Earnings Call Transcript - GH Q2 2023

Operator, Operator

Hello everyone and welcome to the Guardant Health Second Quarter 2023 Earnings Call. My name is Emily and I'll be coordinating your call today. I'll now turn the call over to Investor Relations. Please go ahead. Thank you.

Carrie Mendivil, Investor Relations

Earlier today, Guardant Health released financial results for the quarter ended June 30, 2023. 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 reconciliation to most directly comparable GAAP financial measures are available in the press release Guardant issued today, as well as in our Form 10-K and other filings with the SEC. Guardant disclaims any intention or obligation to update or revise financial projections and forward-looking statements, whether because of no information, future events, or otherwise. The information in this conference call is accurate only as of the live broadcast. With that, I'd like to turn the call over to Helmy.

Helmy Eltoukhy, Co-CEO

Thanks, Carrie. Good afternoon, and thank you for joining our second quarter 2023 earnings call. I will start off our call today with our top-line results for the second quarter and go into more detail on our progress in therapy selection and MRD. I will then turn the call over to AmirAli for an update, and finally, Mike will provide a more detailed look at our financials and outlook for the remainder of 2023. Starting on Slide 3. At Guardant, we are singularly focused on our mission to help patients across all stages of cancer live longer and healthier lives with the data provided from our powerful blood tests. In line with this priority, we will start our call off by sharing a patient story. In September 2021, a 56-year-old woman had a colonoscopy that revealed colon cancer. She then had curative intent surgery, which removed 32 lymph nodes. Pathology indicated a diagnosis of stage 2 colorectal cancer with no evidence of disease in the removed lymph nodes as well as negative margins on the resection. With this information, her oncologist determined there was a low risk of recurrence and chose not to administer adjuvant chemotherapy. At a checkup 3 months post-surgery, a CEA test was drawn and showed normal results. At our next 3-month check-in, her CEA doubled, but was still within normal limits. The patient requested that her oncologist order a Guardant Reveal test. The results were positive for ctDNA, and as a result, her oncologist put her back on chemotherapy. Since then, she has had 2 consecutive follow-up Reveal tests showing her to be ctDNA negative. And today, she is fortunately showing no evidence of disease. This story highlights the power of our test to provide meaningful decision support to oncologists and patients earlier in the cancer journey in the MRD setting. Guardant is the liquid biopsy industry leader in therapy selection, giving us a strong foundation in cancer patient care. From this foundation, we are building out our pipeline of multibillion-dollar opportunities in MRD and screening, which we believe will lead to a step change in the magnitude of impact we can have on patients' lives. Turning to top-line performance on Slide 4. We had another very strong quarter with revenue growing 26% to $137.2 million. This robust growth was driven by Precision Oncology revenue, which increased 36% in the quarter. I am really pleased by the great progress that we continue to make in our therapy selection business, illustrating that we are still in the early innings of its uptake with much more growth ahead. Turning to Slide 5. Indeed, our team delivered strong growth across oncology, surpassing 50,000 combined tests during the quarter. Clinical test volume during the second quarter reached 43,500 tests, an increase of 49% from the prior year quarter. Clinical growth was driven by strong contributions from our key products, supported by a robust commercial platform. For biopharma, we delivered 6,700 tests, increasing 12% year-over-year. Turning to Slide 6. Looking more closely at the growth drivers for our therapy selection clinical volume. We continue to benefit from the tailwinds we saw at the beginning of the year with strong growth from the high performance and rapid turnaround Guardant360 test. In breast cancer, fueled by a recent Guardant360 CDx approval for ESR1 mutation positive patients, and in tissue aided by our AI-powered Galaxy Suite. As a reminder, we introduced the Guardant Galaxy Suite of advanced AI analytics for digital pathology applications in partnership to enhance our portfolio of cancer tests, starting with the Tissue Net CDL1 to improve biomarker detection by more than 20% in non-small cell lung cancer. For MRD, Reveal continues to do well, and we again saw strong volume growth of greater than 100% year-over-year. We are also making excellent progress in our clinical data pipeline for Reveal and look forward to sharing more about this at our upcoming Investor Day. Our team has worked incredibly hard to establish Guardant as a leader in liquid biopsy. We have made critical investments into our commercial infrastructure that are now paying dividends. We lead the market in share of voice and overall satisfaction with customer experience. To that end, we have finished development and begun integration with the top 3 oncology EMR providers in the United States. These providers cover nearly 2/3 of all oncology practices in the country. As expected, we see strong increases in ordering volumes once a particular account is able to order our tests through their EMR system. As we continue to broaden our customer base, we look forward to driving further increases in volumes across our product portfolio within these accounts. Moving on to Slide 7. We had some big breakthroughs in payer coverage during the past quarter that will provide tailwinds for our clinical business in the near term. Since our last earnings call, we secured coverage from Anthem, Blue Cross Blue Shield, Aetna, and Humana for our Guardant360 test. These tests are now covered for comprehensive genomic profiling by all major U.S. commercial health insurers with over $300 million of covered lives. We are also making good progress on increasing covered lives for newer products in our portfolio. For example, with Tissue Net, we are approaching 200 million covered lives and hope to cross this threshold later this year. We also recently received our first commercial coverage for Guardant Reveal. Blue Cross and Blue Shield of Louisiana is providing coverage for Guardant Reveal for individuals with Stage 2 or Stage 3 colorectal cancer after surgery. This is a major milestone for patients. This is the first time a liquid-only MRD test has been granted reimbursement coverage by a private payer to inform physicians' decisions about post-treatment therapy and to monitor for disease progression, recurrence, or relapse. Importantly, this coverage provides broad access for CRC patients at Stage 2 or 3, which amounts to a significant number of tests for patients across the adjuvant and surveillance settings in line with NCCN monitoring guidelines. On to Slide 8. Outside of the United States, we are continuing to make progress on our strategy of achieving global scale with a focus on large core markets. Most notably, we recently received national reimbursement approval from the Japanese Ministry of Health, Labor and Welfare for Guardant360 CDx, which became effective at the end of July. Japan currently represents the largest expansion opportunity for our portfolio of products outside of the United States. There are more than 390,000 cancer-related deaths each year in Japan and more than 1 million new cancer cases annually. And despite this large population, CGP testing is still in its very early stages, with currently about 25,000 CGP tests performed annually and only 15% to 20% of that in blood-based testing. In addition, Japan has focused centralized care with about 250 core genomic hospitals. Importantly, Japan is a single-payer health care system, and we received pricing in line with our U.S. ASP of $2,600 to $2,700. With this pricing, we expect our clinical testing for Japan to have positive margins and contribute to our therapy selection business, reaching breakeven by the end of the year. This reimbursement decision represents a significant milestone for our international business. We are encouraged by the strong support we have received from oncologists in Japan, and we look forward to furthering these partnerships as we continue our commitment to democratizing access to precision oncology and bringing blood-based components of genomic profiling to patients and care teams across the region. Beyond Japan, we are also very excited about our opportunities in the U.K. and China and we look forward to providing updates on our progress across our international business in the future. With that, I will now turn the call over to AmirAli to provide an update on our screening business.

AmirAli Talasaz, Co-CEO

Thanks, Helmy. Turning to Slide 9. We are continuing to make advancements in our screening business as we establish a new patient-preferred category in the screening market with our SHIELD blood tests. We are making steady progress with the FDA review of our PMA package for SHIELD, and we are pleased with the recent successful pre-approval inspection by the agency. We continue to expect FDA approval and the launch of SHIELD IVD in 2024. Turning to Slide 10. We believe that SHIELD will transform CRC screening and result in more life years gained. We have developed and validated a discrete event simulation model, integrating real-world magnitudinal adherence rates to evaluate the effectiveness of SHIELD relative to existing screening modalities. At the conference in late June, we presented the initial results from our health outcome modeling. This model examines the simulation of average risk U.S. adults receiving a SHIELD screening test every 3 years. On the left, we see the health outcomes over a lifetime horizon when assuming real-world adherence to different screening modalities. Life years gained for SHIELD was 217 with 820 total colonoscopies, while the life years gained for other modalities was in the range of 126 to 255 with 126 to 1,996 total colonoscopies. This initial data shows for SHIELD, the life years gained versus the number of colonoscopies is in range, even favorable compared with other guideline-recommended tests. At Guardant, it is in our DNA to stay at the forefront of innovation. With Guardant360, we launched the best-in-class liquid biopsy and have maintained our market leadership with continued performance enhancements. We are taking the same approach with SHIELD. We are confident that the performance of the current version of SHIELD exceeds the standard for approval, guideline inclusion, and reimbursement, but this is just the beginning for what SHIELD can offer. Since we filed our PMA with the FDA, we have made progress developing a more sensitive next-generation SHIELD powered by data and clinical insights gathered from early-stage CRCs, including Stage 1 malignant polyps. We look forward to sharing more later this year. Moving on to Slide 11. At Guardant, we have always had a vision for blood-based multi-cancer screening. We started with CRC as the first indication for SHIELD because of the established pathways for FDA approval and reimbursement, which allow for broad access. We are planning to add lung cancer as the second indication, which is the leading cause of cancer-related mortality. There are about 15 million high-risk individuals eligible for lung cancer screening. However, the overall screening rate is less than 15% due to the complexity of guideline-recommended screening modalities and significant follow-up requirements. This is where the value of our differentiated blood-based tests comes into play. We are pleased with our progress in our NCIRE study. We are also making good progress on recruitment for our pivotal SHIELD LUNG study, and we have surpassed 6,000 patients enrolled. Beyond lung, we plan to add a large panel of cancers. As a reminder, we are committed to an operating loss from our screening pipeline of less than $200 million for the next 12 months. This will fund our top priorities in screening and set us up to achieve our upcoming milestones. With that, I will now turn the call over to Mike for more details on our financials.

Michael Bell, Chief Financial Officer

Thanks, AmirAli. Turning to Slide 12 to review our financial results. Total revenue for the second quarter of 2023 grew 26% to $137.2 million compared to $109.1 million in the prior year quarter. Total precision oncology testing revenue for the second quarter was $125.2 million, increasing 36% compared to $92.1 million in the prior year quarter. As in previous quarters, this increase was driven by strong year-over-year growth in clinical and biopharma volumes. Precision oncology revenue from clinical tests in the second quarter totaled $100.2 million, up 42% from $70.5 million for the prior year quarter. Second quarter clinical test volume was 43,500, an increase of 49% from the same period of the prior year and an increase of 11% or 4,400 tests from Q1 2023. With Guardant360, we continue to be the main revenue driver, with continued strong growth in lung cancer and a significant uptick in breast cancer. We again saw very strong year-over-year volume growth in both Reveal and TissueNext, both growing over 100%. Second quarter Guardant360 ASP continues to be at the upper end of our target range of $2,600 to $2,700. As Helmy mentioned, we had some big breakthroughs in coverage during the past quarter. While this additional coverage will provide tailwinds for our clinical business in the near term, we expect, however, that it will take some time for these upsides to flow through to our clinical ASP due to the length of time it takes to contract with insurers. Blended clinical ASP was approximately $2,300, in line with our expectations. As a reminder, blended clinical ASP will continue to be influenced by both the volume mix between Guardant360, TissueNext, Reveal, and Response, as well as the mix of overall clinical volume between U.S. and international. Precision oncology revenue from biopharma tests in the second quarter totaled $25.0 million, up 16% from $21.6 million for the prior year quarter. Biopharma test volume was strong, with second quarter totaling approximately 6,700 tests, up 12% from the prior year quarter. Biopharma ASP in the second quarter was approximately $3,700, which was higher than both last quarter at $3,550 and the prior year quarter at $3,600 due to the product mix. Development Services and other revenue for the second quarter totaled $11.9 million, down $5.2 million or 30% from the prior quarter. This was primarily due to the timing and amount of milestones related to our partnership agreement and the change in companion diagnostics collaboration projects with biopharma customers. Gross profit for the second quarter of 2023 was $83.3 million compared to a gross profit of $72.4 million in the same period of the prior year. Gross margin was 61% compared to 66% in the prior year quarter. The change in gross margin was driven by a number of factors. For Precision Oncology, gross margin was 61% in the second quarter of 2023, compared to 63% in Q2 2022. This reduction was due to the change in mix between clinical and biopharma revenue with clinical revenue growing faster than biopharma revenue as well as the year-over-year change in blended clinical ASP from $2,400 to $2,300 due to the increased proportion of clinical volume coming from Reveal, TissueNext, and Response. Development Services and other gross margin was 62% in the second quarter of 2023 compared to 86% in Q2 2022. The change in margin was primarily due to the cost of processing Shield LDT samples as part of our market development activities for which we are currently booking minimal revenue. We continue to expect overall gross margin to be approximately 60% for the full year 2023. Operating expenses for the second quarter of 2023 returned $202.9 million compared to $202.7 million in Q2 2022. Net loss was $72.8 million or $0.67 per share for the second quarter of 2023 compared to $229.4 million or $2.25 per share in the second quarter of 2022. The year-over-year reduction in net loss is primarily due to firstly, our loss from operations reduced from $130.3 million in Q2 2022 to $119.6 million in Q2 2023. Secondly, in Q2 2022, we booked another expense of approximately $100 million to reflect the increase in the fair value of the outstanding shares in our EMEA joint venture, which we acquired in June 2022. Finally, in the second quarter of 2023, we recorded a $64 million unrealized gain related to our strategic equity investment in Lunit, our AI partner for TissueNext, which had its IPO in Korea last year and has seen a substantial increase in its share price over the last few months. Moving on to non-GAAP financial measures on Slide 13. Non-GAAP operating expenses were $180.5 million for the second quarter of 2023, a 2% increase from $176.2 million in the prior year quarter. Non-GAAP net loss was $88.7 million or $0.82 per share for the second quarter of 2023 compared to $101.8 million or $1.00 per share for the second quarter of 2022. Adjusted EBITDA was a loss of $85.2 million in the second quarter of 2023 compared to an $94.3 million loss in the second quarter of 2022. Free cash flow for the second quarter of 2023 was negative $100.5 million compared to negative $135.0 million in Q2 2022. We continue to make very good progress in diligently managing our operating expenses and cash burn, and we are confident that we will achieve our stated goal of lowering our full year operating expenses compared to 2022 as well as reducing our free cash flow to approximately negative $350 million for the full year. Turning to Slide 14. In May, we completed a successful equity offering where we raised $381 million in net proceeds. This puts us in a very strong position with approximately $1.2 billion of cash, which provides the runway to reach cash flow breakeven, which we are targeting in 2027 to 2028, 1 to 2 years following SHIELD inclusion in CRC screening guidelines. As we look ahead, we are still on track to achieve cash flow breakeven in therapy selection within the next 3 to 6 months. We'll be able to achieve this milestone as we are now gaining significant leverage from the investments we've made over the last few years to scale our core therapy selection business across commercial, lab, and back office operations, and as we've been able to maintain high volume growth and consistently strong ASPs and gross margins for Guardant360. MRD spending will continue to be focused on increasing our market penetration, our technical platform upgrade, and developing clinical data to support reimbursement coverage. However, we are confident that the total investment in MRD across the next 5 years can be covered from the total contribution generated from therapy selection and from increasing Reveal revenue driven by reimbursement coverage. For screening, we anticipate that the operating loss from our screening pipeline will be approximately $200 million per year over the next 5 years. Over the next 12 months, we will be ready for the SHIELD IVD launch upon successful FDA approval to deliver the next generation of SHIELD with potentially even better early-stage performance and make significant progress on indication expansion to lung and other cancers. Investments beyond this will be contingent upon receiving FDA approval and engagement by ongoing commercial success and revenue milestones. Now turning to our outlook for the full year 2023 on Slide 15. We are raising our full year 2023 revenue guidance and now expect revenue to be in the range of $545 million to $558 million, representing growth of approximately 21% to 22% compared to 2022. This compares to our previous expectation of $535 million to $545 million. This update reflects the very strong performance of our clinical business in the second quarter. For the remainder of the year, we expect to see a sequential decline in Development Services and other revenue in Q3 due to the timing of project milestones and declining revenue. So for the fourth quarter, we expect to see a seasonal uptick in biopharma volume that we've historically seen towards the end of each year. Finally, as just mentioned, we continue to expect 2023 operating expenses to be below full year 2022 and free cash flow to improve to be approximately negative $350 million in 2023 and to consistently improve in the following years. Turning to Slide 16. Our long-term vision is to transform cancer diagnostics through cutting-edge technology, a focus on high-impact opportunities, and consistent execution. In the second quarter, we were very pleased to achieve major reimbursement milestones, obtaining national reimbursement coverage for Guardant360 in Japan, and our first U.S. commercial reimbursement coverage for Guardant Reveal. Finally, turning to Slide 17. We'll be hosting our first Investor Day on Thursday, September 7, in New York City. We look forward to sharing a deeper dive across our business. Please reach out to investors@guardanthealth.com for more information. At this point, we'll now open the call up to questions.

Operator, Operator

The first question today comes from Jack Meehan with Nephron Research.

Jack Meehan, Analyst

I wanted to ask about the strong momentum in clinical volume this quarter. Can you highlight any specific cancer indications, such as breast cancer with the CDx approval, compared to lung cancer or others?

Helmy Eltoukhy, Co-CEO

Yes, it's a great question, Jack. Yes, we're seeing really strong growth across multiple indications. And I would say that it's both lung and breast that are carrying the momentum we started from the beginning of the year. I think we're just seeing further consolidation behind our product, given the leading turnaround time and leading performance we have with lung, which really has a good product market. We see that we're probably testing more lung cancer patients in the United States in the metastatic setting with MGS than really any other modality, tissue or liquid. It's a great place to be, and I think we're just seeing continued momentum there. And then obviously, with the breast CDx drug approval, we're continuing to see a nice volume lift. Breast has really taken a swing up. In terms of volumes, we're doing a very large percentage of metastatic breast cancer patients now in the United States. We've been really pleased with the progress we've made there, but the growth is just not limited to the indications we've seen across the board.

Jack Meehan, Analyst

Great. And then a follow-up for Mike. On the clinical ASP, I know you mentioned the G360 at around 2,600 to 2,700. I was curious if you've encountered any challenges similar to what another lab reported regarding claims issues with some Blue plans, or if there have been discussions about payment integrity. Are you perhaps noticing some positive developments with the new coverage, or are there headwinds preventing it from exceeding the upper end of the range?

Helmy Eltoukhy, Co-CEO

Yes, Jack. No, there's no headwinds that we're seeing with payers, and we're not seeing any sort of negative traction with any payers. I think we definitely had tailwinds with respect to future ASPs. We've gained coverage now from these major payers in the last 3 months. And I think, yes, we've been at pains to sort of point out that even though we've got the coverage, it's just going to take time to see that coverage come through to ASPs because we need to go through the contracting phase, and then we need to start to see the new rates come through from this pace. So we're confident that over time, ASPs will continue to track upwards and potentially beyond that range that we're currently in. But yes, it will just take time. We've not seen it now. And maybe just to add, for the remainder of the year, we're still sort of forecasting within these rates. So if things were to happen quicker than expected on the contract side with the payers, we could have some upside there. But so far, things are steady.

Operator, Operator

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

Puneet Souda, Analyst

So first one on Reveal. Wondering if you can provide any context around contribution in the quarter? What are you within the guide for the full year? And is there any update on the upgrade of the assay because obviously, the upgrade of the assay then drives to the common MRD LTV that is out there. Maybe just if you could outline the sort of timeline on that? And then I have a follow-up on FDA primarily.

Helmy Eltoukhy, Co-CEO

Yes. I think the color on Reveal, and we're not breaking out those volumes; we've consistently not done that. But I think we said in the prepared remarks, in the quarter, Reveal volume grew over 100%. So we're really pleased with the continued traction that we're getting there. And I think previously, we've talked about Reveal revenue in low double-digit millions. And so yes, we're still on track for that. So yes, overall, Reveal is going really well and as well as we would hope, but that's probably as much color as we're giving in the numbers. Yes. No. I mean I think the smart liquid biopsy transition we're on track and will continue to happen this year. Obviously, we've been really digging in, in terms of the capabilities of this new platform. And it's frankly amazing us every single day in terms of the increased capabilities that we can have just. I think it's not only going to make the performance of our tests so much better in terms of sensitivities, but just a little to do with it. But just the capabilities that will offer the fields are frankly groundbreaking, not just in the field of oncology, but even to our understanding of the science of disease progression. And so we were very hopeful that we can present some of that data at our Investor Day well. But it's going better than expected.

Puneet Souda, Analyst

Look forward to that. And then just on FDA for Amer. Wondering if you can provide us an update on the Shield 2.0 or the next-generation improvements that you're doing in the assay. Is there a way to submit that as a supplement into the current FDA filing? And then also wondering, do you think FDA is going to put weight on the adherence aspect of this assay? Just wondering your thoughts on those 2 points.

AmirAli Talasaz, Co-CEO

Yes. Thank you, Puneet. As I mentioned, we are making steady progress with AMC. And in terms of B2, we are also excited about the insight that we are getting on and we see actually what happened in terms of the regulatory pathway for B2. Our current assumption right now, our judgment is, hopefully, we get 31 approved, and the fact that B2 is just optimize the algorithm on the chemistry, all the workflows are the same, effectively, it would be just a supplemental PMA review by the agency that we are planning to submit right after we get approval for the first version. So that's our operating assumption at this point. In terms of adherence, our rig agency acknowledges the value of blood-based testing for this field. So we believe it is on the top of the mind for them that blood has some unique value for this field based on the experience that they have. So we will see.

Operator, Operator

Our next question comes from Tejas Savant with Morgan Stanley.

Unidentified Analyst, Analyst

This is Yuko on for Tejas. I was wondering when can we see the next-gen Shield validation data? And could that come as soon as year end? And if so, what should we be looking out for?

AmirAli Talasaz, Co-CEO

Yes. So actually, we are expecting to share more information and data later this year. So please stay tuned.

Unidentified Analyst, Analyst

Great. And I also have a follow-up. Generation of lot will see time, but when should we expect the next larger cohort data on a super naive approach? And then separately, how do you go about getting mind share propositions who are already using a tumor-informed approach. Can you give us a sense of what proportion of current customer accounts are using competing MRD assays versus just a tumor-naive approach?

Helmy Eltoukhy, Co-CEO

Yes, it's a great question. We've made really great progress in terms of clinical validation and the core services we have clinical utility studies that have been running for some time. So we are going to present likely more data later this year in breast and colorectal cancers. I think that data, hopefully, will be positive and will be published sometime next year and will allow us to expand reimbursement. But yes, we're very confident that in terms of the performance of this platform can do much better than almost any sort of tumor-informed approach due to the science and the ability to detect more features. We're pleased, and we're looking forward to presenting more of the background around the technology, how it works, and why it works, as well as some of the data at our Investor Day. And yes, we're seeing great traction. I mean, we have a test that is much faster, doesn't require tissue. There's a broader market that is undeniable. We saw this with tissue biopsies and liquid biopsies with Guardant360 lung cancer. People asked us, why would someone use a blood test instead of a tissue biopsy when tissue biopsy is the gold standard? Now there are way more patients in the U.S. getting NGS from Guardant360 liquid biopsy than tissue biopsy tests today. So once you have product-market fit, that becomes the gold standard and the north star by which everyone will have to follow up. Yes, we win and are on the right path. But it will take some time to get there and ramp things up. But we're very pleased with the progress at this time.

Operator, Operator

Our next question comes from Dan Brennan with Cohen.

Unidentified Analyst, Analyst

It's John for Dan. I believe the previous guidance range is based on clinical volume growth of about 35% year-over-year. With 1H tracking well ahead here. Is there enough number you're looking for, for the year?

Helmy Eltoukhy, Co-CEO

Sorry, is there is an updated what? What was the question again?

Unidentified Analyst, Analyst

Clinical volume growth number. I think the last guidance is based on 35% year-over-year; you're tracking pretty far ahead of that in 1H.

Helmy Eltoukhy, Co-CEO

Yes. I think, yes, clinical volumes are obviously growing very strongly, and 49% in this quarter was, I'd say, ahead of our expectations. Yes, I think as we look out for the guidance and the increase that we've seen, the increase that we've just had in our guidance, yes, I told you, on the clinical volume side. So I would say, yes, now our expectation is probably trending into the high 30s, low 40% growth on the clinical volume. So yes, we're able to have an increase from the previous 35%.

Unidentified Analyst, Analyst

Got it. And then back on ASP, I guess it will take some time for the coverage rate to flow through your pricing, but is there some range that you see blended clinical ASPs going for the rates are locked in and the increases are fully realized?

Helmy Eltoukhy, Co-CEO

Yes. I mean, it's easier to talk about the Guardant360 ASP. And I think, yes, today, it's at the higher end of that 2,600 to 2,700 range. I think if we get full coverage from all of these major payers and we can contract with those payers, then over time, we think the ASP can get north of 3,000. So potentially a significant increase, but it is going to take time. It's harder on the blended ASP. It's primarily due to the mix and the mix between Guardant360, Reveal, Tissue, and Response. And so how that mix changes over time, it's very difficult to forecast. And then, as each of those products gets incremental reimbursement over time and we've got pathways for each of that to happen, then I think overall for each product, that will be going to increase. But it's hard to really forecast beyond the end of this year what that blended ASP is going to look like—it is very digital. I'd say our assumption for the remainder of this year is that the blended ASP is going to stay around this sort of $2,300 level.

Operator, Operator

Our next question comes from Derik De Bruin with Bank of America.

Unidentified Analyst, Analyst

This is John on for Derek. So I appreciate the color on the market landscape in Japan and the pricing and whatnot. I wanted to ask what you see to be the contribution from that market over the next couple of years? If you could talk about the ramp, that would be great.

Michael Bell, Chief Financial Officer

Yes, it's Mike. I can take that. Yes. I mean for Japan, we were really pleased to get reimbursement coverage this quarter. And in fact, we've just processed our first patient sample in Japan. So really positive news. In our guide for the remainder of this year for Japan, we've got very minimal revenue in there. And then I think we're hoping and expecting in 2024 that revenue starts to become material. I think when we look at Japan as an overall market, it's a very large market. It's probably overall half the size of the U.S. So we think this can be, over time, significant for us. But at the moment, I think it's a bit too early for us to be really pointing out any specific guidance for 2024 or specific years. And on the China side, that's really going to help power our biopharma business. The lab partnership we have there enables us to have global offerings to our biopharma partners. And so we're very excited to hopefully soon have that lab go live and start to offer products in China. And again, it's going to be very incremental to our biopharma business.

Unidentified Analyst, Analyst

Appreciate that. And in terms of the OpEx guide, you've talked about the sales and marketing spend and the research spend, and that makes sense. Just really specifically, the G&A was sequentially up this quarter. How is that tracking for the rest of the year for that line specifically?

Michael Bell, Chief Financial Officer

Yes, that line is probably in the second half of the year will be maybe a little bit lower than what we saw in the first half. We saw a bit of an uptick in this most recent quarter from a legal litigation expense perspective. And we've just finalized the Illumina litigation that we had, we made a press release on that yesterday or the day before. And so we're hopeful that that expense can drop off in the second half of the year, and G&A should stabilize going forward.

Operator, Operator

Our next question comes from Patrick Donnelly with Citi.

Patrick Donnelly, Analyst

Maybe just one on the biopharma segment, just given overall concerns on budgets of funding there. Can you guys just pull back the curtain a little bit on what you're seeing there? What we should expect on the volume side of that segment for you?

Helmy Eltoukhy, Co-CEO

I think it's sort of in line with what we highlighted at the beginning of the year that there is a little bit of rejiggering in much of the pipeline; some companies have some layoffs; they're sort of deciding what areas in the therapeutic areas and snacks. But that was all kind of factored in at the beginning of the year. So I think we've been pleased that we continue to diversify our customer base, continue to grow volumes in this sort of challenged environment. But we also see this as an opportunity. We're having great conversations with pharma companies that are looking for new areas to expand some of their pipeline, and we have a very unique platform. So I think this future year is going to be a very strong growth year.

Patrick Donnelly, Analyst

Okay. That's helpful. And then maybe just on the MRD side. Thinking about the spend levels, again, you guys have been pretty clear on the screening piece. But just on MRD, can you just talk about your expectations around the spend there, thoughts on data generation versus driving increased market penetration? Just how we should think about the level of investment around that segment is a nice growth area for you guys.

Helmy Eltoukhy, Co-CEO

I'll start, and I'll let Mike sort of fill in some of the financial pieces. It's an area that requires a heavy amount of clinical validation and clinical studies; it's something that we've been building up for the last 4 or 5 years, and we have a very nice pipeline of studies across multiple indications, and we're planning to essentially process and run these collaborations going forward and hope we can share some more of that in the months. That being said, we're going to be very judicious about how much we invest, how we pace those investments, and how much we invest in terms of market share. So we're continuing to grow really nicely, 100% year-over-year. But we're engineering the demand, as we said at the beginning of the year. So we're not letting the burn get ahead of us too much. We really see no competition from a tissue degree in this view. We think this is a product category of its own that is going to be the ultimate winner in this MRD market. So we're in a very good spot right now.

Michael Bell, Chief Financial Officer

Yes. I mean, maybe just to reiterate that we would be very judicious on the investments we make. That's investments as well as market development and technical development but also on just processing the samples and running those samples prior to getting reimbursement. So we're managing that very, very closely. We've got our stated goals on cash burn this year and going forward. And on operating expenses this year. So we're closely managing that investment within those parameters that we have set.

Operator, Operator

Our next question comes from Dave Delahunt with Goldman Sachs.

David Delahunt, Analyst

Any additional color you could give us on MRD trends? I think I heard you say to Pat's question, you're seeing market share grow 100% year-over-year. Is there any qualitative color you could give us around what are the main selling points that have resonated the most with doctors? And what are the main questions they've had?

Helmy Eltoukhy, Co-CEO

I would say it's really the fact that it's simple blood to get the results really quickly, much faster than tissue-informed approaches, and really just, I think, customer service that we have, the quality of the team, the strength of our commercial team. I mean, there are really very few apologies, if any, that haven't ordered a test from us. And so really sort of being integrated with their offices and having that unified experience, I think, is another big piece. And then obviously, as we sort of continue to evolve the platform towards smart liquid biopsy, it's really going to just change the game in terms of what MRD means and what it has to provide to physicians. So we're very confident in terms of where things are going to market and where we are right now. But yes, we see really no product out there that has the same probe market as we do, especially in the coming quarters as we continue to upgrade the capabilities of the device.

David Delahunt, Analyst

Great. And on the screening side, you guys have been super successful in the past with leading the field for liquid biopsy. What do you think is a mix of PCPs who understand the value of blood screening versus the share that would benefit from more physician education?

Helmy Eltoukhy, Co-CEO

So what we are seeing in the marketplace with Shield LDT right now is, I mean, obviously, for almost everybody, the fact that you can do colorectal cancer screening with blood is a new concept, but what they are very well aware of, and in fact, is helping the brand and acceptance of this offering is how unpleasant and inconvenient other modalities are. And again, like we are just promoting this test for on-screen patient populations or those who have not done any kind of screenings or haven't been compliant with other solutions. And these doctors know those patients. They know their patients who have ordered other modalities that they did not complete the test. So that is on the top of the mind. Completion is not there. The unpleasant experience is there, and that's really helping the brand in terms of the acceptance of this new modality.

Operator, Operator

Our next question comes from Mark Massaro with BTIG.

Unidentified Analyst, Analyst

I was wondering when TissueNext and Guardant Response will start to have a more significant impact on volumes. Is reimbursement a crucial factor in that, or is it more related to marketing and possibly further data development? Any insights you could provide would be appreciated.

Helmy Eltoukhy, Co-CEO

Mike mentioned that especially the growing year-over-year. It's been a very good contributor to our business. I think approaching over 200 million covered lives. We obviously have Medicare coverage there. It's a very good franchise for strong growth. I think very smartly growing ASPs, and it's something that I think is going to be a big driver for us here already becoming a business with response. We just received Medicare coverage there a few months ago, and that's also going to be a very strong component of both aspects of our portfolio.

Unidentified Analyst, Analyst

Okay. Just taking a little bit prior question on screening. So I know you've conducted your own PPD survey work. We recently commissioned a survey that showed about 3 to the primary care are looking to order a simple blood test, and over half of docs want to order for all or most of their patients. So I'm just curious how you think our data is in a similar ballpark to your thinking around order and interest for SHIELD. Thanks.

Helmy Eltoukhy, Co-CEO

I heard you right, like 3/4 of the doctors are interested or very much open, but even 50% of their patient population. So I think in general, it's in line with what we are experiencing in our survey shows. I think the fact that, again, there are still many of these patients who are unscreened in the field and also the whole kind of patient pool is about $120 million. And then the fact that, again, this unpleasant experience and lack of completion is important. The future of this market for the PCPs, like these kinds of numbers make sense; I'm not surprised by your surveys.

Operator, Operator

Our next question comes from Dan Leonard with Credit Suisse.

Daniel Leonard, Analyst

A question for you, Helmy. You mentioned the EMR integration in your prepared remarks, and that's underway. Could you provide some details on the volume lift you're observing at the accounts where initial integration has taken place and how you would describe the advantages of broader integration?

Helmy Eltoukhy, Co-CEO

Yes. I mean, I think that historically, the rule of thumb is you get a sort of 50% to 100% volume lift that comes when integration happens, and we're seeing that really play out in a number of accounts that we've integrated with. So yes, we're hopeful that as we continue to make progress there, it will be a strong growth driver since there is a lot of friction; they have to go into another portal or fill out a paper or a best acquisition form or EDS. And so being able to just be in an account's system ordering the test from that same system that they're using for everything else is part of removing friction, and that's a lot of what we're doing in the coming quarters and years is really building up that customer experience to be as seamless as possible.

Daniel Leonard, Analyst

Understood. And then for my follow-up, Helmy, could you elaborate further on the importance of Galaxy? I don't recall that being a primary point in your talk track prior.

Helmy Eltoukhy, Co-CEO

Yes. It sort of got kicked off with our partnership with Lunit. They're a leader in AI-powered digital pathology to really think about sort of the spatial genomics and special biomarker analysis space and using AI to sort of read those images. And the first application that we launched was PD-L1 using AI to read that. And so it's pretty powerful, even though it's a relatively straightforward application, being able to find 20% of patients that might have been negative with manual reading who are now positive for PD-L1 has a very important therapeutic implication. So that's really resonating with a lot of physicians, helping to drive our growth in tissue, but it's just the beginning in terms of what's going to be possible as we tie that into our other tissue testing on the liquid side. So stay tuned.

Operator, Operator

Our next question comes from Andrew Brackmann with William Blair.

Andrew Brackmann, Analyst

Maybe a couple for me. First, on the upcoming NCIRE readout, can you maybe just sort of level set us on your performance expectations there? Just sort of what constitutes success? And then as a follow-up on Shield CRC, I know it's been asked in the past, but any update to your expectation on whether that goes to an advisory panel or not? Just sort of remind us on how you're thinking about that potential?

Helmy Eltoukhy, Co-CEO

Yes. For the lung studies, we have conducted several case control studies, and this upcoming data will be the first indication of how our testing performs within the relevant patient population in a mini screening context. We are eager to see what this data reveals. Regarding lung cancer, there are 15 million high-risk individuals, and unfortunately, less than 15% adhere to screening recommendations. Our study highlights that even when people are diagnosed with potentially high-risk nodules, biopsies are often not performed due to associated risk factors, leading to delays until further imaging confirms growth. The current standard of care has raised our enthusiasm about the potential of blood-based screening. As for your second question about the advisory for SHIELD CRC, we have not yet received any communication from the agency indicating they want to convene an advisory board. If that were to happen, we would likely have heard something by now, but we will see how United decides to proceed. So far, we have no updates on that front.

Operator, Operator

Our next question comes from Sung Ji Nam with Scotiabank.

Sung Ji Nam, Analyst

Just a couple of quick ones for me, Helmy. Maybe with the remind me again whether the peer-reviewed publication is that an important milestone in terms of receiving the FDA approval?

Helmy Eltoukhy, Co-CEO

FDA approval, no. Like FDA independently, they are looking at all the data and the details of data in their own hand, so the peer-reviewed publication is not that important. Less it's important for us for USPS review cycle reps. They do data reviews by a majority of cases when the evidence is published in peer review, and that's important. We're on track. We've done our part, and we will see but we should be able to have that coming soon.

Sung Ji Nam, Analyst

Got it. And then for lung cancer screening, you talked about realizing it's slightly 15% screening. Is that largely driven by the primary care market today? Just kind of curious what the educational process might entail with a new modality of testing and whether you might need to involve the pulmonologist?

Helmy Eltoukhy, Co-CEO

Still, we are kind of learning about a bunch of details in that market as we speak. But at a high level, just the modality of screening that needs significant patient commitment and follow through. The multiround of imaging or biopsies, still a large fraction of biopsies would not indicate patients with cancer due to adverse events or shifting treatment compliance. So we are working to improve the patient's journey, which is very hectic and long. It's a lot of commitment. So, in fact, we are not very surprised that the adherence rate is much lower than CRC. But we are continuing to learn more details about the market dynamics.

Operator, Operator

Our next question comes from indiscernible with UBS.

Unidentified Analyst, Analyst

Great. I just wanted to circle back on Response. I know, obviously, it's kind of one of the assays. But I think last quarter, you had indicated maybe like a low single-digit contribution revenue contribute what to think about. And I was wondering, I know clinical volume trends have just been doing pretty well if that was the right way to think about this assay still. And just with another quarter kind of under your belt, if you had any clinician feedback, just given that maybe other assays kind of work a little differently in the treatment monitoring space and what you're hearing there. And then a follow-up.

Michael Bell, Chief Financial Officer

Yes. Makis, I'll take the financial piece. I think, yes, maybe on the last earnings call, when asked about what contribution will respond deliver now this year because we received Medicare reimbursement. Yes, it's very early days since Medicare reimbursement. And I think we mentioned you had very low single-digit million revenue that would come from response. And so yes, that's still the case. I think on the second part of the question.

Helmy Eltoukhy, Co-CEO

Yes, I think the view of it is that right now, the sort of leading product in therapy selection, liquid biopsy with Guardant360. It's the fact that they work in conjunction with one another is a huge advantage that we have and really works in a pretty straightforward fashion in terms of nothing to over-monetarily. So it's Yes. No, it's a product that I think resonates well, one that we're continuing to promote much more aggressively now that we have reimbursement behind those; we think it should be a very important growth driver coming in the coming years.

Operator, Operator

Our final question today comes from a representative at JPMorgan.

Unidentified Analyst, Analyst

Great. This is Casey; we're doing on for Rachel and squeezing it then. So I guess just two quick ones for you. On the CDx side, can you talk about what's the next pipeline in terms of maybe other indications or areas you're targeting for approval and timelines around some of those? And when you'd expect you'd expect similar volume ramps to I think last quarter, you said breast volume picked up 40% right after that approval. And then my second question is just on the biopharma business. I think last quarter, you talked about plans to expand into China? Is that still on the table this year? The companies that we've heard from so far that have been reporting, flagged material weakness in China. So table this year and thoughts around that.

Helmy Eltoukhy, Co-CEO

Yes, I mean, we have a list of CDxs that we're either negotiating or where we have signed on a bunch of other ESR1, but other indications as well. And I think that's the opportunity ahead of us in terms of being able to partner with new classes of therapeutics, biomarkers, and other indications. We see hopefully a similar volume uplift in other indications in the future. In terms of China, we're starting at zero right now. There's a lot of upside at this point. But yes, we're very pleased with the progress we've been making with a strong partnership with Adicon over there. We should be up and running by the end of this year, and there's a very strong pipeline in terms of biopharma partners that want to be able to sample in China. There's a vacuum right now in terms of global companies that have the scale that we do that can operate there. We see maybe that weakness that maybe others are facing there as an opportunity for us, and we are moving very nicely in terms of progress. Well, thank you.

Operator, Operator

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.