Viavi Solutions Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 18 speakers on the call.

Operator

Hello, everyone, and welcome to the Guardant Health Second Quarter 2023 Earnings Call. My name is Emily, and I'll be coordinating your call today. After the presentation, there will be the opportunity for any questions, which you can ask by pressing star followed by the number one on your telephone keypad. I'll now turn the call over to Investor Relations. Please go ahead.

Speaker 1

Thank you. Earlier today, Guardant Health Release financial results for the quarter ended June 30, 2023. Joining me today from Guardant are Halmi Altucchi, Co CEO Amiri Talazaz, Co CEO and Mike Bell, Chief Financial Officer. Before we begin, I'd like to remind you that during this Call management will make forward looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or event to materially differ from those anticipated.

Speaker 1

This call will also include a discussion of non GAAP financial measures, which are adjusted to exclude certain specified items. Additional information regarding material risks and uncertainties, as well as reconciliation to most directly comparable GAAP financial measures Available in the press release Guardant issued today as well as in our Form 10 ks and other filings with the SEC. Guardant disclaims any intention or obligation to update or revise projections and forward looking statements, whether because of new information, future events or otherwise. The information in this conference call is accurate only as of the live broadcast. With that, I'd like to turn the call over to Helmy.

Speaker 2

Thanks, Carrie. Good afternoon, and thank you for joining our Q2 2023 earnings call. I will start off our call today with our top line results for the Q2 and go into more detail on our progress in therapy selection and MRD. I will then turn the call over to Amir Ali for an update on screening. And finally, Mike will provide a more detailed Our financials and outlook for the remainder of 2023.

Speaker 2

Starting on Slide 3, at Guardant, we are singularly In line with this priority, we will start our call off by sharing a patient story. In September 2021, A 56 year old woman had a colonoscopy that revealed colon cancer. She then had curative intense surgery, which removed 32 lymph nodes. Pathology indicated a diagnosis of stage 2 colorectal cancer with no evidence of disease in the removed lymph nodes as well as negative margins on the reception. With this information, her oncologist determined there was a low risk of recurrence and chose not to administer adjuvant chemotherapy.

Speaker 2

At a checkup 3 months post surgery, a CEA test was drawn and showed normal results. At our next 3 months check-in, her CEA doubled, But we're still within normal limits. The patient requested that our oncologist order a Guardant reveal test. The results were positive for ctDNA And as a result, her oncologist put her back on chemotherapy. Since then, she has had 2 consecutive follow-up REVEAL tests Showing her to be ctDNA negative.

Speaker 2

And today, she is fortunately showing no evidence of disease. This story highlights the power of our tests to provide meaningful decision support to oncologists and patients earlier in the cancer journey In the MRD setting. Guardant is the liquid biopsy industry leader in therapy selection, Giving us a strong foundation in cancer patient care. From this foundation, we are building out our pipeline of multibillion dollar opportunities in emerging and screening, Which we believe will lead to a step change in the magnitude of impact we can have when patients' lives. Turning to top line performance on Slide 4.

Speaker 2

We had another very strong quarter with revenue growing 26% To $137,200,000 This robust growth was driven by precision oncology revenue, Which increased 36% in the quarter. I'm really pleased by the great progress that we continue to make in our therapy selection business That illustrates we are still in the early innings of this uptake with much more growth ahead. Turning to Slide 5. Indeed, our team delivered strong growth across precision oncology, surpassing 50,000 combined tests during the quarter. Clinical test volume during the Q2 reached 43,500 tests, an increase of 49% from the prior year quarter.

Speaker 2

Clinical growth was driven by strong contributions from our key products supported by a robust commercial platform. For biopharma, we delivered 6,700 tests, increasing 12% year over year. Turning to Slide 6. Looking more closely at the growth drivers for our therapy selection clinical volume. We continue to benefit from the tailwinds we saw at the beginning of the year with strong growth.

Speaker 2

In lung, with continued strength Our high performance and rapid turnaround Guardant360 tests in breast fueled by our recent Guardant360 CDX approval for ESR1 mutation positive patients And in tissue aided by our AI powered Galaxy suite. As a reminder, we introduced the Garden Galaxy suite of advanced AI analytics For digital pathology applications in partnership with Lunet to enhance our portfolio of cancer tests, starting with the Tissue Next PD L1 test Shown to improve biomarker detection by more than 20% in non small cell lung cancer. For MRD, REVEAL continued to do well and we again saw strong volume growth of greater than 100% year over year. We are also making excellent progress in our clinical data Pipeline for Rebile and look forward to sharing more about this at our upcoming Investor Day. Our team has worked incredibly hard to establish Guardant as We have made critical investments into our commercial infrastructure that are now paying dividends.

Speaker 2

We lead the market in share of voice and overall satisfaction with customer experience. To that end, we have finished development and begun integration With the top 3 oncology EMR providers in the United States. These providers collectively cover nearly 2 thirds of all oncology practices in the country. As expected, we see strong increases in ordering volumes once a particular account is able to order our tests through their EMR system. As we continue to broaden our customer base, we look forward to driving further increases in volumes across our product portfolio Moving on to Slide 7.

Speaker 2

We had some big breakthroughs in payer coverage during the past quarter That will provide tailwinds for our clinical business in the near term. Since our last earnings call, we secured coverage from Anthem, Blue Cross Blue Shield, Aetna and Humana for our Guardant360 test. These tests are now covered for comprehensive genomic profiling by all major U. S. Commercial health insurers With over 300,000,000 covered lives, we are also making good progress on increasing covered lives for newer products in our portfolio.

Speaker 2

For example, with tissue net, we are approaching 200,000,000 covered lives and hope to cross this threshold later this year. We also recently received our first commercial coverage for Garden Reveal. Blue Cross and Blue Shield of Louisiana It's providing coverage for Guardant Reveal for individuals with stage 2 or stage 3 colorectal cancer after curative treatment, including surgery. This is a major milestone for patients. This is the first time a liquid only MRD test has been granted reimbursement coverage by a private payer to inform physician Decisions about post treatment therapy and to monitor for disease progression, recurrence or relapse.

Speaker 2

Importantly, this coverage provides Broad access for CRC patients at Stage 2 or 3, which amounts to a significant number of tests for patients across the adjuvant and surveillance settings In line with MCCN monitoring guidelines. On to Slide 8, outside of the United States, we are continuing to make progress on our strategy of achieving global scale with a focus on large core markets. Most notably, we recently received national reimbursement from the Japanese Ministry of Health, Labor and Welfare for Guardant360 CDx, which became effective at the end of July. Japan currently represents the largest expansion opportunity for a portfolio of products outside of the United States. There are more than 390,000 deaths from cancer each year in Japan and more than 1,000,000 new cancer cases annually.

Speaker 2

And despite this large population, CGP testing is still in its very early innings of adoption with currently about 25,000 CTP tests performed annually and only 15% to 20% of that in blood based testing. In addition, Japan has focused Centralized care with about 260 core genomic hospitals. Importantly, Japan is a single payer healthcare system And we received pricing that is in line with our U. S. ASP of $2,600 to $2,700 With this pricing, we expect our clinical testing for positive margins and contribute to our therapy selection business reaching breakeven by the end of the year.

Speaker 2

This reimbursement decision represents a significant milestone for our international business. We are encouraged by the strong support we have received from oncologists in Japan And we look forward to furthering these partnerships as we continue our commitment to democratize access to precision oncology And bring blood based confidence of genomic profiling to patients and care teams across the region. Beyond Japan, We are also very excited about our opportunities in the U. K. And China, and we look forward to providing updates on our progress across our international business in the future.

Speaker 2

With that, I will now turn the call over to AmirAli to provide an update on our screening business.

Speaker 3

Thanks, Almy. Turning to Slide 9. We are continuing to make advancements in our screening business as we spread out a new patient preferred category In the screening market with our SHIELD blood test. We are making steady progress with the FDA review of our PMA package for SHIELD And we are pleased with the recent successful pre approval inspection by the agency. We continue to expect FDA Approval and the launch of SHIELD IBD in 2024.

Speaker 3

Turning to Slide 10. We continue to believe that SHIELD will transform TRC screening and result in more life safe. We have developed and validated a discrete event simulation Model, integrating real world longitudinal adherence rates to evaluate the effectiveness of Shield relative to existing screening modalities. At a conference in late June, we presented the initial results from our health outcome modeling. This model examined the simulation of average risk U.

Speaker 3

S. Adults receiving a SHIELD screening test every 3 years. On the left, we see the health outcomes over a lifetime horizon when assuming real world adherence to different screening modalities. Life years gain for Shield was 217 with 820 total colonoscopies, While the Life Years gain for other modalities was in the range of 126 to 255 with 126 to 19 96 total colonoscopies. This initial data Shows for Shield, the life years gain versus the number of colonoscopy is in range, even favorable compared with other guideline recommended tests.

Speaker 3

At Guardant, it is in our DNA to stay at the forefront of innovation. With Guardant360, We launched the best in class liquid biopsy and have maintained our market leadership with continued performance enhancements. We are taking the same approach with Shield. We are confident that the performance of current version of Shield Exceeds the bar for approval, guideline inclusion and reimbursement, but this is just the beginning for what Shield can offer. Since we filed our PMA with the FDA, we have made progress developing a more sensitive next generation shield Powered by data and clinical insights gathered from early stage CRCs including Stage 1 malignant polyps.

Speaker 3

We look forward to sharing more later this year. Moving on to Slide 11. At Guardant, We have always had a vision for blood based multi cancer screening. We started with CRC as the first Indication for Shield because of the established pathways for FDA approval and reimbursement, which handle for broad access. We are planning to add lung cancer as the second indication.

Speaker 3

Lung is the leading cause of cancer related mortality. There are about 15,000,000 high risk individuals eligible for lung cancer screening. However, the overall screening rate It's less than 15% due to the complexity of guideline recommended screening modality and significant follow-up requirements. This is where the value of our differentiated blood based test comes into play. We are pleased with our progress in our NCI RE study.

Speaker 3

We are also making good progress on recruitment for our pivotal shield lung study And have surpassed 6,000 patients enrolled. Beyond line, we plan to add a large panel of cancers All to the same test. As a reminder, we are committed to an operating loss from our screening pipeline of less than 200,000,000 For the next 12 months, this will fund our top priorities in screening and set us up to achieve our upcoming milestones. With that, I will now turn the call over to Mike for more detail on our financials.

Speaker 4

Thanks, AmirAli. Turning to Slide 12 to review our financial results. Total revenue for the Q2 of 2023 grew 26 Percent to $137,200,000 compared to $109,100,000 in the prior year quarter. Total precision oncology testing revenue for the Q2 was $125,200,000 increasing 36% Compared to $92,100,000 in the prior year quarter. As in previous quarters, this increase was driven by strong year over year growth In clinical and biopharma volumes.

Speaker 4

Precision oncology revenue from clinical tests in the 2nd quarter Total $100,200,000 up 42 percent from $70,500,000 for the prior year quarter. 2nd quarter clinical test volume was 43,500, an increase of 49% from the same period of the prior year And an increase of 11% or 4,400 tests from Q1 2023. While Guardant360 continues to be the main revenue driver With continued strong growth in lung cancer and a significant uptick in breast cancer, we again saw very strong year over year volume growth in both REVEAL and Tissue Next, Both growing over 100%. 2nd quarter Guardant360 ASP continues We had some big breakthroughs in pay coverage during the past quarter. While this additional coverage will provide tailwinds for our clinical business in the near term, We expect, however, that it will take some time for these upsides to flow through to our clinical ASP due to the length of time it takes to contract with insurers.

Speaker 4

Blended clinical ASP was approximately $2,300 in line with our expectations. As a reminder, Lendly clinical ASP will continue to be influenced by both the volume mix between Guardant360, Tissue Next Reveal and Response, As well as the mix of overall clinical volume between U. S. And international. Precision oncology revenue from biopharma tests in the 2nd quarter totaled $25,000,000 up 16 percent from $21,600,000 for the prior year quarter.

Speaker 4

Biopharma test volume was strong, With 2nd quarter totaling approximately 6,700 tests, up 12% from the prior year quarter. Biopharma ASP in the 2nd quarter was approximately $3,700 which was higher than both last quarter at $3,550 and the prior year quarter at $3,600 due to the profit mix. Development services and other revenue for the Q2 totaled $11,900,000 down 5 point $2,000,000 or 30 percent from the prior year quarter. This was primarily due to the timing and amount of milestones related to our partnership agreement And the change in companion diagnostics collaboration projects with biopharma customers. Gross profit for the Q2 of 2023 Was $83,300,000 compared to a gross profit of $72,400,000 in the same period of the prior year.

Speaker 4

Gross margin was 61% compared to 66% in the prior year quarter. The change in gross margin was driven by a number of factors. For precision oncology, gross margin was 61% in the Q2 of 2023 compared to 63% in Q2 2022. This reduction was due to the change in mix between clinical and biopharma revenue, with clinical revenue growing faster than biopharma revenue, As well as the year over year change in blended clinical ASP from $2,400 to $2,300 due to the increased proportion Clinical volume coming from Reveal Tissue Next in response. Development services and other gross margin was 62% in the Q2 of 2023 Compared to 86% in Q2 2022.

Speaker 4

The change in margin was primarily due to the cost of processing Shield LDT samples as part of our market development activities for which we are currently booking minimal revenue. We continue to expect overall gross margins to be approximately 60% for the full year 2023. Operating expenses for the Q2 of 2023 The $202,900,000 compared to $202,700,000 in Q2 2022. Net loss was $72,800,000 or $0.67 per share for the Q2 of 2023 compared to $229,400,000 Or $2.25 per share in the Q2 of 2022. The year over year reduction in net loss is primarily due to three factors.

Speaker 4

Firstly, our loss from operations reduced from $130,300,000 in Q2 2022 To $119,600,000 in Q2, 2023. Secondly, in Q2, 2022, we booked another expense of approximately $100,000,000 To reflect the increase in the fair value of the outstanding shares in our EMEA joint venture, which we acquired in June 2022. Finally, in the Q2 of 2023, we recorded a $64,000,000 unrealized gain related to our strategic equity investment in Lunet, Our AI partner for Tissue Next, which had its IPO in Korea last year and has seen a substantial increase in its share price over the last few months. Moving on to non GAAP financial measures on Slide 13. Non GAAP operating expenses $180,500,000 for the Q2 of 2023, a 2% increase from $176,200,000 in the prior year quarter.

Speaker 4

Non GAAP net loss was $88,700,000 or $0.82 per share for the Q2 of 2023 Compared to $101,800,000 or $1.0 per share for the Q2 of 2022, Adjusted EBITDA was a loss of $85,200,000 in the Q2 of 2023 compared to $94,300,000 loss In the Q2 of 2022. Free cash flow for the Q2 of 2023 was negative $100,500,000 Compared to negative $135,000,000 in Q2 2022. We continue to make very good progress in diligently managing our operating expenses and cash burn, and we are confident that we will achieve our stated goal of lowering our full year operating expenses compared to 2022, As well as reducing our free cash flow to approximately negative $350,000,000 for the full year. Turning to Slide 14. In May, we completed a successful equity offering where we raised $381,000,000 in net proceeds.

Speaker 4

This puts us in a very strong position with approximately $1,200,000,000 of cash, which provides the runway to reach cash flow breakeven, Which we are targeting in 2027-twenty 8, 1 to 2 years following Shield inclusion in CRC's screening guidelines. As we look ahead, we are still on track to achieve cash flow breakeven in therapy selection within the next 3 to 6 months. We'll be able to achieve this milestone as we are now gaining significant leverage from the investments we've made over the last few years to scale our core Therapy selection business across commercial, lab and back office operations and as we've been able to maintain high volume growth and consistently strong ASPs and gross margins MRD spend will continue to be focused on increasing our market penetration, our technical platform upgrade And developing clinical data to support reimbursement coverage. However, we are confident that the total investment in MRD across the next 5 years can be sorted from the For screening, we anticipate that the operating loss from our screening pipeline will be approximately $200,000,000 per year over the next 5 years. Over the next 12 months, we'll be ready for the Shield IBD launch upon successful FDA approval, deliver the next generation of Shield With potentially even better early stage performance and make significant progress on indication expansion to lung and other cancers.

Speaker 4

Investments beyond this will be contingent upon receiving FDA approval and then gated by ongoing commercial success and revenue milestones. Now turning to our outlook for the full year 2023 on Slide 15. We are raising our full year 2023 revenue guidance I now expect revenue to be in the range of $545,000,000 to $558,000,000 representing growth Of approximately 21% to 22% compared to 2022. This compares to our previous expectation of 535 $545,000,000 This update reflects a very strong performance of our clinical business in the Q2. For the remainder of the year, we expect to see a sequential decline in development services and other revenue in Q3 due to the timing of project milestones And declining royalty revenue.

Speaker 4

For the Q4, we expect to see a seasonal uptick in biopharma volume that we've historically seen towards the end of each year. Finally, as just mentioned, we continue to expect 2023 operating expenses To be below full year 2022 and free cash flow to improve to be approximately negative $350,000,000 in 2023 And to consistently improve in the following years. Turning to Slide 16. Our long term vision is to transform cancer diagnostics Through cutting edge technology, a focus on high impact opportunities and consistent execution. In the second quarter, We were very pleased to achieve major reimbursement milestones, obtaining national reimbursement coverage for GALEN360 in Japan And our first U.

Speaker 4

S. Commercial reimbursement coverage for Galantrivil. Finally, turning to Slide 17. We'll be hosting our 1st Investor Day on Thursday, September 7th in New York City. We look forward to sharing a deeper dive across our business.

Speaker 4

Please reach out to investors@gardenhealth.com for more information. At this point, we'll now open the call up to questions.

Operator

Thank you. We will now begin the question and answer session. We ask that when preparing to ask your question, you please ensure that your device is unmuted locally. The first question today comes from the line of Jack Meehan with Nephron Research. Jack, please go ahead.

Operator

Your line is now open.

Speaker 5

Thank you. Good afternoon. Wanted to ask about so the clinical volume really showed strong momentum this quarter. Is it possible to call out what you're seeing By cancer indications like breast cancer with the CDx approval versus lung or others?

Speaker 2

Yes, it's a great question, Jack.

Speaker 6

We're seeing, I think, really strong Growth across multiple indications and I would say that it's both lung and breast that are carrying the momentum we started From the beginning of the year, I think we're just seeing further consolidation behind our product given The leading turnaround time and leading performance we have with lung, it really does have the product market good. We see that we're probably testing More lung cancer patients

Speaker 2

in the United States in

Speaker 6

the metastatic setting with MGS than really any other modality tissue or liquid. It's really a great place to be and I think we're just seeing continued momentum there. And then obviously with the breast to the S-one drug approval, we're continuing to see Nice volume lift. Breast has really taken sort of swing up in terms of volumes. We're doing Very large percentage of metastatic breast cancer patients now in the United States.

Speaker 6

And so we've really been pleased by the progress we've made there. But The growth is just not limited to those indications we're seeing across the board.

Speaker 5

Great. And then a follow-up for Mike. On the clinical ASP, I know you said The G360 toward the top end, 2600, 2700. I was wondering if there were we've heard one other Lab that reported tonight talk about some claims issues with some Blues plans, heard others talk about Payment Integrity. I was wondering if maybe you're seeing incremental traction with some of the new coverage, but were there any headwinds that are kind of keeping it Within the range versus above the top end?

Speaker 5

Thank you.

Speaker 7

Yes, Jack. No, there's no headwind that we've seen with And we're not seeing any sort of negative traction with any payers. I think, yes, we've definitely had Tailwinds with respect to future ASPs. We've Gained coverage down from these major payers in the last 3 months. And I think, yes, we've been at pains to sort of point out that even though we've got the coverage, It's just going to take time to see that coverage come through to ASPs because we need to go through the contracting phase And then we need to start to see the sort of new rates come through from those payers.

Speaker 7

So we're confident that over time, our ASPs will continue to Track upwards and potentially beyond that range that we're currently in. But yes, it'll just take time. We've not seen it now. And Maybe just to add, for the remainder of the year, we're still sort of forecasting within this 2,600, 2,700 rate. So If things were to happen quicker than expected on the contract inside with the payers, we could have some upside there.

Speaker 7

But yes, so far things are steady.

Operator

Our next question comes from the line of Puneet Souda with Leerink Partners. Puneet, please go ahead. Your line is open.

Speaker 8

Great. Hey, Helmy, I'm Ehrlich, Mike. Thanks for taking the questions. So, first one on REVEAL, wondering if you can provide any context around Contribution in the quarter, what are you expecting for within the guide for the full year? And if there are any updates Upgrade of the assay because obviously the upgrade of the assay then drives the submission to the common Marty, LCD that's out there, maybe just, if you could outline the sort of the timeline on that?

Speaker 8

And then I have

Speaker 4

a follow-up on FDA primarily.

Speaker 6

Take the first part of the announcement.

Speaker 7

Yes. I think the color on REVEAL, we're not breaking out those volumes with consistently not doing that. But I think we said in the prepared remarks, in the quarter, revealed volume grew over 100%. So we're really pleased with the And I think previously we've talked about revealed revenue being sort of low double digit millions. And so, yes, we're still on track for that.

Speaker 7

So, yes, overall, the deal is going really well and as well as we would hope, But that's probably as much color as we're giving in the numbers. Yes. No, I mean,

Speaker 6

I think the smart liquid biopsy transition We're on track and continue to happen this year. Obviously, we've been really digging in, in terms of The capabilities of this new platform and it's just frankly amazing us every single day in terms of the Increased capabilities that we can have just I think it's not only going to make the performance of our tests So much better in terms of sensitivities, specificity, what we can do with it. But just the capabilities that will offer the field are frankly Groundbreaking, not just the field of oncology, but even to our understanding of the science of disease progression. And so yes, we're very, I think, Hopeful that we can present some of that data at our Investor Day as well. So it's going better than we planned.

Speaker 8

Thanks. Look forward to that. And then just on FDA for AMERALYD, wondering if you can provide us An update of the Shield 2.0 or the next generation improvements that you're doing in the assay, Is there a way to submit that as a supplement into the current FDA filing? And then also wondering, Do you think FDA is going to put weight on the adherence aspect of this assay? Just wondering your thoughts on those two points.

Speaker 8

Thank you.

Speaker 3

Yes. Thank you, Puneet. So as I mentioned, you're making steady progress And in terms of V2, we are also excited with some actually Insight that we are getting on B2 and we see actually what happens. In terms of the regulatory pathway for B2, Our current assumption right now, our best judgment is hopefully we get V1 approved. And Due to the fact that the B2 is just optimized algorithm on the same chemistry, all the workflows are the same.

Speaker 3

Effectively, it would be just supplemental PMA review by the agency that we are planning to submit right after we get approval for a first version. So that's our operating assumption at this time. In terms of adherence, our rating agency actually acknowledged in our location for us That they acknowledge the value of blood based testing for this field. So we believe actually it's on the top of their mind that blood has some

Operator

Our next question comes from Tejas Savant with Morgan Stanley. Tejas, please go ahead. Your line is open.

Speaker 9

This is Yuko on for Tejas. Thank you for taking your questions. I was wondering when can we see the next gen SHIELD validation data? And could that come as soon as year end? And if so, what venue should we be looking out for?

Speaker 3

Yes. So actually we are expecting to share actually more information and data actually later this year. So please stay tuned.

Speaker 9

Great. And I also have a follow-up. Generation of outcomes data will take time, but When should we expect the next larger cohort data on a tumor naive approach? And then separately, how do you go about getting mind share from physicians who are already using a Can you give us a sense of what proportion of current customer accounts are using competing MRD assays versus just the tumor naive approach?

Speaker 6

Yes. It's a great question. We've made really great progress in terms of Clinical validation course of us who have clinical utility studies have been running for some time. So we're going to present likely more data Later this year in breast and colorectal cancers, I think that data hopefully if it's positive will look We'll get published sometime next year and will allow us to expand reimbursement. But yes, we're very confident that In terms of the performance of this platform can do much better than almost any sort of tissue Informed approach is because of the science and the sort of ability to detect more features For test, so we're pleased we're looking forward to presenting more of the background around the technology, How it works and why it works and some of the data at our Investor Day.

Speaker 6

And yes, we're seeing great traction. I mean, when you have a test That is much faster, doesn't require tissue. There's product market fit that's undeniable. We saw this with Tissue biopsies and liquid biopsies with Guardant360 in lung cancer, people asked us why would someone Use a blood test instead of a tissue biopsy, tissue biopsy is the gold standard. Now there Our way more patients in the U.

Speaker 6

S. Getting NGS from Guardant360 liquid biopsy than tissue biopsy tests Today. So once you have product market fit that becomes the gold standard in the North Star By which everyone will have to follow-up. So it's yes, we are on the right path, but it will take some time To get there and ramp things up, but it's we're very pleased with the progress this month.

Operator

Our next question comes from Dan Brennan with Cowen. Dan, please go ahead. Your line is open.

Speaker 10

Hey, it's Joe on for Dan. I believe the previous guidance range is based on clinical volume growth of about 35% year over year. With 1H tracking well ahead here, is there an updated number you're looking for the year?

Speaker 7

Sorry, is there an update to what? What was the question again?

Speaker 10

Clinical volume growth number, I I think the last guidance is based on 35% year over year and you're tracking pretty far ahead of that in 1H.

Speaker 7

Yes. I think, yes, clinical volumes obviously growing very strongly. 49% in this quarter was, yes, I'd say ahead of our expectations. Yes. I think as we look out for the guidance and the increase that we've seen, the increase that we've just had in our guidance, yes, it's all driven on the clinical volume side.

Speaker 7

So I would say, yes, now our expectation is probably trending to the high 30s, Low 40% growth on the clinical volume. So yes, we're able to have an increase from the previous 35%.

Speaker 10

Got it. And then back on ASPs, I guess it will take some time for the coverage wins to flow through the pricing, but There's some range that you see blended clinical ASPs going when the rates are locked in and the increases are fully realized?

Speaker 7

Yes. I mean, it's easier to talk about the Guardant360 ASP. And I think, yes, today is at the higher end of that $26,000,000 $2,700 range. I think if we get sort of full coverage from all of these major We can contract with those payers. Then over time, we think the ASP can get north of 3,000.

Speaker 7

So potentially a significant increase, but it is going to take time. It's harder on the Blended ASP, it's primarily obviously, it's due to the mix and the mix between Gartner 360, ReVeal, And so how that mix changes over time, it's very difficult to sort of forecast. And then but as Each of those products get incremental reimbursement over time and we've got pathways for each of that to happen. Then I think overall for each product those ASPs It's going to increase, but it's about to really forecast, say, beyond the end of this year, but that blended ASP is going to look. It's very difficult.

Speaker 7

I'd say our assumption for the remainder of this year is that the blended ASP is going to stay around this sort of 2,300 level.

Operator

Our next question comes from Derik de Bruin with Bank of America. Derek, please go ahead. Your line is open.

Speaker 11

Hi, good afternoon. This is John on for Derek. So appreciate the color on the market landscape in Japan and the pricing and whatnot. I wanted to ask What you see to be the contribution from that market over the next couple of years, if you could talk about the ramp, that would be great.

Speaker 7

Yes, it's Micah. I can take that. Yes, I mean for Japan, we were really pleased to get reimbursement coverage this quarter. And in fact, we've just sort of processed our first patient sample in And so really positive news. In our guide for the remainder of this year for Japan, We've got very minimal revenue in there.

Speaker 7

And then I think, yes, we're hoping and expecting in 2024 that revenue starts to I think when we look at Japan as an overall market, it's a very large market. It's probably overall half the size of the U. S. So we think this can be over time a significant contributor for us. But at the moment, I think it's a bit too early for us to be really pointing out any specific guidance for 2024 or specific years.

Speaker 7

And on the China side, Yes. That's really going to help power our biopharma business. The lab partnership we've got there enables us to have global offerings to our biopharma partners. And so we're very excited to hopefully soon have that lab go live and start to offer products In China. And again, it's going to be very incremental to our biopharma business.

Speaker 11

Appreciate that. And in terms of the OpEx guide, you've talked about the sales and marketing spend and the research spend, and that makes sense. Just really specifically, the G and A was sequentially up this quarter. How is that tracking for the rest of the year For that line

Speaker 7

specifically? Yes. That line is probably in the Second half of the year will be maybe a little bit lower than what we saw in the first half. We saw a bit of an uptick In this most recent quarter from a legal litigation expense perspective, and we've just Finalized the Illumina litigation that we had. We made a press release on that Yesterday or the day before.

Speaker 7

And so we're hopeful that that expense can drop off in the second half of the year and G and A should stabilize going forward.

Operator

Our next question comes from Patrick Donnelly with Citi. Patrick, please go ahead. Your line is now open.

Speaker 12

Hey, guys. Thanks for taking the questions. Maybe just one on the biopharma segment, just given overall concerns on kind of budgets and funding there. Can you guys just pull back the curtain a little bit, what you're seeing there? What we should expect on the volume side, in that segment for you?

Speaker 2

I think it's sort of

Speaker 6

in line with sort of what we highlighted at the beginning of the year that there is a little bit of sort of rejiggering in a bunch Pipelines and some companies have some layoffs. They're sort of deciding what areas The therapeutic areas, InvestNEXT, but that was all kind of factored in the beginning of the year. So I think we've been pleased that we continue to We diversify our customer base, continue to grow volumes in this sort of Challenged environment, but we also see this as an opportunity. We're having a great conversation with a number of pharma companies that Early looking for new areas by which to really expand some of their pipelines. And we have a very unique platform.

Speaker 6

So it's we think this is in future years, it's going to be a very strong growth pattern.

Speaker 12

Okay. That's helpful. And then maybe just on the MRD side, thinking about the spend levels, again, you guys are pretty clear on the Screening piece, but just on MRD, can you just talk about your expectations around the spend there, thoughts on data generation versus kind of driving increased market penetration? Again, just how we should think about the level of investment around that segment? Obviously, a nice growth area for you guys.

Speaker 6

So I'll start and let Mike sort of fill in some of the financial pieces. It's an area that requires A heavy amount of clinical validation and clinical studies, it's something that we've been building up for the last 4 or 5 years, and we have a very nice pipeline of studies across multiple indications. We're planning to essentially process and run and we have these collaborations going forward and hopeful we can share some more of that in the coming months. And that being said, we're going to be very judicious about how much we invest, how we stage those investments And how much we invest in terms of market share. So we're continuing to grow really nicely 100% year over year.

Speaker 6

But we're engineering the demand, as we said, in the beginning of the year. So that we're not letting essentially The burden sort of gets ahead of us too much. We really see no competition from a tissue degree point of view. We think This is a product category of its own product category that is going to be the ultimate winner in this MRD market. So We're in a very good spot right now.

Speaker 7

Yes, yes. I mean, maybe just to reiterate that we yes, we've been very sort of judicious on the investments we make, that's investments on as well as the market development Technical development, but also on just processing the samples and running those samples prior to getting reimbursement. So We're managing that very, very closely. We've got our stated goals on cash burn this year and going forward And on operating expenses this year. So we're just we're closely managing that investment within those parameters that we set.

Operator

Our next question comes from Dave Delahunt with Goldman Sachs. Dave, please go ahead. Your line is open.

Speaker 13

Hey, guys. Congrats again on another strong quarter. Any additional color you could Give us on MRD trends. I think I heard you say to Pat's question, you're Seeing market share grow 100% year over year. Is there any qualitative color you could give us around what are the main Selling points have resonated the most with docs and what are the main questions they've had?

Speaker 6

I would say it's really the fact that it's simple, blood test, get the results Really quickly, much faster than tissue informed approaches. And really just I think Customer service that we have, the quality of the commercial team, the strength of our commercial team, I mean there's really Very few oncologists, if any, that haven't ordered a test from us. And so really sort of being integrated with Their offices and having that unified experience, I think is another big piece. And then obviously, as we sort of continue to evolve the platform towards Smart liquid biopsy is really going to just change the game in terms of what MRD even means, what MRD Has to provide to physicians. So yes, we're very confident in terms of where things are going in this market and where we are right now.

Speaker 6

But yes, we see really no sort of product out there that Has the same product market fit as we do, especially in the coming quarters as we continue to Upgrade the capabilities of the device.

Speaker 13

Great. And on the screening side, you guys have Been super successful in the past with leading the field for liquid biopsy. What Do you think it's a mix of PCPs who understand the value of bloodstream versus The shareholder would still benefit from more physician education.

Speaker 3

So what we are seeing in the marketplace with Shield LDT right now is, I mean, obviously for Almost everybody, the fact that you can do colorectal cancer screening with blood is a new concept. But what they are very well aware of and in fact is helping the brand and acceptance of this offering Is how unpleasant and inconvenient other modalities are? And again, like we are just promoting this test for unscreened patient population who have not done any kind of Screenings are having been compliant to other solutions. And these doctors know those patients. They know the patients that They have ordered other modalities and they did not complete the test.

Speaker 3

So that is on the top of the mind. Completion is not there, unpleasant experience is there and that's really helping the brand in terms of acceptance of this new modality.

Operator

Our next question comes from Mark Massaro with BTIG. Mark, please go ahead. Your line is open.

Speaker 14

Hey, guys. This is Vivien on for Mark. Thanks for taking the question. So I was wondering when Tissue Next and Garnet will start to become more material to volumes. Is reimbursement a key gatekeeping item there?

Speaker 14

Or is it more about marketing And maybe some additional data development, so any color you can share there? Thanks.

Speaker 6

I mean, Mike mentioned that Tissue Nex is also growing 100% year over year. It's been a very good contributor to our business. We're seeing Approaching over 200,000,000 covered lives. We have Medicare coverage there. It's a Very good franchise growth, strong growth.

Speaker 6

I think very smartly growing ASPs and it's something that I think it's going to be a big driver for us. It's already becoming a superior contributor to our business. And Response, we just Received Medicare coverage there a few months ago and that's also going to be a very strong component It's our business. Yes, we're very pleased with both aspects of our portfolio.

Speaker 14

Okay, understood. And now just to dig in a little bit more on a prior question on screening. So I know you've conducted your own PCT Survey work. We recently commissioned a survey that showed about 3 fourths of primary care docs, are looking to order simple blood tests, And over half of docs wanted to order for all or most of their patients. So I'm just curious if you think our data is in a similar ballpark to your

Speaker 3

I heard you right, like 3 quarter of the doctors are interested to order at like, or some even off 50% of their patient population. So I think in general, it's in line with what we are experiencing in our Survey shows, I think the fact that again still there are 50,000,000 of these patients who are on screen in the field Yes. After the whole kind of a patient price of $120,000,000 and then the fact that again this unpleasant experience And lack of completion is a known feature of this market for the PCPs, Like these kind of numbers makes sense. I'm not surprised with your surveys.

Operator

Our next question comes from Dan Leonard with Credit Suisse. Dan, please go ahead. Your line is open.

Speaker 15

Thank you. A question for you Helmy. You mentioned the EMR integration in your prepared remarks and that's underway. Possibly you can quantify the volume lift you're seeing at accounts that are that you've initially integrated and Hi, you'd frame the benefit from broader integration.

Speaker 6

Yes. I mean, I think that Historically, rule of thumb is you get a sort of 50% to 100% volume listed accounts when integration happens, and we're seeing that really play out in Number of accounts that we've integrated with. So, yes, we're hopeful as we continue to make progress there, It's a lot of friction to have to go into another portal or fill out a paper Test acquisition form or PDF. And so being able to just be in an accounts System order the test from that same system that they're using for everything else is each part of removing friction. And That's a lot of what we're doing in the coming quarters and the years is really building up that customer experience piece.

Speaker 6

So that It really is as seamless as possible to order a garden test.

Speaker 15

Understood. And then for my follow-up, Helmy, could you elaborate further on the import of Galaxy? I don't recall that being a Primary point in your talk track prior?

Speaker 6

Yes, it's the Sort of got kicked off with a partnership with Lunet. They're a leader in AI powered digital pathology. So really thinking about sort of the spatial genomics and spatial biomarker analysis space And using AI to sort of read those images. And the first application that we launched was PD L1 essentially using AI to read that. And so it's pretty powerful, even though it's a relatively straightforward application, Being able to find 20% of patients that might have been negative with manual review is positive for PD L1 has Very important therapeutic implications.

Speaker 6

So that's really resonating with a lot of physicians. It's helping To drive our growth in tissue, but it's just the beginning in terms of what's going to be possible as we sort of Tie that in to our other tissue testing and even on the liquid side. So stay tuned.

Operator

Our next question comes from Andrew Breckman with William Blair. Andrew, please go ahead. Your line is open.

Speaker 15

Hey guys. Good afternoon and thanks for taking the questions. Maybe a couple for AmirAli. First on the upcoming NCIRE one readout. Can Maybe just sort of level set us on your performance expectations there, just sort of what constitutes a success?

Speaker 15

And then as a follow-up On Shield CRC, I know it's been asked in the past, but any update to your expectation on whether that goes to an advisory panel or not? Just sort of remind us on how you're thinking about that potential. Thanks,

Speaker 3

Ed. Yes. So for the lung actually, we've shown a bunch of case control studies. This NCIRA is going to be With the first data that even we are going to see, which is a good indication of the performance of our test in Screening relevant patient population, really in a mini screening kind of study. So we are waiting to see actually what that data is going to show.

Speaker 3

In terms of the bar, I mean, when you look at this space of lung cancer, the 15,000,000 people at high risk, as I mentioned in the prepared Mark, they have the adherence rate of less than 15%. Now that we are doing this study, even we are seeing really the real world Standard of care that even people are getting diagnosed with some relatively high risk nodules by again just So to risk factor associated with biopsy, that biopsy is not getting done and sometimes getting delayed till another imaging actually confirms Still that even if that large high risk nodule is continuing to grow, when you look at the reality of standard of care, It gives us a lot of excitement about the opportunity that blood based screening can put on the table. If I got your second part of question right about the adcom panel advisory for Shield CRC, We haven't heard from agency that they want to call any panel advisory board so far. So Probably if they want to do that, we should have heard already, but we'll see like United Agency's choice of what they want to do. But so far, We haven't got any indication on that.

Operator

The next question comes from Sung Ji Nam with Scotiabank. Please go ahead, Sung Ji. Your line is open.

Speaker 16

Hi. Thanks for taking the questions. Just a couple of quick ones for Miura Ali. Maybe with the just remind me again whether the Eclipse peer reviewed publication, is that an important milestone In terms of receiving the FDA approval?

Speaker 3

The FDA approval, no, like Definitely, they are looking at all the data and the details of data in their own hand and eyes, so not that peer reviewed publication. Once it's important for us for US Yes, the review cycle typically it's day to day to reviews when majority of cases when the evidence is published in peer reviewed journal and we want to Check that box. We are on track. We've done our part and we'll see, but we should be able to have that paper published before.

Speaker 16

Okay. Got it. And then for lung cancer screening, you talked about realize it's less than 15% screening. Is that largely driven by the primary care market today? Just kind of curious what the educational process might entail with a new modality of testing, and whether you might need to involve the pulmonologist.

Speaker 3

Still we are kind of learning about bunch of details of that market as we speak. But at High level, just it's a modality of screening that needs significant patient commitment and follow through. The multiple round of imaging biopsy, still a large fraction of biopsies would not indicate patient has Cancer adverse events as we shift with dose biopsy is a journey which is very hectic, long and needs a lot of commitment. So in fact, we are not very surprised that the adherence rate is much lower than CRC. But we are continuing to learn more details about the market dynamics.

Operator

Our next question comes from Liza Garcia with UBS. Please go ahead Liza. Your line is open.

Speaker 17

Great. Thanks so much for squeezing me in guys. I I just wanted to circle back on response. I know, obviously kind of one of the smaller But I think last quarter you had kind of indicated maybe like a low single digit contribution, Revenue contribution was what to think about. And I was wondering, I know clinical volume trends have just been doing pretty well, if that was The right way to think about this assay still and just with another quarter kind of under your belt, If you had any clinician feedback, just given that maybe other assays kind of work a little differently In the treatment monitoring space and you know what you're hearing there?

Speaker 17

And then a follow-up.

Speaker 7

Yes, Mahesh. I'll take the financial piece. I think, yes, maybe on the last earnings call, When asked about what contribution will Responds deliver now this year because we received Medicare reimbursement. Yes. It's very early days since Medicare reimbursement.

Speaker 7

I think we mentioned very low single digit million Dollar revenue that would come from response. And so yes, that's still the case. I think on the second part of the question.

Speaker 2

Yes. I mean, I think

Speaker 6

the beauty of this is that right now the sort of leading product and Therapy selection, liquid biopsy in the space is Guardant360. It's the fact that they work in conjunction with one another is A huge advantage that we have and really works in a pretty straightforward fashion in terms of mapping tumor burden Quantitatively, so it's yes, I know it's a product that I think resonates well, One that we're continuing to promote much more aggressively now that we have reimbursement behind us at least on the Medicare side. We think it should be a very important growth driver for this coming years.

Speaker 17

Great. And then just one last one on the EMR integration. I think you on a prior question, you cited some Pretty big increase in utilization from oncologists ordering when the EMR integration happens. And obviously, you I think you mentioned integration with 2 thirds of oncology practices just Finishing, so I was wondering if that happened in this quarter. So to kind of think of 2Q, is like that kind of happening?

Speaker 17

Or If you could just provide some context around kind of that increase in ordering and kind of how that happens or some kind of timeline That 100% figure would be great to kind of dig into that a little bit more. Thanks.

Speaker 6

Just to be clear, we're just starting the integration. We've done a lot of the Work in terms of being able to integrate with those vendors that comprise about 2 thirds of the Mark, it's but there's still work to do on the account side where we have to turn them on 1 by 1, So we're in the early innings of that. We're very pleased with initial progress and a handful of accounts that we've integrated with. But It's a multiyear journey to turn all these things on.

Operator

Our final question today comes from Rachel Van Stahl with JPMorgan. Rachel, please go ahead.

Speaker 15

Great. Thank you. This is Casey Woodring on for Rachel. Thanks for taking our questions and squeezing us in. So, I guess just two quick ones for you.

Speaker 15

On the CDX side, can you talk about what's Next in the pipeline in terms of maybe other indications or areas you're targeting for approval and timelines around some of those and when you'd expect Or if you'd expect similar volume ramps to the ESR1, I think last quarter you said breast volume ticked up 40% right after that approval. And then my second question is just on the biopharma business. I think last quarter you talked about plans to expand into China. Is that still on the table this year? The companies that we've heard from so far that have been reporting flagged material weakness in China.

Speaker 15

So Is that still on the table this year and thoughts around that? Thank you guys.

Speaker 6

No good questions. Yes. I mean, we have a whole host of edX CDXs that are either negotiations where they I have signed on a bunch of other ESR1s, but yes, other indications as well. And I think that's opportunity ahead of us In terms of being able to partner with new classes of therapeutics or biomarkers and other indications, You see hopefully similar volume uplift in other indications in the future. In terms of China, we're starting at 0 right now.

Speaker 6

So there's a little upside at this point. But yes, we're very pleased with the Progress. We've been making a strong partnership with Addacon over there. We should be up and running By end of this year and there's a very strong pipeline in terms of biopharma partners that want to be able to test samples In China, there's a vacuum right now in terms of sort of global companies that have the scale that we do that can operate in China. So we see Maybe that weakness that maybe others are facing there is a strength for us since We are moving very nicely in terms of progress there.

Operator

We have no further questions, so I'll turn the call back to the management team for any closing remarks.

Speaker 2

Well, thank you.

Operator

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.

Remove Ads
Powered by Quartr
Earnings Conference Call
Viavi Solutions Q2 2023
00:00 / 00:00
Remove Ads