Hi, welcome to the Canaccord Genuity Global Growth Conference. I'm Kyle Mikson, coverage analyst in Tools diagnostics for Canaccord. Please welcome you to this fireside chat with Guardant Health today. From the company, we have Helmy Eltoukhy, Co-CEO, and Mike Bell, CFO. And as a reminder, Guardant is a precision oncology company offering broad portfolio of tests across, you know, screening therapy monitoring therapy selection. Thanks, guys, for joining us today.
Yeah.
Appreciate you for having us.
Sure. So I guess you just reported your second quarter results late last week. Good, like, your revenue beat, raised guidance. Maybe just walk through those results and kind of what drove, you know, volume growth and revenue.
Yeah, no, we were very pleased with the quarter. We had very strong revenue growth, 29% year-over-year. Really propelled by strong clinical and Biopharma volume growth. And, you know, I think that's just part of the story. I think the product side has been really on fire in terms of the upgrades that we've seen. We launched essentially a whole new chapter of Guardant360 with our Smart Liquid Biopsy launch, and we're very excited to see that going. A lot of excitement there in the field. Same thing on the tissue side. We launched an upgraded version of that test, and there's a lot of excitement from clinicians around that nearly 500-gene panel. And then last but not least, we essentially launched and got FDA approval for Shield.
Really first of its kind, first-line screening test, with Medicare coverage. It's really one of the largest indications that I think have been won in this space, maybe since the COVID vaccine. So, you know, huge, huge quarter. And maybe one last thing I forgot is COSMOS and getting our MRD, CRC, hopefully, an indication there in the surveillance setting would be really big for that franchise.
Biopharma was very strong in the quarter.
Yeah.
Was that like a blip, or could that continue? Basically, what happened there?
Look, I mean, we've, I think, outperformed the last few quarters, Q4, Q1, Q2. This is a trend we're seeing, really this shift from simple genomic profiling to epigenetic profiling that has really been fueled by our Smart Liquid Biopsy transition. And, and I think you're seeing a leading indicator of why we're so excited about Smart Liquid Biopsy on the, on the clinical side of the, of the picture. We see the pipeline as growing very, very strongly. Biopharma can be lumpy, but I would say that our volume and where things are going are certainly up and to the right.
Okay. So now on Shield, it's really the first, like, you know, NGS, NGS-based, blood-based, screening test for, for CRC, for colon cancer. Pretty big milestone for the company, and it says a lot about the, like, kind of epigenomics platform for Guardant, kind of differentiated versus others. Maybe, you know, there was actually a comment on the conference call last week that where you guys talked about how other tests may not be, like, as, as competitive on some of this. So maybe just talk a little bit about the milestone that represents, as well as the landscape, as we think about other competitors kind of coming up pretty soon.
Yeah, we're super excited about getting this first-line indication, obviously FDA approval and Medicare coverage. It really is a first for the industry. It's a first for the space, for the field. It's an enormous milestone. And we're seeing the excitement there. I think you saw the coverage from the media, from, you know, all the nightly news stories, national press. This is a big, big moment in the history of healthcare. I think what we're seeing, though, is we have such a advantage in terms of where we are relative to our competitors in terms of timelines, even if you take some of those timelines at face value, we have an extraordinary first-mover advantage.
We know essentially how difficult it was to get to this point from a technology point of view, from an operational point of view, from a regulatory point of view. 10 years, 12 years of liquid biopsy know-how, of operational excellence, of regulatory excellence and competency went into this approval, and we just think that anything that is less in terms of performance is not gonna be viable in the market from multiple perspectives. And so it just gives us so much confidence in terms of where we're going with this product. And like I said, in the first part, that this is one of the largest indications that has been sort of received in healthcare for many years. The Medicare coverage we have applies to 45 million Americans.
That's a 15 million test per year opportunity, and that's what we have today. So, I think, and, you know, obviously we're gearing up for the launch. It's or at least in terms of the expansion of the launch team, and we'll be at 100 sales rep by end of this year, and things are going really well so far.
Awesome. I think, targets for ASP for, like, a, you know, a year after approval, so maybe next year, would be $500, obviously, you know, like, you know, maybe half that or so. And you have this Medicare, this new cash pay rate, actually, of about $1,500- $1,495, and that's an increase. You know, I guess ADLT is in the, possibly in the future, but maybe talk about the gap fill rate first and what, where that could kind of fall. Could it be a few hundred dollars or so, or, yeah, how could that kind of stack up?
Yeah, I think, you know, we've applied now for the gap fill rate. We do that through our local MAC, Noridian, and of course, yeah, it's, that'll be a temporary rate until we get the ADLT rate come through, which we've also applying for. Exactly where that will come, we're unsure at the moment. We don't really want to put an exact dollar figure on that, and it's gonna depend on how Noridian looks at that. But, you know, for us, we do look at this as just a temporary rate, and what the real rate that we're focused on is getting the ADLT rate of $1,495. And so our assumption is, yeah, that will come in 2025.
Our ASPs in 2025 will be, you know, at least $500, and by the time we get a ADLT with assumed volume, our cost per test should be $500 or less. So, you know, very soon after launch, we'll have a test that's positive gross margin, and starts to enable us to reinvest that positive gross margin into the sales and marketing line. So, yeah, the gap fill rate will come, but, we'll see what it is when we get that.
And then what exactly drove, I guess, the increase in the cash, the patient pay price point to the $1,500 or so from $900? Because, you know, it was, it was, you know, almost $100 for a while, and then it was kind of a big increase, and maybe that poses some questions on, you know, costs for the test, things like that. So just maybe like, you know, address any concerns possibly in the costs and so forth, and cash burn.
I mean, the driver of the ADLT price is really the value of the test. You know, we're not looking at that as from a working capital perspective. And yeah, I mean, we've done a lot of health economic work, and we understand the value of the life saved. You know, when we look at that and the work that we've done, you know, we could justify something around the $2000 per test mark. We think $1495 is the right price from the value perspective, and also from yes, being able to really maintain a sustainable profitable business, I think. And it gives us a lot of confidence.
You know, at our Investor Day last year, we laid out a pathway to get to cash flow breakeven for the company. That assumed an ASP on, for screening, for Shield of $500. And so with this ADLT rate, which we will get, you know, we feel just more confident that we can get to that ASP and drive a profitable business, not just for the company overall, but, you know, get the screening franchise, the screening business on its own to be as profitable as soon as possible.
If you add on other cancers, like lung cancer or like, any, you know, any others, would that increase the rate, or is that 1500 kind of staying? Do you-
I think one of the challenges of the sort of diagnostics industry is that it's hard to sort of move pricing up. We've seen, and you guys have seen many stories of companies that have priced too low, and have essentially, they don't exist anymore, many of those companies, they went bankrupt. And so we need to be savvier in the diagnostics industry in terms of pricing for value, rather than sort of like, you know, pricing that we're picking from thin air or from sort of, antiquated precedent tests. And so that is the first part of the thesis. The second part is, yeah, I mean, this is... You know, I think there's a myopic view that this is just a CRC test. This test is, one, gonna get better over time. Two, it's gonna cover many, many more cancers over time in the not-too-distant future.
So the analogy I make is, iPhone came out, it was about, you know, $1,000, had, you know, it was kind of a little bit underwhelming when it came out. It just had the phone, the camera, and the, the iPod kind of function. But now it's indispensable because of the amount of integration, the amount of functionality, the number of applications that are there. It's the same thing here with this test. It is CRC today, but very soon it will be many, many cancers and perhaps, you know, other functionality.
And it's going to be like a, You're kind of recommending, like, a three-year interval for testing. I mean, maybe that could be, you know, one to three, I suppose. Is there, I mean, is the post-approval study here that will be probably take, like, you know, be multi-year kind of study, is that going to really be the key that's going to prove that it's a three-year kind of test, or does that even not matter to you?
Yeah, that's... The test is very, the study that is sort of being formulated is very similar to, you know, a study for Cologuard, the post-approval study. And so, that is something that we're still fine-tuning some of the details around with the FDA, and we're very confident that, it'll be something that we'll be able to sort of perform in a sort of very straightforward manner. I think, another thing is just it really has no bearing on USPSTF either. So it's, it's really something that we're doing with the FDA that I think is, sort of in its own swim lane.
Okay. Yeah, so really nothing kind of is in the way from here until USPSTF. You have everything you need, basically?
Frankly, even, yeah, USPSTF is gravy on top. As I said, we have 45 million lives covered today.
The timing for, like, ACS guidelines, is that something that you are comfortable with?
We think in 2025, yeah.
All right, gotcha. And that's, you know, unlocks a lot of value as well with,
Yeah, there's-
So forth.
Exactly.
Cool. And then maybe just one more on screening or two. V2, is there a version two of the test that has better, better performance? And you had some data at your Investor Day, and the key here is, like, the early cancer kind of detection, the AA. What's next with V2? And I think you wanted to submit, like, a supplemental PMA at some point, maybe next year. Is that on track?
Yeah, everything's on track with V2. Obviously, we're right now heads down, focused on V1. It's the best in the field. We don't think there's anything that'll touch it in the next, you know, two years. It'll be FDA approved. And yeah, and so we're very confident that from the excitement we're seeing, that this is really all we need now. But V2 is obviously a sort of cherry on top once we get it. But we're still on the same timeline. 2025 is where we'll have a sort of material update there.
... And how do you think about changing kind of sales force investment, like, very, kind of, variably, I guess, as you, you know, get revenue, don't get revenue from the test? And then, like, you have these plans maybe for 100 reps and so forth-
Mm.
But like, how do you sort of, like, pull back a bit or maybe accelerate?
Yeah, you know, we, we've talked, we've talked a lot about having a maximum cash burn of $200 million a year for Shield over the next sort of two, two, three years. And that's predicated on getting positive gross margins for the test, and then being able to reinvest those positive gross margins into the sales and marketing line. And that's really the line where we're gonna be making the lion's share of the incremental investments over the next few years. And we've always talked about that sales and marketing spend being gated by milestones, and so the first milestone being getting FDA approval, Medicare, Medicare coverage.
I think, you know, the next milestones to really enable us to push on with that investment is gonna be getting ACS guidelines, getting additional commercial insurance, potentially increasing the ASP, and then ultimately getting into USPSTF guidelines. And then, you know, we've talked about post those guidelines, having a field sales team of around 700. So I think we're gonna manage it very carefully, very milestone-driven, but with still an eye on growing the top line as quickly as we can.
Okay. Maybe let's go to the other kind of like areas of the portfolio. So therapy selection, I think, about a year ago, you said you were 20% penetrated in the biggest tumor types, major tumor types. You know, where does that stand today? How fast is that penetration growing, and is that getting almost, like, too, like, saturated almost?
Yeah, no, we see a lot of room to grow there. I mean, we're probably in the mid-20s now, from where we were last year. We continue to hold, I would say, significant market share in terms of the liquid side of the business. So we just did another sort of survey, and by far, we're considered, you know, far and away, the liquid biopsy leader, best quality, best service, and so on. So we're very excited in terms of the positioning we have in the current market. I would say, you know, the next step is really thinking about the sort of smart liquid biopsy, the epigenetic sort of platform that we're rolling out.
What we think that will do is really allow us to grow the market in ways that I think haven't been possible before. What I mean is, when we think about a lot of the penetration, a lot of that has mostly been in the breast, lung, and colorectal cancers, the sort of main cancer types where there are a lot of targeted therapies. There's a long tail of other, you know, 50 different cancer types, where a comprehensive profiling really hasn't been as fruitful as it has been in those, in those main cancer types. And that's really where I think, there's a lot of under-penetration, a lot of room to grow, and we're seeing with our epigenetic platform, there's just a lot of insight, a lot of tumor biology and so on.
Even therapeutic options that can be gleaned from that, from that payload and from that knowledge base. So there's a lot of excitement there from the clinicians we've worked with that have seen sort of the early looks at the data, and so we think we can essentially have this sort of second wave of increased sort of penetration and volume growth from that. I think furthermore, we are seeing cancer types and use of comprehensive profiling go earlier in the journey. Obviously, a lot of the drugs are targeted therapies. Immunotherapies are being used now in the adjuvant setting. A few sort of reimbursement changes have to be, you know, have to happen for that to really become mainstream, but that's another growth angle.
Then finally, we know that cancer changes over time. That's why patients unfortunately die, is their cancer evolves and essentially resists the current therapy. And so patients have to be tested multiple times during their journey, and that's frankly probably the biggest growth driver. Right now, the numbers we're talking about in terms of penetration are just 1 test per patient, per lifetime. When you think about a world where patients are getting tested 4, 5, 6 times per lifetime, basically at every line of therapy or every time they're progressing, that's a huge amplifier to the current market, and that's something we're starting to see now.
I think, just to, just to put a sort of, more specific example there, ESR1, which obviously was a big sort of, boon to us last year, that's a resistance mutation. Usually, it doesn't happen, at diagnosis. It happens later on in resistance to therapy, and so you have to test, early and test often for, those patients to be able to catch it. And that's just the first of many of those types of resistance mutations that will have therapeutic options, where patients will have to be tested, multiple times during their lifetime.
And so you're kind of including these other, like, newer tests, like Response, TissueNext, in that kind of assumption that these, the cross-selling, the synergies and stuff?
No, so that's, I mean, maybe that's even a fourth one, which is, as the market sort of evolves towards a one-stop shop in terms of having sort of a tissue product, monitoring products, MRD products, we have one of the most complete portfolios out there right now, and we're continuing to invest in those products. Obviously, MRD has gone through a number of upgrades. We have the COSMOS data, and we're continuing to invest there. Same thing with tissue. Obviously, had this major upgrade, and that's not the last upgrade we're gonna do. We're gonna continue evolving that, so that we're also considered the best sort of tissue CGP company in this space as well. And that's an area that's been growing very fast for us and one where we see a significant opportunity in the future in terms of taking share from others.
... Okay, and then on MRD Reveal, the Reveal test, probably the leading like tissue-free MRD test out there, has that lived up to expectations? It's been kind of a gradual rollout. Maybe just explain why that's happened and why COSMOS-
Yeah.
was like an inflection point, basically.
Yeah, you know, I think, at our Investor Day, and I think even before that, we laid out this idea that we would gauge volume growth based on reimbursement. And, you know, a lot of it has to do with the fact that we are the only really credible tissue-free MRD test that is in the market, today, and certainly the only one that has any kind of reimbursement. It's a difficult technology to get it right, and we've invested something like 6-7 years into it. Our screening program, all of that know-how has gone into it, so it's a really important franchise for us and one that, we believe we can defend, as well.
And so that gives us a little bit of a luxury of time in terms of gaining, you know, some of the volume that we've had, based on where we are with the gross margins for that test. We talked about this on the call, which is, this COSMOS publication and, you know, hopefully eventual reimbursement is one half of essentially a big inflection point that will happen for us, which is essentially moving ASPs up significantly. Right now, the surveillance setting is one where I would say tissue-free approaches win handily.
When you think about a patient that is 1 year, 2 years, 3 years out from their treatment and diagnosis, a lot of physicians don't believe that the cancer that was taken out is still representative of what's going to be coming back, you know, that, that far in the future. And so they'd rather have essentially a tumor-agnostic approach, so that they cast a wider net, and they can catch anything that comes back. And so if we can be successful in terms of getting this surveillance reimbursement, we essentially have a foothold in a very, very large indication for tissue-free MRD.
Secondly, the second half of the sort of inflection point is getting our COGS down dramatically, and we've made a lot of good progress in terms of that initiative, and by the end of this year, our COGS should come down, you know, very, very dramatically. And so those two lines essentially will flip, ASPs will go up, COGS will go down, gross margins will be positive in 2025, and then we can really sort of pump volumes up quite significantly. We've seen that when we take the brakes off a little bit, the volume just comes in. So we know that the appetite is there, the demand is there, we just have to get gross margins in the right place.
Reveal was upgraded to the Smart Liquid Biopsy platform, you know, like several, like, months ago already.
Yeah.
or close to a year. So, did you see a change in demand and kind of, and like adoption after that?
Yeah, I mean, we definitely did, but once again, like, we're not necessarily incenting sort of volume above a certain amount. We're trying to keep a burn, cash burn as minimal as possible. But yeah, I mean, it was an exciting update. Certainly the academics, a number of the pharma companies and so on, I think were very excited by that upgrade.
Okay, some competitors have some, like, RNA-based tests out there that's becoming more clinically relevant, it seems, RNA, that, as a marker. Anything, any plans there?
Yeah, look, we have programs across all of the biomarkers, whether it's DNA, epigenetics, RNA, proteins, and yeah, we have no sort of religious affinity to one biomarker over another. We'll add whatever makes sense for the field, and yeah, and we have the ability and competency and really I think an R&D team that's second to none to be able to do that.
Okay, and then just going back to screening, like, given there's a blood-based multi-cancer test out there putting up good numbers with revenue, I mean, should investors expect some kind of like similar revenue numbers when reimbursement comes through and becomes, you know, ADLT comes through, maybe like beyond 25, possibly, you get how about tens of millions of dollars of revenue from Shield?
You know, it's a bit difficult for us to just talk about revenue and volume in the short term. And, you know, once we get an ADLT rate, and we've seen, you know, one or two quarters of traction, then I think we can start talking about the nearer-term volume and revenue expectations. You know, we've put out for 2028, you know, $500 million in revenue, ASPs of 500 million tests a year, and so, you know, we're sat here now with a first-line indication, expected ADLT rate of $1,500, and, you know, a couple of weeks into a launch, but seeing good traction.
We're feeling very, very confident we can get to that 2028 number, but, I think, I think we'll start talking about 2025 numbers, nearer to 2025 or, the start of the year.
Okay. So you kind of went over the second half 2024, I guess, like, you know, growth drivers or kind of like the tailwinds and headwinds, I guess, last week on your call, but when you talk about 2025, like, not numbers necessarily, but what are some of the factors that we should be monitoring as we think about, you know, how, like how much you could grow or what, what volume could look like as well, maybe excluding screening?
Yeah, I mean, obviously, like, you know, MRD is going to be a huge, huge tailwind for us and growth driver. We not only have CRC, but breast is not that far behind. It's maybe, you know, 1-2 quarters behind. Those two indications are millions and millions of cancer survivors, a very large percentage of the 15% or the 15 million cancer survivor market. And as I said, our COGS will be much, much lower, so it's going to put us in a really, really good position from a sort of driving revenue, driving volume point of view. We're in early days of Smart Liquid Biopsy on the therapy selection side, and this is going to be a franchise and a test that essentially that's going to keep on giving.
Every so often, we're going to have new features, new applications that come out in the test, really driving utility in the field. The way we think about it is, we win in the market if for every 100 patients a physician tests, we provide more options for them than the next guy, and we have a 100% confidence that, you know, our Smart Liquid Biopsy platform will do that, head and shoulders above anything we've seen out there. So, those two are probably the biggest, you know, tailwinds for us, at least outside of screening.
Okay, and then how many, like, you know? There's been a lot of great years and milestones for the company. Like, the ECLIPSE readout was honestly a big deal for Guardant, honestly, but 2024 was big with the FDA approval of Shield. I feel like that was, like, really a important event. Are you more excited about 2025 than 2024?
Well, 2024 was, was huge for us. I mean, it's not only like the, the things we've done around screening in terms of the AdCom, New England Journal of Medicine publication, obviously getting the first, first-line, you know, blood test FDA approved. So that's like a 10-11-year sort of journey for us, so it's hard to, it's hard to top that. But everything we've done in terms of building a strong business as well, with therapy selection, getting to cash flow break even, the sort of like high gross margins we have, and so we've sort of checked a bunch of things off we want to do from the beginning of starting the company, build a robust, strong, profitable business.
And, you know, obviously bring to fruition this dream that, frankly, is a dream of humanity, of being able to detect some of these really bad diseases really, really early. And so, yeah, 2024 is an amazing year, but it's like anything else. You know, we think this just sets up a whole new chapter where-