Caris Life Sciences, Inc. Q3 FY2025 earnings call

Founder's Vision

• David Halbert discussed founding Caris to make precision medicine a reality, moving to Whole Exome and Whole Transcriptome sequencing in 2018, and the vision of personalized disease prevention using whole genome sequencing.

Product Pipeline Updates

• David Spetzler provided updates on MRD CRC solution, progress on Caris ChromoSeq, MI Clarity, and ACHIEVE-1/ACHIEVE-2 studies for early detection.

Financial and Revenue Highlights

• Brian Brille highlighted strong revenue growth, gross margin improvement to 68%, positive adjusted EBITDA, net income, and free cash flow. Discussed clinical case volumes, data set growth, and the Precision Oncology Alliance with over 1,150 peer-reviewed publications.

Financial Details

• Luke Power detailed revenue guidance, ASP trends, pharma revenue, gross margin, and free cash flow. Mentioned Q4 revenue guidance and underlying ASP trends for tissue and blood.

Molecular profiling services revenues were $207.6 million, a 121% year-over-year increase, representing 95.7% of total revenues ($216.8 million). Clinical case volumes were slightly less than 51,000, up 18.2% year-over-year. Caris Assure for therapy selection had 66% year-over-year case volume growth and an ASP of $4,089, up 87% year-over-year. Pharma R&D services revenues were $9.2 million, a 18.3% year-over-year increase, representing 4.3% of total revenues.

Total Revenue

• Raised FY '25 total revenue to $720 million to $730 million, a 75%-77% increase over 2024.

Clinical Volume

• Clinical therapy selection volume expected to be 21%-22% for the year.

Q4 Guidance

• Q4 total revenue guidance $200 million to $210 million.

Tissue ASP

• Q4 base tissue ASP expected around $3,600.

Blood ASP

• Q4 blood ASP guidance $2,300 to $2,400 per case.

Q: Congrats on a nice sprint here. Maybe my first question on the performance here in the quarter. ASPs clearly came in about. What is your implied Q4 assuming, Luke, I think revenues are down, I think, sequentially. So does it include any true-ups? And what was underlying gross margins in 3Q, excluding the true-ups?

A: Yes, Vijay. So yes, as I stated in Q2, we'll never forecast any potential true-ups because, again, we don't know those until the end of each quarter. So it's not assuming anything there. So for total revenue for Q4, our assumption in the guidance we put out is the $200 million to $210 million range for total revenue. So to answer your other question then, what was our underlying gross margin without the true-ups in Q3, that was about 61%, excluding that true-up that we had in Q3.

Q: Congrats on the quarter. Maybe just one more on price. If you don't mind. Just could you walk through a little bit of kind of the success on the underlying pricing ex the true-ups, how you saw the progression in terms of payment rates against the $8,455 rate for on the tissue side? Like how are you doing versus expectation? Maybe just give a little color on the commercial success there in Q3 versus Q2 and same thing on Medicare. And then kind of how are you thinking about, I think you said kind of price in that same ZIP code, the underlying price for 4Q. So just kind of what's assumed in 4Q as we think about the underlying price and across Medicare and commercial?

A: Yes, Dan. So effectively, what we're assuming for our base and is what I said in the presentation is about a base for tissue of 3,600 for Q4. Now we obviously think there's a possibility it might come in a little bit higher than that, but I'm being cautious in the guidance I'm putting out there until I get a little bit more history on the payments. By the time we get to the end of the year, we'll have about 9 months of payment histories from payers. And based on our historical experience, you're probably in that 9 to 12 months where you have like a very established trend. So what we saw in Q3 happened and what we've seen throughout the year is actually the response we're seeing from commercial payers has been very, very, very good. So that's what's kind of driving it. And when we discussed I think it was in Q2 as well, like we have an underlying goal for ourselves, too, that we should be getting to an overall percentage of what the Medicare rate is for our overall ASP. And I think we're probably about a quarter ahead of where we thought we were going to be at the start of the year. And again, that's due to the great work of the market access team.

Q: I want to dig into your volume guidance for the year. You bumped that up a little bit. You're looking at, I think, 21% to 22% for the year, a pretty good cadence start of the year. It is a little bit of a conservative assumption for 4Q. But if I just look at the total volumes on a patient basis, you're kind of trending in that 50,000 to 51,000, 2Q, 3Q, 4Q. So as we think forward to next year and just sort of beyond, what gives you confidence you can kind of reaccelerate that and take a step function? Maybe just talk about the sequential versus the year-over-year growth? And how do we think about volumes progressing beyond the next couple of quarters? And I got a follow-up.

A: Yes. Thanks, Mike. So yes, so for Q3, obviously, the 18% came in kind of in line with what we were expecting. And kind of the reason for that guide and kind of the actual results, we were actually pretty cognizant about this coming into the year is that Q3 last year was actually probably one of our highest quarters at 35%. So it was a very tough comp coming into the year, and we wanted to be careful setting expectations against that. Now as you mentioned, what we did with the updated guidance is we're increasing the higher range on that volume based on what we've seen play out later in the quarter. So we feel very good about being in that total 197,500 cases to 198,500 cases for the year as we sit here today. So then that would obviously get you in that kind of 22%. Now you asked about what we think for next year, we're not going to release the guide right now because of what Brian mentioned on the call, and I'll leave Brian jump in, in a minute about the commercial pipe. We've seen kind of an uptick after the summer months, especially among ordering physicians and obviously, especially with our blood volume. So one of the key things that we're working towards now for blood for Q4 is we got the 7,500 cases, probably a quarter than we were anticipating earlier. So our expectation now is, okay, can we get above 8,000 cases for the quarter in Q4. And then once we have that, one of the other key catalysts for blood that we've obviously mentioned on the previous call, to is getting the New York State approval since we're not selling in New York right now. And I think that will obviously give another additional kick to the volume from blood. So I think what we'll do at the end of the year, especially when we report that preliminary numbers and probably for JPMorgan, we'll put out a guide around what we expect our therapy selection volume to be.

Q: Starting on MRD. Once you have MolDX coverage, what's the commercialization strategy to scale that business? And specifically, what I'm getting at is, can you go after it, get after it with your existing oncology sales force without material headcount expansion. And then relatedly, how should we think about initial pricing? Will that align with currently reimbursed tumor-naive levels? Or do you think MolDX will actually allow for premium pricing, given the breadth and depth of your assay?

A: Well, listen, I'll take the first part, which is very straightforward. I mean our channel, our relationships with the physicians, the cancer centers, they love our technology, and they want additional modalities from us. So MRD and monitoring falls very neatly into that. So Doug, that's -- we're not going to need additional head count. It's the same sales force, the same MSLs taking care of the physicians. It's the same channel for us dealing with the same physicians and same institutions. So it's a very efficient, very natural launch for us from that perspective. Spetz, do you want to take or Luke, do you want to take the pricing part.

Q: Congrats on the quarter. So you guys called out strong Caris Assure volumes this quarter. Another liquid biopsy competitors also called out an acceleration in blood-based therapy selection volumes. Just kind of curious how you guys are seeing the market movement towards blood? And has it accelerated in the past few quarters and expectations for that in the future year?

A: Yes, Casey, so like it was great for Q3, obviously, seeing that acceleration in the growth rate from Q2, especially knowing that we've only probably been like a little over a year since we launched Caris Assure now. I think what we're seeing in the market and kind of what I called out in the presentation, what we're seeing is more concurrent testing, which is definitely benefiting us. So last quarter, like about 35% of our blood cases also had a tissue case performed, and that went up to 40% for Q3. So I think that's playing out. I think there's more indications. And I think physicians are obviously getting more and more comfortable what we're offering with the Whole Exome, Whole Transcriptome along with our tissue and seeing kind of the benefits of that. And obviously, the chips of traction, which is unique to us in the sequencing that we do on that. I think they're starting to see that play out a little bit more.

Q: You mentioned 43% of your blood test has tissue attached. Do you expect any momentum here in the coming 12 months? And where could this go long term?

A: Yes. So it's a great question. Like I can't predict where it will go long term. Now we have seen that percentage obviously increase throughout the year. So I definitely think that's a positive. Now obviously, lung is kind of a key indication, especially for blood. So that's a big portion of it. And as more and more indications or more and more approvals for drugs comes out related to that? I think you might see that. But for Q4, what I would estimate would be in that 40% right now based on what I'm seeing. Obviously, we do expect it to increase a little bit. But I don't know whether that will -- you're probably asking the question, will that get to like 50%, 60% over the next year. It's a possibility. But until we actually see it play out with our kind of ordering physicians, I don't want to guide to anything there.

Q: Congrats on the strong quarter. So I wanted to ask a question about data and pharma. So other companies have talked about sort of a challenging pharma environment, yet you guys leverage a massive data set with over 950,000 genomic profiles both whole exome, whole transcriptome. I would just be curious if you could give us a sense for the types of conversations you're having with pharma, to what extent is a companion diagnostic pathway part of your strategic road map. And just can you give us a sense for any multimodal model conversations you might be having with some pharma companies.

A: I think that's a -- yes. So we can definitely see a shift in attitude towards utilization of the data and development of foundational models and application of AI. So there's definitely a trend in that incorporation of both image data and molecular data is emerging is something that becomes very, very important. With the end goal, of course, those companion diagnostic components. So the value of the data at the end of the day is bringing new drugs to market and a CDx strategy is very important to that.

Q: I wanted to start by asking about Caris Assure. If I look at the underlying ASP and strip out the true-ups in the quarter, it looks like it stepped up still almost $500 relative to 2Q. I was just curious what is pulling that up. You talked about contracting with commercial payers on the tissue side. I'm wondering if that traction might be pulling blood along with it.

A: Yes. Yes. So Jack, exactly right. So obviously, having the FDA approval for a tissue when we're actually going to payers, we are asking them to include Assure in it. The other key component of Assure this year that's helping us drive up the ASP is, if you recall, we got a PLA code for Caris Assure in Q4 of last year. So we've been going through gap fill this year. And obviously, it's the PLA code on the clinical lab fee schedule, but it's not priced right now. So we've been getting priced at the local rate of $3,649. Now what we do know next year, it will be added to the clinical lab fee schedule at $3,649. So that's helping to is having that PLA code. So right now, both of our solutions for therapy selection have individual PLA codes that are effectively priced on the clinical lab fee schedule, and that's helping because a lot of the commercial medical policies pull from that kind of -- that fee schedule.