Good afternoon. Thank you for attending the Guardant Health Q4 2024 Earnings Call. My name is Victoria and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to the host, Carrie Mendivil. Thank you. You may proceed, Carrie.

Thank you. Earlier today, Guardant Health released financial results for the quarter and year ended December 31, 2023. 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. This call will also include a discussion of non-GAAP financial measures, which are adjusted to exclude certain specified items. Additional information regarding material risks and uncertainties as well as the reconciliation to the most directly comparable GAAP financial measures are available in the press release Guardant issued today as well as in our Form 10-K and other filings with the SEC. Guardant disclaims any intention or obligation to update or revise financial projections and forward-looking statements whether because of new information, future events or otherwise. The information in this conference call is accurate only as of the live broadcast. With that, I'd like to turn the call over to Helmy.

Thanks, Carrie. Good afternoon and thank you for joining our fourth quarter and full year 2023 earnings call. I will start off our call today by providing an update on our progress over 2023 and go into more detail across Therapy Selection and MRD. I will then turn the call over to AmirAli for an update on screening. And finally, Mike will provide a more detailed look at our financials and outlook for 2024. Starting on slide 3. We made substantial progress in each area of our business throughout the year. Starting with Therapy Selection, after years of investing in our infrastructure, I'm very pleased that Therapy Selection reached cashflow breakeven at the end of the year, marking a major achievement for Guardant. This follows a series of pivotal reimbursement wins throughout 2023. We now have coverage from all major US commercial health insurers for Guardant360, surpassing 300 million covered lives. We also surpassed 200 million covered lives for TissueNext, received national reimbursement in Japan for Guardant360 and received Medicare reimbursement for Guardant Response. We also exceeded 475 EMR integrated accounts as of year-end, outpacing our prior targets. Moving on to MRD. I'm excited to share that we upgraded Reveal to the smart liquid biopsy platform at the end of the year, enabling even better performance. Reveal volumes came in strong with full year growth of over 90%. We also received additional commercial coverage for Reveal in CRC following Medicare reimbursement in 2022 and continued to produce compelling data across CRC and breast cancer for Reveal, demonstrating high clinical performance. And finally, with screening, we completed our PMA submission for Shield CRC, made steady progress with FDA review, and published the first paper for Shield, demonstrating improved adherence with a blood based CRC screening. While we continue to believe the…

Thanks, Helmy. Turning to slide 12, 2024 will be a very exciting year for our screening business as we prepare to launch our Shield IVD tests for CRC pending FDA approval. After years of research and development, it's so exciting to prepare to make this test broadly available. There are a number of key milestones for Shield on the near term horizon. First, the data from our pivotal ECLIPSE study has been accepted in a top tier publication, validating the strength and quality of the clinical data. We expect to see it published in the coming months. Additionally, we are continuing to make steady progress with FDA review. Our interactive review process with FDA continues to be collaborative and positive. The advisory committee panel meeting will be the next milestone of the review process. In our recent discussions, FDA has informed us that the meeting date will now likely take place in late Q2 as they continue to work to fill the remaining vacant advisory seats on the panel. The date and details of the meeting are subject to confirmation by the FDA and publication in the Federal Register. That said, we continue to expect to receive FDA approval in 2024. Our team is working hard to prepare for this panel meeting and in parallel is preparing to scale out the commercial operations post the FDA approval. Turning to slide 13. While Shield has only been in market for a short time, we are highly encouraged by the overwhelming enthusiasm expressed by PCPs and health systems. We are witnessing real world evidence of its effectiveness and the potential to drive unparalleled compliance in completing cancer screening. In the first 20,000 ordered Shield tests, the adherence rate was 94%, which is much higher than the range of 38% to 65% with current modalities. As we shared at J.P. Morgan, in a health system setting, a randomized 2,000 patient study was conducted at Kaiser Permanente to evaluate the impact of introducing Shield as a new option to improve the overall screening rate. This study readout was positive. And the results were published in two papers, in PLOS ONE and Gut. This study demonstrated that when individuals who hadn't completed FIT were offered Shield, the rate of screening increased by more than 3 times. Notably, over 40% of those patients who took the Shield test for CRC screening had not been screened before. Additionally, 100% of surveyed patients and physicians were optimistic about the idea of a blood based CRC screening tests offering being incorporated into a routine health care visit. These publications highlight the significant impact of what Shield can do when this blood test is added as a new and accessible option for CRC screening. With that, I will now turn the call over to Mike for more detail on our financials.

Thanks, AmirAli. Starting with our financial results on slide 14. Total revenue for the fourth quarter of 2023 grew 22% to $155.1 million compared to $126.9 million in the prior year quarter. Total precision oncology testing revenue for the quarter was $142.2 million, increasing 25% compared to $113.8 million in the prior year quarter. This increase was predominantly driven by strong year-over-year growth in both clinical and biopharma volumes. Precision oncology revenue from clinical tests in the fourth quarter totaled $108.2 million, up 29% from $83.7 million for the prior year quarter. Fourth quarter clinical tests volume was 46,400, an increase of 29% from the same period of the prior year. Guardant360 continues to be the main revenue driver, with strong year-over-year volume growth across all cancers in the US, as well as volume contribution from Japan and the UK in the fourth quarter. We also saw a sequential rise in the Guardant360 ASP in the fourth quarter, which increased to approximately $2,750 from approximately $2,700 in Q3. This was driven by the continued pull-through from the expanded commercial coverage received earlier in the year and from the interim Medicare gap fill rate for Guardant360 LDT, which increased from $3,500 to $3,967 on October 1. As a reminder, the Guardant360 LDT Medicare rate increased again on January 1, 2024 to the new rate of $5,000, which we expect will increase the Guardant360 ASP to be in the range $2,850 to $2,900 in the first quarter of 2024. Blended clinical ASP was approximately $2,330 for the fourth quarter, which was similar to the blended clinical ASP of $2,320 in Q4 2022, with the increasing Guardant360 ASP offsetting the mix impact of different products and geographies. Precision oncology revenue from biopharma tests in the fourth quarter totaled $34.0 million, up 13% from…

[Operator Instructions]. Our first question comes from line of Mark Massaro with BTIG.

My first one is for AmirAli. Can you maybe provide a little more context about the push out of the adcom meeting? Is it largely just logistical in nature? You said late Q2, so should we kind of pencil in June and curious if it's just a matter of filling who will attend the meeting? And then my second question is really around – there's been a lot of discussion about advanced adenomas. I guess, can you guys confirm if you're planning to request an AA label from the FDA?  AmirAli Talasaz: In terms of ASCO, as I mentioned in the preferred remarks, FDA notified us that, because of scheduling, and maybe the fact that the panel was half empty at the time that they called for the panel, they need to go and identify some additional members to be added to this specific panel that our device is going to go through the vetting process and so forth. So as a result, they are kind of scheduling it now for late Q2. Once we know the confirmed dates, it's kind of communicated somehow, it's going to be in the Federal Register at the appropriate time, too. So that's all we know at this time. There's no other kind of reasons behind this delay. But I will reiterate that this kind of adcom timeline is non impacting the timeline for the FDA review and the expectation that we had from the beginning that we believe we get FDA decision about Shield approval sometime in 2024. Regarding AA, I think that continues to be an interesting hot topic in the field. In terms of our label, we didn't get to the label discussion with agency. It happens typically in very late innings of the review process. But this discussion of CRC sensitivity, AA sensitivity, the performance that we've seen in ECLIPSE and the risk benefit of this device in the intended use patient population potential is going to get discussed in the adcom to get some feedback from external opinion for agency.

The next question comes from the line of Puneet Souda with Leerink Partners.

I'll wrap two of my questions into one. First one on just the core business, G360. When I look at the guide, you have 5,000 reimbursement now for G360 LDT, volume seems to be good. Can you maybe just elaborate sort of what is driving the level of – maybe for lack of a better word – conservatism this year? Anything that we need to note on the MRD side that is accounting for that? On the Shield, maybe just AmirAli, could you remind us if FDA will require a publication of the paper before the advisory committee?  Michael Bell: On the guide, you mentioned Guardant360, I think we're looking at 2024 still being a year of strong growth for Guardant360. We had good traction in the US in 2023. And so, I think we expect that to continue. And that's across all cancer sites. And with a lot of the work that we're doing that are customer focused activities, I think we can still expect that growth to continue. And also, we're now seeing good traction outside the US and especially in Japan and UK. So, that should also lead to good volume growth. We'll get a ASP lift from Guardant360 as well with the LDT now moving from $3,500 to $5,000. Again, that's really positive. From an MRD perspective, we saw something like 90% or over growth last year. We're still expecting growth with Reveal in 2024. We want to manage that growth, though. We still want to get additional reimbursement. It's currently a gross margin negative test for us. So it costs us every time we run a test. And so, we want to manage that volume until we get incremental reimbursement and then we can take the foot off the brakes and really drive that. So, yeah, hopefully that answers the questions on the guide. AmirAli Talasaz: And quickly about Shield and FDA on paper, the FDA review process is not dependent on paper publication. They do their own extensive look at the data, very detailed, that we have gone through that process. I'm pleased with the progress so far. So they go through their own evaluation and they don't look at have you got it published in a peer-reviewed publication or not.

The next question comes from the line of Dan Leonard with UBS.

I actually had a follow up on that last point. AmirAli, can you elaborate further on the timing of the ECLIPSE publication? I think there was an expectation at one point that would occur in 2023. Is that imminent? Or just any color you could share?  AmirAli Talasaz: Yes. Actually, that was our goal. I think tier of the journal that we picked was, I think, top tier, which kind of impacted some of the review process, but we were very pleased that we went to that journal. We are right now under embargo with that journal. So, unfortunately, I cannot tell a lot of details. And the journal is scheduling the publication based on the issue planning that they have. But it should be within the next few months, as I mentioned in the prepared remarks.

The next question comes from line of Tejas Savant with Morgan Stanley.

Maybe one for you Mike and then I have a follow-up on MRD. In the guide, Mike, what are you factoring in in terms of o-US contributions this year. Is it all just Japan in the UK largely? Or could we start to see some traction from China in biopharma in addition to that Hikma partnership that you recently announced. On the MRD side of things, one for you, Helmy, where are you in terms of the COSMOS data that you talked about in your prepared remarks at ASCO GI in terms of publication? And what are you assuming in the guide for CMS reimbursement and then revenue from the CRC surveillance indication, which, obviously, is a much bigger opportunity than just the adjuvant setting?  Michael Bell: I can take on the international side, Tejas. We're not breaking out, obviously, the volumes and the revenue by different geographies. But we'll start to see Japan and the UK be the real drivers on the clinical side. Outside of the US, we got Japan reimbursement back in the second half of last year. So that launch is going very well. And then we started to come online with Royal Marsden really in Q4 of last year. So, again, we're seeing good traction there. And we think that they'll start to contribute to the revenue and the volume in 2024. In the Middle East region with Hikma, I think probably less of an opportunity there. But we still could start to see some contribution there. But really, we're looking at Japan and the UK. And then, China is in the biopharma line. And again, I think we're assuming that that starts to contribute there. The lab that we have with Adicon there came online just recently. We've got a really good pipeline in China. We're potentially working with a lot of partners in that country. And so, yeah, that's going to contribute to our biopharma revenue during 2024.  Helmy Eltoukhy: In terms of MRD, I think we're sort of preparing the publication for COSMOS, as we speak. We're very happy with the data. And we're going to push that out as fast as we can. And, hopefully, once it gets published, it's something that can make up the bulk of our dossier for the CRC surveillance indication, but I don't think there is – there's almost nothing I think baked in to the guide this year in terms of CRC or surveillance. So, that's all upside right now.

The next question comes from the line of Dan Arias with Stifel.

Helmy, can you just maybe orient us on smart liquid biopsy within the portfolio? On the upgrade for Reveal, I just want to confirm that all the tests going out the door are through the smart assay? And then when can we expect you G360 to be upgraded? I know you said this year. Wondering if there's anything more specific in terms of first half versus second half? And then just lastly, if I may, are there any changes to the assay within clinical trials that are ongoing that need to be made and that we should be keeping in mind?  Helmy Eltoukhy: All the Reveal tests now run smart liquid biopsy. We've transitioned, I think, nearly all of the trials that were on that to – where possible to smart liquid biopsies. I think we're in a good spot there. We're seeing really good traction. I think a lot of excitement both on the clinical side as well as the biopharma side in terms of the performance of that assay. I think we are in a good place in terms of the transition around Guardant360. We want to make sure that we transition that properly from a sort of reimbursement point of view and regulatory point of view. So those are going to be the gating items in terms of that transition. But I can tell you right now that there is a lot of excitement, especially at the academic centers, around 360 and smart liquid biopsy. We see that as a major, major catalyst for our business when that comes out. And then the same thing on the – we didn't mention in the prepared remarks, but Tissue will also be upgraded this year to larger panel, and then some more features, and that's a project that has been doing well for us. I think a lot of these sort of transitions that will happen later this year, I think, are sort of further upside in terms of where we could go from a clinical volume point of view.

The next question comes from the line of Matt Sykes with Goldman Sachs.

Maybe one for you, Mike. Just given you hit cash flow breakeven in in Therapy Selection last year, maybe could you give us a sense for sort of the operating leverage within that individual segment? Just given the growth you expect to see this year, is there any kind of kind of color you can give around sort of how that cash flow can grow over time, so that can kind of offset some of the spend you're doing? I assume some of the spend in Therapy Selection is not as much as you might need for Shield and other areas. Just trying to get a sense for how that cash flow and profitability can grow over the course of this year and into 2025.  Michael Bell: I think we've laid it out, I think, quite consistently that now that – Therapy Selection, really, we're building infrastructure across that business, and we can get huge leverage now from the infrastructure that we've built. From a research and development, sales and marketing and G&A across all the lines, they're going to be relatively steady going forward. Probably for 2024, the only area where we'll look to slightly increase the spend on Therapy Selection is going to be on sales and marketing as we really focus on the customer experience elements and the EMR integration. So, that's going to be really the only incremental spend. So more or less every sort of additional dollar of gross profit is dropping down to the bottom line in Therapy Selection. Maybe just to give a little bit of color on the overall cash burn that we're guiding to of $320 million to $330 million, you can look at that in different terms. Roughly, $200 million is screening. We've been very clear about that. More than $100 million is still going to be an investment on the MRD side. There's the cost of running the test. There's the cost of generating the clinical data. There's a sales and marketing effort. So we're still making heavy investments on the MRD side. And then, from a CapEx perspective, as we're continuing to increase capacity in automation, we're probably going to spend around $40 million on CapEx in 2024. So that more than covers the overall cash burn, free cash flow that we've spoken about. And so, we will start to see positive cash in 2024 from Therapy Selection. I think as the as the revenue grows, again, a lot of that's going to start to drop down to the bottom line. So we'll start to generate some significant cash from that business over the next few years.

The next question comes from line of Eve Burstein with Bernstein Research.

Two on Shield. The first is, you've modeled and talked a lot about the importance of adherence in quantifying the benefits of colorectal cancer screening. And in the study that you highlighted today, you showed that you have better adherence. So even if Shield has sensitivity and specificity that aren't quite best-in-class versus other modalities, you could still have best-in-class impact. However, in the past, the USPSTF has used models that assume 100% adherence rate for all screening modalities. So to some extent, for Shield, to score well, the USPSTF will have to fundamentally change the methodology that they've used in the past. So what conversations have you had or data points can you share that give you confidence that this will happen? And then quick follow-up question on the investment in field force that you've laid out for Shield? Are any of those gated by getting first or second line therapy approval from FDA or AB recommendation for USPSTF? AmirAli Talasaz: Adherence is definitely the value of having a patient friendly modality, which is a pleasant experience to complete that test. If we didn't have the issue of adherence, we wouldn't have 50 million unscreened patient, we wouldn't have 76% death rate coming from unscreened patient population or the people who are not up to date with cancer screening. So in terms of the impact, the awareness is pretty high. We are not a stage where we can have conversation with USPSTF members. But having said that, we've been in touch with some advisors, the former scientific director of USPSTF has been very vocal in this field now. And it looks kind of common sense that when they're issuing CRC screening, it's lack of adherence, frankly, people are not completing the test. You need to have that perspective in…

The next question comes from the line of Daniel Brennan with TD Cowen.

The first one is just on the revenue guide back there, 16% to 19%. I know you're coming off a year of 25% growth and your ASPs are going up. So just wondering if you could provide any color, maybe kind of what would get you towards the bottom end of that range? Are you baking in real conservatism in pharma or clinical? Maybe just any color that you can provide there. The second one was just on Reveal? I know you said you're not baking anything for CRC or very modest for breast, but can you just give us some color on kind of what the overall volumes were in 2023 and timing and confidence for getting MULTI-X approvals in those two new indications during 2024? Michael Bell: I can take a breakdown of the gross. Maybe just to give a little bit more color on the guide across the different lines, and I'll start with development services. That's a very lumpy line, swings around quite a lot. But for the year, we expect it's going to be relatively flat against 2023. And so, that implies that's sort of the midpoint in the precision oncology line, which is clinical and biopharma testing. That's going to grow at around 20% year-over-year. And maybe breaking that further, yeah, biopharma, we expect, as we did last year, to see some sort of low double digit growth on the biopharma. We have a very strong – we finished the year strong. We've gone into 2024 with a very strong pipeline. I think we just want to be continually conservative on that line. We see a lot of other companies being impacted by biopharma spend. And so, I think this sort of low double digit expectation, we're on the conservative side. And if you…

The next question comes from the line as Jack Meehan with Nephron Research.

I had a couple of gross margin questions first for Mike. If you include the dilution from Shield, what does the guide assume for gross margins for the year and any implications for Shield volume growth embedded? And for Helmy, I was wondering if you could talk about your sequencing strategy. Are there any changes you're planning to make in the lab, either with Nova X or something just to help drive savings on the COGS side?  Michael Bell: Jeff, on the gross margin side, I think we really want to focus where the gross margin is going to be on the business excluding screening. In 2023, we saw something like a 2 percentage point impact overall from running the Shield LDT tests and, again, we get very minimal revenue for those. And so, for 2024, we've given the guidance of the gross margins without screening at 60% to 62%. So, hopefully, people can then start to really understand the performance of the business without screening. It's going to be difficult for us to say what the impact is going to be throughout 2024 on screening. Obviously, it's going to depend on the volume. It's going to depend on the timing of FDA approval and launch and then what that volume ramp is going to be. And it's also going to be dependent on when we get the initial Medicare gap fill rate and what that rate is going to be at. So that's why we really want to focus on gross margin without screening because it's difficult to measure. But, again, I think our aim at excluding screening is to be at least 60% gross margins. And I think we feel comfortable with all of the mix impacts across the core business that we can manage to that level.  Helmy Eltoukhy: In terms of sequencing, I would say, just in general, we have a pretty robust program around COGS production. And I think there's going to be some, I think, good opportunities over the next couple of years, especially with some of the investments we're making in terms of Shield and really the infrastructure there that is going to, I think, pay dividends on the oncology side as well. And we're certainly pursuing some of the sort of lower cost sequencing instruments, such as NovaSeq X and others that may lower our overall COGS of running our tests.

The next question comes from the line of Doug Schenkel with Wolfe Research.

With wolf research, your line is now open. I want to ask a high level question and then kind of a related follow-up as it relates to Shield. So there's clearly questions in the investor and medical community about how Guardant is managing trial design timelines, how you describe complexity of moving from things like V1 to V2, the level of attenuation we see in post case control studies, etc. Fair or not, this is out there. And I think it's fair to say this is a big reason why your stock price is where it is. A new year is a good time for new resolutions. What do you think you can do better? And what steps are you taking to get back that management premium that used to exist in the stock? My follow-up on Shield. There's a range of outcomes for Shield in terms of how things go with the FDA, how things go with CMS and private payers, how you're viewed by USPSTF, how you're viewed by the folks that set guidelines. Even in better scenarios, this is a very expensive program with a really long runway. Under what scenario would you consider discontinuing or spinning off screening? Helmy Eltoukhy: It's a fair question, frankly. I accept that. And you're right. I think a bunch of people out there are right. I think the reality is we're going to focus on execution and show that hopefully this FDA approval would come and ADLT status would come and a successful commercial launch would come. Over time, I think that performance is going to generate confidence that, hey, when these guys – AmirAli was talking about blood-based CRC screening has huge potential even with the performances that we've seen with V1. That becomes more of a reality versus…

The next question comes from the line of Rachel Vatnsdal with J.P. Morgan.

This is Casey on for Rachel. Just can you guys talk about where things stand on the EMR integration front. You noted 475 accounts now integrated, which was above your goal 400 to end the year. Can you contextualize that number as a percentage of total accounts or total accounts that were eligible for integration? And then maybe walk us through how you see those 475 accounts scaling up volumes over the course of the year?  Helmy Eltoukhy: I don't think we're going to break out certain number of sort of percentage of volume, but it is a significant percentage of our volume right now. So we're very pleased in terms of where we are. What we're seeing is really, I think, significant uplift in those accounts as they turn on. There's a lot of engagement that happens at the account level, a lot of retraining. And it just makes life so much simpler when they can essentially use their existing EMR system of record to just order the tests and get the results back. And so, we think we're very pleased with the progress we've made. We're seeing really a significant jump in terms of ordering rates in those accounts. But it is also early days. It's something that we sort of got to at the end of last year, and I think we're going to see the dividends of that work we've done pay off over this year and next. We're still making very good progress in terms of the rest of the accounts. Epic is a sort of slower process where each one of the hospitals and sort of accounts has to be turned on at their level. And we're increasing our pipeline there, so that we can go as fast as possible. But I'm very pleased with the progress the team has made. And it's certainly one of the I think potential upside drivers of volume this year.

Our final question comes from the line of Andrew Cooper with Raymond James.

Just one more on MRD and the breast data you disclosed in preparation there. Just would love your thoughts, given kind of how we think about different subsets of that breast cancer population and some lower shedding sort of subsets in terms of the ctDNA, how do we think about that in context of some of the numbers we see out there, whether from others when it's a certain subset or not, and how that 97% specificity in the – I think it was 82% or 84% sensitivity sort of stack up? And then lastly, you say that data is going to be included in your eventual submission. Is there any additional data you think you need before you submit to CMS for coverage? Or do we just need to see kind of the current studies published?  Helmy Eltoukhy: I'll maybe start with the second one. No, we believe this is more than sufficient in terms of data for sort of clinical validity from a Medicare perspective. It's a fairly sizable cohort. I think much larger than other publications we've seen and has a good number of sort of time points. It does have I think very good diversity across subtypes of breast cancer. You're right. Different cancer types in breast cancer, different subtypes have different shedding levels. And when we looked at the breakdown there in terms of triple negative, HER2 positive, HER2 negative, and so on, we've seen very a good performance as well there. So even on a sort of subtype by subtype level, we see, I think, really, industry leading kind of performance. It's the same thing on the CRC side. Depending on site of metastases, there's different shedding rates. And no method really solves that. That is the factor of the biology in terms of the tumor type. And so, that's why these results typically hold – performs well in one subtype, potentially performs well in other subtypes just because of the fact that you're detecting more alterations or detecting those alterations at lower levels. But right now, there's not a way to solve the sort of different shedding levels. That's a factor of the biology of the tumor.

Thank you for your question. That concludes today's call. Thank you for your participation and enjoy the rest of your day.