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Guardant Health Shares Details on MRD Reimbursement, Early Detection Trial

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NEW YORK – Guardant Health reported Thursday that its second quarter revenues were $109.1 million, up 19 percent from $92.1 million in the same quarter last year and exceeding Wall Street analysts' expectations of $104.9 million.

On a conference call with investors, the firm provided details on the recently announced reimbursement win for its minimal residual disease test Guardant Reveal and its colorectal cancer early detection trial.

Guardant said earlier this week that it received reimbursement for Guardant Reveal from Medicare administrative contractor Palmetto through its MolDX program. Coverage of Guardant Reveal is provided for Medicare patients with stage II or III colorectal cancer whose testing is initiated within three months following curative intent therapy.

Guardant co-CEO Helmy Eltoukhy said this gives the company "an excellent tailwind to gain even stronger volume momentum in the second half" of the year.

During the call, he elaborated that reimbursement will be for a "bundle of tests," essentially serial monitoring in the post-treatment, or adjuvant setting. "The first has to be performed anytime within the three months," with a string of tests to follow "for a large interval of time," he added.

Regarding the potential for MRD monitoring outside the adjuvant space, Eltoukhy said Guardant is continuing to discuss this with Medicare, as well as other indications outside of colorectal cancer.

The firm hasn't announced CMS pricing for the test yet, and investors questioned whether Guardant will be able to secure Advanced Diagnostic Laboratory Test (ADLT) status under the Protecting Access to Medicare Act. This would hinge on whether the assay is viewed as first in category, as a blood-only MRD test, or second in category in solid tumor MRDs in general.

Guardant co-CEO AmirAli Talasaz said the firm believes it can absolutely pursue ADLT status, considering the number of indications where cancer patients don't have tissue available. "Even the ones that have tissue, it's very difficult to get," he said. "This is a breakthrough test. It's a watershed moment for the field in terms of [CMS] reimbursement, and ADLT status is wide open for us."

Eltoukhy said that Guardant is "in the advanced stages" of expanding the Reveal test to multiple cancer types in addition to CRC, expecting to launch it for these indications by the end of this year. The company has said before that this will initially include lung and breast cancer.

Guardant also provided an update on its colorectal cancer screening test, Guardant Shield, which launched this May.

The company was expected to complete recruitment and unblind its Eclipse trial — which is expected to support an application for US Food and Drug Administration approval — in September or October.

On the call, Talasaz said that October could still be a possibility. Guardant is "one CRC away" from its target of 60 to 70 diagnoses. But he suggested the firm might try to hold out past that lower limit into the fourth quarter of this year to make sure it has "more than enough" cases for a premarket approval submission.

The decision on when to unblind is complicated, he added, but waiting as long as possible not only helps optimize the study's power but also raises the bar for competitors seeking approval for blood-based tests down the road.

"We are definitely considering setting a precedent for other tests in terms of their approvability at their review … in terms of when we are going to basically press the button and unblind the database and get results read out. But we have full control over that and we … have very good confidence it is going to be in the fourth quarter," Talasaz said, adding that Guardant is already running samples from the trial in its lab and "making good progress" with final analytical studies and other requirements for PMA submission.

"We are pursuing a modular submission to FDA and have already submitted our earlier modules, which the agency has started to review. As a result, even with the fourth quarter Eclipse readout, we believe we are on track to complete our PMA submission by the end of the year," he said.

Assuming a successful review and approval by the FDA, Guardant plans to secure ADLT status for the Shield test and, eventually, achieve an average selling price of over $500 across all payors.

In the meantime, Talasaz said, market feedback and initial uptick of the LDT version of Shield are ahead of the company's initial expectations.

"In our first 1,000 ordered samples, we observed over 90 percent adherence rate," he said. In other words, only 10 percent of patients whose physicians ordered the test failed to follow through and submit a blood sample.

According to Talasaz, "this real-world adherence rate is much higher than reported numbers for colonoscopies and stool tests, and Guardant is launching clinical studies with health system partners to generate more clinical evidence for this favorable finding."

He added that another advantage of higher adherence rates is more efficient sales and marketing, as a higher fraction of order channels convert to billable cases. "We believe this higher commercial efficiency will enhance the operating margins for our test relative to what historically has been seen for stool-based tests," Talasaz said.

In terms of adoption, Guardant has projected different scenarios based on test sensitivity. "We expect a very robust adoption for an assay even with sensitivity around 85 percent, [and] we are forecasting over 10 million tests per year in 10 years for such an assay with annual revenue opportunities well over $5 billion," he said.

He added that even at CRC sensitivities of about 75 percent, the minimum that would merit CMS coverage, there is still a "significant opportunity." Under that scenario, Guardant forecasts about 3 million to 4 million tests per year at 10 years out, with an annual revenue opportunity of about $2 billion.

According to Talasaz, Shield isn't expected to start materially contributing to Guardant's revenues until it receives CMS coverage. "We expect approval sometime next year, maybe by end of next year, and CMS coverage right after that," he said, based on the payor's existing national coverage determination.

Further down the line, Guardant has said it plans to extend Shield to lung cancer, and eventually to an even broader multi-cancer indication. Talasaz said the firm expects to open testing to lung cancer patients by the end of 2023, but that FDA approval of the expanded indication will take longer, as the company only began its trial of Shield in lung cancers at the beginning of this year.

Guardant reported that its precision oncology revenue grew 27 percent in Q2, to $92.1 million from $72.6 million in the year-ago quarter, driven predominantly by an increase in clinical testing volume and biopharma sample volume, which were up 40 percent and 65 percent, respectively, year over year.

Eltoukhy said that this volume growth, while strong, was a bit below what the firm had previously forecast.

"We had a very strong April and then a weaker May and June," he said, citing lingering effects of the COVID-19 pandemic, which has led to hospital staff shortages and corresponding barriers for patients to access testing.

This pressure is influencing players across the space, Eltoukhy added, and Guardant isn't seeing "anything new from a competitive front that would worry us."

Development services and other revenues fell 12 percent during the quarter, to $17.1 million from $19.5 million in Q2 2021.

The company's second quarter net loss was $229.4 million, or $2.25 per share, compared to a net loss of $97.6 million, or $.96 per share, in the same period last year. Non-GAAP loss for the quarter was $101.8 million, or $1.00 per share. Analysts, on average, had expected a net loss of $1.21 per share.

R&D expenses in Q2 rose to $85.5 million from $63.7 million a year ago, while SG&A costs soared to $117.3 million from $96.1 million in Q2 2021.

Guardant ended the period with $215.2 million in cash and cash equivalents and $638.5 million in marketable securities.

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