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

Okay. Welcome, everybody, to the 2021 Stifel Healthcare Conference. Happy to kick off the life sciences and diagnostics track of this year's event with our session here. And I'm joined by the team from Guardant Health, Co-CEOs, Helmy Eltoukhy; and AmirAli Talasaz; and then CFO, Mike Bell. Guys, welcome. Thanks for joining me.

Yes. Thanks for having us.

It is my sincere hope that this is the last virtual conference that we all do together. But for the time being, we'll make do with our format here. Before I forget, anyone that does have questions during the session that's listening in can stick them into the web chat, and I'll try and keep an eye on -- keep an eye out for those.

And so maybe since the format is sort of a product of the times for us and for you and everyone else, a good place to start, guys, would just be the operating environment and where we are with volumes -- clinical volumes. I went back and looked just to make sure my notes were right. They were up 10% or so, I think, sequentially for 2Q. The outlook for 4Q came in a touch. So maybe we can just recap with where we are in terms of doc visits and rep activity and how you think about things heading into next year.

Yes. No, obviously, in our Q2 call, we had mentioned that beginning of Q3 was getting impacted by Delta. We had seen the previous trend of opening of offices kind of reverse itself in offices closing. I think the good news was that in Q3, it wasn't a continued downward trend of closure as we started seeing things stabilize. And I would say that we've been at this sort of steady state now of about 50% of offices being open, depends regionally. There are some flare-ups here and there. But I would say, plus or minus, we continue to trend in that ballpark. And it's a challenging environment for a number of reasons. When you have a new product, you have products that are still requiring a good amount of education, still requiring a change of habit, it's very important to have those face-to-face interactions, be able to work with the back offices to identify more patients, to be able to train the staff and so on. And it's the same thing with the new product launches as well, having that physical interaction is key. But that being said, despite some of those headwinds, we feel like we outperformed relative to the many others in the space. You look at -- you mentioned the sequential growth, which I think is great to see in this kind of impacted environment. And we think this bodes well for a strong momentum to 2022. And if at some point, knock on wood, we get to a new normal where physician offices can open up once again, and we think that's likely well into kind of second half of 2022, we think we'll be in prime position to be able to capitalize on that and be able to really leverage the investments we've continued to make around expansion of the sales team, expansion of our efforts around digital marketing and on personal promotion, and we think we'll be really able to capitalize on some of those.

Okay. And if you look at where things are most challenging, does it align with where you're seeing spikes in Delta? Or would we be surprised by where it is that some of the trends in the doc visit activity is good or not good?

I think it's -- it aligns with spikes in Delta, which often aligns with kind of political affiliations as well, right?

Okay. Okay. Maybe just on the biopharma side. I mean it's -- I think the natural feeling towards biopharma is that they're more insulated from what goes on COVID impact-wise relative to the clinical volumes. Sometimes it seems like that's true. And at other times, maybe not as much. But it does seem like biopharma volumes are growing nicely here. Is that more of a function of just new accounts or using assays that maybe they hadn't used before? I don't know how Reveal figures into the equation there. But maybe just something to say about the biopharma progression and where you see that going. Mike, if you wanted to comment on volume growth there, that would be great.

Yes. I can start on volume growth. I don't know if Helmy wants to talk about the customers and the partners. But volume growth, we'd said from the start of the year that we expected this low double-digit year-over-year growth for the full year. And we'd seen impact last year on COVID, and that sort of carried on into the first half of this year. But we really bounced back in Q3. We've seen a lot of activity. And yes, laying on top of that, new products like Reveal, we're starting to get traction there. And so I think we're well on track for this low double-digit year-over-year for the full year. And then when we look at our pipeline, it looks very strong going into 2022. So we're feeling very bullish, and we've sort of got past the real COVID headwinds that we had last year. I don't know, Helmy, if you had...

Yes. Maybe just to add, I think that's why, I think, we're fairly confident at the beginning of the year in terms of messaging. The second half would be stronger. And the pharma side is -- we were signing and contracting with pharma throughout the year. And we knew at some point, those samples would come in. And essentially, these trials would get underway. There's a couple of threads to the business. So there's retrospective samples, which tends to have some insulation from COVID or at least it's time shifted. Those samples used to be prospective samples at one point. And so there is a little bit of a lag. And part of the issue, I think, that was there in the pharma space was if you think about some of the large customers that were out there, a lot of them are jumping into the COVID arena, whether it's vaccines or antibodies and so on. And now I think there's a little bit more breathing room. There's more clear who the winners and losers are. And so I think a lot of these companies are kind of back on track in terms of some of their other programs. And so I think that's part of the backdrop you're seeing there. And the overseeing perspective, samples also come back. And so there's certainly an ability, whether it's through telemedicine or just dealing with the situation in a way that is kind of more normal, we've certainly seen prospective samples come out. And I think lastly, I think one of the growth drivers that is now overlaid onto that are these new products with Reveal and Tissue and Response, and we're seeing good traction there.

Yes. Yes. That's where I was going to go next. So I would love to just spend a minute on MRD and Reveal. Obviously, a big year for minimal residual disease detection. A lot to be said from -- or a lot has been said by the various parties in the market. How -- what is your sense for how things have gone? Any early comment on the launch relative to your expectations or what it sounds like you're hearing from competitors in terms of their launch or their volumes?

Yes. We couldn't be more pleased with how Guardant Reveal is being received in the market. I think it's exactly as we anticipated. When you put a product out there that has the right product market fit, excellent performance, very fast turnaround time and a true liquid biopsy, a test that doesn't need tissue to be able to perform, I think you're seeing -- we're feeling and seeing a lot of the, I think, same signs we saw when -- the same signals we saw when we launched Guardant360 7 years ago. And so it's very exciting to be a differentiated, a unique product that is out there that is only scratching the surface in terms of where it can go. A lot of these other products that are out there are very kind of simplistic products where they're just looking at a couple of mutations, tracking them over time, needing tissue. And we have a test that is looking at tens of thousands of regions, of genomics and epigenomics and so on. And the capabilities of that test are going to be far reaching, I think, far more than, I think, a lot of investors and people appreciate. And when you have something that's that disruptive, you have to start spinning that flywheel, and there's inertia there. You have to educate the market. It's -- we've heard individuals say that kind of, oh, there's no way a tissue-independent approach could do as well or better than tissue-agnostic. And so there's a dogma there that I don't necessarily believe is correct. And it's just because they've never seen a technology stack like this with looking at all of these methylation regions and genomic regions and so on. So we continue to be very impressed with how the assay is performing. And there are a lot more catalysts we have ahead of us. We're only in CRC today with Guardant Reveal. We'll be extending that to multiple cancer types in 2022. And so we're excited about what that means for the business.

And on the reimbursement side, it sounds like there's reason to -- progress is being made. We just got the LCD, the final LCD for Natera. What are your own time lines looking like in terms of Reveal reimbursements? How should we think about pricing there just given that there is a little bit of a different component when it comes to panel creation versus a non-bespoke assay? That is one of the debate points that I think a lot of us have, is like what number should we be plugging in for an ASP.

Yes. No, I mean I think we are very pleased with how reimbursement is shaking out. There's certainly the ADLT pathway, which is wide open for us as well. And we certainly see CRC in the near term. And then we'll be publishing more data for other indications, and that will open up the pathway and ability to receive reimbursement for other cancer types. I think the big upside for us with this recent LCD that's -- in the near term is really around Guardant360 Response. I think one thing that's underappreciated is that we have 2 products that fall under this new LCD: Guardant Reveal, which I think there's certainly a lot of appreciation for in the MRD setting; but we do have Guardant360 Response, which is around therapeutic monitoring, immunotherapies, targeted therapies and so on. And we already have over 40 peer-reviewed publications with clinical evidence supporting use of Guardant360 Response in multiple indications and multiple classes of therapy. And so we do believe that the LCD will open up kind of a pathway for pretty broad reimbursement for Guardant360 Response in multiple cancer types and with multiple classes of therapy. So we think that's going to be very -- a very strong, I think, tailwind for us in 2022.

Yes. Okay. So just to make sure I understand, so when we see an LCD for minimal residual disease, we should also think about that kicking into gear reimbursement for serial monitoring basically on a similar time line because you will be able to piggyback, so to speak, off of that.

Yes. It's a fairly -- I would call it like an omnibus LCD, the LCD that came out. It really has multiple applications that span not just residual disease in early cancer patients, but therapeutic monitoring in metastatic patients as well. So there are really 2 components of that LCD.

Okay. Let me ask you another menu -- before I turn to colorectal screening, just another menu-related item, which is to say, can you talk a little bit about the uptake of the tissue assay? And then the follow-on question to that is just sort of how it is that you feel like the menu breadth is working for you when it comes to just simplifying the life of some of these oncologists who are trying to keep up with the data on the clinical side, also having every other test that's being developed stick -- stuck in front of them. So I mean when do you feel like it will become clear to investors that a comprehensive menu is what's going to start carrying the day, so to speak?

Yes. No, it's a great question. So we also are very pleased with how TissueNext, our tissue product, is going. We essentially are trying to usher in this new paradigm of clinical care we call blood first, TissueNext. And what we found is it's early days, but it feels like we've already moved the needle in terms of perception. What we've seen from our market research is that there is an increasing, I would say, acceptance of using a liquid really and preferring liquid in the front-line setting. So we saw our numbers go up pretty significantly in terms of use of Guardant360 first-line. We saw the kind of physician preferences really shift towards liquid, over tissue over that same time period. And we think that's largely playing to the thesis we had for launching this tissue test, which is once physicians use this paradigm of Guardant360 and are getting results back in just a few days, they're really going to be addicted to that sort of dopamine rush of getting biomarker inflammation really quickly. And they're able to do that because they have that peace of mind that we'll be running tissue in parallel and reporting results if liquid is negative, really giving them the peace of mind that they're not going to miss anything in terms of biomarkers and their patients. And that seems to be resonating, and we couldn't be more pleased. We're seeing us even taking some share out of the existing space, tissue players that are out there. And it's -- so I think this is another element of our portfolio that bodes well for 2022 and beyond. I think in terms of the portfolio and kind of what that means, ultimately, as you go deeper and you see more maturity in a product life cycle, in new markets, you can often differentiate on the merits of a single product because it's a disruptive space. But as these products become increasingly mainstream and part of the standard of care, we do think, ultimately, you move from differentiation of a single product to differentiation of the portfolio and the service offering that matters. And that's what we've invested in, I would say, in the last 18 months. We've gone from a single product company now to half a dozen products. We've invested heavily, as I said, in our commercial channel and service offering and our medical team and so on. And so we think we're very, I think, well poised for this next chapter.

Yes. Okay. Okay. Maybe I'll switch over to colorectal screening. AmirAli, the ECLIPSE trial finishes enrollment this month. You talked to us on the call about a readout in the middle of 2022. What are the key activities that need to take place between finishing enrollment and getting to a top line readout or a comprehensive data readout? And what is it that's driving that time line? And then how critical is ECLIPSE data to the launch of the test?

Yes. Sure. So once actually we enroll a patient in study, typically, we get the blood sample from the patient. And then that patient needs to do the prep for colonoscopy, go through the colonoscopy. We need to get access to the colonoscopy reports. And then for the patients with some kind of disease, colon cancer or advanced adenoma, we have a centralized pathology on top of all the enrolling sites that review all those medical records, colonoscopy reports and actually look at the slides, in some cases, to confirm the CRC diagnosis. And this is based on the request by regulatory agency to make sure the variation of different site practices do not impact the quality of the device in terms of overclassification or underclassification of the performance. So when you look at all these steps, colonoscopy reports, verification by centralized pathology, this would take some time. And this is on the path of freezing our clinical database. In a parallel path, once we have reached a target enrollment, we are going to get the blood samples from all the patients from our biobank that we were storing all these samples in and start processing them in our analytical lab. That would take some time, too. And then at the end, we would unblind the database in terms of lab data and the clinical report site to figure out what's been the sensitivity and specificity of detecting colon cancer, detecting advanced adenoma. And when you look at all these time lines, we feel comfortable at this time that by middle of next year, we should be in a position to have the readout of ECLIPSE.

Okay. And do you need ECLIPSE results in hand in order to then proceed to the LDT launch? Or can the opposite order be accomplished?

Yes. So actually, ECLIPSE readout is obviously very important for our FDA review and the IVD approval and launch of the IVD version of the device. For our LDT device, based on the regulation of CLIA site for lab-developed tests -- are some overlap and some deltas, like there are some additional analytical validation studies that we need to do for LDT launch. On the clinical validation, there are some differences, too. We expect these 2 would be very close to each other, though. It's not that they're going to be far away. And definitely, a bunch of our promotional activities for the LDT device is bundled to ECLIPSE readout. Based on the time lines that we are seeing for LDT validation and launch of that test as a commercial, clinical-grade test that physicians can order or health systems can get access to, that time line is lining up very closely to our ECLIPSE readout.

Okay. And what do you think it is that will be the determining factor for the frequency -- the testing frequency that you get with that? I mean, obviously, we need to see how the data look. So I imagine that's a part of it. If not, almost all of it. But is your thought that the data might support once every 3 years? Is there a reason to think it's more like once every 1 year?

So currently, actually our base case and all our assumption is going to be interval testing of 3 years. And the parameter that goes into basis on the performance that we see in ECLIPSE is the health economic argument and at what interval testing we can see the net population benefit from running such tests and eventually, when we get closer to USPSTF when we go through that review, what grading we can get and for what interval testing we can get the recommendation of USPSTF. Our expectation is this would be similar to stool-based FIT plus DNA/Cologuard test in terms of interval testing of 3 years.

Okay. Is there any talk in the industry about USPSTF maybe looking at these tests or this class off-cycle perhaps? I mean it sounds like the next evaluation might be 2026 based on people's current thoughts, but there's a lot that's going to happen between now and then. Is there a desire to sort of get in front of the way in which the field is evolving that you've heard of? Or is it really 2026 is most likely the next time that they take a hard look and make a call?

Yes. It's amazing that based on ACA actually, USPSTF has been empowered to make some of these grading and recommendation impact the way cancer screening is done with the goal of giving more access to the patients with no co-pay and really like trying to help patients. But because of lack of funding as one of the main factors here, these meetings are not happening that frequently. And as a result, guideline upgrades for cancer screening, when you compare that versus other guideline recommendation committees like NCCN, ASCOs of the world is the frequencies are very, very different. So our base plan and our base assumption is USPSTF meeting and recommendation and grading would be in 2026. Having said that, definitely, we are having some kind of efforts. We're trying to increase awareness around this lack of funding for USPSTF to really try to see if we can reduce the time gap between data review cycle and recommendation. But having said that, our base case scenario is review and grading in 2026.

Okay. Helmy, I'm getting a couple of questions sent my way. So maybe I'll take it back to the non-colorectal cancer screening portion of the business. How are the launches of MRD and Tissue impacting your clinical ASPs so far this year? And then, Mike, that might -- I might bring you into the conversation just in terms of how we should think about ASPs progressing as the portfolio evolves the way that it sounds like it is or will.

Maybe I'll let Mike take that.

Yes. I mean I would say this year, I mean, there's a little bit of impact on our ASP overall from the new products because the revenue contribution is relatively minimal at the moment, but we're seeing the volume come in. I think as we look at 2022, I think we'll have positive ASP impacts across all of the products. We've -- for Guardant360, we've seen the uplift from the ADLT Medicare rate. And also, we've seen good follow-through now on the private payers. So that's sort of a solidified rate. But then I think we've got for 2022 with Reveal, and we've got a technical assessment to hopefully get Medicare reimbursement by the end of the year. Similarly, with Tissue, we could have Medicare reimbursement by the end of the year and start talking to the private payers. And as Helmy mentioned before, on Response now, we've got a line of sight and a way forward for Medicare reimbursement. So I think as we look at 2022, I mean, overall, the blended, when you look at all of the products, there could be some decline in ASPs. But I think if you look at them individually, we're going to have a positive impact on ASPs and revenue contribution from all of the new products next year.

Okay. So the average ASP for 2022 that we use can be up from 2021, the average ASP for 2022.

No. I wouldn't say it'll be up. I think if you look at each of the individual ones, it'll increase. I think, because the new products, it'll take time for them to get to the G360 established rate. Then obviously, there's going to be a bit of a negative impact overall. But again, I think we're looking at it from an individual product perspective and seeing positive impact for each one.

Got it. Okay. Helmy, I have a question here on M&A. What is the appetite for large transformative M&A? Would Guardant be willing to pursue a growth-dilutive acquisition?

I think when we think about acquisitions, it's really about 1 of 2 things and then ultimately in service of the same overall goals. The first is around technology, anything that increase our probability of technical success around our organic -- around our pipeline in terms of screening and some of the other areas that we're working on in oncology. We do think that, that's an important process of renewal of continuing to really have the best and brightest working towards moving the needle in terms of innovation around diagnostics in general inside the company. And so that's one area that we've been actively engaged in. And the other is anything that on the commercial side can accelerate our penetration in terms of the big $70 billion TAM that sits before us. And so I would say that almost anything we do, even if it's partially dilutive in the short term, is going to be about accelerating our growth in the medium to long term. And so when we think about these acquisitions, it's about in the 3- to 5-year time frame in terms of what that means once you truly have extracted synergies and been able to get the organizations to work together. In no way would we do acquisitions to sort of shore up issues we're seeing in the short term and so on. And acquisitions to work are really, in our view, at least, you have to have a longer-term mindset. And they're difficult to do even when they are -- when the thesis is correct. And I would say the other thing is, obviously, the size of the acquisition will dictate kind of the room for error in terms of our thesis. And so the larger the acquisition, we have to be absolutely correct that it's going to be something that's synergistic with our, I think, future planned growth. And I want to just say that we're a high-growth company. We have overlapping S curves in terms of all of our products and the products we have in our pipeline. And everything we do, whether it's organically or inorganically, will be in support of that.

Okay. Maybe just one follow-up to that. I mean -- and kind of goes to where you were going with that answer. But is the -- as you see it, is the bigger need from the M&A standpoint for a technology or a menu addition or an access addition? I mean if we were to see you do something, which one of those would it be more likely to fulfill, so to speak?

I think it's hard to just kind of talk in the kind of a theoretical. There are obviously areas that we're not in right now that are sort of, let's call them, adjacencies in the field. We've made an investment in Lunit. That's a company that is working in digital pathology, and it's working in really AI-fueled radiology as well. And so we ultimately see the space as expanding kind of beyond what we think of as CGP or liquid biopsy and really emerging into other areas. And those are certainly, I think, prime examples of where you could imagine us kind of taking a harder look over time. And obviously, if there is something that can improve our service offering, let's say, on the EMR side or interpretation side or data side or increase our access, we're looking at a lot of things right now, and we're -- we want to make sure that we're being aggressive in terms of really, I think, continuing to leverage what we believe is a first-mover advantage we have in a lot of the spaces we're in.

Yes. Okay. That's helpful commentary. 30 minutes goes by fast. So we actually have reached the end of the session. Guys, thanks for joining me. If I don't talk to you before then, have a good Thanksgiving holiday. And we will be in touch.

You, too. Thanks, Dan.

Thanks, Dan.

Thank you.

Thank you, guys.

Yes. Take care.