Earnings Call Transcript - GH Q3 2025

Operator, Operator

Good afternoon. Thank you for joining the Guardant Health Q3 2025 Earnings Call. My name is Cameron, and I will be your moderator today. I will now hand the conference over to your host, Zarak Khurshid with Guardant Health. You may proceed.

Zarak Khurshid, Host

Thank you. Earlier today, Guardant Health released financial results for the quarter ended September 30, 2025. Joining me today from Guardant are Helmy Eltoukhy, Co-CEO; AmirAli Talasaz, Co-CEO; and Mike Bell, Chief Financial Officer. Before we begin, I'd like to remind you that during this call, management will make forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. This call will also include a discussion of non-GAAP financial measures, which are adjusted to exclude certain specified items, additional information regarding material risks and uncertainties as well as the non-GAAP financial reconciliation to most directly comparable GAAP financial measures are available in the press release Guardant issued today as well as in our 10-K and other filings with the SEC. Guardant disclaims any intention or obligation to update or revise financial projections and forward-looking statements, whether because of new information, future events or otherwise, except as required by law. The information in this conference call is accurate only as of the live broadcast. With that, I would like to turn the call over to Helmy.

Helmy Eltoukhy, Co-CEO

Thanks Zarak. Good afternoon and thank you for joining our third quarter 2025 earnings call. Starting on Slide 3. Q3 was an exceptional quarter for Guardant with broad-based growth across our business. Oncology volumes grew 40% as year-over-year volume growth continued to accelerate driven by Guardant360 Liquid, Guardant360 Tissue, and Reveal. Our biopharma business grew nicely year over year with positive CDx momentum and screening volume accelerated with a sequential increase of 8,000 Shield tests. Importantly, screening has started to generate meaningful revenue tracking at an annual run rate of approximately $100 million roughly one year into the commercial launch of the FDA-approved product. Overall, we are very pleased with our performance this quarter delivering 39% year-over-year revenue growth and crossing over $1 billion in annualized revenue for the first time. Excluding screening, we reached a major milestone with the rest of the business becoming cash flow positive one quarter earlier than expected. Indeed, this quarter sets us up very well to deliver on the long-term plan that we laid out at our Investor Day last month. Lastly, we recently surpassed 1 million cumulative clinical patients tested by Guardant and as such we want to highlight one of these patients with a story that captures the profound impact our tests are having in everyday clinical practice. A 67-year-old man had gone unscreened for colorectal cancer for several years despite his physician offering colonoscopy or stool-based tests annually beginning in 2021. Each time the patient declined to be screened. In December 2024, the physician ordered a Shield blood test, and the patient agreed to complete the blood draw during the same visit. The result came back positive. When his physician explained that a positive Shield result required a follow-up colonoscopy, the patient agreed to have the procedure despite previously resisting. The colonoscopy was performed in January 2025 revealing colorectal cancer. The patient quickly began treatment, and at his most recent follow-up, he had successfully completed therapy and was doing well. This is a powerful example of how the Shield blood test can remove barriers to screening, provide a more pleasant and convenient option for patients, and ultimately improve outcomes. Now turning to top-line performance on Slide 4. Q3 revenue grew 39% year over year to $265 million with strong performance again across our oncology screening and biopharma and data businesses. Taking a closer look at our oncology business on Slide 5. Oncology revenue increased 31% to $184 million and oncology volumes increased 40% year over year to approximately 74,000 tests in the third quarter. Turning to Slide 6. We have seen a clear acceleration in volume since July of last year, following the introduction of Guardant360 Liquid on our Smart platform. Since then, we have launched 2 additional waves of applications, driving 5 consecutive quarters of accelerating volume growth and we look forward to future waves of Smart app introductions developed through the power of Infinity AI to help fuel future growth. In addition to Guardant360 Liquid, Guardant360 Tissue and Reveal volumes also experienced strong year-over-year growth. Moving on to Slide 7. As a reminder, our Infinity AI learning engine applies AI across our data treasury of over 1 million patient samples, including more than 350,000 epigenetic profiles across more than 100 tumor types to bring powerful insights and new products to market faster than ever. Infinity AI enables higher resolution mapping of tumor biology giving rise to not only entirely new products in the clinical business but novel signatures for faster drug discovery relevant to our biopharma business and new commercial insights and decision support tools. Turning to Slide 8. To date, we have launched 15 groundbreaking Smart apps on Guardant360 Liquid with dozens more in development that we will roll out across Guardant360 Liquid, Tissue, and Reveal. Each new application builds towards what we see as a GPS for cancer care, guiding physicians with the right insights at every step of the patient journey. We believe these applications not only significantly expand the clinical utility of Guardant360 Liquid but further extend our technical leadership in the liquid CGP market. Looking more closely at some of the recent highlights within our oncology business on Slide 9. Guardant360 volume grew exceptionally with more than 30% year-over-year growth. Guardant360 Tissue also had a great quarter showing strong year-over-year acceleration following the major product upgrades released in the second quarter. Once again, Reveal contributed very nicely and continues to be our fastest-growing oncology product. In addition to the strong performance, we recently reached a major milestone with submission of our PMA application to the FDA for Guardant360 Liquid. This submission has the potential to streamline Guardant360 Liquid with a single flagship FDA-approved liquid biopsy for therapy selection, simplifying our portfolio, accelerating adoption, and further strengthening our leadership in this space. In addition, FDA approval would lay the foundation for ADLP designation which is an important mechanism for capturing the appropriate value for our expanded test offering in the future. We had a strong presence at ESMO 2025, with 15 abstracts spanning the cancer care continuum, from MRD detection and recurrence monitoring with studies such as PEGASUS to advanced stage tumor profiling and therapy response assessment. For Reveal, we are making great progress with data generation and publications. We recently submitted our immuno-oncology therapy monitoring data package to MolDx to support Medicare reimbursement and submitted data from our chemotherapy monitoring study for publication. Turning to Slide 10 to take a closer look at our Reveal data pipeline. Over the last few months, we have made significant progress in MRD, generating and publishing compelling data across multiple cancer types. Earlier this year, we achieved Medicare coverage for CRC surveillance and have since submitted dossiers for breast surveillance as I just mentioned for immuno-oncology therapy monitoring. We plan to submit packages for chemotherapy and CDK4/6 inhibitor monitoring following those publications. Looking ahead, we have ongoing studies across more than 5 additional tumor types in both the adjuvant and surveillance settings. Together, this growing body of evidence will continue to strengthen the clinical utility and analytical validity of Reveal, supporting broader adoption in MRD. Turning now to Slide 11. I am proud of the progress we have made over the last few years in both driving demand and revenue growth across our portfolio. Looking ahead, we see multiple drivers across our oncology business that position us well for durable long-term growth. We will continue investing in commercial initiatives that make it easier for physicians to access our tests through portal enhancements, EMR integrations, and enhanced workflows. In our therapy selection business, transitioning to the Smart platform unlocks wave after wave of novel applications, many unique to Guardant that will help us differentiate and continue gaining market share. And in MRD, a redoubled commercial focus on Reveal supported by significantly lower COGS and Medicare coverage for CRC surveillance positions us for strong growth ahead. We are also excited to introduce an Ultra-sensitive tissue-informed MRD assay that will complement our best-in-class tissue-free Reveal test. Looking more closely at some of the recent highlights within our biopharma and data business in Slide 12. We delivered another strong quarter with third-quarter revenue growing 18% year over year. We continue to deepen our relationships with large pharma and had 2 additional companion diagnostic approvals in Q3. In late September, Guardant360 CDx received FDA approval as a companion diagnostic to Inluriyo for the treatment of ESR1 mutated advanced breast cancer. This marks the second FDA-approved indication in breast cancer and the sixth overall CDx claim approved by the FDA for Guardant360 CDx. We also received regulatory approval in Japan for Guardant360 CDx as a companion diagnostic to Enhertu for non-small cell lung cancer patients with HER2 mutations. We now have 23 total CDx approvals across biomarker and tumor types. Our robust and growing pipeline of partnerships ensures that near-term revenue visibility remains high. With that, I will now turn the call over to AmirAli for an update on screening.

AmirAli Talasaz, Co-CEO

Thanks, Helmy. Moving on to Slide 13. We delivered $24 million of Shield testing revenue in Q3, driven by approximately 24,000 tests. It's been incredibly rewarding to see Shield volume take off and hear story after story of patients positively impacted by this pioneering test, such as the story Helmy highlighted at the beginning of our call. Now turning to Slide 14 to take a closer look at screening highlights for the third quarter of 2025. Starting with CRC screening, given the strong performance and growing demand, we have accelerated the building out of our commercial infrastructure beyond our original plan. In addition, the breakthrough nature of the Shield brand has provided us with strategic partnership opportunities, including our recently announced collaborations with Quest Diagnostics and PathGroup. Shield continues to generate strong demand from both patients and physicians with high adherence rates. As exemplified by the patient story we shared earlier, we are seeing Shield tests get completed with blood samples received for more than 90% of ordered cases. This demonstrates the simplicity of Shield as a routine blood test for CRC screening that can be implemented into routine PCP practice. We are encouraged by the performance of our Shield CRC V2, which demonstrated solid clinical performance with improved sensitivity for stage I colorectal cancer. Turning to our multi-cancer initiatives. We are very excited to announce that Shield Multi-Cancer is now available nationwide through our clinical data collection initiative. At our Investor Day last month, we shared strong real-world performance data for Shield MCD from a study of 9,251 individuals. Specificity was 99%, consistent with earlier NCI findings and positive predictive value was 41%, meaning that when Shield MCD is positive, there was a 41% likelihood of cancer being present. Lastly, we are proud to partner with the American Cancer Society and look forward to ensuring that everyone has access to convenient and timely cancer screening so we can detect cancer earlier and provide opportunities for better outcomes. Taking a closer look at our recent strategic partnerships to scale our commercial infrastructure on Slide 15. First, we were very excited to announce a strategic collaboration with Quest to expand and accelerate Shield access more broadly in the U.S. Quest's provider clients will be able to order Shield tests and receive the results directly through the Quest connectivity system. We believe this strategic collaboration is valuable in two ways. First, it enables a better ordering experience and brings forward our nationwide EMR strategy by several years. This will give us immediate connectivity to 650,000 clinician and hospital accounts in the Quest system. We believe this accelerated connectivity will drive our scale. We will also have access to deep logistical infrastructure, including 2,000 patient service centers, and 6,000 in-office phlebotomists in the United States. Second, Quest's promotional activities using their nationwide field force in combination with our own multi-hundred person sales force will further strengthen our competitive position in the primary care market. Quest's national commercial sales team will proactively educate primary care physicians and OB-GYNs about the Shield test, accelerating awareness and adoption among their ordering providers. We expect Shield to be available for physician order through Quest in the first quarter of 2026. We will continue to process all Shield test and control client services and billing and reimbursement operations. In addition, we recently announced our partnership with PathGroup, which expands Shield's reach to more than 250 health systems across 25 states representing another exciting accelerator for physician and patient access. We are looking forward to seeing the positive impact of our growing commercial infrastructure in 2026 and years to come. We also remain confident in the potential inclusion of Shield in the American Cancer Society guidelines in the near future, which should be a catalyst for broader patient access. Moving on to Slide 16. Our goal has always been to detect many cancer types early when they are most treatable. With that in mind, we developed Shield as a multi-cancer detection platform. Turning to Slide 17. And as I mentioned earlier, we have now broadened access to Shield multi-cancer detection. In order for a patient to access this result report, their physician will need to opt in to receive the multi-cancer report and the patient will need to authorize the release of medical records to Guardant Health. We successfully piloted this workflow in several accounts and following overwhelming positive feedback from physicians and strong participation by patients, we expanded this offering nationwide. Moving on to Slide 18. The launch of this initiative establishes a scalable platform for clinical data generation, enables assessment of the utilization of MCD results in patient care and provides a new avenue to expand patient access to multi-cancer detection, bringing this important innovation to a broader population. This nationwide initiative is expected to reach hundreds of thousands of participants, making it one of the largest prospective evidence generation initiatives for early cancer detection. Turning now to Slide 19. With the expansion of Shield to include MCD results together with patient authorization to release medical data, we are now well positioned to further strengthen our data moat. This high-quality data serves as a regulatory-grade source of truth, providing details on each patient's cancer journey that were previously not accessible. We will generate large-scale prospective evidence about the performance, clinical value and safety profile. We believe this high-resolution data will power continuous improvement of Shield MCD and also lay the foundation to potentially expand into multi-disease detection. With that, I will now turn the call over to Mike for more detail on our financials.

Michael Bell, CFO

Thanks, AmirAli. Turning to Slide 20. I will now review select financial highlights for the quarter ended September 30, 2025. Unless otherwise noted, all growth rates are year-over-year. Total revenue for the third quarter grew 39% to $265.2 million driven by strong performance across all 3 major revenue lines: oncology, biopharma and data, and screening. Oncology revenue increased 31% to $184.4 million primarily driven by another quarter of accelerated test volume growth. We reported approximately 74,000 oncology tests in the third quarter, representing 40% growth reflecting continued positive momentum across the portfolio. Guardant360 Liquid delivered its fifth consecutive quarter of accelerating growth, with volumes up more than 30%, supported by the expanding clinical utility enabled by Smart apps launched over the past year. Guardant360 Tissue also had an exceptional quarter, showing strong year-over-year acceleration following the major product upgrade released in the second quarter. Reveal remains our fastest-growing oncology product, benefiting from CRC surveillance reimbursement achieved earlier this year and continued strength across both breast and lung cancer indications. As a reminder, we do not include Guardant Hereditary Cancer testing or IHC volumes in our reported totals. We continue to expect minimal revenue contribution from these new offerings through 2025. Average selling prices remained stable compared to the prior quarter. Guardant360 Liquid was in the range of $3,000 to $3,100, Guardant360 Tissue was approximately $2,000, and Reveal was in the range of $600 to $700. We also recognized approximately $5 million of out-of-period oncology revenue in the third quarter compared to $12 million in the prior year period. Our biopharma and data business continued to perform well, with revenue increasing 18% to $54.7 million, which includes milestone revenue from 2 companion diagnostic approvals achieved during the quarter. The biopharma pipeline remains solid, providing confidence in both the near-term and long-term growth prospects. Screening revenue from Shield totaled $24.1 million generated from 24,000 tests reported during the quarter. Shield ASP was approximately $880 above expectations, reflecting our continued focus on Medicare-covered patients. We also recognized approximately $3 million of out-of-period screening revenue, driven by better-than-expected reimbursement from Medicare Advantage payers for tests performed in the first half of 2025. This positive trend reinforces our confidence in both near-term and long-term expectations for Medicare Advantage reimbursement rates and overall Shield ASP targets. Turning to Slide 21. We are very pleased with the year-over-year improvement in non-GAAP gross margin, which increased to 66% in Q3 2025 compared to 63% in the prior year period. This improvement was primarily driven by a significant reduction in Reveal COGS, which have declined from over $1,000 per test in Q3 2024 to less than $500 per test, as well as strong progress in Shield gross margin. Shield's non-GAAP gross margin improved from negative levels at the launch just over a year ago to 55% in the third quarter of 2025. This improvement reflects strong ASPs under the Medicare ADLT rate of $1,495, disciplined focus on reimbursable tests, and continued COGS reduction. Shield's non-GAAP cost per test again trended lower sequentially and continues to be below $500 per test, consistent with our operational plan. These gains reflect the ongoing benefits of increased Shield volume and disciplined cost management. Turning to Slide 22. Non-GAAP operating expenses were $228.8 million in the third quarter, an increase of 22% in line with expectations. The increase was primarily driven by continued investments to expand our screening commercial infrastructure and scale sales and marketing for Shield. As we conclude 2025 and enter 2026, we will maintain focus on these investments to maximize our first-mover advantage in blood-based colorectal cancer screening. Adjusted EBITDA loss was $45.5 million, an improvement of $10.7 million compared to a loss of $56.2 million in the third quarter of 2024. We remain disciplined in our approach to cash management. Free cash flow burn was $45.8 million, improving by $9.5 million compared to the prior year period. Importantly, excluding the screening business, Guardant generated positive free cash flow during the quarter, a significant milestone achieved one quarter ahead of our stated target. We expect the core business to remain free cash flow positive in the fourth quarter as well as for the full year 2026 and beyond. We ended the quarter with approximately $690 million in cash, cash equivalents, and restricted cash. Turning to the full-year 2025 outlook on Slide 23. Based on our strong year-to-date performance, we are raising full-year 2025 revenue guidance for the third time this year to a range of $965 million to $970 million, representing approximately 31% growth compared to 2024. At the midpoint, this represents an increase of $47.5 million versus our prior range. We now expect oncology revenue to grow approximately 25% year-over-year, up from prior guidance of 20%, driven by stronger-than-expected oncology volumes in the third quarter and higher expected volumes for the remainder of the year. We now forecast total oncology test volume to grow more than 30% compared to our previous expectation of greater than 27%. Our biopharma and data business remains on track to deliver mid-teens growth for the full year. We’re also increasing our Shield revenue guidance to $71 million to $73 million, up from $55 million to $60 million, reflecting higher expected volume of 80,000 to 82,000 tests compared to prior guidance of 68,000 to 73,000 tests. With continued improvement in gross margins, we’re raising our full-year non-GAAP gross margin guidance to 64% to 65%, up from 63% to 64%. As previously outlined, we plan to reinvest incremental screening gross profit to accelerate commercial expansion. Accordingly, we now expect 2025 non-GAAP operating expenses to be in the range of $865 million to $875 million, representing a 14% to 16% increase compared to 2024. Finally, consistent with our long-term financial roadmap, we remain committed to reducing cash burn each year and achieving company-wide cash flow breakeven by the end of 2027. For the full year 2025, we continue to expect free cash flow burn of $225 million to $235 million, an improvement from $275 million in 2024. Turning to Slide 24. We began 2025 with an ambitious set of strategic and operational objectives. Through our strong execution, we’ve delivered on nearly all of them, and we expect continued momentum as we close out the year. Our progress this quarter positions Guardant for sustained success in 2026 with continued oncology volume growth and strong Shield adoption. With that, we will now open the call for questions.

Operator, Operator

Thank you. The first question comes from Bradley Bowers with Mizuho.

Bradley Bowers, Analyst

A strong performance across the businesses, but I am going to focus on Shield here. I was wondering if you could walk us through the Shield ASP dynamics exiting the year. Continued strong pricing, I don't think it's surprising given the ADLT pricing, but that $900 we're exiting the year at. It’s supposed to walk down to $700 by 2028. I know there are some mix implications there, but is it a steady degradation? Is there a fallout expected as ADLT pricing rolls off the initial phase at the end of this year? Any color on the phasing of that would be helpful. Thank you.

Michael Bell, CFO

Yes, Brad. This is Mike. I can address that. To break down the components of the Shield ASP, we have the Medicare rates set at $1,495 which were established at the beginning of the second quarter. We are also receiving strong payments from Medicare Advantage payers at the same $1,495 rate. Currently, most of our volume is coming from Medicare and Medicare Advantage. We do have some commercial patients, but we’re essentially not receiving any payment for them. Looking ahead over the next few years, we are very confident in maintaining the $1,495 rate going forward. We have just submitted our pricing package to Medicare, which covers the last six months, and that should help us hold the $1,495 rate for at least the next two years. We also expect Medicare Advantage to remain strong, and we hope it can improve beyond its current state. The variability in the next couple of years will mainly depend on the percentage of commercial payer patients we have and how quickly we can increase the commercial reimbursement. By 2028, we anticipate a larger share of commercial patients, but it will take time to establish that reimbursement rate. Overall, we are pleased with the current ASP and believe it sets us up well as we move into 2026 and beyond.

Operator, Operator

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

Douglas Schenkel, Analyst

So another question on Shield. You mentioned at the Investor Day, and as well as in your prepared remarks that potential ACS guideline inclusion later this year could set the stage for commercial coverage and I think, at least 10 states. And we believe Anthem and other large Blues are watching closely. So to the best of our knowledge, ACS concluded their CRC screening guidelines review earlier this month. With that in mind, is guideline inclusion at this point a real possibility by year-end with ACS? And then once guidelines are in place, how long do you think it’s going to take for that to translate into you actually getting paid? And then the final component of the question is, beyond those initial 10 or so states, there are other states like Florida and Louisiana where mandates have been brought in to include ACS as well as NCCN in addition to USPSTF. So if we think about that broader universe of states, which I think maybe gets you closer to 17, is it likely that reimbursement could occur not just in the initial 10%, but closer to 20% over the next year or so?

AmirAli Talasaz, Co-CEO

Thank you, Doug, for your question. Yes, based on what we know, it appears that ACS research team is almost done with their work. So we remain confident about this potential for Shield to be included in near future. We are monitoring the situation very closely, but we are very optimistic about that. In terms of the guidance, it is not included in this year's forecast. We are not anticipating any benefits from the ACS guideline, which will take some time to materialize. Initially, the guideline should provide us with an advantage and positively impact our success rate in appeals. Eventually, this should lead to improvements in product coverage and contracting successes. I am proud of what our team has accomplished in expanding access to Shield. For example, in Florida, a group of supporters is working to ensure that innovative technology is made available. Medicaid patients in Florida now have access to tests like Shield, and we are very proud of that progress. Overall, we are encouraged by the positive and ongoing discussions we have with the administration about their priorities in cancer screening, prevention, and making the nation healthier. I am excited to see that both the President and the Secretary are exploring ways to reduce cancer rates in the country and how we can bring innovations to patients more quickly. However, we are not relying on any of these advancements in our current strategy.

Operator, Operator

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

Puneet Souda, Analyst

Really impressive quarter here and really strong guide. If I may, AmirAli, first one on Shield. Just growth is accelerating on volumes, rightfully so, new product and ASP is also up. How should we think about 2026 growth for Shield and any early reception details that you can talk about on the MCD side? What's the early attach rate? And for Helmy, it's been almost a decade since you launched G360 when it appeared on the market for the first time. It’s really impressive to see 10 years later, this product is growing 30% plus. Maybe just talk to us about what's behind that and how should we think about the growth going forward here for the Liquid G360, which has been impressive?

AmirAli Talasaz, Co-CEO

Maybe I will make the Shield part quick so Helmy can talk to you about the oncology side. So as you have seen, we consistently raised our outlook throughout this year. We are very pleased with what we are seeing, the momentum that we are seeing. We want to be thoughtful and not get ahead of our skis. So, I think still it's too early for us to comment about 2026. At the right time, we will talk about it, but we continue to be very confident about the long-term outlooks that we shared in our Investor Day.

Helmy Eltoukhy, Co-CEO

Yes. No, we're very pleased with the performance. It's actually been 11 years and counting in from when we launched in 360 and so, to see it grow at this rate, I think at this point in the product cycle it's really pleasing, but I think it’s what we expected in the sense that many people think of this as a test and they pattern match it to other tests in the market. But it truly is an application platform. When you think about these Smart apps that we’re introducing and really the multiplication of clinical utility and ability and capabilities of this platform, this is just the beginning in terms of where liquid biopsy can go. I mean, that’s the point of liquid biopsy is you can come in, you can test many more patients, you can increase access. But you can test them longitudinally as well. And we’re still at the very, very early innings in terms of where this can go, where this technology can go just in oncology. So I think you are going to see a lot more, I think, of this trajectory in the coming years as we continue to expand on the capabilities of Guardant360 over the next decade.

Operator, Operator

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

Subhalaxmi Nambi, Analyst

If we were to establish a timeline for NCD FDA approval based on Shield's trajectory next year, would it be reasonable to expect FDA submission for MCD in late 2027?

AmirAli Talasaz, Co-CEO

For MCD, we just actually broadened access, and we just actually started getting access to this clinical data that I talked about during our Investor Day and the prepared remarks. So we need to monitor it and see how quickly we can build that evidence. But we are very optimistic that potentially through the way that we are doing, we can get access to hundreds of thousands of patient data and monitor actually the impact of MCD testing in the clinical value, performance, safety. It’s still too early for us to specifically put a timeline for FDA approval. But we would monitor the situation closely and as we get more confidence, maybe we can talk about it at the right time.

Operator, Operator

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

Patrick Donnelly, Analyst

Helmy, maybe one for you on Reveal. I know in the past, you've talked about driving the test per patient higher. Can you just talk about the traction there given the bigger push internally? What kind of progress you're seeing? Where can that go over the relative near term? And I know during the prepared remarks you talked about obviously the ongoing studies, the additional tumor types. Can you just talk about what we should be looking for and the key catalysts on the Reveal side here over the next couple of quarters to keep an eye on?

Helmy Eltoukhy, Co-CEO

Yes. Great question. I think we said at the beginning of the year, as we got the surveillance indication from a reimbursement point of view for Reveal that would be turning on a lot of the capabilities to be able to pull in subsequent test orders and so on. And I am pleased to report that, we’ve put a lot of those in place, and we’re seeing some of the benefits of that and the return on investment there. So we know we can pull in subsequent orders now in a very straightforward way and so that’s going to pay dividends across our blood-based portfolio as we think about the emergence and really, the place where longitudinal testing will sit in terms of management of patients in oncology with things like SERENA-6 in terms of ESR1 with the upcoming launch of our therapy monitoring based on Reveal. And then, obviously, with Reveal itself in the MRD setting, recurrence monitoring setting. So yes, really great progress. The number of tests per patient has gone up pretty nicely, and we’re still, I would say, very much in the early cycles of really capitalizing on that investment.

Operator, Operator

The next question comes from the line of Tycho Peterson with Jefferies.

Tycho Peterson, Analyst

I would love to hear your views on the PEGASUS data and just how you think about that having any impact on just MRD-driven therapy management? And then how are you thinking about clinical utility evidence in general and NCCN guidelines?

Helmy Eltoukhy, Co-CEO

Yes, PEGASUS was a really interesting study. It was a Phase II signal finding study, and I think there are a few things that showed that I think were exciting to me, which is the fact that you could spare something like 75% of patients from chemotherapy, which meant, huge, huge reduction in terms of neurotoxicity and other toxicities related to such really harsh chemotherapy. And so I think PEGASUS was based on our previous version of Reveal. And so I think we’re really looking forward to TRACC, which is based on a newer version. And really, the field, having larger datasets to really understand exactly where the threshold should be in terms of escalation and de-escalation in terms of patients. But I think it’s clear that I think there can be a lot of benefit by using this additional data in terms of ctDNA in the adjuvant and surveillance settings. But I think this is a good foundation and one that we can build on as we continue investing in both clinical validity and clinical utility studies around our Reveal platform.

Operator, Operator

The next question comes from the line of Bill Bonello with Craig Hallum.

William Bonello, Analyst

I would like to delve a bit more into Suneet's third question regarding the growth of Guardant360. Can you provide some insights on this? When considering what's driving growth, it's important to note the underlying increase and the likelihood that you're gaining market share. I'm also interested in where we currently stand regarding a shift towards liquid biopsy or possibly combination testing with both liquid and solid tumors. Additionally, how much repeat testing are we seeing, and how is Guardant360 being utilized for monitoring? I'm trying to gauge our progress with these new growth drivers and how much potential we still have ahead of us.

Helmy Eltoukhy, Co-CEO

Yes, that's a great question. We are still in the early stages of liquid biopsy adoption for one test per lifetime. The capabilities of 360 are remarkable to many physicians, particularly regarding depth, sensitivity, and application. We're observing growth in this initial setting, indicating not only market expansion but also significant market share gains. Additionally, we anticipate that concurrent testing will likely become the standard of care for both tissue and liquid biopsies, which will also drive growth and is beginning to gain traction. Furthermore, we estimate that as we mature, we could increase testing frequency from one test per patient per lifetime to around four to five tests per patient per year. This suggests a more than tenfold increase compared to the current market size, which is very promising. This includes developments like SERENA-6 for ESR1, longitudinal monitoring, therapy monitoring, and data from immune onco and chemotherapy monitoring, all contributing to a new model for monitoring patients with ctDNA. We are already seeing our biopharma partners utilize this testing in their Phase I, II, and III studies, using it to make decisions about scaling trials and dosing. It’s essential to note that many tests remain static for years, typically serving a single function. However, the applications and utility of tools like Guardant360 and Guardant Reveal are expanding rapidly over time. This truly is a platform, a term often misapplied, but in this case, it reflects our growth in volume and aligns with the growth trajectory we outlined at our Investor Day.

Operator, Operator

The next question comes from the line of Michael Ryskin with Bank of America.

Unknown Analyst, Analyst

This is Aaron on for Mike. I wanted to dive into Reveal volumes and specifically Reveal versus Ultra and how you guys are thinking about the R&D investment needed in both of those assets? And then the second part of that is MRD is still a fairly open space, 10% penetrated, what people are saying. So I guess, how are you guys looking at the market? How are you guys looking at growth? And how should we be expecting both of those assets to grow over the next 3 years?

Helmy Eltoukhy, Co-CEO

Yes. We’re very excited about our MRD franchise. Reveal is the leading tissue-free MRD test in the market. We know that there will be essentially 2 parts of the market that will be important, the tissue-free side and the tumor-informed side of things. And we're very pleased in terms of where we sit in the tissue-free side. It’s our fastest-growing product in oncology. And the amount of data, the amount of investments, we have a 10x data generation planned as we presented before next year. And so that flywheel is really chugging away. And so we’re excited about that trajectory. And then in terms of the tumor-informed side I think we agree with you, there’s a lot of opportunity there in terms of a test that can really hit the needs of both biopharma and clinicians in terms of sensitivity that is really acquired for that setting. And, yes, we’re just very pleased with the technology that we’ve developed. If you think about it, just everything we’ve built as a company is at a really nice point. The fact that we’ve really chugging away on our tissue volumes and the capabilities we have with using very low amounts of input material, very fast turnaround times. The sensitivity we have on the liquid biopsy side and the capabilities, COGS down and the speed to results, all of that is coming together in Reveal Ultra. And I think it’s going to be a product that will, frankly, blow everyone away once we launch it. Very excited for that and making really good progress.

Operator, Operator

The next question comes from the line of Daniel Markowitz with Evercore ISI.

Daniel Markowitz, Analyst

Daniel, your line may be muted. Our next question comes from the line of Mark Massaro with BTIG.

Mark Massaro, Analyst

The first question is for you, AmirAli. Looking at the Shield, it’s encouraging to see this trajectory. Is it reasonable to expect a sequential increase of 1,000 from the previous quarter, considering the high end of the Q4 implied guidance is plus 9%, following a plus 8% in the prior quarter and plus 7% before that? I am wondering if this is a reasonable run rate in the near term, or if there is upside potential from partnerships with Quest, PathGroup, inclusion in guidelines, and possible direct-to-consumer growth. The second question is for Helmy. Can you provide us with some insight regarding Reveal Ultra? I believe this is the tumor-informed test that can detect down to 1 part per million. Can you clarify if it has been commercially launched and how we should anticipate the timing for CMS reimbursement and additional data releases? Thank you.

AmirAli Talasaz, Co-CEO

Thanks, Mark. In terms of sequential growth, our guidance suggests an additional 8,000 in Q-over-Q growth for Q4. We will keep a close watch on the situation. We don’t want to jump too far ahead and will discuss plans for next year at the appropriate time. There are several catalysts ahead of us, including our collaboration with Quest and PathGroup, which should have a positive impact. Inclusion in guidelines is certainly beneficial. Expanding our commercial team as we move into next year will also contribute positively. We are confident in the target we set for 2028, approaching it step by step, and are eager to see what unfolds in Q4.

Helmy Eltoukhy, Co-CEO

Yes. In terms of Reveal Ultra, I think the nice thing is we built such strong capabilities around MRD. When you think about the R&D and all the clinical studies, tens of thousands of samples and many of those we’ve actually retained tissue. So it’s actually not very heavy investment for us to essentially leverage that to really come out with the Ultra technology, the tumor-informed technology we have. We’re seeing really good data, really excited in terms of where this can go. In terms of the sensitivity, we think it can bring it down to a much lower level than exists in the field or frankly, exists in the pipeline of companies we’ve seen out there. And I would say that in terms of timing, we’re keeping that close to the chest. So stay tuned, but making good progress and we wouldn’t be talking about it if it wasn’t something that was not in the too distant future.

Operator, Operator

The next question comes from the line of Casey Woodring with JPMorgan.

Casey Woodring, Analyst

On the Shield performance in the quarter, maybe as a follow-up to Mark's question. Can you provide any KPIs around maybe average testing frequency per physician and whether volumes are coming from new time CRC screeners? And then just my second question here. Mike, if you can provide any color on gross margin for Shield and Reveal embedded in the updated guide of 64% to 65% for this year, that would be helpful?

AmirAli Talasaz, Co-CEO

Yes. Maybe some KPIs. Actually, it's exciting that the breadth of ordering continues to increase Q-over-Q. The depth of ordering continues to be very strong. So once the accounts actually start using Shield and we go through activation, the depth of ordering is very solid, which is really an endorsement of how deep this market is and mainly how many under screened cancer patients are out there in the accounts that we are going to. So we are seeing their doctors. We are successfully leading them and so forth.

Michael Bell, CFO

In the prepared remarks, we noted that the gross margin for Shield in the third quarter was 55%. The ISPs are nearly $900, and our cost per test is now consistently below $500. We've made significant progress with Shield's gross margin. On the Reveal side, we've also made excellent progress over the past nine months. ISPs for Reveal remain in the $600 to $700 range, and the cost per test for Reveal is consistently under $500. This allows for a favorable gross margin on Reveal, although it's slightly lower than the 55% for Shield. Overall, the increase in gross margin is benefiting us, moving from 63% in Q3 last year to 66%. This reflects positive progress across the board in terms of gross margin.

Operator, Operator

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

Kyle Mikson, Analyst

Congrats on the quarter. On Reveal, is it still possible you get ADLT status and breast Medicare coverage by the end of this year? Is that more likely a '26 milestone? And then secondly, AmirAli, we had a competitor this week announce advanced adenoma sensitivity data for its colon cancer blood tests. The confidence interval lower bound was 15% and the study had a lot of very small lesions. Just curious if you think that a test with AA materially higher than the 13% for Shield would pose a threat and you would like, when they aim to improve upon your AA data still?

Helmy Eltoukhy, Co-CEO

Yes. I mean ADLT status is still a work in progress, obviously, with the government shutdown paused some of the discussions a little bit. And then we're still working in breast and IO. We've always said probably more likely early next year. And yes, we're still, I think, on track for that.

AmirAli Talasaz, Co-CEO

Regarding the data disclosures, we applaud anyone trying to contribute in this challenging area. This is a complex scientific field, and we are very confident in our leadership position. We believe our technology and data practices are strong. We have observed consistent results in this domain multiple times. It is indeed a difficult field, and we feel we possess the best technology stack, very innovative solutions at home that give us assurance. We have a three-year lead on CRC and likely an even longer advantage in the multi-cancer space compared to some competitors. So, we are optimistic about our current position and have several promising initiatives underway. We will see how things develop.

Operator, Operator

The next question is from the line of Luke Sergott with Barclays.

Luke Sergott, Analyst

I wanted to discuss the increase in operating expenses you are anticipating for this year and specifically in the fourth quarter. I would like to understand where the additional spending will be allocated and your expectations for sales and marketing, particularly regarding your goals for the number of representatives as you look at Shield, oncology, and Reveal. Additionally, is there any possibility of advancing those costs given the success you've experienced with some of the other product launches?

Michael Bell, CFO

Yes, for the increase in operating expenses, it's largely due to sales and marketing. We have been clear throughout the year that we plan to reinvest any additional gross profit back into sales and marketing to support our commercial growth. This will continue to be our main focus as we scale. Currently, we have over 250 salespeople in the field, which is a significant increase this year, and we will keep working on expanding that team. In oncology, our commercial infrastructure is even more developed. As we look ahead to 2026, you should anticipate a similar increase in the sales and marketing area. We are also committed to maintaining flat spending in research and development and general and administrative expenses. That is our plan for the upcoming 12 months.

Operator, Operator

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

Daniel Brennan, Analyst

Congrats on the quarter. Maybe just on G360, just a couple. Maybe one for Mike and then one for Helmy. Just on the guide, I know that clinical oncology volume guide is now greater than 30. Does that contemplate like a big step down from the G360 line, which is accelerated tremendously year to date, obviously from the Q3 30%? And then B, more so for Helmy. I know you have given a lot of color on the excitement over the outlook for G360. But could you give a little more color on the acceleration you have seen year to date? Is it more share gains which you talked about? Like are you seeing like hospitals consolidate? Do you think it is more just penetration of CGP? Or do you think it is more like this test per patient pickup? Any way you can kind of dissect a little bit of this really strong acceleration?

Michael Bell, CFO

Yes. Maybe I will just start on Q4 guide. So, we had a great Q3. I think our guide for Guardant360 volume and for overall oncology volume, it implies sequential growth in Q4. It implies a very strong year-over-year growth in volume. So yes, if you back into it, it’s over 30% year-over-year growth in Q4. So I think we have just continued to expect the momentum that we saw in Q3 continue to Q4. So I think for us, things are looking very strong as we get towards the end of the year.

Helmy Eltoukhy, Co-CEO

Yes. In terms of growth driver, what you're observing is the strong value proposition of our test. Much of what you're seeing can be attributed to gaining market share from other tests offered by different hospitals. This has been encouraging. We're also experiencing a slight increase in testing over time, though that represents a minor portion of our growth. I believe there's still significant potential for future growth that we haven't fully explored yet. Additionally, this test offers extensive capabilities, such as determining cancer types and subtyping cancers of unknown origin. Considering the less common cancers where liquid and tumor biopsies are less frequently used, our advanced platform with epigenetic insights provides valuable information on tumor biology. You are also witnessing our expansion into these less common cancer types.

Operator, Operator

Our last question comes from the line of Dan Arias with Stifel.

Daniel Arias, Analyst

Helmy, I wanted to go back to Reveal. Can you talk about the current status of reimbursement on the commercial side for colorectal cancer? What percentage of tests are currently being paid for, particularly for Stage II and Stage III patients? I'm trying to understand the CMS side of your key indication.

Michael Bell, CFO

Yes Dan, it’s Mike here. It cut out a bit towards the end, but I think you're asking about Reveal reimbursements with CRC. CRC now makes up roughly 50% of our volume and remains at that level, with the rest coming from breast and lung. We are getting reimbursed for all CRC tests we conduct for Medicare at the rate of $1,640. We are seeing good pull-through with Medicare Advantage, and traction with commercial payers is continuously improving. We are optimistic about the current reimbursement level and foresee ongoing opportunities with Reveal, particularly as we increase Medicare Advantage and commercial payments for CRC.

Operator, Operator

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