highlights within our therapy selection business on Slide 6. I'm very excited to share that we've generated positive free cash flow in our therapy selection business in the first quarter, supported by continuing improvements in Guardant360 ASPs. We had another significant step-up in Guardant360 reimbursement, reflecting the new [ crosswalk ] rates for Guardant360 LDT that took effect on January 1. This increased the Medicare rate for Guardant360 LDT to $5,000.

We also saw significant revenue upside from recent commercial payer coverage wins and believe that this is a tailwind that will continue to play out over the course of the year. We also saw continued progress in our EMR integration efforts with streamline orders and workflows for physicians. Notably, more than 1/3 of orders in the first quarter were digital, showing the effectiveness of the integration process. We had strong growth in the quarter driven by continued Guardant360 volume growth across all cancer types as well as contribution from Japan and the U.K.

At Guardant, high-quality science and data have always been the driving force in our mission to transform patient care. To that end, I'm excited to share that we recently reached a significant milestone and surpassed 500 peer-reviewed publications highlighting the data produced by our innovative suite of products.

Over the years, we have deliberately made investments to develop tests based on cutting-edge science, and we are proud to have conducted some of the largest and most impactful studies ever to be performed in our field. This incredible breadth of data demonstrates the impact our technology has in both patients and the scientific community in order to improve patient outcomes and ultimately, give us all more time free from cancer.

We are committed to generating evidence that supports the real-world impact of our technology and its impact on patient outcomes. This will drive physician demand and favorable reimbursement as we continue to improve payer coverage, which will in turn expand volume and increase our ASPs.

Now taking a closer look at our international progress on Slide 7. We recently launched a new service at The Royal Marsden in England to test advanced non-small cell lung cancer patients using Guardant360. This partnership is supporting a new national pilot with NHS England that is integrating liquid biopsy testing into routine care much earlier in a patient's treatment journey. It allows patients with suspected non-small cell lung cancer to receive ctDNA blood test concurrent with our diagnostic CT scan, so they may benefit from even earlier biomarker identification and subsequent targeted treatment.

We are excited about this program, demonstrating the value of bringing liquid biopsy testing much earlier into the patient journey to improve outcomes. The NHS study has already enabled more than 2,000 patients with suspected advanced lung cancer to receive a ctDNA blood test concurrent with a diagnostic scan and is set to expand to an additional 10,000 patients by next March.

Moving on to Slide 8. At our Investor Day last fall, we shared an exciting vision for our smart liquid biopsy platform, which is enabling first-of-its-kind capabilities across a myriad of applications. Last month, we presented exciting methylation [ fuel data ] for a few of these applications at the AACR Annual Meeting, highlighting the value of the GuardantINFINITY epigenomic signal to generate novel insights. This data shows how smart liquid biopsy technology provides information on not only boosting sensitivity for important drug classes such as targeted therapies and immunotherapies, but for giving unprecedented biological insight into the patient's cancer and their health as a whole.

For example, we presented data that demonstrated that we could do more than just detect the tumor tissue of origin in blood by unlocking the specific tumor histological subtype, which is critical given patients can often fail therapy due to transformation of the tumor subtype. And today, these transformations are often difficult to detect even in tissue.

Just as exciting, we presented data showing that we can predict adverse cardiac events in patients in HER2 directed therapy, including the detectability of heart risk and damage months prior to drug-induced heart failure. These are just a handful of the profound applications that our smart liquid biopsy platform will enable setting a new bar for what physicians will expect from their testing partner.

Now shifting gears to Reveal on Slide 9, where we are the leader in tissue-free MRD. I'm excited to share that our COSMOS CRC manuscript with data from our COSMOS colon study looking at Stage II and III patients has been submitted for publication and is under review at a peer review journal. Looking ahead to the remainder of the year, we anticipate publication that will support submissions to Medicare for a potential additional coverage in colon and breast cancers.

Next year, we have important clinical validity studies for additional cancers such as lung, pancreatic and gastric that will support advancement of additional reimbursement. We are excited by the demand we are seeing in the market, fueled by the fact that are greater than 12 million cancer survivors more than 5 years out from surgery. A tissue-free MRD solutions, such as Reveal, will be key to addressing this significant market. That said, we are not only the clear leader in this enormous market segment, but the only tissue-free MRD option in the market today.

Despite our excitement, we believe it is important at this time to manage volumes very closely and hence, minimize cash burn until Reveal is gross margin positive. Even ahead of additional Medicare reimbursement with the impact of biomarker bills, we are starting to see improvements with the Reveal ASPs. 17 states have now passed biomarker bills with several other states on deck for possible enactment this year.

We are still early in the process of starting to see some tailwinds that will bode well for future commercial coverage of our tests. We are also making very good progress in our COGS reduction initiatives for the Reveal. As a result, we expect that with significant lower COGS and with improved ASPs, Reveal will be gross margin positive in 2025. This will be an important milestone in minimizing MRD cash burn and enable us to greatly accelerate volume expansion. Furthermore, over the long term, we are confident in making achieve greater than 60% gross margins for our MRD business.

On April 29, the FDA issued its final rule related to the planned oversight of LBTs. While our regulatory team continues to work through the details of the rule, it is consistent with our expectations. The rule outlined an exemption from premarket review for tests approved by New York State, given the fact that our key tests are New York state approved, we would expect this exemption to allow us to continue to operate largely as we do now. As a reminder, Guardant360 CDx was the first FDA-approved liquid biopsy test for CGP across solid tumors. Our proven track record with FDA positions us to continue to offer high-quality tests when the final rule goes into effect. We look forward to the follow-on FDA guidance arguments to help clarify the numerous aspects of the final rule.

With that, I will now turn the call over to AmirAli for an update on screening.

[AmirAli Talasaz, executive]

Thanks, Helmy. We are making remarkable strides with our Shield blood test as we lead the way in establishing a new category within the CRC screening market. Shield continues to be the best-in-class blood test with significant first-mover advantage. And at this time, we do not see any credible competitor in our line of sight.

Turning to Slide 10. Since our last earnings call, the data from our pivotal ECLIPSE study was published in the New England Journal of Medicine, the world's leading peer reviewed medical journal. This publication was a major milestone for Shield and a strong endorsement of the quality of the clinical data. This data meets the benchmark for Medicare reimbursement, positioning us to potentially become the first FDA-approved Medicare reimbursed CRC screening blood test.

Turning to Slide 11. Following a publication in the New England Journal of Medicine, we were very excited to see such an enthusiastic response from media, consumer advocacy groups and opinion leaders. With attention from outlets such as the Associated Press, NPR, The New York Times, Colon Cancer Coalition and many others, the interest in and potential value of this blood test is evident. Many recognize the significance of this publication as it brings us one step closer to providing a new choice for patients and helping to close the screening gap.

Moving on to Slide 12. Our interactive review process with FDA continues to be collaborative and positive, and we continue to make steady progress. The Advisory Committee panel meeting will be the next milestone of the review process and will take place on May 23. Our team has worked incredibly hard to get ready, and we are well prepared for this panel meeting.

In parallel, we are eagerly anticipating the launch of Shield IVD in 2024 shortly after expected FDA approval. Armed with 2 years of commercial experience from Shield LDT, we have fine-tuned our operations, including enhancement of customer experience seamless digital ordering and access to National Phlebotomy Networks. After years of research and development, it's so exciting to prepare to make this test broadly available.

Turning to Slide 13. There are 120 million average-risk individuals between the age of 45 to 84, which includes 50 million unscreened individuals. Approximately 75% of CRC-related deaths occur within this unscreened population. And this is with having a broad menu of stool-based test available for over a decade. We believe that reaching this group is the most important opportunity to transform the CRC screening paradigm. And real-world evidence clearly shows that the blood modality is best positioned to capture the unscreened opportunity.

We believe screening these 50 million individuals is addressable by a blood test because nearly 87% of people, age 50 and above have been seeing their doctor during the last 12 months based on findings from an annual National Health Interview Survey. Interestingly, 91% of that group has had a blood draw in the last 12 months. This tells us that the majority of the unscreened population is, in fact, engaged with the health care system on routinely getting blood draws, making a blood-based CRC screening test an obvious fit into their existing care.

More importantly, our real-world LDT experience with Shield for over 20,000 tests over the past 2 years, confirms that PCPs are enthusiastically ordering this test. And when they do, patients complete the test. We continue to see an incredibly strong adherence rate of more than 90% for Shield LDT.

Moving on to Slide 14. A randomized perspective study results from Kaiser Permanente showed significant improvement in CRC screening rates when participants had a choice of a Shield test alongside other standard of care modalities. Through telephone outreach to more than 2,000 previously unscreened individuals, participants were randomized into 2 groups. One group was offered FIT or colonoscopy and the second group was given the added option of Shield.

This study demonstrated that screening compliance significantly increased by nearly threefold, while the menu of screening options was expanded to include the blood tests. This shows that blood has the opportunity to dramatically increase the screening rate at levels that exceeded even our initial expectations. We continue to be very excited about the near-term opportunity for Shield to transform the CRC screening paradigm and eventually to address the broader cancer screening landscape with the addition of more tumor types to our Shield assay.

With that, I will now turn the call to Mike for more detail on our financials.

[Michael Bell, executive]

Thanks, AmirAli. Turning to Slide 15. I'll start by reviewing our financial results for Q1 2024. All growth rates provided will be on a year-over-year basis, unless otherwise noted.

Total revenue grew 31% to $168.5 million, driven by very strong precision oncology testing revenue, which increased 38% to $156.2 million due to significant growth in both clinical and biopharma revenue. Precision oncology revenue from clinical tests increased 37% to $125.7 million. We were very pleased with our first quarter clinical test for you, which grew 20% to 46,900 tests, in line with our expectations.

For Guardant360, we saw a solid year-over-year volume growth across all cancers in the U.S. as well as volume contribution from Japan and the U.K. We also saw continued strong volume growth for both Reveal and TissueNext. Precision oncology revenue from biopharma tests in the first quarter totaled $30.5 million, up 40%. Biopharma test volume was particularly strong, totaling 8,450 tests, up 37%, which reflects the strong pipeline we entered the year with.

We continue to expect our biopharma business to perform well and conservatively forecast biopharma revenue to grow in the low teens for the full year 2024, with potential upside assuming no adverse change to the biopharma macro environment. Finally, development services and other revenue was in line with our expectations and totaled $12.3 million.

Turning to Slide 16. Since mid-2023, we've seen consistent improvements to clinical reimbursement and ASPs and had an incredibly strong start to the year. Firstly, on January 1, our Guardant360 LDT Medicare rate increased to $5,000 following the CMS [ crosswalk review ] process last year. Secondly, we're now seeing the impact of the Guardant360 commercial coverage wins we had in 2023.

In Q1 2024, cash collected for test performed last year was significantly higher than we had previously accrued, which resulted in an approximate $8 million revenue upside in the quarter. In addition, due to this improved commercial reimbursement trend, we increased our Guardant360 ASP for Q1 to be in the range of $2,900 to $2,950, which is higher than the forecasted range of $2,850 to $2,900. We expect the Guardant360 ASP for the full year will be in this new higher range.

Finally, we also received better-than-expected commercial reimbursement for Reveal, TissueNext and Response in the first quarter of 2024. While we still need to see a more consistent reimbursement trends for these tests, the reimbursement received in Q1 points to potential ASP upside in future quarters.

Although it's still early days, we feel we are on track to achieve the long-term ASP targets we presented at our Investor Day earlier than originally anticipated. This [ hit out ] was achieved our top line target as well as potentially bring forward our time line to reach company-wide cash flow breakeven.

Moving on to non-GAAP financial measures on Slide 17. Our non-GAAP gross margin, excluding screening, which reflects our therapy selection and MRD businesses, was 64% in the first quarter of 2024, an improvement compared to 63% in Q1 2023. As Helmy mentioned, we are carefully managing Reveal test volume ahead of broad reimbursement as it currently carries a negative gross margin. Even with a larger proportion of Reveal tests in Q1 2024 compared to Q1 2023, we were able to improve our non-GAAP gross margin driven by strong Guardant360 to ASPs and reimbursement we received in the first quarter of 2024.

Non-GAAP operating expenses were $176.5 million, a reduction of $11.8 million compared to the prior year quarter. This decrease was primarily driven by lower clinical study costs following the completion of ECLIPSE enrollment in Q3 last year. With increased revenue, improved gross margins and lower operating expenses, our adjusted EBITDA improved significantly from a loss of $101.0 million in Q1 2023 to a loss of $61.1 million in Q1 2024.

Moving on to Slide 18 and cash burn. Free cash flow for the first quarter of 2024 was negative $37 million, which improved significantly year-over-year compared to negative $82 million in Q1 2023. As you've seen from the slide, we have revised our free cash flow guidance for the full year 2024, which has been in the range of negative $275 million to $285 million, which represents an improvement of $60 million to $70 million compared to 2023.

The key drivers of this revised 2024 guidance are the improved commercial reimbursement we are receiving for Guardant360 and a reduction in screening spend. As we have mentioned many times before, our screening spend will be gated by major milestones, the next milestone being FDA approval.

While we continue to expect FDA approval and commercial launch of Shield in 2024, the delay to the Advisory Committee panel meeting means that we have revised our operating plan, and as a result, now expect maximum screening cash burn this year to be $175 million, lower than our previously stated $200 million.

On this slide, we have also included a breakdown of the screening cash burn for full year 2024 to provide additional color on the level of investments we are making in screening. As you can see, as well as SG&A spend, we're incurring costs and a gross loss during Shield test prior to Medicare reimbursement coverage, and we are continuing to invest in screening research and development, including our SHIELD LUNG clinical study, making technology and automation improvements and continuing to make progress in multi-cancer early detection development.

We expect the screening cash burn profile to change in 2025 as the gross loss will become a gross profit following ADLT reimbursement and our SHIELD LUNG clinical study expense will reduce significantly once enrollment is completed. This will enable us to increase the investment in our commercial operations while not exceeding a maximum net burn for screening of $200 million per year.

As we look ahead to the next few years, we're confident that by continuing to generate positive cash flow from therapy selection, driving MRD to profitability and carefully managing the investment into screening, we can continue to lower our cash burn each year so that we reach cash flow breakeven by 2028 or potentially earlier, which is achievable with our current cash balance of $1.1 billion.

Now turning to our outlook and assumptions for the full year 2024 on Slide 19. We're pleased to be able to make improvements across all guidance metrics. We now expect full year 2024 revenue to be in the range of $675 million to $685 million, representing growth of approximately 20% to 21% compared to 2023. This increase is primarily due to the commercial reimbursement upside we had in the first quarter and the increase in Guardant360 ASPs that we expect for the remainder of the year.

As a reminder, this guidance doesn't include any revenue contribution from screening, which are dependent on the timing to Shield FDA approval and Medicare reimbursement coverage. We'll update our revenue guidance to include screening revenue when appropriate. We expect non-GAAP gross margin, excluding screening, to be in the range of 61% to 63%, an improvement from our previous guidance of 60% to 62%. Again, this is due to improved clinical commercial reimbursement.

We've lowered our non-GAAP operating expenses to be in the range of $720 million to $730 million, representing a flat to 1% year-over-year decline. This decrease is due to the reduction in screening operating expenses, as I just outlined. Finally, as previously mentioned, we expect free cash flow to be in the range of negative $275 million to $285 million in 2024.

Finally, turning to Slide 20 to review our catalyst. As we look ahead to the rest of 2024 and beyond, we have a number of upcoming milestones in each of our key business areas, including the Smart Liquid Biopsy upgrade for Guardant360 and therapy selection, data publications and MolDX submission for MRD and Shield FDA approval in launch.

With that, we'll now open the call to questions.

[Operator]

[Operator Instructions] The first question comes from the line of Mark Massaro with BTIG.

[Mark Massaro, analyst]

Congratulations on the strong beat and raise. To limit myself to one question, obviously, we're 2 weeks away from the FDA AdCom. I think a lot of people are expecting the conversation to focus on the safety and efficacy as well as some of the other benefits of Shield like the patient compliance or patient adherence. But I think there are some questions in the investor community that are focusing on the labeling and the topic of advanced adenomas. Do you guys have a sense for whether or not you think a label conversation will be much of a focus of this meeting? And how are you thinking about the setup and the tone of questions ahead?

[AmirAli Talasaz, executive]

Yes. Thank you, Mark. We are excited to get to this point of the review process. In terms of the topic and agenda, all those measures actually is going to get published by agency a couple of days prior to the meeting, and we are just 2 weeks away from it. So hopefully, those materials when they put it in the federal registry and become public, provide some more detailed insight about your question. And we are going to that meeting with high confidence about the quality of the study that we've done, quality of the device performance that we reported at published and our team has been working very hard to get ready to get to this point and go to this panel, and we are excited to see how that kind of conversation would go.

[Operator]

The next question comes from the line of Jack Meehan with Nephron Research.

[Jack Meehan, analyst]

I wanted to focus on G360 here. I have 2 questions. The first is on ASP. So $2,900 to $2,950. I think that was about $50 better than you were guiding. I was curious if there was anything that stood out there or if it was kind of everything tracking the right way. And then on the volume side, I was wondering if you could peel back some of the drivers to start the year? Were there any cancer indications that stood out? And just how you're feeling about the durability of growth?

[Michael Bell, executive]

Yes, I can start on the ASP, Jack. It's Mike. Yes, I think we had really strong ASP and commercial reimbursement in the quarter. So we're really pleased with that. We knew that we were going to get the uplift from the Medicare increase to 5,000 for Guardant360 LDT. But we also saw really strong reimbursement and payments from commercial payers, not just for Guardant360, but also across all of the portfolio. So that had a really positive impact on our ASP. Yes, as we said in the prepared remarks, we've now increased our expected Guardant360 ASP to the range to $2,900 to $2,950. So you're right, it's about a $50 per test increase. We also said in the prepared remarks, we had approximately $8 million upside in Q1, and that was related to commercial reimbursement that we received in the quarter. That was really out of period, so it was the test performed in the second half of last year. But even if you strip that $8 million out, still really strong ASP performance in that, an increase that we now think for Guardant360 will flow through for the rest of the year.

[Helmy Eltoukhy, executive]

And in terms of volume, I think we said in the prepared remarks, we saw really growth across really all indications for 360. We saw growth in terms of both breadth and depth, and depth is, I would say, was obviously a bigger percentage of the growth given essentially how widespread G360 is. But we've been very pleased with the start of the year, obviously, it was a fantastic quarter. And I think it bodes well, especially for the second half as some of our initiatives that are just getting started look to be really taking off in the right way.

International volumes are picking up. We have the NHS sort of engagement with the 10,000 lung cancer patients. And then all the EMR work we've been doing is really just getting started. We're seeing, I think, considerable increase in depth in those accounts as they start getting engaged with our EMR integrations. And so we're picking up the pace of some of that. And I think it's going to be a really nice growth driver for the next couple of years.

[Operator]

The next question comes from the line of Dan Arias with Stifel.

[Daniel Arias, analyst]

Mike, on MRD, what do you have as a revenue target for Reveal at this point for 2024? And then can you or help me maybe talk to the extent to which you're holding back on Reveal because of the cost headwinds that come out of that? Is it possible that you get to the point where opening up the spigot a bit and getting the test use becomes at least as important as safeguarding ASP and COGS, especially since it sounds like you're making some COGS improvement there?

[Michael Bell, executive]

Yes. I can start on MRD revenue. Dan, we're not breaking that out for 2024. We said last year that the revenue for Reveal was in the sort of low double-digit millions. And obviously, we expect it to grow this year. We are growing the volume, and we are seeing nice traction with the ASP. So that revenue will grow, but I think we don't particularly want to be breaking out the revenue by all of the different products. I don't know, Helmy, if you want to...

[Helmy Eltoukhy, executive]

Yes. No. I mean I think we see, I think, tremendous volume out there. As I said in the prepared remarks, there are 12 million cancer survivors that are 5 years out from surgery. And so there really are an untapped population. We're seeing so much latent demand out there, especially in that population. And there really are no tests that are suitable for them today. Really, the major sort of impediment to getting that volume has really been the kind of sort of where ASPs are and where the COGS is.

And all of that will likely be much, much improved once we get the surveillance CRC indication and once we're through some of these COGS reduction initiatives. And so we see the gross margin profile looking really, really nice in '25 and beyond. And once we're gross margin positive, we'll be taking the [ governor off ] and really putting the pedal to the metal in terms of that volume. But yes, we feel very good in terms of our positioning now in terms of where our volumes are. And so right now, we don't see a need to necessarily burn more cash.

[Operator]

The next question comes from the line of Patrick Donnelly with Citi.

[Patrick Donnelly, analyst]

Helmy, maybe one on the clinical volumes following up there, nice 20% growth in the quarter. Can you talk about what you're seeing there, just the volume expectations you work our way through the year? Certainly curious in terms of the MRD impact. I know you guys are taking some volume while at the same time holding back a little bit, just given they're not profitable volumes at the moment. So it would be great if you could just talk through the MRD balance and again, just that clinical volume, what you saw in the quarter and the outlook as we work away through the year.

[Helmy Eltoukhy, executive]

Yes. No, I mean, we're very pleased with the start of the year in terms of our clinical volumes across the board. We're seeing growth across all tumor types, all product lines. And so we're very pleased with where that's going. I think the mix is getting nice for us just in the sense of managing some of those Reveal volumes. And so I think the major thing for us is I think some of the growth initiatives we have, which are, as I said, EMR integration, some of the international stuff.

And then I think what we're very excited about, I think, second half of this year is a smart liquid biopsy transition. We are seeing that. Even before that, we're doing really well in the market. Obviously, there's competition that ebbs and flows, but we're still saying that the current products we have are really best-in-class from a sensitivity, from a turnaround time, and that is really the major differentiator in terms of what liquid biopsies need to do to save patients' lives.

But as we start transitioning to smart liquid biopsy, we've seen from the pharma demand that has been really exciting and really strong from the conversations we've had at AACR with some of the new data around smart liquid biopsy, epigenomics that we're really going to raise the bar considerably in terms of what physicians expect from their test in terms of the capabilities and doing things that are even difficult to do in tissue, as I highlighted in the call, and we think that is going to sort of put us into sort of overdrive once all of that is out in the market, especially in tumor types, whereas comprehensive genomic profiling really hasn't been that useful outside of breast, lung and colorectal. And so we think epigenomics and smart liquid biopsy will sort of catalyze a lot of that volume that is still out there and still in its early innings.

[Operator]

The next question comes from the line of Sung Ji Nam with Scotiabank.

[Corey Rosenbaum, analyst]

This is Corey Rosenbaum on for Sung Ji. So one of your peers mentioned yesterday that the USPSTF update timing is more likely to come in 2027. Would you have additional insight into that? And with a delay in timing there materially impact your commercial strategy for Shield following FDA approval?

[AmirAli Talasaz, executive]

Yes. Actually, so we [ heard about that would fine ]. We tried to actually see if we can find a confirmation. In fact, USPSTF has given no indication that they are intending to delay their process and continue to think their draft research plan, for CRC screening should come out sometime this year. In fact, if you look at their website during the last few weeks, a couple of new research draft -- draft research plans got actually published on their website. But we are going to [indiscernible] the field in terms of the road map that we talked about. In terms of our expansion, we are going to look at actually some of the milestones before we go through some of the expansions and one of the milestones for '26 is getting to the USPSTF guidelines.

I also want to maybe take the opportunity, [ announce ] to the importance of American Cancer Society guideline that we are expecting hopefully sometime in 2025. That would be a good catalyst in this field, open a bunch of you saw adoption of this test and also reimbursement ASP stories in states that they have some state-level mandates to cover CRC screening tests recommended by ACS.

[Operator]

The next question is from the line of Subbu Nambi with Guggenheim.

[Unknown Attendee]

This is [ Brandon Hong ] on for Subbu. In terms of therapy selection, we got some feedback that some competitors are offering a combination of immunohistochemistry or IHC, in addition to NGS capabilities for other markers besides PD-L1. Do you anticipate offering this kind of combined approach at the protein level with GuardantINFINITY? And just any kind of general comments around the outlook there.

[Helmy Eltoukhy, executive]

Yes. I mean that is not a difficult thing to add to the menu if it's something that is requested. And I think the exciting thing about INFINITY is that it works in blood. Obviously, I see the tissue test. And what we can do with INFINITY in terms of some of the applications we're seeing are even difficult to do in tissue, frankly. And so we're -- what you're talking about is commodity things that anyone in the world can do. We're talking about breakthrough things that only Guardant can do in terms of what we're adding to the platform. But just like we've added tissue that's PD-L1, we can add some of those base layers, if and when the market needs it. So fairly simple exercise.

[Operator]

The next question comes from the line of Kyle Mikson with Canaccord Genuity.

[Alexander Vukasin, analyst]

This is Alex Vukasin on for Kyle Mikson. One quick question. So Grail, obviously, they recently released their Form 10, and the Form 10 kind of a build -- pretty extensive historical information regarding [ saw ] revenue growth over time. I guess one point here, could you just discuss, besides the obvious, multi-cancer versus single cancer, how are you going to different yourself between these different multicenter test in Shield? And also, do you believe that Galleri could -- is, in a way, a proof point that blood-based screening could, in fact, be successful on a wider scale?

[AmirAli Talasaz, executive]

Okay. So it's hard to comment on other kind of companies 10-Q filing. But in general, in terms of the landscape, scientifically, technologically with a simple blood test, you can do multi-cancer screening and early detection, but what we do believe is you need to have a pathway to make sure those innovation would be accessible for wide setup population to really open up those markets.

And I think over time, we just got more confident about our strategy to start with a single cancer like colon, lung cancer that are pathways for approval, pathways for Medicare reimbursement, pathways for task force review and then expand from that lead indication into other cancer types like you're doing a lung cancer screening study, and you are working on some multi-cancer early detection kind of applications. But CRC is going to be our really -- and transcend the pillar point of getting to this market and really making the test accessible. I think for other [ MSAT ] tests, FDA path reimbursement, there are many, many barriers, and we'll see over time how that strategy would pan out.

[Operator]

The next question comes from the line of Tejas Savant with Morgan Stanley.

[Yuko Oku, analyst]

This is Yuko on the call for Tejas. The recently finalized LDT regulation notes that FDA generally expects compliance with premarket review for currently marketed LDTs if there are certain modifications that may affect test basic safety and effectiveness profile. Given tests like G360 go through multiple versions, improving performance over time, would changes in algo constitute a modification under this finalized role? And then a quick follow-up, also, as you think about future test development, would it be fair to assume 100 or 200 bps headwind to medium-term gross margin as the rules go into effect?

[Helmy Eltoukhy, executive]

I think the rules that came out from the FDA is something that I think was largely expected. And if anything, maybe the borrower is a little bit lower than what is usually telegraphed. Where we are is we have Guardant360 CDx, which has been sort of under the framework of FDA. We've done multiple upgrades, software upgrades to Guardant360 CDx under sort of that FDA framework. And so we have those capabilities. We're very familiar with it. We've successfully operated under that. And so yes, this is really not a change in almost any way in terms of our business. It has very minimal impact.

[Operator]

The next question comes from the line of Dan Brennan with TD Cowen.

[Daniel Brennan, analyst]

Congrats on the quarter. Maybe just zeroing in on my Guardant360 clinical for a moment. Could you just give us a sense, overall, clinical volumes came in a little bit above our expectations, and we felt like after a really strong growth last year, like you guys had said a reasonably conservative bar. Just wondering, can you speak to any color on how Guardant360 clinical volumes did in the quarter and kind of what you're seeing in the marketplace and kind of how we think about the progression throughout the rest of the year?

[Michael Bell, executive]

Yes. I can talk about the volumes for the cost, I mean the overall -- we said the overall clinical volume of 20% came in with our -- in line with our expectations. The same is true for Guardant360. So it came very nicely. Q1 was a difficult comp for us because in February of last year, we had the ESR1 approval, and we saw an immediate uptick in the breast volume for Guardant360. And we know for Q2, we're going to have an even more difficult comps. So I think we were really pleased with how the G360 volume came in the first quarter. Yes, Q2 is going to be a harder comp, but we still think we're going to see continued sequential growth. And I think we're looking at higher year-over-year volume growth for G360 in the back half of the year. I don't know, Helmy...

[Helmy Eltoukhy, executive]

Yes. No, I mean, look, I think we're excited for the second half because we're just seeing a little bit of initiatives we have, I think, are going to stick in terms of, as I said, EMR integration, international and Smart Liquid Biopsy transition. So yes, we started off, I think, better than we expected. And I think it's going to be a good year in general.

[Operator]

The next question comes from the line of Eve Burstein with Bernstein Research.

[Salvatore Alberto Buccellato, analyst]

This is Alberto Buccellato on for Eve. I wanted to ask more of a long-term question. You have more than $1 billion in convertible debt due in 2027, and we already have seen some other companies being penalized. So that -- in your Investor Day, you shared that you don't plan to be cash flow positive before '28. We're assuming that you will need to raise money for that. So what are the options you're considering? Are you having this discussion now? And are you thinking about reducing more of your expense profile ahead of that?

[Michael Bell, executive]

Yes. I mean, I think the first thing we would say is our cash balance at the end of this quarter was over $1.1 billion. And I think we've been pretty consistent in saying that over the next few years, our cash burn is going to come down every year and that to get to that sort of breakeven level in 2028. The cash that we've got is more than sufficient to get us there. And in fact, with the traction that we're seeing with ASPs -- and actually, the reduction in cash burn that we've just brought down for the full year just now. I think there's potential that we can get to that breakeven level for the company potentially earlier than 2028. So we're really focused on how quickly we can drive to profitability.

As far as the convertible, yes, I mean, we're well aware of that. At the moment, it's got a 0% coupon, it's maturities end of 2027. And so we're feeling relatively comfortable with having that on the balance sheet at the moment. But we're continually looking at what our options are. We're talking to a lot of people. We want to make sure that we make the right decision and do the right thing. But I think you've got the advantage of time on our side. But yes, it's something we're aware of, and we'll know what we need to address it at some point in the future.

[Operator]

The next question comes from the line of Puneet Souda with Leerink Partners.

[Puneet Souda, analyst]

Guys, thanks for the question. So I know you're not providing much on the Advisory Committee, but just wondering, is frequency -- will the frequency of assay would be a consideration there? And then maybe just looking competitively across the landscape, we have seen some readouts. There are some expected readouts that are coming as well later this year. Does that change your view at all in terms of how the Shield is positioned competitively in the marketplace, if there is a competitor that has maybe a larger commercial presence introducing an asset down later this year? Does that change any thinking on your end as to how you're progressing with Shield?

[AmirAli Talasaz, executive]

Yes, Puneet. So in terms of the AdCom, we are going to that meeting very confident and excited. And in terms of really the final target, final agenda like it kind of gets released like a couple of days before the meeting by agency and there are potential changes that could happen any time by then. So we are going to have all the final information very soon. We're just literally 2 weeks away from that AdCom base right now.

In terms of actually competitor data, Shield is the best-in-class technology, the best-in-class performance. And now we have further extended kind of a first-mover time advantage. And frankly, like I'm not sure if we are seeing any credible competing blood test at this time. So we are going to continue to monitor this field. But with this time advantage performance that we have here in the very late inning of FDA approval, and we feel very comfortable with where we are competitively, and we'll see if anybody else is going to have anything at the end of the day. So we are even more excited about the opportunity right now than even a few quarters ago.

[Operator]

The next question comes from the line of Rachel Vatnsdal with JPMorgan.

[Casey Woodring, analyst]

This is Casey Woodring on for Rachel. So biopharma had a strong quarter. Test volumes were up 37%. I think revenue was up 40%. 1Q was obviously a strong quarter from a biopharma funding perspective. So can you just walk us through the rationale for reiterating your 2024 revenue forecast there for low teens growth? And maybe how much upside there would be to that number if funding were to hold at current levels or even continue to improve here relative to where funding levels were when you initiated the guide?

[Michael Bell, executive]

Yes, I can take this. Yes, biopharma came in incredibly strongly for us in the first quarter. We had a strong pipeline coming into the year. And so that came through. And looking at our pipeline, now it's still very strong. I think we said in the prepared remarks, we're sort of maintaining our overall guide for biopharma. Just really, we want to be conservative. We want to just ensure that there's no adverse impact to the biopharma funding sort of the macro environment that might cause a potential reduction in the back half of the year.

So definitely, there's upside in the back half of the year for us on biopharma. To quantify that is difficult. I think if you sort of back into our guide, we're almost sort of guiding to sort of flat year-over-year in the back half of the year. So I think, yes, we feel hopeful that we can have upside there. But again, it's difficult to quantify, but the pipeline is looking strong for us in the near term.

[Operator]

The next question comes from the line of Matthew Sykes with Goldman Sachs.

[Unknown Analyst]

This is [ Wilhelm Meyer ] on for Matt. Great to see the gross margin raise to start the year. It sounds like the higher ASP was probably a big driver there. But can you give us some more color on any other drivers or moving pieces you're seeing? And what are your expectations for phasing on gross margin for the rest of the year?

[Michael Bell, executive]

Yes. No, we were really pleased on the gross margin. The real driver this caused was the ASP impact. And so as we said in the prepared remarks, we raised our expectation of ASP for Guardant360 for the remainder of the year. We also saw good commercial reimbursement on Reveal and TissueNext as well. So if that was to continue through the year, I think there's potential upside there on the gross margin, we sort of do want to offset that a little bit by the mix.

We're managing our Reveal volume mix if we were to take the foot off the brake on Reveal, that could have an impact. And there's other different mix impacts as well that we try to manage. But overall, we're really pleased. Gross margins are improving. We see a line of sight to higher ASPs and potentially even higher gross margins. So I think we started the year up very well from that perspective.

[Operator]

The next question comes from the line of Doug Schenkel with Wolfe Research.

[Douglas Schenkel, analyst]

I want to talk about 2 things. One is Shield and then two is really R&D spend and prioritization as we look ahead. On Shield, maybe asking an earlier question a different way, what do you think the realistic range of outcomes is for AdCom later this month? Two, recognizing that you've consistently said you believe this is a 3-year testing interval product. If you happen to be wrong, and this is in every 1-year test, do the economics work? And then what is your expectation for USPSTF timing as we sit here today? There's been some commentary from others that this is seemingly being pushed out a little bit. And then I'll come back and ask about R&D in a second.

[AmirAli Talasaz, executive]

Yes. So in terms of AdCom, several questions have [ combined here ]. So in terms of AdCom, probably a typical question in terms of safety, efficacy and the benefit-risk is going to be discussed in the panel and the range of outcomes as advisers are kind of looking to our data and everything and decide what they want to vote on in terms of those questions. But we are very confident with all the profile of the data that we have to the study that we've done on the reported device performance that we reported on published at the same kind of performance kind of presented there. But we'll see in terms of how that AdCom goes. We feel very good about it.

In terms of the interval and 3-year testing, I mentioned this before, if -- the interval test for Shield becomes even more frequent than every 3 years. In fact, it's going to be an upside for us. So in a land that FDA approved diagnostic test, pricing is going to get set, Medicare pricing is going to get set, an ADLT process. Every year testing, frankly, would be even an upside in terms of our P&L. We believe based on the modeling that we've done, it's overutilization of Shield, but annual testing is an upside, not a downside. The last one was what? That's it.

[Operator]

The final question will come from the line of Mason Carrico with Stephens.

[Mason Carrico, analyst]

Sorry, if this has been discussed. I'm jumping between a few tonight. So in terms of your expectations for Shield, you've talked about how a second label is still a big opportunity. Your commitment to screening as long as it continues to fall in line with your expectations of the opportunity. So assuming we get a second-line label, as we look into next year, what is a realistic adoption hurdle for you guys? [ Exacted ] 100,000 Cologuard test, I believe, in their first year after FDA approval. Maybe you guys are in a better position commercially than they were at that time, maybe you're not. But is there any sort of hurdle or framework you can give for expectations next year where volumes may fall?

[AmirAli Talasaz, executive]

Yes, in general, our expectation of going to AdCom and after the follow-on if conversation with the FDA is to take Shield to the finish line and get FDA approval, that would be the definition of success for Shield from our perspective to have a huge opportunity in front of us. And the failure is obviously is if we cannot convince FDA to approve the steps. It would be very unexpected, but we'll see what happens.

In terms of second line, we get the opportunity for blood-based CRC screening and the biggest opportunity, in general, for noninvasive CRC screening is this 50 million unscreened patient population, which are out there right now. And that market segment is completely open for a second-line indication. So that's why we continue to be excited to go to market with Shield even with the second-line indication.

Having said that, we have milestones. We have some assumption in terms of volume graph and revenue contribution. And this time, we are going to monitor the commercial execution and if still the market is as exciting as what we think it is right now. In terms of setting a specific guidance for next year, we would talk about it at the right time. It depends on the timing of FDA approval and some other factors. I'm pretty sure we would talk about it in the future sometime in 2024.

[Operator]

Thank you. That is all the time that we have for questions today. I will turn the call back over for any final concluding remarks.

[AmirAli Talasaz, executive]

Thank you so much for everybody's interest. Have a good day and night.

[Operator]

That concludes today's call. Thank you all for your participation, and you may now disconnect your lines.