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

Good afternoon, everyone. I'm Derik De Bruin, the senior life sciences diagnostic tools analyst at Bank of America. Welcome to the final session on the second day of our 2021 Virtual Viva Las Vegas Healthcare Conference. With me today from BofA is my colleague, Ivy Ma. And our next company up is Guardant Health. With us from Guardant today is CEO, Helmy Eltoukhy; and CFO, Mike Bell. Gentlemen, welcome. Thank you for participating in our virtual Vegas party.

Okay. Thanks, Derik.

So Helmy, I don't know if you want to make any opening comments or I can drop right into questions. So up to you.

Yes, we're going to jump into questions. That's fine.

Right. Great. So let's -- I want to just do with big picture one. So a lot has evolved in the liquid biopsy space since your IPO in 2018. There's been significant advances in clinical data, physician awareness, a lot of progress on the regulatory reimbursement front. What do you think are still some of the key hurdles that liquid biopsy is seeing for greater adoption? And I particularly want to focus on late-stage therapy and the recurrence monetary markets. We'll deal with early-stage later. That's a different topic. But for these markets, just what do you think are sort of like -- what are the next sort of big drivers to growth? Or what's going to keep the growth going?

Yes, great question. So I think one of the challenges we're seeing is the fact that this technology and this type of testing, frankly, whether it's [ test tube ] testing or liquid testing, for profiling of patients is just so critical to really having a high-quality standard of care and really improving outcomes. I mean, we have drugs that are being approved every quarter that can extend longevity and overall survival pretty considerably. I mean, there's just been amazing breakthroughs. And the only way to get access to these drugs is really to have comprehensive first-line testing. And yet, we're seeing that in lung cancer only 20%, 30%, maybe 40% of best of patients are being tested with NGS technologies in that first-line -- and certainly less in that first-line setting. And one of the challenges is just that really changing workflows, changing -- making sure that patients aren't lost in the cracks, so to speak, in between what the pathologist is doing and the diagnosis and the testing and what the responsibility of oncologist is in terms of additional biomarker testing. So a lot of it is really kind of changing the perception in terms of whose responsibility it is and really making sure that the system is -- it's kind of adapted and fixed in a way that essentially, the comprehensive testing almost becomes part of your diagnosis or stages [indiscernible]. That just takes a lot of blocking and tackling at this point. We're at a really good stage in terms of reimbursement, in terms of utility. The second piece is tissue has done a little bit of a disservice in terms of the slow turnaround time. It's something that's considered nice to have in the first-line setting, but because it often takes 3 to 4 weeks, it's considered kind of not a need to have. And that's a big challenge because a lot of these patients -- 50% of lung cancer patients don't get a second chance at a therapy if the first-line therapy is the wrong choice. And that's why it's critical to get it right upfront. And that's why we're very excited by really the tissue offering we're going to be launching soon because we think it's going to help sort of catalyze the space and you really take the reins into our own hands in terms of really accelerating adoption of comprehensive genomic profiling as a whole.

Well, actually, we participated in a panel on Monday with our biotech analyst, and it was a lung cancer panel on targeted therapies. And they were certainly of that same idea that their tissue will always be there, but they just say like, "We want liquid more and more on this one." So I think doing the comprehensive offering makes a lot of sense. And certainly, they were also coveting about the turnaround time on the tissue samples. It's just way too longer than it needs to be. So definitely hearing that from the clinicians in the field. So Helmy, one of the -- you were a first mover in this space and -- but there's a lot of other companies that are following on. I think in the last 9 months, Ivy and I have probably done 100, 150 liquid biopsy calls patients. And one of the questions we still get from investors is what separates out Guardant from its followers and sort of like how are you differentiated? Because I think there's a lot of confusion out there in the market. And so if you've got a short answer, that would be great.

Well, it's a long list of what separates us, right. It's people focusing on the technology, and there's certainly, I think, a differentiation in terms of the technology that we've developed and continue to invest in just in terms of performance, sensitivity, specificity and all of those different pieces. But I think the long pole in the tent is in all the other aspects of what it takes to take a technology from something that works in the lab to something that's actually changing clinical outcomes and adopted by physicians. And there's 200 peer-reviewed publications now on Guardant360 and the different applications. There's obviously FDA approval of which there's only 2 tests now that have liquid biopsy approvals in the field. It's all the pharma collaborations we have. It's a nearly 10,000 oncologists that now are familiar with Guardant360 and have ordered it out of the 12,000 or 14,000 that exist in the U.S. It's been in the market for 7 years, and the nearly 200,000 tests that have been processed and run. And there's a data aspect of it as well because we've run so many tests, it kind of cycles back to the technology where it's gotten better over time because of what we've learned. And so it's really all of those different pieces, and it's why healthcare is hard. It's not just build it and sell it, there's third-party payers, there's all of these different pieces in between to actually build the business out of it and that's what we've done over the last 8 or 9 years now.

Great. Let's turn to a little bit some more specific questions on the business to start on G360 and omni. I think most of the controversy from the last couple of quarters on the stock has centered around ASP trends, pricing trends. Could you remind us the puts and takes for the ASPs, both for the near term and the longer term? I just think there still seems to be a lot of confusion on what's going on right now.

Mike, do you want to take that?

Yes, sure, Derik. I mean, first of all, I would say what we said is probably for the remainder of this year, we expect our ASP on Guardant360 to be relatively stable around the $2,600 mark. There are some puts and takes. I think the biggest put is that from 1st of April, we received the ADLT status, which then sets the Medicare rate for 360 CDx at $5,000 per test. And since 1st of April, we've been building that code, and we started to see those $5,000 payments coming. So that's very much a positive for us. I think that the take on that is there are some payers who have noncoverage policies on 360. That's mainly the likes of United, Anthem and Aetna. And although they have noncoverage, we still do get paid on occasion by them. So we do have some revenue from that. We know that when we change this code to the ADLT's specific code, it's likely that they'll start denying the payments, and we'll probably start getting 0 payment for some length of time. And so we know that, that -- we expect that, that will sort of offset the upside from the increased Medicare rate, I think over time, and as we sort of drive coverage through 360, and we see a positive increase over time for the rate. But I think for this year, with the puts and takes, it will be about $2,600.

So it goes back to the point of just where it sort of like start the conversation of why are the payers still resistant to basically pay for it. I mean particularly in certain cases, like lung, I mean, it's just so freaking obvious, that you want to do this. Why are they sort of like -- what do you have to do to educate them as we get them off over the hump?

So there's a big sense that all you need is a handful of genes in these cancer types. And so the payers who are still on the sidelines are only paying for tests that have 50 or less genes. And that's basically, I think, are sort of tends to pay very low rates for those types of animal tests. And the field has just evolved in terms of really needing to look at a larger swath of genes, certainly kind of more complex biomarkers and so on. And so unfortunately, it's penny wise and pound foolish. And there's a sense that a lot of these payers can save money by pushing down on diagnostic testing, when in fact, I think most of the money savings, at least from liquid biopsy and from our test, comes not from biopsy avoidance, which we do save money, but really comes from the more effective utilization of downstream therapies because there's so much kind of ineffective therapy usage, especially these expensive immunotherapies upfront. By testing upfront, if you're -- even though it's a multi-thousand dollar test that you're paying for, you may be saving -- we estimate that you save about $10,000 to $30,000 in average per patient because of the more effective utilization. And you see an outcome improvement because you're picking more appropriate therapies. So that data, I think, is eventually going to get there, but it's a more, I think, nuanced argument. And right now, it's easier to demand first and ask questions later.

Yes. I mean how much of that, though, is just because there seems -- still seems to be some confusion in the physician community? I mean, as I said, referring back to our panel discussion on Monday, I mean, they certainly were more -- the 2 docs we had there were certainly more of the smaller panel-targeted approach versus the larger panel. I mean that was certainly their bias on this one. So I guess is that why the payers -- it is like they're getting mixed signals from the medical community?

Yes. I'm sure there's some of that, but we're seeing a lot of encouraging signs. I mean, we're seeing some states now adopt [indiscernible] that requires coverage for all of their -- for everyone in that state, oral cancer patients for comprehensive testing upfront. And so there is -- we think there is -- there are a lot of steps in the right direction. Every advocacy group, you ask physicians in terms of is this appropriate and so on. And the pendulum is swinging very much in the direction that CGP really are -- should be or is soon to be a standard of care. So we think it's just a matter of time. And we and many other companies in this space are applying a lot of pressure to really see that happen.

So a couple of more questions before I want to move on to MRD. How are you thinking about the distributed kit models for targeted markets? I mean this keeps coming up in some of our conversations with KOLs, particularly as you think about the -- thinking about developing these as companion diagnostics and maybe those are a little bit more amenable to international markets. So I guess a couple of questions on that one there is like, one, is the kit-based model, maybe for that international market, a better option than some of the clean lab stuff that's out there? And the second one on that one, I mean you clearly have done technology transfers. You've got your MD Anderson lab out there. So it's not like -- it's not you can't do it. So I'd just love your sort of thought on this one, like how do you expand a little about that aspect, yes?

Yes. I mean, we were not religiously would to one mode or another. I think there's a time and place for kind of each modality. I would say that there's -- certainly, internationally and globally, I think decentralization makes a lot of sense. It's very hard for a U.S. company or a foreign company to really kind of know the ins and outs and nuances of the key stakeholders, how the technology should be used, public reimbursement and so on in each of these different countries. And so we've really taken an approach where we partner essentially with a lot of the key stakeholders in each of those regions. We announced a deal with Vall d'Hebron, a partnership there, really a public-private partnership where, essentially, we're building a lab there, and they'll be able to run Guardant360 in their institution. And I think we'll do the same thing in other places. We're building a lab in Japan in Tokyo, and that should be up and running very soon. And so what we found is really the best way is to really be part of the health system, really be embedded. And we think that's ultimately going to lead to hopefully much better outcomes, since diagnostics traditionally, ex-U.S. hasn't been the brightest spot in terms of the industry. And so we're going to do it in a different way based on kind of past successes and failures of other companies in the space, and so we're very hopeful this will work. I think there's a place for it here in the U.S. eventually. I think the key milestones are, I think, very broad reimbursement and pretty clear kind of standard of care usage in terms of these types of assays. And I think there has to be a simplicity to the workflows such that dissemination is possible. I think some of these workflows are still fairly difficult, especially if you start pushing the envelope of turnaround time and capabilities and new biomarkers and so on. I think the counterargument is that the space is continuing to evolve very rapidly. There's still a high slope, so to speak, in terms of capabilities of these tests and the breadth of these tests. And that typically doesn't favor kits, which typically favor something that's more static, especially if you're going through an FDA approval.

So I've got a question from a client. They want to circle back on the ASPs, basically want to ask what the denial rate is that you stated.

Well, I don't think we specifically talk about the denial rates. I think there are a lot of the payers now that have positive coverage decisions and that we're contracted with and we have over 200 million lives covered. So I think for both payers, we're getting regular and consistent payments. It's really on the larger payers, again, the United [ Santner ] have these noncoverage, I'll say that. I'd say most of the time, they are at least initially denying and we're appealing that sometimes we get paid. But I don't think we need to go into the specific denial percentages on overall testing.

Got it. So I want to go on to -- just I'm getting some questions from clients, I want to go on and talk about MRD Guardant Reveal. Can you remind us on the time line for additional Reveal data sort of like the next regulatory steps something like that one? And then I have a specific -- very specific question from a client on Reveal.

Yes. So I mean we launched it just a few weeks ago in February in colorectal, that's cleared, certified, and accredited. And right now, we haven't disclosed plans to go through FDA approval process for that. I think it's doing very well right now as an LDT and, it's something that we're seeing a lot of traction in the field in terms of both new users as well as users who have used some of the other ctDNA tests that are out there. And so I think we couldn't be more pleased with this kind of the current state of the launch and what we're seeing in terms of its reception.

Got it. So the very specific question from client. Can you please ask Helmy for clarification on the CRC paper stats? Latitudinal sensitivity of 69% versus surveillance sensitivity of 91%. What's the difference between these metrics and the critical significance of one versus the other? Which is a better apples-to-apples comparison versus Signatera's 88% and 93% first in circulate? So very specific question.

Yes. So there are 2 data points. I would say the more important one is -- or the one that's often critical is, where the decision is being made by the physician. They're clearly ordering a test for a reason. If it doesn't change their behavior, the test doesn't have much added value. And so when you think about it from the patient and physician perspective, it's really after curative surgery or after curative adjuvant chemotherapy, right, really, right at the beginning of the "cure" of that early-stage patient. And so that's defined as what's called the landmark time point in the field. And what we're seeing is we have somewhere around 56% to 60%, 63% sensitivity at that time point and other tests that are out there are at the 40% level. So we're seeing significant outperformance at that landmark time point with very high specificity. I would say that -- and that kind of translates into the performance, frankly, across all other metrics. And so with that metric alone, you can really see kind of how sensitive that test is, how well it performs. Surveillance sensitivity is sort of taking many shots on goal. So you're basically saying I'm testing this patient at a regular interval, and one of those tests turns positive basic and inflammation recurs, you've gotten many shots on goal to essentially see that patient's cancer develop, hopefully before radiographic imaging. And so it's like flipping a coin. You may have a 50% probability of the head. Me flipping 8x, you probably have 96% probability of seeing a heads one time. So not exactly the same analogy, but it's kind of similar in the sense that you get many shots on goal. The cancer is growing, and so that's why surveillance sensitivity tends to be a lot higher. But it also masks the true individual performance at a single time point, and that's why that landmark one is where you are really going to see differentiation in the different technologies.

Got it. And just some more general questions on this is how should we think about reimbursement for this, your pricing? Just sort of a question on sort of like the mundane metrics.

So we're very happy where we are in terms of discussions on reimbursement with Medicare. I think we mentioned that we think by end of the year, we should have both coverage and pricing for Reveal. We're hopeful maybe something could happen sooner, but obviously, we have to let that play out. And then we're also, I think, very pleased with the data we're seeing in other indications as well, and that's something that I think will certainly expand in the not-too-distant future in terms of other cancer types. I think the private payer side will be a longer road. If they're not paying for comprehensive genomic profiling in late-stage patients where clinical utility is nearly self-evident, it's probable or likely that we'll push back on -- at least in this early stage of the MRD, kind of where testing is in the MRD space. I think we're going to be in this early adopter phase, I think for some time, until we see broad reimbursement and guidelines inclusion. But that's why I think we're investing heavily in these pivotal studies like COBRA and Stand Up To Cancer and so on, but we believe can move the needle. There's also a lot of work that's going on with pharma as well, but I think if any of those drugs hit the adjuvant setting that are biomarker directed, I think that will move the needle as well. And so it's just a matter of time and how fast or slow that adoption curve happens. I think it's going to depend on really private payer reimbursement and guidelines.

Great. Let's -- so as the time is running short, let's move on to early stage [indiscernible]. Can you update us on sort of the ECLIPSE trial standpoint where it is right now? And I guess, what's the threshold for commercially viable screening tests that you think could -- it takes to displace Cologuard?

So yes, time line, I think we launched it November of 2019. We said that it should take 24 months -- or should finish within 24 months, and we've -- I think the team has just been really worked tirelessly to make sure we keep it within that timeline. And so we're still committed to that 24 months despite some of the negative impact we saw from COVID. The team really expanded the number of sites from 100 to 180 plus, and that's gone a long way in terms of speeding things up and making up for lost time. So we believe that it will be one of the first to complete in terms of those blood-based CRC screening trials. And so it's something that I think we're very pleased in terms of where we are sitting versus the competition. The second question, the second part of the question?

I think, basically, it's like what do you need to see in terms of performance data? Yes. Basically I mean the big question right now is like everyone assumes the test is going to be better than it's at by that sort of seems obvious. [ Multiple Speakers ] Yes -- exactly. So that's a given. I think the big debate right now, is it going to be good enough for Cologuard and also sort of what you're sort of seeing in the pre-cancers, right? I mean those are the 2 questions that sort of I get -- we get almost on a daily basis.

Yes. So I would say that what's important, so the data we're seeing, obviously, has been fairly good. We've been seeing, I think, in the past conferences 90% sensitivity with 95-plus percent specificity. And so obviously, we're in a good place, at least in terms of those early studies. We have some data at ASCO that we'll be presenting. And I think a lot of what we're trying to do in these kind of studies out in ECLIPSE is really kick the tires, so to speak, really try to assess potential risks there may be in these case control studies, and we're really kicking the tires on 2 issues with the ASCO data that we're presenting. Really, the danger that asymptomatic patients that are diagnosed with CRC have potentially much -- they may be much harder to detect with these blood tests tend to be cancers that clearly, a patient doesn't know they have, maybe smaller and so on. There's been some other data sets that have suggested that sensitivity declines dramatically -- not by us, but by other companies in the field. And so we've been very pleased with how the data kind of came around. And so I think stay tuned for that in our ASCO presentation. And then I think the other piece is just you used to have a risk of overfitting when you have these small data sets and a lot of what's been presented in the past are tens of cancer patients in terms of some of these early studies. And this is going to be one of the most sizable studies, I think, presented today in blood in terms of CRC positive patients. And so that hopefully gives some confidence that this is not something that is cohort-dependent or over fit and so on. So those 2 aspects are going to be really good. I would say kind of what's going to make or break this type of testing? I think modality is going to be huge, blood versus stool versus colonoscopy. That's just a huge compliance promoter in terms of something that's easy to do, I think, positive rating by USPSTF is going to be critical. Essentially, that allows health systems to comply with essentially their star ratings or HEDIS quality measures and so on. And then reimbursement is going to be significant, having 100% reimbursement, no copays, these types of tests just don't have a -- they can't withstand a lot of friction from a co-pay or cost point of view. And then I think you certainly have to be in the ballpark of what's out there. But I don't think necessarily 1% or 2%-point differences is going to make a big deal when you have those other 3 elements.

Got it. And so assuming you get the data, and then your '23 time line, sort of like your commercialization time line sort of goes in that timeframe of '23, I mean, would you expect I mean to launch it -- when would it be sort of like up for USPSTF guideline inclusion? Or like would they do an off-cycle review in that sense? I mean do you think it would take longer to sort of get it in guidelines?

Yes. And I think the baseline, they don't do anything is probably 2026, in that timeline, which I think we're comfortable with. But I would say that we're certainly going to push for an off-cycle review. We hope the data is compelling enough. Its indications that, if it is compelling, they would consider that. And I think there are enough interested parties in this space out there that I think there could potentially be some streamlining of the process and maybe some acceleration in terms of how some of these reviews are done. And so I think there are many groups, including ours, that are looking into how do you make -- how do you impedance match the review cycle with the amount of investment that's happening in the industry, which is at an order of magnitude that hadn't existed before? I mean these tests were very rare in terms of the amount of investment and money and mind share and resource that's happening. And the fact that it's 10 or 100x more than it has been historically now, I think dictates kind of a pathway that I think is impedance matched to that investment.

Got it. And I guess one question on how do you expect to price LUNAR-2 -- or the test -- a 3-year testing interval and sort of like kind of thinking about COGS on that test?

Yes. I mean I think you can take 3 years, around $500, $600 per test is sort of a baseline. And yes, we feel very comfortable in that price point in terms of where our COGS would be at high volumes.

Got it. Looks like we're out of time on that. Helmy, Michael, thank you for participating. Have a great conference. Investors, thank you for listening, and we appreciate your support. Thanks, everyone. Have a great rest of the day.

Thank you, Derik. Thank you, Ivy.

Thanks, Derik.