Good afternoon and welcome to Guardant Health's First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Carrie Mendivil from the Gilmartin Group for a few introductory comments.

Thank you. Earlier today Guardant Health released financial results for the quarter ended March 31, 2019. If you have 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@guardanthealth.com. Before we begin, I’d like to remind you that management will make statements today 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 appear in the section entitled Forward-Looking Statements in the press release Guardant issue today. For a more complete list and description, please see the Risk Factors section of the Company’s fourth quarter (sic) [first quarter] report on Form 10-K, which the Company will file with the Securities and Exchange Commission. Guardant disclaims any intention or obligation to update or revise any financial projections are 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 May 9, 2019. With that, I'd like to turn the call over to Helmy Eltoukhy, Guardant's Co-Founder and Chief Executive Officer. Helmy?

Thanks, Carrie and thank you, everyone for joining us this afternoon. I am pleased to welcome you to Guardant Health's First Quarter 2019 Earnings Call. Joining me today is AmirAli Talasaz, our President and Co-Founder; and Derek Bertocci, our Chief Financial Officer. At Guardant we are fueled by our commitment to the patients we serve, so I would like to begin today's call by highlighting one patient's treatment journey: A 51-year-old female who had never smoked, presented with shortness of breath and fluid in her right lung. A needle aspiration obtained just enough cancer cells to make the diagnosis of metastatic non-small cell lung cancer. There was unfortunately not enough tissue to test for any biomarkers so she went -- underwent another invasive tissue biopsy. This biopsy sample was PD-L1 positive but had only enough tissue to be tested for one of the eight guideline recommend gene targets ALK, which was negative. She was prescribed pembrolizumab immunotherapy, but her cancer continued to progress. After a failed biopsy attempt, she was then transferred to an academic cancer center where she had her fourth tissue biopsy. This test center performed a series of individual tests for EGFR, ALK, ROS1, B-RASIN RET [ph], which were all negative. Her health severely declined, necessitating further hospitalization. At this time, one year after her initial diagnosis her physician ordered a Guardant360 test. Just six days from receipt of her sample, Guardant360 identified a red fusion that was missed by tissue testing. She was then enrolled into a clinical trial of a new targeted therapy for red fusions, to which she had a dramatic critical response. This patient had a likely avoidable one-year delay four separate invasive procedures and multiple hospitalizations before discovering her red fusion with Guardant360. This story demonstrates the challenges that tissue access poses…

Thanks, Helmy. In parallel with our efforts to accelerate clinical adoption, we are partnering with more than 50 biopharma companies for using the Guardant assay to support their drug discovery and development programs. We are encouraged by the increasing demand for GuardantOMNI from our biopharma partners, especially those in immuno-oncology. The large performance gap between our platform and other liquid biopsy approaches is even further magnified when applied to a large 500-gene panel. We believe the strong demand from a broad range of partners is driven by the highly differentiated analytical and clinical performance that GuardantOMNI offers, not only around genotyping, but also for biospecific markers such as tumor mutational burden, or TMB. We are developing a companion diagnostic version of GuardantOMNI to identify TMB high patients. This assay has received breakthrough device designation, which will enable an accelerated review process upon submission to the FDA. The commercial success of Guardant360 and GuardantOMNI, with the generation of their massive data sets, are helping us to develop deeper insights into the biology of cell free DNA. This data engine fuels the progress in our LUNAR program, which aims to expand precision oncology from advanced cancer treatment into early cancer management, surveillance of cancer survivors and screening of asymptomatic individuals. The LUNAR assay is able to simultaneously detect genomic alteration and epigenomic variations such as methylation changes and more recently nucleosomal positioning and fragmented mix signatures. This year at the AACR annual meeting, we presented exploratory data around the use of our LUNAR assay for detecting cancer in patients recently diagnosed with colorectal cancer. This data looked quite encouraging, as it demonstrated detection rates exceeding 80% sensitivity with specificity in the mid-90s for detection of colorectal cancer in early stages in a cohort of 225 patients. We believe this initial data represents…

Thank you, AmirAli. Revenue for the first quarter of 2019 totaled $36.7 million, up 120% from $16.7 million in the same period of the prior year. This growth was driven by higher testing volume for both clinical and pharmaceutical customers and increased revenue per test. Precision oncology revenue from clinical tests in the first quarter totaled $17.2 million, up 136% from $7.3 million for the prior-year quarter due to the increased demand and higher overall ASP. First quarter clinical precision oncology volume totaled 9,521 tests up 31% from 7,246 tests in the prior year quarter. Average revenue recognized preclinical test in the first quarter was $1,805, up 80% from $1,003 in the prior year quarter due to revenue earnings for most tests of Medicare lung cancer patients starting in Q4 of 2018 and increases in commercial payer payments that were beneficially affected by the Protecting Access to Medicare Act of 2014. Precision oncology revenue from biopharmaceutical tests in the first quarter totaled $11.7 million, up 69% from $6.9 million for the prior year quarter due to increased demand and higher overall ASP. First quarter biopharmaceutical precision oncology volume totaled 3,762 tests, up 61% from 2,334 tests in the prior-year quarter due to the introduction of GuardantOMNI late in 2017, and an increase in customers using Guardant360 for retrospective and prospective testing. Average revenue recognized per biopharmaceutical test in the first quarter was $3,109, up 5% from $2,966 in the prior year quarter due to increased demand for the higher priced GuardantOMNI test. Development services revenue in the first quarter, totaled $7.8 million, up 213% from the prior-year quarter due to a ramp up of companion diagnostic development activities to support the CDx programs for AstraZeneca, which was announced in December 2018. Please remember the development services revenue from biopharmaceutical customers…

Thank you, Derek. In closing, we believe we have a unique opportunity at Guardant to expand unprecedented access to cancer's molecular information throughout all stages of the decease. We are making important headway on our goals and look forward to seeing some of you next week at the Bank of America Healthcare Conference in Las Vegas. With that, we will now open it up to questions. Operator?

Thank you. [Operator Instructions] And our first question comes from Tycho Peterson of with JPMorgan. Your line is now open.

Hey, thanks. On the CRC screening study, I'm just wondering, if you can talk a little bit about what the goalpost for success might be for the assay?

Yeah. Hi, Tycho. So…

Hi.

Yeah, as we mentioned during our earnings call we are in the planning phase of that study. And as we know, non-invasive liquid biopsy assay in CRC screening market for average-risk patient population that's really -- the low compliance rate is a big issue. We believe can potentially stay as very big grow. We are in the planning phase of that prospective study, and when we have more details about it, definitely we'll keep you guys posted. And hopefully in our next earnings call we can provide more information about it.

Okay. And then on the draft LCD, just curious what fraction of Medicare volumes will get paid once this is finalized? And how did you accounted for this in guidance?

So it's not in our current guidance in terms of what we've reported or what we've shared. In terms of how we think about the draft LCD, as you remember, our current LCD for lung cancer covers about 33% of our overall Medicare volume and about 75% of our lung Medicare volume. And that's because of the QNS or tissue in-availability requirement in terms of the coverage. This draft LCD expands to that same kind of coverage but to multiple cancer types. As -- if you recall, the NCD would bump our Medicare coverage to about 85%. And so we -- given that 75% number in lung cancer, we expect there will be some percentage of samples that -- a fairly significant percentage of samples that will have similar issues of tissue inavailability or tissue access. And so, we hope that it's going to be significant bump up in terms of the 33% of Medicare samples we're seeing, maybe not as much as 85%, but certainly somewhere in between and most likely above 50%.

Okay. And then just lastly on the regulatory front, a timeline for G 360 and OMNI, have the submission timelines changed at all? Can you maybe just talk about where you are in that process?

Yeah, sure. In terms of our timeline, as we mentioned on our last call, we are working on multiple CDx projects and especially like we decided as of late Q4 of 2018 to work on two IVD programs in parallel Guardant360 and GuardantOMNI. And as we mentioned before, we believe this should only impact our initial timelines minimally. As of now, we expect to submit our FDA package for Guardant360 some time in the summertime in the Q3 time frame. For GuardantOMNI, it's still early days of the program, and we haven't mentioned any specific timeline for GuardantOMNI, but we will keep you posted as we make progress in the GuardantOMNI program.

Okay. Thanks. Congrats on the quarter.

Okay. Thank you.

Thank you. And the next question comes from Derik De Bruin of Bank of America Merrill Lynch. Your line is now open.

Hi. This is Ivy Ma on for Derik today. Congrats on the quarter, and thank you for taking my question. So first question, how should we think about the AP trends given the expanded coverage? Can you just comment on that? Thank you.

So the ASP that we are showing here in this first quarter is driven significantly by the LCD that became effective in the fall for Medicare. We've also gotten some progress with private insurance payers as we mentioned. We would expect that if we're able to get a larger coverage from the proposed draft LCD that it could add significantly to our ASP. But we are not including that in our forecast at this time. We would expect modest continued improvement as we continue to make progress with commercial payers getting coverage decisions.

Thank you. That's very helpful. And then on the colorectal cancer study, so I know we're still thinking about the design for this. Just wanted to see when will the design be available? And how long should we think about -- how long it would take to recruit for 10,000 patients. At previous trials it would take to up to one year or 1.5 years to fully recruit those patients?

Yeah. So as mentioned earlier we are in the planning phase of that study. Actually, we believe, we have a good idea of what study we have to do. It's going to be a prospective observational study that for patients who are going to go through the colonoscopy, we are going to do the liquid biopsy or blood draw on them and we check the performance of that blood draw. And when I referred during the planning phase is exactly for your question about the timing so in terms of FDA and the duration of this study, it's still early for us to comment. And hopefully, we would have more information for you in our next earnings call for Q2 earnings call.

All right. Looking forward to that. And finally, the plan for the large prospective study is kind of earlier than we expected. Just wanted to get your thoughts on what's the plan to get considered in the USPSTF guideline? Is the next circle something you would be targeting?

So, I think earlier for us to comment about that. Let us maybe go through this planning phase and maybe it's going to become more clear. Our focus would be to start this prospective study. And maybe I'd just make this statement that the reason we are starting this study much earlier than what we planned before is due to the progress that we made in our technology platform and some of the early data that we've seen some data that we presented at AACR and some additional data that we think it's the right time to start doing this investment and going after this prospective observational study.

Okay. Great. Looking forward to seeing you guys at Vegas next week. Thank you.

Thank you.

Thank you. And our next question comes from Doug Schenkel from Cowen. Your line is now open.

Hey, good afternoon, guys and thank you for taking my questions. Starting on guidance. Derek, can you bridge -- I think it's a $15 million increase in full year revenue guidance. How much of this is clinical testing versus biopharma testing versus development services?

So, the $15 million is correct. And we indicated that we're looking at an increase to 4,000 samples on the clinical side. And our average ASP on that is 1805 so that's $7.2 million of the $15 million. And we continue to see that critical and pharma sample volume. We expect them to move both equally up roughly and approximately so there would be a modest increase left over for the development services revenue.

Okay. And is there any based on what you're seeing year to date, is there any change in the mix of OMNI that you're expecting within biopharma testing that's impacting the guidance change?

OMNI has -- it continues to be a strong product. We saw good volume from OMNI and G360 this quarter. There will be some variability quarter-to-quarter, but we see them both being -- continue to be strong from biopharma.

Okay.

Yeah. I think guidance is pretty equal around clinical and pharma.

Okay. Super helpful. And then on -- I guess just kind of recent developments, over the past, I guess, it's 1.5 months or so as you noted in your prepared remarks, there was the NILE data presentation and you got the Avacor positive reimbursement decision. Is it too early to say that you're seeing an impact on business, meaning in the second quarter? And is that part of what's driving on top of a strong Q1 the bump up in expectations for clinical volume this year?

So, I think it's a little bit early to comment on uptake -- as catalyzed by NILE. But that being said, we are seeing I think anecdotal evidence from our sales force and from our medical affairs team that NILE is certainly resonating with physicians out there. And so we do -- it was something that we pre-messaged as an important catalyst in 2019 and there's really nothing we have seen that changes our view that it is going to be important to continued uptake and continued clinical adoption of 360 throughout the year and into 2020.

Okay. And I want to take one more shot at the colorectal cancer question. So, I hear you in the sense that you are just in the planning stages. But you also, to be fair, made it a point of emphasis on this call. So, I want to go back there. I mean if we use Exact Sciences as an example and really as a baseline for what's required in the development of a colorectal cancer screening tool. It seems that to advance a successful product to market, you're going to need FDA approval, you're going to need to get into guidelines, and you're going to need to garner favorable USPSTF recommendations. So with all that out there I guess the first question would be do you agree? Two, are you budgeting more than $50 million for this study? Because that's about what Exact spend on DeeP-C fully loaded and it could be more than that in today's dollars. And then third, would you plan on doing a second prospective study because Exact really needed that Alaska Native study in combination with DeeP-C to successfully get to the finish line.

Yes. I appreciate the question. So, as mentioned, we are in the planning phase and we would keep you guys posted about the progress that we are going to make about the Exact -- and some of the details of what we are going to do in this study. Regarding the budget requirement for this study, I think it's too early for us to give a concrete answer. But we are hoping that we can share more detailed information in our next earnings call as we go through this process. Now, remembering your question. Yes, in terms of what is required to have a commercially successful test which is going to get paid. I agree with you that FDA approval is most probably required for such kind of test. And as you could imagine, we did kind of a study plan that we out laid in terms of the scope of study. We have that in our consideration. In terms of reimbursement I think it's still too early for us to comment about the reimbursement strategy.

Okay. Thank you.

Thank you. And your next question comes from Puneet Souda from Leerink. Your line is now open.

Yes, hi, Helmy. Congrats on the quarter. Just first question maybe around recurrence monitoring. That's an important market. Just give us a sense of initial conversations that you've had with the product and with the biopharma companies. And then in terms of sort of how much are you modeling here for the year and just give us your sense of how that product or how early conversations are going versus the initial ones that you've had with the G360s and OMNI products.

Yes, very good question. I think we're very encouraged by conversations we're having with pharma companies today. There -- many of them are thinking about how can they move their pipelines of -- and existing drugs into the adjuvant setting and so we're involved in many of those conversations also involved in many of those conversations, also involved in terms of testing their samples as well. And those are going well. I would say it's going very similarly or perhaps even better than the early phases of Guardant360 when they first started. I think one of the differentiating factors of the assay is the epigenomics component that's there and the earlier new I would say innovation for the field. And so it's certainly something that pharma companies kind of want to kick the tires on. But we're very encouraged by the progress we've seen. But that being said, we don't I think it will be a significant contributor in 2019.

Okay. And just given your comments around -- and the prior questions also around the CRC market, obviously, there's a path laid out there for average risk screening indication. I wanted to really understand in terms of your preparedness going into this study if you could give us a sense of -- I know you have -- and I completely appreciate that you are in the planning phases. But just give us a sense of if -- have you reached the point where you have an assay lock here? Or have you reached the point where -- are there some immediate studies that you need to conduct before you get into the second half before starting this trial? Just give us a sense of sort of the preparedness that you have at this point in time?

Yes. So maybe I'll say a few words and then let AmirAli chime in. I think we've gotten to the point in terms of the technical development of the assay, where we feel it's confident and we are justified both from data that we presented. But as well as internal data that we have that we believe the technology has an ability to provide a compelling alternative to existing screening test for that market. We wouldn't be pulling the trigger on this study and doing the extensive planning that we are doing now if that wasn't the case.

Some aspects are really time would tell. We have to do this study and see at the end of the study when we get readout what's going to happen. But one thing that always we had at Guardant as our philosophy is, we are committed to develop technologies that would make a difference and we are committed to launching products that would add value to patient care. And we believe due to the compliance issues and CRC field as in terms of screening a simple blood test can add a significant role. But let us hopefully start this study and we see what would be the outcome of this study. And then the study would tell us do we have an asset that works or not?

Okay. That's helpful. That's great. And if I could squeeze a last one, around Bellwether Bio what's the -- what's your near-term sort of expectations from that technology? And what could that technology do for you both in recurrence monitoring market and sort of asymptomatic screening longer term? How do you see this getting employed? Thank you.

So we closed the basic acquisition. We've gone through the integration process. And Bellwether team and technologies that they have, have some kind of interesting value-add on looking at the epigenomics of cell free DNA in oncology space. That was a team that we kept those kind of biomarkers and that kind of information circling to DNA for years and that was an asset. In the data that we showed in AACR as we mentioned earlier, we looked at somatic genomic alteration in parallel to epigenomic which included fragmented mix, so we have some kind of early evidence about the potential that fragment mix and technology could have especially with the fact that we saw that there are synergistic relationship between fragmented mix and methylation signal which was interesting to see and it helps us to increase the signal to noise ratio when we are talking about detecting very tiny amounts of tumor-ship material into circulation. That's what I can say about the Bellwether technology and where we are with that.

Great. Thank you.

And the next question comes from Brian Weinstein from William Blair. Your line is now open.

This is actually Andrew Brackmann on for Bryan. I'll add some questions on the CRC trial as well. Could you maybe be a little bit more specific on the data that you have internally that gives you confidence here? When will we see that? And then I guess more broadly speaking, can you remind us at what level of sensitivity and specificity you think you need in order to be commercially competitive here? Thanks.

So what the data -- yes you guys know about the public data that we showed in AACR. You could imagine that we have continued those kind of efforts and we have generated additional data in those lines looking at the signatures of tumorship material in patients who have been recently diagnosed with colorectal cancer and more -- control patient population and some of the patient population that we're going to share, some data to increase some our confidence level about some of the materials that we thought potentially could interfere with that assay. And as we mentioned in our prepared remarks the data that we showed in AACR was sensitivity of more than 80% in detecting Stage 1 two specificity at mid-90s that's what we showed in AACR. Now in terms of the primary endpoint for our prospective study, hopefully we would have more data for you guys in the field in our next earnings call when the protocol is completely frozen and we can talk about the primary endpoint of that study.

Got it. And then I guess as it relates to that AACR data that you read out, we've gotten a lot of questions on the sort of difference between the data and the abstract and what you guys formally presented. Can you just help us better understand what led to those differences? Thanks.

Oh yes. The abstract that got published before the presentation. So the abstract data, it’s my best memory actually was a very strong small end size and number of patient size. And we continue to increase the number of patient which should have covered that data with higher number of patient’s samples in the oral presentation. Specifically, we increased the number of healthy individuals. We increased the number of cohorts from different sites. We got access to early stage colorectal. We wanted to make sure that if there are site-to-site variation. Those variations would also be considered in our data. Still the data that we showed in AACR were early pilot data as we repeatedly mentioned since even before those days and after those days. And we have to continue generating data for much larger cohorts and some additional cohorts of some other patient types that could introduce some non-specificity in the assay. So hopefully, in next cancer conferences when we show data about LUNAR-2 in the early cancer screening -- for early cancer screening application, we can share more data and talk about the performance.

And just to add one more line, I think we were very encouraged by this expanded core we saw in the presentation itself, it was within the confidence intervals of the abstract or at least in line. But the large part of it has to do with the fact that small M wide confidence intervals in the abstract versus larger in the presentation itself.

Got it. Thank you.

Thank you. And the next question comes from Mark Massaro from Canaccord Genuity. Your line is now open.

Hey guys, thanks for the questions and congrats on the quarter. My first question is ASCO is about three weeks away. I know it has been a large conference for you in the past. Can you just speak to what you have planned this year? And then kind of related to that you've got the companion deals with AstraZeneca. Can you give us a sense on how active you are to advance additional companion diagnostic assays with pharma partners?

Yes. So in terms of ASCO, I think we have a number of abstracts that will be presented there. Most of them will be around Guardant360, GuardantOMNI. I believe one will be around the residual disease detection in the adjuvant setting. And I don't believe we have any data on screening or early detection in terms of the LUNAR-2 application at ASCO this year. In terms of the companion diagnostic work, it's something that I think we're very encouraged by obviously the partnership we have with AstraZeneca around Guardant360, GuardantOMNI. Those are both projects that we believe can be really workhorses in terms of finding patients very broadly and universally both in the clinical development setting, clinical trial setting, as well as in the commercial setting once those drugs are approved. And so we are having, I would say very many conversations. Our pipeline looks excellent in terms of continuing to add other companion diagnostic markers onto those assays. But -- so we do think that it will be a continuing I think driving force in terms of the -- both of the assays.

Great. I also wanted to ask a question on the colon cancer opportunity. There have been a lot of questions on this call about Exact Sciences. They've done a great job. I think you know that. Their compliance rate is close to 70% and they think they could do better. So can you maybe just frame why you're starting with colon? Is it because the data internally is superior in colon than the other assays? Or is it more because of the regulatory framework is sort of laid out and you kind of know based on a predecessor company exactly how to get to market?

I think there are multiple aspects to how we think about rolling out different tests and where we decide to invest. As you remember under our LUNAR program, we're focusing on four cancer types initially: lung, colorectal, breast and ovarian cancers. Lung and colorectal have been our lead programs. And I think when we see -- and we chose some of those cancer types not just out of the blue, but we took I would say several considerations into the account. Not just the technology aspect, but market aspects reimbursement, the cost of the test -- some of the dynamics in terms of the commercial scale and so on. And so all those factors play a role and have gone into the calculus of us choosing to pull the trigger on this investment in this space and with a large prospective trial in colorectal screening.

Great. As a quick follow-up to the colon question. Exact has seen success in part because of the call center and their compliance engine. Is this something that you think that you need to replicate? Or do you think that there's a way to drive strong compliance because of the ease of use of liquid?

We think that's one of the major advantages of a blood-based test is really the ease-of-use. If you think about it the control and the relationship can be in the doctor's office in terms of that compliance piece. And there's no gap, there's no delay in time in terms of when a consent is given and when a test is actually administered. And there's a large drop off there in terms of compliance as you well know and why those call centers are needed and typically -- lot of follow-up is needed to ensure that compliance is high. As we've seen with frankly even with others tests and we've seen in the market with blood-based tests, we think that is a clear differentiator is the compliance, because if no one takes the test then it doesn't serve much purpose as despite -- regardless of the sensitivity and specificity.

Great. Thanks guys.

Thank you. And that concludes our question-and-answer session. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.