Guardant Health Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 13 speakers on the call.

Operator

Good afternoon. Thank you for attending today's Guardant Health Q2 twenty twenty four Earnings Call. My name is Tamiya, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Derek Kirschied, Vice President of Investor Relations.

Operator

You may proceed.

Speaker 1

Thank you. Earlier today, Guardant Health released financial results for the quarter ended June 30, 2024. Joining me today from Guardant are Helmy O'Tucchi, Co CEO AmirAli Talasaz, 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 events to differ materially 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 are available in the press release Guardant issued today as well as in our 10 ks and other filings with the SEC. Guardant disclaims any intention or obligation to update or revise its financial projections and forward looking statements whether because of or new information, future events or otherwise. The information in this conference call is accurate only as of the live broadcast. With that, I would like to turn the call over to Helmy.

Speaker 2

Thanks, Eric. Good afternoon, and thank you for joining our Q2 2024 earnings call. We founded Guardant Health with a bold mission to conquer cancer with data. With our comprehensive suite of tests, we are now truly transforming patient lives across the continuum of care. It has always been our belief that the best way to conquer cancer is to catch it in its earliest stages when patients have the best chance of survival.

Speaker 2

We have spent the last decade developing a blood based test that we believe will launch cancer screening into a whole new era with vastly improved screening rates, earlier cancer detection and ultimately a significant increase in the number of lives saved. We have reached a pivotal moment on this journey and to commemorate this important milestone, AmirAli will start us off with an update on our screening business.

Speaker 3

Thanks, Helmy. Starting on Slide 3. As we announced last week, I'm thrilled to share that FDA has approved our SHIELD blood test for colorectal cancer screening in adults ages 45 and older who are at average risk for the disease. SHIELD is the 1st blood test to be approved by FDA as a primary screening option for CRC, meaning healthcare providers can offer our test in a manner similar to non invasive methods recommended in screening guidelines. SHIELD is also the 1st blood test for CRC screening that meets the requirements for Medicare coverage.

Speaker 3

This FDA approval of SHIELD is an incredibly significant milestone in our mission to conquer cancer with data and more importantly, a huge victory for patients. Moving on to Slide 4. We have developed a suite of clinical evidence supporting the value of SHIELD. We believe this robust evidence will pave the path for inclusion of SHIELD in guideline recommendations. I highlight a few key publication that exemplifies this.

Speaker 3

The data from our pivotal ECLIPSE study was published in the New England Journal of Medicine, the world's leading peer reviewed medical journal. A randomized study at Kaiser Permanente demonstrated that when individuals who hadn't completed fit wear OFFERDSHILD, the proportion of screening completed was 3 times higher. And just last week, we announced that our Can Screen Health outcome model was published in the Journal of Medical Economies. This outcome model considers both clinical efficacy and longitudinal adherence when assessing the impact of SHIELD on CRC incidence and mortality rates and confirms the public health importance of blood based testing. Specifically, SHIELD outperforms 2 guideline recommended stool based test, FIT and multi target stool DNA when considering live years gain, CRC cases averted and prevention of CRC deaths.

Speaker 3

Turning to Slide 5. Post FDA approval with first line indication with 83% sensitivity and 90% specificity in detecting CRC, SHIELD now raises the bar required for blood test performance. And going forward, we believe tests falling below this bar will not be viable. This achievement did not happen overnight and came on the heels of more than a decade of world class innovation and learnings as the liquid biopsy leader, 100 of 1,000,000 of dollars of investment, conducting a 20,000 patient registrational study, publishing results in a leading peer review journal, engaging in a rigorous 16 month review process with FDA and receiving a successful advisory committee panel vote. We believe we had incredible lead ahead of any other competitor vying to enter this market.

Speaker 3

Now turning to Slide 6. I'm proud that we were able to launch this test just a few days after receiving FDA approval. SHIELD IVD is now commercially available and we have already begun processing samples in our lab. At Garnet, we are committed to educating physician and patients on the risk benefit of Shield so that they will be empowered to make the form shared decision when selecting a CRC screening option. Moving on to Slide 7.

Speaker 3

At launch with the first line indication, Shield is already addressing an enormous opportunity with 120,000,000 average risk individuals between the age of 45 to 84. Of this average risk population, 45,000,000 lives are covered by Medicare. This represents a 15,000,000 annual testing opportunity and a multibillion dollar market. With Medicare coverage, Shield already addresses one of the largest ever diagnostics opportunities. Moving on to Slide 8.

Speaker 3

Existing stool based screening methodologies have been around for a decade or more and still we have not seen a material change in screening compliance over the last several years. There are 15,000,000 people who remain on screen and for those that are screened, their rescreening rate has been poor. 7 out of 10 surveyed individuals who have been previously screened for CRC with a stool based test said they would not choose to screen with stool again. On the other side, unscreened individuals were surveyed had a strong preference 5 to 1 for blood over stool. The ease of use of a blood test and the ability to screen patients during routine care can change this.

Speaker 3

Blood testing is already entrenched into routine patient care. 87% of people aged 50 and above have seen their doctor during last 12 months and 91% of that group has had a blood drop in the last 12 months. Our real world experience with Shield LBT providing over 20,000 tests during the past 2 years confirms that Shield has a clear fit into existing chair with PCPs enthusiastically ordering this test. And when they do, patients complete the test. We continue to see an incredibly strong adherence rate of more than 90%.

Speaker 3

At our Investor Day last fall, we shared our target to exceed 1,000,000 SHIELD test in 2028. Now following FDA approval with first line indication, we are even more confident that we will reach our goal. Moving on to Slide 9. We are very pleased to see that CMS is proactively removing barriers to blood based CRC screening and acknowledging its unique benefits. Through its recently proposed physician fee schedule, CMS is taking steps to close a loophole and remove patient out of pocket costs for follow-up colonoscopy after a positive blood based test.

Speaker 3

CMS originally eliminated cost sharing for the follow-up colonoscopy after a non invasive stool based test in its 2023 physician fee schedule, but many years after stool based test entered the market. We are encouraged by the quick inclusion of blood in the proposed 2025 physician fee schedule. We look forward to the finalization of this fee schedule in the fall. Turning to Slide 10. Midway through 2024, we are well on track with milestones within our screening business

Speaker 2

and

Speaker 3

look forward to ramping adoption throughout the remainder of this year. In 2025, we look forward to sharing SHIELD multi cancer data. Also, we expect to receive ADLT status designation. ADLT was established to incentivize innovation and support the investment in diagnostic development, all through benefit of patients. It provides new and innovative test historical precedent, but based on the unique value they bring to bear to health system.

Speaker 3

Our pricing strategy is intended to establish a sustainable ASP that recognizes the value of Shield, enables us to build a best in class profitable business and also future proof shield reimbursement for its expansion to multi cancer screening. As Palmy said at the start of this call, this is truly a historic moment for Guardant, the liquid biopsy field and cancer screening. Our team has worked tirelessly to reach this milestone. I'd like to thank them for their hard work during the last 10 years and especially during the last 3 years to bring us here. I also like to acknowledge and thank the FDA and their review team for their collaboration and partnership.

Speaker 3

With that, I will now turn the call over to Helmy for an update on therapy selection and MRD.

Speaker 2

Sameer Ali. Turning to Slide 11. While we are excited for the next chapter in screening, we continue to make excellent progress with our oncology business. We have a robust suite of precision oncology products addressing both late and early stage cancers as well as recurrence monitoring for cancer survivors. Now I'd like to share a story highlighting the value our liquid biopsy tests bring to late stage cancer patients.

Speaker 2

In 2023, a 33 year old woman went to her doctor after noticing a progressive neck mass during her 3rd pregnancy. She initially received a CGP tissue test to diagnose the cause of the mass, but the test did not identify any actionable biomarkers. The patient then received a Guardant360 liquid biopsy test, which identified the patient was ALK positive and she was diagnosed with thyroid carcinoma. As a result, the patient was put in alexinib for therapy and I'm very pleased to report that after about a year of being on treatment, the patient no longer has evidence of disease. She also successfully gave birth to her 3rd child.

Speaker 2

Given there are minimal side effects to the therapy, she will remain on aleximab for another year with a Guardant360 test every 3 months to monitor. This is just one of many patient stories that highlight the superior ability of Guardant360 to identify actionable biomarkers and inform cancer care over other approaches. Turning to top line performance on Slide 12. We had a robust second quarter with total revenue growing 29% $177,000,000 This is driven by another quarter of very strong precision oncology revenue, which increased 33% in the quarter, supported by significant Guardant360 reimbursement tailwinds as well as strong growth in volumes, particularly within biopharma. Turning to Slide 13, clinical test volume for the 2nd quarter grew 14% year over year reaching 49,400 tests with continued progress in Guardant360 volumes.

Speaker 2

REVEAL also continued to grow strongly even with our ongoing management of volumes ahead of broader reimbursement. Biopharma volumes were exceptionally strong in the Q2 growing 56% year over year to a record 10,475 tests. We continue to see a lot of excitement for Guardant Infinity, our newest biopharma offering powered by our smart liquid biopsy platform with growing contributions in the Q2. This is an important leading indicator for future demand for our clinical tests. Moving on to Slide 14.

Speaker 2

Last week, we launched a major upgrade of Guardant360 LVT on our smart liquid biopsy platform. Guardant360 is the leading liquid biopsy test for patients with advanced cancer and this upgrade gives oncologists a much more complete view of cancer by utilizing novel genomics and epigenomic sequencing technology. With a 10 times larger panel including 739 genes, the upgraded test covers both currently actionable and emerging biomarkers not available in any other liquid biopsy test. In addition, the test quantifies tumor burden with 10 times more sensitivity, further extending its best in class performance. Guardant360 LVT is covered by Medicare and major private payers for CGP of all advanced solid tumors.

Speaker 2

This upgrade marks the beginning of a new chapter of comprehensive genomic profiling helping to identify novel targets for the current and next generation of targeted therapies and immunotherapies, unlock new clinical applications and access genotype and phenotype from the blood. We are excited by the ability to better inform cancer care teams about the optimal treatment strategy for their patients and give them more precision treatment options that can help improve their outcomes. Over time, we will quickly add even more exciting first of their kind capabilities to the test. Turning to Slide 15. In early June, we introduced an upgraded Guardant360 Tissue NEXT test featuring an expanded panel of 4 98 clinically relevant actionable biomarkers to identify more treatment options for patients with advanced cancer and further improve best in class turnaround time.

Speaker 2

As a reminder, Tissue Next is differentiated as it leverages our AI powered scoring algorithm and is the only tissue CGP test that improves PD L1 detection by over 20% in non small cell lung cancer. Importantly, the Tissue Next test is covered by Medicare for all advanced solid tumors. With these two significant upgrades to our portfolio, we are looking forward to continued progress with our therapy selection business for the remainder of 2024 and beyond. Now shifting gears to reveal on Slide 16, where we are the leader in tissue free MRD. I'm excited to share that our COSMOS CRC manuscript with data from our COSMOS COLON study looking at Stage 2 and Stage 3 patients was accepted for publication in the peer reviewed journal Clinical Cancer Research.

Speaker 2

This study was also submitted to Molvietz for Medicare reimbursement for the CRC surveillance MRD indication. COSMOS, our largest MRD study to date, evaluated CTD night detection using a tissue free approach and included 1900 longitudinal surveillance samples from 342 patients representing a median of 6 samples per patient. All patients in this study were able to undergo evaluation without the need for tissue testing. This study colon cancer and more than a 5 months median lead time from ctDNA detection to recurrence. This data validates the utility of REVEAL in predicting recurrence in CRC.

Speaker 2

Turning to Slide 17. Beyond CRC surveillance, we have an extensive pipeline of clinical cohorts for establishing validity and utility for Gardner Veal. This will be instrumental in building compelling evidence that not only supports efforts to expand reimbursement, but also has the potential to influence changes in practice guidelines. Looking ahead to the remainder of the year, we anticipate publications that will support submissions to Medicare for potential coverage in breast cancer. Next year, we have important clinical validity studies for additional cancers such as lung, pancreatic and gastric.

Speaker 2

Moving on to Slide 18. We are excited by the demand we are seeing in the tissue free MRD market and there are multiple near term inflection opportunities in 2025. As I just discussed, we are making good progress towards CRC surveillance reimbursement, which will improve our ASP. We are also continuing to make very good progress in our COGS reduction initiatives for REVEAL. As a reminder, these two milestones will be significant step towards our long term goal of achieving greater than 60% gross margins for our MRD business.

Speaker 2

While we are seeing strong growth and strong market appetite for REVEAL, we continue to manage volumes to minimize cash burn and will continue to do so until REVEAL is gross margin positive, which we anticipate in 2025. With that, I will now turn the call over to Mike for more detail on our financials.

Speaker 4

Thanks, Helmy. Turning to Slide 19, I'll discuss our revenue results for the 3 months ended June 30, 2024 and refer to year over year growth rates unless otherwise noted. Total revenue grew 29% to $177,200,000 driven by precision oncology revenue, which increased 33% to 166,500,000 dollars Precision oncology revenue from clinical tests increased 30 percent to $130,200,000 Clinical test volume grew to a record 49,000 400 tests in Q2 2024. Clinical volume growth of 14% was in line with our expectations, which factored in the uptick in volume we experienced in the Q2 of 2023 following the Gartner 360 CDx approval for ESR1. For the Q2 of 2024, we again saw year over year volume growth for Gartner 360 in the U.

Speaker 4

S, increased Guardant360 volume contribution from Japan and the UK and strong volume growth for both REVEAL and Tissue Next. For the full year 2024, we continue to expect clinical volume growth to be approximately 20%. Our biopharma business performed incredibly well in the Q2 with precision oncology revenue from biopharma tests totaling 36,200,000 dollars increasing 45%. This exceptional growth was fueled by a record number of tests in the 2nd quarter, 10,475, which was up 56%. We continue to expect our biopharma business to perform well and have increased our biopharma revenue growth expectation for the full year 2024 to now be in the high teens compared to our previous expectation of low teens revenue growth.

Speaker 4

Finally, development services and other revenue totaled $10,700,000 Turning to Guardant360 ASPs on Slide 20. We're very pleased to report that we again saw strong cash collections for Guardant360 in the Q2 of 2024, driven by continued improvements in both Medicare Advantage and commercial reimbursement. These improvements led to a step up in the Guardant 360 ASP range to $2,950 to $3,000 an increase from the range of 2,900 to $2,950 in Q1 2024 and from approximately $2,650 in Q2 2023. These improved trends also give us confidence that the Guardant360 ASP can remain in this new range for the remainder of 2024. In Q2, 2024, we also had a revenue upside of approximately $8,000,000 related to cash collected for Gartner 360 tests performed in prior periods.

Speaker 4

This was similar to the upside we recorded in Q1, 2024 and reflects the continued tailwind of improved collections. Although it's early days, we believe we will achieve the long term ASP targets we presented at our Investor Day earlier than originally anticipated, which could potentially bring forward our timeline to reach company wide cash flow breakeven. Moving on to non GAAP financial measures on Slide 21. Our non GAAP gross margin excluding screening, which reflects our therapy selection and MARD businesses was 62% in the Q2 of 2024 and was in line with our full year guidance of 61% to 63%. Compared to Q2 2023, non GAAP gross margin excluding screening decreased to a 62% from 64% due to test and revenue mix.

Speaker 4

Specifically, in Q2 2024, we saw an increase in the mix of negative gross margin revealed tests in the precision oncology revenue line, as well as the decrease in the mix of 100 percent gross margin milestone and royalty revenue in the development services and other revenue line. Non GAAP operating expenses were $178,800,000 a reduction of $1,700,000 compared to the prior year quarter. This decrease was primarily driven by lower clinical study costs following the completion of ECLIPSTA enrollment in Q3 last year and a decrease in G and A expense. These decreases were offset by an increase in sales and marketing expense in preparation for the Shield IVD commercial launch and in support of the continued growth of our therapy selection and MRD revenue. We continue to tightly control our operating expenses by leveraging the infrastructure we've built to support all of our businesses and by gating our commercial spend on specific milestones.

Speaker 4

For the second half of twenty twenty four, we expect R and D and G and A expenses to be similar to the first half of the year and expect sales and marketing expense to increase now that we're firmly in those launch phase for Shield and we'll be ramping up the number of field sales reps to 100 by the end of the year. As a result of our increased revenue and reduction in operating expenses, our adjusted EBITDA loss was $61,900,000 in Q2 2024, a decrease of 23,300,000 dollars from $85,200,000 in Q2 2023. Free cash flow for the Q2 of 2024 was negative $99,100,000 compared to negative $100,500,000 in Q2 2023. The year over year change reflects decrease in operating cash burn and equipment purchases offset by an increase in the annual bonus payout, which is made in April each year. We ended the Q2 of 2024 with over $1,000,000,000 in cash, which we continue to believe is sufficient to enable us to achieve our goal of reaching cash flow breakeven by 2028 or potentially earlier.

Speaker 4

Now turning to our outlook and assumptions for the full year 2024 on Slide 22. We're pleased to be able to increase our revenue guidance and now expect full year 2024 revenue to be in the range of $690,000,000 to 700,000,000 dollars representing growth of approximately 22% to 24% compared to 2023. This increase reflects the cash collection upside we had in the Q2, the increase in the Garland 360 ASP that we expect for the remainder of the year and the increased full year expectation for our biopharma business. As a reminder, this revenue guidance does not include any contribution from screening. Although we've now successfully launched SHIELD IVD, obtained Medicare coverage and started to receive samples into the lab, it's still very early days and the Medicare gap fill rate is yet to be established.

Speaker 4

As such, we'll begin to provide screening revenue guidance at a more appropriate time in the future. We continue to expect non GAAP gross margin excluding screening to be in the range of 61% to 63% and non GAAP operating expenses to be in the range of $720,000,000 to $730,000,000 representing a flat to 1% decline year over year. Finally, we continue to expect free cash flow for 2024 will be in the range of negative $275,000,000 to 285,000,000 dollars an improvement of $60,000,000 to $70,000,000 compared to 2023 and that our therapy selection business will deliver positive free cash flow for the full year 2024. We also continue to expect the maximum screening cash burn this year to be 175,000,000 dollars Our increased revenue expectation enables us to maintain this free cash flow range while providing us with further flexibility to manage potential working capital fluctuations in the back half of the year as well as the potential to bring forward capital purchases to accelerate our capacity expansion and automation efforts. Finally, turning to Slide 23 to review our catalysts.

Speaker 4

We've already made significant progress on milestones across each of our business areas in the first half of the year. As we look ahead to the rest of 2024, we're very excited by the potential opportunities across therapy selection, MRD and screening. With that, we'll now open the call to questions.

Operator

The first comes from Mark Massaro with BTIG. You may proceed.

Speaker 5

Hey guys, thank you for the questions. The first one is for Helmy. Good to see the COSMOS study come out and submit for publication. Can you just discuss perhaps what your expectations are on Medicare coverage in the CRC surveillance space? Obviously, Natera has an indication there.

Speaker 5

They are tumor informed, your blood. Do you think you can sort of effectively crosswalk to that particular coverage or do you think you might need a net new Medicare coverage decision?

Speaker 2

Yeah. No. So, we thanks for the question, Mark. As a reminder, we already do have coverage in the adjuvant setting for GARDNER VEAL. And so essentially the aim of this publication, in this data is to get us the sort of second half of the indication, which is a surveillance setting in terms of testing patients that are further out at multiple time points.

Speaker 2

Right now, we're covered for 3 time points, if they're within the first at least if the first is within the 1st 12 months of treatment. And so, yeah, this study was designed essentially with Medicare coverage in mind. And so we're very pleased with the outcome of the study, very pleased with the publication and it has already been submitted to MolDX as we said in the prepared remarks and we believe it qualifies under the current LCD that exists.

Speaker 5

And then I wanted to ask about the potential for ADLT status on SHIELD. Many of the lab tests today that have ADLT status are not for asymptomatic screening tests. So I'm just curious, if you think that your ADLT application might follow a similar timeline as some of the other tests that have obtained it. And I'm just curious if you've had any dialogue that could give you a sense for the timing expectation there. Thank you.

Speaker 3

Yes. Thank you, Mark. So in terms of ADLT criteria to get the designation, it's very clear. It's the criteria for that is very clear. Unmet need, FDA approval would get the designation.

Speaker 3

We have to just go through the process to get it. In terms of timeline, our best estimate is activate the activates the favorable Medicare pricing enabled by that ADLT designation.

Operator

Thank you. The next question comes from Dan Brennan with TD Cowen. You may proceed.

Speaker 6

Great. Thank you. Thanks for taking the questions. Congrats on the quarter. Maybe the first one, AmirAli, I think you discussed in the prepared remarks how given, the 1st mover advantage that you have with Shield, do you think other blood tests will not be viable if they don't meet your performance?

Speaker 6

Maybe could you just expand on that a little bit? Are you referring to I mean the NCD is obviously 7490. So are you thinking lack of FDA approval or are you contemplating you think the first mover is going to afford you this really unpenetrable kind of position? Because obviously Exact, I think spoke recently about their own performance or what they expect on their blood test and they're expecting similar performance and possible superiority in AAs. Maybe just unpack a little bit, this won't be viable comment and the competitive profile of Shield.

Speaker 3

Yes. So interesting, we are hearing in this market a lot of talk versus even a slide of a presentation of the data. But I think now with our first line marketplace. I think we believe this performance of CRC would be the barrier in order to have a viable product in order to get favorable FDA approval, getting first line indications similar to us and then making sure that the test would be commercially successful in the eye of the physician. When you look at all of the pieces that need to fall into the place, it's hard for us to sit here and imagine a device with a lower performance would even be able to get any of these milestones achieved.

Speaker 3

So, but we'll see. I think at some point, the field needs to go from just touching the talk to the reality of what kind of the data people have. We are very confident with the position that we are sitting in right now.

Speaker 6

Great. Thank you for that. And then maybe one just more tactically, just on the strength in the quarter with biopharma, it was a really healthy beat. I think you updated your guidance from low teens to high teens. Can you just speak to kind of what you saw in the quarter that kind of drove the extent of that beat?

Speaker 6

And their updated guide, Mike, I think reflects a pretty material, obviously, you're not going to grow 56%, but to get to high teens, I think it will reflect a pretty steep slowdown in the back half of the year. So anything you can comment on what's going on in biopharma and what the back half of your guide implies? Thank you.

Speaker 2

I know Bill, it's Jared and Mike you can fill in the rest. Yes, a lot of this has to do with Infinity. Infinity with its sort of epigenomic footprint, with its modularity in terms of being able to do monitoring or comprehensive profiling, we've seen a lot of uptake of that test and that platform by BioPharma. And so that I think what you're seeing is the fruits of that investment we've made over the last few years. Other elements are just the scope of our offering, not only the sort of regulatory competency that we have in terms of bringing essentially regulated products to market on behalf of biopharma such as companion diagnostic products, but also our global reach.

Speaker 2

We are really seeing a healthy pipeline build up in China right now that's, I think of a high interest to a lot of the major global biopharma companies? And then I'll let maybe Mike talk about the sort of ramp up.

Speaker 6

Yes.

Speaker 4

We've had a really strong first half. I think we're really pleased to be able to increase our guide for the full year now to go from low teens to high teens. And I think as we look in the second half of the year, we still got a strong pipeline. It's a very lumpy business. It depends a lot on the timing of the samples that we get through the door.

Speaker 4

And so we've had, yes, really strong volume in the first half. I wouldn't call it a real slowdown in the second half of the year, but I think we've had a bolus in Q2. So we think we'll still have a very strong second half of twenty twenty four. And yes, again, we're really pleased to be able to increase the guidance to high teens revenue growth.

Operator

Thank you. The following comes from Puneet Souda with Leerink Partners. You may proceed.

Speaker 7

Yes. Hi, guys. Thanks for taking my questions and congrats on the strong beat here. Maybe first one for AmirAli, I mean, look, congrats on the FDA approval and then you received CMS coverage as well. I mean, you continue to win on things that were generally questioned in the Investors Fair.

Speaker 7

I mean, the first line in FDA approval and then CMS coverage. So I wanted to address something that is coming up more in questions lately and that's really the cash pay price here, $14.95 I assume you're going to be pursuing that into an ADLT. But just help us understand, this is significantly above the current non screening I mean non invasive CRC screening products in the market. So what's your rationale behind it? What's the rationale behind this elevated pricing?

Speaker 3

Thank you, Puneet. So maybe I can share with you the rationale behind our pricing strategy for Shield. 1st and the most important thing is based on the value. This $14,95,000,000 in our view really adequately reflects the value of Shield in the marketplace. How?

Speaker 3

Just by the health outcome benefits that we are going to see. Like we just published our health outcome modeling results. You can see the amount of life year gains. And the value that we are putting on a table is calculatable that was the economical value of that. Bringing on the screen patient population to the screening table and adding those life years, reducing the cost associated with treating and managing CRC is going to have tremendous value to the system.

Speaker 3

So that's why we think that price is totally justifiable. In fact, the client model shows even more than that number. The other one is about ADLT. Like ADLT pathway is really put in place as a mechanism to price innovative tests like Shield in a fair way based on their value, not necessarily based on the precedent. And that's the way the mechanism works.

Speaker 3

And we would be, beneficiary of that pathway, which is enacted in law for the exact same purpose. Now look, yes, there are other companies which with multi $1,000,000,000 kind of a top line still I'm not sure how they're going to get exactly to a profitability business. We have a different mentality. We are going to build a sustainably profitable business here. That's what we are after.

Speaker 3

And I think maybe the last one I add is maybe a futuristic thing. Shield is a multi cancerous training test. ADLT price is not going to get activated now. It's sometime next year. And by the time that that pricing gets activated, we expect to have some exciting updates related to the multi cancer for Shield.

Speaker 3

So I think that's the way we are thinking about our pricing strategy and we think this price is very well justified.

Speaker 7

Got it. That's helpful. And another question is USPSTF now that you have FDA and CMS behind you, could you take a step back and give us your thoughts on what's needed in terms of modeling studies, next steps, things that need to happen over the next 2 years to get Shield into U. S. PSTF because I think that is still a lingering question in this space?

Speaker 7

Thank you.

Speaker 3

We are very optimistic about inclusion of Shield into the guidelines starting from ACS and then USPSTF. We are ahead of the plan that we had in terms of clinical evidence generation to show the value of SHIELD. This FDA approval, NEJM I mentioned in the prepared remarks, the randomized prospective study to show the rate of screening in onscreen patient population would in fact would go up not marginally by like 3 eggs in onscreen patient population. We have randomized study to support it. We have publications around the reality of adherence to completing blood tests.

Speaker 3

It's not just a promise, it's proven. The outcome models finally got appropriately modeled and published in terms of when you look at longitudinal adherence, really a blood based cancer screening, especially with shield performance and really add significant value to the society. And we are very excited just with the suite of clinical evidence that we have today. I don't think we are missing anything for the package. And some of this was by the design.

Speaker 3

We expect the research plan to get drafted and the review process to get started very soon. And we are ready for it in terms of the evidence that we have in peer reviewed publications.

Operator

Thank you. And the next question comes from Tejas Savant with Morgan Stanley. Your line is open.

Speaker 8

Hey, guys. Thanks for taking my questions. So maybe I'll start one with on the Shield side and then I have a follow-up on Guardant360 as well. So, AmirAli, can you just walk us through, in your mind, as you think about the pros and cons of an NGS approach versus a lower COGS PCR based approach, which could enable potentially a lower sort of price point for some of your competitors for their screening assays, blood based screening assays that is. How do you think about sort of that choice?

Speaker 8

And then on a related note, just any thoughts on this exact Twin Strand licensing agreement, the implications of that, not necessarily related to Shield, but to the broader sort of portfolio?

Speaker 3

Yes. So low cost kind of old class to 20 year old technology of PCR solve the problem of cancer screening if the science was that easy, maybe this problem would have been solved ages ago. Now look, we are looking at thousands of features with our technology. We can't just look at the top 10, 20 features that we have and we can just tell you what the performance would be. I wish the science was easier maybe in terms of then we didn't need 10 years of active research and investment in this area, but this is a hard field.

Speaker 3

In terms of pricing, look, at scale, we mentioned that once we get to like about 1,000,000 sample, our cost is going to be $200 and frankly, a lab processing of the sample. It's like the reality of logistics of getting the kids samples, blood tubes, shipment, bunch of stuff, which is the upfront of many, many different kind of tests versus just the cost of running a sequencing assay. At least in expert hands like us, we know how to have high throughput NGS operation with low cost. We have some of the best automation gurus who have done high throughput, low cost operation before. We are NGS experts.

Speaker 3

So we are very confident with the tech stack that we picked and the long term viability of the technology stack. About TwinStrand actually, I cannot comment on it except like not the top level for Shield and some other products that we have. We mentioned that the future of some of these products are going to be a genomics only. So I don't want to put my legal hats on because I cannot say anything with expert opinion. I don't know if anybody else can take that.

Speaker 4

No, I don't think anything more to add. Yeah. Got it.

Speaker 8

Okay, fair enough. All right, guys. So on G360, Hami, one for you. I mean, as you look at that sort of tenfold expansion, are there any

Operator

sort of gross margin implications from it that we should be thinking about?

Speaker 8

Do you envision a greater

Speaker 3

you mentioned, are there

Speaker 8

any sort of gross margin implications from it that we should be thinking about? Do you envision a greater shift perhaps from this new version of the assay from tissue to liquid? And then can you share some color on just U. S. Volumes year over year?

Speaker 8

Did you see any uptick there, including from the U. K. Royal Marsden program OUS as well? Or was it really a U. S.-led uplift this quarter?

Speaker 8

Thank you.

Speaker 2

Yes. So I'll maybe take the sort

Speaker 4

of 360

Speaker 2

sort of a smart liquid biopsy upgrade first. And this is something that we're super excited about. Obviously, it's early days right now. We're seeing a lot of physician excitement. You can see the leading indicator from biopharma in terms of uptake that has happened and they are some of the most discriminating customers out there.

Speaker 2

And so the fact that we have biomarkers that really no one else can see, I think is going to help us really accelerate our growth in liquid as well as obviously take share from other products such as the tissue products. So we're very, very excited about that transition. And then I'll let maybe Mike talk about gross margins.

Speaker 4

Yes. On the gross margin side, yes, there's a little bit of uptick in the costs now with the Garden LDT because of the additional features. But it's not making, I'd say, any sort of significant impact on our overall gross margins and it's well manageable within the 61% to 63% gross margin range that we've set for the business excluding screening. I think that answered the question. Tejas, anything else?

Operator

Thank you.

Speaker 2

And I

Speaker 7

guess in terms of

Operator

Go ahead. Apologies.

Speaker 2

Just last thing in terms of volumes, I think we're seeing really broad growth both in the U. S. And internationally.

Operator

Thank you. The following comes from Bill Bonilla with Craig Hallum. You may proceed.

Speaker 1

Hey, guys. Thanks a lot for taking my question. Switching back to Shield, a couple of things I'm hoping I might be able to ask. But just first, can you talk about sort of where you're at to date with your primary care sales force build and give a little bit of color on your sort of near term marking plans?

Speaker 3

So we are on track to actually finish the year with 100 salespeople, higher trained in the field, actively promoting Shield. We made a very good progress in Q2 in fact and we have bunch of actually new class which is higher than we just put them in the training class. So I have very high confidence that we are going to have this 100 people by end of the year. In terms of sharing any specific KPIs and numbers, I can tell you, we are very in early days of this IBD launch. I'm very pleased with what we see.

Speaker 3

But again, it's just very few days. We just need to see how it goes. And also we need to wait for this gap fill rate by Medicare in order to set any specific guidance and expectation of what Shield can deliver for us in terms of top line.

Speaker 1

Yes, I probably wasn't clear. I was just asking any color around your marketing plans, not your revenue generating plans.

Speaker 3

Marketing plans, this is mainly physician less kind of ordering. And so we do a lot of actually direct personal commercialization effort. Interestingly, this FDA approval got a tremendous amount of media attention and some interesting facts that we are dealing with is, although it was not funded by Guardant in any material way, Many of our new reps going to new accounts and frankly a good fraction of PCCPs have heard about Shield through the media coverage that we got. So we are dealing with some kind of interesting phenomena. But again, it's very early days.

Speaker 3

We're going to try a few different things in our marketing program just see which ones are going to scale better. But again, the main strategy is focused on direct sales force promotion to PCBs.

Speaker 1

Okay. Thanks. That's helpful.

Operator

Thank you. The next question comes from Jack Meehan with Nephron Research. You may proceed.

Speaker 9

Thank you. Good afternoon. I wanted to talk about Shield for the questions. First one is for Mir Ali. So this $1500 cash pay price for the IBD version of the test, can you just talk maybe about the marketing plans when you go into a physician office for the sales team, just how you address concerns around potential for out of pocket bills that non Medicare covered patients might get?

Speaker 3

Yes, sure. So at high level, we are very upfront and we make sure both physician and patients are well informed when they agree to use this test. So first of all, for patient like 65 and above, obviously the Medicare beneficiary, they have now good access to this test, many of them $0 out of pocket or minimal cost. But as you mentioned, Jack, when we go to a younger patient population, access is not as equitable in terms of the financial responsibility for our patients till we go to the guidelines. And we are very transparent about it.

Speaker 3

The cash paid price of Shield, the out of pocket costs are shared with both physician and patient as I mentioned. Because at Guardant, we never want to have any surprise by physician and patients down the road. So we are very upfront about it and we are learning and we have learned a lot frankly through 10 years of commercialization, with Guard Entry 60 with REVEAL. Toward oncologists, PCPs are a bit different, but there's a lot of learnings and skill set that we have gathered that we are leveraging and marketing of, Shield in terms of the financial responsibility. In fact, actually, something interestingly, I look at some of this in a very positive way.

Speaker 3

We expect this dynamic would help us to get more reimbursable volume in our mix. And that's really our focus. At this time, we really prefer to just scale the reimbursable volume for Shield, which are the 65 and above. And some of this out of pocket conversation would suppress the use case in younger patient population. And that's a good thing.

Operator

Thank you. The next question comes from Dan Arias with Stifel. You may proceed.

Speaker 10

Afternoon, guys. Thanks for the questions here. Maybe just one for me, follow-up on the sales and marketing side, but more on the clinical oncology piece. Helmy or Mike, how do you see the size of the commercial team evolving there over time? And I don't necessarily ask in the context of OpEx.

Speaker 10

Obviously, that's an important part. But I'm thinking more just from the competitive standpoint, as we think about the therapy selection market and the MRD market and there's a number of players that are trying to stake their claim to business there. Does it become more of a feed on the street game at any point or on any level just the way that the PCT market does at points? Love to get your thoughts on just how you see the evolution of the sales

Speaker 2

force effort? Yes. I mean, I think, it's always been promotionally sensitive to some extent in terms of oncology market. I think pharma reps have sort of trained the market in that vein and diagnostic companies now for the first time are building fairly sizable sales team in the oncology channel. And I think we're in a very enviable position given where our gross margins are, given where the amount of revenue per rep we have right now.

Speaker 2

And so we typically see the sort of marginal improvement that sales reps can add to our volumes and we adjust accordingly in terms of it can help us drive more volume and we can do it in an efficient way. We'll continue to add reps. But at some point, the market saturates and that's where we have built out other channels in terms of EMR, obviously, other marketing channels as well, top down partnerships. And so it really is a surround sound methodology in terms of how we continue winning share of voice in the market. We have number 1 share of voice in the market.

Speaker 2

We've had that for last few years and we'll continue to maintain that accordingly. I don't know if Mike, there's anything you want to add?

Speaker 4

No, Jaime, I think that covers it.

Speaker 2

Thanks.

Operator

Thank you. The following comes from Doug Schenkel with Wolfe Research. You may proceed.

Speaker 11

Hi, guys. Thank you for taking my questions. So a couple on Shield. I was surprised you took such a strong stance on the topic of test viability for emerging competitors. And I think it's a fair point.

Speaker 11

Like let's see how the data shakes out and if it sounds as good as it's been described when we get to prospective randomized studies. What happens if a test has better sensitivity than 83% blended? Or what if somebody is essentially equivalent blended but has stage 1 detection that is better than your 55% Stage 1 sensitivity and or better than your 13% advanced adenoma detection. Would that using the same logic call into question the viability of Shield? So that's my first question.

Speaker 11

And then why does the increased ASP not change your breakeven targets? What else changes? Is there an offset in terms of your market penetration assumptions or your COGS assumptions?

Speaker 3

Yes. So I think for the first point, and thanks Doug for asking is important one. So we understand the biology of cell free DNA very, very well. The kind of biomarkers that are associated with cell free DNA, we have studied the science and biology of it very, very well. So I think we can kind of distinguish some science fiction, which is doesn't like biology.

Speaker 3

There's no biology for it versus the reality of what different technologies can do as long as they are looking at cell free DNA kind of biomarkers that again, we know the biology very well. So in science, we can never say it's mission impossible, but I can tell you like I think some of the scenarios you mentioned cannot happen really in a probabilistic way like with very, very high probability. So like stage 2, 3, 4 is going to be better with cell free DNA than stage 1 and the performance matrix as long as the team is capable frankly, that kind of response curve is what cell free DNA can do with some kind of upgrades that I think hopefully we are going to see with our Shield V2. But response curve would be similar. AA, I think, is a different topic.

Speaker 3

Like if somebody thinks they can have just 70% plus or 70% and change CRC, but they can detect like materially more AA, We just let them learn some lessons through biology. In terms of I think profitability target, I'm more confident than ever about the targets that we shared in our Investor Day last fall, the $1,000,000 sample, dollars 500,000,000 revenue with a $200 COGS at a time. But there are some stuff that went better than our base case, like this first line indication is better. The way we are doing the ADLT pricing is higher than before. But it's still again too early for us to adjust any of the expectation frankly.

Speaker 3

We cannot get ahead of our skis. We will not get ahead of our skis. We just need to see how the volume ramp is going to look like, how the payer mix is going to look like as we go through this launch and the 1st few months after. And then maybe we can talk about long term perspectives with better data.

Operator

Thank you. The next comes from Patrick Donnelly with Citi. You may proceed.

Speaker 9

Hey, guys. Thanks for taking the questions. I guess maybe just one on the G360 volume, clinical volume broadly. Can you just talk about I know you talked a little bit about the driver. It sounds like it was pretty broad based.

Speaker 9

Is that still a little bit more of kind of a depth game given the EMR integrations? Is that the biggest opportunity? And then again, it sounds like still 20% for the year. Is the confidence higher on that in terms of potential upside as we work our way relative to 3 months ago? Just curious how you're thinking about the back half and any potential changes to that volume number?

Speaker 9

Thank you, guys.

Speaker 2

Yes, I mean, obviously a lot of it is depth at this point. We have, I think, something probably close to 90% of U. S. Oncologists have ordered a test from us or a Guardant360 test. And so it's all about driving deeper into accounts.

Speaker 2

And I think as the you know, I think the patient story, kind of showed that, you know, this idea that we can go from a single test per patient to testing, patients as their cancer comes back or as they get progressed, I think is one that we're just scratching the surface of in terms of response monitoring and then obviously testing as the cancers come back. And then obviously that's even more so in the MRD setting outside of G360. In terms of the contours for the year, we're very excited about the product upgrades we've had. We have Tissue Next with a much, much bigger panel and obviously the smart liquid biopsy upgrade that everyone has been waiting for, I think are going to be really important catalysts for us this year. I don't know if Mike you want anything to

Speaker 4

add. Yes. I think, yes, we did on the prepared remarks just reiterate for the full year expectations of 20% year over year clinical volume growth. And we know that we had a very difficult comp in Q2 because in the first half of last year, we had the ESR-one approval for Gartner 360 CDX and that led to a rapid increase in breast volumes and we saw in Q2 of last year a bolus effect. And so we were really pleased with clinical volume growth this quarter.

Speaker 4

Again, we saw growth in the U. S. On Guardant360, but also outside in Japan and the UK, but also across Tissue Next and REVEAL. And so we're really pleased with Q2. And yes, as we look ahead for the full year, we're still very confident on the 20% clinical volume growth for the reasons that we just outlined.

Operator

Thank you. The final question comes from Tito Peterson with Jefferies. You may proceed.

Speaker 12

Thanks for squeezing me in. So really two questions. 1 on Medicare, specifically Medicare Advantage, right? It's over 50% of Medicare. HEDIS scores matter.

Speaker 12

They obviously feed into star ratings and reimbursement. And if Medicare Advantage plans let someone get a non guideline test, it puts the reimburse at risk and it feels like they actively block them until you have USPSTF. So do you agree with that view? And then what's the timeline for HEDIS scores? I know it took Exact about 2 years.

Speaker 12

And then the second question was just I want to confirm on G360, were the volumes down sequentially in 2Q? Clinical ASPs were down sequentially. G360 ASPs were up sequentially per your slides. So that would seem to imply that the G360 volumes are down sequentially as unpaid tests are obviously driving a lot of the volume. Thanks.

Speaker 3

Yes, Tycho. Actually, it's true that Medicare fee for service would be likely easier to collect from and Medicare Advantage Plan are supposed to play to pay us because NCD is broad, no restriction. Our label is brought, no restriction. So they're supposed to pay. But as we've seen sometimes any plans are notorious for putting some kind of roadblocks and stuff, but we needed to deal with it before too.

Speaker 3

We have experience working with Med Advantage Plans for both 360 and REVEAL. And we've been very successful. We've made great success, great strides dealing with them and looking forward to applying those learnings now to shield them.

Speaker 4

Yes, on the clinical volume, the Gartner 360 volume. Yes, overall on the clinical volume, we saw sequential growth of about 2,500 tests. And yes, I can confirm Guardant360 grew sequentially. As did Revere, that did Tissue Next and Guardant360, yes, was it grew in the U. S.

Speaker 4

Sequentially and outside the U. S. Sequentially. And I think there was a comment on ASPs as well. Garland 360 ASP, we've seen the significant tailwind over the last sort of 12, 18 months with the Gartner 360 ASP.

Speaker 4

So that improved significantly year over year, but now also improved sequentially as well. So we're up now to 2,950 to 3,000. So I think we are again, we're really pleased with the quarter from a volume perspective year over year and sequential from an ASP perspective. And so, yes, for us it was a very strong Q2 of 2024.

Operator

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect your

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Earnings Conference Call
Guardant Health Q2 2024
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