Guardant Health Inc

NASDAQ:GH

Earnings Call Analysis

Guardant Health Posts Solid Q4 and FY 2023 Results

In Q4 of 2023, Guardant Health's therapy selection operations reached cash flow breakeven, marking a pivotal point for the company. Coverage from all major U.S. commercial health insurers for Guardant360 has now exceeded 300 million lives. Reveal volumes surged by over 90% with expanding commercial coverage post-Medicare reimbursement in 2022, signaling strong adoption in clinical practice. Q4 revenue grew by 22% to $155 million, and the annual increase was 25% to $564 million, slightly above the provided range. Clinical test volume saw a 29% quarterly and 39% annual uptick, with Guardant360 driving growth, enhanced by products like TissueNext and Response. Biopharma test volume grew by 16% quarterly and 15% annually, with significant interest in the GuardantInfinity platform. The Guardant360 average selling price is projected to reach $2,850 to $2,900 in Q1 2024, reflecting successful strides in price improvement.

Building a Foundation for Future Expansion

The company is nurturing a robust study pipeline with almost 80,000 samples from 20,000 patients, promising to bolster evidence that could lead to expanded reimbursement and potentially influence practice guidelines. Upcoming publications are expected to support Medicare submissions for additional coverage in the next year, focusing on critical clinical validity studies for lung, pancreatic, and gastric cancers.

Strong Revenue Growth Amidst Rising ASPs

For the fourth quarter of 2023, there was a notable 22% increase in total revenue to $155.1 million. Precision oncology testing revenue grew by 25% to $142.2 million, with clinical test revenue rising 29% to $108.2 million. A 29% increase in the clinical test volume, primarily driven by Guardant360, contributed significantly to this growth. The average selling price (ASP) for Guardant360 improved to approximately $2,750 and is projected to further increase to a range of $2,850 to $2,900 in Q1 2024 due to Medicare rate hikes.

Margin Pressures and Increased Net Loss

Gross margin dipped to 60% from 63% in the prior year quarter. A decline was also observed in the precision oncology gross margin, shrinking from 62% to 60%. This was in spite of the ASP improvements, mainly due to changing test mixes and international expansion. The fourth quarter saw increased net losses of $187 million, or $1.58 per share, compared to $139.9 million in the prior year. Total operating expenses decreased by $19.2 million.

Year-Over-Year Progress with a Focus on Cost-Reduction

The full-year financials reflect a 25% uptick in total revenue to $563.9 million, powered by a 35% increase in clinical testing revenue and a 39% higher testing volume. The full-year operating expenses were reduced by $19.4 million, and the net loss per share decreased from $6.41 in 2022 to $4.28 in 2023.

Implementation of Non-GAAP Measures for Clarity

Non-GAAP gross margin was maintained at 61%, with an exclusion of screening costs bringing that figure to 63%. Non-GAAP operating expenses saw a slight reduction to $729.2 million, and non-GAAP net loss per share improved from $4.26 in 2022 to $3.15 in 2023.

Towards Financial Efficiency and Strengthened Cash Position

With a focus on achieving breakeven cash flow by 2028, the company has successfully reduced its free cash flow deficit from negative $387 million in 2022 to negative $345 million in 2023. This disciplined approach sets the foundation for sustainable growth, supported by a strong cash position of $1.2 billion.

Optimistic Outlook for 2024

The company projects revenue growth of 16% to 19% for 2024, with an expected range of $655 million to $670 million. This guidance does not include potential revenue from the screening business, which is contingent on FDA approval and Medicare coverage. The anticipated non-GAAP gross margin for 2024, excluding screening, is forecasted to be between 60% and 62%, with non-GAAP operating expenses ranging from $740 million to $750 million. The guidance aims for a free cash flow range of negative $320 million to $330 million, assuming a $200 million cap on the net cash outflow for screening.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon. Thank you for attending the Guardant Health Q4 2024 Earnings Call. My name is Victoria, and I'll be your moderator today. [Operator Instructions] I would now like to pass the conference over to your host, Carrie Mendivil. Thank you. You may proceed Carrie.

[Carrie Mendivil]

Thank you. Earlier today, Guardant Health released financial results for the quarter and year ended December 31, 2023. Joining me today from Garden are Helmy Eltoukhy, Co-CEO and 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 specified 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 Form 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'd like to turn the call over to Helmy.

[Helmy Eltoukhy, executive]

Thanks, Carrie. Good afternoon, and thank you for joining our Fourth Quarter and Full Year 2023 Earnings Call. I will start off our call today by providing an update on our progress over 2023 and go into more detail across therapy selection in MRD. I will then turn the call over to AmirAli for an update on screening. And finally, Mike will provide a more detailed look at our financials and outlook for 2024.

Starting on Slide 3. We made substantial progress in each area of our business throughout the year. Starting with therapy selection after years of investing in our infrastructure, I'm very pleased that therapy selection reached cash flow breakeven at the end of the year, marking a major achievement regarded. This follows a series of pivotal reimbursement wins throughout 2023. We now have coverage from all major U.S. commercial health insurers for Guardant360, surpassing 300 million covered lives. We also surpassed 200 million covered lives for TissueNext, received national reimbursement in Japan for Guardant360 and received Medicare reimbursement for Guardant Response. We also exceeded 475 EMR integrated accounts as of year-end, outpacing our prior targets.

Moving on to MRD. I'm excited to share that we upgraded a Reveal to the smart liquid biopsy platform at the end of the year, enabling even better performance. Reveal volumes came in strong with full year growth of over 90%. We also received additional commercial coverage for Reveal in CRC following Medicare reimbursement in 2022 and continue to produce compelling data across CRC and breast cancer for Reveal demonstrating high clinical performance.

And finally, with screening, we completed our PMA submission for Shield CRC, made steady progress with FDA review and published the first paper for Shield demonstrating improved adherence with a blood-based CRC screening. While we continue to believe the performance of Shield meets the bar for FDA approval, we have already demonstrated improved clinical sensitivity with our upgraded platform, CLV2, when compared to CLV1 with data presented at our Investor Day last year. I'm so proud of our team for pushing the boundaries of what's possible as we deliver on 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 Reveal test has had on patients. In early 2023, Oman was diagnosed with triple-negative breast cancer and underwent surgery. Her physician then ordered a series of Reveal tests as part of our surveillance program, and the second test came back positive for ctDNA 30 weeks after surgery. The physician schedule the patient for additional scans which found a growing nodule in her lower left lung. With this discovery, she is now undergoing further treatment. This story highlights how Reveal can be used effectively in surveillance settings to identify the need for additional treatment and deliver better patient outcomes.

Turning to top line performance on Slide 4. We had a strong finish to the year with revenue growing 22% to $155 million in the fourth quarter and 25% to $564 million for the full year 2023 coming in slightly above our prenounced range provided in January.

Turning to Slide 5. Clinical test volume reached 46,400 tests in the fourth quarter and 172,900 tests for the full year 2023, up 29% and 39%, respectively, compared to the prior year periods. Guardant360 has been the primary driver of clinical volume growth as we continue to enhance the customer experience with increasing contributions from newer products such as TissueNext and Response.

Moving on to biopharma on Slide 6. Biopharma test volume reached 9,500 tests in the fourth quarter and 29,900 tests for the full year 2023, up 16% and 15%, respectively, compared to the prior year period. A major driver of this growth has been the increasing interest in our GuardantInfinity smart liquid biopsy platform, which now represents more than 30% of our biopharma testing volume and has become a major differentiator for our biopharma business.

Looking forward, our robust companion diagnostic pipeline, coupled with a backlog of deals one, positions us for continued growth in 2024. We believe our active engagement with biopharma leaders for strategic partnerships, especially in exploring the potential of epigenomics will drive even more demand for our products and services.

Now looking more closely at some of the recent highlights within our therapy selection business on Slide 7. We made great strides in improving ASPs for Guardant360 over the last few quarters. Specifically, in November, Medicare finalized its proposal for the Guardant360 LVT price to be crosswalked to the price of Guardant360 CDx. This took effect from January 1 of this year, increasing the Medicare price for Guardant360 LVT from $3,500 to $5,000. We're also starting to see the positive impact on Guardant360 ASP from commercial payer coverage wins and believe that this is a tailwind that will continue to play out in the coming year. As a result, we expect that in the first quarter of 2024. The Guardant360 ASP will increase to be in the range of $28.50 to $2,900.

Turning to Slide 8. We are focused on streamlining the customer experience and investing in our commercial infrastructure. To that end, we continue to make excellent progress integrating with the three largest oncology EMR systems with rapid growth of digital adoption. We believe these integrations will serve as a catalyst for increasing ordering depth per account throughout the year. Another critical growth driver is not only increasing adoption of biomarker testing bottoms up at the position level but top down at the large group practice level, especially in the community setting where most patients reside.

Accordingly, we recently announced a collaboration with the U.S. oncology network and leading community oncology practices to increase the use of biomarker testing to identify patients who would benefit from therapies that target specific cancer pathways Notably, the U.S. oncology network has more than 2,500 providers across over 600 sites treating 1.4 million patients annually. We continue to see strong momentum as we expand our testing offering globally.

Last quarter, the Royal Marsden Guardant powered laboratory was awarded an expression of interest by the NHS to test advanced non-small cell lung cancer patients, potentially making our technology accessible to patients across England. We also launched Guardant360 in China for biopharma use and have already generated a strong pipeline of over 30 partnerships. Lifetime global biopharma partnerships exceed 165 providing a solid foundation for future growth.

Now shifting gears to review on Slide 9. As mentioned earlier, we had a major milestone by upgrading Reveal to our smart liquid biopsy platform as of year-end. With this broad methyl one-wide technology, we can achieve high performance by tracking hundreds to thousands of active alterations per patient compared to 16 to 50 mutations from tumor-informed assays. Our low background methylation chemistry leads to ultrahigh specificity and we maximize overall accuracy by applying machine learning to thousands of clinical samples.

Importantly, physicians will be able to use the test to track and quantify tumor fraction in the MRD setting with high precision using our epigenomics based technology. Reveal is currently available for CRC, breast and lung cancers and will be expanded to other tumor types over time.

Moving on to Slide 10. We have already generated some promising MRD data on our smart liquid biopsy platform for CRC and breast cancers. Starting with the previously shared data from our Cosmos colon study looking at Stage 2 and 3 patients, Reveal achieved 80% surveillance sensitivity with 99% specificity. This data was presented at the ASCO GI symposium in January and will be included in our submission to Medicare for our surveillance indication.

Moving on to breast, where we have now assessed 3 clinical cohorts with our Reveal assay in smart liquid biopsy. We achieved a blended 82% surveillance sensitivity for distant recurrence with 97% specificity on this combined sizable cohort. This data is very exciting as the performance is in line and if not favorable, to other approaches in this space. We look forward to sharing more details about this data this year. This data will be included in our submission to Medicare for our breast indication.

Moving on to Slide 11. As we have shared, we have a strong data pipeline with many clinical cohorts for establishing validity and utility for Reveal. We have almost 80,000 samples from 20,000 patients across a variety of solid tumors from our biobank and trials we are running. This rich study pipeline will be instrumental in building compelling evidence that not only supports efforts to expand reimbursement but also has the potential to influence changes in practice guidelines.

This year, we anticipate publications that will support submissions to Medicare for potential additional coverage. Next year, we have important clinical validity studies for additional cancers such as lung pancreatic and gastric that will support advancement of additional reimbursement.

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

[AmirAli Talasaz, executive]

Thanks, Helmy. Turning to Slide 12. 2024 will be a very exciting year for our screening business as we prepare to launch our Shield IVD test for CRC pending FDA approval. After years of research and development, it's still exciting to prepare to make this test broadly available. There are a number of key milestones were achieved on the near-term horizon.

First, the data from our pivotal ECLIPSE study has been accepted in a top-tier publication validating the strength and quality of the clinical data. We expect to see it published in the coming months. Additionally, we are continuing to make steady progress with FDA review. Our attractive review process with FDA continues to be collaborative and positive. The Advisory Committee panel meeting will be the next milestone of the review process. In our recent discussions, FDA has informed us that the meeting date will now likely take place in late Q2 as they continue to work to fill the remaining vacant advisory receipts on the panel.

The date and details of the meeting are subject to confirmation by the FDA and publication in the Federal Register. That said, we continue to expect to receive FDA approval in 2024. Our team is working hard to prepare for this panel meeting and in parallel is preparing to scale up the commercial operations post FDA approval.

Turning to Slide 13. While Shield has only been in market for a short time, we are highly encouraged by the overwhelming enthusiasm expressed by PCPs and health systems. We are witnessing real-world evidence of its effectiveness and the potential to drive unparalleled compliance in completing cancer screening. In the first 20,000 order Shield test, the adherence rate was 94%, which is much higher than the range of 38% to 65% with current modalities.

As we shared at JPMorgan in a health system setting a randomized 2,000 patient study was conducted at Kaiser Permanente to evaluate the impact of introducing Shield as a new option to improve the overall screening rate. This study readout was positive and the results were published in 2 papers in plus 1 and Guard. This study demonstrated that when individuals who hadn't completed FIT were offered Shield. The rate of screening increased by more than 3x. Notably, over 40% of those patients who took the Shield test for CRC screening had not been screened before.

Additionally, 100% of survey patients and physicians. We are optimistic about the idea of a blood-based CRC screening test offering being incorporated into a routine health care visit. These publications highlight the significant impact of what Shield can do when this blood test is added as a new and accessible option for CRC screening.

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

[Michael Bell, executive]

Thanks, AmirAli. Starting with our financial results on Slide 14. Total revenue for the fourth quarter of 2023 grew 22% to $155.1 million compared to $126.9 million in the prior year quarter. Total precision oncology testing revenue for the fourth quarter was $142.2 million, increasing 25% compared to $113.8 million in the prior year quarter.

This increase was predominantly driven by strong year-over-year growth in both clinical and biopharma volumes. Precision oncology revenue from clinical tests in the fourth quarter totaled $108.2 million, up 29% from $83.7 million for the prior year quarter. Fourth quarter clinical test volume was 46,400, an increase of 29% from the same period of the prior year. Guardant360 continues to be the main revenue driver with strong year-over-year volume growth across all cancers in the U.S. as well as volume contribution from Japan and the U.K. in the fourth quarter.

We also saw a sequential rise in the Guardant360 ASP in the fourth quarter, which increased to approximately $2,750 from approximately $2,700 in Q3. This was driven by the continued pull-through from the expanded commercial coverage received earlier in the year and from the interim Medicare capital rate for Guardant360 LDT, which increased from $3,500 to $3,957 on October 1. As a reminder, the Guardant360 LDT Medicare rate increased again on January 1, 2024, to the new rate of $5,000 which we expect will increase the Guardant360 ASP to be in the range $2,850 to $2,900 in the first quarter of 2024. Blended clinical ASP was approximately $2,330 for the fourth quarter, which was similar to the blended clinical ASP of $2,320 in Q4 2022.

With the increase in Guardant360 ASP, offsetting the mix impact of different products and geographies. Precision oncology revenue from biopharma tests in the fourth quarter totaled $34.0 million up 13% from $30.1 million for the prior year quarter. Biopharma test volume was strong in the fourth quarter, totaling approximately 9,500 tests, up 16% from the prior year quarter. Biopharma ASP was approximately $3,600 in the fourth quarter of 2024.

Development Services and other revenue in the fourth quarter totaled $12.9 million compared to $13.1 million in the prior year quarter. Total gross margin was 60% compared to 63% in the prior year quarter. For Precision Oncology, gross margin was 60% in the fourth quarter of 2023 compared to 62% in the fourth quarter of 2022. While we saw improvements in the gross margin for clinical Guardant360 tests due to the increase in ASP. The overall Precision Oncology gross margin declined slightly due to changes in the mix of clinical and biopharma tests, the mix of Guardant360, TissueNext and Reveal test and the mix of U.S. and international tests. Development Services and other gross margin was 60% in the fourth quarter of 2023 compared to 74% in Q4 2022.

The change in margin was primarily due to the cost of processing Shield LDT samples, which increased in volume year-over-year and for which we are currently booking minimal revenue. Total research and development, sales and marketing and G&A operating expenses for the fourth quarter of 2023 were $206.6 million, a reduction of $19.2 million compared to Q4 2022. In Q4 2023, we also recorded a liability and a result in nonrecurring charge to other operating expense of $83.4 million related to the recent jewelry verdict in a patent infringement lawsuit. Notwithstanding this onetime charge, we plan to file motions to overturn the jury's verdict, seek a new trial and/or amend a judgment. Net loss was $187.0 million or $1.58 per share for the fourth quarter of 2023 compared to $139.9 million or $1.36 per share in the fourth quarter of 2022.

Turning to the full year. Total revenue was $563.9 million, up 25% from $449.5 million in the prior year. Precision oncology revenue increased 31% to $514.2 million. Clinical testing revenue was $403.9 million, which grew 35% year-over-year, driven by a 39% increase in clinical testing volume. The strong volume growth was driven by Guardant360 with growth across all cancer types, TissueNext which grew more than 80% and Reveal, which grew over 90%. Biopharma testing revenue was $110.4 million, which increased 17% year-over-year. Biopharma volume increased 15% year-over-year, primarily driven by the uptake of GuardantInfinity which also led to an improved biopharma ASP in 2023 of approximately $3,700 compared to $3,610 in 2022.

Development Services and other revenue declined 14% to $49.7 million in 2023. This reduction was in line with our guidance at the start of 2023 and primarily due to the variable timing, progress and milestones related to projects with third parties as well as the year-over-year reduction in royalty revenue. Total gross margin was 60% compared to 65% in 2022. For Precision oncology, gross margin was 60% in 2023 compared to 62% in 2022. The slight year-over-year decline is consistent with the change we saw in the fourth quarter, where increases in ASP have been more than offset by changes in product mix.

Development Services and other gross margin was 57% in 2023 compared to 86% in 2022. The changing margin was primarily due to the cost of processing Shield LDT samples which was booked as a sales and marketing expense until the end of Q3 2022 and which was booked to development services and other costs from Q4 2022 onwards. In both 2022 and 2023, Shield LDT revenue was not material. Total research and development, sales and marketing and G&A operating expenses for the full year 2023 were $818.2 million, a decrease of $19.4 million compared to 2022. Net loss was $479.4 million in 2023 compared to $654.6 million in 2022. Net loss per share was $4.28 in 2023 as compared to $6.41 in 2022.

Moving on to non-GAAP financial measures on Slide 15. From this quarter onwards, we will report non-GAAP gross margin measures to provide better clarity on the performance of the business. Most importantly, we will provide a non-GAAP gross margin measure, which excludes the costs related to performing screening test in our lab, which currently generate minimal revenue. As a reminder, from Q4 2022, we have recorded the cost of providing Shield LDT screening tests in the development services and other line in our income statement.

During both the fourth quarter and full year 2023. The non-GAAP gross margin was 61%, and the non-GAAP gross margin, excluding screening, was 63%. Again, we'll continue to report this important metric going forward. Non-GAAP operating expenses, which exclude the nonrecurring charge mentioned earlier, were $183.1 million for the fourth quarter 2023, a reduction of $18.1 million compared to the prior year quarter. For the full year, we achieved our previously stated guidance that we would reduce non-GAAP operating expenses in 2023 compared to 2022.

According to the full year 2023 non-GAAP operating expenses were $729.2 million compared to $736.6 million in 2022. Non-GAAP net loss was $75.9 million or $0.64 per share for the fourth quarter of 2023 compared to $119.6 million or $1.17 per share for the fourth quarter of 2022. For the full year 2023, non-GAAP net loss was $352.3 million or $3.15 per share compared to $435.4 million of $4.26 per share for 2022.

Adjusted EBITDA was a loss of $78.4 million in the fourth quarter of 2023 compared to $109.8 million loss in the fourth quarter of 2022. For the full year 2023, adjusted EBITDA was a loss of $344.2 million in 2023, which represents a $59.2 million reduction compared to a loss of $403.4 million in 2022. Free cash flow for the fourth quarter of 2023 was negative $82.8 million compared to a negative $100.8 million in Q4 2022. For the full year 2023, we achieved our previously stated guidance that we would reduce our cash burn from a high of negative $387 million in 2022 to below negative $350 million in 2023. Accordingly, free cash flow was negative $345 million for the full year of 2023.

Looking more closely at our cash position on Slide 16. We ended the fourth quarter of 2023 with cash, cash equivalents and short-term marketable debt securities of approximately $1.2 billion and successfully lowered our cash burn to our target of less than $350 million while continuing to grow our therapy selection business and made significant investments in both MRD and screening. With Helmy mentioned, we achieved our target of reaching cash flow breakeven in therapy selection as of the end of 2023.

As we look ahead to the next 5 years, we are confident that by starting to generate positive cash flow from therapy selection, driving MRD to profitability and carefully managing the spending in our screening business to approximately $200 million annually for the next 5 years. We can continue to lower our cash burn each year so that by the time we reach 2028, will be cash flow breakeven, which is achievable with our current cash balance of $1.2 billion.

Now turning to our outlook and assumptions for the full year 2023 on Slide 17. We expect full year 2024 revenue to be in the range of $655 million to $670 million representing growth of approximately 16% to 19% compared to 2023. This guidance does not include any revenue contribution from screening which are dependent on the timing of Shield FDA approval and Medicare reimbursement coverage. We will update our revenue guidance to include screening revenue when appropriate. For 2024, we are also providing guidance on our non-GAAP gross margin, excluding screening, which we expect to be in the range of 60% to 62%.

We expect non-GAAP operating expenses to be in the range of $740 million to $750 million, representing a 1% to 3% increase year-over-year. This guidance includes screening operating expenses, which will be primarily focused on the launch and commercialization of Shield following expected FDA approval as well as continued screening research and development efforts.

Finally, we expect free cash flow to be in the range of negative $320 million to $330 million in 2023. This guidance assumes a maximum $200 million net cash outflow for screening, which could adjust downwards during the year depending on the timing and outcome of the FDA approval process. To provide some additional color on our cash burn for 2024. We expect cash used in operating activities to reduce by approximately $40 million compared to 2023. This reduction will be partially offset by a planned increase of approximately $20 million for the purchase of capital equipment as we ramp up lab capacity in preparation for the launch of Shield.

Finally, turning to Slide 18 to review our catalysts. As we look ahead to 2024 and beyond, we have a number of upcoming catalysts in each of our business areas including smart liquid biopsy upgrade for Guardant360 and volume expansion across therapy selection, data publication for MRD and Shield FDA approval launch. With that, we will now open the call to questions.

[Operator]

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

[Mark Massaro, analyst]

My first one is for AmirAli. Can you maybe provide a little more context about the pushout of the ASCO meeting. Is it largely just logistical in nature. You said late Q2. So should we kind of pencil in June? And curious if it's just a matter of filling who will attend the meeting. And then my second question is really around -- there's been a lot of discussion about advanced adenomas. I guess can you guys confirm if you're planning to request an AA label from the FDA?

[AmirAli Talasaz, executive]

Yes. Thanks, Mark, for your question. So in terms of ASCO, as I mentioned in the prepared remarks, FDA notified us that because of scheduling and mainly the fact that the panel was half empty at the time that they call for the panel, they need to go and identify some additional members to be added to the specific panel that our device is going to go through the vetting process and so forth.

So as a result, they are kind of scheduling it now for late Q2. Once we know the confirmed date, it's going to get communicated somehow it's going to be in the federal register at appropriate time, too. So that's all we know at this time. There is no other kind of reasons behind this delay. But I want to reiterate that this kind of ASCO time line is not impacting the time line for the FDA review and the expectation that we had from the beginning that we believe we get the FDA decision about shale approval sometime in 2024.

Regarding AA, I think that continues to be an interesting hot topic in the field in terms of our label we didn't get to the label discussion with agency. It happens typically in very late innings of the review process. But this discussion of CRC sent sensitivity, the performance that we've seen in ECLIPSE and the risk benefit of this device in the intended use patient population potentially is going to get discussed in the outcome to get some feedback from external opinion for agency.

[Operator]

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

[Puneet Souda, analyst]

I'll wrap two of my questions into one. First one on just the core business, G360. When I look at the guide, you have 5,000 reimbursement now for G360 LDT, volume seems to be good. Can you maybe just elaborate sort of what is driving the level of maybe for a lack of better work conservatism this year? Anything that we need to note on the MRD side that is accounting for that? And then on the shield, maybe just, AmirAli, could you remind us if FDA will require a publication of the paper before the advisory committee?

[Michael Bell, executive]

Yes, net. On the guide, you mentioned Guardant360. I mean, I think we're looking at 2024 still being a year of strong growth for Guardant360. We've got -- we had good traction in the U.S. in 2023. And so I think we expect that to continue. And that's across all cancer sites and with a lot of the work that we're doing that are customer-focused activities, I think we can still expect that growth to continue.

And also, we're now seeing good traction outside the U.S. and especially in Japan and U.K. So that should also lead to good volume growth. You're right, we'll get an ASP uplift from Guardant360 as well with the LDT now moving from 3,000 to 5,000. So again, that's really positive. From an MRD perspective, we saw something like 90% or over growth last year. we're still expecting growth with Reveal in 2024. We want to manage that growth, though. We're still -- want to get additional reimbursement. It's currently a gross margin negative test for us. So it costs us every time we run a test and so we want to manage that volume until we get incremental reimbursement. And then we can take the foot off the brakes and really drive that. So yes, hopefully, that answers the questions on the guide.

[AmirAli Talasaz, executive]

And quickly about Shield and FDA and paper, the FDA review process is not dependent on paper publication. They do their own extensive look at the data at very detailed that we have gone through that process and pleased with the progress so far. So they go through their own evaluation, they don't look at have you got it published in a peer review publication or not.

[Operator]

The next question comes from the line of Dan Leonard with UBS.

[Daniel Leonard, analyst]

I actually had a follow-up on that last point. AmirAli, can you elaborate further on the timing of the ECLIPSE publication I think there was an expectation at one point that would occur in 2023. Is that imminent? Or just any color you could share?

[AmirAli Talasaz, executive]

Yes. So actually, that was our goal. I think the tier update journal that we picked was, I think, top tier, which kind of impacted some of the review process, but we are very pleased that we went to that journal. We are -- right now under embargo with that journal. So unfortunately, I cannot tell a lot of details. So -- and the journal is scheduling the publication based on the issue planning that they have. So -- but it should be within the next few months, as I mentioned, the prepared remarks.

[Operator]

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

[Tejas Savant, analyst]

Maybe one for you, Mike, and then I have a follow-up on MRD. In the guide, Mike, what are you factoring in, in terms of OUS contributions this year? Is it all just Japan and the U.K. largely or could we start to see some traction from China and Biopharma in addition to that Hikma partnership that you recently announced?

And then on the MRD side of things, one for you, Helmy where are you in terms of the Cosmos data that you talked about in your prepared remarks at ASCO GI in terms of publication. And what are you assuming in the guide for CMS reimbursement and then revenue from the CRC surveillance indication, which obviously is a much bigger opportunity than the adjuvant setting?

[Michael Bell, executive]

Yes, I can take on the international side, Tejas. Yes, we're not breaking out, obviously, the volumes and the revenue by different geographies. But we'll start to see Japan and the U.K. be the real drivers on the clinical side. Outside of the U.S., we got Japan reimbursement back in the second half of last year.

So that launch is going very well. And then we started to come online with [ Romain ] really in Q4 of last year. So again, we're seeing good traction there, and we think that they'll start to contribute to the revenue and the volume in 2024. In the Middle East, region with Hikma. I think probably less of an opportunity there, but we still could start to see some contribution there. But really, we're looking at Japan and the U.K. And then China is in the biopharma line.

And again, I think we're assuming that, that starts to contribute the lab that we have with Adicon came online just recently, we've got a really good pipeline in China. We're working with -- potentially working with a lot of partners in that country. And so yes, that's going to contribute to our biopharma revenue during [ 2020 ]

[Helmy Eltoukhy, executive]

Yes. In terms of MRD, yes, I think we're sort of preparing the publication for Cosmos as we speak. Very happy with the data, and we're going to push that out as fast as we can. And hopefully, once it gets published, it's something that can make up the bulk of our dossier for the CRC surveillance indication. But I don't think there's almost nothing, I think, baked into the guide this year in terms of CRC surveillance. So that's all upside right now.

[Operator]

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

[Daniel Arias, analyst]

Yes, thanks for the questions here. Helmy, can you just maybe orient us on smart liquid biopsy within the portfolio. On the upgrade for Reveal, I just want to confirm that all the tests going out the door are through the smart assay and then when can we expect G360 to be upgraded? I know you said this year, I'm wondering if it's been more specific in terms of first half versus second half and then just lastly, if I may, are there any changes to the assay within clinical trials that are ongoing that need to be made and that we should be keeping in mind?

[Helmy Eltoukhy, executive]

Yes. No, great question. Thanks, Dan. So yes, we -- all the Reveal tests now are on smart liquid biopsy, we've transitioned, I think, nearly all of the trials that were on that to -- where possible to smart liquid biopsies. So I think we're in a good spot there. We're seeing really good traction. I think a lot of excitement, both on the clinical side as well as the biopharma side in terms of the performance of that assay.

I think we are in a good place in terms of the transition around Guardant360. We want to make sure that we transition that properly from a sort of reimbursement point of view and regulatory point of view. So those are going to be the gating items in terms of that transition. But I can tell you right now that there is a lot of excitement, especially at the academic centers around 360 and smart liquid biopsy. We see that as a major, major catalyst for our business when that comes out.

And the same thing on the -- we didn't mention in the prepared remarks, but tissue will also be upgraded this year to a larger panel and then some more features. And that's a product that has been doing well for us. I think A lot of these sort of transitions that will happen later this year, I think, are sort of further upside in terms of where we could go from a clinical volume by the end of year.

[Operator]

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

[Matthew Sykes, analyst]

Maybe one for you, Mike. Just given you hit cash flow breakeven in therapy selection last year, maybe could you give us a sense for sort of the operating leverage in that individual segment. Just given the growth you expect to see this year. Is there any kind of kind of color you can give around sort of how that cash flow can grow over time so they can kind of offset some of the spend you're doing? I assume some of the spend in therapy selection is not as much as you might need for Shield in other areas. I'm just trying to get a sense for how that cash flow and profitability can grow over the course of this year and into '25.

[Michael Bell, executive]

Yes, Matt, it's a good question. I mean, I think we've laid it out, I think, quite consistently that now that therapy selection, really, we're building infrastructure across that business, and we can get huge leverage now from the infrastructure that we've built. From a research and development, sales and marketing and G&A across other lines they're going to be relatively steady going forward. Probably for 2024, the only area where we look to slightly increase the spend on therapy selection. It's going to be in sales and marketing as we really focus on the customer experience elements and the EMR integration. That's going to be really the only incremental spend.

So more or less every sort of additional dollar of gross profit is dropping down to the bottom line in therapy selection. And maybe just to give a little bit of color on the overall cash burn that we've guided to of $320 million to $330 million. You can look at that in different terms. Roughly $200 million is screening. We've been very clear about that. More than $100 million is still going to be an investment on the MRD side.

There's the cost of running the test, the cost of generating the clinical data, there's the sales and marketing efforts. So we're still making heavy investments on the MRD side. And then from a CapEx perspective, as we continue to increase capacity and automation, we're probably going to spend around $40 million on CapEx in 2024. So that more than covers the overall cash burn free cash flow that we've spoken about. And so we will start to see positive cash in 2024 from therapy selection. I think yes, as the revenue grows, again, a lot of that is going to start to drop down to the bottom line. So we'll start to generate some significant cash from that business over the next few years.

[Operator]

The next question comes from the line of [ Bersin ] with Bernstein Research.

[Unknown Analyst]

Two on Shield. The first is, you've modeled and talked a lot about the importance of adherence and quantifying the benefit of chloratal cancer screening. And in the study that you highlighted today, you've showed that you have better adherence. So even if Shield has sensitivity and specificity that aren't quite best-in-class versus other modalities, you could still have best-in-class impact.

However, in the past, the USPSTF has used models that assume 100% adherence rate for all screening modalities. So to some extent, for Shield to score well USPSTF will have to fundamentally change the methodology that they've used in the class. So what conversations have you had or data points can you share that give you confidence that this will happen and then a quick follow-up question on the investment and field force that you've laid out for Shield. Are any of those gated by getting first or second-line therapy approval for FDA or AB recommendation for USPSTF?

[AmirAli Talasaz, executive]

Yes, sure. Thanks. This is a great question. So adherence is definite the value of having a patient-friendly modality, which is generate pleasant experience to complete that test. If we didn't have the issue of adherence we would then have 50 million on screen patients. We would not have 76% debt rate coming from unscreened patient population or the people who are not up to date with cancer screening.

So in terms of the impact, the awareness is pretty high. We are not at a stage that we can't have conversation with USPSTF members, but having said that, we've been in touch with some advisers, the former Scientific Director of USPSTF has been very vocal in this field now. And it looks kind of common sense that when the issue in the CRC screening is lack of adherence, frankly, people are not completing the test. You need to have that perspective in mind when you're evaluating this test in terms of life year gains on outcome benefits.

Regarding the first line and second line, in general, what we believe is this in order to build a multibillion-dollar brand, we need FDA approval for Shield. Obviously, first line is better, but second-line is actually a very good option for us. And let me put that in some context for you. There are 120 million people in U.S. are eligible for colon cancer screening, right? Out of this $120 million, $55 million are getting screening through colonoscopy and $15 million are getting screened by stool tests. So we have about 50 million on screen patient population.

Effectively, although the first-line indication is for all $120 million, but the reality the commercial opportunities, these tests are not going to replace colonoscopy and reduce the rate of colonoscopy versus being complementary. So as a result, what we are expecting and what we are seeing in the marketplace is the market size for first-line testing would be for, let's say, 65 million people, and market size for second line would be for 50 million people. Other thing that maybe it would be interesting to note, just look at the rescreening rates that's happening right now with stool-based tests. They are pretty low, like the overall adherence rate to fit over 3 years is about 10% to 20%. Restraining rates with Cologuard is also low after all these rate after all these years.

In fact, these are matching the consumer survey findings that we showed before that 7 out of 10 people who've done stool-based testing, they don't want to do it again. So the opportunity for a stool test to really grow to this 50 million on screen patient population is pretty limited, and their test is not sticky. As a result, we believe there is a huge opportunity for a patient-friendly that can be done and completed even in the office enabled by this blood-based screening modality. So that's the context of why we think even a second line indication for Shield can be a huge opportunity for us as long as we get FDA approval.

[Operator]

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

[Daniel Brennan, analyst]

Great. Thanks for the questions. So the first one is just on the revenue guide back there, 16% to 19%. I know you're coming off a you have 25% growth and your ASPs are going up. So just wondering if you could provide any color, maybe kind of what would get you towards the bottom end of that range? Are you baking in real conservatism in pharma or clinical? Maybe just any color that you can provide there? And then the second one was just on Reveal. I know you said you're not baking in anything for CRC or very modest for breast. But can you just give us some color on kind of what the overall volumes were in '23 and timing and confidence for getting MolDX approvals in those two new indications during 24?

[Michael Bell, executive]

Yes, I can take a breakdown of the gross. Yes, maybe just to give a little bit more color on the guide across the different lines. On -- I'll start with Development Services, that's a very lumpy line swings around quite a lot. But for the year, we expect it's going to be relatively flat against 2023. And so that implies that that's sort of the midpoint in the precision oncology line, which is clinical and biopharma testing, that's going to grow at around 20% year-over-year.

And maybe breaking that further. Yes, biopharma, we expect, as we did last year, to see some sort of low double-digit growth on the biopharma. We have a very strong -- we finished the year strong we've gone into 2024 with a very strong pipeline. I think we just want to be continually conservative on that line. We see a lot of other companies being impacted by biopharma spend. And so I think this sort of low double-digit expectation where we're on the conservative side.

And if you sort of put all those together, it implies clinical revenue growth of at least 20%. So we still look at that as be very strong with plenty of upside that could come on that clinical revenue growth. And maybe just one other thing on the cadence of the growth. I think it's important to know that we always have the seasonality in Q4, where we have very strong biopharma revenue and then that always -- as companies our customers push through the budgets at the end of the year. And we know that sequentially biopharma revenue is always lower in Q1. So even though we'll have an uplift of G360 ASP in Q1, we still expect the overall revenue sequentially to be lower in Q1 versus Q4 of 2023. And then throughout the year, we expect it to sort of sequentially grow each quarter. So hopefully, that's given some additional color on that guide. And Helmy?

[Helmy Eltoukhy, executive]

Yes. In terms of MRD, we're preparing publications as we speak at least in CRC and then we'll get the breast publication out at least and submitted as soon as we can. And really, the gating item is going to be time to getting those published and the sort of back and forth with MolDX in terms of submitting that data.

Obviously, we haven't really baked much in this year in terms of this additional reimbursement that is certainly upside if we manage to sort of get through the unit there quickly. I would also say that I think we feel very good about the core business in general. We built, I would say, a lot of potential catalysts over the last 18 months into the business. We have the partnerships with large group practices like U.S. Oncology, the AMR integration, smart liquid biopsy transition, some of the upgrades to TissueNext. And a lot of that, I think, is potential upside in terms of where we are. So we feel very good, including around the competitive landscape that's there.

[Operator]

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

[Jack Meehan, analyst]

Thanks. Good afternoon. I had a couple of gross margin questions. First for Mike, if you include the dilution from Shield, what is the guide assume for gross margins for the year and any implications for Shield volume growth embedded? And for Helmy, I was wondering if you could talk about your sequencing strategy? Or are there any changes you're planning to make in the lab, either with [ NovaX ] or something just to help drive savings on the COGS side?

[Michael Bell, executive]

Yes, Jeff, on the gross margin side, I think we really want to focus where the gross margins are going to be on the business, excluding screening. In 2023, we saw something like a 2 percentage point impact overall from running the Shield LDT tests. And again, we get very minimal revenue for those. And so far, for 2024, we've given the guidance of the gross margins without screening of 60% to 62%.

So hopefully, people can then start to really understand the performance of the business without screening. It's going to be difficult for us to say what the impact is going to be throughout 2024 on screening. Obviously, it's going to depend on the volume. It's going to depend on the timing of FDA approval and launch and then what that volume ramp is going to be. And it's also going to be dependent on when we get the initial Medicare get rate and what that rate is going to be at.

So that's why we really want to focus on gross margin with that screening because it's just -- it's difficult to measure. But again, I think our aim, excluding screening is to be at least 60% gross margins. And I think we feel comfortable with all of the mix impacts across the core business that we can manage to that level.

[Helmy Eltoukhy, executive]

Yes. In terms of sequencing, I would say, just in general, we have a pretty robust program around COGS production. And I think there's going to be some, I think, good opportunities over the next couple of years, especially with some of the investments we're making in terms of Shield and really the infrastructure there that is going to, I think, pay dividends on the oncology side as well. And we're certainly pursuing some of the sort of lower cost sequencing instruments such as [ NovaSeq ] and others that may lower our overall COGS of running our tests.

[Operator]

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

[Douglas Schenkel, analyst]

I want to ask a high-level question and then kind of a related follow-up as it relates to Shield. So there's clearly questions in the investor and medical community about how Guardant is managing trial design, time lines, how you describe complexity of moving from things like V1 to V2. The level of attenuation we see in post case-controlled studies, et cetera, there or not, this is out there. And I think it's fair to say this is a big reason why your stock price is where it is.

I knew year is a good time for new resolutions. What do you think you can do better? And what steps are you taking to get back that management premium that used to exist in the stock? And then my follow-up on Shield. There's a range of outcomes for Shield in terms of how things go with the FDA, how things go with CMS and private payers. How you're viewed by USPSTF, how you're viewed by the folks that set guidelines. Even in better scenarios, this is a very expensive program with a really long runway. Under what scenario would you consider discontinuing or spinning off screening.

[AmirAli Talasaz, executive]

Yes. Actually, very good question, Doug. So it's a fair question, frankly. I accept that, and you're right, I think a bunch of people out there are right. I think the [ reality ] is we are going to focus on execution and show that hopefully, this FDA approval would come and ADLT status would come and successful commercial launch with [ common ] over time, I think that performance is going to generate confidence that hey, when these guys really was talking about blood-based CRC screening has huge potential, even with the performances that we've seen with V1 that becomes more of a reality versus just betting on what this guy is talking about.

Definitely, there are some kind of feedback that I accept in terms of -- there were some bars of what a successful CRC screening would be to make a multibillion dollar brand. And that bar versus the data that we've seen frontlining the database was the delta was very big, and we ended up somewhere in the middle. So I think that expectation management can be done in a much more in a different way.

So I accept that. Shield in terms of our commitment with Shield, I would tell you, like we are not here to waste our life doing something that we don't believe I'm just bearing the money because we have the optionality of burning that money. I would tell you, if we figure out that this brand is not going to have the commercial impact that we believe it will have. There would be no Shield. So we mentioned always that we have milestones and gateways. The first one for us is this FDA approval and getting this FDA approval. That's just the first. The second one is trying that we can generate this business in a proper way by showing commercial sites and so forth. So we have all these milestones that we are going to meet and add line as we meet those. Shield would continue and would generate multibillion dollar opportunity to Guardant P&L in the years to come. So we are not here to waste our time or pure time just playing with Shield here. We have better things to do in life, frankly. We have a very, very strong SP1 Are very strong potential here.

[Operator]

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

[Casey Woodring, analyst]

This is Casey on for Rachel. Just can you guys talk about where things stand on the EMR integration front? You noted 475 accounts now integrated, which was above your goal, 400 to end the year. Can you contextualize that number as a percentage of total accounts or total accounts that were eligible for integration? And then maybe walk us through how you see those 475 accounts scaling up volumes over the course of the year.

[Helmy Eltoukhy, executive]

Yes. I mean we're going to break out the sort of number of sort of percentage of volume, but it is a significant percentage of our volume right now. So we're very pleased in terms of where we are. What we're seeing is really, I think, significant uplift in those accounts as they turn on. There is a lot of engagement that happens at the account level. a lot of retraining, and it just makes life so much simpler when they can essentially use their existing EMR system a broker to just order the test and get the results back.

And so we think, we're very pleased with the progress we've made. We're seeing really a significant jump in terms of ordering rates in those accounts. But it is also early days. It's something that we sort of got to at the end of last year. And I think we're going to see the dividends of that work we've done pay off over this year and next. We're still making very good progress in terms of the rest of the accounts. Epic is a sort of slower process where each one of the hospitals and sort of accounts has to be turned on at their level. And we're increasing our pipeline there so that we can go as fast as possible. But I'm very pleased with the progress the team has made, and it's certainly one of the, I think, potential upside drivers of volume this year.

[Operator]

Our final question comes from the line of Andrew Cooper with Raymond James

[Andrew Cooper, analyst]

Maybe just one more on MRD and the breast data you disclosed in preparation there. Just would love your thoughts given kind of how we think about different subsets of that breast cancer population and some lower shedding sort of subsets in terms of the ctDNA. How do we think about that in context of some of the numbers we see out there, whether from others, when it's a certain subset or not? And how that 97% specificity in the -- I think it was 82% or 4% sensitivity sort of stack up?

And then lastly, just you say that data is going to be included in your eventual submission. Is there any additional data you think you need before you submit to CMS for coverage? Or do we just need to see kind of the current studies published?

[Helmy Eltoukhy, executive]

Yes, thanks for the question. I'll maybe start with the second one. Now we believe this is more than sufficient in terms of data for sort of clinical validity from Medicare perspective, it's a fairly sizable cohort, I think much larger than other publications we've seen and has a good number of sort of time points it does have very good diversity across subtypes of breast cancer, you're right, different cancer types and breast cancer, different subtypes, have different shedding levels and when we looked at the breakdown there in terms of triple negative or two positive or to negative and so on, we've seen a very good performance as well there.

So even on a sort of subtype by subtype level, we see, I think, really industry-leading kind of performance. It's the same thing on the CRC side, depending on site of metastases, there's different shedding rates. And no method really solves that. That's just the factor of the biology in terms of the tumor type. And so that's why these results typically hold performs well in 1 subtype potentially performs well in other subtypes just because of the fact that you're detecting more alterations or detecting those alterations at lower levels. But right now, there's not a way to solve the sort of different shedding levels, that's the factor of the biology of the team.

[Operator]

Thank you for your question. That concludes today's call. Thank you for your participation, and enjoy the rest of your day.