While the upcoming FDA panel meeting for Guardant Health's colorectal cancer screening test, Shield, understandably dominates the Q1 2024 earnings call transcript, a subtle yet significant development regarding the company's minimal residual disease (MRD) test, Reveal, appears to have slipped under the radar. Tucked away amidst discussions of ASP improvements and smart liquid biopsy transitions is a statement with potentially profound implications for Guardant's financial future: the expectation that Reveal will be gross margin positive in 2025.

This seemingly innocuous projection represents a seismic shift in the narrative surrounding Reveal. Previously perceived as a cash-burning, pre-reimbursement endeavor, Reveal is now poised to emerge as a profit-generating engine, potentially years ahead of schedule. This rapid trajectory towards profitability hinges on two critical factors highlighted in the transcript: aggressive COGS reduction initiatives and nascent tailwinds from biomarker bills that are driving ASP improvements.

The significance of Reveal achieving profitability in 2025 cannot be overstated. First, it transforms the MRD business from a drain on resources to a contributor to Guardant's path to overall cash flow breakeven, a goal currently projected for 2028. Second, profitability unleashes Guardant to aggressively expand Reveal volumes, tapping into a vast market of over 12 million cancer survivors who stand to benefit from tissue-free MRD monitoring. This untapped demand, coupled with Reveal's unique position as the only tissue-free MRD option currently available, presents a compelling growth opportunity for Guardant.

However, this bullish outlook for Reveal necessitates a closer examination of the underlying assumptions. The transcript states that gross margin positivity is contingent on "significantly lower COGS" and "improved ASPs." While both are supported by ongoing initiatives, the magnitude of these improvements remains a critical unknown.

On the COGS front, Guardant is exploring the adoption of lower-cost sequencing platforms, such as the NovaSeq X. Quantifying the potential COGS reduction from such a transition requires detailed analysis of current sequencing costs and projected savings. Assuming Guardant's current COGS for Reveal is approximately $500 per test, a hypothetical 20% reduction through platform transition would yield a savings of $100 per test.

Turning to ASPs, Guardant is seeing early signs of improvement driven by biomarker bills, with 17 states now having enacted such legislation. These bills aim to ensure coverage for medically necessary biomarker testing, including those like Reveal. However, the timing and extent to which these bills translate into tangible ASP increases for Reveal is unclear.

A crucial question is whether the combined impact of projected COGS reductions and ASP improvements is sufficient to propel Reveal into profitability. Here, a hypothetical scenario can be constructed. Assuming a 20% reduction in COGS, as previously discussed, and a moderate 10% ASP increase from $2,000 to $2,200, the gross profit per test would jump from a negative $300 to a positive $700. While highly simplified, this illustration underscores the potential magnitude of transformation that these initiatives could bring about.

Projected Reveal Financials in 2025

The table below illustrates a hypothetical scenario for Reveal's per-test financials in 2025, assuming successful COGS reduction and ASP improvement initiatives.

The journey towards Reveal profitability is riddled with both opportunities and uncertainties. The aggressive COGS reduction and ASP improvement initiatives underway could usher in a new era for Guardant's MRD business, unlocking substantial growth potential and accelerating the path to overall profitability. However, the success of these initiatives is paramount, and their precise impact on COGS and ASPs requires careful monitoring and analysis. While the spotlight currently shines on Shield, the understated development of Reveal's march towards profitability warrants close attention from investors and analysts alike. The answer to whether Reveal is indeed a hidden gem could have profound implications for Guardant's long-term success.

"Fun Fact: Guardant Health's name stems from the French word "guardant," meaning "watching" or "protecting," reflecting the company's mission to safeguard individuals from cancer."