Guardant Health, Inc.
Q1 2021 Earnings Call Transcript

Published: 6 May 2021

[Operator:]

Thank you for standing by, and welcome to the Guardant Health Q1 2021 Earnings Call. All lines are currently in a listen-only mode. After the speakers' presentation, there will a question-and-answer session. . As a reminder, today's conference is being recorded. It is now my pleasure to hand the conference over to Carrie Mendivil of Investor Relations.

[Carrie Mendivil:]

Thank you. Earlier today, Guardant Health released financial results for the quarter ended March 31, 2021. If you've not received this news release or if you'd like to be added to the company's distribution list, please send an email to Investors at guardanthealth.com. Joining me today from Guardant is Helmy Eltoukhy, Chief Executive Officer; AmirAli Talasaz, President; and Mike Bell, Chief Financial Officer.

[Helmy Eltoukhy:]

Thanks, Carrie. Good afternoon and thank you for joining our first quarter 2021 earnings call. Everything we do at Guardant is motivated by our commitment to serve patients. In line with our patient first commitment, I will start off our call today with a patient story. Six years ago, a 64-year-old man was diagnosed with metastatic colorectal adenocarcinoma and went through numerous therapy regimens and surgeries. In the spring of 2020, his cancer recurred and his new oncologist ordered a Guardant360 test. A BRAF V600 E mutation was identified. It is estimated that this mutation occurs in approximately 8% to 10% of colorectal cancers. By identifying this actionable mutation, he was able to begin treatment with a combination of targeted therapies of encorafenib plus binimetinib only recently approved by the FDA. Fortunately, the patient responded to the subject therapy. But as we know, tumors are constantly evolving. After about six months, the patient was showing signs of progression. His oncologist ordered another Guardant360 test with our standard panel that includes tumor mutational burden, or TMB. The second Guardant360 test identified the patient's tumor as TMB high.

[AmirAli Talasaz:]

Thanks, Helmy. Our biopharma business as a whole is roughly back in line with the pre-COVID levels, and we are pleased with the progress we have made in Q1. Looking at biopharma samples, as expected, volumes for the first quarter was sequentially down from Q4 levels, but higher than the COVID trough we saw in Q2 and Q3 of 2020. Biopharma sample volumes were 3,522 tests for the first quarter, a decline of 33% from the prior year period. We continue to serve a growing number of biopharma customers with more than 70 partnerships currently underway. We are supporting an increasing number of studies, and we have a robust pipeline of discussions for future collaborations. However, while clinical trials are picking back up and growing patient volumes are still depressed compared to pre-COVID levels, we continue to impact both prospective and retrospective sample volumes. Looking at development services, we continue to see strong interest in our companion diagnostic business following FDA approval of Guardant360 in 2020. Development services revenue for the first quarter 2021 grew more than 100% to 14.9 million. Last week, we announced a strategic collaboration with Daiichi Sankyo to pursue regulatory approval and commercialization of Guardant360 CDx as a companion diagnostic for Enhertu, a HER2-directed antibody-drug conjugate, being studied in the treatment of patients with advanced metastatic non-small cell lung cancer. This further strengthens the importance of comprehensive profiling as more and more biomarkers are being pursued in this disease. We are also investing in our global companion diagnostic footprint as part of our mission to make CGP broadly available to patients around the world. To that end, we recently received our CIVB self certification for the EU, and submitted our initial PMDA filing in Japan. Our platform continues to generate data that further demonstrates the clinical utility of our product portfolio. At AACR, Amgen presented a clinical study that demonstrated how our Guardant360 CDx was effective at selecting patients with KRASG12C who may benefit from treatment with sotorasib. This mutation exists in one out of every eight patients with non-small cell lung cancer. So there is a critical need to improve access to high quality diagnostics and more routine biomarker screening. Now, turning to Guardant Reveal. Before its launch, ctDNA-based test developed to detect MRD mainly require tumor tissue to identify patient specific tumor mutations. A new study led by Massachusetts General Hospital Cancer Center, which was published in Clinical Cancer Research demonstrated that Guardant Reveal identifies patients most likely to recur with high clinical accuracy.

[Mike Bell:]

Thanks, AmirAli. Total revenue for the first quarter of 2021 was 78.7 million, up 17% from 67.5 million in the prior year quarter. This growth was driven by a year-over-year increase in both precision oncology testing revenue and development services and other revenue. Total precision oncology testing revenue for the first quarter was 63.7 million, a growth of 6% compared to $60.2 million in the prior year quarter. Precision oncology revenue from clinical testing in first quarter was 49.8 million, up 31% from $38 million for the prior year quarter. First quarter clinical test volume was 18,390, up 21% from the prior year quarter. The clinical test average selling price was 2,710 in the first quarter of 2021, up from 2,499 in the prior year period. First quarter 2021 clinical cash revenue of includes approximately $5 million recognized from cash collected for Guardant360 tests performed in prior periods. There are several factors that will impact the ASP of Guardant360 for the remainder of 2021. Firstly, we will have a positive impact from the new ADLT Medicare reimbursement rate of $5,000 for Guardant360 CDx. As a reminder, the $5,000 Medicare rate took effect on April 1, 2021 and will continue until January 1, 2022 at which time the rate will change to the median private payer rate. However, we continue to anticipate that the April 1 change to the ADLT billing code may have a short-term impact on the processing and payment of Guardant360 CDx by non-contracted private payers, which could offset the positive impact we receive from the increased ADLT Medicare reimbursement. In addition, we expect the impact on ASP caused by prior period cash collections to start to reduce in the second half of the year, as our revenue recognition becomes more weighted towards test performed in the current period. On the whole, we expect ASP to Guardant360 to average approximately $2,600 for 2021. Now that it will take time to receive Medicare and private payer reimbursement coverage for newly launched clinical test, such as Guardant Reveal, as a result we expect minimal revenue for this newly launched test in 2021, which in turn and depending on volume could impact the overall clinical ASP. Precision oncology revenue from biopharma tests in the first quarter totaled 13.9 million, down 38% from 22.3 million for the prior year quarter. First quarter biopharma tests totaled 3,522, down 33% from the prior year quarter. As previously mentioned, biopharma volume is now back of both the lows we saw in second and third quarter of 2020, but we are still facing headwinds with respect to clinical trial patient volumes. Biopharma tests ASP is 3,944, down 70% from 4,230 in the prior year period, primarily due to changes in the mix of tests performed. Development services and other revenue continue to be a strong growth driver, and in the first quarter totaled 14.9 million, up 106% from the prior year quarter. Gross profit for the first quarter of 2021 was $49.9 million compared to a gross profit of $47.0 million in the same period of the prior year. Gross margin was in line with our expectations and in first quarter was 63% compared to 70% during the first quarter of 2020. Operating expenses for the first quarter of 2021 were 157.8 million, an increase of 93% compared to 81.9 million in the first quarter of 2020. Non-GAAP operating expenses exclude stock-based compensation and related employer payroll tax payments, acquisition-related expenses, amortization of intangible assets and changes in fair value of contingent consideration. Non-GAAP operating expenses for the first quarter of 2021 were 100.7 million, a 52% increase from 65.9 million in the first quarter of 2020. As mentioned during our last earnings call, we expect operating expenses to continue to accelerate in 2021 as we invest in our LUNAR program, ECLIPSE study and other development activities, as well as launch new products and expand our commercial organization based in the U.S. and internationally. Net loss was 109.7 million or $1.09 per share for the first quarter of 2021 compared to 27.7 million or $0.29 per share for the first quarter of 2020. Adjusted EBITDA was a loss of 45.4 million in the first quarter of 2021 compared to 15.5 million in the first quarter of 2020. We define adjusted EBITDA as non-GAAP net loss adjusted for interest, income tax, depreciation, amortization and other income and expense. We ended the first quarter of 2021 with $1.9 billion in cash, cash equivalents and marketable securities. Now turning to our revenue outlook for the full year 2021. We are pleased with our solid start to the year and believe the fundamental drivers of our business to be very strong. However, we are not yet through the global COVID pandemic. As Helmy mentioned, we are still seeing COVID impacts in our clinical business, as some physician offices remain close. Related to our biopharma business, while clinical trials are picking back up, patient volumes and still depressed compared to pre-COVID levels continuing to impact both prospective and retrospective sample volumes. Given this backdrop, we continue to expect revenue to be between $360 million to $370 million, representing growth of approximately 27% over 2020 at the midpoint of the range. We also expect clinical sample volume for 2021 to be greater than 90,000 tests, which represents growth of at least 42% over 2020. At this point, I’d like to turn the call back to Helmy for closing comments.

[Helmy Eltoukhy:]

Thanks, Mike. Before closing, I want to thank our team for their incredible work to bring to fruition the vision we had when we founded Guardant of significantly improving outcomes across the entire continuum of cancer care. 2021 will be a pivotal year for us as we expand our product portfolio and invest across our business to open up the massive opportunity to transform cancer care for millions of patients. These new products also mark an important inflection point as we begin to transform Guardant from the leading liquid biopsy company to the leading cancer testing company. I’m so excited about what is ahead for Guardant and look forward to updating you on our progress. With that, we will now open it up to questions.

[Operator:]

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[Operator:]