Ladies and gentlemen, thank you for standing by, and welcome to the Guardant Health Q2 2020 Earnings Conference Call. [Operator Instructions] I would now like to now hand the call over to your speaker today, Ms. Carrie Mendivil, Investor Relations. Thank you. Please go ahead, ma'am.

Thank you. Earlier today, Guardant Health released financial results for the quarter ended June 30, 2020. 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 e-mail to investors@guardanthealth.com. 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 appear in the section titled 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, 2019, and in its other filings with the Securities and Exchange Commission. 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 that is accurate only as of the live broadcast, August 6, 2020. With that, I'd like to turn the call over to Helmy Eltoukhy, Guardant's Co-Founder and Chief Executive Officer. Helmy?

Thanks, Carrie. Good afternoon, and thank you for joining our second quarter 2020 earnings call. Joining me today is AmirAli Talasaz, our President and Co-Founder; and Derek Bertocci, our Chief Financial Officer. To start, I hope everyone is in the best of health and in good spirits as we face the continued ramifications of the pandemic. As expected, the impact of COVID-19 created headwinds for the oncology space during the second quarter and not surprisingly, various aspects of our business were affected to varying degrees, which I will review in a bit. That said, in the face of these ongoing challenges, the Guardant team has continued to make substantial progress across our business, presenting new data for our LUNAR-2 assay, announcing 2 new contained diagnostic partnerships and launching our GuardantINFORM platform. Indeed, these past few months have made me more confident than ever in the promise of our platform and the significant opportunity ahead to transform patient care, despite the challenges posed by the pandemic today. I'm extremely proud of the Guardant team for the fire and dedication they have shown in this new environment. The fuel to the fire, so to speak, is their commitment to serve patients and consistent with these values, I will start off our call with a patient story. Recently, a 60-year-old man presented with a brain met and an initial workup identified lung nodules and suspicious lymph nodes. Unfortunately, as oncologists with practices in the community setting, have noticed that patients are coming in at more advanced stages due to delays in addressing symptoms as a result of a pandemic. The brain met was the most urgent matter for this patient and brain surgery was performed. The provider was suspicious of lung cancer given the histology of the brain biopsy and the presence of…

Thanks, Helmy. I hope all of you and your families are staying safe and healthy. Turning first to our biopharma business, as Helmy mentioned, we had a strong quarter for our CDx development services, offset by lower sample testing volumes. Starting with biopharma volumes. We have always noted the likelihood of ebbs and flows in our biopharma business. Back in February, on our 2019 year-end earnings call, we anticipated that biopharma volumes would be lighter in the first half of the year. In addition to these anticipated fluctuations, COVID-19 has clearly impacted the sample testing in prospective studies and also the timely shipment of biobank samples from retrospective studies. Looking ahead to the next couple of quarters, we expect that the effect of COVID-19 may continue to ripple through biopharma sample testing volume. However, through conversations with our biopharma partners, we continue to see robust future demand for sample processing, especially using GuardantOMNI. Conversely, we experienced strong growth in our companion diagnostic business, which speaks to the progress we are making in our CDx product development activities and the robust interest from our biopharma partners. We recently announced 2 new CDx partnerships. In early July with Janssen for amivantamab, an investigational EGFR-MET bispecific antibody being studied in the treatment of non-small cell lung cancer patients with EGFR exon 20 insertions, which comprise 4% to 12% of non-small cell lung cancer patients with EGFR mutations. We are encouraged that our partners are recognizing the value of comprehensive testing to find these patients and to support the broad commercial penetration to accelerate uptake of these types of target therapies from the first day of approval. And last week, we announced the CDx collaboration with Radius Health for elacestrant, our first companion diagnostic program in breast cancer. Given the high prevalence of bone…

Thanks, AmirAli. Revenue for the second quarter of 2020 totaled $66.3 million, up 23% from $54 million in the prior year quarter, but down $1.2 million or 2% from the first quarter of 2020. The increase from Q2 2019 was driven by an increase in precision oncology testing revenues resulting from significant increases in average selling price or ASP per test as well as higher development services revenue. The decline from the first quarter of 2020 was driven by lower test volumes caused by the COVID-19 pandemic, mostly offset by higher development services revenue. Total precision oncology testing revenue for the second quarter was $51 million, comprised of $39.6 million from clinical tests and $11.4 million from biopharmaceutical tests. Precision oncology revenue from clinical tests included $2.6 million in revenue received from Medicare for samples processed in 2019. Given the age of the samples associated with this revenue, we do not believe it to be indicative of ordinary course of operations. Second quarter clinical precision oncology volume totaled 13,694 tests, up 15% from 11,875 tests in the prior year quarter, but down 10% from 15,257 tests in the first quarter of 2020 due to the COVID-19 pandemic. Clinical precision oncology ASP was $2,893 in the second quarter of 2020, up 57% from $1,839 in the prior year period and up 16% from $2,489 in the first quarter of 2020. The 57% increase in clinical ASP over the prior year quarter was due principally to the reimbursement from Medicare for testing of non-lung cancer samples in addition to lung samples starting in March 2020, with a modest increase in reimbursement from commercial insurers and $2.6 million received from Medicare for samples processed in 2019. In Q2, the processing of samples reimbursed by Medicare stabilized under the new coverage policy, and as…

Thank you, Derek. Before closing, I want to again thank our team at Guardant for the strength, dedication and effort they have shown, particularly over the past few months. In these unprecedented times, I have even more confidence in the value that liquid biopsy can bring to the cancer treatment paradigm. We are well prepared operationally, financially and strategically to navigate through this challenging period and we remain focused on our long-term opportunity ahead of us to transform cancer patient care. With that, we will now open it up to questions.

[Operator Instructions] Our first question comes from the line of Mr. Doug from Cowen.

Starting on clinical testing revenue, that was up sequentially, as you know, quarter-to-quarter. I think a lot of folks, including me, were expecting a decline, keeping in mind how you exited Q1. And that's encouraging and your commentary is also really encouraging regarding how you exited the quarter and what you're looking for in Q3. What I'd like to dig in on a little bit more is, where have you seen the recovery most? I mean I know you talked about academic centers versus the community. But I guess if you could cut it a different way and talk about existing accounts versus new accounts. I'm just wondering if you've started to be able to be more successful in adding new accounts over the course of the quarter as the world started to open up a little bit more. I ask because in some ways, it would be great to hear that you are able to, once again, open more accounts. But in other ways, if you're still challenged with that metric, it could be argued that the rebound in same-store sales is all the more impressive.

Yes. It's a great question, Doug. This is Helmy. It's really interesting when you look at the data. Clearly, we've been in the market now for 5 or 6 years, over 7,000 oncologists out of the 10,000 or 12,000 have ordered our test at least once. And so the majority of the market does have exposure to Guardant. They have used it at least once and that's where we believe we have an advantage in this time. We think this sort of time period of uncertainty and lack of access, at least face-to-face, really favors incumbents in this space, of which we are in the liquid biopsy testing arena. And so we have seen and continue to see addition of new oncologists, but the majority of our business is really catering to existing clients and customers and those that may have only sporadically used our services in the past and getting them to use it more consistently. And to give you a little bit of color, we track a lot of metrics in our business. And I can tell you that June was a record month for us in terms of a number of kind of unique orders of physicians in that month. So we did see, I think, fundamental progress in terms of the KPIs we look at underlying those numbers. And so we do see some certainly positive signs of recovery. That said, we are seeing certain regions that are closing down again. There are clearly many hotspots that are raging on and that has impact as well. There is some fatigue going on in terms of virtual consultations and so on in terms of these physician offices. And so it's something we're continuing to monitor and we see the ebbs and flows regionally. But I think the underlying message is that we think we're building differential strength, I would say, in terms of the landscape as a whole in terms of really the compatibility of our offering and the advantages of our offerings, amidst the backdrop of COVID and the challenges that it presents.

Okay. Super helpful, Helmy. AmirAli walked through some of what you released during the quarter on LUNAR-2, some nice data updates. I'm just wondering when we should expect the next data release? And kind of building off of that, it's encouraging and frankly, maybe even a little bit surprising, to hear that ECLIPSE is getting going in terms of enrollment and site opening so quickly. That's good news for you and frankly, in terms of what it implies about what's going on with colonoscopies, I think that's a good sign for all of us. That being said, I'm just wondering, given the momentum you have there, are the original time lines in terms of when you'd expect completion and readout still intact? Or at this point, should we be thinking that there is going to be at least 1 to 2 months, maybe 3 months delay, given where you are right now?

Yes. So regarding data presentation, Doug, you can't expect in all majority of major conferences, oncology or related GI congresses, we would have some kind of presence in terms of optics. Regarding ECLIPSE, actually, we are very pleased with our progress. In fact, during the days that patient enrollment were slowed down because of COVID, we put a lot of energy behind bringing new sites on. And I'm very happy that we have over 130 sites. By end of this quarter, we are going to basically reach our 150 site target that we have for ECLIPSE. Month of June was our record month in Q2 and on the quarter, we find July was even better in terms of enrolling patients in the trial. And we do believe that we can finish this study within the original time frame that we mentioned last November, which was within the 24 months from SPI. And we think still we can finish the study even during this environment within the time frame we mentioned earlier.

Okay. Super helpful. Last one and then I'll leave it to others. Really pivoting to a completely different topic. I mean I think a lot of us, or at least I tend to think of Guardant as being primarily focused on internal development of products and advancement of internally development -- developed products. That said, the balance sheet is in a really good spot. More broadly, there has clearly been a pickup in the pace of industry consolidation. I'm just wondering if there is any change in how you would describe your appetite and your readiness for more material M&A?

Yes. That's a great question. I think certainly, all of that is on the table in terms of having a balance sheet that we have right now. We obviously have done some small acquisitions in the past, but I think if we think about the commercial channel that we have built, the product portfolio we have, where we're going in terms of the market, there is certainly a place for inorganically adding to that and increasing leverage in terms of the core competencies we have in our business. And so it's something that we're certainly open to, and we continue to look at opportunities.

And our next question comes from Mr. Puneet Souda from SVB Leerink.

Great. So first one on biopharma revenue and thanks for the details there, AmirAli. Appreciate those details. So I think the important question there is despite the impact you're seeing due to COVID and prospective samples and the biobank retrospective samples, what would be helpful is if you can help us understand your view on the underlying studies that are driving those samples to you. Do you think those studies are simply delayed? Or is there any fundamental change in those studies? If you could clarify that and provide us, if you can, in terms of when do you expect sort of those samples to return back to you and into the second half or maybe even later.

So what the experience is actually in light of what has already been known in terms of prospective studies sponsored by pharma companies on our prospective trial side. And what also we experienced is some of the major pharma companies are putting a lot of attention into COVID-19 vaccine development and they're taking a fresh look into their pipeline activities. So having said that, we are very pleased with all the conversations we have across many, many pharma companies around the utility of our products, especially around GuardantOMNI. We still expect that what we experience with COVID-19 is going to ripple through the rest of the year, at least for a couple of quarters. But we are optimistic about the future and all the conversations that we had around our portfolio of products, especially OMNI.

Yes. I mean let me just add one thing. This is Helmy here. I think we're seeing there, I think, very good underlying signs in terms of the business. The pipeline is progressing very strong as well as diversification in terms of the types of partners that are using OMNI and kind of deepening use of that test. So all the kind of underlying metrics we look at are looking good in our view.

Okay. That's great. And if I could have a follow-up on in terms of your LUNAR-1 program, can you elaborate where you stand on different efforts? I know you're in a number of biopharma collaborations and partnerships are ongoing, there's the COBRA trial that you have invested into and a few other studies. Maybe just give us a sense of where that stands and then potentially, when can we see that product in recurrence monitoring markets this year or the next? If you could provide any color on that. And then I have a small follow-up.

Yes. As you mentioned, our LUNAR-1/MRD product, initially, we had an RUO version of it, then we had the clinically validated version of that product for CRC, which we are running currently a few trials based on that. And I'm pleased actually with the solid progress that we're making on the R&D side. We have been working for a while to expand our MRD platform technology from basically a CRC device or CRC assay to really a multi-cancer type. So pleased with all the progress that the team has made on that front and please stay tuned about some data sharing around that platform, which is around multi-cancer MRD units.

Okay. Great. And last one, if I could, on COVID testing. I recall you were working on a differentiated high-throughput platform and thanks for the update on that in terms of filing the EUA. Anything you can provide in terms of the volumes per day that system can produce, or cost or turnaround time and maybe potential pricing, if you can?

Yes. So this COVID test, yes, we filed our current EUA a few weeks back. So -- and in parallel, we are talking with a bunch of potential partners in terms of bringing that test up for clinical use cases beyond testing Guardant employees and some small activities that we have today. The platform technology is pretty high throughput. We are bringing a high-throughput operation on. Having said that, we never look at COVID, really regard it as a new business line for us. We are -- we brought it up as a social responsibility and we -- even the partners that we are looking at are the ones that -- that are in alignment with our mission and saw the value-add that we want to have in the field. On the other side, we are trying to make sure that this wouldn't be a activity at Guardant that would come at a loss. But again, we are prioritizing the social responsibility here versus really making a new business line item in our P&L.

Our next question comes from Tycho Peterson from JPMorgan.

Helmy, on the reimbursement front, you've brought up for CMS, a number of CMS payments for non-lung. Can you just give us a sense of what percentage of the payments today from CMS are non-lung? And I guess, how do you think about that trending until you have the FDA approval?

Yes. So Tycho, approximately 85% of our Medicare samples are covered now under our current reimbursement from Meridian. And whether it's lung or non-lung, it's about the same. So I think really, the way you want to think of it is most all of our Medicare samples are covered now. There is an opportunity, with the FDA approval on the NCD, to have a slight increase in that. But at 85%, there is not a huge amount left to improve there.

Okay. And then, Derek, on the development services side, you noted the milestone component for CDx. Can you just talk about how significant the milestone piece was in the quarter?

Well, it's actually making progress towards those milestones. So not a -- we don't take revenue on an individual milestone. That's a little bit of a misnomer in the way the wording was. So we just continue to make progress. What we had was a lot of programs active in the quarter. So therefore, we had a lot of progress in the quarter. Those programs that you can, well, imagine with biopharma programs, there are peaks and valleys in those programs. So this happened to have been a very strong quarter for the companion diagnostics revenue, which is the bulk of the development services revenue.

And then just one last one, following up on the question earlier on LUNAR-1. We've been hearing more about some off-label use. I guess as we kind of think about the commercialization strategy here, you've got the research-use only product and then the clinically validated, as you mentioned. Can you just talk on how material you think LUNAR-1 could be for you guys going forward? And to what extent you're making investments in the channel there to roll it out more broadly?

So in terms of, actually, the level of investments, we're very excited about it. The team is focused on that program. And our belief is one of the main things that needs to be done in the MRD space is proving the clinical utility in order to really accelerate the clinical adoption, when you take it -- put it in the marketplace. We've been in conversation with all major KOLs who have a lot of experience with us on the Guardant360 side around MRD. We have ongoing conversations around ISTs, so -- but instead of just putting the clinical-grade test that we have right now in the market, we always went with this philosophy that grow aggressive after clinical evidence generation and prioritize that or just put something out in market and then try to convince everybody why it's good for a patient to use the device once still the clinical utilities are a question. When you think about this in the long term, we do believe, actually, the way we are doing MRD assay is going to revolutionize the patient journey in the oncology space and it would really bridge the stories that we have on advanced cancer treatment selection, so adjuvant, neoadjuvant and MRD-positive patient treatment selection, to early cancer detection pipeline that we have. So we are very excited about it and we are bringing a lot of investment around that space.

And our next question comes from Ms. Ivy Ma from Bank of America.

This is Ivy on for Derik today. Firstly, on Lunar-2, just wondering if you had any initial conversations with the CMS, since there are a lot of companies working on pan cancer early detection these days. So wanted to see if there is any feedback on pan cancer reimbursement or multi-cancer reimbursement? Or how are you thinking about reimbursement for multi-cancer in general?

In our LUNAR-2 CRC screening program that we have, we've been obviously in touch with agency, FDA and national CMS, both sides. And I think we have a good picture of what it takes for FDA approval and national reimbursement on the Medicare side. And one of the reasons that actually Guardant's strategy is to go after CRC screening first and maybe think a follow-on with multi-cancer screening down the road, is one of the reasons is reimbursement. Besides the clinical value, unmet need and technological advantages that CRC has, we believe that the reimbursement pathway for CRC-only screening is in fact very different than multi-cancer and there is good pathway for it and claim path for potential [FCR] approval and national CMS coverage policy. On the multi-cancer side, there are a lot of conversation on -- workshops, I'm pretty sure you guys are familiar with. It's not easy. So we have to see what's going to happen on multi-cancer side. But we are bullish about our strategy of going to market with CRC device.

Great. And then on biopharma, we're seeing a lot of companies entering the liquid biopsy space. So I wanted to see if you're seeing more competition for OMNI and how does that shape the revenue trajectory going forward? And then if there is any quantifying color you could offer on how to look at the companion diagnostic line going forward? It would be super helpful.

I guess I can jump in. This is Helmy here. I would say that from a competition point of view, liquid biopsy space has always had dozens of companies in it from even 8 years ago when we started and many of those companies that still exist. And there is -- some of them are gone and there are new companies that have come in. I would say from a competitive point of view, OMNI is really, I think, really second to none. It's head and shoulders above really any other offering we see in the space. And so that's not something we frankly see a lot of in terms of competitive noise, especially with respect to, to OMNI. I think we're much more, I would say, focused and laser-focused on the evolution of the therapeutic pipeline and where that's going and continuing to meet really the requirements in terms of the types of biomarkers that are of interest to our biopharma partners. And so that's really what we're focused on in terms of really listening to our customers and moving and advancing our offerings in step with that.

Great. And lastly, if I may, on G360, could you update us on the FDA approval situation? And how that conversation has been going? I know there are some delays due to the whole COVID situation, but I wanted to see if there is any updates? Appreciate the color.

Yes. The experience that we have -- we -- I don't believe we experienced any slowdown in our FDA traction because of COVID. We are very pleased with the progress that we made and based on all the conversations, I think we are very close. So please stay tuned.

And our next question comes from Patrick Donnelly.

Helmy, maybe just on the second wave of COVID, you mentioned you saw a little bit of pullback on the volume side. Can you just talk through -- I know you guys get some pretty real-time data geographically and where -- how sharp are you seeing the pullback? It doesn't seem overly concerned, given by the guidance you guys gave, but just curious in terms of your perspective on how impactful the second wave has been? And how confident you are in the outlook at this uptick from here?

Yes, it's a great question. I mean certainly, nowhere as close to, I think, the first wave and the impact that was there. I think the challenge with the first time was it was the first time, by definition, a lot of these offices have been dealing with this kind of situation. And so there was just a lot of learnings in terms of how to deal with this sort of new normal. We see certainly a lot more resiliency in terms of impact of the second waves and reclosures and so on. And so I would say the -- these are, I would say, minor perturbations regionally as you see some of these closures and some of the orders that are going into place regionally. So it does have an impact and that's why I said I think it's difficult to forecast. Obviously, if you have a lot of these happening simultaneously through multiple parts of the country, then that's certainly going to have some negative impact on -- on volume, new diagnoses, patients coming in and so on and so forth. But we've been seeing these kind of ripple through kind of in different parts of the nation and then kind of come back. And so it's certainly less severe so far than what we saw in March.

That's good to hear. And then maybe just one on mobile phlebotomy. I know you talked about that being a good opportunity in 2Q and even beyond as maybe the market focus shifts a little bit towards that. How did that trend relative to expectations? And just your go-forward view on that side as well?

Yes, as I think we mentioned in the last call, we certainly saw certain regions that leverage that offering quite a bit. That said, it's just that the very nature of liquid biopsy is it's so much simpler than a tissue biopsy-based approach. If you think about the coordination of multiple medical specialties, whether it's pathology or surgical oncologists, or interventional radiologists, the fact that you essentially can empower oncologists with the ability to identify biomarkers through a simple blood test by itself and by its very nature is very well suited to the practical realities that COVID imparts on the space right now. And so and even that alone, with that mobile phlebotomy, is something that's a huge advantage and something very beneficial to physicians. But clearly, there is going to be a subset of patients that find it very difficult to come in and that's where mobile phlebotomy has been really key in terms of being able to provide a complete offering for really the majority of patients that an oncologist may have. So it's been something that's very synergistic with ease of use of liquid biopsy itself. Clearly, our turnaround time is sometimes half or 1/3 of other tissue-based approaches. And so you really just can't beat that holistic offering, in our view, compared to some of the other approaches of getting that information.

And our next question comes from Max from Canaccord.

This is Max Masucci. So the supply of COVID-19 testing in the U.S. is still well below demand. The U.S. is conducting about 700,000 COVID tests per day by our estimates, which is a bit underwhelming compared to, say, China, which has capacity to process around 5 million tests per day. So what role or magnitude do you think you can play in COVID-19 testing, now that testing is becoming more widely available for asymptomatic individuals versus the early prioritization of testing for health care workers and first responders?

Yes. That's a great question. So we certainly are providing testing on a weekly basis for our employees at Guardant. And we found that to be, from multiple aspects, very critical for continuity of the business, for ensuring, I think, the safety of our employees and really making sure that we can continue to weather the storm of these surges in the raging pandemic that's going on around us all. And so we see firsthand the value of testing for surveillance and asymptomatic individuals and so it's something that we continue to explore. We're speaking with multiple partners and so on in terms of the kind of potential -- us potentially jumping in and really helping with the undersupply that exists today, but I would say, stay tuned and we'll be happy to update everyone as we continue to make progress there.

Great. And then on the sales force, can you just share how your sales force is adjusting to the COVID-19 virtual environment? What sort of initiatives or targeting strategies are sales reps having success with?

Yes. So I think it's a lot of what we outlined I think in our previous earnings call. It's really the fact that we're able to do a lot of consultations online through Zoom. We're able to employ our medical affairs team to essentially help with interpretation of reports, obviously over Zoom or over teleconference as well as the mobile phlebotomy services that were brought online. And we have other kind of financial assistance type programs that are specifically tailored to those affected by COVID. And so we found that, that overall offering was very helpful in terms of really supporting physician offices in their time of need and get through some of these kind of challenging times. And we believe we were one of the earlier companies to provide that kind of suite of services to many of these offices and I think that really helped us in terms of achieving the kind of rebound that we saw during the quarter.

And our next question comes from Mr. David with Guggenheim Securities.

This is David Westenberg. So my first question is with KeyTruda's approval in TMB-high patients, does that maybe change the look in terms of the ramp for GuardantOMNI? And if it doesn't, can you at least talk about the appetite for larger panels from oncologists?

So currently, actually, we -- the clinical product that we have, Guardant360 for oncologists order, does not provide TMB score, but GuardantOMNI, which has been a product that we opened up to our pharma companies so far has been able to do that. We've been working with bunch of pharma companies who were investing heavily on the TMB side, not just TMB, even on the other kind of biomarkers that we have in GuardantOMNI panel. And still, there is -- we see there is a lot of excitement. And the conversation that we have around GuardantOMNI is pretty robust about what's going to happen within the next maybe couple of quarters based on COVID, but the conversation around GuardantOMNI has been solid and one of the drivers has been TMB.

Got it. And then now just a quick one for Derek. Is there -- as we're modeling the back half of the year, is there anything to call out in terms of comp? I know that you've had pretty strong quarters and then you've also had some maybe back payments from certain payers. I just want to make sure that our models are tight in the back half of the year as we think about year-over-year comps. And I'll take the rest offline.

Sure. So what we tried to do is give you nuggets of information. We expect modest increase in volume, clinical volume, in Q3 compared to Q1, so not comparing to Q2, which is obviously a down quarter. Going all the way back to Q1, we're expecting modest volume increase in Q3 in clinical. We also indicated that for ASP purposes, you want to pull out the effect of that revenue we earned from samples processed in 2019. There were some changes in the Medicare interpretations of the NCD, which allowed some prior samples to get billed and reimbursed. So you shouldn't assume that. So I gave you a $2,700 ASP for you to use. And then we talked about the biopharma. It was a record quarter for development services, probably won't have a record quarter every quarter.

And that is all the questions we have at this time.

Thank you, everyone, and look forward to talking next quarter.

And ladies and gentlemen, this does conclude today's conference call. Thank you very much for your participation. You may now disconnect.