Guardant Health, Inc. (GH) Earnings Call Transcript & Summary

Well, hello, everyone. Welcome to the 2020 Bank of America Virtual Vegas Health Care Conference. I'm Derik De Bruin, the Senior Life Sciences and Diagnostic Tools Analyst at Bank of America. Thank you to everyone who's dialed in and experimenting with the new virtual format. We really appreciate it. We hope everyone is safe and healthy. Our next company today is Guardant Health. With us today is Chief Executive Officer, Helmy Eltoukhy and Chief Financial Officer, Derek Bertocci. And we are happy, happy, gentlemen. Thank you.

Thank you for having us.

Thank you.

So let's get -- so lots to talk about what's going on in the world. I think you reported earnings last week. I think the biggest conversations that we had with people are just on certainly thinking about when we're going to start to see some rebounds in the market. I mean, we've been -- a rebound in sort of like patient visits and volumes coming back on both your biopharma side and on your clinical side. I think we've had some mix indications today from various companies certainly, Exact made a comment that their volumes are up significantly since their April lows. And so I think just sort of update -- getting us essentially start, just what you're sort of seeing in the business and trends in near term? I think that's the biggest question I've had from most people.

Yes. So I think we gave a lot of color on that in the call a couple of weeks ago, I guess, last week. And what we had said that we've seen a 30% decline from our run rate the first 10 weeks of Q1 to the trough, so to speak. And at our earnings call, we had mentioned in the 2 weeks prior to that, we have seen a comeback of about 10%. So significant increase, I would say, in terms of things coming back. I would say maybe taking a step back in terms of the overall picture, we do know that patient visits were depressed by around 30% in the oncology space. And so I would say that a lot of the business is tracking that main metric, patients aren't coming in, and it's very difficult to put them on treatments or test them and so on. That being said, I think the first few weeks, after shelter-in-place orders and after COVID became real, there was certainly some panic -- there's certainly some panic, I would say, in terms of how we -- how the physicians deal with this new normal, how they deal with this COVID backdrop, and I think we're seeing that pendulum swing back and why we're seeing some improvement in terms of the volumes. That said, if you think about the patients that -- or the individuals that need to be most protected given COVID, most cancer patients are over 65 and they are immunocompromised. And so unfortunately, those are the individuals we have to guard most, kind of, vigilantly. And so we think that as long as COVID remains in the background, which we think will certainly be there for at least a year or more, there's going to be -- there's going to have to be new workflows to deal with protecting patients from COVID, while still giving them the best possible care. And this is really where we see the silver lining for liquid biopsy for our suite of services, the ability to be able to have a simple blood draw for getting the right genomic information for matching these patients to the right treatment, just really cut through a lot of the logistical hassles and difficulties that tissue causes as part of the process, whether doing a new biopsy or getting an old tissue sample from a pathology lab somewhere. We think that both liquid in the office as well as the mobile lobotomy services we provide, which allow patients to have their blood drawn in the comfort of -- and safety of their own home, as well as Other services that we have launched. We think we're well situated for this new environment and there is, frankly an opportunity for liquid biopsy to gain market share and share of voice.

Yes. And I mean I can totally agree with that I mean certainly be a bean and compromise myself I'm certainly thinking about, how to -- how do I sort of go out and gauge and if think the -- just for my blood work for my RA, certainly getting -- the thought of having the mobile lobotomist coming in as we're doing this as oppose to having to go to a service center or go to a hospital is certainly is a attractive one. Yes, I do think that's a trend that's going to pick up and improve. And can you talk about, I guess, the other side on the pharma business, some of the delays in clinical trial enrollments and just some of the delays in processing samples from your biopharma customers, just sort of the trends in that space?

Yes. So that's another area that obviously has multiple parts to it. There's a prospective samples we have, retrospective samples and the companion diagnostic work. Clearly, prospective trials are being delayed or impacted by COVID. If you think about physicians trying to minimize uncertainty or minimize risk, putting patients and new trials in this environment is -- probably doesn't serve that well. And so there's clearly impact there on the prospective side. Retrospective side is more mixed also in some respects. If you think about it, there are biobanks that are impacted, some delays in certain programs. So there's certainly some impact there. And then in the companion diagnostics side, that's an area we have yet to see impact. And it's an area that seems to still be moving sort of business as usual, given maybe the longer-term nature of those programs. That being said, I think it will be interesting to see how this plays out. I mean, I think we still see pharma continuing to invest aggressively in the oncology space. Before this, the trends were very good in terms of increased number of customers and increasing depth of our relationships with many of the existing customers. But I think longer term, we'll have to see what the ripple effects of the short-term COVID impact are. Do they eventually cause a shuffle in some of the portfolios of these companies or not, and I think, we're still a few quarters from seeing that longer term impact.

Yes. I think that's one of the things we've been thinking about in the broader life sciences space in general, just sort of thinking about more money getting shifted from pandemic to infectious disease and pandemic and maybe less getting on some of the other projects. I think that's the real question, Mark. I think everyone we've talked to has had different opinions on where they sort of think funds are going to get directed. So I want to go down and start talking about some of the different products and then come back and talk about your -- what you're sort of doing from a COVID testing perspective. Let's start with G360 and OMNI. I -- on the G360, where are you in the FDA's approval process? On that, I mean, has that -- is that been delayed by the whole COVID situation?

I think as we said in the call, obviously, we're in the review cycle now. There's been very good back and forth. I actually have to commend the FDA for their responsiveness despite the backdrop of COVID and how much time they're spending, obviously, on the EUAs and trying to get testing ramped up. So we've been very pleased with the interaction so far. But obviously, it's in their court now in terms of the review.

So I think one of the surprises on the call was the fact that you're already starting to get some reimbursement for non-lung prior to that event. Can you talk about some of the conversations you're having with Noridian and then what went into that reimbursement. And sort of how do you think the commercial payers are going to fall?

Yes. So Palmetto finalized our policy in December in terms of the Pan-Cancer LCD. But we are in the Noridian Mac, so to speak, in terms of the region. So we had to potentially wait until Noridian finalize their policy. We got essentially some feedback that they would begin payments on samples that we submitted. And I think we were -- we received the first payments in March for those non-lung samples. And because of ASC 606, and we have to recognize their samples on an accrual basis, we -- those payments applied to most of the first quarter samples. I think that's a little bit of some confusion that was there on the call. It wasn't just smart samples that it applies to that, it actually applies to most of the first quarter. And now recently, I think last week, the Noridian policy got effectively finalized. And so we're kind of through that in good shape now in terms of having coverage for the solid tumor samples under that LCD or, at least under the coverage criteria of that LCD. I don't know, maybe, Derek -- Derek, perhaps, if there's anything you want to add to that?

That's exactly it. So we had a significant increase in the ASP in Q1, and that's because Noridian has been paying now, and we've reflected that for the full quarter's worth of activity.

Great. And how do you think about the commercial payers for non-lung?

We've always seen uplift once our policies have been finalized with Medicare. And we're having, I think, very good conversations with many private payers. But as Derek said, this is the probably most significant step function in terms of ASPs we're going to have for some time. I think we're going to continue to see improvement in ASP, but it will be more gradual as we sign-on and contract with the private payers and expand from lung cancer to Pan-Cancer with the existing payers. But we've been very pleased with the conversations to date, and the LCD and expanded LCD, it certainly helps.

Yes. So tell me, one of the questions I get asked almost on a daily -- well, not daily, but almost on a weekly basis is -- I still think investors are struggling to understand the whole liquid biopsy landscape for targeted precision medicine therapy selection. There's a lot of products out there on a tissue base and there's some on the liquid side. I guess, when we were doing the IPO, you felt like that Guardant had roughly an 80% share of the liquid biopsy market for that indication at the time. I guess, since the couple of years since we did the IPO, where do you think you stand in terms of the market share in that space? And some of the -- and some of your thoughts on the competitive dynamic as the space has gotten a little bit more crowded?

Yes. I mean, we still have -- in that ballpark, we believe it's hard to obviously get exact estimates given that many of the companies are potentially private and so on. But they have -- we still have, I believe, very outsized, I think, share of -- or significant share of the liquid biopsy space. And so that's an area that I think we've been -- we've continued to be pleased by in terms of execution, by our commercial teams and by our medical affairs and clinical development teams in terms of extending our investment and our kind of leading position in terms of publishing data, polishing clinical evidence around use of Guardant360 in multiple cancer types. We have recently had a nature. Cancer publication and plasma match study in breast cancer. And so I think we're continuing our investment in our commitment to data. That said, there are multiple areas that you have to succeed at to be successful in the diagnostics side of the business. It's not just the technology, which we continue to iterate on, we continue to improve, and we believe is market-leading today. But it's also, as I said, clinical data, clinical evidence, 150 peer reviewed publications, 50 clinical outcome studies, early night and day between our test and any of the other tests that are out there. But that translated into very good reimbursement, both Medicare and the private payers, very good engagement with our customers. Operational excellence, obviously, drives a lot of that, one of the fastest turnaround times of the NGS-based liquid biopsy, we're averaging about 6 days in terms of turnaround time. So it's not just one area that I think is important in succeeding in this space. It really is this ecosystem and portfolio of suite and services that one has to provide really the white glove service from beginning to end to be able to win. And as you said, a competitive market.

Yes. Let's move to -- let's move on to LUNAR-1. I think when we went through your portfolio and I sort of think about the market, I think this is probably where we're the most excited on just from the sense of, I mean, I can sort of -- I can really see the need for the appeal of liquid-based biopsy for cancer recurrence. I guess where are we on the LUNAR time line? Just give us an update on the data on that -- on your programs there and the build to getting more clinical utility data? And then I've got another competitive dynamic question on that since that's also a market that seems to be getting big, or crowded.

Yes, I should say. Yes. That's obviously, a very exciting area. We launched tests for the sort of investigational use market is a clear test, but for use with our farming partners in terms of their prospective trials. We're using that in 2 trials that we're part of interventional trials, one is with COBRA in collaboration with NRG, cooperative groups, and then the other one is with Stand Up To Cancer and MGH. They're both in Colorado, 1 Phase II and phase III. COBRA is a 1,400 patient trial. That's a randomized control trial. It's really the highest level of clinical evidence. And why I point that out is that's really the long pole in the tent, so to speak, in getting to the finish line of broad reimbursement and broad usage for this application, especially in the adjuvant setting. Many have shown and we have shown clinical validity in this space that if you detect ctDNA and blood after surgery or after curative resection in these patients. And those patients indeed likely have disease with very high specificity and will recur much sooner than those with no ctDNA to tested. The challenge has been though, no one has shown that that difference -- that information makes a difference in terms of outcomes of those patients. And so that's where these trials that we're working on with these academic centers and cooperative groups as well as some of the pharma companies we're working with are going to be critically important in terms of establishing clinical utility, establishing clinical utility to let both public and private payers can reimburse this. And so that this path of testing can show proven decision impact and getting to guidelines. And so those are the critical steps that were required to realize the large market opportunity that exists there. And we're making very good progress in all of those pieces. But obviously, it'll take more time for some of these studies to read out.

Great. Some companies are hoping to launch IVD test kits for recurrence monitoring that can be run locality to pathologists. I guess, what's your thought on the CLIA lab method that you're pursuing versus the more decentralized approach that some of these other labs are looking at?

Yes. So I mean, I think you had mentioned something about a bang a crowded market. We actually see this as fairly open field running, at least compared to the late-stage market. I think they're much less companies going after this space. And I don't think there's really been any methodology that's kind of been established at this point. I would say for the centralization versus decentralization, this is a debate and a discussion that's happened in all of these different markets and -- from our viewpoint, we're agnostic to the 2, we think there's a role for both. It just depends on where you are in the adoption cycle and maturity of the business. In the early days, without reimbursement, without something that standard of care, I think it's very difficult to have a distributed model where you can ensure a high sense of quality, white glove service, interpretation of the results, really driving the right clinical evidence and data to get into guidelines. So there's a lot more handholding that has to be done in the nascent time period of a new technology, a new modality. Once reimbursement is broadly established, once this is an accepted part of guidelines, once something is accepted as standard of clinical practice, then I think there's an opportunity for decentralization. There are certainly some markets where decentralization is required, I think international markets, for instance. We really are agnostic to both. We have the capabilities to do both. We have a partnership with MD Anderson, where we have both labs and we ship them kits. And so just there's a time and place for each architecture or each framework.

Great. Can we -- let's move on to LUNAR-2 in the early stage. So some of the questions I've gotten lately, the fact that you're starting to see data come out from companies that are doing Pan-Cancer, multiple cancer detection versus your approach, which has been more just focused on colorectal cancer. I guess -- and the bearers would argue, it's like, well, the companies like Guardant, they're just focused on one disease, they're going to get blown away because you've got companies that are focusing on Pan-Cancers, you can seriously everything. Can we talk about the pros and cons of the Pan-Cancer versus the more targeted cancer in terms of early stage?

Yes. So that's a great question. I get asked that a lot. Really the Pan-Cancer, there's a certain provocative -- it's sexier in many ways in terms of thinking about it. But the data is in the details in terms of what is the performance on each cancer type? How are you comparing? How are you showing the clinical utility piece? And that's the thing that I think is often conflated, clinical validity, clinical utility. Is it information that leads to decision impact that leads to improved clinical outcomes? And so the approach we're taking, make no mistake, we have the ambition to get to multi-cancer or Pan-Cancer. We have studies and research in multiple cancer types. But we believe a beachhead approach is the one that makes the most sense, not just from a technological point of view, but from a business model point of view. How do you get to the finish line of broad reimbursement and broad adoption in a way that doesn't take 10 years? There are -- if you have a test that can't be compared against a preceding test or a comparator. So we're comparing, obviously, against endoscopy that's a established method for screening. Let's say, you have a pancreatic cancer test that has reasonable performance. There's no screening test for that. And so how do you know that the cancer you're detecting is something that would actually have killed that individual or made a difference in terms of the mortality of that individual. You don't -- so just detecting a cancer is not an endpoint in and of itself. And that's why the National Lung Screening trial was a 10-year trial to establish low dose CT scans in non-small -- and for high risk, 30-packs per year smoking population because the endpoint was mortality. And so that's kind of the rub is, how do you establish viable health outcomes -- the viability and the health economic paradigm? How do you show that the cost of test and the cost of adverse events because of the information that's unleashed in the false positives that are there? How do you show that the benefits outweigh the risks? And just detecting disease, doesn't -- most people have prostate cancer who are above 70. Most people have thyroid cancer that are above 70 and so on. So there are these cancers that are there that are fairly benign that won't probably kill that individual. And so essentially, that's why these long-term studies are important. And I think that's what's missed by some of these approaches we're seeing.

That's great. Also, I think when you look at the early stage market, things have evolved from just using cell-free DNA as a biomarker to including more epigenetic markers and methylation or proteins based performance. I -- you've also done that with your fragmentation analysis on this. I guess, based upon what you're seeing right now, I guess, what is the boost you get from adding into these extra information on top of this? And is there a right approach for doing this or a best approach for this? Because it still seems like things are all over the place in terms of what -- of how people -- so we're going after.

I mean I think that's an exciting part. I think it's exciting to see all these different groups try different methodologies, whether it's Pan-Cancer or single cancer or different biomarkers in the blood and so on. There's a lot of unknowns out there in terms of human biology, and we don't purport to have the answers for a lot of these things. We know that there's a lot that we still don't know about the human body and so on. But I can tell you that in terms of the areas we're exploring, we've seen significant improvements as we've layered on these kind of -- these additional biomarkers. Going from just looking at the sequence changes on the semantics side to adding in the chemical modifications in terms of methylation to adding in some of the structural changes we're seeing as inferred through fragmentomics. We're seeing not just additive, but even synergistic effects when we look at these simultaneously. And that wouldn't have been possible without developing really a novel chemistry that we developed to be able to preserve the sensitivity in all of these dimensions. And so that's, I think, a unique approach we have where we're not only innovating on the informatics side and understanding the data, but on the biochemistry and upfront sample prep side, and really optimizing the 2 kind of hand-in-hand. And that's what, I think, led to the leading performance we see with Guardant360. And I think it's what's leading to, I think, some of the good performance we're seeing with our LUNAR-2 assay in colorectal cancer. And it's something we believe we can rinse and repeat, given our ability to collect data through our commercial engine, through our commercial products and analyze all that data and do large-scale discovery, as we continue to develop assays, not just for colorectal cancer screening, but screening of other cancer types as well. And so it's a true platform. And we have that engine by which the data is selected to drive that platform. And I think that's a unique asset that Guardant has.

So I want to sneak in a couple of quick ones here at the end. I guess, LUNAR-2 timing, given some slowdown in the COVID enrollment there. And just also timelines on the USPSTF task force. Could it be possible they could open up for like an off-cycle review?

Yes. So in terms of the first question. Clearly, when CMS, I think, paused colonoscopy as an elective procedures that had an impact on enrollment for our ECLIPSE trial. But the bright side was many of these sites had more bandwidth for contracting. And so we're able to get to over 100 sites faster than we anticipated. And we used the opportunity to actually expand ECLIPSE by 50% to -- up over -- our target to over 150 sites. And so this is, I think, something that is going to allow us to turbocharge enrollment once colonoscopies come back, and we're actually seeing some bright spots there in parts of the country. Secondly, some sites that I think [ Amir Ali ] had mentioned that didn't want to work with us before are suddenly open to working with us. And so we think we have a collection of 100 -- we'll have a collection of 150 very good site, some of the better sites in the country from which we can work with and continue moving ahead on ECLIPSE. And so hopefully, we can make up for lost ground with some of this expansion that we're doing. But obviously, who knows what COVID has in-store and some of the pendulums kind of swinging back and forth in terms of second waves or third waves and then so on. But we're doing everything we can to be as aggressive as possible in terms of our end. In terms of USPSTF. I think, Derek mentioned that if there is significant data that's out there, that they would consider off-cycle reviews. But I think if things remain on cycle, I think we're very happy with that timeline. It's very similar to what other companies had kind of their time lines. And so it's something that I think is still an extremely exciting business opportunity and exciting for cancer patients, even if it's on cycle. But I think we're more and more pleased with what we're seeing in terms of the data and the progress we're making with the study.

Great. With that, I think we're at the -- we're at time. Helmy, Derek, thank you for participating. The audience, thank you for listening. We appreciate your support, and have a great conference. And be safe, everyone. Thank you.

Great.

Thank you.

Bye-bye.