8-8-2024 Guardant Auto Transcript (OTTER) filtered through CHAT GPT 4o

 From Guardant's August 7 2024 call, an auto transcript (OTTER) was given to CHAT GPT 4o for cleanup.

For the most accurate text, seek a verified human transcription of the call.

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AI - NOT VALIDATED

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I'd like to acknowledge and thank the FDA and their review team for their collaboration and partnership. With that, I will now turn the call over to Amir Ali for an update on therapy selection and MRD. Thanks.

Amir 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. In 2023, a 33-year-old woman went to her doctor after noticing a progressive neck mass during her third 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 Garden 360 liquid biopsy test, which identified her as ALK-positive, leading to a diagnosis of thyroid carcinoma. As a result, the patient was put on Alecensa for therapy. I'm pleased to report that after about a year of treatment, the patient no longer shows evidence of disease. She also successfully gave birth to her third child, and since there are minimal side effects to the therapy, she will remain on Alecensa for another year with a Garden 360 test every three months to monitor.

This is just one of many patient stories that highlight the superior ability of Garden 360 to identify actionable biomarkers and inform cancer care over other approaches.

Top Line Performance (Slide 12):

In slide 12, we had a robust second quarter with total revenue growing 29% to $177 million. This growth was driven by another quarter of very strong precision oncology revenue, which increased 33%, supported by significant Garden 360 reimbursement tailwinds and strong growth in volumes, particularly within biopharma.

Clinical Test Volume (Slide 13):

Clinical test volume for the second quarter grew 14% year-over-year, reaching 49,400 tests, with continued progress in Garden 360 volumes. Reveal also continued to grow strongly, even with our ongoing management of volumes ahead of broader reimbursement. Biopharma volumes were exceptionally strong in the second quarter, growing 56% year-over-year to a record 10,475 tests. We continue to see a lot of excitement for Garden Infinity, our newest biopharma offering, powered by our smart liquid biopsy platform.

Major Upgrade of Garden 360 LVT (Slide 14):

Last week, we launched a major upgrade of Garden 360 LVT on our smart liquid biopsy platform. Garden 360 is a leading liquid biopsy test for patients with advanced cancer. This upgrade provides oncologists with a much more comprehensive view of cancer by utilizing novel genomics and epigenomics 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. Garden 360 LBT is covered by Medicare and major private payers for CGP of all advanced solid tumors. 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.

Upgrade of Garden 360 Tissue Next Test (Slide 15):

In early June, we introduced an upgraded Garden 360 Tissue Next Test, featuring an expanded panel of 498 clinically relevant, actionable biomarkers to identify more treatment options for patients with advanced cancer and further improve best-in-class turnaround time. 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.

Cosmos CRC Manuscript and Reveal (Slide 16):

Turning to 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 two and stage three patients, was accepted for publication in the peer-reviewed journal Clinical Cancer Research. This study was also submitted to MOVID for Medicare reimbursements for the CRC surveillance MRD indication. Cosmos, our largest MRD study to date, evaluated ctDNA detection using a tissue-free approach and included 1,900 longitudinal surveillance samples from 342 patients, representing a median of six samples per patient. All patients in the study were able to undergo evaluation without the need for tissue testing. The study demonstrated 98% specificity with 81% longitudinal sensitivity for recurrence in stage two or higher colon cancer and more than a five-month median lead time from ctDNA detection to recurrence. This data validates the utility of Reveal in predicting recurrence in CRC.

Future Prospects (Slide 17):

Looking ahead, we have an extensive pipeline of clinical cohorts for establishing validity and utility for Garden Reveal. This will be instrumental in building compelling evidence to support efforts to expand reimbursement and influence changes in practice guidelines. We anticipate publications that will support submissions to Medicare for potential coverage in breast cancer next year and have important clinical validity studies for additional cancers such as lung, pancreatic, and gastric.

Demand and Financials (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. 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 COVID reduction initiatives for Reveal. These milestones are significant steps towards our long-term goal of achieving greater than 60% gross margins for our MRD business. We continue to manage volumes to minimize cash burn and expect Reveal to be gross margin positive in 2025.

Financial Results (Slide 19):

Turning to slide 19, I'll discuss our revenue results for the three months ended June 30, 2024, and refer to year-over-year growth rates unless otherwise noted. Total revenue grew 29% to $177.2 million, driven by precision oncology revenue, which increased 33% to $166.5 million. Precision oncology revenue from clinical tests increased 30% to $130.2 million, with clinical test volume growing to a record 49,400 tests in Q2 2024. Clinical volume growth of 14% was in line with our expectations. For the full year 2024, we continue to expect clinical volume growth to be approximately 20%.

Our biopharma business performed incredibly well in the second quarter, with precision oncology revenue from biopharma tests totaling $36.2 million, increasing 45%. This exceptional growth was fueled by a record number of tests in the second quarter, 10,475, which was up 56%. We have increased our biopharma revenue growth expectation for the full year 2024 to high teens from low teens.

ASP and Non-GAAP Financial Measures (Slide 20 and 21):

Regarding Garden 360 ASPs, we saw strong cash collections in Q2 2024, driven by continued improvements in both Medicare Advantage and commercial reimbursement. This led to a step up in the Garden 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 trends give us confidence that the Garden 360 ASP can remain in this new range for the remainder of 2024.

For non-GAAP financial measures, our non-GAAP gross margin, excluding screening, was 62% in Q2 2024, in line with our full-year guidance of 61-63%. Non-GAAP operating expenses were $178.8 million, a reduction of $1.7 million compared to the prior year quarter. This decrease was driven by lower clinical study costs following the completion of Eclipse enrollment in Q3 last year and a decrease in G&A expense. These decreases were offset by an increase in sales and marketing expenses in preparation for the Shield IVD commercial launch.

Outlook for 2024 (Slide 22):

We are pleased to increase our revenue guidance and now expect full-year 2024 revenue to be in the range of $690 to $700 million, representing growth of approximately 22-24% compared to 2023. This increase reflects the cash collection upside we had in Q2, the increase in the Garden 360 ASP, and the increased full-year expectation for our biopharma business. We continue to expect non-GAAP gross margin, excluding screening, to remain in the range of 61-63% and non-GAAP operating expenses to be in the range of $720 to $730 million, representing a flat to 1% decline year-over-year.

Catalysts for 2024 (Slide 23):

We have made significant progress across each of our business areas in the first half of the year. We are excited by the potential opportunities across therapy selection, MRD, and screening. With that, we will now open the call to questions.

Q&A Session:

Operator:

We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. If you are using a speakerphone, please remember to pick up your handset before asking your question. The first question comes from Mark Massaro with BTIG. You may proceed.

Mark Massaro:

Hey guys, thank you for the questions.

Q&A Session (Continued):

Mark Massaro:

The first one is for Helmi. Good to see the Cosmos study come out and submit for publication. Can you discuss what your expectations are on Medicare coverage in the CRC surveillance space? Obviously, Natera has an indication there—they are tumor-informed your blood. Do you think you can effectively cross-walk to that particular coverage, or do you think you might need a new Medicare coverage decision?

Helmi:

Yeah, thanks for the question, Mark. As a reminder, we already have coverage in the adjuvant setting for Garden Reveal. The aim of this publication and data is to get us the second half of the indication, which is a surveillance setting, in terms of testing patients that are further out at multiple time points. Right now, we're covered for three time points if the first is within the first 12 months of treatment. This study was designed with Medicare coverage in mind. We are very pleased with the study's outcomes, the publication, and the data. We believe it qualifies under the current LCD that exists.

Mark Massaro:

Thank you. I wanted to ask about the potential for ADLT status on Shield. Many lab tests today that have ADLT status are not for asymptomatic screening tests. Do you think your ADLT application might follow a similar timeline as other tests that have obtained it, and do you have any sense of the timing?

Helmi:

Thank you, Mark. The criteria for ADLT designation are very clear—unmet need and FDA approval would get the designation. We just need to go through the process. Our best estimate is that sometime within 2025, we will get our code and ADLT status, which will activate the favorable Medicare pricing enabled by that designation.

Dan Brennan:

Great, thank you. Congrats on the quarter. You discussed in the prepared remarks how, given the first-mover advantage with Shield, you think other blood tests will not be viable if they don't meet your performance. Could you expand on that a little bit? Are you referring to the NCD 74 and 90? Are you thinking about the lack of FDA approval, or do you believe the first-mover advantage gives you an unbeatable position?

Helmi:

Yeah, interesting point. We are hearing a lot of talk in this market versus even a slide of a presentation of the data. With our first-line indication FDA approval and the performance of CRC we have, combined with our long lead time advantage relative to others, we believe our performance sets a high barrier for viable products. To get favorable FDA approval, first-line indication similar to ours, and commercial success, a lower performance device would struggle to achieve these milestones. We are very confident with our current position.

Dan Brennan:

Thank you for that. One more tactical question on the strength in the quarter with biopharma—it was a healthy beat. You updated your guidance from low teens to high teens. Can you speak to what drove that beat and the updated guidance? The guidance implies a slowdown in the second half of the year. Any comments on biopharma and what the back half of your guide implies?

Helmi:

A lot of this has to do with Infinity. Infinity, with its epigenomic footprint and modularity for monitoring or comprehensive profiling, has seen significant uptake. This reflects the fruits of our investment over the past few years. Additionally, our regulatory competency in bringing regulated products to market on behalf of biopharma, our global reach, and a healthy pipeline build-up in China have all contributed.

Mike:

We had a really strong first half and are pleased to increase our guidance for the full year to high teens. We still have a strong pipeline, and although the business can be lumpy, depending on the timing of samples, we expect a strong second half of 2024.

Suda:

Hi guys, thanks for taking my questions and congrats on the strong beat. First one for Helmi—congrats on the FDA approval and CMS coverage. You continue to achieve milestones that were questioned by investors. The cash pay price for Shield is $1495, significantly above current non-invasive CRC screening products. What's the rationale behind this elevated pricing?

Helmi:

Thank you, Suda. The $1495 price reflects the value of Shield in the marketplace. Our health outcome modeling shows significant life year gains and economic value by bringing unscreened patient populations to the screening table and reducing CRC treatment costs. ADLT is a mechanism to price innovative tests like Shield fairly, based on their value, not precedent. We aim to build a sustainably profitable business. Additionally, Shield is a multi-cancer screening test, and by the time ADLT pricing activates next year, we expect to have updates related to multi-cancer screening for Shield. The price is justified based on these factors.

Suda:

Got it, that's helpful. Another question about USPSTF—now that you have FDA and CMS behind you, what are the next steps and studies needed over the next two years to get Shield into USPSTF guidelines?

Helmi:

We are optimistic about including Shield in guidelines, starting with ACS and then USPSTF. We are ahead of our plan for clinical evidence generation. FDA approval, NEJM publication, and a randomized prospective study showing the rate of screening in unscreened populations will support this. We have publications on adherence to blood tests, outcome models, and longitudinal adherence data. We are ready for the review process with peer-reviewed evidence.

Tejas Savant:

Thanks for taking my question. First, on the Shield side, and then a follow-up on Garden 360. Helmi, can you walk us through the pros and cons of an NGS approach versus a lower-cost PCR-based approach for blood-based screening assays? Also, any thoughts on the Exact-Quin strand licensing agreement and its implications?

Helmi:

Low-cost, older PCR technology cannot solve the problem of cancer screening. If it were that easy, the problem would have been solved ages ago. Our technology looks at thousands of features, providing a comprehensive view. The cost at scale for our NGS approach is around $200, largely due to logistics, not just lab processing. We have high throughput, low-cost operations, and are NGS experts. Regarding TwinStrand, I can't comment specifically, but for Shield and other products, future developments will focus on epigenomics.