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

Good afternoon. My name is Brian Weinstein, and I'm the group head of life sciences here at William Blair, and I am responsible for coverage of Guardant Health. Before we jump into all the fun stuff and get into a good fireside discussion, I am required to inform you that for a complete list of research disclosures or potential conflicts to please visit our website at williamblair.com. Logistically, the format, as I mentioned, is a fireside chat between me and the management team that will last for approximately 30 minutes. We have a set of questions prepared, which we are hoping to get through. [Operator Instructions] We will try and keep an eye out for it but cannot guarantee that we will be able to get to questions given the short time that we have with the management team. With that, let's jump in. We are fortunate to have the company's CEO, Helmy Eltoukhy, here as well as the company's CFO, Mike Bell. Good to see you both. Thank you so much for spending some time with us today.

Thanks for having us.

Of course. So as this is a growth stock conference and really not a health care specialist conference, I thought we would start by really having you give an overview of the business because we know there's a growing interest in this space and that's bringing new investors to the story who may not fully appreciate what the company is about, the technology you use and sort of where you're applying it. So maybe a 5 to 10-minute Guardant one-on-one, if you will, overview would be appropriate as a way to start out here.

Sure, Brian. Yes, happy to do that. So we are really a leader in what's known as a liquid biopsy space in oncology. And liquid biopsy is a very broad term as it's shaping up to be. There are really 3 distinct segments in this space. And if you think about the cancer population and some of the indications that are, I think, most interesting, the first is what's known as therapy selection. That's where you have a late-stage patient, let's say, stage III, stage IV cancer patient, who essentially needs to be matched to the most precise therapies, the whole new class of precision medicine therapies, targeted therapies, immunotherapies. And really, the only way to properly treat these patients is to understand the underlying genomics of the tumor itself, really sequencing the DNA that's there. In that indication, before liquid biopsies really the primary way of getting that information was through a tissue biopsy often surgery. That's -- in lung cancer, just to give you kind of a flavor for how invasive it is, it's about a $14,000 procedure, 19% complication rate and 1% mortality rate. And we launched the first comprehensive liquid biopsy in this space back in 2014. That's called Guardant360. And essentially, the Guardant360 replaces that procedure with a simple blood draw. So a simple tube of blood, and you can get essentially all of the information that's driving the tumor and match that patient to the best effective therapies -- or most effective therapies. And that test works for all solid tumors, breast cancer, lung cancer and so on. So that's that first bucket of advanced cancer patients. The second major indication for liquid biopsies are what's known as the recurrence monitoring or MRD setting, minimal residual disease setting. So these are typically earlier-stage patients, stage I through stage III that are potentially curable through surgery or through some adjuvant chemotherapy. The big question or the big dilemma for those individuals is, was the surgery successful? And is their cancer going to come back? And there are not really good follow-on tests for those patients, those 15 million cancer survivors. So this is -- give you a perspective on the numbers as well, there are about 1 million late-stage patients, 700,000 to 1 million. There are 15 million cancer survivors. So it's a much, much bigger segment of the population. And what technologies like ours can do in this setting is really give a more of a definitive sense of whether the patient's cancer will come back or not. We can essentially use that same liquid biopsy platform, take a test a couple of weeks after surgery and really see -- if we see traces of the cancer there in blood, that patient has nearly 100% chance of recurring. So these are very, very accurate tests and that I think are going to change the nature of how cancer is managed in that setting. And then finally, the last bastion of liquid biopsy or at least the one that multiple companies are developing is screening. So this is the exciting kind of area that applies to everyone who is asymptomatic, has average risk. We're developing a test for colorectal cancer screening initially, will expand to other cancer types. And so we have a 10,000-patient trial that's comparing head-to-head our blood test, our liquid biopsy with a colonoscopy. And if that's successful, our test would potentially be another option for those that are between 45 to 84 to be able to be screened. So that's a population of about 100 million Americans. So we're going for a successive geometric scaling from 1 million to 10 million to 100 million. And we have active programs across all 3, but it's been -- this is an exciting year because all of those areas will either be in late-stage development or commercially launched by end of this year.

No. That's great. And that transitions really nice into kind of a series of questions that we're asking all of the management teams that my team is speaking to this week. And that's around kind of key catalysts for the next 6 to 12 months, so maybe we can get a little bit more granular on those different opportunities that you have and kind of where they all stand over the next 6 to 12 months. And then we'll go into a couple of the other kind of more scripted type of questions before kind of going into some of the other areas.

Yes. So I think one catalyst, we're kind of in the midst of with Guardant Reveal. So this is our test for MRD, for cancer occurrence, initially for colorectal cancer patients. That relaunched a couple of months ago. We expect to get Medicare approval by end of the year. So that's going to be a big milestone for that segment. And we're also presenting data at ASCO around bladder and lung cancer from that platform as well. So stay tuned. The second, I think, major milestone for us is completion of the ECLIPSE trial. That's a 10,000-patient trial that I alluded to. We started that in November of 2019, and we expect to remain on track for completing that within the 24 months we outlined. And so certainly, by Q4 of this year, we should finish enrollment. And that's clearly kind of a huge milestone for the company and I think for the industry as well in terms of having such a major trial completed. I would say that the upcoming launch of our tissue test, we're launching a tissue biopsy sequencing test in the -- or comprehensive genomic profiling test in the therapy selection space. We think that's going to go a long way in terms of catalyzing this blood-first paradigm that we've been promoting. This is an idea of rather than wasting and spending a lot of time on shipping tissue back and forth and getting all of these results from an invasive biopsy, start with blood where it's much faster, it's much easier, it's much less invasive. And if you don't get results from that test, then integrate some of the tissue results kind of in the background. And we think that integrated approach is going to go a long way in terms of really moving a lot of those physicians who are still in the sidelines to embracing, really using liquid biopsy and more specifically, Guardant360 on a day in and day out basis. I would say those are the major ones. And we have a lot more work going on in the background and many other programs. But I would say those 3 are probably the biggest ones for '21.

Will we hear anything later this year about other areas within screening that you're looking to move into? Will we formally hear what that looks like later this year?

Yes. I think by end of this year, that's another good one, Brian, to point out, is we should be able to share, I think, in more detail, some of the plans around expansion of our screening program from colorectal to other cancer types.

Will that be in the form of some internal data or just communicating these are our next targets?

I think you can see -- I mean, certainly, the latter for sure. And I think in terms of data, we're dependent on some of our external collaborators. So -- but the data will come at some point.

Good. And we're definitely going to delve back into those here in a second. But I wanted to ask another question around kind of the recovery that you guys are seeing in your end markets. As we sit here, somehow already in the early part of June in 2021, the year has really flown by, I'm just wondering if you have any update as to kind of what the trajectory of the business looks like through May, if there's any update that you're we're willing to provide on that? And how -- what you're seeing now is sort of influencing what you're thinking about for the back half of the year?

I think what we're seeing now is really in line with the expectations that we shared at our previous earnings calls. I think it's really heartening and great to see vaccinations working and cases plummeting. And a lot of our forecast was based on same things really return near normal in the second half of this year, and it feels like we're on a glide path towards that actually happening. I would say that the challenges, I think, we saw in the early part of the year was, I think, primarily due to office closures and limited access. We saw about, I guess, 85% of offices closed in January, and we saw that improve to about 65% at the end of the quarter, and you continue to improve now. So we saw weaker January but a very strong March and very strong April. And so I think we're seeing really that kind of office openings really being a leading indicator for kind of how aggressive we can be with the business. And so we feel very happy with how we performed despite those office closures. We, I think, built muscles we didn't have around remote selling and virtual engagement. And I think those aren't going anywhere. I think those are going to be -- I think that channel is going to be one that I think is pursued by us and certainly many in the industry for years to come. So we definitely see a silver lining there. On the pharma side, I think that's an area that I think we continue to see some challenges with COVID, I think. And then the bright side, a lot of the trials that were delayed in -- or paused in the early part of the pandemic came back online certainly by second half of last year. And then we saw essentially that while the trials are on, I think patient enrollments are still depressed, especially in the oncology space because the trial sites tend to be limited in terms of geography, and the willingness and desire of patients to travel a couple of hundred miles is still not quite to pre-COVID levels. I think we also outlined that by second half of this year, we expect that to return to normal. And I think we still expect to see that. That being said, the pipeline is looking very strong. It's never been stronger in terms of what we're seeing with the, I think, 70 pharma partners that we work with now. You can see the development services line in terms of the companion diagnostic work we're doing has really number have been stronger as well. We're seeing continued growth. We're very pleased with the recent companion and diagnostic approvals we had in those last 2 weeks, back-to-back approvals with Amgen's KRAS drug as well as with Janssen's exon-20 insertion drug as well. And so it's very exciting to see that and that's just the beginning in terms of the strong pipeline we've developed there. And we believe that is really a leading indicator in terms of the strength of the pharma business as well.

Yes, absolutely. Going back to the catalyst side. Is there anything on the -- from a companion diagnostics perspective that we should be thinking about in the back half of the year? Are there more that are more near-term that might be coming here for you?

Yes. I think we've announced, I think, collaborations with Daichi and Radius and so on. But those tend to be on kind of their own time line. So we don't have a lot of insight in terms of -- we have the broad strokes but not a lot of insight in terms of exact timing. But we're certainly very happy to have these latest 2 under our belts now in the last 2 weeks.

Good. Maybe taking a bit of a diversion for a question that you may not get asked all that often, but I am curious about anything with the supply chain that you're seeing right now. Obviously, we see reports every day or every week about some other industry that's impacted by something you never would have thought of being impacted just a couple of months ago. So anything from your standpoint on supply chain that's sort of raising a yellow flag to you? And is a corollary there? Are you seeing any pricing pressure coming to you as far as input costs going up? Any kind of inflationary pressures that you are seeing on your business at this point?

I don't know. Mike, is going to...

Yes. No, I would say, first of all, Brian, we're not really seeing any supply chain impacts in the business. I mean, we manage that very carefully and very closely. And I think we've done a very good job over the last 12 months or so. From an inflationary perspective, well, I mean, first of all, we are rapidly growing, so that's giving us a lot of ability to negotiate with suppliers. I think also, we've got some very good long-term supply agreements in place with defined price increases throughout the contract. So we're not really looking at these inflationary pressures really changing our perspective on the business or the products that we're producing.

I appreciate it. Another topic you may not get asked all that often but it's becoming an increasingly important factor for many investors is ESG. It hasn't really received a ton of attention, I think, in the sector yet, but clearly, the appetite for investing in companies that have strong ESG policies is increasing. So we wanted to give management teams an opportunity this year at the growth stock conference to highlight anything that they are doing with ESG in terms of actions or activities. And then we'll check in with you on it occasionally and certainly every year at the growth stock conference. But I guess if I just through the topic, ESG, how would you answer it as it relates to the Guardant?

You want to scratch, Mike?

Yes. I mean, firstly, of course, the mission of the company is focused on improving patient outcomes. and so we're very patient focused. And we believe that everything that we're doing is really working to an important benefit for society. And as a company, again, we're really committed to being very socially and environmentally responsible. There's things that we definitely focus on internally, safety and efficacy of the products and services that we produce. We're in a highly regulated industry and we need to follow all the guidelines there. And from a marketing perspective, we definitely make sure that all of our marketing is ethically proper and that we're giving accurate and truthful information. I think one area that we realized that we can improve on is definitely the disclosures that we put out. We do a lot internally, but we can't really talk about it. And I think as investors are looking inwards now at the company, I think if we start to update those disclosures and really show what we're doing can have a bigger impact to the investors that are really concerned about that area.

Yes. I mean, one thing I'll add is, I think we're pretty committed to very diverse and inclusive workplace. We have very good gender kind of the equality and balance in the company throughout -- even at the Board level, we've made a lot of strides there. So yes, this is something we're very committed to, and I agree with Mike we'll, certainly, I think, disclose more of the good work that we're doing internally as well.