GRAIL - Earnings Call - Q4 2024

Executive Summary

• Q4 revenue grew 26% year over year to $38.3M, with Galleri screening revenue up 39% to $31.6M; non-GAAP adjusted EBITDA improved to $(84.0)M and adjusted gross profit to $17.9M. Net loss narrowed to $(97.1)M (vs. $(187.5)M in Q4’23), aided by cost controls and scale benefits.
• Strategic catalysts: TRICARE added Galleri as a covered benefit for elevated-risk adults ≥50, and Galleri is now integrated into Quest’s nationwide ordering and draw network—streamlining physician ordering and patient access across ~7,400 locations.
• Operationally, management rolled out an enhanced Galleri assay with a reduced panel and full lab automation to lower COGS and expand throughput; no incremental near-term capex is anticipated for expected volumes.
• Balance sheet and runway: year-end “cash, cash equivalents, restricted cash and short-term marketable securities” totaled $766.8M; management guides 2025 cash burn of “no more than $320M” and maintains runway into 2028, supporting pivotal readouts and a modular PMA submission targeted for 1H’26.

What Went Well and What Went Wrong

• What Went Well

  • Strong topline and Galleri momentum: Q4 revenue +26% YoY to $38.3M; screening revenue +39% YoY to $31.6M; ~137,000 Galleri tests sold in 2024 and “more than 40,000” in Q4, driven by volume growth.
  • Cost and efficiency actions: Adjusted EBITDA improved to $(84.0)M (from $(123.5)M in Q4’23) and adjusted gross profit rose to $17.9M, with management citing revenue mix and scale benefits; new assay expected to reduce variable COGS and increase throughput (≈4x samples per flow cell).
  • Access tailwinds: TRICARE coverage decision and Quest ordering integration should lower friction in test adoption and expand availability across ~7,400 access points; >500,000 providers use Quest’s connectivity system.

• What Went Wrong

  • Development services softness: Q4 development services revenue fell 13% YoY to $6.7M and declined for the full year (−6% to ~$17.0M), partially offsetting screening gains.
  • Persistent GAAP losses: Q4 gross loss was $16.0M and GAAP net loss $(97.1)M; FY24 net loss was $(2.03)B driven by goodwill/intangible impairments and amortization related to the Illumina acquisition.
  • Legislative/reimbursement uncertainty: Management remains encouraged by bipartisan MCED legislation but cannot predict timing; potential pricing alignment to stool-based tests would require continued cost reductions and scale to achieve attractive margins.

Transcript

Operator (participant)

Good day, ladies and gentlemen, and welcome to the GRAIL Q4 2024 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. Please be advised that this conference call is being recorded. GRAIL Investor Relations, please begin.

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

All forward-looking statements are based upon currently available information, and GRAIL assumes no obligation to update these statements. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that GRAIL files with the SEC, including the risk factor section in GRAIL's most recent quarterly report on Form 10-Q and the company's upcoming annual report on Form 10-K. This call will also include a discussion of GAAP results and certain non-GAAP financial measures, including adjusted gross profit and Adjusted EBITDA, which are adjusted to exclude certain specified items, including accounting impacts related to Illumina's acquisition of GRAIL.

Our non-GAAP financial measures are intended to supplement your understanding of GRAIL's financials. Reconciliations of the non-GAAP measures to most directly comparable GAAP financial measures are available in the press release issued today, which is posted to our website. With that, I'll turn the call to Bob.

Bob Ragusa (CEO)

Good afternoon, everyone, and thank you for joining us to review results for Q4 and full year 2024. 2024 was a transformative year for GRAIL as we separated from Illumina and began publicly trading in June. In July, we completed final study visits for our two registrational studies, the NHS-Galleri study and PATHFINDER 2. In the third and fourth quarters, we implemented a significant restructure intended to extend our capital runway past some major anticipated milestones, including the completion of our modular PMA submission for FDA approval of Galleri. In addition, we grew U.S. Galleri revenue 45% year-over-year, selling more than 137,000 Galleri tests. We are pleased with Galleri's commercial momentum and are excited to progress initiatives to make it easier for physicians to order the test, including our recent integration into Quest Diagnostics' test ordering system.

This integration enables easy ordering for more than 500,000 physicians and allows patients to access the Galleri test at 7,400 Quest locations nationwide without needing to bring along a test kit. To discuss some additional recent highlights, I'll hand it over to GRAIL's President, Dr. Joshua Ofman.

Joshua Ofman (President)

Thanks, Bob. As you may know, Galleri was designed to be utilized at population scale, and we've continued to enhance our technology and our laboratory infrastructure to enable all this future growth. Over the past several years, we've been working on an updated version of Galleri, which will enable efficient growth and support testing at scale. At the end of 2024, we rolled this enhanced version out, which includes a reduced panel size, allowing us to lower sequencing costs and to run approximately four times the number of samples on every flow cell. Additionally, the testing workflow is now both fully automated and integrated, meaning we've been able to eliminate numerous manual steps in the lab, allowing for much greater efficiency.

The implementation of these updates has substantially expanded our lab capacity, and we do not anticipate any additional CapEx investment will be needed to support our expected volume for the foreseeable future of the next several years. We began offering this version of the test in December and expect to see COGS improvements as we continue to scale. We're also really pleased that the U.S. military's TRICARE health insurance program has added the Galleri test to the approved list of lab-developed tests as a covered benefit for patients who are 50 years or older with an elevated risk of cancer. This addition came after the Defense Health Agency reviewed Galleri to determine if it met TRICARE requirements for both safety and effectiveness. We're currently working with TRICARE's carriers to implement this new offering. We're really pleased with the progress we've made since GRAIL was founded in 2016.

The Galleri test is identifying deadly cancers in asymptomatic adults in clinical care today. We continue to demonstrate our scientific leadership in this emerging field to completely transform how we screen for cancer and to dramatically improve the cancer detection rate in the population. We continue to make progress on our modular FDA submission, and we're looking forward to continuing to help individuals and their families detect cancer early when it can be cured. To discuss our Q4 financial results, I'll hand it over to GRAIL's Chief Financial Officer, Aaron Freidin.

Aaron Freidin (CFO)

Thanks, Josh, and good afternoon, everyone. I'm pleased to present results for Q4 and the full year of 2024. Q4 results were strong, with revenue of $38.3 million, up $7.9 million, or 26%, as compared to Q4 2023. Total revenue for the quarter is comprised of $31.6 million of screening revenue and $6.7 million of development services revenue. Development services revenue includes services we provide to biopharmaceutical and clinical customers, including support of clinical studies, pilot testing, research, and therapy development. Full year revenue was $125.6 million, up 35% from full year revenue in 2023. 2024 full year revenue was comprised of $108.6 million screening revenue, up 45% over full year 2023, and in line with our narrowed guidance in the fall of 40%-50% growth. Revenue also included $17 million of development service revenue, a decrease of 6% from 2023.

We see continued demand for our Galleri test and sold more than 40,000 tests in Q4 and a total of approximately 137,000 tests throughout the year. Screening revenue of $31.6 million in Q4 was up 39% as compared with Q4 of 2023, primarily based on increased sales volumes. Development service revenue in Q4 2024 was $6.7 million, a decrease of 13% as compared with Q4 of 2023. Net loss for the quarter was $97.1 million, an improvement of 48% as compared to Q4 2023. Net loss for the full year was $2 billion, an increase of $561 million, or 38% as compared to full year 2023. Net loss was primarily driven by goodwill and intangible asset impairments. Non-GAAP adjusted gross profit for Q4 of 2024 was $17.9 million, an increase of $2.6 million, or 17%, as compared with Q4 2023.

Primary drivers of the increased margin were revenue mix and economies of scale related to increased Galleri volume. Full year non-GAAP adjusted gross profit was $57.8 million, an increase of $17.6 million, or 44%, as compared with full year 2023. Adjusted EBITDA for Q4 of 2024 was negative $84 million, representing an improvement of $39.4 million, or 32%, as compared to Q4 2023. Adjusted EBITDA for full year 2024 was negative $483.5 million, an improvement of $40.3 million, or 8%, as compared to full year 2023. We ended the year with a cash position of $766.8 million. We are focused on driving growth efficiently and reducing our spending profile. In 2024, we made significant strides here, and we plan to continue to reduce burn in 2025.

In January, we guided that we expect cash burn for full year 2025 to be no more than $320 million, a projected decrease of more than 40% over our cash burn in 2024. As we've shared before, our cash runway extends into 2028, enabling us to achieve major milestones such as readouts of our registrational studies and completion of our modular PMA submission. I'll turn it back to Bob for concluding remarks.

Bob Ragusa (CEO)

Thank you, Aaron. Since the separation from Illumina in June of last year, we have made great progress as a public company. We have seen strong growth for Galleri, improved our cost efficiency, and recently completed a major initiative to launch the new version of the test, preparing us for scalability. We believe we are in a strong financial position and are pleased with the momentum we are seeing as we continue to drive multi-cancer early detection from an idea towards becoming a new standard of care. We are in the final stages of data collection for our registrational studies and are looking forward to readouts from the PATHFINDER 2 and NHS-Galleri studies, as well as completion of our modular PMA submission with the FDA in the first half of 2026.

We are grateful to our employees for their incredible commitment and dedication to our mission to detect cancer early when it can be cured. We'll now turn the call over to Q&A. Operator, please go ahead.

Operator (participant)

Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will hear your name called and receive a prompt to unmute. As a reminder, we are allowing analysts one question and one related follow-up today. We will wait one moment to allow the queue to form. The first question is from Doug Schenkel at Wolfe Research. Please unmute yourself and begin with your question.

Doug Schenkel (Managing Director, Senior Research Analyst and Head of Life Science & Diagnostic Tools)

Okay, good afternoon, and thank you for taking my questions. I'll just, I think I have two, and I'll just throw them out there and get out of the way. First, I think it's a Josh question regarding, you know, essentially the new Galleri, if you will. Would you be able to share a little more detail on how the lower COGS per test allows you to be more flexible from a pricing standpoint? And, you know, maybe more importantly, I'm just wondering if in the early going, you're seeing anything to suggest that lower pricing will actually result in, you know, actual true elasticity for the test in terms of demand. So really a question about how low COGS can go, how much it allows you to change pricing, and whether you're seeing any evidence of elasticity in the market.

And then the second topic is more of a current events question on MCED. You know, our understanding is that essentially, you know, the bill was reintroduced in the House a couple of weeks ago. I'm wondering if you could share anything in terms of what you're hearing and what might come next there? Thank you very much.

Joshua Ofman (President)

Great. Thank you, Doug.

Bob Ragusa (CEO)

Hey, Josh. Hey, Josh. Let me take it first, and I'll go over to you.

Joshua Ofman (President)

Go ahead, Bob.

Bob Ragusa (CEO)

Yeah, so I appreciate the questions. So on the new version of the test, you know, as Josh mentioned in his prepared remarks, you know, we're able to put significantly more, you know, more samples on, so 4x the number of samples due to a more focused panel. You know, so clearly we have a near-term reduction in, you know, variable reduction in COGS. In terms of the longer term and any price elasticity, you know, we really look at this platform to be able to build out the scalability and the long-term cost structure that we'll need in order to meet what, you know, we think kind of population scale pricing and margins we'll get to.

And so we won't see the, you know, the fixed cost leverage on the automation that Josh referred to for, you know, for a period of time until volumes really build. So we haven't done the elasticity testing with it. And so we'll, you know, it's really a future proofing to get us to the scalability and cost structure that we know we'll need over the long term. Josh, any pieces to add on that?

Joshua Ofman (President)

No, just that, you know, we'll be. It's early days, and as volumes increase, we'll be able to take advantage of that scalability, but not, you know, not today.

Bob Ragusa (CEO)

Yeah. And then on the legislation, you know, so we remain encouraged, you know, by the reintroduction, by the momentum, you know, the stakeholder groups that have been advocating for this, you know, remain very strong and vocal. We continue to have bipartisan, bicameral support for the bill. So, you know, a lot of good momentum, really looking for, you know, the right vehicle to be able to move it forward. But again, you know, I would say no real change in the level of support for it. And Josh, maybe I don't know if you have any other color to add.

Joshua Ofman (President)

No, I think that's right. We're, you know, it's got great support, bicameral, bipartisan's been reintroduced, and we're hopeful that, you know, in one of the moving vehicles, either the first spending bill or in reconciliation that it'll get, it'll get seriously considered.

Doug Schenkel (Managing Director, Senior Research Analyst and Head of Life Science & Diagnostic Tools)

Thank you again, guys.

Operator (participant)

The next question is from Tejas Savant from Morgan Stanley. Please unmute yourself and begin with your question.

Sorry. Hi, this is Jason on for Tejas. Congratulations on the quarter, and thank you for taking our questions, so maybe just starting off on the recent collaboration with Quest Diagnostics, can you share what's embedded in your 2025 guide regarding this collaboration and confirm if it was incorporated in your pre-announcement from mid-January, and similarly, on a similar note, the TRICARE news, was this incorporated in your mid-January 2025 guide, or do they represent sources of upside? Thank you.

Bob Ragusa (CEO)

Yeah, Aaron, you want to take that?

Aaron Freidin (CFO)

Yeah, definitely. Yeah, so we're excited about both these opportunities, as Josh, you know, really elaborated on for both Quest and TRICARE. Quest is going to make the test directly available to be ordered through their system. Patients won't need to pick up, get a kit to go get their blood drawn and so on. And TRICARE, as Josh said, you know, very, very excited and working with the payers to implement coverage. As far as guidance goes, you know, we contemplated several things and opportunities for the U.S. Galleri next year. And right now, there's no change to our '25 guidance.

Got it. Thank you. And then I guess just following up on Doug's question on the MCED legislation. So I believe there was a December bill that mentioned reimbursement beginning in 2029, and then a more recent bill from February in the Senate, which had reimbursement beginning in 2028. Could you share thoughts on how these timelines align with your expectations? And then on a related note, I believe the bill in February also mentioned reimbursement in line with multi-target stool screen tests. So does that potential reimbursement rate for MCED tests also align with your expectations? Thank you.

Bob Ragusa (CEO)

Yeah, so on the first piece, in terms of the timeline, you know, the piece in December was what was, you know, kind of negotiated back and forth. And then, you know, what's currently in there is just kind of resetting back to the beginning position. So as it gets reintroduced, it's, you know, kind of back into the beginning starting position for the bill. The pricing, you know, the pricing is referenced in that as well, you know, similar to, you know, similar to the current market for stool-based testing. So that seems to be accurate.

Great.

Just to tie it back to, sorry, just to tie it back to the conversation on COGS and margins, you know, we've been saying we've implemented this new version in contemplation of population scale. So we've contemplated that pricing in that endeavor.

Thank you. Appreciate the color.

Operator (participant)

The next question is from Subbu Nambi from Guggenheim Partners. Please unmute yourself and begin with your question.

Hey, guys. It's Thomas on for Subbu. Thanks for taking our questions. Just to start, maybe one on PATHFINDER 2. Curious to know what success looks like for you guys for that study. Any color on what sort of readout you're looking for, maybe any endpoints as well. And then obviously acknowledging it's early days. When would you call it, say, if it wasn't playing out to expectations?

Bob Ragusa (CEO)

Josh, you want to jump in on that one?

Joshua Ofman (President)

Sure. So as you remember, PATHFINDER 2 is a U.S. study, single-arm interventional trial where we're really evaluating the safety and the performance of Galleri in an adult U.S. population over the age of 50 with elevated risk for cancer, so really the main endpoints of that study are going to be traditional measures of test performance, the diagnostic evaluation, the workups, the specificity, sensitivity, predictive values, and then on the safety issue, obviously the traditional safety measures of complications associated with workups and whether individuals continue to get their standard of care screening, and that's all very similar to what was in PATHFINDER 1 as well, and so, you know, we will read that study out, and it will be part of our final modular submission to the FDA in the first half of 2026. And so I guess that probably answers your question.

Great. That's helpful, and then just one follow-up on a separate note on cash. You know, as you closed out 2024, can you speak to, you know, what cash preservation initiatives it may have done to efforts to get more payer coverage? I know there's the recent announcement that you've said on the call, but any new color on longer-term impacts there? Thanks.

Aaron Freidin (CFO)

Yeah, no, no change from what we've communicated to J.P. Morgan and prior. You know, the restructuring we completed last year, performed last year, you know, gives us cash runway to 2028 with cash burn decreasing, you know, over the coming years as we get there.

Awesome. Thanks, guys.

Operator (participant)

The final question is from Kyle Mikson from Canaccord Genuity. Please unmute yourself and begin with your question.

Hi, everyone. This is Alex, and I'm for Kyle Mikson. So obviously, a major topic of discussion has been the company's spending and burn profile. You know, obviously, there continues to be a lot of uncertainty related to MCED legislation, which was, you know, noted earlier in the call. So if your internal FDA submission and approval timelines are ultimately either meaningfully elongated or shortened, how could this impact your cash burn? Thanks.

Aaron Freidin (CFO)

Yeah, so currently our plans for FDA PMA submission are the first half of 2026. You know, we see cash runway into 2028. So we believe we've built in some cushion and some flexibility there to cover any sort of delay if that were to happen. You know, today, sitting here confidently, though, with our first half of 2026 timeline. And Bob, Josh, anything else you guys want to add?

Bob Ragusa (CEO)

Yeah, no, I just think the, you know, as Aaron mentioned, we have built in some buffer. You know, we wanted part of choosing to do the restructure and drive our cash runway into 2028 was to give us some level of flexibility. So we believe that's built in.

Got it. Thank you. And one quick follow-up. So in January 2025, President Trump announced Oracle, OpenAI, and SoftBank joined forces to launch Stargate. Essentially, a lot of funding going towards AI. And Larry Ellison actually noted early cancer detection and AI could kind of team up, join forces over time. I was curious if any of this, any of this news impacted results in 1Q at all thus far. Thank you.

Yeah, so we think that's more of a, you know, longer-term opportunity. It was great to see, you know, cancer in the forefront as the killer, you know, kind of the killer application for, you know, AI that was called out in that press conference. But in terms of Q1 impact, I don't think we'll see anything there.

Got it. Thank you.

Operator (participant)

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

Bob Ragusa (CEO)

So thank you, everyone, for joining the call today.

Operator (participant)

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