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

And just given your scale, I think, increasing in MRD, having that very established CGP franchise, how does that kind of full suite solution resonate with the physician versus incumbents that perhaps are under indexed to one of those product types?

Yes, I think, Guardant is not like a holding company of a few business units, frankly. All these assets that we have are really working together and give us leverage and new commercial opportunities. I think on Reveal and 360 are very clear, like we talked about 360 connecting it with Reveal for treatment monitoring. And then when the treatment is not working, again, the profiling is going to be indicated in Guardant360, in the MRD in early-stage monitoring those patients with Reveal at the time that Reveal is finding something then typically those patient needs to go through profiling. And it reflects the Guardant360 would be indicated in those patients. There are some subset of the market that they really value single-stop shop or the convenience of the ordering. Now these kind of portfolios that we have give a lot of ease and connectivity of offering and the data for busy oncologists in the marketplace, even on the Shield front. What we're seeing is even connecting Shield to our Oncology brands on both sides are giving some commercial benefit. So just imagine down the road, when a good fraction of CRC patients are going to get initially diagnosed through screening done through Shield. Right now, when we are talking with some accounts, they are interested to know that we have some screening solutions in terms of a complete portfolio, nobody else. Guardant is the only company who has offerings across screening MRD and CGP testing right now. On the other side, on Shield front, we are getting the benefit from established brand of Liquid Biopsy pioneers and trusted vendor when we are talking to primary care physicians. That's been helping to see this market adoption that we are experiencing.

It's a good segue probably on to Shield. I would say another couple of very good updates there on the commercial side since those second quarter results. We had Carelon and then EviCore. So just unpack it a little, what that means for the Shield commercial program and like maybe some numbers as well on just the covered lives now and then how rapidly you can go after that opportunity.

I think the flywheel of Shield is moving very fast. Like literally, it was about a year ago. I think the conversation was, would the patient and physician use a blood-based colorectal cancer screening. Does this category even exist? Do onscreen patients get tested with a blood test. Now just in a short time of about a year, we are in a category scaling phase. About 80% of all eligible patients have coverage for Shield. 94 million people with multiple success that we had and the wins that we had during the last few months, few weeks. Now 80% of people have coverage for Shield. Dramatically changed. It just gives us opportunity to provide more equitable access to this test and continuing to drive commercialization scale-up of this brand.

And is there anything holding back the momentum that you can go forward, just given you the commercial coverage is there now, well, we'll be coming and evolving, but is there anything just holding back the rate of uptake that you could perhaps push out into the market? Or do you feel like you have the capabilities of supply chain infrastructure to service that demand?

We are moving as fast as -- Guardant is a fast-moving company. And for silver doing as fast as we can in terms of scale-up, like dramatically the size of sales team has increased like we mentioned that we started this year with more than 300 people in the field in terms of commercial field force in Q2 earnings, we said at that time, we had more than 400 people in the field. Our DTC campaigns went from nothing last year to some pilot phase earlier this year, now really at a very scaled DTC campaigns right now. In terms of LAP, we bring forward some of the capacity that we are planning to build down the road, we move it forward. So we are very excited with those kind of progress that we are seeing. On the workflow, we got FDA approval for a more scalable workflow for Shield very recently. So that would really help with the scale up and also reducing the cost of Shield in a meaningful way even before end of the year. So in general, we are moving as fast as possible.

Might maybe hit on that cost reduction for Shield. I think it was a pretty interesting evolution that we've seen.

Yes, we know we had a very nice reduction in cost per test recently. I think we've been mentioning for a long time that really the -- we've got three main drivers of cost reduction over the next couple of years to get us from over $1,000 per test when we launched, and we're targeting a $200 test when we're at scale. And so we've made really good progress scaling our lab, getting a lot of efficiencies. Volume, of course, has been a driver to date of bringing the cost per test down. And in Q2, it was just over $400 per test. But recently, we got an FDA approval for changes to the workflow. So we've taken out a lot of analysis that was unnecessary, that needed to go thought an FDA SPMA process, just to prove equivalency with the original test, but we were very successful in doing that. So that's now gone live in the lab. And we expect that by the end of the year, we'll realize something like a 15% reduction on that $400 COGS that we had in Q2. So we think we'll exit the year with a cost per test of $350. We've still got work to do. We've been investing heavily in automation. Our plan is to take out as much labor cost as possible in the lab where we're processing Shield. So that work's ongoing. That will again need to go through an FDA approval process. But when we come out of that, and we expect some time probably we'll see another significant step down in cost per test and then continuing to drive efficiencies and with additional volume, that's going to get us to $200. So I think we're well underway with the target that we set, and we're really pleased with the results.

And with these new commercial wins, could you maybe just unpack what that means for ASPs and what those different rates look like perhaps across the different plans?

Yes. Obviously, it's getting coverage on the commercial side is very positive, and it's going to have an improvement on what we get paid by the commercial base. Just as a reminder, we've got the Medicare ADLT rate, [ 14.95 ]. That's been in place now for 2 years. And that's a well-established rate. And over the last 2 years, we've seen very strong payment from Medicare Advantage payers. And so we're getting very good reimbursement on that side. Where we've lacked to date has been on the commercial side with no coverage, we've effectively been getting 0 paid. So we've been managing our ASP. We've primarily been focused on the over 65, where we do get paid. As we've got into guidelines with ACS and these commercial coverage decisions we'll start to open up to more and more under 65. So that will have two impacts in the near term. Obviously, for the payers where we're covered, we'll start to get paid. We'll have to see what that is, and we'll have to see what decisions we want to make about contracting with the payers. But we'll -- but those 0s will start to transform into paid test. But we will have some zeros from all of the other commercial pay. So I think with our ASP, it's going to depend a lot on the mix over the next couple of years. We know that, that percentage of commercials and particularly the percentage of 0s in the short term is going to increase. So we had, for the last couple of quarters on ASP in the $800 range. We've guided for the remainder of the year at sort of $770. So a little bit of a dip there might be a further dip as we have more and more when we open up wider to commercial pays. But obviously, this flywheel that AmirAli mentioned on commercial reimbursement, that's going to drive ultimately the ASP backup. And so we're very confident that we'll have a strong ASP in the sort of in the medium to long term.

Great. And AmirAli, just on that the ramp. Any seasonality we should be thinking about for the third quarter? I realize, again, it's still early on. And so that ramp probably still looks pretty aggressive. But anything you're seeing out there in the market?

So just as a commercial organization, PCP front, still we don't have a lot of history data to really to rely on, but we have some and we are looking at a lot of other kind of external data. Like in Q3, like what we talked about is there are some seasonality in patients who traffic in PCP offices, then during the summer days in Q4, typically, like you see some kind of weather events. So these are like in terms of some of the dynamics of Q-over-Q, we consider it when we set our guidance for second half of the year in our Q2 earnings call. So besides that, nothing else to call out.

And then maybe one for both of you, but just thinking about the level of investment going in behind Shield now, DTC spend and the reps. How should we be thinking about the direction of travel for both of those in the years ahead?

Yes. I mean, we've -- I think we've consistently said that as Shield continues to progress volumes increase and revenue increases, we'll be investing any incremental gross profit back into the sales and marketing line basically to drive the commercial scale-up for screening as quickly as possible. So we've been doing that. Obviously, getting commercial coverage, being able to reduce our COGS is going to just allow us to reinvest more gross profit back into the line. So I think, over the short term, we should just expect that investment to continue to ramp. And we want to get to a place where we've got 600, 700 reps and a very strong DTC level of spend as soon as possible. And so yes, we're scaling this quickly. So you should expect that in the near term to continue.

Right. And then just on competition, obviously, an evolving market, more people coming into the fray. What do you think are the components of Shield that make it stand out as the preferred go-to screening test here? And how you think about that market evolution over time, what that rough share perhaps could look like 5 years from now?

Yes, I'm very confident about the position that we are in now. Still today, Shield has the best CRC detection readout of any other kind of technology out there. So we are still the best in terms of CRC detection. It's the most clinically validated test. When you are saying about the experience with way over 200,000 physician testing, real-world adherence bunch of randomized studies that we've done in different health systems are settings to show the overall rate of screening can go up significantly publications that we have behind Shield. In general, it's the most clinically validated platform. We also have the network and infrastructure that we built at Guardant during last decade. I think some elements like looks kind of maybe simple, but in reality, it's a major infrastructure build-out that takes time. Like for instance, blood draw, flubotomy networks, like at Guardant now we are working with tens of thousands of contracted flubotomists that help across our brands. And that's not easy to build in like the regional setting, national scale. So I don't think a bunch of this competition, which is going to come to the market, have anything on that front. So -- and we have first-mover advantage with a commercial team, which is really focused on this blood-based CRC screening. I think some of the competition is going to have a hard time with the positioning of maybe stool test versus blood-based tests. And lastly, over time, this MCD opt-in is going to show a powerful contribution and the values that we are going to offer to the physician versus CRC-only.

Yes, maybe we can hit on the MCD opt in. We obviously have an outcome for a competing MCD test next week. So how are you thinking about that category? What's the physician feedback been? I think you said the majority have opted in for the MCD feature. So maybe just talk through the evolution you're seeing there.

Yes. I think still we are in relatively early innings of this MCD opt-in and offering in the marketplace and majority of physicians are using Shield now, a multi-cancer detection test, the way that actually we built this platform. We were not sure if like PCPs in general, that sometimes they look at maybe they are not the most sophisticated physicians out there. They would add up this in such a fast pace. And it's the broadest way of offering MCD in terms of accessibility, like as long as the patient is indicated for colorectal cancer screening, which is 90% of the patient age 45 and above. If their doctor's interested and the patient is interested they can opt in to receive multi-cancer detection. That's very different than maybe some of the competition -- competitors offering that it's not broadly accessible for everybody. It requires very high out-of-pocket payments in order to get access to this kind of innovations. And we never believe that's the best way to really make sure that innovative test needs to get offered. So we are very excited. And I think over time, we are going to continue to see that this was the best way to make an set available in the marketplace. We wish our other players with their [indiscernible] of Lockheed would be good for for fuel to move forward if that outcome goes well. but that would not give them really a broad reimbursement pathway versus the pathway that we have, which is very unique to us.

And anything from the data you're seeing on the MCD side thus far that surprised you or interested you?

Still it's early days. I think the adoption has been pretty good. We are happy with the rate of data that we get access to on the patient side in terms of patient authorization. It's going pretty smoothly, and it's continuing to trend in the right direction. In terms of performance and sensitivity, it's too early. We don't have data after we opened up this MCD open, to be more patient.

And a couple of minutes left. So maybe we can just quickly hit on Biopharma. I think growth shaping up relatively in line with expectations so far this year. But maybe just speak about the pipeline that's evolving with those Biopharma relationships and any assumptions we should have multi kind of year horizon on that business?

Yes. No, Biopharma continues to be a very strong engine for us, not only on the -- with our pharma partnerships, but of course, it's a leading indicator on the clinical side and Again, all of the work that we did with AstraZeneca and SERENA 6 now comes through into our -- and to drive the Clinical Oncology business. So it's a strong contributor to Guardant. I think you've seen over the last 12, 18 months, we've had multiple CDx approvals. We've announced multiple strategic partnerships with with Big Pharmas, so we're being more and more integrated into the whole clinical development process with them. And Guardant360 as being a key element of that. And so, Yes. I mean we look at that to continue. We think those pharma partnerships are incredibly important for the whole of the business. And things are going well. On a long-term basis, we've guided for -- in 2028 for our Biopharma business to be roughly $300 million, which infers is sort of roughly a 10% to 15% annual growth rate, which is roughly in line with the market. So we're very confident about that, yes. And hopefully, some of these strategic partnerships that we've signed can help us accelerate from that.

I think. Well, AmirAli, Mike, thank you so much.

Thank you.