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

Welcome to the Canaccord Genuity Grow Conference. I'm Kyle Mikson. I cover life science tools and diagnostics for Canaccord. Really pleased to welcome you to a fireside chat with Guardant Health here with us today. Company is a leader in precision oncology diagnostics across screening, MRD and therapy selection. With us from the company, we have Helen Altuci, Co-CEO; and Amir Ali Talaz, Co-CEO. Thanks guys for joining us today. Appreciate it.

Let's start with the 2Q ' 26 earnings recap. You guys had earnings recently. Again, like a really strong quarter, nice beat, raised guidance. Can you just walk through the results, puts and takes from the quarter

Yes. It's -- once again, I think it shows a business that's really firing on all cylinders. We have -- these 3 overlapping S curves, very large market opportunities that are all growing very rapidly. We had great growth with Guardant360 in our oncology business that's our flagship therapy selection test. We saw over 30% year-over-year growth there. We saw even greater growth for our tissue test. And it's really, I think, just the momentum we're seeing with Smart Platform this really a broad-based genomic -- epigenomic platform we launched almost 2 years ago now, and we're continuing to see sort of the dividends in terms of continued volume growth and adoption. We're also seeing very good strength in our MRD business. This is the next market that we're in, the sort of $20 billion recurrence detection market. We have our product reveal that has been doing really, really well. It's been growing over 100% year-over-year. We recently launched a new indication for therapy monitoring there in November of last year. We see really good growth market really drafting behind 360 and the strength we have with oncologists. And then finally, with Shield. We're seeing, I think, continued very strong momentum there, one of the -- if not the probably most successful launch in diagnostics from both the volume and revenue point of view, we're seeing, I think, 50% quarter-over-quarter growth there and multi-100% year-over-year growth there. So I think a lot to like about how the year has progressed so far.

Perfect. I think -- and then just kind of diving to that, I believe oncology volumes grew like 60% year-over-year. Liquid, I believe, grew like 30% and tissue was above that, and then you just said that over 10. So maybe as you look at the historical kind of business, so some catalysts will talk about later. But could you maybe just maybe size the tissue and the reveal kind of -- like a revenue or volume streams right now compared to what we've seen others in the market. Market share has talked about? Just how large -- how material is this in terms of moving the needle for you financially?

On the therapy selection on the liquid and...

Reveal and G360 tissue?

Yes. So those right now are obviously smaller contributors to the overall business compared with the Guardant360, which we led in 2014. But the fact that those are growing, I think, very rapidly bodes well for the coming years. We think tissue is going to be a pretty large segment for us as we continue to lean into it. What we're seeing is that that flywheel just takes time to sort of gain speed, especially for a product like a tissue product that we have incumbents in there. There is, I think, legacy products that are out there. But as physicians start using it, trialing it, sampling it and then they gain experience with our lower QNS rates, the comprehensiveness of the test, the apps that we have on it, we're seeing that momentum build up, and it's something where I think we can continue to sort of take share and build that up into a fairly sizable business. MRD, obviously, I think, is still very much in its early innings. That's something where not only do we have, I think, the premier tissue free MRD franchise right now. We're about to launch this year, our first tumor-informed offering, Reveal Ultra. And so we will be probably the company with the most comprehensive offering in oncology in terms of liquid tissue, tumor informed, tumor tissue free. And we think that will also carry a lot of momentum on its own in terms of -- especially at the key account level in terms of large cancer centers sort of using our portfolio for the bulk of their patients.

Perfect. One more on the kind of the quarter and what's currently happening. So on therapy selection liquid, you're growing as fast as some of the competitors, the 30% or so. How are you able to do that with such a larger like revenue and volume based on these other companies?

Well, I think it goes down to architecture of the technology. It's just head and shoulders above what we see out there. It's the only liquid product that has full comprehensive genomics and epigenomics in terms of methylation. There's now hundreds of thousands of samples that we've used to train these applications that we've launched on that platform. It's allowed us to do things that essentially I think we're once considered science fiction in terms of being able to tell the histology of disease, seeing transitions from non-small cell lung cancer to small cell lung cancer in blood. We have FDA approval now in that platform. So we have just, I think, created both a platform and a moat, frankly, that I think has put us in a really good position. And then the other piece is, it takes time with diagnostics to essentially have physicians understand the power of the platform, especially with all of these apps and with all of these features. It's not like you can order just one test and immediately experience all the wonder that is Guardant360 Liquid, you have to see it, interact with a particular patient subset that has that mutation or has that sort of feature that biomarker and as physicians have continued to use test, I think they're gaining more and more confidence that this is something that is truly differentiated, which is why we're seeing that acceleration in the momentum.

Yes, impressive. Thanks for that. Merely on Shield. It's a very impressive ramp so far. It's going to be an raised every quarter that you've offered, I think, in terms of the guidance for revenue volume, it's been well over here, obviously, what surprised you most about the launch and the adoption so far. So obviously, we've been very positive, and there's been catalysts, but what your line kind of stands out?

Yes, we're very excited happening on the Shield front, like we're in the second year of launch now and really, I think we graduated from category building phase to really category scaling right now. The amount of market adoption of Shield is obviously way more than what we thought, how fast HCPs and PCPs are using this test on how many patients using -- they're using this test, the productivity of our reps is way more than what we expected from them. And frankly, most recent development with UnitedHealth Group was fascinating. We didn't expect a major payer, which is typically a lagger in giving coverage to innovative technologies to act first and provide very broad access to Shield testing for all patients within their plan. So in this world of managed care, we believe no payer want to be first, no payer want to be last. And definitely, this kind of development is very exciting for us.

Yes. So on UnitedHealth, I mean, again, very surprising that, that occurred. Maybe talk about, I mean, how they came about and also why we shouldn't expect other large commercial plans to join suit over the next year or 2?

We didn't expect it. Having said that, we are working on it for multiple years. Because of our oncology products, we had a multiyear relationship with UnitedHealth Group. We've done pilots of shield within some of the employer base that United was managing their health benefit and the experience there was also very positive. So after this multiyear conversation and recent guideline inclusion and lastly, the guideline inclusion by American Cancer Society that really acted as a closure and the final a triggering point for them to give us positive coverage for Shield blood test. In terms of other payers, we don't expect any major payers to give us coverage before end of the year. Having said that, we are having some positive and constructive conversations with several players in the field, and we see what happens.

And I guess on the ACS guideline front, what's that tailwind sort of look like for you in terms of the 12 states or so that would cover?

So we knew that American Cancer Society guideline is well respected in the field. We knew about some state-level mandates that once American Cancer Society recommends a colon cancer screening test there would be state-level mandates for coverage of that test. What we did not expect is the impact of American Cancer Society guideline and decisions by major payers, including UnitedHealth Group. So that was unexpected and it's a very good and positive surprise for us;;.

Okay. And then the Shield -- the new approved workflows that are lower COGS, I believe. I mean what in addition to that type of an improvement, what can you do on the performance side over the next few years? And what's -- just like give us a flavor for like where you're kind of cooking up on the same per shield?

So we are in still a very early innings of commercialization and scaling within this category of CRC screening. Having said that, the gross margin of Shield is pretty healthy as we speak today. So when you're thinking about the Q2 ASP that we reported, the COGS of $400 -- roughly $400 that we reported in we are already sitting on a pretty good gross margin there. Having said that, we have a road map to reduce our COGS for Shield and improve the scalability of that test within the next 2 years. we got FDA approval for newly enhanced Shield workflow, which increases the throughput of the Shield and also increases the efficiencies and reduce the cost for us. . That should reduce the COGS of Shield by 15% by end of the year. And we expect and continue to be on track that sometime in 2028 at scale, the Shield COGS would drop to about $200. So ASP of north of $700 in 2028 and COGS profile of approximately $200 million would generate a lot of exciting gross margin profile for us. .

All right. Maybe just taking a step -- I'll get Jason to this for a second on Shield to a competitor today had a acredevice designation announced for lung. U.S. had the long kind of indication in the works and the study and so forth. Maybe talk about why U.S. have this moat an advantage in screening, whether it's for single cancer or multiple cancers.

I believe we got our breakthrough device designation for shield as a panel of 10 cancers where long is part of the 10 cancer probably like 2 years ago. So I think other competitors in the field are continuing to play some catch-up games with us and this first-mover advantage, which kind of rooted in working on shale during the time that there were not many believers this thing would work is generating a lot of opportunity for us. . So Shield as a platform, we develop it as a multi-cancer detection platform. It's clinically validated for a panel of 10 cancer types right now, all solid tumors. And for one indication, colorectal cancer screening, it's FDA approved. We are also working on FDA approval for lung cancer screen. That's a long trial that we are doing during the last 4 years. We made very good progress with finished enrollment. All the patients are -- have finished their clinical follow-up or going through the clinical follow-up and we continue to expect to finish the follow-up on clinical database lock probably sometime before end of the year or early next year.

Excellent. And then on the MCD component, the opt-in. So you've been kind of offering that for some time now, maybe almost 1.5 year here. I think the attach rate is pretty strong as we've said recently. So -- maybe remind us what you're going to use that data for and have that compared -- like where does this kind of fall on the whole, like the Vanguard study, for example? And what's the go forward over time with what said?

So right now, when the patients are going through CRC screening and they're eligible for CRC screening patient has a choice if they are interested, they can opt in and receive the information about 9 other cancer types. As long as the patient participate in our data initiative program that we have effective they authorize us so that we can get access to their medical record, and we can monitor really the performance of our MCD test. Shortly after launch, we were amazed with the adoption of that opt in by physicians. And we reported in our Q2 earnings call that now a majority of PCPs who are prescribing Shield. Are, in fact, opting in to receive that multi-cancer detection results report. So what that gives us the opportunities to build this U.S. efficient database of the performance of an utility of MSA testing very quickly powered by the commercial leverage that we have and scale up of CRC screening and this strong opt-in by physicians and the patients that you're experiencing. So we are not far away from having a database, which is going to be powered enough that could be the main backbone of our submission to FDA for indication expansion of this test from CRC screening to multi-cancer detection Still, there are some work for us to do on that front. But the commercial scale of Shield is really paving the path for us to get to that point in the near future.

All right. And just for context, the other MSA FDA submission right now has 175,000 patients in the -- maybe even more in the submission. So would your data -- with the data points that are included in what you just said as like eventually add up something like that or bigger?

I mean if you just look at it on the guidance of -- for our CRC testing this year of 270,000 to 285,000 testing this year. You can get a sense of the commercial scale that we are talking about. So it's not going to take us long until we get to this point of having a major clinical database in our hand.

Okay. And then on the kind of commercialization and sales force. So you have, I think, 400 reps right now plus a DTC effort. Can you talk about the balance between those 2 functions basically.

We have a skilled commercial infrastructure right now. More than 400 reps in the field, which at steady state, we are going to scale it to 600 to 700. So we are -- we made significant progress and dramatically actually build that commercial infrastructure, our national DTCs and influencer campaigns are live at national level. Maybe some of you guys have seen those kind of ads. And in terms of the investments, still majority of our investments are going in the personal promotion and the field force side. But a material fraction is going in DTCs, and we expect that to continue as we go to next year.