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

All right. Let's get started. Good afternoon, everybody. My name is Luke Sergott, I cover the life science [Audio Gap] here at Barclays. With me, I have AmirAli from -- the CEO of Guardant Health; and Mike Bell, the CFO. Thank you guys for making it down. First time meeting you and doing this fireside and hopefully not to the last, right?

Thanks for inviting us. Great to be here.

Great. So let's start off with the topical news, the ADLT that you guys just received, walk through and how that matched up with what you were expecting from a timing perspective, the reimbursement rate is in line, I'd say. And then from a broader question that -- it's more on, as Shield continues to ramp and this obviously doesn't mandate a certain volume uptick. But talk about how you're able to use the ADLT status to kind of drive your commercialization order, pull some of those levers to get more volumes out of Shield?

Yes, we're very excited with this new development. It's something that actually we expected. This test is addressing a big unmet need. It's FDA approved. So it's qualified to be advanced diagnostic laboratory test. For people who are newer to the story and actually what this means, this enables a pathway to get a more favorable Medicare pricing for innovative tests and services. And then actually, the pricing would be matched with the market-based pricing. So we are very excited that we got to this news. Now the Medicare rate for Shield is going to go to about $1,500 starting April 1. It gives us a lot of actually opportunities. This was something that we didn't expect to get it this early in the year. It was not part of our guide. I asked Mike to go into some of the details of financial impact momentarily. But at high level, like what it would enables us to do is bunch of this additional gross profit that we are going to have with this more favorable pricing would give us opportunity to bring this innovative solution to the patient coast-to-coast more aggressively to maximize the benefit of this test. And effectively, we can be more aggressive in the build-out of our commercial infrastructure. That, in turn, like as we go to '26 and beyond, this additional investment and more accelerated build-out would give us upside in the other years. Mike?

Yes, maybe just how this impacts our guide. So at the start of the year when we put our guide out, we were confident that we would get ADLT. We just didn't know -- we didn't know the timing. So our guidance excluded that. Now we have it, we can quantify the impact. Our assumption for our ASPs for Shield for the year in our initial guide was approximately $600 per test. And that's what we've seen in Q4. And so as we look out now with this new ADLT rate starting the 1st of April, we expect to get something like a $200 increase in the ASP from the 1st of April. So our ASP is going to move to something like $800 per test. Obviously, throughout the year following that, it's going to be dependent on the mix, the mix between Medicare Fee-for-Service, Medicare Advantage and commercial payers. But yes, we're very confident that ASP will be in the $800 range. And as AmirAli mentioned then, that's going to add to the top line, add to our gross profit and we can reinvest that back into the SG&A line.

Got you. And then as you think about the ASP and kind of the approach here from commercialization, obviously, the blend between the different type of coverage that you guys are getting. So talk about between going for the fee-for-service on the Medicaid versus the big commercial and how the progress there and really how that kind of fit into with your -- the blended on the $800 now that you're talking about?

We're very excited with actually the very early innings of launch of Shield post FDA approval. You may remember that before FDA approval, we had Shield in the market for some experience with market-shaping activity as a lab-developed test. During those days, Medicare patients were a minority of the volume that we were processing. There's a lot more opportunity in younger patient population. What we decided to do after we got FDA approval and we got this Medicare coverage was really try to target the patients that would have coverage for this test. So through some of the workflow adjustments that we made in terms of the ordering process and educating the physician, educating the patient about, do you have coverage, you don't have coverage, effectively, what we saw in the first full quarter of the launch of the test, which was Q4 of last year, we saw a vast majority of the reported Shield volume became samples with -- for patients who are Medicare beneficiaries, both Part B and Part D in terms of fee-for-service for MA. The way we achieve that is through a bunch of, again, education. The physician knows where the coverage is for this test. The patient knows that if they're a younger patient, they may have financial responsibility. So that's separation of the demand and volume of younger patient population gave us this opportunity that even in the first full quarter of the launch, we had Shield with breakeven gross margin. And we expect that for this year for gross margin to be positive. And now with this ADLT designation, in fact, we would be even in a better shape. So we are very excited about the early data of how this targeting is effectively working for us.

Okay. That makes sense. And then so sticking with Shield, you have -- you guys started at 45,000 to 55,000 for volumes for the year. And I'd say the biggest pushback that we've gotten is that you had Cologuard, if you kind of match up to where they were ahead of the USPSTF. They were doing -- they finished somewhere around like 135,000 and you guys are targeting 45,000 to 55,000 like why -- what led you to settle out on that level? And like what do you -- what is an internal metric for you guys is like, hey, this is actually like accelerating better than what we were expecting?

Yes, sure. Actually, the 4Q data that we reported was much better than what internally we expected, the 6,400 reported case last quarter. And there are multiple elements that was considered when we put our guidance out there for Shield. This is the first guidance that we are putting for the full year. And we wanted to be very thoughtful about it. On the other side, I think this is a number which is very reasonable and it's not very conservative because of the following. This is a brand-new market, it's not that PCPs know about Shield and the promise of blood-based CRC screening. So the demand is a function of investment in the S&M and the number of people that we are going to have in the field. So when we look at the number of people that we have when we launched the test, our hiring plans that we had late last quarter and throughout 2025 and what -- the other competitor had in their first full year, it's almost like we are going to have about half size of the team in the -- throughout the whole year. So we are mindful of the reality of the size of the team that we are going to have in the field. The other element is quality score and quality metric HEDIS score is a real consideration for a good fraction of the market. We are very excited with how progressive CMS has been in making sure the patients would get access to Shield. But today, it's not a HEDIS score qualifier. The way quality scores are entrenching the health system now is much deeper than the way it was 10 years ago. So we are very thoughtful about the potential impact of this quality score. On the other side, there are many things which are very good with blood testing. There are 50 million unscreened patients. When we activate an account, we are seeing higher depth of ordering for Shield versus what historically has been seen for stool-based testing. And when the physicians are ordering the test, 94% of the patients are completing that test. So S&M efficiency is pretty high, too. So when we balance all this factors, we came up with this guidance of 45,000 to 50,000 versus what stool competitor did, about 100,000 in their first full year at launch.

And then as you -- sorry, do you have something else or... Okay. And then as version 2 comes on, what's the update that is the material update from version 1 to version 2? And how does this help with the -- what you've talked about is like the back half-weighted ramp with this -- with the launch? And outside of that as you build out the sales force, how much education still needs to be done within that PCP market for the liquid biopsy on the CRC screening?

We're very excited about the potential of the pipeline activities that we have at Guardant. We've shown it already for other brands, Guardant360, then Reveal and now most recently, Shield. So I think just over time, Shield is just going to get better and better. That's probably what we should assume, like 360 got better, about 10x throughout the last 10-year cycle that it had in the market. Shield is IVD, the bar of evidence is higher. So we should not expect like once a year kind of adjustment but we are going to update its performance. We are going to try to update its performance around CRC indication and also other cancer types. Shield built -- has been built as a multi-cancer detection device right after that. So for Shield V2, what we are expecting is to generate that data, submit to FDA, if the data is positive, to hopefully get to that upgrade and launch it by end of the year. And it's an active program for us right now. In terms of product market fit, based on what we've seen, we are very confident that the current version of Shield is more than enough to really support the demand and really support the penetration of screening unscreened patient population in the market. Why we are doing Shield V2 and adding other cancer type in the same test, is to continue to make it just even a better test. And mainly some of it is just competitively, we want to make sure we have the best test in the market. So we are going to continue to leverage the data advantage that we have, 2.5 years' time advantage that we have to make sure Shield remains best in the class. So it's the back half loaded component of our volume expectation, it's not because of Shield V2. It's really based on the productivity expectation of the newly hired reps that we added really late Q4 of last year.

And on that productivity ramp, I mean, how are those reps that you've added? I know it's only March right now but give an update on how that productivity has ramped from? Are you guys measuring this in number of docs reached per rep? Or is it tests per rep? Like how -- what are the internal metrics there as you track their productivity and push them?

So something that we learned as this investment that we did with Shield ALDT to be in market for 2 years is a bunch of these infrastructure and KPIs that we have developed in terms of registering, activating doctors, the churn rate and actually what we are going to hear and how many samples we can expect from new accounts and so forth. So we effectively have a productivity curve for newly hired reps, which is valuable as a function of the productivity of each territory that we are adding the new reps, which is effectively part of our commercial operation and forecasting. Standard stuff but it's just got to learned throughout 2, 2.5 years of commercial data that we captured. And there is a productivity curve we expect initially in diagnostics within the first 3 months post hiring, you can't really count on any contribution. It takes maybe 6 to 9 months for a material contribution and it takes like 12 to 18 months to get to the productivity you have in mind. So our productivity curve is respecting what historically has been seen diagnostics as well.

Okay. And then as you continue to add from your reps from 4Q and you can build out to, I guess, [ 150 ] by the end of the year, you guys are talking about. Are you seeing or expecting any of that productivity time to reaching that material ramp to improve and take your learnings from what you got from the -- from your reps in the 4Q? I mean, it's just like the natural learning curve there should be pretty acute.

So some of this stuff which we are getting over time is, for instance, our training programs just based on -- it's a feedback cycle of what's working, what's not working, it's just getting better. And we are very proud of what we've built. And hopefully it would show its result in how fast maybe some of these new reps are going to become productive in the market. It's always continuous improvement, continuous kind of adjustment based on what we learned. But so far, so good so far. We are happy with what we did in Q4. We see how Q1 would shape and we are very excited of what we can do in 2025.

Okay. And then I guess from a cost and OpEx perspective, you guys have been sticking to -- from your OpEx needs there, update us on what -- how that path of investment continues to go, especially ahead of USPSTF and ACS expected this year as well?

Yes. We've always said that really on the screening side, that the main investment that we need to make now over the next few years is on the commercial side and the commercial ramp. And even as far back as 2 years ago, when we had our Investor Day, or 18 months ago, we said that, that commercial ramp, that increase in commercial spend would be gated on milestones. The first one being FDA approval at that point, then we sort of over the next few months, doubled the field sales team. The next milestone we talked about was getting ADLT status, so we've got that now. And that's, again, with the additional gross margin allowing us to ramp up further our commercial spend. And so I think we'll continue to do that. Getting into ACS guidelines will be a next milestone and we'll continue to build the team then until we get to a USPSTF time line. And then we'll be -- we aim to have a field sales team of around 700 people. And so over time, we're going to be increasing that and investing. So -- but that's the real focus of the investment, of course. We still, in the OpEx line, have a healthy R&D line on Shield. It's focused on multi-cancer, focused on V2 and CRC but also on just improving our workflow and our automation. So I think we're making all of the right investments on the screening side but at the right pace as well.

Great. And I guess if we shift gears quickly here, we're on the last third. Let's talk about the MRD and Reveal. This has had really good momentum. And you've talked about kind of keeping the reins on the commercial force until you get gross margin breakeven and then also your ADLT there. And there's been some push back whether or not you can get the ADLT given that there's already MRD test. And I guess the real question is like do you -- is that gating that you guys are thinking about from pushing the commercial? Is that just an internal thing for ADLT because you're already pretty close to gross margin breakeven for Reveal as it is? Is it something that has to have that ADLT? Or can you -- once you hit that, can you just kind of let the reins go?

2025 is an inflection year for Reveal. In fact, we're very excited about 2025 because a bunch of stuff we've done historically, all of them are coming to the harvesting period now in 2025. So for Reveal, 2024, we had a gross margin negative test. We ended the year and started this year with a Reveal that the cost of goods reduced by 50%. And then we've got expanded Medicare coverage by getting the CRC surveillance favorable MolDX decision, which we're very excited about. So effectively today, Reveal is now in the territory of being gross margin positive for us. So the -- and the tapping that we've done and engineering the volume that we've done, we effectively we uncapped it. So we are not waiting for any other catalyst to really drive the growth of Reveal. Even if we try to cap the growth just based on the momentum in the MRD market, Reveal was the fastest-growing oncology product that we had in terms of year-over-year growth. This year, we are expecting that we can be more accelerated and we are excited to see what we can do in 2025. Mike, do you want to add anything?

No, I think.

Fair enough. Yes. And I guess when you're thinking about the Reveal and the ASP, again, gross margin breakeven, pretty close to it. You guys are going to be above that there this year. Talk about kind of the levers that you guys have to pull from a coverage perspective. It's kind of the same question from Shield and the rest of the test, right, as you -- depending on your coverage mix. But as this continues to ramp and you build that momentum, how is that going?

Yes. I mean now we've got CRC surveillance coverage. Really, the drive for us and the push is going to be on the covered test in that CRC, so we're covered by Medicare in the adjuvant setting and the surveillance setting. So I think there's the opportunity for us to really drive really drive CRC. If we can make that a higher proportion of their overall test volume then that can also help the ASP, can help the gross margin. And again, we can look to reinvest that. Also, we have available breast and lung. We look at breast, which is the next -- the biggest piece of the pie for CRC in the mix. We look at that as being the next up for reimbursement. We've submitted data for publication. Once that's published, it's going to allow us to submit to MolDX. And then hopefully, the processes can be relatively streamlined given that we've got CRC. But again, that will give us another lever to really push hard on breast volume. It will give us an increase in ASP and can help again drive the whole MRD franchise for us.

And then I guess from a -- as that MRD market evolves and you're seeing the CRCs, like you talked about the market that's now, breast coming online. Talk about what you're seeing from an actual surveillance versus the adjuvant and the volume there. Depending on the checks and kind of the assumptions, it ranges anywhere from -- you could be doing 3 tests a year per surveillance patient versus one? What are you guys seeing there from your side, if you're even seeing the surveillance starting to become a material driver yet?

So the reality of the MRD market is, they are more in continuing testing the same patient versus getting new patients tested just based on the way the guidelines are written, multiple time points in the early years for testing. We didn't have surveillance coverage. So in fact, any kind of surveillance testing for us would be a negative contributor right after that. As a result, we really tried to suppress the amount of surveillance testing that we are doing. Having said that, there were a material fraction of our CRC volume that we were doing with Reveal. That was just a strong pool from the market that we are seeing. Now again, as I mentioned, that kind of issue is gone. We uncapped it. And we are very optimistic of bringing new patients into the pipeline of Reveal testing but also getting that annuity of the patients that are already in that journey by getting them tested multiple time points in their journey.

And how are you thinking about that multiple test time point? Is that -- I mean when you guys think about this market shaking out like from a volume, is it going to be twice a year, 3 times a year, just as we think about building that waterfall from your adjuvant moving into surveillance?

So based on guidelines actually in initial years, sometimes you need to test these patients 3 to 4x. And then over time, the frequency drops in some of the market comparable is sometimes getting to about 4, 4.5 tests per patient when the patients are getting tested by MRD. And for us, it was just a little bit north of 1 test per patient. So -- and that was, again, based on this lack of reimbursement for surveillance and what -- the way we were managing our MRD demand. We are very excited that -- about what we can do with Reveal and that gave us confidence in the guidance that we put out there that everything, including Reveal, is going to see an accelerated growth in 2025.

Okay. That's fair. And then from the ASP driver there on Reveal itself, kind of talked about the coverage. But as breast comes on and you're thinking about that CRC market, what are differences in how you're going to approach the breast market like because that's a different treatment paradigm for breast cancer than you actually have from CRC, right? I mean it's a different call point for you as well. So talk about developing that market and how you see it playing out.

So the good thing because of Guardant360 brand, we have a very deep nationwide commercial channel that's addressing all the oncologists across United States. So already, we have that channel which we are leveraging for Reveal. So we have all those oncologists in our call point in community breast and CRC are overlapping. But even within the specialized kind of academic centers, we are -- we have a very high usage of Guardant360 in the breast indication. Now this offering, we are going to actually offer Reveal breast, to them. It's already in market for them but definitely, again, we are trying to manage how much Reveal breast is getting utilized before we get the coverage.

Yes, it's fair. And I guess here, the last 30 seconds, I mean, you've talked about it earlier, '25 is, definitely feels like an inflection year for you guys. You guys have a lot of moving pieces, a lot of momentum building. But as this continues to go, like talk about the -- how things are progressing versus your internal plans and if they're kind of coming from -- you're seeing a little bit more leverage that you can pull to kind of accelerate that even more from what you guys were expecting to exit from '25.

We're super excited. I think we had a blockbuster 2024. We were firing in all cylinders across everything that we were doing. And I believe 2025 would be even a better year for us. So we'll see what happens. We're very excited.

Great. All right. Thank you, guys.

Thanks a lot.

Thanks for having us.