Guardant Health, Inc. (GH) Q2 2022 Earnings Report, Transcript and Summary

Hello and welcome to today's Guardant Health Second Quarter 2022 Financial Results. My name is Bailey, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Alex Kleban. Alex, please go ahead.

Thank you. Earlier today, Guardant Health released financial results for the quarter ended June 30 2022. 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 during this call management will make 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 GAAP. A Reconciliation to the most directly comparable GAAP financial measures 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 live broadcast August 4, 2022. With that, I'd like to turn the call over to Helmy.

Thanks Alex. Good afternoon and thank you for joining our second quarter 2022 earnings call. I will begin the call today providing an update on our progress across oncology including quarterly trends, reimbursement and upcoming product launches. I will then turn the call over to AmirAli for an update on the Eclipse time line, the Shield LVT launch and multi-cancer screening. And finally, Mike will provide a more detailed look at our financials and guidance for 2022. At Guardant, we are dedicated to helping patients across all stages of cancer live longer and healthier lives with the data provided from our powerful blood tests. In line with this commitment, I would like to start off with a patient story. In 2018, a woman in her 50s was diagnosed with advanced stage rectal cancer. Following her diagnosis, she received radiation, surgery and adjuvant chemotherapy and responded very well to treatment. About three years following her initial diagnosis, she began to experience some new pain in her hip. Her oncologist ran a number of tests in search of the cause including a colonoscopy, CT scans, blood work and the full urology workup. All test results were normal. Perplexed her oncologists decided to order Guardant Reveal. Guardant Reveal detected ctDNA, which indicated an increased risk of recurrence. This result from Reveal led them to order a bone scan, something uncommon for rectal cancer as it rarely spreads to the bone. The bone scan detected a lesion and our hip bone of less than three millimeters and a PET scan confirmed malignancy in the bone. Because the lesion size is so small, radiation therapy was directed at the hip and the patient is now cancer-free. She is receiving chemotherapy as a precaution and is back to living a pain-free life. This patient story is a great example of how Guardant Reveal can detect ctDNA years after reception when accessing tissue can be difficult. Now turning to our performance on slide 3. We ended the second quarter with record revenue of $109 million, up 19% over the prior year quarter. Within this, Precision Oncology grew by 27% thanks to continued traction with oncologists. Clinical volume reached 29,300 tests, up 40% and biopharma volume reached 6,000, up 65% all on a year-over-year basis. Moving on to slide 4. Our team continues to extend our leadership in liquid biopsy through our high-performance tests and commitment to customer service. Diving into the underlying Q2 dynamics, volume growth was strong but a bit below our original forecast as we continue to navigate macro headwinds. We started the quarter very nicely, but saw periods of softness throughout May and June when we had anticipated stable growth throughout the quarter. Put simply, we expected a stronger recovery from COVID-related disruptions. And we see similar lingering effects across other sector indicators we monitor. That said there were a number of positive takeaways during Q2 that bode well for accelerating growth for the remainder of the year. Our business continues to gain strength in both breadth and depth, as we again reached a record number of ordering oncologists. These oncologists are ordering about 30% more Guardant tests on average versus this time last year. Since last year we also saw a large increase in the number of oncologists ordering multiple Guardant products. In addition to Guardant360, this is driven by very strong growth in new products including Reveal, TissueNext and Response. And finally, we continue to lead the industry in terms of share of voice with our customers. Turning to slide 5 and what should help us accelerate our clinical volumes in the second half. So far in July we have seen volume pick back up nicely in the early weeks. In addition, we are very excited by a number of critical tailwinds that will start to have an impact in the remainder of the year. Starting with MRD, we are pleased to announce that we have received reimbursement for Guardant Reveal for MolDX. As we disclosed earlier this week, it will be the first blood-only MRD assay to be reimbursed by Medicare for patients with, Stage 2 or 3, colorectal cancer. We believe this gives us an excellent tailwind to gain even stronger volume momentum in the second half. We are also in the advanced stages of preparing for our Reveal multi-cancer lunch, which will make Reveal available for use in breast, and lung, in addition to colorectal cancers. We have been making great progress and are targeting a second half launch. Finally we are on track for completing our announced Epic EMR integration in the second half of this year which should serve as an important catalyst for our business across a variety of our products. Moving on to biopharma on slide 6, we delivered 6,000 tests in the second quarter, representing 65% growth year-over-year. To-date we have partnered with more than 130 biopharma companies, as we continue to grow and diversify our customer base. This was evident in ASCO where the power of the full Guardant Platform facilitated strong customer engagement. Furthermore, we are pleased to announce we have successfully launched our smart liquid biopsy assay and early access for research use. We have signed a number of agreements and started processing customer samples at the end of Q2. With a healthy pipeline of discussions including for smart liquid biopsy, we believe we have a strong setup heading into the back half of the year. On to slide 7, outside of the United States we continue to make progress in our strategy of achieving global scale with a focus on large core markets. Most notably for this quarter, in Europe our partner lab in Vall d'Hebron in Spain is now open for business. In EMEA, we completed our planned purchase of the Guardant Health AMEA Joint Venture. Focusing in on Japan, we received regulatory approval of Guardant360 CDx earlier this year and expect to receive reimbursement later this year. And in China, we signed a strategic partnership with Adicon one of the largest lab companies in China to offer CGP to biopharma customers. All of this takes us another step closer to ensuring all cancer patients across the globe receive access to our technology. I will now turn the call over to AmirAli to provide an update on our screening program.

Thanks Helmy. Starting with an update on ECLIPSE on slide 8, since our last earnings call, in early May, we made good progress with our central pathology review process and continue to find and account for more CRCs. We've also continued ECLIPSE enrollment to ensure we have more than enough CRC cases for our PMA study and to further build our biobank for future research and development. With where we are today, we are now just one CRC away from our target range of 60% to 70% which will put us in a position to control the timing of when we un-blind the study. In parallel, we have already started running ECLIPSE blood samples in the lab and are making good progress in generating the data. Based on the rate of CRC confirmation in the last few months, we expect ECLIPSE will readout sometime in the fourth quarter of this year with exact timing depending on identification of the last few CRCs. We are also making good progress with our analytical studies and other deliverables required 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. Assuming a successful review and approval by FDA we are confident we can secure ADLT status and actually favorable Medicare pricing. ADLT pricing is based on a well-established process and initially depends on the list charge and then the PAMA market-based rate. Over the long term, we believe we can achieve an overall ASP of over $500 across all payers. Following the FDA approval, we expect to be included in American Cancer Society or ACS guidelines. The recommendations by ACS are followed by a number of states due to the state level requirement for payers to cover ACS recommended colorectal screening tests. Our best estimate is that there are about 15 states that could follow ACS guidelines, covering about 20% to 25% of the population. A major milestone for our test would be inclusion in USPSTF guidelines with favorable grading. We have worked hard to understand the process behind USPSTF decisions based on expert opinions and guidance from former task force members. We believe as long as our blood test gets FDA approval, we established performance even at the level of FIT tests, USPSTF really include our test as a new modality for colon cancer screening. Under the current USPSTF structure, we expect guideline recommendation in 2026. It is known the current USPSTF, five-year update cycle is not matching rapid developments in biomedical research and new technologies and can lead to a significant lag in the adoption of new processing screening technologies such as Shield. We are pleased by inclusion of report language in both House and Senate appropriations bills that urges the USPSTF to utilize its early topic update process and review new screening technologies upon FDA approval. In addition to this momentum from appropriators, we are also encouraged by recent letters to United States Department of Human Health Services from the Energy and Commerce Democratic Leaders and Santo Marshal Blackburn which raised important questions about the USPSTF process and demonstrate congressional interest in addressing this issue. Turning to Slide nine and our Shield LDT. I'm excited to share that the launch of our Shield LDT is off to a great start. Market feedback and initial uptick are ahead of our original expectations. Our core users is that, simple blood-based testing will drive a higher compliance rate than still-based testing and contribute significantly in boosting overall screening compliance to over 85% in the next 10 years. In our first 1,000 ordered samples, we observed over 90% adherence rate. Simply this is a ratio of the number of blood tests received in our lab to the number of tests ordered by physicians. This real-world adherence rate is much higher than reported numbers for colonoscopies and still tests. We are also launching clinical studies with some health systems this year to generate additional clinical evidence for favorable adherence rate for blood-based CRC screening. Another advantage of higher adherence rate is significant increase in sales and marketing efficiencies by converting higher fraction of order channels 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. Turning to slide 10. The long-term forecasted adoption of our blood test depends on CRC sensitivity readout from ECLIPSE study. We studied the adoption for sensitivities ranging from 92%, Cologuard sensitivity to 75%, which is about the minimum sensitivity required by NCD for Medicare coverage. We expect a very robust adoption for an assay even with sensitivity around 85%. We are forecasting over 10 million tests per year in 10 years for such assay with annual revenue opportunities well over $5 billion. Even at CRC sensitivities of about 75%, there is still a significant opportunity for blood-based CRC screening tests. Under such scenario at 10 years out, we are forecasting about three million to four million tests per year with an annual profitable opportunity of about $2 billion. In our research, we have not seen any notable dependency to advance adenoma sensitivity in the current PCP market. As a reminder, our previously reported CRC sensitivities in case control studies ranged from high 80s to low 90s in detecting early-stage CRC cohorts. Turning to slide 11. Our vision for early detection has always been to build a multi-cancer screening brand. We strategically selected CRC as our lead and anchor indication, but not the only indication. Unlike stool-based tests that can just detect CRC, blood-based test will go well beyond this single indication. We are planning to operate our Shield LDT test to also screen for lung cancer in high-risk individuals in 2023. Previously, we have reported that our blood test can detect 87% of early-stage lung cancers in a case-control study. In midterm, our blood test will be upgraded to a broad multi-cancer test screening, with a large panel of indications. By adding new indications to our blood-based screening test, the resulting life year gain should further improve. We are confident about our strategy in building highly sensitive, widely accessible blood-based multi-cancer screening test with high patient compliance. These are exciting times for us at Guardant, waiting to see ECLIPSE data, then further expanding our test to multi-cancer screening, while working in parallel to get FDA approval and building wide access to our tests. With that, I will now turn the call over to Mike for more detail on our financials and outlook for 2022.

Thank you, AmirAli. Turning to slide 12. Total revenue in the second quarter of 2022 was $109.1 million, up 19% from $92.1 million in the prior year quarter. Total precision oncology testing revenue for the second quarter was $92.1 million, with growth of 27% compared to $72.6 million in the prior year quarter. This increase was driven by year-over-year growth in both clinical and biopharma sample volumes. Precision oncology revenue from clinical tests was $70.5 million, up 15% from $61.1 million for the prior year quarter. Note that in the second quarter 2021, clinical revenue included a $9.6 million true-up, representing cash received for tests performed in prior periods, where the total cash received for those tests exceeded the total revenue that had previously been recognized. Because our ability to estimate revenue has improved, the second quarter of 2022 included only $1.6 million of cash true-up relating to prior period tests. Excluding this cash-based revenue recognition impact, the underlying clinical revenue growth was 34%. Second quarter clinical test volume was 29,300 which is an increase of 40% from the same period of the prior year, as well as strong Guardant360 growth our new products reveal tissue next and response again contributed to the growth for the quarter. For the remainder of the year, we expect volume growth to gain momentum as both Reveal and TissueNext have now received reimbursement coverage from MolDX. For the second quarter 2022, the ASP for Guardant360 was in the range $2,600 to $2,700 which is consistent with the last few quarters and the blended clinical ASP was approximately $2,400 the blended clinical ASP will continue to be influenced by both the volume mix of Gaurdant360 new products as well as the reimbursement for new products. Precision oncology revenue from biopharma test in the second quarter totaled $21.6 million, up 87% from $11.6 million for the prior year quarter. Biopharma volume was strong. The second quarter samples totaled 6,000, which was up 65% from the prior year quarter. Biopharma sample ASP in the second quarter was approximately $3,600, up 14% from the prior year period was in line with the prior quarter due to a similar product mix. Development Services and other revenue in the second quarter totaled $17.1 million down 12% from the prior year quarter. Although, we had a positive impact from the milestone revenue related to our Adicon lab partnership which we signed in the second quarter of 2022. And while we continue to see strong demand for our development services, we still expect that our 2022 development services and other revenue will continue to be lower than prior year several companion diagnostic projects were successfully completed in the second half of 2021, and new projects will take time to ramp up. Gross profit for the second quarter of 2022 was $72.4 million compared to a gross profit of $62.2 million in the same period of the prior year. Gross margin percentage continues to be in the mid-60s be 66% for the second quarter of 2022 compared to 68% in the prior year quarter. Operating expenses for the second quarter of 2022 were $202.7 million, an increase of 27% compared to $159.8 million in the second quarter of 2021. Net loss was $229.4 million, or $2.25 per share for the second quarter 2022, compared to $97.6 million or $0.96 per share in the second quarter of 2021. Net loss includes a one-off charge of $99.8 million related to the purchase of the approximately 50% of the Guardant Health EMEA joint venture that we did not own. As a reminder, in June 2022, we paid $177.8 million to acquire the Guardant Health EMEA equity interest held by SoftBank and its affiliates. As a result, we incurred a charge of $99.8 million to the non-controlling interest liability line in the income statement, which represents the difference between the liability we were carrying on the balance sheet of $78.0 million and the final purchase price of $177.8 million. Moving on to non-GAAP financial measures on slide 13. Non-GAAP operating expenses excludes stock-based compensation and related employer payroll tax payments acquisition-related expenses, amortization of intangibles, and contingent consideration. Non-GAAP operating expenses for the second quarter of 2022 were $176.2 million, a 41% increase from $124.7 million in the prior year quarter. This increase was driven by the investments made over the past 12 months, across both our oncology and screening businesses primarily in our commercial infrastructure and the continued development of our product pipeline and clinical data. Throughout 2022, we will continue to invest in progressing our strong pipeline of oncology products as well as in generating clinical data to support their reimbursement. The screening 2022 investment will be focused on the commercialization of our Shield LDT test, completing the data readout from Eclipse the PMA submission for our CRC device and the continued development of our multi-cancer screening test. Non-GAAP net loss was $101.8 million or $1 per share for the second quarter of 2022, compared to $61.4 million or $0.61 per share for the second quarter of 2021. Adjusted EBITDA was a loss of $94.3 million in the second quarter compared to a $56.4 million loss in the second quarter of 2021. We define adjusted EBITDA as non-GAAP net loss adjusted for interest, income tax, depreciation, amortization and other income and expense. Turning to the balance sheet. We ended the second quarter of 2022 with approximately $1.2 billion in cash, cash equivalents and marketable securities. Before moving on to our current year guidance, I would like to take a bit of time to discuss our liquidity and capital allocation on Slide 14. At Guardant, we have always taken a measured approach to our investments and have ultimately been focused on the path to profitability. As we look ahead to how the business will develop and the investments needed to support the significant long-term growth opportunities, we look at both the future oncology business and screening business. For oncology, we currently have strong volume growth which is fueled by our core Guardant360 test as well as new products, very good gross margins in the mid-60s and have built out a sizable commercial and operational infrastructure. Going forward, we will continue to invest in areas that we believe will drive sustainable long-term growth such as MRD, smart liquid biopsy and developing the clinical data to support utilization and reimbursement. Given the strength of our current business and our investment approach, we expect the oncology business will reach cash flow breakeven in approximately two years. For screening, we are currently in a heavy investment phase with the Shield LDT launch underway to be followed by a milestone-driven commercial ramp-up and with our multi-cancer screening development efforts. Underpinning this we have a fair amount of infrastructure investment that is necessary as we scale our operations. Taking into account all these dynamics, we believe that we can reach cash flow breakeven one to two years after Shields inclusion in USPSTF guidelines for CRC screening. We are in a fortunate position to have sufficient cash on our balance sheet to fund the business for the foreseeable future and we will continue to actively manage our capital allocation with a goal to long-term profitability. Now turning to our revenue outlook for the full year 2022 on Slide 15. We continue to expect to be between $460 million and $470 million, representing growth of approximately 24% over 2021 at the midpoint. This is unchanged overall but with some moving parts between the lines. Reflecting the first half performance , we now expect clinical oncology sample volume for 2022 to grow by approximately 45% compared with the previous guidance of over 50% and we continue to expect biopharma volume to grow by at least 30%. Despite the revision to our clinical volume growth expectations, we expect precision oncology testing revenue to grow by approximately 35% over the prior year as we expect second half tailwinds from the real Medicare reimbursement and the continued strength of our biopharma business. Finally, we continue to expect development services and other revenue will be at least $50 million in 2022. Please note, that while we are highly encouraged by the strong reception to the launch of our screening LDT test, we are not expecting significant revenue contribution from it this year. Moving to Slide 16. We are continuing to make great strides across our business obtaining reimbursement for our new products, broadening our product portfolio with our Shield LDT test and expanding our reach into the cancer screening market. We are aggressively pursuing the best opportunities ahead and we are confident that we will be a leader in cancer across the continuum. At this point, we will now open it up to questions.

[Operator Instructions] The first question today comes from the line of Puneet Souda from SVB Securities. Please go ahead. Your line is now open.

Okay. Great. Thanks, AmirAli. Thanks for taking the question. So first one just a couple on Eclipse. Maybe if I can squeeze in one for MRD as well. But AmirAli, you said time line is now expected in the fourth quarter. So wondering if you could give a view if October is still part of that timing that you can hit. I know you talked about September, October initially. So just wanted to confirm that the pathology services and challenges are all resolved at this point? And do you think you need to reach the 70 targets for CRC in order to power the study, or maybe let's say 65, is good enough or even low 60s. And then, sort of lastly on Eclipse, maybe could you talk a little bit about the interval. I think that's a major question. Sort of what gives you a confidence that the three-year interval would be maintained under FDA, and then when it is covered by commercial payers potentially and if there is any impact from advanced adenoma performance there? And for Helmy, if I could get pricing on the MRD Reveal that would be great. Thank you so much.

Okay. Thank you for your questions, Puneet. So, maybe go through that one-by-one. In terms of the timing, October is still a possibility. What we mentioned in the last earnings call is our team has a very good content -- would be in the second half, likely story September or October, we continue to have very high confidence that the readout would be in basically the fourth quarter before we end the year for sure and October still is a possibility. Really the exact timing is a function of the timing of finding these, lower number of events. Our studies are already powered for a high-sensitivity test. Our target is --effectively we are in full control in terms of when we want to unblind the study. There are multiple factors goes into really the decision about clicking the bottom and effectively unblinding the study and some of it is for content to raise the bar for blood-based test skies probability bar for other blood tests down the road. So, we are going to have a good balance where we are, when we are finding these CRCs and we would make the decision. But all these stuff -- it's kind of a matter of the weeks that we are talking about. So it's going to be in the fourth quarter we are going to have the readouts we have full control over it. In terms of interval testing, as a manufacturer recommendation is going to be our blood test to be used every one to three years. Medicare pricing is set for our test after we --through well-established ADOT pricing. Framework and process, which is -- has nothing to do with interval testing. That's our belief. And that's the reason we sell our cash paid price at $8.95 and are these prices a little over that. So, we have a very good confidence about our pricing strategy and the negotiations that we are going to have with CMS, not negotiation the process that we are going to go through with CMS, post FDA approval and post getting the ADLT status. About MRD pricing?

Yes. Nothing to disclose at this time, but it's something we're working through, and I'm sure we'll announce it soon. And then, we'll be able to also pursue ADLT status as well in the coming quarters. So that's still a route that is very much open to us.

Thanks, guys.

Thank you. The next question today comes from the line of Jack Meehan from Nephron Research. Please go ahead. Your line is now open.

Thank you. Good afternoon. Wanted to focus on reimbursement strategy for Guardant Reveal, notably, there's been a little bit of a debate around whether Guardant can pursue ADLT status for Reveal whether you're first in category with blood or whether you're second in category when it comes to MRD overall. Just was curious, if you've gotten any indication around your eligibility for ADLT status for Medicare?

Yes. That's a great question, Jack. As that route open to us. This is a first of its kind test only true liquid biopsy in the space -- there's significant anywhere from 20 to even some certain indications that don't have tissue available and even the ones that have tissue, it's very difficult to get. So this is a breakthrough test. It's a watershed moment for the field in terms of the disbursement and ADLT status is a wide open for.

Awesome. And then, also is there any additional color you can provide around the logistics of how Medicare will reimburse the test? So will it be one test a bundle of test, for what period of time? And then there was this reference to a three-month window after resection. Just comment like how is that chosen?

Yes, that is a great question. It's based on the data we submitted in the initial dossier -- this is really in the setting. This is for a bundle of tests that will be reimbursed. So, it would essentially be for serial monitoring in that post setting. So, the first has to be performed within any time within the three months when they have essentially a string of test that would follow for a large interval of time.

Thank you Helmy.

Thank you. The next question today comes from the line of Mark Massaro from BTIG. Please go ahead.

Hey guys. Thank you very much for the questions and congrats on the progress. Maybe two questions. The first is, there was some confusion about the MRD Medicare reimbursement that came in. Can you just clarify, if that can be used in both the adjuvant window, call it the first six months of the patient journey and then also in the recurrence monitoring setting as well for repeat time points? And then my second question I just wanted to clarify are you pursuing ADLT status for the CRC screening test as an LDT or are you planning to apply for that after you get FDA approval?

Yes, it's a great question. I'll start with MRD one. So yes, this is for the adjuvant setting for that initial period after intervention for monitoring those -- that time period can extend out for a considerable amount of time. But for the patients that are multiple years away let's say from a intervention, we're continuing to have discussions with Medicare additional data to pursue some of those additions, as well as obviously indications outside of CRC over.

Regarding ADLT status for the CRC, our Shield LDT test our current plan is to wait for FDA approval secure CMS coverage from Cat and then apply for ADLT status obviously you need to have Medicare coverage first, before you apply for ADLT and based on criteria that we have in and CDF approved abilities requirements. Our current plan is to go through it in sequence of FDA approval that quickly CMS coverage and then we practice for ADLT tests.

Perfect. Thank you.

Thank you. The next question today comes from the line of Brian Weinstein from William Blair. Please go ahead. Your line is now open.

Hey guys. Thanks for taking the question. I just want to talk about the core business a little bit here. You mentioned the volume growth was below forecast. You talked about May and June being a little bit weaker. Can you just reiterate kind of what was going on specifically, what you thought was weaker? Was that an industry thing? There's obviously some new competitive products that are out in the market, was there some competitive headwinds that were going on? And what does it look like again in July? And I guess, we're early August when it doesn't count but just through the first part of the third quarter? Thanks.

Yes. Great question. We saw obviously very strong growth regardless both in the core business with 360 and new products as well. So, very robust. But as we mentioned we had a very strong April and then a week May and June. And what we saw in the field in general with the full lingering effects in terms of COVID there's macro a lot of hospitals had staff shortages and so on. And I think the pressure in the overall space. We're not seeing anything new from a competitive front that would worry us. And in fact, as we mentioned – has been very strong and we've seen things we're confident that fixed underlying metrics we mentioned in terms of depth and breadth continuing to increase essentially be in half of the year and we think we can close some of the gap based on the progress remaining.

Okay. And then you said that you expect with the CRC product that you expect ACS guidelines. Is that based off of conversations that you've had already with ACS guidelines, or is that based off of precedent that we saw with Cologuard?

That's our expectation based on some of the history. But when you engage with some of conversation with some stakeholders even there is some kind of potential that if there is a strong pivotal study readout coming out that shows really a very favorable outcome for blood-based testing. There is even a probability of seeing some guideline before FDA approval. . But post FDA approval based on what we heard so far there is a good level of confidence by us that American Cancer Society based on the frequency, I highlight a recommendation on changes that they make. They would recommend such tests again assuming ECLIPSE data would be as we expected to.

Okay. That makes sense. Thank you.

Thank you. The next question today comes from the line of Kyle Mikson from Canaccord. Please go ahead. Your line is now open.

Hey, guys. Thanks for the question. Congrats on the quarter. So I have I guess one question about multi parts. So for me AmirAli over 90% adherence in the first 1,000 samples is that impressive at the onsales. So maybe how has adherence trended recently? And then who are the early leaders of the test like by age group, I guess, curious obviously commercial private payers that they're reacting in any way? And then for Helmy, congrats on the review of reimbursement. Could you just talk about why that took so long and why you're confident that reimbursement for the future indications is not going to be like similarly delayed it was do by at least six months. Thanks.

Yes. Thank you for your question like confirmation stuff that look kind of now we're seeing patients really prefer blood tests and that adherence using blood test would be high in over 1,000 samples, hundreds of ordering physicians across very few weeks -- so almost steady adherence kind of week-to-week. So it's continuing to stay. And in fact our adherence that we are seeing is even much higher that I'm quoting, but we don't want to get off our skis too quickly and get too excited. But based on the trend that we are seeing, I think really a lot cash show very adherence. The time from accounts are obviously we are targeting are the adopters at this stage. So again, the symmetrix adherence is a matrix that we are going to continue to monitor see what's going to happen. Please note that the adherence we are talking about like at Guardant, we don't have huge patient navigation kind of programs and a significant amount of the investment there to make sure patients really submit the samples. This is the reality of it on what's happening really as strong patient and physician, very excited about it.

Yes. In terms of delays with MRD, this is a really novel new test very is like what's existed in the space and so there's definitely some back and forth. I think learning and education required in terms of really diving into -- the work and how could you possibly detect recurrence without having tissue. So we're very confident now that we've gotten over that we have come to a place where and there's good confidence -- could understand works. And now I think will be mostly limited just by the speed of clinical validity data -- in getting that out into the publication space.

Thanks guys.

Thank you. The next question today comes from the line of Matt Sykes from Goldman Sachs. Please go ahead. Your line is now open.

Thanks for taking my questions. A number of my questions have been asked. So maybe I'll just keep it to one and make it pretty high level. Just as we look back like 1.5 years ago, I think there was a view that given all of the funding environment that it was becoming potentially a crowded field in terms of overall liquid biopsy with a number of private companies coming in the space just given the changes in the funding environment. How are you guys thinking about the competitive environment? I know you're, obviously, focused on achieving your goals, but in terms of how you're looking at the competitive landscape, figures out and what potential impact could this funding environment actually have on the competitive landscape for liquid biopsy in your view?

I would say that, obviously, we're monitoring kind of the space. It's really interesting to see some of the developments. That said, this continues to be a hot space. There continues to be money that's driving in dollars that have been raised over the last few quarters that continue to be invested. And so we're taking the pedal of the metal at least in terms of our internal programs. We're always -- we've always been very disciplined in terms of how we operate the business and we're going to continue to be so in this environment. But we're not necessarily going to take -- we're not going to slow things down in terms of the work we're doing. So it's -- but I think there's going to be some opportunities as well as things progress in terms of technologies, consolidation. And we feel very well-poised and well-positioned and what the next few quarters could mean for the liquid biopsy space in general.

Thank you very much.

Thank you. The next question today comes from the line of Tejas Savant from Morgan Stanley. Please go ahead. Your line is now open.

Hey, this is Neal [ph] on for Tejas. I just have a two quick ones. So now that the lab in Spain is fully operational. Any color on early traction here? And then with full operational ownership of the EMEA joint venture, how should we be thinking about planned investments for the scale-up in Japan? I know, you mentioned that you anticipate reimbursement in Japan by year-end. But any extra color on when we could expect to see some updates there?

Yeah, no, no, great question. We're very excited about the progress we're making internationally. I think probably too early to say they're literally just getting the first two samples out. They're super excited. It's really a first of its kind laboratory in Europe and certainly in Spain, and so that's going to give a lot more access to our technology there. We have similar work being done in the UK and we're excited about that. In terms of joint venture that we acquired, we're very bullish about the upcoming catalysts that we have there. Japan is an extraordinary market in terms of size, number of cancer patients, reimbursement rates they have great studies on the clinical side, great connections with a lot of the hospitals there. And so we think there potentially could be some upside in the years to come in terms – reimbursement, once we're fully there. I think us taking control of that allows us to really, really have a unified global presence with the pharma companies investing in terms of really making kind of rail on the opportunity we have in future, and obviously we just signed and announced a partnership in China as well, which is a very big market opportunity for us. And so I think it's going to justify the investment we're making in that region.

Thank you.

Thank you. The next question today comes from the line of Dan Arias from Stifel. Please go ahead. Your line is now open.

Hi, guys. This is Daniel Macek on for Dan Arias. So first for Helmy, sorry to repeat it again. But on the Reveal reimbursement a few questions, so bear with me. What is the timing on when we might see that? And then also when it might be effective? And then will it come under the current umbrella LCD for MRD solid tumor cancer. And then within the coverage decision, is the language you initially expect to cover for serial testing initially, or does that come over time? And then, lastly, are you able to provide any specific studies that Palmetto reviewed to come to their coverage decision? I mean, or is this just comprehensive of the MRD studies you've done today within colorectal. Thanks.

Yeah. So let me just kind of give an overview of what that. Yes. So it's reimbursement for a bundle of tests essentially serial monitoring of colorectal cancer patients Stage 2 and stage 3 in that adjuvant setting. The first test is in the first three months, after either treatment or surgery that individual and then subsequent testing can extend up time after that. And that's a reimbursement that is, I think now in effect and we're still in discussions in terms of look back period in terms when that can -- could be perspective billing opportunity. And so it's something that I think is a big I would say milestone. And I think it bodes well for continued indication expansion for time please. I think that answers most of your questions.

Yeah, yeah, you did. Is it going to be under the same LCD of like MRD testing in general?

Yeah. The LCD is a general.

Okay. Thanks. And then, maybe I'll just change gears because a lot has been covered. For AmirAli, the adding lung to shield in 2023, could you just give us an idea on what the logistics of that might look like in terms of data actually launching the test FDA approval and then all the way up to reimbursement. Thank you.

Yeah. We are very excited about that and we think that's actually a feature that really takes the blood testing to even the next level like there is. I think a lot of conversation in the just the field of CRC, how much blood can add value which is significant. And I think when you start adding some other cancer Type 2, you have completely. So would you just do a simple stool test that can just take one thing or you're going to go and sensibly compliant test that very relevant stuff. We are going to upgrade in 2023 to be able to look at cancer. We've shown data already in case control studies these kind of studies. We've done a validation study in terms of sample collection since 2017. So it's been a five-year study for us. And as part of grade we are going to actually run and touch more study that we've done the path for LDT upgrade as a registrational study for getting the FDA label. We're doing our Shield lung study in parallel that we started January of this year we had January of this year we had -- and it's going to take some time to really finish the enrollment and get the study.

Thank you, guys.

Thank you. The next question today comes from the line of David Westenberg from Piper Sandler. Please go ahead. Your line is now open.

Hi. Thank you for taking my question. So can we talk about some of the sensitivity metrics in MRD test and in Guardant Reveal, I mean actually specificity characteristics. One of the interesting things that we have found in our checks from things like ASCO is that we found people team to think about this in context of multiple testing or serial testing as kind of we just discussed. And at that point a lot of the specificity metrics tend to sort of mount overtime. So when we're thinking about specificity and what kind of numbers you need to really have commercial success with oncologists, what do you think we're at?

I think all the data we've shown is been the high 90s if not close to 100% in terms of specificity. So, we're very confident about the performance of the assay. Yes there seems to be a misperception but somehow if you don't have tissue information, but you can't get high specificity. And that's -- we haven't seen that to be the case and we're very confident of the performance of the assay. We're seeing really good performance both on sensitivity and specificity. And the beauty of it is just such a simpler approach to blood and not ending the sort of logistical balancing act of trying to find tissues down.

Perfect. No, thank you. That's very helpful. And I'm not sure if this has been asked. I've been jumping around three calls today. So, in terms of any of the incoming competitors particularly private I mean I think there's one that spend a lot of money on marketing has a fairly compelling proposition in the CGP space. Are you -- and they just entered liquid biopsy I believe a couple of weeks ago, are you seeing any different competitive threats seen in the -- that you haven't seen in the past, or is it continue to be kind of the same environment just given the fact that we really have an under-penetration of liquid biopsy and really frankly an under-penetration of CGP generally? And then I'll stop there of course.

Yes. No, I mean we haven't really seen anything. Some of these competitors. This has been almost normal in this space of everyone and their brother trying to come -- asset, it's a lot more difficult I would say than just putting a test out there there's performance, there's brand, there's data. Frankly, a lot of these competitors we haven't even seen us build a publication or a poster from assay. I think we're now over 300 publications in the Guardant technology business. So, yes, we -- it really hasn't changed for the quarter.

Thank you.

Thank you. The next question today comes from the line of Derik De Bruin from Bank of America. Please go ahead, your line is now open.

Hello, good afternoon. Thanks for taking my question. So, I've got two. The first one is how do we see the ASP rolling out into next year? I mean I realize you're talking about $2,400 blended ASP for 2022. But as you get -- as you ramp up Reveal and Tissue but you also have Shield coming in with it like is that $2,400 a good number to sort of look at as a base for next year? And also I appreciate you've got sort of -- that you're going to have to build out your commercial infrastructure for Shield. But could you give us a little bit more clarity on some of the ramp, particularly as we sort of look into 2023 in terms of what are going to do particularly you have to have higher salespeople? Are you going to meter this ahead of guideline inclusion? Just a little bit more clarity on how to sort of think about the OpEx ramp? Thank you.

Yes Derik, it's Mike here. I'll take that. Yes. From an ASP point of view, one thing that's very clear is with respect to Guardant360. We've had this ASP of $2,600 to $2,700 now pretty consistently for the last few quarters and the potential it could go up if we get some of the larger private payers to start covering Guardant360 and CGP in terms of as a base case we will probably say for next year it's going to remain the same. And then overall from the blended perspective yes I mean we've got good news now on investment from Medicare. We've got good news for Reveal reimbursement from Medicare. So, that's a positive for us. I think it's going to depend on volume depend on the mix between Guardant360, Tissue, Reveal Response, and then Medica Non-Americas. So, $2,400 is probably a good starting point, but there are potential movements in that. And then from the OpEx front, I think, from a sales and marketing perspective last year we invested heavily on the oncology commercial side and really built out the commercial sales team. And then earlier -- sorry, later last year we built out the screening sales force -- which is going very well. Going forward for the screening, we'll really build that out on a milestone basis. And so we -- but I think when we're on track for -- reimbursement then we'll look to -- commercial launch. So we're taking it -- and it's going to depend on those markets.

Thank you.

The next question today comes from the line of Julia Qin from JPMorgan. Please go ahead. Your line is now open.

Hi. This is Amy on Julie. Thank you for taking my question. So I have two specifics on the review pricing and coverage. The first one is could you -- maybe I missed it like could you expand a little bit on the potential cost for review? And when can we have some clarity on that? The second one is, I'm curious to see like when can we expect to see any update on coverage for additional indications outside of CRC? Thank you.

Yes. Cause is out of the question something that just like every other product we have --- so we typically are targeting high gross margins in the 60-plus percent range. And we're very confident we – and as we get a private care reimbursement really get to operational scale. I would say in terms of indications -- we announced that we're going to launch lung and breast this second half of the year in terms of reveal and we're working on data in terms of publication. We released some of it, but our data collecting more data on those studies that hopefully we can publish on the coming quarters that would be the basis for further validation data for you.

Okay. Thank you. Just quick follow-up. Can you give us a little bit update on the reimbursement for the G360 response?

Yes, there's no update. They are still in discussion.

All right. Thank you.

Thank you. The next question today comes from the line of Max Masucci from Cowen & Co. Please go ahead. Your line is now open.

Hi. This is Stephanie on for Max. Thanks for taking my question. A quick one from me. Could you touch on some early feedback that you've been seeing from your early access launch of the smart liquid biopsy platform along with your plans for a broader commercial launch of the platform?

Super. I think it's really -- I think speaking the kind of imagination of a lot of our partners in terms of -- what they could potentially do with it. We're saying generating a lot of interest in terms of new studies -- we think it's has the right product market fit. And in terms of scaling our throughput to be able to handle what we think good demand for that product. And -- we'll keep you posted as we make more progress with that platform, but we're really I think right on target and right on schedule in terms of the development of that. And it's going to be really the future of a lot of our products here at Guardant oncology side.

Got it. That's helpful. And a quick follow-up on the strategic partnership agreement you signed Aecon in China. How should we think about the impact in biopharma testing volumes going forward? Thanks.

Yeah, it should be helpful. A lot of our partners are global companies. They do a lot of work in China, which is quickly becoming the second largest opportunity from the biopharma side. And so it's going to give us the ability to really unify testing across one platform the Guardant platform for a lot of our partners that so we're very excited about the opportunity. We have a large pipeline already building ahead of the launch of that laboratory. So we know it's going to be very positive for us.

Got it. Thanks for taking the questions.

Thank you. The final question today comes from the line of Patrick Donnelly from Citi. Please go ahead. Your line is now open.

Hey, guys. Thanks for taking the questions. AmirAli, maybe two quick ones on Eclipse, can you just talk about -- you mentioned the USPSTF in 2026. Do you view that as kind of the big potential inflection point of volumes, or do you think we could have material contribution before that? And then secondarily, just in terms of confidence level that the study size is correct and you guys have enough cancers. Any update? I know you can kind of see the amount of cancers that you have so far. Can you talk about where we are? And again confidence level the enrollment is the right number still? Thank you.

Yeah. In terms of mature revenue contribution, we believe after we get CMS coverage, we are going to really have a material contribution top line. And actually I'm just getting more and more opportunity -- so you had the volume of projects what you're seeing today -- so -- but material contribution would be post CMS coverage, we expect approval sometime next year maybe by end of next year CMS coverage right after that based on the NCD. So way before USPSTF, but USPSTF is a major milestone take us to a different kind of a lead and it's definitely a catalyst be catalyst for our event volume growth. Regarding number of CRCs as I mentioned earlier right in terms of when to unblind the study we are just one CRC away from that 60 to 70 and we are going to monitor the study what's happening. And it's not just our studies are already powered. We are going to definitely consider also setting a precedent for other tests in terms of their approvability at their review. So we are going to consider that in terms of when we are going to basically press the bottom and unlined database and get results free out. But we have full control over it and we believe actually which we have a very good confidence it is going to be in the fourth quarter.

Understood. Thank you.

Thank you. There are currently no more questions registered. So that concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.