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

Hi, everyone. Yes, this is Rachel Vatnsdal from the Life Science Tools and Diagnostics team here at JPMorgan. Today, I'm joined by the Guardant Health management team. As a reminder, these are 40-minute sessions. First half roughly will be prepared remarks, followed by Q&A and so with that I will pass it off to Helmy.

Well, thank you, Rachel. It's always great to be here, and thank you, everyone, for joining us today. Please note our forward-looking statement. We founded Guardant Health 12 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 12 years, we have delivered on that mission. We have launched tests across the continuum of patient care with our very first version of Guardant360 launching into the late-stage cancer market in 2014. In 2021, we launched Guardant Reveal for cancer recurrence and monitoring. And just a few months ago on August 1, we were thrilled to launch our first FDA-approved test into the asymptomatic cancer screening market with Shield. Unlocking an exciting opportunity to potentially impact millions more individuals across the cancer continuum. As is our practice, I would like to start off with a story illustrating the important impact our test can have on improving patients' lives. In June of this year, Robert, a 68-year-old father of 3 started seeing a primary care physician at the urging of his sister, had previously never been screened for colon cancer and his new PCP ordered a Shield test. Unlike traditional screening methods, he was more amenable to it since it was a quick blood test that could be conducted in his primary care provider's office. The result came back positive. A follow-up colonoscopy soon after Reveal of adenocarcinoma of the splenic fixture as well as tubular adenomas. He underwent surgical resection later in the year to remove this stage 2 cancer that have thankfully not spread beyond the walls of his colon. Given how early the cancer was found, the procedure was curative and no chemotherapy or radiation was needed. Since then, Robert has reported feeling back to himself and grateful that a simple test like Shield was able to help detect his cancer early and get him on a road to recovery quickly. These stories are the fuel that drive our relentless work. Our achievements across our business have resulted in remarkable growth over the last few years. Most notably with a very strong 31% year-over-year growth in 2024. Looking back on last year, it was really an outstanding year for Guardant. We delivered many key milestones across our portfolio. We continue to grow therapy selection and expand its profitability while completing a major upgrade of our flagship Guardant360 test onto our new smart liquid biopsy platform. We grew reveal volumes and continued generating evidence to support reimbursement. And we received FDA approval and Medicare coverage for Shield, our screening blood test for CRC that is now in the early innings of an exciting launch for the field. We believe we are well positioned in each aspect of our business for continued growth in 2025. Now let's take a closer look at each of our business areas. Starting with therapy selection, where we are the liquid biopsy leader. This market consists of approximately 700,000 advanced cancer patients in the United States and a total addressable market at scale of approximately $10 billion. The U.S. market continues to present a very large opportunity for us, and we have made strong and measured progress internationally as well. We saw incredibly strong year-over-year oncology clinical revenue growth of 34%. Oncology testing volumes, ASP improvement and reimbursement wins continue to be key drivers of this growth. We ended the year especially strong with 24% year-over-year growth in the fourth quarter. This brought total oncology clinical volumes growth to approximately 20% year-over-year in 2024, largely driven by Guardant360. And with the positive traction we're seeing from our launch of Guardant360 LDT on smart liquid biopsy, we expect an acceleration of Guardant360 volume growth in 2025. Throughout 2024, we saw continuing improvements in Guardant360 ASPs. At our Investor Day in September of 2023, we stated our goal was to reach an ASP of $3,000 for Guardant360 by 2028. Since that time, we have received an increase to our Guardant360 LDT Medicare rate from $3,500 to $5,000 and have seen significant improvements in both the amounts we have been paid for our tests and the speed at which we have been paid by commercial payers. As a result, we are very pleased to report that we have achieved our long-term Guardant360 ASP goal of $3,000 in the second half of 2024, roughly 4 years ahead of target. Further tailwinds for us are the recent increase in pricing for our tissue product from $3,100 to $3,500 affecting the beginning of this year, improvements in reimbursement from state biomarker laws and opportunities to continue to expand commercial coverage. In late July, we transitioned our Guardant360 LDT onto our smart liquid biopsy platform, representing the most significant upgrade to our flagship precision oncology product. Guardant360 was already the leading liquid biopsy test for advanced cancer patients with industry-leading performance and turnaround time and the improved platform positions us for continued robust growth and share gain. The new and upgraded test now called Guardant360 liquid expands the number of genes by nearly tenfold, includes all guideline-recommended genomic markers for solid tumors and improves the sensitivity for tumor burden detection by a factor of 10. This year, we plan to continually add new applications to the test as we clinically validate additional functionality. And as we test more patients and collect more data, it improves our ability to generate an almost unlimited number of differentiated applications on the platform. Soon through these additional apps, Guardant360 liquid will help identify more patients for existing therapies that are undetectable by current CGP tests, detect harmful adverse effects of chemotherapy and provide detailed phenotypic information about the tumor such as histology subtype and much, much more. Now shifting gears a bit. We have also seen excellent uptake of our TissueNext product. And given that success, we are doubling down on our foray into the tissue side of the CGP market with the launch of a new product called Guardant360 Tissue. With Guardant360 Tissue, we are applying the unique capabilities of our smart platform technology to enable first of their kind of clinical features to advance the state-of-the-art and tissue CGP testing. We look forward to providing more updates around this exciting new product later this year. In 2024, we had a very strong year for biopharma with revenue growing 31% year-over-year. This growth has been fueled by working with now more than 180 biopharma partners. A major catalyst for this growth is excitement around our smart liquid biopsy platform with biopharma testing from this new platform now representing over 50% of reported samples and new contracts. This traction with our new technology platform has led to multiple strategic partnerships with top 20 global biopharma companies, which we will be announcing soon. Looking ahead this year, we are seeing tremendous growth and opportunity for all our products across therapy selection. As a result of the great progress we have made last year we are more confident than ever that our oncology business will continue to see strong growth over the next few years driven by our multiple major product upgrades, growing use cases of therapy selection in both early and late-stage settings as well as international expansion. Now let's take a look at our MRD business. The market is comprised of about 18 million early cancer patients and cancer survivors, which represents a $20 billion TAM in the U.S. at scale. Our approach, which is tissue free requires only a blood sample. This compares to tumor-informed approaches where 1 needs to physically obtain a tissue specimen for the tumor and sequence it to be able to test the patient. The tissue free approach can certainly be more technologically challenging, but we believe it will ultimately serve the largest portion of the emerging MRD market opportunity. Specifically, of the 18 million total cancer patients in the U.S. that would benefit from MRD testing. More than 12 million patients or more than 5 years out from surgery, making it much more difficult to obtain a tissue sample for those patients. Furthermore, more than 3 million do not have tissue available at all. and thus can only be addressed with a tissue free test. Finally, was less than 3% of total addressable patient population currently receiving MRD testing today, this presents a huge greenfield opportunity ahead of us. In August 2024, data from our COSMOS colon study looking at Stage I and Stage II patients was published in the peer-reviewed journal Clinical Cancer Research. This study demonstrates that the high-performance Guardant Reveal and our smart liquid biopsy platform can achieve in this challenging setting. Reveal demonstrated 81% sensitivity with 99% specificity in the surveillance setting and the assay itself has an analytical limit of detection down to 0.005%, all without the need for tissue. This data was also submitted last year to MolDx for Medicare reimbursement for the CRC surveillance MRD indication and review is ongoing. Beyond CRC surveillance, we have an extensive pipeline of clinical cohorts for establishing validity and utility for Guardant Reveal. Accordingly, we are also excited to report that we have submitted data for publication supporting potential Medicare reimbursement for coverage in breast cancer and therapy monitoring. Looking ahead, we have important ongoing clinical validity studies for additional cancers that we look forward to providing updates on throughout the year. We are excited by the demand that we are seeing in the tissue free MRD market, and there are multiple near-term inflection opportunities in 2025. We continue to make good progress towards CRC surveillance reimbursement, which will improve our ASP. We have also made significant progress in COGS reduction initiatives for Reveal. As a reminder, these 2 milestones will be a significant step towards our long-term goal of achieving greater than 60% gross margins for our MRD business. Once we have CRC surveillance reimbursement in place, the improvements we have made on a cost per test for reveal will bring our margins to a place where we will start to push on Reveal and accelerate volumes. We have built an incredible product portfolio over the last decade spanning the entire continuum of cancer care. As groundbreaking as the individual tests in our portfolio are, what is even more exciting is that all these products are built off of and share the very same smart liquid biopsy platform. This means that all of our tests from Shield to Reveal to 360 work together synergistically across the entire spectrum of cancer care. Data collected from 1 test is seamlessly mergible with data from another test. It is effortless for oncologists to reflex from Reveal to 360 million and back again, creating a truly differentiated platform experience. And because the technology foundation is shared, the clinical information we can provide also gets richer and richer as physicians use more of our tests for each patient. Creating a very sticky user experience. We look forward to sharing more as we continue to populate our testing ecosystem with clinical applications driven not just by single products, but by the entire platform. With that, I'll now turn it over to AmirAli to detail our progress in screening and close out the presentation.

Thanks, Helmy. Turning now to our work in cancer screening, where we are pioneering a new category of screening tests with our blood-based assay. Here, we are addressing a $50 billion opportunity for $120 million average risk individuals across the United States. From the very beginning, our goal has been to identify and catch many cancer types early when they are most treatable improving the lives of patients. With that vision in mind, we developed our Shield assay as a platform, capable of multi-cancer detection with its first indication in CRC screening, an indication with established regulatory and reimbursement pathway. In late July, Shield was approved by FDA as a primary screening option for colorectal cancer for adults ages 45 and older who are at average risk for the disease. It is the first blood test to be approved as a primary screening option for CRC, meaning health care providers can offer shield in a manner similar to all other noninvasive methods recommended in screening guidelines. This approval came on the heels of a robust pivotal study, ECLIPSE, whose results were published in the New England Journal of Medicine. Importantly, in real-world clinical use, we continue to see an incredibly strong adherence rate of over 90%, which means over 90% of the patient, in fact, completed the blood draw for Shield test order. This industry-leading rate demonstrates how convenience is highly valued in the marketplace. Upon FDA approval, Shield was covered for all 45 million Medicare beneficiaries at average risk of CRC. We are very pleased that Shield was recognized as an important new class of CRC screening and received a favorable Medicare price of $920. We expect orphan securing advanced diagnostic laboratory test, or ADLT status designation, the Medicare rate for Shield will be at even more favorable price of $1,495. We recently received a unique PLA code for Shield test and are expecting to get ADLT status designation later this year. We've been very excited to see the interest in Shield from stakeholders across our industry and beyond. In 2024, we earned Innovation Awards from Time Magazine and Popular Science. CMS continued to be progressive and patient-centric and announced they were removing out-of-pocket cost for any diagnostic colonoscopy following a positive Shield test shortly after our launch. The American College of Gastroenterology, or ACG, noted in the recently published patient fact sheet about Shield, that this test could be beneficial for patients who may not care to do a stool test or colonoscopy. Numerous cancer and CRC advocacy groups have published or shared positive sentiments regarding Shield. In particular, they highlight how Shields blood test modality will help improve access to patients by adding a more pleasant and convenient screening option. To capture this demand, we are ramping our commercial infrastructure. We have already increased our field force to over 100 reps with plans to continue expansion throughout the year. We built a national network of more than 40,000 phlebotomists, making it easy for patients to find fast and convenient access to Shield. We are also expanding our EMR integrations, enabling direct ordering and systems that providers already use today. We have already integrated with Athenahealth EMR and are expanding to e-clinical works and Epic MR systems in 2025. In early August, just a few days after FDA approval, we are thrilled to launch our Shield IVD assay. Our strategy is to focus on the covered patient population driving a high mix of covered reimbursable tests and we are already seeing outstanding reception from physicians and patients. In Q4, the first full quarter following our commercial launch, we reported approximately 6,400 tests and recognize approximately $4 million of Shield testing revenue, driven by a majority of samples coming from covered Medicare beneficiaries. I'm happy to report that our first full quarter of launch, we achieved gross margin breakeven for Shield. As our COGS were approximately $600, which was in line with the Shield ASP of approximately $600. In fact, with the current rate of improvement, we are expecting Shield to be gross margin positive in its first full year. Reaching gross margin breakeven much sooner than we originally anticipated gives us more opportunity to expand our commercial infrastructure in 2025, while we keep our annual screening cash burn target of $200 million. Looking further out, we are also making good progress with our automation and workflow improvement and are on track to reach our target COGS of about $200 at scale expected in 2028. As we recently announced, Shield has been selected for the NIH Vanguard multi-cancer detection or MCD study through a highly competitive process. NIH's decision to select Shield recognizes Guardant as a leader in the field of MCD. To qualify for the Vanguard study, the MCD test needed to detect the presence of cancer across a variety of cancer types with good sensitivity and also be able to accurately predict the cancer side of origin. Collaborating on the Vanguard study provides a unique opportunity for Guardant to engage with top leading stakeholders, including both NCI and FDA on our Shield MCD clinical validation and the development of the follow-up diagnostic pathways for patients post MCD testing. This study is mainly funded by NIH with only minimal R&D investments from Guardant Health. We ended the year strong with revenue growing 29% in the fourth quarter, bringing our full year revenue growth to 31% compared to the prior year. We continue to be focused on our cash burn and materially reduce our burn this year. Therapy selections are already free cash flow positive as of 2024. We expect MRD to reach free cash flow breakeven by the end of 2026. And we are committed to approximately $200 million cash burn for screening during our scaling period. We ended 2024 with $944 million cash and expect we will reach cash flow breakeven in 2028 with cumulative free cash outflow of $450 million to $550 million over the next 3 years. We have a number of key catalysts across our business coming this year. Across oncology, we expect clinical volumes to grow more than 20%, supported by volume acceleration across all products. In screening, we look forward to sharing data for multi-cancer and reaching key milestones for Shield CRC in its first full year of commercial launch. With that, I turn it back over to Rachel for Q&A. Thank you.

Great. Thank you for that presentation. Can you hear me? Okay. There we go. Thank you for that. So maybe just first up, I wanted to dig into the preannouncement. You guys announced this morning that you had revenues well above the Street. So I wanted to kind of dig into some of the trends there. Obviously, you broke out some of the Shield contribution, so we'll go into that in a minute. But I wanted to ask on the core business. What really drove the quarter there, whether that was across different product lines, ASPs versus volumes? How should we think about that?

We'll start and then Mike, you can fill in the gaps there. We are very pleased with the business across the board. Clinical volumes were very good. We saw really strong traction with the Guardant360 LDT on smart liquid biopsy and that really, I think, drove a lot of the sort of growth in terms of clinical volumes that we saw at least the majority of it saw strong traction for Reveal -- and then biopharma also was very strong. And then obviously, ASPs continue to come in very nicely.

Michael.

Yes. I mean I would just add, our ASP again for Guardant360 in the fourth quarter was around -- so I think we've got to a consistent level there. We also had in the quarter this usual true-up effect that we saw the upside on Guardant360. That was about $7 million in the quarter. But yes, I think ASPs have been the success story for us on Guardant360 for the year.

Yes. Maybe going off of that. So your Guardant360 ASP target came in at around 3,000 this quarter. that's well ahead of your schedule where you were targeting to reach that by 2028. So how much more runway do you really think there is at this point on the Guardant360 ASP line?

Yes. I think there's still room to grow. Yes, we got to the $3,000, Mark, about 4 years ahead of target. Really, our focus now is on expanding commercial coverage for Guardant360. There are still some gaps from the national payers in what they cover for Guardant360. Some cover the CDx version and not the LDT and some vice versa. And some of the national payers are only covering certain cancer types. So I think, our focus is to just continue to expand that coverage. We think we could probably now take that target in 2028, ASP to something like 3,200, 3,300. We're not going to see the same major step-up that we saw in '24. We won't see that again in '25, but I think we can have continued increases over the next few years.

Perfect. That's helpful. Then maybe if we look at 2025, you had previously pointed us towards this 20% clinical volume growth in 2024, and you said that you would expect to accelerate that above 20% in 2025 prior to including any of the contributions from Shield. So can you walk us through what gives you confidence in hitting that volume growth again this year? And how should we think about the various contribution from test like Guardant360 Reveal Tissue next?

Yes. I think we have a lot of confidence given the traction we see in the second half of last year around Guardant360 on smart liquid biopsy. So we're off to a really good start in terms of this year. Reveal, as we mentioned, there's a big catalyst for us once we get CRC reimbursement on the surveillance setting. That being said, Reveal was our fastest-growing oncology product, even with us sort of managing volumes last year. So we know there's a lot of demand there. And then we're very excited for this new tissue launch this year, and we think that's going to be an important catalyst as well.

Perfect. Then on Shield, so you preannounced this morning that you had roughly 6,400 tests of Shield in 4Q with roughly $4 million of revenue there. So can you provide any color for us in terms of how should we think about that volume split. How much of it was self-pay patients versus commercial, Medicare? And how should investors really think about the volume trajectory for Shield as we go throughout the first year here?

Yes. So self-pay part is like not really material. So everything is through regular clinical testing and going after the insurance and the payers. Vast, vast majority of the samples were coming from Medicare beneficiary, and that was intended and actually our plan to really go from Medicare being a minority of our sample mix to becoming majority of sample mix. So we can have better unit economics and have better kind of profitability and scalability.

And sticking on the topic of Shield, just regarding the V2 data. Can you walk us through how much of an improvement should we really expect relative to V1, particularly on the advanced adenoma side? And then can you elaborate on any of the differences in terms of the process of bringing that V2 version to market and kind of the time line that we should expect there?

Yes. Just as a reminder, maybe for some new investors. So we got FDA approval for Shield. We called it Shield V1, with the performance that we are very excited about, and the doctors are very excited about. But that's not the last version of Shield and Guardant. We have the track record of continuous improvement and innovation to make our products even better. So Shield V2, I'm actually excited with where we are, as we mentioned in the slides that we are expecting that data and approval online sometime in 2025. . And literally, it's almost just 1 year after getting the V1 to the finish line, potentially having this V2 in the market as an upgraded version. What we know is we know analytically, Shield V2 is a more sensitive test. It's just an optimized algorithm. The assay is exactly the same. But clinically, we don't know if that translates into better performance. What we expect if clinical performance get better is just on the CRC side, just Stage 1 CRC as Stage 2 and above we had 100% sensitivities, it's hard to increase that. But AA we don't expect Shield V2 to change AA performance.

Perfect. Then maybe just moving over to multi-cancer. You've talked about the opportunity there and really taking more of a platform approach just given what you've done in Shield so far. Can you talk to us more about that approach? And what should we expect in the future in terms of expanding indications and that multi-cancer testing opportunity?

So we had this vision of a blood test for multi-cancer detection from the beginning. It's even why the name of -- we named this company, Guardant Health annual checkout with a simple blood test, so you take multiple cancers all at the same time. But our strategy has been different than some other players in the marketplace. We want to make sure at the end patient get access to this test, which means we need to add the end, convince payers and regulators to go behind this test and CRC was our lead indication to really get to that point. CRC was the first indication that had FDA approval pathway, CMS pathway, and we are very pleased to get to that point. And now additional indication can just get added to the same test because the assay and data is the same thing. It's just a different algorithm that can look at multiple multi-cancer signatures within the same panel of epigenomic and genomic content that we are looking at.

Perfect. One more question on Shield, but more just on the competitive front. Obviously, we've had a few readouts from blood-based colorectal cancer screening tests recently. So how are you thinking about Shield's first mover advantage? And how does that kind of build your competitive moat going forward?

So getting to the point of the performance we saw with Shield V1 was not easy to achieve. We're looking at 3,000 biomarkers with NGS with a highly innovative assay and bioinformatic pipeline. So we are monitoring the field to see what other competitive readout is going to show. But 1 thing that, for sure, it's not going to change is probably at least we are going to have 2.5 years' time advantage relative to any other computing assay to get FDA approval and commercialize such test as an FDA-approved test. And that such a long lead time would give us a lot of opportunities to build this business and brand as we monitor other competitive readouts.