Guardant Health, Inc. ($GH)

I'm on the Bank of America Life Science tools and diagnostics team. And for our next chat, we're excited to host SardHowt. We're joined by Co-Chief Executive Officer, Hal Miosuti; and Mike Bowe, Chief Financial Officer. Almy, thanks so much for being here.

Really appreciate you taking the time. Yes. Great to be 4 will be that you've got a question, go off your hand, and we'll call on with Cyan. Maybe we'll start with a high-level question first quarter a couple of days ago, really strong broad-based sir, talk through how the quarter played out your expectation of where things came a little bit better and how you're thinking that going forward?

Yes. I mean I think it's been exciting to see us sort of lead into the serves that we're embarking on in terms of utilization adoption certainly therapy, but be doing really well, and that I think is I think the smart platform as the gift that keeps on giving and that continuing to great -- there's a saying in diagnostics, therapeutics, how you start to experience a business having strong first quarter and set sure. MRD, I think you lean that obviously are pushing a lot of tidal testing pushing in the indications we're in and had a very strong therapies. And we're very excited about where that is going up to 100% I think pretty impressive in how much per space that and seeing for the excellent I think this shows the power of what the fact going to quickly manage of care over -- so yes, you don't often get signs of but very fast, strong sort of that it's all come together, I think provision division -- maybe we'll just build on that taking that into the full year as.

You raised the guide by more than you beat -- you updated some of your assumptions for oncology for Shield, sort of what gives you confidence in that momentum continuing sort of -- maybe you could deconvolute the guide raise. Like what are the biggest drivers of that micro?

Yes. I think -- yes, we're really pleased with the Q1 performance. It enabled us to raise our guide for the full year. There's key drivers of that guide raise. One is oncolog volume. And secondly, it's shield volume. And so on the oncology volume, really, the key though is Guardant360 and really the strength that we see, and I think Amies talking about it with the Smart platform. We started Q1 very strongly and I think, again, it just gives us a lot of confidence going into the rest of the year. We know we've got additional catalysts with new waves of smart apps through the year. And then on the -- specifically on the reveal side, again, we saw good traction with MRD, but we were very pleased with how therapy credibly strong in Q1. And so again, I think the strength that we saw just enabled us to have a lot of confidence for the remainder of the year. And then with Shield, we talked about the momentum in March. We see a lot of catalysts starting to come into place. So we're seeing better rep productivity. We're adding to the number of reps we have. And so throughout the year, we expect that additional number and the increased productivity to drive increased productivity to drive continued volume growth. We initiated our Quest collaboration towards the end of Q1. That's still early days, but the signs were very, very positive. And so we think that's going to be a contributor for the remainder of the year. and as well as having a strong HPC marketing campaign. Last year, we added to that in Q1 with a lot of DTC initiatives. Again, that's very early days, but the initial sort of response that we're getting for that, again, looks very strong, and we're continuing that DTC campaign into Q2. So I think we see a lot of catalysts on the screening side. And again, that gave us a lot of confidence to increase our volume guidance. And of course, the volumes driving for those products are driving the revenue increase.

Maybe sticking on screening and Shield. -- you raised your -- both volume and revenue assumptions for the year. Kind of if you just do the math real quick, you kind of talk to maybe 10,000 tests sequential quarter-over-quarter through the year. As you talked about Quest in the second half, sales rep productivity, are those the big pieces driving that? Is that more of a second half dynamic? -- sort of like is there upside to that 10,000 per quarter jump to sort of like degree of conservative on that? And what are the key drivers of that step up?

Well, I would say that sort of on average 10,000 a quarter. We're very confident with that quarterly cadence. We've got a lot of experience now from the prior year, and we know how sort of the seasonality works. So that gives us confidence. And again, probably the key driver at the moment of the volume growth is on the sales rep side as it has been for the last sort of 12, 18 months as we're adding new reps and those tenured reps are starting to get more and more busy, better and better productivity. So they'll continue to drive it in the near term. And I think, yes, we would look at the impact of Quest really starting to kick in, in the second half. And similarly, with the DTC, I think that will start to really kick in, in the second half. On top of that, and we've talked about this a lot, but we're expecting ACS guidelines to come in the relatively near future. That's not in our guide at the moment for 2026. But if and when that comes, we see that there can be a positive upside. Initially on the volume side, it will enable us in those ACS states to open up to patients under 65 and drive more of the commercial volume. We see that the revenue impact of that coming more into '27 because it will take time for the commercial payers to come on board and start paying us. But again, we see that as being a potential upside to our guidance for the back half of the year.

Okay. All right. Maybe on the topic of ACS and reimbursement or ASPs. You came in a little bit higher in the quarter for Shield than you expected. I think you're projecting something like 7.75% for the rest of the year, which is relative because of where you were before but there was a little bit of a catch-up dynamic there. Can you just talk about how that played out in the quarter and just sort of the mix component for Shield and how the fact is to guide.

Yes. I mean, since launch, we've had this real focus on reimbursable tests so the Medicare age population where we're getting paid 1495 Medicare fee-for-service with the ADLT rate. And we're getting very good payments from Medicare Advantage payers. That actually keeps continuing to get better and better. That's what drove the out-of-period true-up that we had for screening in Q1 and also in Q3 and Q4 of last year. So that's going incredibly well. As we open up with Quest, as we've got the DTC campaigns going and then potentially as ACS kicks in, we're expecting to see more and more volume come from the under 65. And we've put a lot of friction in the system previously, to sort of prevent that, but I think we'll just relax that. And so our expectation on ASP is initially, that's going to tick down the ASP because we'll get more commercial zeros initially but effectively, we're opening that up because we're expecting, particularly with ACS guidelines to start getting better and better commercial payments. So it will be an initial tick down, but over time, it's going to ramp back up as the commercial payers start to pay us.

Do you have a sense of the timing on that? -- in terms of how long until it ramps back up? Is it really dependent on ACS? Or is there -- do you assume like a 12, 24-month gap or just sort of walk us through the bridge back up.

Yes. Some of it, obviously, is going to depend on the timing of ACS guidelines. But I think we think probably -- it will take around 12 months to really get to a position where we want to be with commercial pace. There's probably going to be some some payers that early on start to pay us, but we're fully expecting it will take time. We've got a very strong team reimbursement team that's has got good relationships with pretty much all of the key payers, and we've built that up over time from the oncology side of the business. So once we get into guidelines, I think that team will go into full effect and will be having a lot of dialogue with those payers. And 12 months is our of expectation, but hopefully, we'll be trying to sort of bring that forward as quickly as we can.

All right. Let's chat a little bit about therapy selection. I mean, in your opening comments, you made an interesting point perception of maturity in that business. I mean that's certainly been a talking point for a while, but you can think about really impressive numbers there. 30% volume growth despite growing competitive noise, really strong growth, both in liquid and tissue. Just sort of what's driving that sustained strong performance you continue to sort of push out that narrative of maturation or saturation in the business?

Yes. I think it's a testament to what we said in our Investor Day that we'd rather -- we'd much rather be sitting where we're sitting as the leader in liquid biopsy sort of therapy selection rather than on the tissue side just because we think the market has so much more room to grow when you think about patients living longer, like every patient progression that's there are different lines of therapy. The guidelines and clinical practice really requires essentially doing another genomic profiling at each progression since the cancer is changing. And frankly, that is not standard practice right now. I think very few patients are getting tested multiple times and that's something that I think is a huge catalyst and a huge driver of, frankly, pretty significant growth multiples over where the market is today. Secondly, still a lot of patients aren't getting even an initial comprehensive profiling, especially on the liquid side. And so I think that's where I think you see outsized growth there as well. And so I think it's -- what's exciting is that one of the growth we're seeing is really, I think, predicated on what we believe to be superior product market fit we have with this new smart platform and the fact that we're seeing sort of share gains as a result of that as well as we seem to be sort of sucking up more than our fair share of market growth as well, at least on that initial time point, that sort of 0 to 1 moment. And that bodes well for us continuing to lean in on moving the market from 1 to sort of any number of tests per patient. And yes, it's been exciting. The pieces are all coming together with -- you can think of the tip of the spear is Guardant360 liquid for us in the Smart platform. But that sort of brings along our tissue platform. It brings reveal for therapy monitoring along for the ride and creates this really nice flywheel and synergies to effect between these products.

You mentioned share gains. Is that across the board, I mean, obviously, tissue is still really, really early in terms of ramp leverage both.

Yes. I would say speaking more for liquid, I think tissue is still probably too small. It's probably in the weeds in terms of exactly where that's coming from. But we're excited for really this next chapter as we get FDA approval for Guardant360 liquid as we continue to lean into therapy monitoring more. We feel it's going to be increasingly harder to use multiple sort of providers for something that you'd rather see a holistic and unified view of with each and every patient.

I mean you touched on therapy monitoring, so maybe let's go there. Is that starting to matter? Is that starting to show up in numbers sent very early, but you seem to be having really good traction there. So talk about what you're seeing there?

Yes, we're just 1 full quarter now in terms of the launch of therapy monitoring. It's -- we think it's going to be a pretty large indication in general when you think about 1 million plus cancer patients under sort of a late-stage therapy, each of those patients sort of needing to be monitored need to be potentially switched to another therapy. We think it's a really nice sort of prompt for leaning into progression testing as well if you see a number that you're following for that patient, you see ctDNA levels going up then it's pretty clear that patient needs to be tested for new mutations for potentially new therapeutic options. And so we think the sort of the some is greater than sort of the individual parts there in the sense that like these tests really work together really nicely.

You talked a lot about on the quarter and your last couple -- last 2 quarters about smart apps and the contribution there and the benefit you're seeing for the platform. It seems like that's having a bigger and bigger impact over time. Just talk about the uplift you're seeing there and where do you think that trajectory could take you?

Yes. Ever since we launched the smart platform in 2024. We've seen just kind of a steady sort of accelerated growth rate for 360 liquid and that continues to this day, and we see that continuing. I think, into '26 and beyond. And the nice thing about the platform is that we're continually amazed by the capabilities that are unlocked by not just having this differentiated chemistry. But by then, the data that we're accruing as we have hundreds of thousands of samples, well more than 500,000 methylation profiles. As we use more and more data to train some of these new algorithms, the resolution, we can see some of the performance capabilities we can see continuing to grow quite exponentially. And so we're very confident. We have dozens of new applications under development -- and I mean, even just this weekend, team was e-mailing me with like new applications that we didn't think were possible but suddenly are working now. And obviously, this is being accelerated with some of the genetic AI capabilities and our ability to sort of increase the velocity of exploration we can do with multiple agents looking at sort of like different analyses. And so it's a great time. I think our thesis that her she who has the most sort of biological data will eventually went out is playing out. We've been sort of heads down focused on building the sort of data acquisition engine in 360 and Reveal and Shield -- and now with like the whole AI revolution, it's made our ability to sort of take all of that data and analyze it in a streamlined and very cost-efficient way, all the more powerful.

Are you -- I mean let's stick on that topic. Are you leveraging that today already? Is that starting to manifest already? Is that sort of like a future trajectory

In terms of the AI?

Yes.

Yes. Yes. I mean it's been transformational for the company. I mean, there's a huge shift from -- obviously, we're always tech forward coming from the engineering space. and so on and from Silicon Valley, but really pushing fashion across the different divisions in the company from legal to HR to operations to obviously, like our software, I think something like 50% of our software is written by AI now and produced. And this has been the case for many quarters and for over a year now. You think about like just the logistical burdens, administrative burdens that are required in the health care space around billing, reimbursement and appeals and the level of automation we have now has been really fascinating and a really exciting -- same thing on the regulatory side, being able to put together regulatory submissions much more quickly, making sure you double and triple check that with completely making sure you double and triple check that with but maybe didn't have the bandwidth to sort of harden the software build like very hard core kind of software has given a number of individuals, frankly, unforeseen superpowers in terms of being able to move much more quickly. .

Okay. I mean, so far, I think we've touched on a lot of the positives from the quarter and recent trends. Let's just run through some of the -- a little bit more negative data points real quick. I mean 1 is the Serena 6 AdCom was a lot of focus on the quarter, maybe a little bit too much of a focus now that you've moved past them had a little time to digest it. Just what do you think are the more practical implications, both near term for SERENACspecifically, but also for future opportunities on the same vein.

Yes. So I think the silver lining there was that, I think, to every single person on the committee there was, I think, supportive and believe that ctDNA testing was the future of oncology. So I think sort of the North Star is still alive and well, I think despite the mixed decision there. I think you had a number of the sort of key KOLs, they are also very supportive of this sort of new paradigm, which I think was great to see -- and then I think Serena 6 was never really the primary sort of avenue to get to the sort of modality of longitudinal testing and adaptive management of disease, it was really reveal for therapy monitoring is our sort of non sort of plan of attack of making that new vision that new reality is standard of care. And I think we're off to a really good start, obviously, -- we have some submissions for reimbursement in flight with IO and chemo. And we'll have a number of other ones as we accrue more data. And so yes, I think regardless of how pamesistan sort of turns out -- we think this is a future that is very much in the near term and 1 that we can make happen like just within the capabilities we have within our own company.

Another topic during the quarter that got a lot of attention was crush more broadly, I think across the entire diagnostics universe, not even necessarily as much on Garden, but certainly spilled over into that as well. Where do you sit on that debate? And why do you think you're inflated and not necessarily impacted by that?

Yes. There's a lot of, I think, confusion around that. I think from what we see that it was a discussion of sort of different practices of some of the different MAX in terms of how they adjudicate claims and I think Move has sort of been proactive in that discussion in terms of some of the the positive assessments that are acquired technical assessments and submissions, positive LCDs and so on. Obviously, squarely within that Mac. And so we actually think we're less sort of affected the most. And then the other piece is -- most of our products are essentially going to national CMS were sort of above the fray. I would say, to some extent, shield, obviously, as a national coverage decision Guardant360 CDx does soon Garden 260 liquid, well to as we get through FDA approval. So we're -- I think there was confusion around that an ADLT and so on and this is really something that is a very different conversation than anything around PAMA, which is really in the realm of sort of legislative action. And we don't think is under any kind of risk at this point.

And the last 1 that we had some questions on immediately post the result was you had a little bit of an update in the 10-Q about civil investigation in Florida. It doesn't seem to be a huge concern, just tell us through why you're not necessarily what about that? So maybe any background you can give there?

Yes. I think in this industry is 1 of the is we look at this as sort of normal course of business. I think -- these come every now and again. I think a lot of our peers, you'll see have had those sort of CIDs over the last few years. We had 1 back in 2022, a list of questions, which we answered. -- nothing came of it. We take these things, of course, very seriously. Of course, we'll work with them and respond accordingly. And it suffice to say, we have a very strong compliance program across Garden that we're actually very proud of. And so based on that, we don't look at this as an issue. Again, we'll take it seriously, but we don't see it as material or a specific issue for us to deal with.

Okay. Maybe in the last couple of minutes left, I want to ask a couple of sort of picture thematic a couple of minutes left. I want to ask a couple of sort of big picture thematic cure picture thematic picture thematic where diagnostics fits and especially cancer care continuum diagnostic fits in in therapeutics in the world today. You've been fighting this slide for more than a decade now. And it's sort of this question of value of diagnostics versus the therapy that you made you mentioned the point earlier on talking about you talked about increasingly, people do view CTA as the future of oncology, and there is a paradigm shift. Sort of where are we on that curve? And is that -- is the progression along that curve of the understanding the imports of diagnostics, is that, at the end of the day, what's underpinning the strong growth you're seeing in oncology, that conversion of that paradigm shift really what we're seeing play out now?

Yes. Look, I think diagnostic companies were probably decades have been saying that they're not getting the true value they deserve the informed decisions. There should be more value there. And the reality is that of clinical decisions are informed by diagnostic testing today. So they are essentially the lion's share of how physicians make decisions on patients. And when you think about the sort of wallet share across the board, -- and people sort of wring their hands around diagnostic testing. Frankly, all of Medicare diagnostic testing is $8.3 billion compared to $1.7 billion, $1.8 trillion in terms of total Medicare and Medicaid spend. And so we're sort of stepping over dollars to grab pennies when we think about like optimizing the price of diagnostic testing when we have these massive boulders of cost when you think about these $100,000 cost, therapeutics that are out there, million cost of therapeutics. Any other industry, you measure twice and cut once. For some reason, we think we want to save like a little bit of money, a couple of thousand dollars to then miss utilize $100,000 drugs. And so I think we just have to take a step back and look at the totality of the picture and I think it will happen. There's just no industry where data is not king, I mean financial industry, tech industry everywhere. And I think historically, diagnostics have been pretty simple. We've been sort of very unidimensional in terms of the type of data that you're getting out of them. When you have these broad tests where the potential utility of the test is way greater than its current utility that's where I think you get these like big step shifts in industries. And that's what's starting to happen now, and especially in our industry, I think, is the 1 that's leading the charge here. I mean we're going to have 1 exabitodata very soon, like in our portfolio, and there's just this nice sort of snowball effect in terms of like greater and greater utility that we can sort of lean and provide to physicians. So again, we're very much, I think, on sort of our way to I think, correctly shifting the value proposition towards diagnostics.

Okay. Mike, maybe 1 for you, continue to make strong progress on gross margins, and you've got some nice operating leverage and volume leverage as you were moving through the year. But at the same time, you're still making a lot of investments in commercial sales force and continue to make invest in R&D -- just talk about the balancing opportunities there of investments versus margin expansion as you go towards EBITDA breakeven free cash flow positive?

Yes. At the moment, we're sort of balancing that by taking screening separately, and then we take the rest of the business. If you take the rest of the business free cash flow positive and adjusted EBITDA positive. And for the full year this year, it's going to be -- it's going to continue to be so. In fact, very quite quite strong adjusted EBITDA and cash flow in 2026. And so I think we're getting the balance right of reinvesting in the right areas of R&D and sales and marketing across the sort of oncology and biopharma business because we still want to support innovation, and we still want to support top line growth -- so I think we're making the right sort of balance there. On the screening side, this year, same as last year, we're investing heavily on the commercial build-out. We want to take as much advantage of this first mover position that we have. We want to ramp up the sales field team as quickly as possible. And so that's what we're doing. And so we're reinvesting every sort of dollar of incremental gross profit back into the sales and marketing line. And that's going to continue until we get to a certain level of scale. And then we're very confident in 2027 on the screening side, will reach an inflection point where we've got to that scale on the commercial build-out. And so incremental gross profit as we're deriving that then can start to drop down to the bottom line. So we're still -- even with these heavy investments across screening, we're still committed to being breakeven by the end of '27

Quarter, everything sort of firing in all cylinders and -- yes I think it bodes well for -- thank you very much. Thanks, Amit. .

Thank you. Thank you very much. Thanks, Ami. Michael. Thank you for being here. Thanks, everyone.