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

Okay. Good afternoon, everyone. I'm Derik De Bruin, the Senior Life Sciences and Diagnostics Tool analyst from Bank of America. Thank you for joining us at our 2023 Healthcare Conference, coming to you from -- live at the Encore Hotel in Las Vegas. Our next company is Guardant Health. And with us today is Helmy Eltoukhy, Co-Founder and CEO; AmirAli Talasaz, also Co-Founder and CEO; and Mike Bell, Chief Financial Officer. Gentlemen, thank you for being here. Thanks for coming out to Las Vegas and being here.

Let's kick it off. You just reported Q1 last night, upside quarter, raised the guide, stocks reacting nicely to it. What drove sort of the upside? What drove the beat? What's -- let's talk about the core business and then let's start there.

Yes. No, it's been a really a great start of the year. We've seen a bunch of tailwinds, a bunch of catalysts that have really kept us off to a nice start. We've got the breast approval in terms of companion diagnostic expansion of Guardant360. We saw a really nice step up as soon as that approval came in our breast volumes. They went up 30%, 40% almost overnight. And we saw expansion in payer coverage. We got United in Q1. Having good conversations, we think we'll get Aetna and Humana in Q2. So all of that has a really positive effect on our core business. We're continuing to see strength in our new products. We saw Guardant Reveal and TissueNext go up 100% year-over-year in terms of volumes. And so it's a really good place to be, first quarter, and we think this bodes well for the rest of the year.

And how do we -- should we think about the impact of -- to the ASP on some of these recent coverage decisions?

Mike, do you want to?

Yes. Well, over time, it's only going to be a positive impact, getting reimbursement coverage. We were really pleased this quarter with Guardant360 ASP. We saw that at the top end of the range that we've been seeing over the last year. So the 2,600, 2,700 mark. So it was at the high end there. And that's been driven by the positive payer traction that we're getting as well as the mix. How we mentioned, we've got the breast CDx, and that's pushing some of our volume towards the CDx, which is higher reimbursed. So we've seen really good traction there. And I think with Reveal now, we are reimbursed by Medicare -- with Response and Tissue, we're reimbursed by Medicare. So overall, positive movements on the ASP. There's some mix issues between the new products and Guardant360, which keeps that blended sort of lower than the Guardant360 ASP. But over time, we expect positive movements on all fronts there.

Got it. So one of the questions we've been getting and it goes to the ASP, but also goes from the competition standpoint. There's a lot of companies now that are sort of like following what you pioneered and sort of being the first out there within the peer group. With a biopsy test, how do you sort of think about the competitive dynamic in that landscape? I mean, at some point, does pricing start to come down because it gets hammered, right? Or -- and there's just a lot of other companies that are out there. What are the competitive moats around G360?

Okay. It's been 9 years since we launched Guardant360. We've gone through multiple upgrades. And if anything, we're seeing really nice acceleration of market expansion in its ninth year. And we think that just has to do with the fact that it's very hard to have the level of customer service, the level of data, level of reimbursement and so on that physicians require. The bar keeps getting raised higher and higher. And this is in a year where we're going to go through a major platform transition. We're going to essentially change the game once again with our smart liquid biopsy. And so it's just a fantastic place to be the fact that we have sort of increasing market share, market expansion and we're doing a major platform change to boot. So we feel like that bar is going to keep getting raised. We're going to essentially provide features that are just nonexistent on any other testing platform, and that's going to expand our lead over time. So yes, we're just very pleased with how this year is shaping up.

And can you talk a little bit more about the smart platform and just given some of the people might not be familiar with it and what really differentiates it from some of the followers?

Yes. So this is something that we spearheaded with our screening program in terms of really using methylation epigenomics to really crack the early cancer detection nut, and that's just scratching the surface of what that can do. When you think about it from a human biology point of view, epigenomics is really an under-explored area that is extremely powerful from a sort of clinical utility, clinical disease point of view. And so smart liquid biopsy will bring that sort of age of epigenomics that layer to all our products, Guardant Reveal, Guardant360. Guardant Reveal will be the first one that is essentially switched over to that new platform. But this is really going to raise the bar in terms of -- and redefine what liquid biopsies can do in the sense that you're going to be able to look at promoter methylation that has implications, let's say, in PARP inhibitors, in terms of therapy selection, look at tissue of origin, understand where the metastases is coming from, understand where the reoccurrence is coming from. And so it's really going to provide capabilities that seem like science fiction today and really make them the new standard for this field.

You also got Response coverage. That was a nice little pick up. How should we think about that product going forward? I'm thinking of Response. I don't believe you have a ton embedded in your guide for this year.

Yes. No, it's not something that we pushed very hard ahead of reimbursement. The way we look at this first 8, 9 years was -- it was a sort of 0 to 1 moment where we were just trying to get physicians to use 1 liquid biopsy per patient. We are able to get repeated reimbursement for Guardant360 every time there's a progression. And so we just needed the other half of the picture, which is using this testing platform for treatment -- Response monitoring. We got the indication we received was essentially monitoring of I-O for all solid tumors, which is a major indication in this space. And so we think you can go now from 1 test per patient to potentially 4 or 5 tests per year per patient with the inclusion of Response now. So it is a major milestone for us and really the -- I think beginning of this chapter of adaptive management of patient disease that we envisioned 8, 9 years ago, but now is finally coming to a reality with the tests being out there, the test being reimbursed. And Response is really that sort of last piece of the picture of the last test that we got through Medicare. We have 5 tests now on the oncology side of the business that are reimbursed by Medicare. So we're in a very solid position now as we think about really bumping up ASPs and getting to profitability.

So when you -- going back and looking back a few years, I mean, we did the IPO in, what, 2018, I think, has your view on sort of like the therapy selection market changed? And has it taken longer and cost more than you thought? I mean, you're approaching breakeven in this business. But I'm just hearing your thoughts on what have you -- when you thought about it when you were going public and you sort of look at it now and sort of like what has changed in that?

I would say probably reimbursement was harder. We expect that we're just getting to 300 million lives. Now we thought that would probably happen earlier. But in other ways, I'm pleasantly surprised that therapy selection in lung cancer with liquid biopsies, outstripping tissue biopsy approaches, more patients today from the data that we're looking at are getting liquid biopsies upfront than comprehensive genomic profile, at least in lung cancer. So that's really exciting to see that this thing that just seemed like a niche use case of using liquid biopsy when you had no tissue available because of product market fit. The fact that it's faster, it's easier, it's more reliable, has really paved the way for this thing to become the new standard of care in the U.S. And we think this bodes well for similar kind of road maps for our other products, whether it's Response or Reveal and so on. So it's -- we really do believe when the fundamentals make sense. The performance is there, the customer service, turnaround time, reimbursement, that all of that falls into place and gets you to the top spot.

And let's switch gears a little bit and talk about MRD. Can you -- I mean how has Reveal done? How is that picking up? And yes, I just -- let's start with that. I've got sort of one bigger picture question.

Yes. No, it continues to do well. We're on track in terms of our forecast for this year. As I said before, we've increased volume 100% -- over 100% year-over-year. And that's with us really engineering the demand. We're focusing the volume on the reimbursed indications, so really around CRC, tamping down some of the breast and lung volumes. And as we get closer to releasing data that we believe should be sufficient for additional reimbursement then it will be essentially putting the pedal to the metal more so and ramping up some of those volumes. We think second half of this year, we should be able to have some robust data sets around CRC surveillance, breast cancer. Those look good. We'll submit them to MolDx after they're published.

And there are a lot of tumor-informed approaches out there that are going on. And I mean there seems to be a new one every day that comes out. So is it a winner take all? Is it a split market? Is -- what's the aha moment that gets tumor naive traction?

Well, so I just think that where tumor naive can go or at least where our platform can go with smart liquid biopsy are places that a lot of these other technologies can't. When you think about the idea of it's not just tracking the level of tumor in blood, and you want to do that with high sensitivity and high specificity, which we will achieve with the platform, but it's about telling the physician what to do with that information, what to do next when there is a positive reoccurrence. So where is the disease, what should I treat it with, how can I reflex to therapy selection quickly? All of that is going to be possible in this platform, and it's going to create what we believe is a really nice ecosystem where a physician is going to get incremental data, sometimes 5x, 10x faster than any other approaches because we can potentially do some of that informatically. Obviously, a tumor naive approach doesn't require tissue. And so you can have a very fast turnaround time. And so the experience is going to be fundamentally different and fundamentally better with our platform is what we believe.

Okay. Turning to screening. So it's your turn now, AmirAli. Sort of a boring day yesterday, not much going on. So I mean, you had a call earlier. You were at DDW and releases information. You have a panel with the study investigators and some other KOLs. I guess, what are some of the key takeaways you can share around Shield performance by stage, what it could mean for potential FDA approval, guidelines uptake in the market? Can you just sort of like summarize what happened -- where we are right now? Yes.

So we had a pretty good day in DDW, and the study investigators presented in ECLIPSE data in the conference, starting with the overall sensitivity that we reported before late last year of 83% CRC sensitivity with 90% specificity that we believe exceeds the bars for getting FDA approval, bars for getting Medicare coverage, 2 big hurdles that all diagnostic tests need to deal with. And this data and this performance enables us to get there. And then we hosted some -- we hosted a panel conversation with the study investigators and some expert key opinion leaders, former members of ACS, American Cancer Society, former Scientific Director of USPSTF to get their insight up based on the data that they've seen, do they think this blood test can add value. And we are very pleased with actually what was shared talking about like ACS should seriously consider this test, the performance of 83% is in range with other noninvasive CRC screening tools, which are recommended by guideline, which range 74% to 92%. Even from Task Force perspective, the former Scientific Director of Task at USPSTF was talking about the parameters that they look at in Task Force, quality of the studies, quality of the data, real-world evidence supporting those, the value of adherence, many positive kind of statements about the potential inclusion of this test, not only just in ACS, but in the USPSTF. In terms of staging performance, also, we provided more details about the performance of the assay for cases that got stage 62 out of 65. What we've seen for blended stage 1 to 3, the performance was 81%. And it's again in line with other kind of modalities for screening on the noninvasive side. And this is a very important parameter since early stage detection is important. For CRC 1, 2, 3 blended has a high 5-year outcome survival post treatment. Talked about stage 1, 2 of 72% and in line. And then even stage by stage distribution of Stage 1, 55%; Stage 2 and 3 and 4 of 100% that we are detecting all CRCs as long as they're at stage 2 plus, which is pretty exciting.

Got it. And there was some discussion around 3 cancers that were not stage and [ 5 malignant polyps ]. They're included in stage 1. Can you clarify how this impacted the study results and what insights you can draw on the performance of the stage from this?

Yes. Sure. So true, like the regular standard course of doing this kind of clinical trials, the study was powered to look at the CRC sensitivity in kind of blended fashion. And then for the cases that the patient went through staging, which they should, but in real world, some patients do not go through complete staging based on the way guideline recommends, some of the staging performance came about. So out of the 65 evaluable CRCs, 3 patients were lost 2 follow-ups for staging. Our test detected 2 out of 3, but we had to exclude them from staging analysis. And there were, interestingly, 5 very small T1 malignant polyps which they were CRCs, and they were excised during colonoscopy. So based on the treating physician, the patient is done. No further follow-up was required. The patient was actually kind of did not go through staging and looking at the node involvement for those CRC. So those are not considered stage, but for a purpose of this staging analysis, the investigators decided for the right reason to consider them clinically as stage 1, and they were included in the performance analysis and the Shield detected 1 out of those 5. So that's why the data of 55% that I mentioned earlier was including this clinically stage 1 cases.

Got it. And I'm sorry, and excluding?

Excluding 3 cases that they were lost to follow-ups, like we don't know anything about the staging, like 1 case is even out of the country. So -- and the Shield detected 2 out of those 3.

Got it. Got it. And I mean, are you still convinced that the adherence is still the predominant one over the AA detection?