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

Got it. That's helpful. And that segues into my next question. I guess do you have any color on where reimbursement levels could shake out for the test?

I think some of that, I think, information is out there in terms of where some of the other tests have shaken out, and I think we're confident that we can be in a similar range over time. But I think those are discussions we're having in terms of pricing in the -- and so I think -- if you think about longer term, in terms of where things are kind of modeled in terms of our total addressable TAM, a $15 billion market in terms of MRD specifically, that has an assumption of 15 million cancer survivors at about $1,000 a year. And I think the good news is that where we think things can trend is potentially even higher than that and with potentially higher frequency than is modeled into that. So I think there's certainly a lot of upside there in terms of the opportunity around MRD.

Okay. Can you comment on what percent of tests -- I know it's early days -- but what percent of tests are being reimbursed today?

So right now, our Medicare policy is not final. So that's obviously something that's still we're working towards. And I think we've mentioned in the past that we're hopeful that we'll have something to announce there by end of the year. We think commercial payers will take some time. It's really going to require clinical utility data, showing that, essentially, the data that we provide and that others provide in the MRD setting actually leads to better outcomes, either prolonged disease-free survival or other outcome measures. And we have trials underway that will assess that with COBRA and PEGASUS, pretty significant trials that we think would be practice-changing once they read out. And we have other engagements as well with pharma and so on that we think will be helpful in terms of establishing that utility and establishing broad reimbursement over time.

Okay. And just one on the regulatory strategy. Do you plan to seek FDA approval for the test? And if so, can you comment on what you think timing might be there?

At LDT, right now, there's really no necessarily need for that to be an FDA-approved test. That's certainly something that we have experience with, obviously, with Guardant360 CDx, which was the first FDA-approved liquid biopsy, NGS-based liquid biopsy. So it's something that we'll continue to assess the needs for over time, but it's certainly something that we certainly have the prowess and core competency to do if needed.

Great. And just last one on MRD for me. Helmy, you had mentioned the potential to expand outside of CRC indications. Can you give any color on what potential next indications might be and timing around those efforts?

Yes. So I think as we've mentioned on, I think, a number of calls now, we have really compelling data around bladder cancer, on lung cancer, on breast cancer. And I think those would be the -- in the near term in terms of potential expansion. We're working on many other cancer types as well. But it's a process that would take months, not years in terms of expansion to other indications outside of CRC.

Got it. And I guess when we think about Guardant and the balance for investing for growth and achieving profitability, what level do you think that the company's steady-state margins could be long term? And what is the timing to achieve that?

Yes, I can take that. Yes, I would say we always have a very close eye on the margins and profitability. But at the moment, we're heavily in investment mode, both on the oncology and the screening business. I think if I look at the oncology business, our gross margin is, at the moment, sort of mid-60s. And we think that, that can absolutely continue. And as we begin to get reimbursement for the newly launched products and volume ramps up, I think there's a lot of leverage that we can gain from the OpEx side. We've built out the commercial infrastructure. We have a very strong commercial infrastructure now on the oncology side and a very well-defined research and development group. So I think there's a lot of leverage that can start to drop down to the bottom line as we build up the revenue. On the screening side, obviously, we're going to be investing in that over the next few years, and it's going to take time to get the product FDA-approved, launched and reimbursed. So I think the time line to profitability on the screening side is longer, and it's at least sort of 5 years out.

And I guess looking at M&A strategy, what would be the size of a deal that the company would be comfortable in doing? And maybe what areas would you target if you were to look into M&A?

Clearly, we have a lot of cash on the balance sheet. It's an area of our business that we've continued to invest in, in terms of building up our corporate development team. We're looking at, I would say, at least a dozen or more opportunities every month. So we're very active there. That being said, we have a pipeline that, I think, is very enviable in terms of everything that we have within our sphere already, in oncology, in MRD, obviously, there and where we are in therapy selection and, certainly, screening and some of the newer things we're in, in, like, real-world evidence and real-world data. But I would say the types of acquisitions we're looking for, potential targets, are anything that can be plugged into the current channel we have. We have, I think, very robust and a huge asset in terms of the oncology channel that we've built. Certainly, anything that can increase our probability of success in any of the core initiatives we have at Guardant. And then we're also, I think, dipping our toes into potential adjacent markets. And I think -- you saw the investment that we made in Lunit, which is really around the AI field, radiology and pathology space, and we're very excited to partner with them and think about, over time, what are some of the synergies that could emerge from our business and theirs. But it's something that we're active in doing. And the bar is high, but I don't think it precludes really anything that could meaningfully accelerate some of the work we're doing in terms of really reducing mortality on oncology. And that's -- if we can do something that accelerates that and accelerates revenue, accelerates penetration into the market, it will certainly be something we would consider.

And can you discuss the current and expected future competitive landscape on liquid-based CGPs?

Yes. So it's clearly a market that we entered in 2014. I think we launched the first NGS-based clinical liquid biopsy back then. And so we've been in that market now for 7 years. We continue to be in a leading position there. And it's very exciting to see what we've built over the years. We continue to, I think, be really pleased with where we are across really every aspect of what it takes to be competitive and to be successful in this market. And that's starting from where the technology sits in terms of performance, in terms of sensitivity, specificity, biomarker coverage. We believe that our product is still by far a, I think, leading product in that space. The performance, we think, is at the best level that exists. And that's really translated that -- the time that we've had in the market has translated to a mountain of clinical evidence, over 200 peer-reviewed publications, regulatory approvals, some of the relationships we have, reimbursement that we believe is really very broad and very comprehensive. And all of that, I think, has led to, I think, a very strong position where we sit. And I think one of the most important catalysts going forward is really the launch of these new products that we have with TissueNext and with Response. A lot of what we've done over the last 7 years is going from 0 to 1 in the liquid biopsy space, really trying to stand shoulder to shoulder with some of the existing approaches, whether it's hotspot testing or tissue testing. And TissueNext, I think, is going to help with that blood-first paradigm, that shift, that conversion that we've been trying to implement. And we think it will be a catalyst for that. But as critically, we see, I think, an ability to usher in a new type of medicine, really adaptive management of cancer patients and really thinking about how do you proactively manage patients, move them on to the more effective therapies as their previous therapy starts scaling. And that's really where Response comes into the picture. This is really where tissue really can't play. You can't come in and see how the patient is doing in real time. And I think Response finally builds on the promise and the vision we had around liquid biopsy 7 years ago, and we think it's going to be a very important driver for the business going forward.

And I guess, talking a little on Guardant360. Can you talk about the split today between the G360, CDx and the LDT version in terms of clinical volumes and revenues?

We actually don't split that out, but we're seeing very strong adoption of both products. So it's something that -- I think the feedback we're getting and certainly the volumes we're seeing, I think, validates the approach and the thought process around segmenting our portfolio with the CDx product as well with the LDT.

Got it. And on the CDx product and reimbursement, any way to think about the likelihood or timing of some of the larger outstanding commercial payers who don't currently cover it when those changes could come?

We continue to publish more data. We have more catalysts and so on. And we're really applying a multimodal strategy, a surround sound strategy to really get these last few payers onboard. And a lot of these payers aren't even paying for 50-plus gene testing, whether it's in tissue or liquid. And so it's not just us fighting the process. It's really advocacy groups, other companies, oncologists as well. And there have been certainly chips in the armor. I think in Louisiana, there was a cancer bill that was passed that essentially requires payers to pay for a CGP testing for all of the population in Louisiana. And I think that's a great first step. And really, I think, the community and the greater kind of stakeholders in the oncology space, really making sure that no patient is left behind either from a testing point of view or a coverage point of view. So we're very confident that it's just a matter of time before we get those payers onboard. And we have a lot of initiatives underway that, I think, will help make that happen.

And I guess adding on to that a little bit, is there any plan to increase the biomarker content for the 360 CDx, more similar to the LDT version? And what kind of impact would this have?

Yes. So you could think of these 2 tests as really being 2 trains that are continuing to move. Both tests will continue to be upgraded and enhanced over time. We want to make sure that essentially, we're not missing biomarkers for patients that could be actionable and could really change the trajectory of their treatment and their outcomes. And so the LDT train allows us to essentially move at a very rapid pace and keep updating that test as new biomarkers come out. And you could imagine the Guardant360 CDx sort of being a slower train but eventually something that may look similar to a fast LDT. So we see the 2 really playing off each other and really, I think, segmenting the market in a way that makes sense where LDT will be something that's more forward-looking and the CDx covers, I think, what is actionable and what is absolutely necessary to provide patients with a guideline complete treatment.

Got it. And I guess any update on the uptake or outlook for Guardant360 for treatment Response?

Yes. No, it's been really exciting to see as well. We're seeing that essentially, because it's really on the same test acquisition form, it's something that can be ordered really as an add-on to Guardant360. It's something that, I think, is very compelling. It's something that, frankly, a good subset of our oncologists already have some partial experience with in terms of really thinking about the longitudinal nature. But there's a lot of education involved as well in terms of really educating about the fact that liquid biopsy that Guardant360 -- specifically, the Guardant360 Response really can, I think, provide that kind of information that they typically would get from a CT scan at 3 months or 6 months. It's really to be able to provide how the patient is responding to therapy in just a few weeks after treatment initiation. I think it's an exciting development. And so we're really going beyond those early adopters who helped us validate some of that technology. We have 40 peer-reviewed publications around that support Guardant Response and support that application. So I would say that to sum it, we're really seeing running start with the launch of Guardant Response, and it's something that I think will pay dividends over time as we continue to educate and more physicians start using it. But it's really, I think, surpassed any expectations we've had so far.

And on Guardant360 for tissue, I guess why pursue a tissue-based approach? And how will this be used versus the current liquid approach?

Yes, that's a great question. The Guardant doing tissue is really wasn't a matter of if, it was a matter of when. And it's something that we've always knew we would enter into in terms of that foray. And what we realized when we launched Guardant -- or when we started developing our TissueNext product was that a lot of patients are being left behind, a lot of patients that are only on that kind of tissue track. Unfortunately, because of some of the logistical challenges around tissue, the fact that something like 50% of patients where a tissue CGP test is ordered, that information is not using their first-line treatment decision-making. And so that really provides no value to those patients and to those physicians, they're ordering the information and ordering the test but not using it. And so this is really where having a tissue test that essentially gives the confidence to a lot of those physicians who have yet to jump into the liquid pool, so to speak, it really gives them that confidence to essentially try liquid first. We're going to scour the earth, and if they don't find -- if we don't find anything on the liquid side, we'll reflex the tissue. And so having an integrated approach where you combine really the best of both allows us to provide an integrated product in terms of Guardant360 and the Guardant360 TissueNext where in 80% of patients, we find the results in half the time of a tissue-based approach or even faster. And end-to-end, we find something like 30% to 40% more biomarkers than a tissue-only approach. And so it really provides the best possible medicine, both in terms of speed and comprehensive biomarker detection rates over kind of the existing approach that are out there. So we're really seeing that resonate with the field, and we think it is going to capitalize adoption of the blood-first paradigm that we've talked about now for a number of years.

All right. Thanks, Helmy. Just wanted to shift to biopharma. So today, you're working with 80-plus customers. And I think you've mentioned recovering from COVID-induced shutdowns. It remains a key growth driver in the second half. But just beyond this, can you talk about how we should think about the opportunity in biopharma from a broader level? And then from a growth perspective, do you think it's more of a kind of steady-state growth, steady adoption? Or can we see any inflections in growth as more customers adopt CGP in the near to midterm?

Yes, it's a great question. So we see that the penetration of liquid biopsy in terms of clinical trials and companion diagnostic development is still at its infancy. I think a liquid biopsy approach is still one that is a nice-to-have rather than a need-to-have for many of these trials. So we still see a lot of potential there. We think -- if you think about the catalysts in the future in terms of driving that business, we certainly think that post FDA approval, we're starting to see that pipeline in the companion diagnostic side grow. We certainly think, hopefully, as COVID eventually fades into the backdrop and it maybe becomes endemic, it's something that we'll start to see, I think, a further recovery of kind of sample testing business. And then certainly, new products, as we launch new products, certainly Reveal and Response and so on, we believe those will be important drivers not just on the clinical side but the biopharma side as well. I think we're only just scratching the surface in terms of some of the clinical and certainly translational applications of this type of technology. And our pipeline is very robust in terms of kind of new products that will come out. And I think it will be very important in terms of really driving kind of the sort of new generation of oncology drugs. And we're only -- we have relationships with 80 biopharma companies, but there are many, many more companies out there that are developing products as well. And so there's a long tail of companies that we're starting to have discussions with that I think where we can really help their programs move even faster with our portfolio.

We're almost out of time here. Maybe just for the last question for maybe Helmy and AmirAli. What do you think is most misunderstood about Guardant Health?

That's a great question. We obviously have already a broad kind of portfolio right now in terms of all the things we're working on in therapy selection, in the recurrence monitoring space and, certainly, with screening. And within each one of those, our business is complex. And I think we've taken a unique approach where we've been very systematic and very iterative in terms of how we've developed products. Even though we've always had a vision of a simple blood test and an annual physical for screening and for early detection from day 1, I think it's very easy to pigeonhole Guardant into one of these baskets. And that's where I do think that over time, as we start launching projects in each of these spaces that I think it will be clear that this kind of systematic and iterative approach where we build things is really the one that I think is going to prove itself as the most expedient and I think successful, frankly, in terms of really launching these breakthrough products and changing the paradigm of oncology care.

Great. Well, with that, we're out of time. Thank you very much for participating today. Thanks. Bye.

Thank you. That's great.

Thanks for having us.