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

Hi, everybody. Thank you for being here. I'm Max Masucci from Cowen's Life Science Diagnostic Tools Research team. We are pleased to be joined by Guardant Health, the liquid biopsy market leader and a key player across blood-based applications for therapy selection, MRD monitoring and noninvasive screening. We're joined today by co-CEO, AmirAli Talasaz; and CFO, Mike Bell. Gentlemen, thanks for being here.

Yes, thanks you for having us.

Great. All right. So let's start right in. We had an MRD monitoring panel yesterday morning. We had a screening panel in the afternoon. I'm not going to ask you to predict the final sensitivity number in the ECLIPSE trial. But if we take into consideration a few things. Number 1, the quality and availability of biobank samples you used in your earlier CRC screening studies. And number 2, the design of the 2020 AACR study, the 2021 ASCO study, and the ACG study in 2021. Now closely, that population resembles what we might see in ECLIPSE. How do those key factors and any others that I missed play into your ability to reduce the variability between the earlier CRC screening studies and ECLIPSE?

Yes, thanks for having us. So I'm very pleased and excited with a bunch of data that we presented in different conferences, mainly from this case controlled biobank studies, we have process different kind of samples, samples ranging from symptomatic CRC cases to asymptomatic CRC cases, late stage, early stage. And the data that I'm particularly very excited about is the data around the sensitivity of blood-based cancer screening in early stage symptomatic patients. Those are definitely the toughest patient populations in the CRC setting and also the ones that we think the data hopefully will be very close to what we are going to see in ECLIPSE, and the samples are representative of the patients actually we are enrolling in ECLIPSE. Obviously, ECLIPSE is going to find some advanced CRCs too, but the majority of the patients are going to the patients with early stage and the data that we've shown so far is pretty constantly consistent across different cohorts from different studies and locations that we got access. So typically, we are saying in high 80s and or 90s is the performance that we've seen in dose cohort so far. There's if any, we have to see what ECLIPSE read outs would have for us, but I'm very pleased and excited about what we've seen so far.

That's great. Yes, if -- we have a few factors that could intuitively allow you to have a better alignment of the earlier studies in ECLIPSE. I mean how -- wouldn't that intuitively lead to maybe less performance segregation and the 6% we saw in DeeP-C was nearly half a decade ago?

Yes, it's interesting. This concept of DJ, I think is really a function of the delta between the samples that you process, in like this kind of biobank setting versus the samples you expect to get in your perspective trial. Bear in mind, studies like DeeP-C, sea, Blue-C, or ECLIPSE -- all the samples are getting prospectively collected, but all are getting run as biobank cohort at the end. So even these kind of pivotal studies are kind of biobank studies. So there's nothing wrong with just the data we see in biobank, but the delta would be how representative are these samples that we have processed so forth to the samples we are kind of getting in ECLIPSE. That's why -- and I don't emphasize on a bunch of data that we've seen and we presented like late stage or symptomatic patient, they are a few percent higher. If you just look at some of our abstract for what our partners have shown, I really focus on early stages symptomatic. When you go back 10 years ago, I think some of the data that has been generated back in 2012 came from the samples that got collected from symptomatic patients as well. And you can expect some kind of delta between symptomatic versus asymptomatic patients, as I mentioned earlier. So I can tell you like internally we don't have this concept of the [indiscernible] in any of our model. Well, I appreciate pattern recognition and looking at historical trends, but I invite everybody to double click on the details of what was the historical context of the delta in the prior data versus what we've presented using our devices.

Yes, that makes sense. All right. So another factor, you're enrolling patients aged 45 and older versus DeeP-C, which I believe it was 50 and older. So that might lead to a higher number of early asymptomatic patients, I would imagine, if you are enrolling starting at a younger age. But how does the enrollment starting at 45 versus 50 factor into the equation for ECLIPSE just in terms of the mix of cancer stages that you might see in the final readout and the performance of the screening test for each cancer stage?

So actually, I'm excited with the vision that our team members have to very early on include this age group into ECLIPSE study. There were signs that guidelines are going to get expanded. So -- and we wanted to make sure our study is supporting, getting the label of 45-plus for CRC screening. So I'm very excited about that. The reality is this age group still is new to the screening and the compliance is not great, as you could imagine. So across like all these thousands of patients that we enrolled, 13,000 cases by December, I think the patients who got enrolled at the age bracket of 45 to 49 were in very few hundreds. So very tiny percentage of the whole cohort is this new patient. Again, just because it's screening for CRC is new for them based on guidelines and lack of compliance in that age group. So although that age group would be included, mostly if in our device readout be positive, I don't think any kind of delta is going to be experienced in our device performance since it's a very small percentage of the overall patients that are enrolled in this study.

Great. Earlier this year we asked you about the role of advanced imaging in early cancer screening. I think your belief is that it will play a role, and it's importance will likely vary across different single cancer or multi-cancer screening test, but do you see advanced imaging playing a role more so alongside individual -- screening test for individual cancer types or more for these -- for multi-cancer screening, for both.

So when you think about where the future would be for different oncology applications and now just maybe double-clicking on screening, we believe blood-based cancer screening would be the center piece over any of the kind of, for instance, CRC is SIL-based test. Based on what we see, we think blood-based cancer screening would be the centerpiece, but would not be the only piece. The cancer journey -- the screening journey would not start and stop with just doing blood test. And in order to make sure a vast majority of the patients are showing compliance to this kind of testing, the provider experience also needs to be smooth. The patient experience need to be smooth. As a result, we are investing in a bunch of programs to make sure the whole workflow from beginning to the end is as streamlined as possible. And when we think about imaging, that's going to be a modality of testing that would remain, especially for final diagnostic kind of needs. When we think about colonoscopy, when we look at CT scans, when we look at all the kind of abdomen scannings that would be -- remain in the workflow, and we are very excited about bunch of activities that we do, some internally, some with partnerships that we have with some radiology AI companies. We did strategic investments in Lunit, which is one of the frontline AI players in that space. And I see a day that basically the whole workflow is going to get streamlined for a patient, and that would be a huge differentiator for us and other people who are just still have a very basic mindset in the screening business at this time. When those portfolio activities and pipeline activities get to more mature state, we will definitely talk about details of it more. But I'm very excited about the progress and activities that we have on that front.

Yes, so in the DETECT-A study, say, a patient would go positive, right? But then they would reflect the PET scan to localize and confirm. Do you see the advanced imaging sliding into the workflow in that type of manner? Or are there any other areas of the algorithm or workflow where it could be useful?

So I think the advanced imaging would be part of the journey. Now PET-CT, I think is maybe a component of that, but not the only component. When we look at like, especially in the context of multi cancerous screening and technologies with good tissue of origin assessment, which we are excited with the progress that we made on that front, and we are going to present some of our performances throughout the year in different conferences. I think more specialized imaging, more focused imaging around some specific organs are going to get deployed. But again, the whole experience needs to get streamlined, connecting this blood test with different kind of CT or MRI or PET CTs to make sure the cancer diagnosis and screening and diagnosis journey would be very streamlined and smooth for everybody.

Yes, so should we stay tuned on any collaborative work you've done or are doing with Lunit? Or is there anything you can share from [indiscernible].

When become more mature, we talk about it. Bear in mind, some of our progress that you're seeing on the blood front came after like 7 years of working on this field. So some of this stuff takes a life time to really do it in the right way, do it in the right way. So as we make more progress and the state of this pipeline become more mature, definitely we will talk about it more broadly.

Great. All right. Let's move on to MRD. It was nice to see the press release this morning, although it's not for REVEAL, but I'm just curious. I would love to get your take on the PR from this morning and then if that signals anything for REVEAL?

No, I mean, I think we're very excited about our kind of positive reimbursement decision and coverage for our tissue product. When we think about that product, it's going to be one of the near-term, I think more significant contributors in terms of revenue just because tissue is a more established market. We think we can make quick progress in the private payer side as well. And it's a product that fits in very nicely in terms of our portfolio and allows us to keep customers close and keep them in a sort of one-stop shop. I think all these different products are -- they have their own pathways. So I wouldn't read into any one of them in terms of kind of positive or negative. But certainly it shows that the team has a good relationship and is continuing to make good progress with the payers that we work with, including Medicare. So yes, we're going to continue chipping away and trying to ensure that we can convert, I think the high growth we have forecasted for this year in terms of testing volume to revenue as we gain more and more coverage and we gain higher ASPs through increased reimbursement.

Got it. And if we look across the MRD landscape, some tumor-informed companies are dealing with a meaningful COGS expense for the upfront whole exome sequence of a tissue sample and that followed by a more attractive COGS profile for the subsequent blood tests. So can we walk through the COGS profile dynamics for REVEAL and whether there's any differences in the COGS per test for the different time points?

Yes, we certainly think that there's an advantage, certainly upfront, both in terms of turnaround time and cost structure. We also think that the technology we've developed and we're kind of gravitating towards can actually be advantageous even in the monitoring realm as well. So we're working -- I think I'll give you a hint in terms of our smart liquid biopsy, where we have [indiscernible] that is probably 100x larger than Guardant360 CDx in terms of what we're looking at. yet we have a COGS profile that is very attractive and a test that continues to provide extremely high sensitivity and high performance. We're not compromising on that and to be able to achieve that. And that's because we've developed a unique biochemistry upfront that really allows us to be cost efficient. And we really do believe that's going to be a competitive advantage going forward. I think broader strokes, our aim is to really focus on having kind of a structurally sound financial profile as a company with 60% plus gross margins in terms of the tests we offer, really having these kind of high-value, higher growth margin tests across the board. And MRD is no different. We're very confident we can achieve that over the medium to long term.

Yes, so at least one other MRD player is using whole genome sequencing. And I think the belief is that by employing the whole genome sequencing approach, the company may disproportionately benefit on the -- from further reductions in the cost of sequencing. So I guess, number 1, what are your thoughts on that? And then number 2, do you feel that the whole genome sequencing approach will be helpful as we move beyond CRC into other cancer types? Or is it not necessary?

Yes, we fundamentally think there are 2 different modalities for testing. We really look at these technologies that require pre-information, require tissue biopsies as really second-generation technologies in this field. And we think ultimately this market is won by what we're calling third-generation technologies, really true liquid biopsies, blood-only approaches. Ultimately, when you think about recurrence and residual disease and so on, it's not about detecting what was taken out. It's about detecting what is still left -- what's still left in patients. And that's the beauty of our technology. We can go after essentially what's still remaining, patients with multiple primaries, patients with heterogeneity in their disease, which is often the case. And we can go after that prevalent population, those millions and millions of cancer survivors that really have no tissue, have no sequencing information of, no access to that tissue sample that's locked away in a random drawer somewhere. And that's why we think this market will be won by those blood-only approaches. We believe it will be ours. But we are very convinced that it will be blood-only.

Yes, so I mean different cancer, solid tumor cancer types, different levels of shedding, tumor mutational burden and MRD monitoring is -- frequently is for intermediate-stage disease. So I'm curious if that poses a challenge for MRD monitoring, eventually going pan solid tumor, similar to Guardant360?

No. I mean, I think you're seeing really good data across the board, whether it's mutational. You're seeing good data from tissue-informed approaches in terms of going across many cancer types. And we're releasing more and more data across cancer types that have been challenging, whether it's lung or breast and so on, using our really multimodal approach. I think you're seeing on the screening side, companies going to multi-cancer, pan cancer. And almost every company is moving away from genomics or genomics-only approach to go into epigenomics or other features, and that's because we -- I think there is a much higher sensitivity for early-stage cancer with some of these, I think more complex biomarkers and these other dimensions beside just genomic changes. And that's really the beauty of our MRD technologies that we're employing really the best and kind of most sensitive modalities for that disease area.

Yes. So if we use the April clinical cancer research publication REVEAL, demonstrated 91% sensitivity for correctly detecting [indiscernible] in a DNA different surveillance time points for CRC. So it's obviously a major improvement versus CA, still a small number of false negative results. So as we expand beyond CRC, I'm curious whether you think there's going to be very -- what the variability will be in the sensitivity just given some of the unique considerations. And I would imagine that there might be a small number of false negatives since we're just looking at CRC. But as we expand out into larger indications, might call it, I mean, breast, prostate, several others, how those false negatives might -- the opportunity that it might represent as you add all of those up?

Yes, no, I mean we continue to see what we view as market-leading performance in all of these different areas. I think data we presented at J.P. Morgan and breast was about 85% sensitivity for longitudinal monitoring. So we're seeing data that kind of is lining up to those very high sensitivity rates across the board. I think one of the benefits of these technologies is that it's not one and done. This is not a sort of prognostic test or productive test where you're using tissue to kind of predict how the patient will do. You have the ability to come in and test multiple times and hopefully detect recurrence well before imaging could. And that's why these sensitivities, I think will remain fairly high as long as you get multiple shots on goal before -- before imaging. And that's also the -- why this is such a really fantastic opportunity is that this is a market that is -- many tests per year for many years for very, very big swath -- large swath of the population. So we're feeling very, very good about kind of how things are kind of developing right now.

So yesterday morning, 2 of KOLs for more, call it, advanced comprehensive cancer centers, they were ordering MRD monitoring tests to guide decisions about adjuvant chemo and then the community oncologist was only using MRD monitoring for cancer recurrence monitoring and surveillance. So I'm curious how you see the dynamics playing -- the dynamics playing out if you compare community oncologists to those at places like the Mayo clinic, other advanced centers and the logistical factors that will also determine which MRD monitoring vendor, a community oncologist chooses?

I think one of the beauties, the beautiful kind of aspects of a liquid biopsy is that it really, I think, is -- from a form factor is really well suited to the community setting, being able to draw a tube of blood really empowers a community oncologist that may not have access to an interventional radiologist or pathologists or so on and on site. And so it really does democratize access to the highest level of medicine. And that's in the therapy selection side, and it's no different. It maybe even more of the case when you think about early cancer and cancer survivors, where a lot of these patients may never need to go to an academic center or because they have a very treatable kind of early-stage disease. And so being able to have a form factor that's blood-only, I think is even more important to some of the realities and practical kind of logistics that can be complicated in the community setting.

Yes, maybe on that note, I think the figure on your last call was the compliance rate for CRC screening was somewhere a 61% to 62% range. So if that compliance rate rose from 61.5% to 80% and if you use 130 million as the total, then that would mean that nearly 20 million incremental people would be getting screened for CRC each year. So -- there's a lot of head-to-head comparisons with noninvasive tests that exist in the market. But it would be great to hear how you see a blood test targeting that opportunity versus being more of a displacing solution?

So it's interesting, actually when you look at some of the studies that have been done on patient preference, they are even like some peer-reviewed literature in the field, 81% of the patients who are noncompliant to any mode of screening today for colon cancer, they prefer a blood-based test theoretically versus any other kind of tests out there, FITs or fit or SIL test or colonoscopy. So I think out of that 20 million, 25 million, really the winning device would be blood-based test to be very high margin. Interestingly, when you look at even the patients who are compliant to colon cancer screening, 64% of them are preferring a potential blood-based screening test over any other modality tests out there. So in long term, we do believe the number of screening that's going to be done by blood-based cancer screening is going to overpower and outnumber any mode of other -- any other modes of screening down the road, in terms of the test used per year. And based on what we've seen and the projection of even some of the future development that I'm seeing, I do believe that would be the future.

Got it. We're getting close on time here, but it's worth a logging a question around advanced adenomas. So it doesn't seem like it's a make or break in a PCP's decision based on your survey data. I think we hear -- we hear a decent range of opinions. So it would be great to hear some examples of the feedback that you've gathered from clinicians in different settings, just around AA detection.

What's on the top of the mind is definitely being able to detect CRCs and the potential for actually improved compliance. Now that we've some people even in the field starting to talk with their physician and educate them about the upcoming launch of Guardant Shield LBT, I can tell you there's a lot of interest about a high-performance CRC detection device that has high compliance. In terms of advanced adenoma, today, based on our conversations, especially our survey, we don't see that many PCPs can distinguish Cologuard versus FITs in terms of their advanced adenoma superiority. So really, the market is not there at this time. Over a longer period of time, we believe that's going to be a differentiating factor. And we've been working on advanced adenoma for some time now. We are going to see what ECLIPSE readout has for us. We have identified high hundreds of cases of advanced adenoma already. And biologically, you don't expect that [Audio Gap]

I think we might have lost AmirAli. All good. All right. So I don't know how if you want to pick up, but we're getting pretty close -- we're getting pretty close. Oh there we have. Sorry, we lost the first second...

Sorry, my connection got unstable.

It's all good. If you want to finish that thought, feel free in the last.

I think that blood can detect some advanced adenoma and we'll see what Eclipse results is going to have for us. But I'm pretty sure even in future the performance can go up more and more once we have more samples and so forth. But I think blood can detect bunch of advanced adenomas. We will see to what extent soon.

Anything we should keep an eye out for AACR?

Stay tuned. I'm excited.

All right. Sounds good. Well, thanks a lot, everybody. Great discussion. Always good to see you guys.

Yes. Thank you, Max. Thank you so much.