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

Perfect. Good afternoon, everyone. This is Rachel Vatnsdal with the Life Science, Tools and Diagnostics team at JPMorgan. Thank you so much for joining us today for Guardant Health's presentation. So as you've seen with most of these, it's going to be 20 minutes roughly of presentation, followed by 20 minutes of Q&A. If you have any questions, feel free to either ping me directly or submit them via the portal. And with that, I will pass it off to Helmy. Thank you.

Thank you, Rachel, and it's great to be here. So thank you, everyone, for joining us today. Here's our forward-looking statement. So we founded the Guardant Health 11 years ago with the bold mission of giving us, our families, friends and loved ones all more time free from cancer, a disease that we believe could be ultimately conquered using vast amounts of data as our weapon. And in those 11 years, we have delivered on that promise. We now have a robust suite of precision oncology products addressing both late- and early-stage cancers as well as recurrence monitoring for cancer survivors. And now with our new screening assay, Shield, Guardant is the first company that has liquid biopsy product offerings spanning the entire continuum of cancer care. At Guardant, we have always been trailblazers, and this year, we will continue to blaze a trail in a groundbreaking cancer screening category as we eagerly await the planned launch of Shield IVD in 2024 for colon cancer screening, pending FDA approval. With that, I would like to start our presentation with a patient story for our newest product category, Shield. [Presentation]

These stories are the fuel that drive our relentless work. We have made great strides and have administered more than 500,000 cumulative tests. Additionally, these achievements have resulted in a remarkable financial track record with strong revenue growth with a 5-year CAGR of over 44%. And finally, as we have previously forecast, we did, in fact, reach our goal of becoming cash flow breakeven and therapy selection by the end of 2023. Now let's dive into each one of our product franchises. And first, we're going to start off with therapy selection, which is a market consisting of around 700,000 advanced cancer patients in the United States, with a total addressable market opportunity at scale of $10 billion. Since launching Guardant360 in 2014, we have built a comprehensive portfolio of 4 precision oncology products that address multiple aspects of the therapy selection market. First, we have our FDA-approved Guardant360 CDx, as well as our next-generation Guardant360 test, that helps physicians match their patients to biomarker-driven therapies using a simple blood draw. Combined, these 2 products are the most ordered and clinically validated liquid biopsies for comprehensive profiling on the planet with over 450 peer-reviewed publications in support of their utility. We have -- we also have Guardant360 TissueNext, our tissue CGP product that works hand-in-hand with Guardant360 CDx, and Guardant360 Response, the first blood-only liquid biopsy for monitoring of therapeutic response to IO and other targeted therapies. We are thrilled with the strong uptake we are seeing from oncologists for our newer products, and that excitement is further increasing adoption of Guardant360 CDx in a very nice virtuous cycle. Now let's take a look at our clinical testing volumes, which are a key driver of revenue. We have seen rapid expansion over the last 5 years with clinical testing volume growing at a 5-year CAGR of 43%. While these charts include all the products in our oncology portfolio, the vast majority of the tests have been Guardant360, which, as you'll see in a moment, continues to have strong momentum even in its ninth year. Indeed, in 2023, we delivered 173,000 clinical tests and have a number of tailwinds to continue that growth for 2024 and beyond. The key to a financially strong diagnostic business is robust gross margins. To this end, we have recently made great strides in improving ASPs for Guardant360. Specifically, in November, Medicare finalized its proposal for the Guardant360 LDT price to be crosswalked to the price of Guardant360 CDx. This took effect on January 1 of this year, increasing the Medicare price of Guardant360 LDT from $3,500 to $5,000. We're also starting to see the positive impact of Guardant360 ASP from commercial payer coverage wins, and believe that this is a tailwind that will continue to play out in the coming year. As a result, we expect that in the first quarter of 2024, Guardant360 ASP will increase by approximately $200 compared to Q3 of 2023. In line with some of these commercial coverage tailwinds, we have continued to make excellent progress in working with other stakeholders to help pass biomarker testing coverage mandates. These mandates have now passed in 15 states representing well over half the U.S. population, with the most recent bills passed in California and New York. And importantly, the majority of this legislation impacts not only the treatment selection business, but also MRD and monitoring. This legislation will help serve as an important ongoing catalyst for private payer coverage for the entirety of our existing portfolio and for future products. We believe we are still in the early phases of growth for utilization of therapy selection. Specifically, we see 3 key drivers of growth for the overall therapy selection market. First, increasing liquid and tissue adoption. Second, the ability to detect emerging marker and extend the use cases of current biomarkers. And then third, moving to earlier lines of therapy. Very excitingly and in line with the first key driver, the NCCN Lung Guidelines were just updated this month to include the use of concurrent testing with both liquid and tissue for patients in order for physicians to be able to maximize both biomarker detection sensitivity and speed to results. We look forward to this recommendation being adopted across other cancer types in the future. Now I'll detail more initiatives we are working on that we believe will also help support growth of our therapy selection franchise. The first focus area for us is streamlining the customer experience. To this end, we have made excellent progress integrating with the 3 largest EMR systems in the oncology space, which encompass approximately 2/3 of practices. We are pleased to report that we have now integrated with more than 475 accounts, exceeding our original target of 400 by year-end. We are seeing great increases in efficiency and ease of ordering leading to a 75% reduction in ordering time. We believe these integrations will serve as a catalyst for increasing ordering depth per account throughout the year. Another critical growth driver is not only increasing adoption of biomarker testing bottoms up at the physician level, but top down at the large group practice level, especially in the community where most patients reside. Accordingly, we are pleased to announce that we are partnering with U.S. Oncology, one of the largest community oncology practices in the country, to help support adoption of biomarker testing for their patients in their network. Next, I'm pleased to announce that this year, we will launch an updated version of Guardant360 built on our Smart liquid biopsy platform. We believe this will mark a significant leap forward for the field of therapy selection by taking it from comprehensive genomic profiling to comprehensive molecular profiling whereby broad genomic and epigenomic biomarkers are tested for each and every patient. Guardant360 on our smart platform will help identify more patients for existing therapies that are undetectable by current CGP tests, identifying novel targets for new therapies for our biopharma partners, and provide detailed phenotypic information about the tumor such as histology, subtype and more. New features will be continually added to the test as we clinically validate additional functionality. Finally, we have seen excellent uptake of our TissueNext product and are also planning to launch an upgraded and greatly expanded version of the test this year. We believe another important driver for volume growth in 2024 will come from international expansion, which has historically been a relatively smaller portion of our volumes. We are continuing to make good progress in Asia with the recent launch of Guardant360 for clinical use in Japan, which represents the largest international clinical testing opportunity within our portfolio. We are also seeing good momentum in the U.K. as the Royal Marsden’s Guardant-powered laboratory was awarded an expression of interest by NHS England to launch liquid biopsy for non-small cell lung cancer, potentially making this technology accessible to thousands of patients across the country. Earlier today, we announced an agreement with Hikma Pharmaceuticals, a multinational pharmaceutical company, to promote our portfolio of liquid and tissue biopsy tests across the Middle East and North Africa. In this region, there are more than 400,000 new cancers each year and cancer incidence is expected to double by 2040. We are excited to partner with Hikma and leverage their strong commercial capabilities and regional expertise to equip oncologists in the region with the necessary tools for cancer screening, recurrence, monitoring and guiding treatment selection. Turning to our biopharma business. We ended the year with nearly 30,000 samples, up 15% from the prior year. GuardantINFINITY helped pave the way, representing more than 30% of our biopharma testing volume. Notable achievements included successful entry into China with more than 30 partnerships in our pipeline. Looking forward, our robust companion diagnostic pipeline, coupled with the backlog of deals won, positions us for significant growth in 2024. Furthermore, we believe our active engagement with biopharma leaders for strategic partnerships, especially in exploring the potential of epigenomics for their pipeline of assets, will drive even more demand for our products and services. In summary, we are very pleased with the progress in therapy selection over the course of 2023, but believe there's much more to come from a number of these drivers in 2024. Now let's take a look at our MRD business. The market is comprised of about 15 million early cancer patients and cancer survivors, which represents a $20 billion TAM in the U.S. at scale. There are two main approaches in the MRD space. The first is called tumor informed by where one needs to physically obtain a tissue specimen for the tumor and sequence it to be able to test the patient. And our approach, which is tissue free, which only requires a blood sample. The tissue-free approach is certainly more difficult, but we believe it will be ultimately the modality that has much greater product market fit and thus will capture a larger part of the market for three main reasons. One, it's faster, enabling results in days rather than weeks. Two, it's easier, enabling monitoring of patients that don't have tissue in the neoadjuvant, adjuvant settings and for survivors that are years out from surgery. And finally, three, it's in the category of its own in terms of power and utility. Rather than just telling the physician if a cancer has recurred, our tissue-free MRD test Guardant Reveal, built on our smart liquid biopsy platform, will uncover the why and what to do next. I'm excited to share as of this year -- as of last year's end, we have upgraded Guardant Reveal to our smart liquid biopsy platform. With this broad methylome-wide technology, we can now achieve high performance since our methylation chemistry is tracking hundreds to thousands of active alterations per patient versus just the 16 to 50 mutations from tumor-informed assays. As we detailed at our Investor Day, we have a low background methylation chemistry that leads to ultrahigh specificity and we maximize overall accuracy by applying machine learning to thousands of clinical samples. Finally, physicians will be able to use the test to pointedly retract and quantify tumor fraction in the MRD setting with high precision using our epigenomics based technology. Guardant Reveal is currently available for CRC, breast and lung cancers and will be expanded to other tumor types over time. We previously shared data from our COSMOS colon study looking at Stage II and III patients and showed that Guardant Reveal and our smart liquid biopsy platform achieved 80% surveillance sensitivity with 99% specificity. One thing we are learning is that sensitivity of MRD assays is highly dependent on the compositions of patients in a particular study. This is because the site of recurrence greatly affects the shedding rate into the blood, with some metastatic sites shedding much less than others. At this level of analysis, it's very exciting to see that Reveal performs favorably to other MRD approaches when comparing the dominant metastatic sites for CRC patients. We are finalizing the manuscript for this data and it will be included in our submission to Medicare for our surveillance indication. We are also pleased to report we have now assessed 3 clinical breast cohorts with our Guardant Reveal assay and smart liquid biopsy. We achieved a blended 82% surveillance sensitivity for distant recurrence, with 97% specificity on this very sizable combined cohort. We are very excited by this data as both of these numbers are in line and, if not, favorable, to other approaches in this space. We also look forward to sharing more details about this data this year and including this in our submission to Medicare. At our Investor Day, we laid out the vast size of our clinical cohorts for establishing validity and utility of our Guardant Reveal. The biobank and trials we've amassed are comprised of over 20,000 patients and 80,000 samples across many solid tumors. And these samples are going to be used to essentially support additional indications for reimbursement over time. Now I'll hand it off to AmirAli to detail our progress on screening.

Thanks, Helmy. At Guardant, we are pioneering a new category of blood-based cancer screening tests. Our mission has always been improving patient lives, and with our cancer screening tests, we will deliver an accessible test that will detect cancers at earlier stages of the disease. Early detection is the key. Looking across 26 different solid tumor cancers, which comprise 87% of all cancers, the survival rate is just 14% once the cancer has metastasized. However, when the cancer is diagnosed as regional or localized disease, the survival is much, much higher at around 65% to 90%. To change these outcomes at the population level, we must not only develop a high-performing tests that can detect cancers at the localized or regional stage, but it must be an accessible test that consumer will actually follow through and complete. A blood-based screening test does all of that. We believe the best approach on accessible multi-cancer screening test starts with colon cancer indication where there is an established reimbursement pathway and a huge clinical need to improve patient compliance for screening. Looking at the market for colon cancer screening, there are 137 million people in the U.S. between ages of 45 to 85. Of this group, 120 million individuals are considered to be average risk for colorectal cancer. 70 million individuals are up to date with their CRC screening. The vast majority is through colonoscopy, and about 15 million people are getting screened with stool-based tests. And you can see that even with these available screening modalities, there are still approximately 50 million people that remain unscreened. The lack of compliance contributes significantly in making CRC the second leading cause of cancer-related death in the United States. 76% of CRC deaths are in the individuals that are either not up to date or have never been screened for colon cancer. The first factor for any screening test is to demonstrate its clinical performance. To this end, we successfully conducted our registrational ECLIPSE screening trial. We enrolled more than 45,000 patients and used roughly 23,000 samples to run for our PMA submission. Our PMA study demonstrated the performance of Shield to be at 83% CRC sensitivity, with specificity of 90%, both within the performance range of other guideline recommendation -- recommended modalities. We have approximately 20,000 additional blinded biobank samples that can be used for future IVD studies and device upgrades. 2024 is a turning point in our journey for Shield. We are making steady progress in FDA review, and we'll go through an advisory committee panel discussion as the next phase of the review process and are preparing to launch the test following FDA approval. Under our milestone gated investment in our PCP commercial channel expansion, we are planning to have a field force of 100 FTEs to support Shield IVD launch. As we get close to USPSTF guideline inclusion, which we expect in 2026, we plan to expand our field team to about 300. After guideline inclusion, we plan to expand the team to about 700 FTEs at scale. With our early commercial experience with Shield, we are witnessing the real-world evidence of its effectiveness of driving unparalleled compliance in completing cancer screening. In over 20,000 ordered Shield tests, the adherence rate was 94%, which is much higher than the range of 38% to 65% with current modalities. In the health system setting, a randomized study was conducted at Kaiser Permanente and demonstrated that, when individuals who hadn't completed fit, were offered Shield, the rate of screening increased by more than 2x. This highlights the significant impact of what Shield can do when this blood test is added as a new and accessible option for CRC screening. It's so exciting to hear from physicians how adding Shield to their testing menu has positively impacted their practice. Feedback on Shield has been nothing short of exceptional. We are hearing how compliance has skyrocketed in PCP practices and how individuals who've never been screened due to existing barriers are now getting screened due to the opportunity to test right in the office. This collective response from ordering PCPs underscores a significant endorsement of Shield's value and utility even prior to receiving regulatory approval and guideline inclusions. Just like we've seen with John moments ago in the video, we are excited to see the impact of Shield to give patients more time free from cancer in the near future. CRC screening indication for Shield is just the beginning. Our goal has always been to have a blood test that can detect multi cancers at early stages. Our second strategic indication is lung, the leading cause of cancer-related mortality. We are continuing to make good progress in enrollment of our cancer screening, our lung cancer screening study. But we are not going to continue to add cancer types one by one. We are also working on adding the early detection of a panel of cancer as an indication expansion into the same Shield test. Now turning to our full year performance. 2023 was another very strong year for Guardant with full year revenue growth of 25%. This increase in revenue was fueled by strong performance across both our clinical business, with test volume growing 39%, and our biopharma business where testing volume grew 15%. We continue to be laser focused on managing our cash and driving down a path to breakeven. In 2023, we successfully lowered our cash burn to our target of less than $350 million, while continuing to grow our therapy selection business and make significant investments in both MRD and screening. We closed out 2023 with $1.2 billion in cash. And as we look ahead to the next 5 years, we are confident that, by starting to generate positive cash flow from therapy selection, by driving MRD to profitability, and by carefully managing the spend in our screening business, we can continue to lower our cash burn each year so that, by the time we reach 2028, we will be cash flow breakeven. As we look ahead to 2024 and beyond, we have a number of upcoming milestones in each of our key business across -- business areas, including liquid biopsy upgrade for Guardant360, volume expansion across therapy selection, data publication for MRD, and finally, Shield IVD launch for screening. With that, I'll turn it back to Rachel to open it up for questions.

Perfect. Thank you so much for kicking that off with the presentation. So first, I wanted to dig in a little bit more on the pre-announcement from this morning. You announced a strong revenue beat behind clinical volumes, or, excuse me, volumes in both clinical and biopharma. So I was wondering if you could walk through some of the trends that you saw in that core business exiting the year. And then what sort of organic momentum does that lead you up into 2024?

Yes. No, I mean, we're very excited by the performance we had in Q4. Q4, at least for clinical businesses, tends to be a little bit challenging just because of the holidays and some of the storms that are there. And so the fact that we continue to see really nice strong sequential growth I think sets us up for a really nice '24. I think we saw a stabilization in terms of some of the breast pressure that we had seen before. We're now, I think, in a good spot in terms of really just continuing to grow volumes. And biopharma, I think, was especially exciting. I think that has been an area of pressure for many players in the space. But for us, it really has been a really nice area of growth and strength. And we are really deepening a lot of the collaborations with some of the larger biopharma companies in this space. And this really sets us up where our backlog and pipeline has continued to grow, and yes, we're looking forward to next year.

Great. And then speaking of next year, I wanted to touch on 2024 and kind of a framework for that. So at your recent Analyst Day, you laid out your new financial targets, which assume over 30% total growth from 2023 through 2028, with therapy selection and MRD both growing over 20% in that same time frame. So in terms of 2024, given some of the puts and takes, whether that's ASP lapping some of these difficult comps on the volume side as well, how should we think about 2024 on that core business?

Yes. In the core business, yes, over the next 5 years, we've sort of laid out, yes, this 20% CAGR. And as Helmy was mentioning, and what was in the presentation, I think we see that we are really set up very well for 2024. You mentioned the ASPs. We've had really good traction in those ASPs. We'll see something like a $200 hike for Guardant360 ASP in 2024. We've going to get really good traction on volume as well coming on the international side as well as in the U.S. And I think TissueNext, Response and Reveal are also set to be drivers next year as well. So that, on top of the pipeline we've seen on biopharma, I think it sets us up really well. From a guidance perspective, I think we'll have our earnings call in February, and we'll sort of lay out more specifics on the revenue guidance for next year. But I think at the moment, we're feeling very confident for 2024.

Perfect. That's helpful. And then I wanted to dig into Guardant360 ASPs there. So on the LDT side, that was crosswalked to $5,000 recently. So how should we think about Guardant360 ASPs into next year? And then how does that impact the gross margin line as well?

Yes. Again, with the LDT uplift going from $3,500 to $5,000, that's a $200 uplift overall for Guardant360. The other thing that we've seen early in 2023, we got coverage from United and Anthem. And we said that would take time for that to come through into the ASPs. And towards the back end of the year, we've started to see that. So we started to see faster and better payments from those payers. So I think that 200 for 2024 is based on the Medicare LDT rate only. I think if we continue to see the same traction from the commercial payers, we could have some upside on that. So again, I think we're confident on the ASP. We're confident on that $200 uplift as a minimum. And yes, there could be some upside.

Perfect. That's helpful. And then on the NCCN guidelines for lung, can you walk us through that? Had you expected that to come this month? Or would this represent more upside to 2024 from either a volume or ASP perspective or both? And then walk us through the significance of that guideline inclusion for therapy selection.

Yes. No, we're very excited about it. I think it was kind of a surprise Christmas present for the space here. So I think it was nice to see that the guideline committee in lung, which tends to be the sort of kind of lead indication when you think about solid tumors, it's the canary in the coal mine, so to speak. And so we believe that this bodes well for other cancer types really taking what we think is the right stance in terms of maximizing sensitivity for patients. Essentially, they recognize that liquid and tissue are both valid sort of means of getting this information. They both have false negatives potentially. They sometimes miss things. And so when you think about those important biomarkers and the fact that finding one can change a patient's life, I think the fact that they recognize that testing both modalities at the same time is not beneficial for patients, I think, bodes really well for expansion for the space and for the market.

Great. And then just shifting over to MRD. I was wondering if you could spend a minute talking about the competitive dynamics right now. You mentioned some of the tumor-informed versus tumor-naive approaches. So anything you're seeing in the landscape there would be helpful.

Yes. No, we continue to be very pleased with how the shape is really spacing out. We really don't see almost any competitive pressure on the tissue-free side. We think it really is apples and oranges in terms of where we can go. We think that a large part of the market is not going to have ready access to tissue. And right now, we're only -- we're really the only player in this space. So yes, we're looking forward to just being heads down focusing on reimbursement and expanding our ASP.

Great. And then I wanted to ask about the biopharma business. Can you just walk through how should we be thinking about that segment in 2024 given some of the macro environment, some of the funding constraints and things like that?