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

Thank you for your patience, ladies and gentlemen, the Guardant Health's Shield received FDA approval call is to begin shortly. [Operator Instructions] Thank you. Hello, and welcome, everyone, to the Guardant Health's Shield received FDA Approval Call. My name is Maxine, and I'll be coordinating the call today. [Operator Instructions] I will now hand you over to Zarak Khurshid, Vice President, Investor Relations, to begin. Zarak, please go ahead, when you are ready.

Thank you, Maxine. Before we begin, I'd like to remind you that during this call, management will make forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Guardant disclaims any intention or obligation to update or revise financial projections and forward-looking statements, whether because of new information, future events or otherwise. The information in this conference call is accurate only as of the live broadcast. We are joined today by AmirAli Talasaz, co-CEO; as well as Helmy Eltoukhy, Co-CEO; and Mike Bell, CFO, who will be available for Q&A. With that, I would like to turn the call over to AmirAli.

We are pleased to report the U.S. Food and Drug Administration has approved a Shield blood test for colorectal cancer screening in individuals at average risk for the disease, age 45 years or older. Importantly, Shield is a first blood test to be approved by the FDA as the first line colorectal cancer screening option, which allows healthcare providers to offer Shield in a manner similar to all non-invasive methods recommended in colorectal cancer screening guidelines. Additionally, based on the strong performance of the test, Shield is the first blood test for colorectal cancer screening that meets the requirements for Medicare coverage. The Shield label, including its first line intended use, contraindications and precautionary language, is in line with our expectations following the FDA Advisory Committee meeting in May of this year. CRC represents the second leading cause of cancer-related deaths in the United States. The American Cancer Society estimates that more than 150,000 people will be diagnosed with CRC in 2024 and will be responsible for more than 53,000 deaths with the vast majority of these individuals who die from CRC, not up to date with their screening regimen. Of the 120 million people in the U.S. eligible for CRC screening only around 60% are screening compliance. When colon cancer is found at an early stage before it has spread, the 5-year relative survival rate is 91%. This approval is a significant win for patients as Shield helps solve the greatest barrier to CRC screening compliance and will save lives by detecting more cancers at earlier stages. Patients will be able to access the Shield test in primary care physician offices during any healthcare visit, including routine checkups with a simple blood draw. The Shield blood test offers a new, more convenient and pleasant CRC screening option, which doesn't require special preparation, dietary changes, the time and discomfort associated with colonoscopy or the unpleasantness of handling stool. Our screening sales team is trained and energized, and our lab operations are ready for launch, which we expect to commence in the near future. We look forward to updating the investment community on Shield related performance indicators when the time is right. The FDA approval of Shield is not only a great victory for patients but a monumental achievement for Guardant in our mission to home care cancer with data. This was our founding vision for Guardant Health, and we are so excited to reach this milestone. This is also a historical moment for liquid biopsy and cancer screening. Shield approval is the culmination of over 10 years of research and development including collaboration between Guardant Health and leading health organizations globally. We are incredibly proud of the dedication and execution across the company to make this possible. I'd like to thank the team at Guardant for their hard work during the last 10 years and especially during the last 3 years to take us to this pivotal moment. I also like to acknowledge and thank the FDA and their review team for their collaboration and partnership. With that, we are happy to take your questions.

Our first question today comes from Tejas Savant from Morgan Stanley.

First of all, congrats on FDA approval, AmirAli. Maybe let me start with that sort of precautionary paragraph on the label here. How do you think sort of that plays into adoption curves? Does it have any implications at all for the eligible patient population? We've been getting a few sort of inbound from folks who are a little bit concerned about that language since you don't see it in Cologuard or the Colosense label. So just it would be helpful if you can help contextualize that in terms of the broader approval here.

Yes. Thank you, Tejas. So this is in line with our commitment to -- even the commitments that we made during our AdCom, Advisory Committee meeting, that we are going to make sure physicians and patients are well informed so they can make decisions appropriately based on the risk benefit associated with Shield. We are very excited to get this point of securing the first-line label effectively all 120 million average risk patients would have access to this test, and their physicians, the patient can make the right decision based on the information that's going to get shared with them. We continue to believe that colonoscopy is the prioritized option for all for people who have access to. But as we know, still the reality is at least 50 million people are remain unscreened. And this blood test as a new choice, a new option for the physician and patients can really help them to repeat whatever screening methodology and regimen which suits their schedules, suits their requirements the best. It's not restricted and again, as I mentioned, it's basically sharing the information about the performance of the test for CRC, for advanced adenoma up in front, so the physician and patients can be well informed of what they are getting. We are very excited of where we are today.

Got it. Super helpful, AmirAli. A couple of follow-ups for me here. So later on in the discussion in that sort of information to be shared with patient section, the FDA makes a point about Stage 1 lesions that were less than 10 mm and how Shielded among those patients versus lesions above 10 mm. So how do you think that gets interpreted by physicians in the context of this precautionary language? And then, on a somewhat related note, you do have V2 here, where I think Stage 1 performance did get better, right? So as you think about the FDA process for that and perhaps even accelerating that process a little bit here, any color on that would be helpful.

Yes, I think, like the information that you're seeing in terms of the summary of the Shield, a notion of the performance of different sizes are in line on exactly the data that have been presented in our publication before. These are just fact sharing about the performance of the test. There's nothing new about it. And we are -- we've been supportive of adding all the fact related information about the Shield in our label in such a way that the physician and patients would be well informed of what they are getting. We have no concern about any of these fact sharing and education with physicians. In fact, in the market which Shield LVT, we are talking about the risk benefit of the Shield and the good and bad of this task and we are seeing how much enthusiasm exists in the primary care physician to get access to this test. Regarding V2, we are very excited with where we are with our V1 and securing this label, securing this FDA approval, but this is not where we are going to stop over time, the test is going to get better. I mean, indication hopefully are going to get expanded. But in terms of, again, this precautionary language for Stage 1 performance, we have no concern about it to wait for V2 to change that label language. We are okay with it.

Got it. Super helpful. Appreciate it. And congrats again AmirAli.

The next question comes from Bill Bonello from Craig-Hallum.

Just another question and then a follow-up, hopefully, but another question around the labeling. So there's something in there that says patients with a negative result should continue participating in colorectal cancer screening programs at the appropriate guideline recommended intervals. And I just wanted to understand sort of your take on that, particularly when you're not yet in guidelines, but I suppose you will be in the American Cancer Society guidelines. So I mean, is there anything to be read from that, that somebody who gets a Shield test and has a negative result the implication is that they still need to get some other type of colorectal cancer screening? Or is that not at all how you would interpret that?

No, that's standard language, which have been the precedent for the field for other kind of tests when they got the FDA approval. So that language is exactly similar to other tests. And again, maybe I refer to another section that we have in our label summary that this test should be considered in a manner similar to other guideline recommended non-invasive CRC screening modalities. So, but no -- thanks for your question, but that language is very similar to the language other tests have.

That's super helpful. And just as a follow-up on the label, I don't think I saw anything in there in terms of interval. So how does that kind of play out? How does that get established what the appropriate interval should be?

Yes. So I think when we look at the testing interval as we expected, FDA initially do not get into setting the interval testing when the performance of the test in longitudinal kind of programmatic testing is not established, right? So as part of our post-approval study, we are going to study again, very similar to the post-approval study that stool test needed to do to establish the longitudinal performance of Shield in a triannual testing program, such as testing of patients on a 3-year basis. So that would be kind of a very long-term study that we are kind of doing in the background to see what the performance of Shield would be in year 3 and beyond. By, which is the role of guidelines also CMS in terms of payers, in terms of setting the right utilization of these healthcare services.

The next question comes from Puneet Souda from Leerink Partners.

AmirAli and team, first of all, congrats on the FDA approval here. I know, it's been a long journey for you. My question is, as you think about the label where it stands today, your next steps with CMS and then eventually USPSTF, I'm sure you've thought about that. How should we think about the penetration for such an assay in the market longer term? Maybe if you can comment on that first and then also talk to us about the next steps, which is the -- potentially the ADLT and the CMS as well.

Yes, sure. So when you look at this market, I think the interesting fact is, about 120 million people are eligible to get colorectal cancer screening done. 55 million of people are getting screened by colonoscopy and about 15 million are getting screened with stool test and about 50 million remain unscreened. As you know, these methodologies have been around some for a decade, some for over a decade, for over even 2 decades, and this is the situation that we have that more than 50 million people are remaining unscreened. That 16 million annual testing opportunity for triannual Shield testing, we are very excited about this market opportunity and the impact that we could have on patients' lives. And when you look at actually the reality of colonoscopy, it's a prioritized option, but we have limitation on how many people we can scope in terms of infrastructure, healthcare facilities, anestheologies, GI, looks like we have a capacity of doing 6 million annual screening tests with colonoscopy and about 5.5 million screening tests are getting done right now. And for a stool test, there are a bunch of factors that come into the play that even the people who do stool test in surveys, we see 7 out of 10 of them, they do not like to do the test again, the rate of rescreening, which still is very low. So it has become really a modality that looks like it's hard to get the patient tested one time. I mean, a longitudinal testing has been a major problem. And now we have this easier pleasant mode of screening called blood that can be done very routinely with against 16 million annual testing opportunity right now. So we are very excited of what we can do. We believe the guidance that we set in our Investor Day last summer is what we can really achieve, we are more confident than before of achieving that milestone and those revenue targets, which was about $500 million revenue in 2028 and growing strongly from there. That's our target. In terms of the next steps, yes, we have to work with American Cancer Society. We need to work with USPSTF to make sure the access and coverage of Shield get expanded to younger patient population. We are going to work with our local MAC to establish the gap field pricing for Shield. In parallel, we are going to file for advance-diagnostic lab test status, which would enable the pathway to get premium pricing for Medicare for Shield. We are very excited about a few catalysts that we have in near future.

Super. And then, if I could just follow up on the commercial front. Where do you stand today with the number of reps preparation for marketing this product and maybe just some thoughts on marketing of this product with this label in hand?

Yes, the hiring of our sales team is continuing. We expanded the team in a very meaningful way already, the team that we have hired, they are well trained. They are going to the field very, very soon, and we are consenting to hire. We are kind of reach the milestone of about 100 people in the field by end of the year, and we are on track to achieve that. And we are expecting to Shield this IVD test in near future.

The next question comes from Dan Brennan from TD Cowen.

Maybe first one would just be, I know, AmirAli, you just discussed a little bit of like the path forward with some of the key catalysts in terms of pricing. But can you just give us a sense of like timing-wise like American Cancer Society, -- just kind of frame that a little bit? Like what could that mean in terms of commercial uptake. What are the permeations of what the ACS could do? And what's the time people at which we might see some visibility on that?

We have some actually great conversation with American Cancer Society already. We continue the collaboration and conversation with them. We expect to see some kind of movement by American Cancer Society in 2025. And getting these kind of wins by guidelines are important in terms of getting some kind of coverages by commercial payers over time. Interestingly, there are a few states in the United States that have state-level mandates for local payers to cover colorectal cancer screening tests, which are included in American Cancer Society guidelines that's why this ACS guideline could be a very interesting upside for us in terms of improving ASP over time. And ultimately Task Force. So we are excited with some of the progress that we are making in terms of publishing the some additional evidence around Shield, around improved adherence in terms of also improved life year gains and outcome benefits once Shield is getting utilized in terms of some of the publication we had earlier this year in randomized studies that once Shield is incorporated into a health system, the rate of cancer screening has gone up significantly. So we are making all these progress and looking forward to go through the review cycle by Task Force.

Great. And then maybe just on post-approval studies, what's kind of planned or is there anything that the FDA is asking for specifically for you, whether to establish more about the compliance rate of Shield and/or the interval, even though the FDA doesn't really normally weighing and did come up with the AdCom. So just wondering what are the plans for post-approval studies.

Yes. The high level, that's study has been agreed upon. It's very in line and very similar to the post-approval study that Cologuard test needed to go through about 10 years ago. So it's in line with that. Nothing specifically stands out. It's basically study that would show the longitudinal performance of Shield when it gets used on every triennial basis and so forth. So yes, it's going to be good to say for us. It's a very long-term study though, like it's going to take many years to get to that and find out that state.

Maybe one more, if I could. Just I know you've set some long-term targets for Shield at the Investor Day. Could you just remind us about how we should be thinking about kind of the long-term opportunity and kind of what the ramp looks like as we kind of move forward over the next few years?

Yes. I think, some of the short-term kind of guidance. We need more time to set some of those guidance and update to you guys. Some of it is going to be in terms of the early guidance of factor would be what kind of a gap fill rate we are going to get from Medicare. That would be short-lived. But in terms of just the very early days of Shield that would impact our ASP. As we go to 2025, we continue to expect the financial targets that we communicated before. The blended ASP of about $500 getting to breakeven gross margin and then in 4 years in 2028, we are more confident than before to get to this $500 million annual revenue, which continues to grow very strongly after that. This market is very deep and to get to about $1 million annual testing opportunity when there are 50 million unscreened patient population, we believe there is a big opportunity in front of us.

The next question comes from Doug Schenkel from Wolfe Research.

And congrats another huge achievement in the liquid biopsy space, where you've clearly been a pioneer in advancing products like this first in therapy selection and now in screening. A couple of questions. First, just doing some, I guess, level setting on assumptions. Is there any change in how you've previously talked about pricing and ASP expectations for Shield and then kind of building off of that. From an expectation standpoint, are you still thinking USPSTF is kind of 2026, 2027. So those are the assumption questions. And then there was an earlier question on sales force ramp. I know you're not getting real specific on the size or the trajectory of the sales force. But I'm curious if you'd be willing to comment on the importance of building that sales force fairly quickly. I'm just thinking of how dependent this market has traditionally been on promotion and also the need to probably counter detail a larger existing sales force when it comes to the message on label.

Yes. So thank you very much for this appreciation, Doug. So in terms of the ASP assumption and the guidance, as I mentioned earlier, we continue to believe the targets that we now set for a few quarters now still holds up, and we are more confident than before to achieve them, about blended $500 ASP in 2025, powered by getting favorable ADLT pricing for Medicare. Then in terms of actually sales force, we are on track to have about 100 people in the field by end of the year to support this IVD launch. Our plan for expansion of the commercial team is also, as we said before, by end of this year, we are going to have 100 people, by end of next year, probably around 100, 150 people in the field. And as we get closer to the Task Force, we are going to have about 300 people in the field. In terms of counter detailing, like this is a competitive market. Well, actually, we had a lot of interesting insight from last 2 years that we are in the market selling Shield LVT. Our Shield LVT has been getting countered detailed. We know the messaging, the messaging that works. And the reality is, again, there are 50 million unscreened patient population. So yes, 7 out of 10 people who are getting tested it, still they are not interested to do stool testing anymore. But the reality is the biggest piece of pie for us is a part of the market which has not been accessible for stool-based testing and not accessible for colonoscopy because we have issues with colonoscopy in terms of capacity and hesitation of the patients to complete them. So we are going to continue to execute based on that commercial road map that I mentioned earlier. Timeline for USPSTF, we are going to monitor to see how the early topic review is going to pan out, but the bold assumption would be USPSTF by end of 2026, if not very shortly after. I think the first thing that we are going to see is their draft research plan. And once the draft research plan gets published, I think we're going to have better visibility over the timing of Task Force, but there is no signal that we got from anybody that tells us the Task Force is going to have a delayed review process. So -- but we'll see how it's going to turn now.

The next question comes from Jack Meehan from Nephron Research.

Thanks for the update this morning. I was wondering if you could talk about investment plans for the screening business. I was wondering if you could confirm, I guess, the $175 million you talked about previously for this year and $200 million thereafter. Does this label or update change any of your spending plans for the business?

No, same as before, in fact, getting to these kind of approvals, certain milestones for us, that if we were meeting the milestones, we would continue the investments on building this brand. We mentioned getting to this FDA approval is a milestone for us. Our guidance for the remainder of the year continues to be the same, that $175 million. And for next year and years following, it's that approximately like $200 million investment. So it's the same. Again, this approval is not the last milestone. We're going to be -- we are going to continue to be very disciplined on our investments around Shield and as long as we are meeting from now on, our milestones around ramp, volume ramp, revenue and reimbursement catalysts, we are going to continue this level of investment, which we believe we have a very, very good shot at meeting these milestones, but still, we have to execute that perform. So -- but there is nothing in this approval that would tell us we need to increase our investments or spend. In fact, we are -- as I mentioned earlier, we are very excited and more confident than ever about what we can achieve with this level of resources and investments.

Right. And then one follow-up, just I was hoping you could elaborate a little bit more on the Medicare coverage process. So you have the existing NCD out there. Just remind us like what needs to take place for Shield to be included as part of that?

Yes. So this FDA approval was the last thing we needed to be covered by CMS. So right after we launched Shield IVD, any of the claims which are associated with Medicare Part B are going to be directly covered. It's going to take us some time to establish pricing from and get that pricing from our local MAC, but we are going to peel back to the date of FDA approval and IVD launch and all those claims would be eligible for coverage. In parallel, we are going to pursue the ADLT status, as I mentioned earlier. That's it, independent parallel activity that we are going to do.

The next question comes from Dan Arias from Stifel.

Congratulations. AmirAli, maybe just sticking with payer step here now that you have the approval what are the expectations around other reimbursement and payer contracts? I think some of that is probably tied to USPSTF, but you guys had talked about the chance to get on the board with some coverage at the state level, maybe ahead of the guidelines. So curious what you're thinking there.

Yes, sure. So we continue to expect ACS guidelines sometime in 2025. That would activate some of the state level coverage mandates that I talked about earlier. We're excited about that. And then the rest, actually, we are in our financial planning, we don't have any kind of assumption in terms of getting private commercial coverage before Task Force guideline inclusion. If anything happens, it would be an upside for our planning. So the rest of the coverage we are assuming to come after Task Force guideline inclusion.

Okay. And if I could just maybe stick with this idea here and just revisit the idea of reimbursement aligning with whatever the USPSTF does when they come out with their guidelines. You've said that you think you will get the 3-year designation. And you said that if you don't, and it's 1 year, then that's a good thing, because you run more tests, which makes sense. But I just want to square that away with payment by CMS every 3 years for their current policy which seems like it can leave two of every three tests currently not being paid for. Do you need CMS to revise that policy? Is that something that you think could happen? How would the economics work under that scenario? If you could just sort of refresh the thinking there, that would be great.

Yes, good question. I think, the reality is some of these major coverage policies would really sets the practice of medicine too. So CMS with triannual kind of a coverage policy that they have now, in fact, it's not going to be very straightforward work for us to give access to Medicare beneficiary patient to get tested more frequently than every 3 years. So effectively, it's kind of generate some kind of boundaries of how much the patients would get access to this healthcare service. So it would be every 3 years, not more, not less, because we cannot offer free testing for providers outside the coverage policy. So that's why these payers and especially CMS really sets precedent in terms of how the practice of medicine would be and manufacturers like us need to stick to them. So in terms of now scientific and clinical argument based on everything that we are seeing since we have a very high performance in detecting Stage 2 and above, looks like using Shield on triannual basis, has the optimum utilization of this service in terms of risk of doing excess colonoscopy on the false positives versus benefits of finding these colorectal cancers. So we continue to be in agreement with CMS coverage policy that the right utilization of this test should be every 3 years, and that would be our initial recommendation, but we are going to continue to work with guideline bodies to see how KOLs and different guidelines would think about the best utilization of Shield and [indiscernible]