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

Okay. Great. Welcome, everyone, to SVB Leerink Global Healthcare Conference. I'm Puneet Souda. I cover life science tools and diagnostics here. It's my pleasure to be hosting the Guardant team, co-founders and now co-CEOs, Helmy Eltoukhy and AmirAli Talasaz; and also joining us Michael Bell, CFO. Welcome, guys. Great to have you here.

Nice to be here. Thanks for having us.

So if you have some prepared remarks, help me AmirAli, otherwise, we can jump right into it.

We can jump in.

Okay. Great. So maybe just for folks who are dialing in, Guardant Health is a leading liquid biopsy company that is serving several multibillion-dollar markets from therapy management to MRD to screening. Guardant has been on the forefront of therapy management market with its liquid biopsy G360 assay. When -- at a time, when very few were, sort of, thinking about that, they have a well-established position there, an FDA-approved assay, and they're spearheading into MRD and driving adoption with their liquid-only assay. And -- but I think a large interest for investors happens to be the ECLIPSE trial, which is colorectal cancer screening and heading into screening markets with that trial and then lung, so we have a lot to talk about there. And it really is an exciting time in this market, when liquid biopsy is finally reaching the healthy individuals. So with that, maybe Amir -- maybe Helmy, I'll kick off with you. G360 business rep access was obviously a question mark throughout 2021 and gated some of the recovery. Now with, hopefully, with Omicron, sort of, being left behind, we're emerging from that. Wondering, what can you share in terms of overall access that you have and with respect to volumes, and anything you can share in terms of the overall recovery here?

Yes, thanks, Puneet. I think '21, obviously, we saw ebbs and flows related to the various waves. And what we saw in '21 was really something that hovered around 50% rep access, in terms of physician offices. It would essentially go down, when we had big waves and go up a little bit, but never really got above 50%. We -- I think, as we said on -- earlier this year, we are very pleased with how the end of the year finished off, in terms of Q4, in terms of volume and rep access, we really didn't see a lot of impact from Omicron in December. We certainly started seeing that in earlier part of this year. I think, everyone did. The challenge with Omicron was not so much -- specifically around rep access, although it did drop from 50% down to some lower levels. It was the fact that it was just very disruptive for all our organizations. It had about 10% of your workforce may be out any given week because of infections and the rate of prevalence of Omicron. But I think fortunately, obviously, we're seeing the effect of it come down considerably, and I'm hopeful that later in this year that there will be less effects of Omicron, that things will be -- and Delta and COVID in general, but things will open up and that things will go back to a new normal, so to speak.

Got it. Let me touch on a quick question before we jump over towards ECLIPSE. G360 has maintained, obviously, leadership in this market, but in liquid biopsy -- but competition is emerging. And I have a common question that we frequently get is, how do you get to maintain that position in the marketplace? And with increasing content on some side and maybe more attractive pricing on some other products, how do you continue to maintain a strong position here?

It's -- we continue to believe that we have, I think, excellent characteristics of our portfolio across -- and our products across each of the different layers. And our technology continues to be, we believe, best-in-class, in terms of performance level. But we just have an unparalleled amount of data that we've generated, clinical data, clinical utility data, with 360, with over 250 tribute publications. There's really very few oncologists that haven't ordered Guardant360 now in the field. Over 11,000 oncologists have ordered our tests. We have unparalleled reimbursement. And so all the characteristics that matter, in terms of having a test and translating into clinical practice that can be used as a standard of care, we've really kind of built up over the last, now, 7 or 8 years, since Guardant360 has been a commercial product. And you just can't do that overnight. And then finally, I think there's an underestimation of how robust our commercial channel is. We have a very significant sales force now, medical affairs team, very good relationships, both in academic and community settings. And so that's not only given us a very strong position with our existing products, but has allowed us to really have a running start, as we launch new products into that channel. And so we're feeling very good about 360 in our new products. Really, I don't think there's been a time where we've been in kind of this position. I know there's a lot of competition in name, but when you really dig down to the details, we do believe that our products are second to none in the oncology field.

Let me switch over to ECLIPSE. This is obviously a big catalyst for the year, maybe the most meaningful catalyst in diagnostics, given the significance that, I mean, liquid biopsy could potentially be used in healthy individuals for the first time. You have an FDA registration trial that's going to be reading out by mid-year. The question really is, I think, from an investor point of view, it's really what is potentially -- how should we think about the bar here for performance on CRC detection and then maybe even on the advanced adenoma? And I think you did a survey here. So I would love to get your thoughts there, AmirAli.

Yes, sure. So yes, we're definitely very excited about ECLIPSE, and I'm waiting for the data that the database gets unblinded, and we see really what happened. That's 10 years of work is going to get, I think, reduce the reality on that day. So I think, in terms of really the bars, we know a lot more today than really even like 3 years ago, 2.5 years ago, when even ECLIPSE started. So like the bar for Medicare and CMS coverage is clear. We are very excited with the progress on that side, the sensitivity and specificity of greater than 74%, 90% on the CRC side, we think it's very well achievable, based on everything that we've seen so far. In terms of the FDA bar to have a regulated product to get FDA stamp of approval, I think those bars are pretty clear for us, based on some prior conversations that we had. And we think those are well reachable and really our test and liquid biopsy, both science and the technology that we have, is supporting those kind of requirements. Now, when we go into the commercial adoption as a function of the performance that we see in ECLIPSE or the performance of our device around CRC and advanced adenoma, this is something that we studied actually to a good level of extent, in terms of conversations with the market, especially now that we have a sizable commercial team, and we started engaging with early customers to get their feedback. Also, we've done a market survey of about 300 docs, PCPs that we ask them, at different levels of performance for CRC, what percent of your patients you're going to use this liquid biopsy test for? And we tested 92%, which is a number which is Cologuard-like sensitivity that some are familiar with. And on the low end, we went with the CMS bar, we rounded up 74% to 75%, so 75%. And then we took a middle point of 85%, so 75%, 85%, 92%. We ask them, "Okay, like at what level -- what would be your interest in using blood-based screening in your patients?" And we saw, actually, a very robust support, even for devices at 85%, like that decay function, in terms of number of cases they're going to use, was maybe about 10%, relative to 92%. Even interestingly, actually, even at 75%, it was about 1/3 of the cases, but it was more than what we thought. And when we dig in more, it was really the promise of ease of use and potential increased compliance that comes with a blood-based test, and -- which is really an unmet need. Out of about 130 million lives in the U.S. were eligible now for cancer screening. We believe, at least 50 million of them are not compliant or very new to screening, which really blood-based screening can have unique value. And now and for the rest, as a function of -- I think function, we are going to be very competitive with other modality. Regarding advanced adenoma, this is interesting. What we are finding is -- which is our finding, is the current market at this time is not able to distinguish the performance of FIT versus Cologuard at this time. Having said that, we believe, actually, in longer term, after more messaging and detailing and education goes to the marketplace, the performance of advanced adenoma would become a competitive kind of parameter, but we look at it more on a mid- to longer-term kind of horizon. And we've been working on this advanced adenoma for a while, and we believe liquid biopsy has some sensitivity in detecting advanced adenoma. So we have to just see what the ECLIPSE trial is going to have for us. That's the secondary endpoint for ECLIPSE to show their performance in that set.

Got it. And we hosted a panel yesterday on -- with a couple of key KOLs in CRC screening space. And the feedback was about, in their view, 80% CRC sensitivity and 30% on advanced adenoma, anything above 30% that they think will find a meaningful adoption. So that's encouraging to see, your comments are actually slightly up above that and 80% -- 85% or so, the way you laid out earlier in the year as well. Maybe the question on degradation side of things. Again, degradation is expected in both stool trials as well as, potentially, in liquid trials, but we just have not seen so here, given the registrational trials and readout. Do you expect any difference in the degradation here, in terms of liquid versus the stool?

So this is an interesting topic of discussion like science -- I appreciate the pattern-matching and the reality of some of the historical data, which matters. In terms of scientific point of view, degradation is a function of how well your retrospective or biobank samples are representing the patients that you're going to enroll in your pivotal trial. In fact, we are hearing a bunch of these kind of messaging from our friends in other companies, and now some of the data that they presented, based on their biobank data on Cologuard 2.0, they are saying we don't expect much degradation because it's coming from a right set of cohorts. So this degradation, really, there is no scientific merit in it, if the samples are representing well of what you're going to get in your screening cohort. And I think, even now, our friends, exactly, are saying what we've said for a long time. We tried, actually, to really mimic the patients, as we expect to see them in ECLIPSE. There are some differences. But I'm very excited with the data that we've seen, in terms of asymptomatic early-stage colon cancer patients. I think, those are probably the toughest patient cohort that we are going to see in ECLIPSE, and in different presentation, we've seen 88%, 90% kind of sensitivity in those patient cohorts. So I'm very optimistic.

Okay. Okay. Very helpful. [Operator Instructions] So maybe Amir, just following up on ECLIPSE timing, midyear or any changes there? Like 2 -- I look at one as Digestive Disease Week as one potential conference and the other one is obviously ASCO right around midyear. Any thoughts, any change on timing? Just want to confirm.

We are making actually good progress now. We have over 10,000 colonoscopy reports collected and continuing strong on that front. But the engine needs to continue. Like a bunch of work is left, we need to get to the target CRC cases. We are making progress, but obviously, we haven't found the last CRC -- and samples are coming. They are going through our process. I think, in terms of time line, we started this year a little bit slower than what I expected. Mainly, it was our internal productivity and also the clinical site productivity because of reasons that I think all of us are well aware, in terms of labor showing up to work and the attention that clinical researchers kind of get on the clinical trial side. But I don't expect that to be really a material change in our time line. So still, we have a relatively good feeling for this middle of the year kind of readout.

Got it. And last question on the screening side of things. You kicked off a trial for lung cancer, 10,000 patients. Tell us a little bit more about that. And then, I did see that the panel in there went from 500 kilobases to 16 megabases. Sort of, tell us what drove that. And maybe a follow-up question there for Mike as well. What does that mean for, sort of, long-term gross margin objectives that the company has on the corporate level?

Yes. Actually, I'm very excited about this next-generation GUARDANT SHIELD that we have. And it's an asset, which is, from my perspective, multi-cancer ready, and the data for different kind of cancer types is going to get presented and generated. And we had some presentation already, and we are going to have more presentation about them, actually, different conferences this year. So the panel got expanded from CRC-only content of this 500 KB to 15 megabases plus. And the interesting thing is the cost of the product, we don't expect it actually to change in a very significant way. And it may sound counterintuitive because like once you increase the panel size by 30x, you think your cost of sequencing should go up by 30x, but not with our technology. The beauty of our technology is we are digesting and we are destroying a bunch of molecules in our panel, which is not containing tumor-related information for us. So we are really sequencing at the vast-scale informative molecules within our region. So although the panel is this much bigger, the cost would be very reasonable that, we think, at a steady-state long-term ASP goals that we have for this cancer-screening product, we are going to have a 60% plus gross margin in line with what we'd always try to have at Guardant, which was around mid-60s.

Got it. Mike, and just in terms of longer term, I don't know if you have given a long-term gross margin guidance, overall, at the corporate level. How these tests and new menu additions fit into that and the cadence, maybe, the near term? And maybe if you could talk about the near term and the long term.

Yes. I mean currently, gross margins have been in the, sort of, high 60s in Q3, it was around 68%. And actually, we're seeing improvement on G360 gross margins with improved ASP this year, especially after the ADLT reimbursement back in April, and we're getting lower cost per test on the G360 side. So that's a real solid base that we have. I think, every time we look at launching a new product, our target gross margins are in the 60% to 70% range. So AmirAli just mentioned for screening, if that's the case. And then tissue-reveal response, they are in the same level as well. Some of those, it's going to take time to get reimbursement and for the volume to grow. So it will take time for those new products to get to a 60% to 70% gross margins. But I think, as we model this out, I think we can -- overall, for the company, we can stay in that 60% range. And we might have a little bit of pressure on that over the next couple of years, but our long-term gross margins would be, maybe, high 60% gross margins, overall.

Got it. But on the screening side, is it fair to say that the target longer-term gross margin is 60% or is it higher than that?

No, our target is around the 60% range on the screening side of the business as well.

Okay. Okay. Yes, I'm getting a couple of questions here. Maybe switching you to Helmy. What was -- anything you can share on the biopharma in the fourth quarter, the momentum you were seeing in the third quarter and the sort of the record orders that you were seeing in the third quarter? Did that continue to hold into the fourth quarter and into the year-end?

Yes. I think -- as we mentioned, I think, earlier this year, we saw very good rebound in recovery in our biopharma volume. So we're very pleased with continued progress there.

Okay. Got it. And then Helmy, obviously, you have an important product here with Reveal. We are seeing introduction of other tumor-informed assays into the market. There is some competition here, that you have another competitor that's recently showed some adjuvant chemo setting data, which was more -- it showed more actionability, maybe stratification of patients. So could you maybe talk to us about how is, sort of, Reveal positioning into this market? And, sort of, what are the -- when should we start to see meaningful data come out here or maybe even sort of a near-term data sets that we ought to be looking for? I know you have COBRA, COSMOS and other trials that are running and PEGASUS, too. So maybe just give us a sense of when those trials readout versus what you can produce in the near term?

Yes. I mean we had, I think, the data release from COSMOS, a few weeks ago at ASCO GI. We were very pleased with that. And I would say that all of those studies are ongoing, so we expect additional data releases in the coming months and quarters. Certainly, COBRA is a clinical utility trial, we'll be able to get, I think, a very nice data out of that, in terms of really understanding whether adjuvant chemotherapy really helps or not. I think some of the data is starting to come out with some of these simpler assays that are out there. And I think it bodes really well for this field. It really does look like adjuvant chemotherapy and high-risk patients is helping patients have better survival. But I think the field is going to want to see prospective studies, where the test itself is used to adjudicate. And as far as I can tell that, that data really hasn't been produced yet by any assay. And so we need to -- I think that's what's going to move the needle, in terms of guidelines. But so far, so good. I think it's been really fantastic to see how nicely this space is developing. We're very excited by the progress we're seeing with Guardant Reveal and how many physicians are coming on board and using that test. And we're only in one indication, right now. So despite all of that, we see that there's a lot of runway for us to continue to grow in the MRD setting, not just volume, but over time, as essentially reimbursement starts becoming more prevalent, in terms of the private payer side.

Got it. Getting a question here on -- do you have any updates on the reimbursement for Reveal? I think there was an expectation by the year-end '21.

Yes. No, we've submitted for not only Reveal but for TissueNext and for Response. And we're still waiting for final feedback from MolDX. As soon as we know, we'll let you guys know.

Okay. In terms of the -- you talked a little bit about the data sets, the smaller data sets versus prospective data sets, that are more significant, from an adoption perspective, for Reveal. Is there -- should we expect any data sets going into sort of AACR and ASCO this year, that give us more insights into Reveal? And maybe if you could talk about how is -- I mean, Reveal appears to me, at least for now, the only test on the market that is tumor naive. So what, sort of, differentiates that? What are some indications where you think that can make a larger dent? And what, sort of, differentiates that assay versus the competition?

Yes. I mean obviously, with Oracle, we're studying 11 additional cancer types, in addition to CRC. And so -- we know that this assay, essentially, has legs to be able to, I think, provide meaningful information in -- across most solid-tumor cancers. It's a much more complex assay, if you're to think about how the field has evolved, first generation with these protein markers like CA and so on that have unfortunately very poor performance but is the best we had at the time. We have this kind of second-generation assays that use a sort of legacy PCR technology to distract hotspot mutations over time. And that's certainly kind of outside of the field that ctDNA could be used in that adjuvant setting and for monitoring. But where we think the field ultimately will end up, is in what we call these third-generation technologies, essentially what we have with our, essentially, tumor-independent assay being able to look at epigenomic markers across the genome that are highly informative. If you look at, essentially -- almost everyone that's going into the screening setting, they've all moved from just looking at genomics and many to just looking at epigenomics methylation patterns and so on. So it's clear that there's much higher sensitivity in that early cancer setting with -- looking at some of these epigenomic markers. And that's really what the beauty of this assay allows us to do is in a very simple format, a simple blood test, get highly informative and actionable information that really, I think, marries up to clinical practice. There is continual underestimation of the logistical challenges that tissue represents in the field and access to tissue. And the fact that we not only can do this through blood, but we can access that prevalent cancer-survivor population. There are 15 million cancer survivors. It's exciting numbers, in terms of the market size. But the majority of them, something like 80%, 90% of those patients are more than 1 year out from their curative resection or more than 2 years out, so it's good luck getting access to that tissue. And that's why we truly do believe that product market fit in this setting is going to be a blood-only assay. We think it will be ours. But regardless, there's a lot of pretty sophisticated technology in bioinformatics and research that has to go into developing an assay like this. It's why it takes many years. And why we think it's a big barrier to entry. And it's something that -- very excited about for -- not just the short term but the medium to long term as well.

A quick follow-up there, and I'm getting a couple of more questions, and I'll come back to AmirAli. Any metrics that you can provide on Reveal, so far, or that you plan to provide this year?

Yes. I mean, I think it's a highly-competitive space. So we're not breaking that out as yet. Certainly, if the field evolves, where those numbers are being broken out, it would -- I think we'd probably follow suit.

Got it. AmirAli, getting a question on advanced adenoma timing. Is that something we can see in maybe a case-controlled or prospectively-enriched population before the data reads -- the pivotal data reads out?

So I think, it's a matter of -- for ECLIPSE, like once we know the data very quickly, we are going to talk about the data because we have to. For some of the stuff that we are doing with our partners and cohorts that we get access through them, the presentation is going to be tied to the conferences and the timing of that and the delay associated with it. So now, I think it's all the function of exactly when we are going to have ECLIPSE data and if there would be any presentation in conferences, which would be before ECLIPSE readout. But I tell you, even based on the data that we are seeing, in terms of number of cases, and you want to see really what was the readout of ECLIPSE. So I think, really, the defining moments, in terms of the data, for advanced adenomas is going to be ECLIPSE readout, which is screening cohort, and the right number of cases is going to get presented.

Got it. Okay. We're almost out of time. So let me just squeeze in just one last one that I have here for -- maybe for Mike. In terms of overall spend, sort of, priorities, given the number of clinical trials that you are involved in, and any sort of line of sight to maybe longer-term profitability that you can talk about?

Yes, I mean I would say, 2021 was a year of heavy investment -- mainly, I would say, on the commercial side as well in the first half of the year, we built out the -- really built out the commercial team on the oncology side, in the second half of the year on the screening side to be ready for the LDT launch. So those expenses will flow into 2022. And again, we'll be focused on the LDT launch as well as continuing development and studies. I think, when we make all of these investment decisions, we always have one eye on profitability. I think on the oncology side of the business now, we've built out that infrastructure. So over the next 1 or 2 years, we'll start to see -- as we get reimbursement for the new products, we should start to get a lot of leverage out of that infrastructure that we built and start to contribute to the bottom line on the oncology business. Screening, that's going to take a few years, obviously, for us to get at the volumes and the revenues. But I think, we're targeting profitability, overall, for the company, 1 to 2 years after getting in guidelines, I think we see a line of sight there, and that's what we're focusing on.

Okay. Great. Well, guys, that's all the time we have. I think we're over time. So thank you again. Wonderful to see everyone and have a good rest of the day. Thanks for joining us.

Thank you.