1780183 - GRAIL INC

All right. Good morning. I'm Doug Schenkel. It's my pleasure to welcome Aaron Frieden, CFO of Grail. Aaron, thank you for being here. Yeah, thanks for having us, Doug. So as Grail's Test Gallery moves through FDA review, the key debate is really what approval could unlock from a reimbursement perspective, how important that is to driving broader adoption, and, you know, how this positions you and others more broadly in the context of multi-cancer screening. It is a massive opportunity. It could make a huge difference for the general population in the U.S., and, of course, you have partnerships that support a potential rollout outside the U。S. more aggressively. So, a really exciting area, a really exciting company, a really interesting time right now. In terms of just providing a roadmap for our discussion, I want to spend a little bit of time on Q3, but I don't want to spend too much time because I think that's kind of missing the point given how we're talking about the long-term opportunities for the company. I then quickly want to pivot to what's going on with the FDA, where do we go from now? Essentially, how do we think about regulatory building off of that, of course, turning to reimbursement and even in advance of broad reimbursement, how you can drive broader access. And that really is a segue into how you're thinking about commercial adoption and the associated economics. So that's kind of the roadmap will fold and fold in some competitive dynamics as well so lots of great things to talk about but let's let's start on q3 gallery volumes increased i think it was 24 percent year over year but they were down sequentially and came in a little light against what you described as a softer market backdrop again you know i don't think we're playing for quarterly volume at this point um but you know it was light why did what what why did you come up a little bit of light of target and and maybe more importantly what what lessons should we take away from uh how things are evolving this year yeah it's a it's great question um and i agree this is the the short term yeah on the way to long longer term um and we're we're building and playing in this space now so the long of course, is more successful when you're building awareness and so on. So Q3 was up 24%. I think we're up 36% for the year. Q3 is generally our lowest, from seasonality, our lowest growth quarter. And earlier in the year, we had our NHS Gallery readout, which of course we missed the primary endpoint, which was the big headline, even though there was lots of really high quality clinical utility data in there, stage four reduction. We found more stage one and two cancers in our arm alone compared to all cancers found by screening in the NHS. Don't need to go through it all again. But at that point in time, we're very media sensitive. So we have an employer channel. Employers stop talking to us, really, and then start talking to uns again until the publications came out in the FDA ad comms. So those things cause some slowness in the Q3 period. But, you know, the self-paced space is very, I'd say, volatile. It's hard to figure out really how it's going to grow on a quarter-over-quarter basis. And then that's because it is just very, very sensitive to media. Things like digital health partners and so on, great channel to distribute through. But it's also impacted by how they spend their marketing dollars. They tone down the marketing dollars, we sell less tests. But overall, we're really happy with, you know, 24% growth in the slow quarter. And, you Know, we, with the FDA adcom positive, you know, votes and all the momentum around that, we are now playing with pricing elasticity to try to figure out where our price should really be to drive further, you know, expansion prior to reimbursement. It's interesting. I think every quarter that goes by, at least in advance of FDA approval, in advance of reimbursement, I mean, there is really a consumer behavior dynamic to this right now. Yeah. Is that fair? Yeah, definitely. Doesn't sound like as far as you can tell, there was competitive dynamics that came into play in the quarter. Yeah. So competition is, it's interesting. We see it adding confusion into the space. You know, other folks are out there, you know, to be really clear, we all have LDTs right now, we're on the precipice of an FDA approval, you knows, cross my fingers. But right now we're LDTs. But so everybody kind of thinks we're the same. You know, a physician doesn't spend a ton of time looking at the specificity, that sensitivity, and making comparisons that you probably shouldn't, you know, caring about case control data versus interventional data. But what we do find is when our PCPs do get in the office, we win once they actually spend the time to understand they win. So we don't see ourselves, we don'T lose accounts competition. But there's 500,000 PCPs out there, you know, so how many people aren't taking a gallery test because they're being approached and taking one of these others? It's hard to say. Right. It's so early. Yeah, exactly. So we really see just it's adding confusion right now, but we really think with the FDA approval, that'll drive differentiation, and we'll be able to, you knows, for successful, create that differentiation. So we saw what happened coming out of ASCO over the summer. Things got better, I think, in September after the adcom. So we're learning some lessons there. Another thing you did recently was you introduced some new promotional pricing. What lessons can we take away from that? Yeah, I mean, there's definitely elasticity in the price, which isn't surprising. It's what we've expected. And we've been saying for years now that we expect the price of the test to come down over time, not go up. it's a you know meant to be a population scale test at any price times any population you're going to get to a large you know population leverage into a large number um so we're built for the price to come down from a lab perspective a cogs perspective and so on um you know so we we see this is all playing the way we are and we're learning about how to evolve our pricing going forward okay uh helpful and you still expect that to land probably in the low 500s I mean, the CMS, you know, from the Nancy Sewell Act, it's reimbursed at $508 when CMS, if they make a positive NCD decision. Okay. So we expect it to be somewhere between $500 and $600. Okay. All right. Let's pivot to FDA. Following the September FDA adcom, which was positive, what do you view as the most important remaining considerations for investors as Gallery moves through the regulatory process. Yeah, you know, in my view, the ADCOM did a couple really positive things. It talked about a common cancer signal. You know, for a while we've been saying this. Our studies have shown that there's a common answer signal, but now there's the FDA, the advisory committee said there's a common answers signal here, which means, you know, we'll be returning results for cancers, a broad label. in our view, is where we'll land based off of all the data we've submitted. I also think it's going to, you know, from the sector, the category, that's going to be, I think, be the bar. I think it will be real hard to prove that you don't have a common cancer signal. So, you're going to have to compare yourself from your metrics perspective to all cancers in your studies, not just cherry-picking cancers that you do better in. It's a different task if that's the approach you're taking. Exactly. And, you know, the FDA adcom also talked a lot about, you know, we found cancers that were treated with curative intent. I think 83% of the cancers that we found in Pathfinder 2 were treated with curitive intent, which is, you Know, almost like a clinical utility metric. So very, very positive things there. They debated they were early. Yeah, I'm not going to avoid that. The E, the E, exactly. And you know our studies show that we've you know more than half the cancers we found are early. Their view is, but yeah, but the sensitivity to early is low. So we're having that debate. I think clinically, I don't think it's going to matter. You know, we have all the publications, we all have the studies to show we find whether there is a early claim or not. I don'T think it'll be used clinically any differently. And it'll interesting part will be given that the FDA has what they regulate and then they don't regulate as LDTs, it'd be hard to have one company with E and other companies without. I think that'd be a challenge from their perspective. Yep. But, you know, but I'm thinking what people should look forward to is a, you Know, a broad label that will, you know, hopefully better support CMS reimbursement and their interview decision. Can you share anything on how the discussions with the FDA are going on E e specifically like are you feeling like again that's one of the key areas of debate based on how those discussions are progressing it sounds like you feel okay about the e question yeah it's a key key area of debate for sure um and i feel good about where we're at okay um the way we've positioned it the way they're thinking about it based on our look at the data, our understanding of the biology, and importantly, what we've heard from folks who know the science really well, is in a world where the FDA is requiring very high, you know, 99% plus specificity in an assay for that assay to be considered safe. Inherently, the trade-off is going to be low sensitivity, especially in early stage cancers. So in many cancers, to be balanced about this, your stage one sensitivity is a lot lower than you would see in assays where the specificity is around 90%. But that's the biology. And I think what we've seen from others and we've seen across your studies is when you do robust, large, well-designed studies, especially ones that are actually prospective and randomized and not case-controlled. The biology is what it is. So one, I want to make sure you agree with my characterization. And then two, if that characterization is right, if the FDA were not to approve this, wouldn't this be a major category issue for multi-cancer detection tools by definition. I agree that it's a biology safety trade-off at the end of the day. If you are okay sending 100 people to a good colonoscopy, but only five of them actually have colon cancer, that's your 90% specificity for tests that exist today. You'd be doing that for all cancers. So you can do a trade-off like that when it's a single organ. We've kind of accepted that deal. I think it'd be hard to do that with a multi-cancer test. And then, yeah, the biology. Where's your cut point? So you're going to have some things fall below your threshold. I think if the FDA says there's no early claim or early word anywhere, then, yes, I don't think it changes what a clinician does. I think it changes the way people talk about MCDs or MSEDs. Yeah, it seems one way or the other highly likely that you would get an approval at some point in the first quarter, maybe early first quarter. If that's the case, then there's this question about the E, and we've talked about that a little bit. From a commercial standpoint, let's say that the label were more narrow and it didn't have the letter E in it. it didn't have early in it. The assay is still the assay, and you're still on track to progress to the next discussion with CMS. Is that right? Yeah, exactly. It doesn't change the reimbursement. It doesn'T change the CMS discussion. In fact, it doesn'T, other than taking, like, my understanding is, other Than having the word early in It, the test report's still the same. The same. It's the same data that shows how many early-stage cancers we find. It'S the same sensitivity metrics and so on okay um one more thing that i want to double click on uh the lcd comparison can can you explain that a little bit where right now you're all lcds um it sounds like there's some discussion with the fda around or at least you're focused on an argument that if your label changes you can't have other LCDs out there that are marketing themselves as early with less robust data. Is that the point? For me, it'd be hard to reconcile that. Okay. Yeah. Any other LTD out there making claims of less data would be interesting if I was the FDA. Okay. Anything you'd be willing to share on expected timing with the FDA? I mean, we're moving back and forth quickly. it all comes down to you know how long the negotiations are on some of these key points okay um you know as we said i think it's early q127 okay but we said uh we've updated our timeline too um could be earlier could be okay um as i think everybody in the room and on the line probably knows um regulatory approval does not mean reimbursement um but it is required to get reimbursement, to at least move into those discussions. Are you in active discussions with CMS? Yeah, we've been in discussions with CMS for a while. If you remember, we started our REACH study years ago. The REACH study has endpoints of clinical utility endpoints, similar to NHS galleries, other than it's a stage four decrease, not a stage three and four decrease. Which we demonstrated in NHS galleries, so we're feeling good about that. That study will supplement the NHS, sorry, the CMS data that we submit. So that's a 50,000-patient study that is really intended to address some of the key questions that CMS has. Yeah. So CMS can sometimes, you can send them all the data in the world. One of the rebuttals can often be, well, this data is in our population. So to kind of get ahead of that, we did the study with them in conjunction with the FDA. It's under IDE, three time points, three tests, you know, 50,000 people, and that will give them data in their population as they're looking at the NCA, NCD. Any timelines? FDA is a little clearer. How do we think about the issuance of an NCD policy decision and path to reimbursement? So it will be our goal, our interest to get them to initiate an NCA right after FDA approval. Okay. And then, you know, hopefully that's a 12 month ish process to get the NCD itself. Yeah. Would, would that be the policy decision or is that a policy decision that concurrent with it would allow for reimbursement of gallery? We would, it would be in position. So by January 1st of 29, reimbursement could begin. Okay. Yeah. So could be at the same time, maybe not, but one way or the other, NCV done in a timely enough way to position you so that you can start to get reimbursed within the timeline that's outlined within the MSED bill. Exactly. Okay. What percentage of the addressable market gets reimbursed if this is how it plays out? I think it's phased in 50 to 65-year-olds and It's 50 to 66-year-olds, and it phases in every year until you get to 20, 35, and then it's everybody. So I think the first cohort, 50 to 65, is about 8 to 10 million people, somewhere in there. And we're taking efforts to accelerate that age phase in. It was kind of put in the legislation. Well, not kind of. It was put in legislation as a way to manage the CBO score. but stepping back like all the advocates all the supporters hard to understand why you would allow a 65 year old to have access to it not a 66 year old or a 67 year old so you know we'll be you know really working to push that phase in to happen faster and you know what did you guys on that as it goes how important is this in driving commercial reimbursement it's a great question. Commercial payers have said, first, you know, don't talk to us until you have FDA approval. Well, positive FDA adcom, they're now talking to us. Yeah, that's starting to happen. Yeah. So we're talking to commercial payers now. And I mean, as you guys all know, as you know well, Doug, that is going to be a negotiation between evidence and price. So how does that weigh? We're learning more about that. We haven't really gotten their thoughts until, you know, they have the adcom on evidence, and we'll see how that plays out. But, you know, high level, most of them we expect to follow Medicare. There may be some that come in before Medicare, but we'll, we'll have to wait and see. We'll see. How does USPSDF play into this? Great question. Yeah. I know the way it's historically played, they've kind of think they might have a new mandate. They, they might be meeting again soon. You know, it'll be interesting to see if their mandates changed i can't really answer right yeah different administration yeah if it hasn't changed then you know that'll drive you know the commercial players to act um all right earlier we talked about third quarter what you're learning um in terms of kind of the consumer dynamic to this the price sensitivity kind of tying into that and building off of that, when you think about the expansion of the commercial organization that you pursued in the first half of this year, what are you learning about rep productivity? And based on those lessons, how do we think about commercial investment next year? Yeah. So we expect those reps that we hired, I think they were all pretty much on board. Early June, we did a full training in the month of June. They got educated on all the publications, the ASCO data and so on, and hit the street. We expect them to be productive by the end of the year and, you know, contribute fully the next year. You know, it's not a, this is a new thing. So you don't come in with reps who've known how to do this before. And so we've learned that we can get them up to speed in a relatively decent amount of time. Now, scaling, like when's the next time to hire more reps? you know with the FDA approval looming you know we'll likely lean more into direct to consumer advertising and marketing you haven't really seen us do that you've probably seen it pretty heavily from some other players in the space we'll lean more in there and then the right time figure out when to expand our next sales force expansion we're still really focused in metropolitan areas or areas where we, you know, have the, all the right mixture of income, age, you know, health systems and so on, so there's still a lot of white space out there where we don't have reps, so as part of the next decision, we'll decide, do we start to expand that white space, or do we still concentrate more where we are? Our goal is, though, to grow reps product, you know, productivity, right, to get them more efficient, more effective. Doug's heard me say this for, you know nine ten years at this point but like we know that if you look at comps out there like exact is a great great comp they're the largest most successful screening company you know cancer training company um but it's a stool-based test it's every three years it's a different beast than an annual blood draw that fits in with your physical so we assume we'll be more effective from a rep basis than something like coligard so you may not have to build out the full 700 to 1,000 person piece. You may not have to. May not have too. Don't know. Yeah. But you have a little time. Yeah. From everybody that, from folks that we've talked to, physicians and so on, it's just an easier sale. It's a blood draw. It's not a stool kit sent to your house. But are we cholesterol testing? No. Like we're not anywhere near that. Like no one even knows who sells cholesterol tests. So we'll learn as we go. But the idea is to, we've been in the market for a while as a self-pay market growing this we'll have to learn with reimbursement with the right paces to unlock those assets how do you think about in general investment next year and i i want to talk about other areas where you could be investing in r&d in a couple minutes um but a couple of times we've talked about hey there's the near term but let's let's keep our eyes on the fact that this is I mean it could be an annual test for what 120 million people in the U.S. alone every year so it's a massive opportunity but reimbursement is at least a couple years away sitting here so balancing those things and also recognizing yeah you have exact out there exact abbot out there promoting on tv you know I see him during football games you have other companies starting to run more social media campaigns um is there any what is the importance of you guys getting more aggressive commercially in the near term recognizing yeah to some extent that's not what it's about right i mean so i'm i think these things are starting to merge a bit in my eyes yeah um you know building awareness building the right education base essentially distributing test today. Yep. Seeding the market in a way. Probably, you know, better guarantees the future. Yep. And so we will lean more into, you know, getting patients to walk into physician's office asking for a specific test. I mean, with the consumerization of health care that's going on, you've got all the digital health players now. Patients are making a lot of their own health care decisions and physicians are giving them what they're asking for. So the easiest way for them to get them to buy gallery versus something else is for having them to walk and have them walk in and ask for gallery. We've also got all the, you know, we've got the FDA approval, physicians have all of our data and so on. So we'll be leaning in more there. It'll, that'll be different. That'll be more spend from a sales and marketing side. From a repeat testing standpoint, how are you tracking coming out of Q3 in terms of if somebody got a test done a year ago, how frequently are they coming back to do the second test? So we measure it, you know, a little bit more than a year because not everybody goes back to their physical the same day, right, and gets their blood drawn. So I believe we're at 36% repeat test right now within about an 18-month period. And that's been increasing. Yeah, it was 29%, I think, earlier this year, and into the things that we said at J.P. Morgan. So for a self-paid test, we're pretty impressed by that. And in a concierge channel, I don't know if you split it this way, but yeah, it'd be interesting to hear if that's actually higher, right? Because there's maybe less price sensitivity and more of a willingness to keep paying every year. Yeah. You'll likely see more repeat testing, but you'll probably also see more than one annual test. Okay. You'll see some people taking it quarterly. Is that right? Every month. Interesting. Yeah. What are you learning from early physician adopters that they're going to stay on board? You know, and this kind of ties into the repeat testing. We had a panel yesterday where, yeah, one of the concierge docs talked about how broadly he was using this and the repeat testing and really pointed to, you know, part of his group of patients, his practice, but he really pointed to the data, the robustness compared to everybody else. So on one hand, it was really, really encouraging from a competitive positioning standpoint, from a penetration standpoint, and from a retention standpoint. But it's an N of one. So more broadly, what are you hearing across different channels in terms of how physicians are thinking about the positioning of the test? I mean, basically the same thing. We've got other physicians that have now ran more than a thousand gallery tests in the time period. And it's all about the data. I mean the biggest barrier is the price. A physician has to decide if they want to offer this test to their patient at a certain price. And if they have to make a judgment, whether they think the person can afford it, whether they think they're going to insult them if they offer it and they say no. And so, again, back to our pricing elasticity and our pricing study. Yes, it's patients taking money out of their pocket to pay, but also physicians willing to offer it. Yeah. And as you get closer to that $500, $600 range, they're much more comfortable. Yeah. Yeah. It's interesting, right? I mean, everything hasn't gone perfectly with the studies, but you're in a good position heading into the FDA. You've done the studies. It's been over a decade since this journey began. So I think it would be hard to argue Braille doesn't have the most robust body of work going into the agency. Again, you'll be the only one approved. The reimbursement, the pricing is the challenge. So from a competitive standpoint, I would think in the concierge channel and any place else where price is not an issue or less of an issue, you're going to do well. In other channels where there are assays that are good assays are allowed by the FDA where you can opt in for a test. They don't go as broad in terms of the number of cancers, but you don't have that economic challenge, right? Because it's tough to compete with free. I would think that's probably where it's a little more challenging right to compete it's it's not the data it's where there's economic differences is that is that fair yeah i mean it takes longer to compete i would say right like once those physicians realize they're offering a test that's only every three years that has no interventional data and so on they order our test okay um you know but that's where that's what you need detailing right that's really detailing okay but yeah free is free is free free is free but you know it's like we like free yeah free isn't always a gift though in that case it could end up being a massive liability for you yeah okay maybe just to stick with the competition question is there anything we're missing in terms of how we should think about competitive dynamics and how we should be think about your competitive mode no I mean you've you've said all the reasons why we have the competitive mode I mean we've got regulatory grade data. We're going to be through a regulatory process. We've got RCTs. We's got longitudinal RCTS. You know, it's a meaningful amount of data that shows that this product is safe and effective and translates into a real world population. It's not just case controlled data. And I think that's really important. You Know, the differences in performance, again, you don't get to the safety profile we have at less than a 99.5 percent specificity right um so you know as a physician as a you know even a a passerby numbers look really close but you know you're at 97 or 98 percent you know specificity you're five six times higher false big difference yeah huge difference in this population yeah in this population as we think about it's hard to focus much on Grail beyond the opportunity the FDA the outlook for reimbursement but there are other opportunities there's adjacent products there's the market outside the US I know I know you're not going to tell us to focus too much on those areas, but if you'll just indulge us for a minute, how should we think about what you could do in adjacencies outside the U.S.? Yeah, I'll start with adjacencies to the product in the U。S. or just in general. I mean, so we really refocused the company around gallery and risking it back in 2024 when we restructured the company. And we said when we de-risked gallery, we would move on to other things. So the entire time we've been doing other things, And so we have an innovation platform and program that we will talk to you guys more about over the next couple months. But driving COGS down, driving sensitivity up, adding different single cancer indications to an FDA-approved platform, and so on. We also have this massive and growing quarter-over-quarter database of asymptomatic individuals who are healthy, giving us their blood. One percent of them have cancer. they probably have other diseases as well and given advances in you know AI foundation models we can likely find some of those and then expand gallery to beyond cancer that's another area of focus and then you know other indications you know there's the MRD there's all that other stuff that we could do but I think you guys know the playbook for all that yeah but it's they're not dead they're very much alive they're just not in focus right now what about international yeah international I think with the FDA approval, there's several markets that look at FDA approval and go, okay, great. Now it's time to look at doing a larger program. So we are definitely expanding our international focus. We already have some partnerships, right? Does FDA help those partnerships? Yeah, I think, I mean, FDA approval helps Samsung and Korea for sure. Okay. Two more. A year from now, which two or three operational metrics would best demonstrate that Braille on the whole is doing a good job and Aaron, the CFO, is doing good job? You still see me? Yeah. So, I'd say, you know, FDA approval, you know, any early uptake from commercial payers, whether it's small programs, pilot programs, it might not always be in the broadest population. Some of them may want to pilot it and do other things, and then progress on CMS and NCD launched, and those discussions happening. I think, though not your traditional metrics, as they're not, they're more qualitative than quantitative. No, but they're pretty important yeah i would i'd be looking at those things okay what about spent like and how like it's an interesting time right i mean it looks like in excel you got a couple years of runway i think you've said that um there's clearly opportunities you could lean into more you could do more on commercial you can do more dtc by extension um we talked about some of the adjacent opportunities you Could lean in there yeah uh especially as seemingly you're getting closer de-risking gallery. It sounds like, obviously, you're aware of all of those things, but it doesn't sound like hard and fast decisions have been made on whether you lean in or you preserve runway at this point. No, but I'd say it's pretty dynamic. I'd say those three metrics we just talked about, the more confidence we have in those, the more likely we'd be leaning in. On the commercial side, I'd say on the innovation side, I mean, those are all, those are lower dollar items. I think by the time we wanted to move something from development into clinical study, then we'd probably be talking about bigger dollar items, and we'd have to have a little bit more confidence about where we're going. The data component of this, it's not something I've heard you guys talk a lot about. It's a huge data set. You know, good thing is, is most people you're testing, as you noted, don't have cancer. So the time to the eventual event, whatever it is, whether it's cancer or something else, is longer. But with duration, this could be a hugely valuable data set. Do potential partners see that already? Yeah. Yeah, partners see it. I mean, it's not your traditional pharma partner who is going to a company that has tons of cancer cases. They're an MRD company, and then they can do so on. But there are partners who see the value in that, that reoccurring flywheel of healthy people coming in, giving you a biological sample and you being able to innovate. In a world where we're all focused on how AI is going to change healthcare and drug development and drug discovery, are there non-traditional AI companies that are interested in what we're talking about? Yeah, I wouldn't, I mean, they all are. Yeah, When you've got trillions of dollars of capital, you can be interested in lots of things. All right, just to close, what do you think investors are not appreciating about the Grail story right now? Yeah, it's a good question. I mean, I think the investors who are engaging, kind of like our physicians, when they engage and they hear the story and they see the data, it is pretty straightforward for them. And it basically becomes a reimbursement decision. It's when do I think this thing is de-risked from a reimbursements perspective. And I'm hoping I figure that out before everyone else does, right? Because once everyone else figures it out, it's going to be much more expensive to buy. So, you know, I think we've made a ton of progress from a decade ago where we are on the precipice of an FDA approval, beginning the CMS process. We've ran almost a million tests now, you know, between our studies and more than a million tests from our studies in commercial. So we're real. We're here and the test is working. Okay. That's fantastic. Yeah. All right. Let's leave it there. Thank you very much. Thank you, Doug.