Guardant Health, Inc.

Good afternoon. Thank you for attending the Garden Health Q4 2024 earnings call. My name is Victoria and I'll be your moderator today. All lines will be needed during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Carrie Mendeville. Thank you. You may proceed, Carrie.

Thank you. Earlier today, Garden Health released financial results for the quarter and year ended December 31st, 2023. Joining me today from Garden are Helmi Altuke, co-CEO, Amir Ali Talaza, 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 and then the meaning of federal security flaws. 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 GARDEN issued today, as well as in our Form 10-K and other filings of the SEC. GARDEN 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 Helmi.

Thanks, Keri. 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 and MRD. I will then turn the call over to Amir Ali for an update on screening. And finally, Mike will provide a more detailed look at our financials and outlook for 2024. Starting on slide three, 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 break even at the end of the year, marking a major achievement for GARDEN. This follows a series of pivotal reimbursement wins throughout 2023. We now have coverage from all major U.S. commercial health insurers for GARDEN360, surpassing 300 million covered lives. We also surpassed 200 million covered lives for TissueNext, received national reimbursement in Japan for GARDEN360, and received Medicare reimbursement for garden 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 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 continued to produce compelling data across CRC and breast cancer for a 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 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, Shield V2, when compared to Shield V1, 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 that mission, I'd like to share a story of the impact our reveal test has had on patients. In early 2023, a woman was diagnosed with triple negative breast cancer and underwent surgery. Her physician then ordered a series of revealed tests as part of her surveillance program, and the second test came back positive for ctDNA 30 weeks after surgery. The physician scheduled 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 in slide four, 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 pre-announced range provided in January. Turning to slide five, 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. Garden360 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 six. 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 periods. A major driver of this growth has been the increasing interest in our Garden Infinity 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 won, 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 seven. We made great strides in improving ASBs for GARDEN360 over the last few quarters. Specifically, in November, Medicare finalized its proposal for the Garden 360 LVT price to be crosswalked to the price of Garden 360 CDX. This took effect on January 1st of this year, increasing the Medicare price for Garden 360 LVT from $3,500 to $5,000. We're also starting to see the positive impact on Garden 360 ASB from commercial payer coverage lens and believe that this is a tailwind that will continue to play out in the coming years. As a result, we expect that in the first quarter of 2024, the Garden360 ASP will increase to be in the range of $2,850 to $2,900. Turning to slide eight, 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 physician 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 US 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 US 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's garden-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 Garden360 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 reveal on slide nine. As mentioned earlier, we hit a major milestone by upgrading Reveal to our smart liquid biopsy platform as of year end. With this broad methylam-wide technology, we can achieve high performance by tracking hundreds to thousands of active alterations per patient compared to 60 to 50 mutations from tumor-informed assays. Our low background methylation chemistry leads to ultra-high 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 two and three 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 three clinical cohorts with a reveal assay and 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 reveals. 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 Amir Ali to provide an update on our screening business. 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 so exciting to prepare to make this test broadly available. There are a number of key milestones for SHIELD 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 interactive 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 seats 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 tests, the adherence rate was 94%, which is much higher than the range of 38 to 65% with current modalities. As we shared at J.P. Morgan, 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. The study readout was positive, and the results were published in two papers, in PLOS One and GUT. The study demonstrated that when individuals who hadn't completed FIT were offered SHIELD, the rate of screening increased by more than three times. Notably, over 40% of those patients who took the SHIELD test for CRC screening had not been screened before. Additionally, 100% of surveyed patients and physicians were optimistic about the idea of a blood-based CRC screening test offering being incorporated into a routine healthcare 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.

Thanks, Amir Ali. Starting with our financial results on slide 14, social 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. Garden360 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 UK in the fourth quarter. We also saw a sequential rise in the GARNA360 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 gap-full rate for GARNA360 LDT which increased from $3,500 to $3,967 on October 1. As a reminder, the Gartner 360 LDT Medicare rate increased again on January 1, 2024, to the new rate of $5,000, which we expect will increase the Gartner 360 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 garden 360 ASP offsetting the mixed 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 ISP 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 garden 360 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 GARNET 360, TissueNex, and Reveal tests, 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 revenues. Social 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 resulting non-recurring charge to other operating expense of $83.4 million related to the recent jury verdict in a patent infringement lawsuit. Notwithstanding this one-time charge, we plan to file motions to overturn the jury's verdict, seek a new trial, and or amend the 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. This strong volume growth was driven by Garden360 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 Garden Infinity, which also led to an improved Biopharma ASP in 2023 for 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. Social growth margin was 60% compared to 65% in 2022. For precision oncology, growth 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 growth margin was 57% in 2023 compared to 86% in 2022. The change in 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 tests in our lab, which currently generate minimal revenue. As a reminder, from Q4 2022, we have recorded the costs of providing SHIELD LDT screening tests in the development services and other lines 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 non-recurring charge mentioned earlier, were $183.1 million for the fourth quarter of 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. Accordingly, full year 2023 non-GAAP operating expenses with $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, or $4.26 per share, for 2022. Adjusted EBITDA was a loss of $78.4 million in the fourth quarter of 2023, compared to a $109.8 million loss in the fourth quarter of 2022. For the fall 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 fall 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. We'll continue to grow our therapy selection business and make significant investments in both MRD and screening. As Helmi 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 five years, we are confident that by starting to generate positive cash flow from therapy selection, driving MRD to profitability, and carefully managing the spend in our screening business to approximately $200 million annually for the next five years, we can continue to lower our cash burn each year so that by the time we reach 2028, we'll 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 to $670 million, representing growth of approximately 16% to 19% compared to 2023. This guidance does not include any revenue contributions 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 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 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 Gardner 360 and volume expansion across therapy selection, data publication for MRD, and SHIELD FDA approval and launch. With that, we will now open the call to questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. Our first question comes from the line of Mark Massario with BTIG. Your line is now open.

Hey, guys. Thank you for taking the questions. My first one is for Amiralee. Can you maybe provide a little more context about the pushout of the AdCon meeting? Is it largely just logistical in nature? You said late Q2, so should we kind of pencil in June and I'm 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?

Yeah, thanks, Mark, for your question. So in terms of AFCO, as I mentioned in the prepared remark, FDA notified us that because of scheduling and mainly the fact that the panel was half empty at the time that they called 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. As a result, you know, they are kind of scheduling it now for late Q2. Once we know the confirmed date, you know, 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's no other kind of reasons behind this delay. But I want to reiterate that, you know, this kind of adcom, timeline is not impacting the timeline for the FDA review and the expectation that we had from the beginning that we believe we get FDA decision about SHIELD 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 sensitivity, AA 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.

Thank you for your question. The next question comes from the line of Punit Sudha with Liebering Partners. Your line is now open.

Yeah, hi. Thanks. Yeah, hi. Amirale, you've helped me. Thanks for taking the question. So just 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 lack of a better word, 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, Amir Ali, could you remind us if FDA will require a publication of the paper before the advisory committee? Thank you.

Thanks, Puneet. Maybe I'll pass the mic to give some color in the guide.

Yeah, Puneet, on the guide, you mentioned Garden360. I mean, I think we're looking at 2024 as still being a year of strong growth for Garden360. We've got, you know, we had good traction in the U.S. in 2023. continue and also you know we're now seeing good traction outside the US and especially in Japan and UK so that should also lead to good good volume growth you're right we'll get it we'll get a ASP uplift from gardener 360 as well with the LDT now moving from 3500 to 5000 so that again that's really positive from an MRD perspective you know 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 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 just want to manage that volume until we get incremental reimbursement, and then we can

the guide and quickly about shield and FDA and paper you know the FDA review process is not dependent on paper publication they do their own extensive look at the data very detailed you know that we have gone through that process I am 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-reviewed publication or not

Thank you for your question. The next question comes from the line of Dan Leonard with UBS. Your line is now open.

Thank you. I actually had a follow-up on that last point. Amir Ali, 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? Thank you.

Yeah, so actually, that was our goal. I think the tier of the 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. 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 pre-peritoneum.

Thank you for your question. The next question comes from the line of Teja Savant with Morgan Stanley. Your line is now open.

Hey, guys. Hey, guys. Good evening and thanks for the time here. 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 UK largely, or could we start to see some traction from China and Biopharma in addition to that HICMA partnership that you recently announced? And then on the MRD side of things, one for you, Helmi, 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 just the adjuvant setting? Thank you.

I can take on the international side, Tejas. We're not breaking out, obviously, the volumes and the revenue by different geographies, but we'll start to see Japan and the UK be the real drivers on the clinical side. Outside of the US, 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 Royal Marsden 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 UK. 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 Adekonda came online just recently. We've got a really good pipeline in China. We're potentially working with a lot of partners in that country. And so, yeah, that's going to contribute to our biopharma revenue during 2024.

In terms of MRD, yeah, I think we're sort of preparing the publication for COSMOS as we speak. We're 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 is – there's almost nothing, I think, baked into the guide. this year in terms of CRC or surveillance. So, that's all upside right now.

Thank you for your question. The next question comes from the line of Dan Arias with Stifel. Your line is now open.

Hi, guys. Thanks for the questions here. Helmi, 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, wondering if there's any more specific in terms of first half versus second halves. 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? Thanks.

Yeah, no, great question. Thanks, Dan. So, yeah, all the revealed 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. I think we're in 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. You know, I think we are in a good place in terms of the transition around Garden 360. 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, you know, and the same thing on the, you know, we didn't mention the prepared remarks, but tissue will also be upgraded, you know, this year to a larger panel and then some more features. And that's a project that has been doing well for us. 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 point of view.

Thank you for your question. The next question comes from the line of Matt Sykes with Goldman Sachs. Your line is now open.

Hey, good afternoon. Thanks for taking my question. Maybe one for you, Mike. Given you hit cash flow breakeven in therapy selection last year, maybe could you give us a sense for sort of the operating leverage within that individual segment? Just given the growth you expect to see this year, is there any kind of color you can give around sort of how that cash flow can grow over time so that it 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 and 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?

Yeah, Matt, it's a good question. I mean, I think we've laid it out, I think, quite consistently that now that, you know, therapy selection, really we're building infrastructure across that business and we can get huge leverage now from the infrastructure that we've built, you know, from a research and development, sales and marketing and G&A across all the lines, you know, they're going to be relatively steady going forward. Probably for 2024, the only area where we'll look to slightly increase the spend on therapy selection is going to be in sales and marketing as we really focus on the customer experience elements and the EMR integrations. That's going to be really the only incremental spend. So, you know, 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 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 data, there's a sales and marketing effort. 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 I think, yeah, as the revenue grows, again, a lot of that's 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.

Thank you for your question. The next question comes from the line of Irv Burstein with Bernstein Research. Your line is now open.

Hi there. Thanks a lot for taking the questions. Two on SHIELD. The first is you've modeled and talked a lot about the importance of adherence and quantifying the benefit of colorectal cancer screening. And in the study that you highlighted today, you showed that you have better adherence. So even if SHIELDS 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, USPSGF will have to fundamentally change the methodology that they've used in the past. So what conversations have you had or data points can you share that give you confidence that this will happen? And then quick follow-up question on the investments in 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 A, B recommendation for USPSTF?

Yeah, sure. Thanks. This is a great question. So adherence is definitely the value of having a patient-friendly modality, which generates pleasant experience to complete that test. If we didn't have the issue of adherence, We wouldn't have 50 million unscreened patients. We wouldn't have 76% death 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. You know, we are not at a stage that we can have conversation with USPSTF members. But having said that, we've been in touch with some advisors. The former scientific director of USPSTF has been very vocal in this field now. And it looks kind of common sense that, you know, when the issue in this CRC screening is lack of adherence, frankly, people are not completing the test. You know, you need to have that perspective in mind when you're evaluating this test in terms of life-year gains and outcome benefits. Regarding the first line and second line, in general, what we believe is In order to build a multi-billion 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 the U.S. who 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 unscreened 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 re-screening rates that's happening right now with stool-based tests. They're pretty low, like the overall adherence rate to fit over three years is about 10 to 20%. Rescreening rate with Cologuard is also low after all these years. In fact, these are matching the consumer survey findings that we showed before that seven out of 10 people who've done stool-based testing, they don't want to do it again. So the opportunity for stool tests 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.

Thank you for your question. The next question comes from the line of Dan Brennan with TD Cowen. Your line is now open.

Great. Thank you. 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 year of 25% growth and your ASPs are going up. So just wondering if you can 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 Moldex approvals in those two new indications during 24? Thank you.

Yeah, I can take a breakdown of the growth. Yeah, maybe just to give a little bit more color on the guide across the different lines. 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, the precision oncology line, which is, you know, clinical and biopharma testing, that's going to grow at around 20% year over year. And maybe breaking that further, yeah, biopharma, you know, 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. You know, we see a lot of other companies being impacted by biopharma spend. And so I think, you know, 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, you know, 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. You know, I think it's important to know that we always have this seasonality in Q4 where we have very strong biopharma revenue, and then that always, as companies or customers push through their 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, you know, 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, yeah, hopefully that's given some additional color on that guide.

Yeah, in terms of MRD, you know, we're preparing publications as we speak, at least in CRC, and then we'll get the breast publication out at least and submit it 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 Multi-X in terms of submitting that data. Obviously, we haven't really baked much in this year in terms of this additional reimbursement is certainly upside if we manage to sort of get through the gauntlet there quickly. I would also say that, you know, 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. You know, we have the partnerships with large group practices like U.S. Oncology, the AMR Integrations, Smart Liquid Biopsy Transition, some of the upgrades to tissue next. 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.

Thank you for your question. The next question comes from the line of Jack Meehan with Mifrin Research. Your line is now open.

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 assumed for gross margins for the year and any implications for SHIELD volume growth embedded? And for Helmi, I was wondering if you could talk about your sequencing strategy. Are there any changes you're planning to make in the lab, either with NovaX or something, just to help drive savings on the cog side? Thanks.

Yeah, 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 two 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 at 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 you know, when we get the initial Medicare get-full rate and what that rate's going to be at. So, you know, that's why we really want to focus on gross margin without screening because it's just difficult to measure. But, again, I think our aim at excluding screening is to be at least 60% gross margins. And I think, you know, we feel comfortable with all of the mixed impacts across the core business that we can manage to that level.

Yeah, 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-X and others that may lower our overall cogs of running our tests.

Thank you for your question. The next question comes from the line of Doug Schneekel with Wolf Research. Your line is now open.

Hey, good afternoon. 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 Garden is managing trial design timelines, 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. Fair 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. A new 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, you know, 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? Thank you.

Yeah, actually, very good question, Doug. So, it's a fair question, frankly.

I accept that and, you know, you're right. I think a bunch of people out there are right. I think the reality is, you know, we are going to focus on execution and show that, you know, hopefully this FDA approval would come and, you know, ADLT status would come and, you know, successful commercial launch would come. And over time, I think that performance is going to generate confidence that, hey, when these guys Amir 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, you know, there were some bars of what a successful CRC screening would be to make a multi-billion dollar brand. And that bar versus the data that we've seen before on blinding the database was, you know, 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, know we are not here to waste our life doing something that we don't believe and just burn the money because you know 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 You know, we mentioned always that, you know, 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, you know, we can generate this business in a proper way by showing commercial success and so forth. So we have all these milestones that we are going to meet and as long as we meet those, SHIELD would continue and would generate multi-billion dollar opportunity to garden and P&L in the years to come. So, we are not here to waste our time or your time just, you know, playing with shield here. We have better things to do in life, frankly.

Thank you for your question.

But the lead is very, very strong. We are very strongly around the potential here.

Sorry about that, Tim. Thank you for your question. The next question comes from the line of Rachel Battenstile with JP Morgan. Your line is now open.

Hi, great. 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. You know, 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.

Yeah, I mean, I don't think we're going to break out the number in a 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 that count level. a lot of retraining, and it just makes life so much simpler when they can essentially use their existing EMR system of record 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 thank you for your question our final question comes from the line of andrew cooper with raymond james your line is now open hey everybody thanks for the question

Maybe just one more on MRD and the breast data you disclosed in preparation there. I 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. You know, how do we think about that in context of, you know, some of the numbers we see out there, whether from others when it's a certain subset or not, and how that, you know, that 97% specificity in the, I think it was 83, two 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? Thanks.

Yeah, no, thanks for the question. I'll maybe start with the second one. No, we believe this is more than sufficient in terms of data for sort of clinical validity from a 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, I think, 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 two 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 cytometastases, there's different shedding rates. And no method really solves that. That's just a factor of the biology in terms of the tumor type. And so that's why these results typically hold, you know, if it performs well in one subtype, it 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 a factor of the biology of the team.

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