I'm Puneet Souda, senior analyst here at Leerink, covering tools and diagnostics, and my pleasure to be hosting Guardant Co-CEO AmirAli Talasaz and CFO Mike Bell. Great to have you guys here.
Thanks for having us. Thank you.
Yeah. So, as we go through this conversation, please raise your hand if you have questions, and we'll bring over the mic to you. You know, there might be quick questions, given all the, you know, AdCom discussions that we have been having. So maybe I'll just, you know, kick off with the question on the AdCom. You know, I think there was a little bit of a confusion at first, but then the voting turned out to be first line, you know, I mean, what it appeared to be clearly first line, the voting. Maybe, you know, I'm sure you have had time to sort of digest that, have conversations as well, potentially, maybe with FDA as well in this time.
You know, can you talk to us about where do you think you will ultimately, the labeling is going to land, based on your understanding of AdCom, your understanding and discussion since then?
Yeah. So thanks for having us. We are definitely very pleased with the outcome that we had last week. First, actually, our team did a lot of great work to be prepared for that conversation, and I'm pleased with the outcome. I'm pleased with actually even what we heard, not just from panel members, but also from FDA in that meeting. So I think in terms of the outcome, the voting result is very clear. Our proposed indication was most similar to the first line indication for CRC cancer screening, and the panel voted strongly in favor of that in terms of recommendation to agency. Again, this is kind of non-binding recommendation to FDA, and FDA would be the ultimate decision maker.
Mm-hmm.
At the same time, we are very pleased with the tone and the tenor of the FDA moderator in that meeting, and in general, the way that the conversation got handled. We've been in conversation with this review team now for about 15 months, and we continue to make progress and continue to be very positive with the level of collaboration and collegial interactions that we have with the team. Excited to take this to the finish line sometime this year in 2024, and with a favorable outcome, and then have a strong launch for this Shield IVD test.
When do you expect to hear from the FDA on the label?
The conversations are happening as we speak.
Mm-hmm.
For sure, it's gonna be sometime in 2024.
Mm-hmm.
The exact timing of it still, we are not exactly sure when it would be. As we make more progress in the conversation, we are gonna figure that out, but it's gonna be a 2024,
Mm-hmm
... decision.
Okay. Maybe just taking a step back, I mean, there was a lot, it seems like there was a lot of preparation going into the panel, and the team was really prepared, so, I mean, excellent job there. But as you, as you, you know, prep for this panel and your expectation, was this much in line with what your expectations were going into the panel, or was there anything different?
So in general, you saw that our proposed indication that we-
Mm-hmm
... submitted to that AdCom for consideration was the proposed indication got proposed there, which is very similar to first-line colorectal cancer screening for colon cancer detection in average-risk individuals. And we thought actually there are good scientific and clinical merit to ask for such intended use and go to the voting for such intended use, and definitely, we are very happy with the outcome. You know, we could never say we are 100% confident of exactly what's gonna happen in the advisory panels when you go through it, but-
Mm-hmm
... definitely, we are very pleased how it ended up and very strong positive vote that we got in favor of that indication.
Where do you think, You know, there was a discussion on intervals, 1-3 years. You know, FDA seemed to suggest that this is something that will be addressed later on, potentially by, maybe it's CMS, maybe it's USPSTF. Just want to understand, how are you thinking about interval, and what is, what do you think where do we end versus the proposed interval?
Yes, we're consistent about it, that there is no precedent for this space for FDA.
Mm-hmm
... to dictate a specific interval testing, like that's practice of medicine.
Mm-hmm.
There is no data that we have to exactly establish what the parameters of longitudinal testing would be. Where it's very important, though, is for the post-approval market studies that, you know, what's your recommended interval testing? Let's design a post-approval study to effectively study that. That's gonna be a very long-term study that we have to do in the background for many years to come. I think that practice of medicine, in terms of recommended interval testing, is gonna come as the evidence that we are gonna have in terms of manufacturer recommendation, and obviously, what the guideline bodies and, most importantly, payers, are gonna find the appropriate use of these healthcare services. They wanna make sure some services are not utilized unnecessarily.
What we are doing, it's not just Shield testing to find cancers, but also because of false positive rate, bunch of people need to get colonoscopy done. There are some benefit-risk in terms of cost-effectiveness, in terms of overutilization of these tests. All these parameters are gonna get considered. Based on everything that we know, and the position that CMS took for blood-based colorectal cancer screening in their National Coverage Determination, we are going with the recommendation of every three years, and we think that's the right frequency of this test.
Got it. Okay. And maybe I should have asked sort of the first question a bit better on the confusion side that was prevailing in the panel and then the voting that happened. Do you think that when FDA has post-panel sort of deliberations and thinking through this as they construct the final label, do you think some of the discussions are—how much of the discussions are going to eventually weigh into that? Or do you think voting is what is going to continue to dictate it?
I think some of this is just the process of how advisory committee meeting works.
Mm-hmm.
By design, there is some part about debate, deliberation, everybody have, you know, thoughts in terms of benefit, risk, positive, negative, everything come on the table, people discuss, and they try to argue for or against the points that they are making. At the end, everybody would render the judgment when they go through that formal voting process. I think some aspects of maybe what happened in that deliberation were associated with how some of the panel members were thinking about colonoscopy and diversion of colonoscopies to other tests like Shield, which is a different topic. Like, you know, I think, colonoscopy is a test which has a different kind of intended use. It's a different kind of device.
We are talking about these non-invasive alternatives to colonoscopy, and FDA moderator, I think, tried to make that point, too, but, you know, panel continued to have this discussion about colonoscopies. But I think the way, FDA is thinking about this is, okay, how this blood test would stack up relative to other non-invasive tests-
Mm
... meaning stool tests. And I think when you look at those deliberations with that point of view, in fact, we had a very balanced conversation about this topic. And then, obviously, the most important thing is the voting and then the justification for that voting. If somebody says no, why did they say no? If they said yes, why did they say yes? All those stuff matters. And again, it's very obvious, very clear, it was a very favorable, very strong positive endorsement of our proposed indication of use, and we cannot be more pleased with that.
Got it. Okay. Let's switch gears to the next steps, potentially after FDA approval, and either if it's in the first line or the second line, you know, can you talk about the, you know, next, reimbursement steps for you? You know, what do you need to do in terms of, CMS, gap fill, and you are expecting an ADLT rate, when does that kick in?
Yeah. So once we get to the FDA approval, because already we have established national coverage determination by CMS, effectively, we are gonna get covered by Medicare. 65-year and above, Medicare, Medicare Advantage, patients would really get access to Shield. There is some kind of a process that we have to go through in terms of, figuring out the gap fill price with our, with MolDX or our local MAC, and then we have to, for instance, sit on billing Medicare till we go through that process, and then bill Medicare claims at the time. But, the coverage would be effective on the day of FDA approval because there is established NCD in the field. In parallel to that, we are gonna file to get advanced diagnostic lab test status. This is a very interesting development.
It's a something that's been enacted in law in 2018, and in fact, it was put in place to incentivize manufacturers to go through innovation and through investments on R&D to come up with advanced diagnostic lab test. In exchange for that innovation and development and investment, Medicare is providing some favorable Medicare pricing once a test qualifies to get that ADLT status. One way to qualify for ADLT status is to get FDA approval for an unmet need. So once we get the FDA approval, we are gonna file for that status. It's gonna take, you know, a few months to go and activate that, but really the risk is gonna be FDA approval.
The rest would be mechanics from our perspective, and then we are expecting sometime in 2025, that ADLT status to get granted with favorable Medicare pricing being in place for Shield again in 2025. 2025.
2025 .
Yeah.
Okay, got it. And, you know, what's the... Can you elaborate a bit? You talked about it briefly, the, CMS has an NCD , but how do you see the role of CMS and USPSTF after... the, the potential approval of this product, how much will you know, what points USPSTF is going to weigh in? And if, CMS can weigh in into maybe interval or other, considerations, what are those things that, where, where these two agencies are, you know, guideline agency and a guideline organization and agency can weigh in?
So I think both of them have very important roles. If you look at, for instance, what happened with multi-target stool test, after FDA approval, CMS, they went through dual track process, and CMS took the position that they found it medically necessary for that test to be used every three years. And then when Task Force , two years after, went through the guideline review process and research process for that test. In fact, it was interesting, based on some of the modeling results that they've done, in fact, the modeling showed that triennial testing of that test is inferior to annual testing of FIT. But at the end, guideline recommendation endorsed using that test on interval of every one to every three years, and that was based on manufacturer recommendation, if you look at that guidance recommendation, carefully.
So effectively, the position that CMS took upfront in terms of the right utilization of this test, over time, became kind of really the standard practice in terms of practice of medicine. ACS also took some kind of stance in terms of what's their recommended practice of medicine here. Now, fast-forward 10 years after for Shield, interestingly, CMS took that position upfront before anybody qualify for their NCD, that as long as the sensitivity is better than FIT, they think the appropriate utilization of those blood tests is based on every 3 years utilization. So, and that became the cornerstone and, you know, the main reason of our recommendation that although the interval testing could be annual to every 3 years, but really, you know, it's 3 years based on what CMS is proposing.
Then there are some additional modeling, actually, results that we've done, I think some other people in the field started to do, that shows the utility and the risk-benefit of this test as a function of interval testing and the risk of this test as a function of interval testing. And looks like, again, three years is a good kind of a optimum interval testing for Shield.
Just want to touch on what you expect out of USPSTF. I assume they're going to weigh in on the assay at one point. Obviously, you were forthright about it, the assay, on the advanced adenoma protection, that it doesn't, that's unlikely to be in the label, and you were clear upfront with your presentation and data. So how do you think USPSTF is going to weigh in on this in terms of ratings down the road?
Look, Shield is gonna save a lot of lives. There are 50 million unscreened patient population. 76% of cancer mortality is coming from the people who are not up-to-date with their screening. So just maybe let's use common sense, and just a blood test that we know many people will take, can detect cancers at earlier stages at the time that the cure rate is much, much higher. What do you think guidelines would do? Like, would all guidelines stand up and say: "Stop this test, we should not screen 50 million unscreened patient population"? Now, in going to the technical details of it, the first thing Task Force we expect to look at is the evidence which we have published. The New England Journal of Medicine is a very solid publication by us that shows the efficacy of Shield. We are very proud of it.
We have additional papers that have been published already, including some data in some health systems, for instance, Kaiser, that after they incorporated Shield into their practice, the rate of cancer screening has gone up significantly by a factor of more than 2.4x. We have evidence, and we are gonna publish some of the evidence in the promise of completion rate of Shield testing. 95%+ of Shield LDT tests that doctors have ordered so far have been completed by patients. So we are gonna have all these peer-reviewed body of evidence in terms of utilization of Shield, impact of Shield in health systems, and the fact that it really works. And then when you look at modeling to complement this data, the life year again in unscreened patient population is very favorable when you test them with blood-
Mm-hmm.
versus you don't do any kind of testing. All the guidelines are about giving choices and optionality to patients in order to make sure they, more and more of them get screened. Shield would be a new, novel choice for patient and physicians in the menu of choices that they have... and the doctors would prescribe it for the right set of patients. So why guidelines should oppose that?
Mm-hmm. Got it. Maybe, one for Mike, just in terms of pricing longer term, is it fair to say that right now, gap fill, then ADLT, and eventually commercial—when you do expect commercial pricing to come in, should the number be, you know, lower than ADLT eventually?
Um.
In terms of pricing.
I think, Puneet, we'll have to see. I mean, it- a lot of it's gonna be in our control-
Mm.
- on how we have negotiations with those commercial payers and how we contract with those payers. You know, obviously, we want to maintain as robust ASP as possible.
Mm-hmm.
I think if we get this, you know, when we get the ADLT rate initially, I mean, that's gonna set the benchmark for-
Mm
... for Shield. And it'll sort of, you know, determine how we go about those conversations with the payers. So, yeah, I mean, it's difficult to say exactly today what the rate we'll be contracting, but we'll, you know, I think we'll be in a strong position.
A good quick question here around the, I think you reported at one point, 10,000 patients for adherence and then 20,000. Can you clarify where those numbers are coming from?
So those are from the stream of Shield LDT testing-
Mm-hmm
... and the accounts that we gave them access to the test. And I think in different occasion, we always talked about the adherence rate of the prescribed test for the first 10,000, and then the-
Mm
... first, I think, 20,000. That was the last number that we put out there, I think, last ASCO. Numbers continue to be solid. Patients complete blood testing-
Mm-hmm
... as expected, so that number was around 95% completion rate.
Got it. When you think about the commercial build-out for this, any change in expectations versus before in the sales force or the commercial enterprise that you need and the cash burn expectations that you had?
So with Shield, since market is very deep-
Mm-hmm
... we are gonna go very targeted. We are gonna go after the regions with high Medicare rates. We are gonna have some double indexing in the states that they have state-level mandates that once a colorectal cancer screening test is endorsed by American Cancer Society guideline, the regional payers need to cover those tests. We are gonna have some kind of enrichment in those territories, and obviously, some other kind of targeting mechanisms that we have, which at the time that we launch this test, it will become more clear. But we are very excited about the opportunity. We are gonna have about 100 people in the field to support this IVD launch this year.
As we go to next year, we are gonna scale it to 100 to 150 people in the field, and as we get closer to Task Force guideline recommendation, our plan is to scale it to about 300 people. I think this is adequate level of presence in the field to really, step by step, open up this market opportunity. There is a lot of business to mine here.
And, Mike, is that fair to say that's within the $200 million cash burn?
Yeah, no, exactly in the $20 million.
Annually?
Yes. And, you know, we, we set out that plan at the, the investor day. And we're, we're, we're tracking to that plan. We said also our commercial spend and the ramp-up will be gated by milestones-
Mm-hmm
... and FDA approval will be in the first milestone, and so we're sticking to that. You know, this year, the burn will be $175 million. And so that's still the plan. And then going forward, yeah, will be maximum burn, $200 million-
Okay
... for the next few years.
Got it. Just, I know there are just a lot of Shield questions coming out of the AdCom in the last few days, but, AmirAli, when you think about actual clinical practice of, you know, your sales reps going into these clinical into PCPs practices and then discussing the product with them, can you just walk us through how this will play out in the real world, and what's your expectations there? Because obviously, I mean, as you saw from the panel and, you know, colonoscopy is considered the gold standard, but then you know, how do you think the conversation goes in the real world?
So our intention is not to replace colonoscopies, and we don't think that makes sense in terms of patient benefit. So when we look at other people, other people who are not compliant with colonoscopy, we believe blood is a great choice for right patients. And now for, you know, we are in market for 2 years with Shield LDT. This is not just theory, it's a real-world practice today, that it's a very simple conversation sometimes with PCPs. This is a blood test. This is the performance for colon cancer screening. It can just detect cancer. Do you have unscreened patient, patients in your practice? And I can tell you, in vast majority of the times, this is the top of the mind for the PCPs. They are talking about cancer screening, colorectal cancer screening with their patients. They know many people are not compliant to colorectal cancer screening.
So, the activation does not take a lot of call volume. There are some logistics that always we need to enable in, in the initial visits in terms of, you know, workflow integration with the blood draws and blood ordering, but after we go through that process, then the utilization of blood becomes much more than what has been the historical utilization of stool-based tests.
Okay. This is an investor question that I was getting earlier. How would you be prioritizing sort of individuals? Is it going to be all comers or Medicare volumes? Would you be prioritizing Medicare volumes first before you get to USPSTF, or would you be commercially pushing for all age groups, as this assay is commercialized?
As I mentioned earlier, we are gonna have some targeted approach toward, you know, the areas and the accounts with more Medicare kind of percentages. At the end, this test is, you know, mainly covered in initial days for 65 and, you know, at 65 and above, and we are gonna have some targeted ways of going after that segment of the market initially. After ACS guidelines get, hopefully favorably upgraded and include Shield, in those about 10 states that they would follow ACS recommendation, we are planning to open up that window to younger patient population quickly, and then continue to build it. Again, this is a very deep market that, in fact, does not make sense for us to go after all of it, all at the same time.
Mm-hmm.
We are gonna go after it step by step and in a very targeted way and build a book of business.
Got it that way. Okay. Mike, you know, the question is on COGS and, you know, at the launch, could you just remind us what would be the COGS and sort of, what do you expect the gross margin to be longer term? I mean, with the ADLT pricing of $895, just give us a sense of how are you thinking about sort of gross margin near term and gross margin-
Yeah
... sort of longer term?
Yeah, I mean, currently the COGS for the test are around $1,000, but that's with very low volume at the moment. And so, you know, once we sort of launch this and the volume starts to increase, then, you know, we know that the cost per test is gonna drop very rapidly. And, you know, we've said that once we get an ADLT status, and we've got an ASP of around $500, then we'll have a gross margin positive test. So we expect that in 2025. Longer term, you know, we've always talked about getting the COGS down to $200. And again at our Investor Day, we were talking about an ASP of $500, so gross margins of 60%.
So, you know, we're very confident that with increasing volumes and all of the work that we're doing focused on the workflow and automation, we can get the COGS down, you know, pretty, pretty quickly once we once we launch and the volume starts to build.
Got it. Okay. And this is another, you know, Shield question on, we saw another data release in this space, and, there is a view that, you know, they might pursue another version of the assay. It's clearly, you know, detection of CRC via blood is a hard problem to crack, but where do you, you know, expect the competition to evolve in this space?
This a big market opportunity, and if you don't have competitors, probably we are thinking there is something, you know, there's probably something wrong with our assumptions. But I can tell you the science and technology in this field is pretty challenging. We are the leading liquid biopsy company on the advanced cancer side. We have a lot-