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

Kick things off for our next session. Thanks, everyone, for joining us. My name is Mike Ryskin. I'm the Bank of America Life Science Tools and Diagnostics team. And for our next session, we're excited to host Guardant Health. We're joined with AmirAli Talasaz, Co-Chief Executive Officer; and Mike Bell, Chief Financial Officer. AmirAli, Mike, thanks for joining us.

Thanks for having us.

Just to kick things off, I don't know you guys have any opening remarks or maybe you want to opine on how the first quarter played out?

We're very excited actually how this year started for us. We had a great Q1, and we are looking forward to a bunch of activities in very near future, including this AdCom, which is going to happen for Shield next week. We're going there, excited, I'm confident. In general, we are looking at this year as a very great year when you look at actually 2 brands with huge potential, Shield and Reveal can go from a gross margin negative product to gross margin positive products in near future as we go to next year. It could be transformational for us and our core business is growing solidly, and we are very happy with our position there and the market dynamics there. So we are very pleased.

Maybe I'll just jump in a little bit on the first quarter, walk through some of the points, and then we'll move on to the AdCom and Shield and Reveal. Just on the quarter, you had a really impressive beat well ahead of the Street. You raised the fiscal year guide. I mean it was pretty broad-based, both on ASP and volumes. Just on the volume side of things, anything in particular that drove it? You called out a small cash collection, $8 million benefit. But even excluding that, it was really strong. So just speak to the underlying strength?

Yes. I mean underlying strength across the business. You mentioned the ASPs for Guardant360. We were able -- we had the uplift at the start of the year because we had the Medicare LDT rate going to $5,000. But then on top of that, we saw really good traction with commercial payers. So that led to actually a onetime true-up from Q3, Q4 last year of about $8 million, but the increase in -- the main increase in our guide was driven by Guardant360 ASP. So we've increased that, the range of ASP there to $2,900 to $2,950. And for the full year, that leads to something like a $10 million upside. But as well as Guardant360, we actually saw really good traction with ASPs on TissueNext, Reveal and Response. And that's really coming from the commercial pay side. So I think a lot of the work that the team has done in the past is starting to really drive the topline now. And then, of course, when we get an increased ASPs, that's flowing down to the bottom line. And we were really pleased to be able to reduce our cash burn for the year, and that was coming from one, a reduction in our spend on the screening side. But then just as much was coming from the ASP upside and the upside that we get on the revenue. So a great, great start to the year. And I think we see potential upsides even on the ASP as we go further into the year.

Yes. I mean just on that point, Mike, the ASP that you called out the $2,950. Like you said, a nice strong jump in the first quarter, but it seems like there's a little bit more upside potential through the rest of the year. You're not baking any of that in right now. How could you see that develop over time?

Yes. I think we always want to be conservative on how we set those ASPs each quarter. I think the biggest potential uplift that we've got is related to this Medicare LDT lift. So we had the -- again, they uplift to $5,000 from what Medicare pays us. What we didn't bake into that Q1 increase was the potential to get additional reimbursement from Medicare Advantage and the commercial payers. So hopefully, they'll sort of follow suit and be paying sort of close to that Medicare $5,000 rate for the LDT. And if that comes through and sometimes these things can take a few quarters, but if that comes through, then that will be a nice additional upside. So again, we're working hard on that. And yes, it could be a nice upside.

Okay. Let's move on to the AdCom for Shield. Like you said, it's come up very soon. A lot of anticipation there. Last I saw on the website, I'll be honest, I haven't checked in the last couple of days. There were still a few seats open. I know the delay earlier in this year was because they couldn't fill the seats. Just -- doesn't need to be 10 out of 10, right? It is sort of a judicial freedom there. So you're comfortable with the proceeding next week?

We imagine that -- I know members would be there, we're going to be there. So let's see. The outcome is going to happen next Thursday. We are very excited, we are prepared. In terms of the membership, our understanding is there are some kind of committee members that they are assigned for 2, 3 years. They are official members, their name shows up on their website. And then sometimes they add temporary committee members, which are just for that specific AdCom for that specific topic. And apparently, those names do not show up on the website. But we are going to know the name of the panel members actually couple of days before the AdCom tune. But we imagine everybody would be there.

Okay. That's a relief. That's step one, it's actually having it. And then in terms of your expectations going into it, I mean, a lot of debate in terms of what will actually be the outcome. So just right now, what are you looking for?

What we need is to get FDA approval for Shield. We have good -- we are continuing to make progress with agency, this interactive review process. The tone continues to be very positive, supportive, collegial, collaborative kind of interactions. We had with throughout last year and a quarter, and we expect to get this to the finish line and get FDA approval. That's what we need to really build a solid brand and have a successful Shield launch later this year. But we will see actually how the outcome goes next week. Again, we are going there excited, well prepared. I'm confident.

And in terms of the label itself, I mean, we're getting a lot of questions on first-line versus second line. I think you've talked about in the past about the market opportunity in the near term is likely to make a difference, but still, could you talk us through what are the factors that would lead you to one versus the other?

So maybe I can put this in context in terms of commercial opportunity what first line means, what second line means. So, there are 120 million average at risk individuals in the United States that based on guidelines, they have to get screened for colon cancer. So first-line indication means effectively the test would be a choice for patients to pick upfront alongside colonoscopy a stool-based test. So effectively, your opportunity is for the whole 120 million people. The second line means for the people who are on screen for actually declining other modalities and they are not compliant cancer screening. So our estimate is about 50 million people are in unscreened patient population. So that becomes second-line opportunity. The reality of the commercial landscape, though, is colonoscopy is the preferred modality. Like when you talk to doctors, when you're looking even at the market trends, terms of adoption of noninvasive CRC screening versus colonoscopy. Colonoscopy has its own share. And we are not seeing any kind of evidence of replacing colonoscopies and doing more stool-based tests. There are 55 million people today that they are getting screened by colonoscopy. So effectively out of 120 million, there are 65 million which are the reality of first-line commercial opportunities since colonoscopy always would be #1 in terms of preferred choice by physician in terms of conversation and recommendations. So first line would be 65 million, second line our assessment is going to be about 50 million people. That's why we are really focused to make sure we get the FDA approval. Having said that, what we are asking for is a proposed indication is in the first line setting. And indication I've used to actually got published in the Federal registry, which is going to be part of conversation next week is for Shield to be used as a first-line device and test. We believe there are scientific merit with it -- about it, clinical merit about it. We've done a first-line clinical study. Our performance is in range with other first-line options. And really, the trend has been towards giving more choices to patients and physicians versus restricting access upfront. So we are making those kind of arguments about first-line case. But at the end, we need FDA approval. That's what is the success factor for us at the end of this process.

Okay. That's really helpful. And then I appreciate your color on the patient opportunity between first line and second line. What about the reimbursement and the payer landscape? I mean, is there any difference in terms of first line or second line approval, where you're more going to see commercial payers come in or?

So what do we know in terms of the CMS position right now, the national coverage determination for blood-based colon cancer screening requires FDA approval and some certain performance in terms of sensitivity specificity. With the pivotal study that we've done, we are meeting and far exceeding actually those minimum performance based on NCD and the missing piece is FDA approval. So that FDA approval for first line or second line would make us qualified for national coverage determination. And then we have to go through guideline reviews. First, by American Cancer Society and then United States Preventive Services Task Force to say how they're going to react to the performance that we've seen and the data that we have. It's a solid performance in range with other kind of modalities that right now are recommended in guidelines. In fact, we are in range. There are some stool tests recommended in guidelines that across all parameters, the performance is lower than Shield. So we are somewhere in the ballpark in the range of other modalities.

Okay. And then you talked a lot about the FDA approval and the factor there, but you've also got the USPSTF guideline meeting in 2026, there's some chatter it could be 2027, first of all. Any take on that in terms of what gives you confidence in one, it's one or the other? And how much does that matter if it's a couple of months delayed?

So what we -- actually, what we know is USPSTF does not interact with any industry player directly. And so I think any kind of conversation that information shared about delaying USPSTF is -- there is no evidence for it. There is no indication by them that they are planning to delay the process. The last time they did the CRC guidance review was 2021 based on statute, what they try to do is typically like review it every 5 years. What happened for a stool-based case last time, 10 years ago when they got FDA approval 2 years after they went into the guideline. So our assumption would be probably seeing the draft research plan by the task force later this year and then go through the process and hopefully getting included in the guideline before end of 2026.

Okay. And then the other factor I want to touch on here is, as always, there's a lot of noise about other potential entrants private players with various readouts. It's really tough to look at the data because it's not all apples-to-apples, every study is a little bit different. So it's really hard to do those comparisons. But you've been really vocal and really confident that you've analyzed those other tests. You've set some samples and are you confident that there will be degradation and that they're not going to be -- they're not going to hold up to the initial speculation. What gives you that confidence of visibility? And given the readouts we've seen in the last couple of months, does that view still hold?

I mean, our market-leading performance is very clear, right? So I mean, frankly, in our line of sight, we don't see any credible competitor with a blood-based test right now. This is a hard field, like the level of innovation that we are talking about is not easy. Just even take a look at the landscape of Guardant360, we launched it 10 years ago. Still many players cannot even replicate the performance that 360 has in advanced cancer patients and like 12 years of R&D has gone in this company. The DNA of Guardant is an innovative R&D company with leading-edge kind of technologies. So just in imagination that somebody talks about it, they're going to have that level of performance that we've shown, I think it's maybe expecting too much from other people. Based on everything that we know today, there is no single assay that we are worried about at this time. We had a very long lead time in terms of first mover advantage relative to other people.

Okay. Let's move on. I want to talk about Therapy Selection a little bit. It's performing really well, as you talked about, really strong first quarter. Roughly 20% clinical growth you're looking for in fiscal year '24. Anything in particular to call out in G360 from a volume perspective as you move through the year?

Yes. I mean, first of all, yes, I reiterate that we expect overall 20% clinical volumes for the full year. So we were really pleased in Q1 to come out with that 20% clinical volume growth because we know in the first half of this year, we've got very difficult comps because last year, we had ESR1 approval. And middle of Q1, we saw this immediate uptick in volume on breast cancer for Guardant360. And in fact, that was incredibly strong in Q2 of last year. So as we go through the year, I think we expect that year-over-year growth will dampen down a little bit in Q2 because of the prior year comp. And then it will come back potentially over 20% in the back half of the year to get us to the full year 20%. So I think, yes, we started the year off probably a little bit stronger than we expected. And so as we go into the remainder of the year, things are looking good for Guardant360. And again, TissueNext is performing very well. We mentioned for Reveal, we're still in a position where we're actively managing the volumes. So again, to come out with 20% growth in the first part. It was strong with all of the things going on.