Guardant Health, Inc. Q4 FY2021 Earnings Call

Hello and welcome to today’s Guardant Health Q4 2021 Earnings Call. My name is Elliot and I will be coordinating your call today. I would now like to hand over to our host, Carrie Mendivil, Investor Relations. Please go ahead.

Thank you. Earlier today, Guardant Health released financial results for the quarter and full year ended December 31, 2021. If you have not received this news release or if you would like to be added to the company’s distribution list please send an email to investors@guardanthealth.com. Joining me today from Guardant are Helmy Eltoukhy, Co-CEO, AmirAli Talasaz, Co-CEO, and Mike Bell, Chief Financial Officer. Before we begin, I’d like to remind you that management will make statements during this call that are 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 materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release Guardant issued today. For a more complete list and description, please see the Risk Factors section of the company’s annual report on Form 10-K for the year ended December 31, 2021 and in its other filings with the Securities and Exchange Commission. This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles. Reconciliation to the most directly comparable GAAP financial measure may be found in today’s earnings release submitted to the SEC. Except as required by law, Guardant disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, February 23, 2022. With that, I’d like to turn the call over to Helmy.

Thanks, Carrie. Good afternoon and thank you for joining our fourth quarter and full year 2021 earnings call. I will start off today’s call by highlighting our progress across oncology as we continue to build on our strong position as the liquid biopsy leader. I will then turn the call over to AmirAli for an update on our screening program, and finally, Mike will provide a more detailed look at our financials and our outlook for 2022. Starting on Slide 3, 2021 was a significant year for Guardant. We launched a number of new products, surpassed 100 biopharma partners, reached target enrollment for our ECLIPSE study, started enrolling a second registrational-grade study in lung cancer screening, continued to advance our technology platform and significantly scaled the organization as we prepare for future growth. Our mission at Guardant is to conquer cancer with data and ultimately transform cancer care. The driving force of our work is our commitment to putting patients first. We are dedicated to bringing the absolute best products to market that will continue providing clinically actionable information to inform patient care. Before I provide an update on our progress, I would like to start off with a patient story. In 2017, a 60-year-old man was diagnosed with Stage 2 rectal cancer. He quickly underwent surgery. But soon after surgery, his oncologist discovered the cancer had already spread to a lymph node. The patient immediately began chemotherapy. Fortunately, he responded well to treatment, was considered to be cancer-free and transitioned to long-term follow-up care. This past summer, he was still feeling great and was due for a periodic checkup. His CT scan was normal. His CEA was within normal limits. So, the oncologist scheduled follow-up tests, including colonoscopy, CEA and the CT scan to be performed 6 months later. His oncologist also ordered a Guardant Reveal test, which came back positive for residual disease. With these results, his oncologist immediately ordered a PET scan that detected a small lung nodule, which had not been visible on the CT scan. After a biopsy, the nodule was confirmed as an isolated metastatic rectal cancer. The patient had a second surgery to remove the tumor and is recovering well. This story highlights how Guardant Reveal can bring critical information to oncologists and patients, catching cancer recurrence early in order to treat cancer before it continues to spread. Now, turning to our performance on Slide 4, we ended Q4 with another quarter of record revenue of $108 million, up 38% over the prior year quarter. This brought total revenue for 2021 to $374 million, up 30% over 2020. Moving on to Slide 5, during the year, we continued to build our commercial organization focused on oncology, now a team of more than 250 individuals that we believe is second to none. They delivered strong clinical test volume for the fourth quarter, reaching 25,600 tests, an increase of 48% from the prior year quarter...

Thanks, Helmy. Turning to Slide 11, we are continuing to make great progress across our screening program. At Guardant, we have always believed that the blood-based screening test during wellness checkups has the potential to guard us against cancer. Blood-based screening is simple, reduces the need for patient follow-through, is much easier to integrate into health system workflows, expand accessibility to underserved communities and would likely improve compliance to screening tests. For blood-based screening to save lives, we must offer a test with high sensitivity in detecting cancers at the early stages. In order to save lives at scale, patients need broad access to such tests, ensuring that access requires a reimbursement pathway and its strategy for inclusion into the screening testing guidelines, alignment with value-based care and the objective of health systems, and finally, FDA approval. For colorectal cancer, blood-based screening has an established Medicare and CD and FDA approval pathway. The utility of CRC screening is well-established and guidelines recommend screening in the vast majority of individuals over the age of 45. The benefit of screening has been limited due to the lack of compliance despite many efforts. Blood test utilization holds great potential for increasing compliance.

Thanks, AmirAli. Turning to Slide 16, starting with the fourth quarter of 2021, total revenue was $108.1 million, up 38% from $78.3 million in the prior year quarter. Total precision oncology testing revenue for the fourth quarter was $88.7 million with growth of 37% compared to $64.7 million in the prior year quarter. This increase was driven by strong growth in both clinical and biopharma sample volumes...

Thanks, guys. And maybe just first to clarify on the numbers, the ASP decline in the quarter was that just all a function of Reveal and Response kind of weighing down the average or was there something else there that you would point to?

Do you want to take that, Mike?

Yes, I can take that, Eltoukhy. Yes, that’s right. It came down as we expected that G360 ASP was similar to previous quarters in this $2,600, $2,700 range. Yes, it’s new products with lower reimbursement, just bringing down that overall blended. So that was expected. We probably expect that to continue through 2022.

And the guidance at the high end, you’re coming in tad below the Street despite the foundation royalties, is that really just reflecting lingering COVID uncertainties? And anything you can say about clinical volume trends in the first quarter? And then also is the UK lab contribution embedded in guidance?

Yes. No, I’ll start and maybe Mike can catch in. Yes, we feel very bullish about clinical volumes for 2022. We’re projecting 50% growth year-over-year, which is very strong. That being said, we did see some impact from Omicron in the first part of the first quarter; physician access was certainly limited. We’re seeing that begin to resolve very nicely. And so we’re hopeful that throughout the year we will start seeing more positive trends in terms of moving away from some of the negative impact of COVID. In terms of the UK lab, I think that’s still in its early days. So it’s not a significant contributor to this year. I would say that we’re projecting strong growth in the precision oncology business, both in pharma volume samples and clinical samples.

Yes, sure. So, Brian, actually, we are very excited with the bunch of technology that we have at Guardant and some that we are working on that we have not talked about obviously yet. At Guardant, we have this mentality that based on unmet clinical needs, we figure out the technologies that you can use to open up that unmet need in a very meaningful and impactful way.

Great. And then on CRC, as that product gets launched. I’m just curious how you see that product over time playing out in terms of where volume comes from?

I think initially focusing on the unscreened patient population, particularly those aged 45 to 49, is key to our total addressable market which I believe is around 40 to 50 million people. The unmet need is significant, and we feel confident that as primary care physicians become more familiar with our test and its superior performance, we will see adoption.

Hi, guys. Good evening. I'll start with one on MRD and then switch to biopharma. So help me, can you share any sort of quantitative color on adoption so far? Is it fair to assume it’s contributing to volumes, but you’re not expecting much in terms of contribution to your clinical revenue this year?

Yes. So we continue to be very pleased with the progress around Reveal. We see robust adoption of that project. In terms of – we’re not breaking things out in terms of individual products for competitive reasons, but we’re keeping that volume aggregated at this point.

Yes. Hi, thanks for taking the question. So first one on screening if I could ask. ECLIPSE, you mentioned is nearing enrollment completion of 13,000 with 12,750 enrolled already. Could you elaborate where colonoscopies stand? And do you feel still good about reaching the desired event rate for CRC that you want to have in this trial?

Sure. In terms of the 12,750, we reached that at the middle of December and ECLIPSE is active. The patients are going through additional phases of the diagnostic process, and we are expecting a timely readout of the trial data.

Thanks for taking the question. First on MRD, do you have a rough idea or expectation of what the split will be between MRD monitoring clinical volumes coming from the adjuvant setting versus tests used for cancer recurrence monitoring in 2022?

Yes. We are still in the early days of adoption. I would say that throughout '22 and into '23, the majority of tests will likely continue to be for those initial time points rather than monitoring, but we do see a growing trend towards recurring testing.

Thanks. I had a question for Mike. You talked about the investments going into the business. I was just hoping you could walk us maybe down the income statement, gross margin, R&D, sales and marketing, G&A, maybe just give some color on cost guidance for 2022.

Yes, sure, Jack. On gross margins, we always talk about this 60% to 70% sort of target. For 2021, we were very successful with gross margins for the full year at about 67%. I think we will expect to see some pressures on gross margins in 2022, mainly coming from the introduction of new products as we ramp up volumes and seek reimbursement.