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

My name is Brian Weinstein. I'm the group head of life sciences here at William Blair. I'm responsible for coverage of Guardant Health, I cover life science tools and diagnostics company. I am required to tell you from my compliance officer, Michael Besenjak that for [Audio Gap] to go williamblair.com. Logistically, we have about 30 minutes here. Management will be giving a presentation. I have some questions that I will be asking them at the conclusion of their presentation, and then we will adjourn up to the [ Adler ] room on the second floor for a breakout session, and we would certainly encourage everybody to join us and ask questions at that time. With that, I think we can jump in. We're already about 90 seconds in. We're fortunate enough to have both the company's CEO -- the co-CEOs, Helmy Eltoukhy [indiscernible]; and AmirAli Talasaz is here as well and Mike Bell, the company's CFO; and we'll get to questions, all 3 of them as soon as [Audio Gap]. With that, I'll turn it over to AmirAli.

Thank you, Brian. Thank you for giving us the opportunity to present here today at the conference. As Brian said, I'm Helmy Eltoukhy, co-Founder and Co-CEO. And so I'll be kicking off the presentation, and I'll be handing it over to AmirAli to give an update on screening and then close things out. So we can pull up the presentation. Okay. Well, so we started the company about 10 years ago and really was with a mission to conquer cancer with data. And when we think about what we have done in those 10 years, we are really pushing the boundaries of what's possible in cancer diagnostics and really trying to usher in a new paradigm of care. We're doing it essentially in 3 areas of cancer care diagnostic, 3 verticals; therapy selection, recurrence monitoring or MRD. And everyone is often very excited about screening for early detection [Audio Gap] will help with visual [Audio Gap] great complex presentation [Audio Gap]. Next slide. Please note our forward-looking statements, and here are the 3 verticals. These 3 markets really represent an $80 billion opportunity, $10 billion in therapy selection, $20 billion in recurrence monitoring and $50 billion in screening. And the thing that's unique about us now at our 10-year mark and why 2022 has been such a pivotal year for us is that now we are the first and only liquid biopsy company to have commercial products across all 3 of these verticals. In therapy selection, what is the problem we're trying to solve is essentially trying to match advanced cancer patients the best possible treatment without the need for an invasive biopsy. There are about 1 million late-stage patients in the United States. In recurrence monitoring or MRD, that's a whole another question, which is, are there 15 million cancer survivors. Many of them are living in fear that their cancer may come back. And with our tests, we're able to give them essentially quantitative peace of mind with a simple blood test that can detect recurrence. And then finally, in screening, by detecting cancer as early as possible where we can essentially cure those individuals, stabilize. How does the technology work? Essentially, we developed a proprietary platform where we can take a tube of blood and unlock tiny signals from cancer cells and from different biological tissue that are being emanated and shed into the blood stream. We developed a proprietary biochemistry, really new biochemistry that allows us essentially convert all of those molecular signals into essentially high-fidelity product that can be sequenced using next-generation sequencing and then analyzed using our proprietary machine learning bioinformatics pipeline. And the pipeline allows us to essentially remove the noise from the sequencers, from the biochemistry that sometimes adds noise. And so we're able to get a 1,000x reduction in terms of error rate, and it's been improving over time as we process more samples. So there's economies of scale in terms of how this technology works. And that platform has gotten much more sensitive over the last 7 or 8 years since it's been commercial. And all of this is spread out into a very simplification report that can be provided to a [Audio Gap]. This is all protected by over 500 [Audio Gap] across this platform. So in terms of -- this has relative led to very strong execution, 60% CAGR in terms of our revenue growth from $91 million in 2018 to $374 million in 2021. This has really been fueled by the large number of tests that we've been able to provide, 275,000 test orders by oncologists. There are about 12,000 to 14,000 oncologists in the [Audio Gap] and over 11,000 of them now have ordered a Guardant360 test from [indiscernible]. We have 110 biopharma relationships and partnerships, including with most of the top 20 pharma company [indiscernible] space. And obviously, we have a lot of room to continue to invest and continue investing in our pipeline with nearly $1.6 billion [Audio Gap]. We're often known for the technological innovation and game-changing products we brought to the market, but we also built a very strong commercial organization in [ oncology ] sector as well that we believe is second to none. We have 250 people in our commercial organization. This has driven really strong growth in our most recent quarter in Q1 of '22, about 47% year-over-year volume growth. We're seeing volume growth both in sort of new oncologists ordering as well as [ samples ]. The market is split about 80% community, 20% academic. And often, when you have these innovative products, they're often used by the academics [indiscernible] historically been much more indexed towards academia. But now we're seeing very strong growth in the community, and 70% of our volume now is in the community channel. We have the #1 share of voice of any competitor in the field. We'll nearly double the oncologists for action of the next the [indiscernible]. And we are the market leader in comprehensive genomic profiling for non-small cell lung cancer. So even taking the old tissue technologies, taking other liquid biopsy company, we believe we have the largest share in terms of non-small cell lung cancer testing. Let's delve in a little bit -- let's dive into the therapy selection segment here. Our strong performance in the therapy selection market has really been driven by a number of key factors. We had the first FDA approval for a liquid biopsy in the space. Another thing that's unique about us is investment in clinical utility and clinical evidence we've made over the years. We have over 290 publications now detailing our technology and the clinical utility of using our tests in oncology. We have over 200 million covered lives by payers and obviously reimbursement [Audio Gap] aspect. And this has really led to this market-leading position. We have liquid biopsy today. There's about a $10 billion addressable market opportunity. And this has been growing as the utility and the applications of liquid biopsy have expanded. And so now it's not just about testing a patient to put them on treatment, it's about testing a patient multiple times to see how well they're doing on treatment. Treatments can be changed. And we're seeing essentially this new model of [indiscernible] managing disease rather than waiting for things to kind of burn down and hoping that you can fix things when it's too late. We have 4 products now in the therapy selection segment; Guardant360, CDx. Our flagship product, as I mentioned, was the first product to receive FDA approval. We have our next-generation Guardant360 -- of a Guardant360 response, which is a blood test that can be taken a few weeks after treatment initiation to see how well that patient is doing and the -- as well as a CT scan, but many, many weeks and up to 8 weeks earlier than a CT scan can provide. And then finally, our tissue product, which complements our liquid product and allows physicians to get answers from tissue when some of these other products are negative [Audio Gap]. Now I'll shift gears a little bit and talk about the recurrence monitoring market or MRD. We have the first and only -- blood-only test that's in this space product called Guardant Reveal. And the way the space has kind of been shaped is that initially, there were these protein-based tests, and that's currently the standard of care, CEA and other [Audio Gap]. There are some tests that are tissue informed or you require a tissue biopsy to be able to run blood tests subsequently. We view those as second-generation [Audio Gap]. And then the third-generation technology, a true liquid biopsy, true blood-only test where essentially you can have high performance and fast turnaround time. Those tissue-informed tests can take 4 to 8 weeks. We have a 7-day turnaround time for the test. It's very stumble. You just draw blood and get a result a few days later. Currently, our initial indication is colorectal cancer expanding to multiple indications later this year. We view this as about a $20 billion addressable market with over 4.5 million tests per year potential. And we think that less than half of this market is accessible with tissue-based approaches. Of those 15 million cancer survivors, most of them are many years out from having a surgical resection where it may be near impossible kind that remaining tissue that's locked away and we're in a drawer and [Audio Gap]. How does this perform? The performance is very well. The Guardant Reveal not only looks at mutations in the disease. It looks at methylation changes or epigenetic [Audio Gap] in the DNA. And that's what provides the market-leading performance for this test. In colorectal, we have seen about 91% sensitivity in the longitudinal setting with a lead time to scans of 6.6 months on average with 100% specificity and very similar data in breast cancer as well, 85% sensitivity up to 18-month lead time and 100% specificity [Audio Gap]. And so with that, I'll turn it over to AmirAli to give an update on [Audio Gap].

Thank you, Helmy. So since the beginning of Guardant, we envision a day that with a simple blood test, we can shield patients against cancer [Audio Gap]. Here we go. And I'm very happy to actually be up [Audio Gap]. Let me set this page first. When we are looking at our lead indication for colorectal cancers, although we are building this with multi-cancer. We are finding 75% of patients who are dying because of colorectal cancer have not been up to date. Their screening [Audio Gap]. Colorectal cancer is the [indiscernible] cause of mortality, cancer-related mortality. And when we look at the 5-year survival, the answer becomes [Audio Gap]. When a patient have early stage, they have 90% chance of surviving for 5 years, late stage 4 [Audio Gap]. Having said that, although we had a screening program for years in the country, 1 in 3 adults [Audio Gap] are not complying to any modality of screening, colonoscopy or [Audio Gap]. And the other public health issue that we have in this [Audio Gap] so a huge unmet need. And when you think about what are the issues that the compliance is [Audio Gap]. Clearly, the patient [Audio Gap] any kind of [Audio Gap]. And we are finding 64% of the patients really prepared just a simple blood test versus 36% combined for colonoscopy, blood test [Audio Gap]. That's why we believe a well-performing blood test and really increase compliance rate and redefine how colon cancers [Audio Gap]. We are very happy that we validated, and we launched our first [Audio Gap], first indication of colon cancer as a lab developed test. What you're seeing here is our validation data for this asset in line with other data that we presented in 2019. But with specificity of 92%, we have very high performance of over 90% [Audio Gap] colon cancer. And also we can detect some advanced adenoma [Audio Gap]. What's next? We promised that we are going to launch this field assay this year, and we launched it a month ago. And now we are waiting for our pivotal data readout, ECLIPSE trial that we've [Audio Gap] registrational study in 2019. We're very close to get to that data readout, which we mentioned that data is going to come out in the second half of [Audio Gap]. We have 100 commercial team that's basically built from [Audio Gap]. We are going to submit our PMA package to FDA by end of this year, and we expect FDA approval [Audio Gap]. It's a successful readout of ECLIPSE by end of 2022. And as you may know, there is a finalized national coverage determination for Medicare, but once we get FDA approval, we're going to get CMS coverage by that. That would trigger advanced diagnostic lab test status for us, which then would get connected to our pricing strategy that we [Audio Gap] process based on [Audio Gap] that's the pricing for our Medicare approved test. We expect guideline included by USPSTF [Audio Gap] which would drive a really broad patient access and mandate for [Audio Gap]. Until then, by then, we are going to scale our commercial team [Audio Gap]. But CRC is just our [Audio Gap] 130 million people in United States [Audio Gap]. But we are not envisioning [Audio Gap] and do a blood test and detect colon cancer. With the same test, not only you can detect high-performing colon cancer, but you can detect lung cancer. You can detect pancreatic cancer. You can detect bladder cancer and few other cancer types. In different conferences, now we've shown some data, like with specificity of 90% with the new version of the shield, which is for multi-cancer, we are seeing 87% detection in lung cancer, over 80% detection of pancreatic cancer, 75% detection in bladder cancer. And that would really expand the TAM of this build device from $20 billion, which is per average per seat over $50 billion multi-cancer [Audio Gap]. In terms of our more details of the execution that Helmy talked about earlier, in 2021 relative to 2020, we saw 38% year-over-year growth, a test to the clinicals customer; 16% biopharma and revenue growth of 30%, with a very healthy margin of 67%. And what we guided for this year is even faster growth on the clinical customer site of more than 50% year-over-year growth. More than 30% growth to the biopharma clients and a revenue of range between $460 million to $470 million range equals to 24%. And with strong balance sheet [Audio Gap]. There are still a bunch of catalysts left, and we are very excited about the key milestones in our business, some of them that we have already achieved in the first half of 2022, and there are some other catalysts in the second half and in the years to come. Like we got reimbursement for our tissue product, got regulatory approval in Japan. We have the first operating lab in Spain, running Guardant360 in one of the major cancer centers. On the recurrence monitoring, we demonstrated very solid data for multi-cancer on reviewing conferences. On screening, we launched LDT [Audio Gap] and in terms of upcoming catalysts, we believe we believe we can get CMS reimbursement for our response product, showing more growth on our base business, launching the multi-cancer version of the reveal, giving the MolDX and Medicare coverage for Reveal and CRC. And finally, on the screening side, getting to the readout of ECLIPSE, submitting our FDA and getting the ADLT status, Medicare coverage, favorable pricing guidelines and continuing to make progress on the [Audio Gap] cancers. One thing to mention, we announced that we are going to launch smart liquid biopsy platform, which is going to redefine liquid biopsy field forever. We think that's liquid biopsy 2.0 that would really redefine what you can do with blood test [Audio Gap] and MRD. With that, thanks again for including us and back to Brian.

[Audio Gap] you guys have a ton going on, exciting to see how you guys are progressing across all the different [Audio Gap] oncology in a very unique way [Audio Gap] others have not been able to do. Maybe we'll start with Helmy, a question for you on that topic [Audio Gap]. How are you differentiated [Audio Gap] versus everybody else that's out there? We talk to companies, their investors, we talk to companies. Everybody says their technology is the best, everybody says that their approach is differentiated. But maybe you can spend a little bit of time talking about what you do that is different than other players in the space that really does differentiate?

Yes. That's a loaded question. I think there are a lot of layers there that we've built core competence. And from the technology side, we're seeing most of the players really use [Audio Gap] chemistries and [Audio Gap] not really picking apart the entire workflow, getting to end and reengineering it, but actually solves the problem you're trying to solve, which is a high-sensitivity detection or clinical utility application. And that's what we've, I think, honed in over the last 10 years, ability to do that repeatedly and to do it with a really unmatched tool. We're doing things on the [ entomology ] side and the chemistry [Audio Gap] really unlocking that signal biologically as well on the informatics side in terms [Audio Gap] learning [Audio Gap]. And I can tell you that because of the scale we have and hundreds of thousands of samples we processed, machine learning doesn't work very well in the data star [Audio Gap] need that data, you need that rich data to be able to [Audio Gap]. That's been a big, I think, [Audio Gap]. Let's say that the other area we've been good at is really defining kind of new space is finding pockets of [Audio Gap]. We see companies going in directions that may not be that fruitful from a clinical [Audio Gap]. Information is okay. We are involved in kind of getting to a $1,000 genome, we are the aluminum. And there was a lot of excitement about getting to that point that once we get to the $1,000 genome, it essentially solve human disease and everything will be different. When we got there, and all we got was 3 billion letters when we didn't get much [Audio Gap]. But it takes a lot of work to go from information, utility, where you're actually changing [Audio Gap]. And that's what we're thinking about with, for instance, our smart liquid biopsy. That's a 100x larger real estate than we have with Guardant360. But we're not just doing it in the genomic space, we're going to epigenomic, we're going to immune signatures. We're really trying to find a multimodal approach that captures that sort of knee of the curve in terms of utility of all the pieces that we know are going to change clinical decision-making on day 1. So we're very excited for that new platform to the things [Audio Gap] face in a radically different direction does like only launched the first conference of liquid biopsy [Audio Gap].

Certainly, when you were at ASCO over the [Audio Gap] a lot of concepts that are highlighting [Audio Gap] love to hear one more thing that is out of ASCO like what was the reason that you were there [Audio Gap] ASCO? What were the topics around diagnostics [Audio Gap].

Yes. I don't know -- I think it was a relatively quiet ASCO from a lot of perspectives, but I would say, to your point, I mean 5, 10 years ago, if you saw ctDNA presentation or liquid biopsy presentation in some corner in the basement somewhere that you could barely find. Now there's almost no presentation that [Audio Gap]. It's a huge difference. I would say in the MRD space, there was some interesting data in showing clinical utility to at least the idea that you can use these tests, the delayed treatment potentially, patients [Audio Gap] sort of curative resection the adjuvant setting. And so that's very exciting to see that, that data is starting to mature. And I think it's setting a foundation that these tests will become [ standard ] in this big recurrence monitoring setting.

AmirAli, for you. I'm not sure if you're aware of this latter, this is colon cancer product. But I want to kind of broaden out a little bit because while that is certainly critically important will have a big impact on -- certainly on your company. It really is just the beginning. So just kind of go back through your approach and how we differentiate from what others are doing, where it's more [indiscernible] product, multi-hit panel or, hey, we're coming out with [ 12, 15 ] [Audio Gap] at a time versus you, which is a little more stepwise. Can you talk about the thought process there? And any differentiation [Audio Gap] bring there?

Sure. So I think colorectal cancer is pretty important, but we are talking about this second cause of cancer-related mortality, what's number one, number one is lung cancer. [Audio Gap] screening cancer. Those [Audio Gap] scan which the compliance rate is less than 5%, and the specificity on average is 80% [Audio Gap] have to do biopsy. But let's maybe step back and even think about and talk about this multi-cancer vision [Audio Gap]. We believe to save lives. We need to have platform, technologies and products that we can detect cancers at early stage and make sure people get access. Like the cranking market product by some of the players in the [Audio Gap] there to be a multi-cancer late stage [Audio Gap] cancer and stage [Audio Gap] that like average less than [Audio Gap] where the cancer with [indiscernible] get redefined, if we can detect those [Audio Gap]. So we believe you need to have high sensitive, like CRC, we are detecting [Audio Gap]. We're showing again high 80s, 90% [Audio Gap] that's what's required and [Audio Gap] to some extent bladder cancer. The second part is access. We don't believe [indiscernible] really change mortality and build over $50 billion kind of -- go after more than $50 billion TAM by just asking people to self pay $900 or asking employers [Audio Gap]. That TAM is very small. It's hard to make sure people get access to the test. You need to have payers behind your test and your coverage policy. You're out [indiscernible] for patients, endorsements of approval by agents. And we believe we are the first company with FDA approval of [Audio Gap] blood test starting from CRC, but that would be our anchor indication for expansion, any [Audio Gap] kind of offerings versus other tests, my best knowledge there is no [indiscernible] for FDA approval [Audio Gap] coverage at this [Audio Gap].

We have just a few more seconds, and Mike, I wanted to ask a few questions about profitability and kind of targets that you guys have in terms of time frame? And then also just thoughts on cash [indiscernible], it's everybody's mind, obviously.

Yes. Path to profitability is something that we're very focused on. I think, I mean, first of all, we're in a very strong position from a cash point of view at the moment. At the end of last quarter, we had something like $1.5 billion in cash on the balance sheet. And that funds our operations and growth for at least the foreseeable future. And then the way we look at profitability is really across the 2 different businesses, 1 oncology, which is the current business, therapy selection, MRD. And there we see -- as we start to get reimbursement on new products, we've got strong gross margins in the 60% range. And over the last couple of years, we've really built out the sales and marketing and R&D infrastructure. So we're not going to have huge step-ups in OpEx on that business. And that's on the path to be profitable within the next couple of years. And then after that, we're going to be able to contribute positively from a cash perspective. Screening is different. We're going to actually invest there, but we're going to do that thoughtfully. We've built out an initial commercial infrastructure. And we'll build that up as we get milestones, so FDA approval, medical reimbursement. And so we look to be on the path for profitability overall for the business, 1 to 2 years after being in the guidelines at the latest, I would say.

Thank you for that, and thank you for the presentation. We'll adjourn up to the out of the Adler room on the second floor. Thank you.

Thank you.

Thank you.