Guardant Health is a precision medicine company. Its market proposition within the oncology space is to offer testing products for treatment selection, therapy monitoring and remission confirmation. Their flagship product, Guardant360, primarily comes in the form of a liquid biopsy blood test (and one tissue collection option), which can identify biomarkers within tumors to glean pertinent treatment and diagnostic information. Liquid biopsy is a growing area with most estimates projecting at least low teens compound annual growth into the next decade. Liquid biopsy is also a stark departure from the traditional, more invasive means to confirm diagnosis and staging, tissue biopsy. However, in early-stage confirmation, liquid biopsy is still treated as a companion offering to support confirmatory testing based on guideline cutoffs for specificity and sensitivity. Along the continuum below, Guardant hopes to offer end-to-end, high value testing that supports the targeted care journey of patients with cancer. Earlier-stage identification would be most valuable.
2024 Q1 Guardant Health Earnings Call Presentation
Paired with the recent earnings guidance upward revision, I’ll share some bullish commentary from a provider sentiment perspective to argue that this area remains in its nascent form.
Credit: Connal et al. Liquid biopsies: the future of cancer early detection, 2023
Liquid Biopsies: The Future of Cancer Early Detection
According to Connal et al. (2023), liquid biopsies are blood tests that analyze circulating tumor DNA (ctDNA) to detect cancer-related mutations and alterations. These tests provide real-time insights into the genetic landscape of a tumor, allowing for dynamic monitoring of cancer progression and treatment response.
Key benefits of liquid biopsies include:
Non-Invasiveness: Unlike tissue biopsies, liquid biopsies require only a blood sample, reducing the risk and discomfort for patients.
Early Detection: Liquid biopsies can detect ctDNA at very low levels. Though the fidelity of the testing is not necessarily detecting cancers at an earlier stage, the early adherence data is suggesting that more cancers could be detected earlier than average
Real-Time Monitoring: The ability to repeatedly sample blood allows for continuous monitoring of tumor evolution and treatment effectiveness.
Connal et al. also highlight the growing evidence supporting the clinical utility of liquid biopsies in guiding treatment decisions. For instance, Guardant Health’s Guardant360 test is used to identify specific genetic mutations that can inform targeted therapies, improving patient outcomes. As the technology advances, the sensitivity and specificity of liquid biopsies continue to improve, increasing their reliability and clinical adoption.
Practical Applications and Future Potential (University of Chicago Medicine)
This article from the University of Chicago Medicine underscores the practical applications of liquid biopsies in current clinical settings. Liquid biopsies are particularly valuable in scenarios where traditional biopsies are challenging or risky, such as in patients with hard-to-reach tumors or poor overall health.
Key practical applications include:
Treatment Monitoring: Liquid biopsies enable clinicians to track how well a treatment is working by measuring changes in ctDNA levels. This can help in adjusting treatment plans more swiftly and effectively.
Detecting Minimal Residual Disease (MRD): After treatment, liquid biopsies can be used to detect MRD, which refers to the small number of cancer cells that may remain in the body and cause a relapse. Detecting MRD early can lead to prompt intervention.
Resistance Mutation Identification: Liquid biopsies can identify mutations that cause resistance to current treatments, allowing for timely switches to alternative therapies.
The article also discusses the role of liquid biopsies in personalized medicine. By analyzing the genetic makeup of a tumor, liquid biopsies can help tailor treatments to the specific genetic profile of a patient’s cancer, enhancing the efficacy of targeted therapies.
Guardant Health’s Position and Future Prospects
Guardant Health’s leadership in the liquid biopsy space positions it well to capitalize on these advancements. The company’s commitment to innovation is evident in its ongoing development of the GuardantINFINITY platform, which aims to integrate real-world evidence collection with high-frequency screening capabilities. This platform could significantly enhance the scalability and utility of liquid biopsies, driving broader adoption and market penetration.
Recent Developments and Future Directions:
Expanded Indications: Guardant Health is working on expanding the indications for its liquid biopsy tests (see below), including early detection and monitoring across various cancer types.
Improved Sensitivity and Specificity: Ongoing research and development efforts are focused on increasing the sensitivity and specificity of liquid biopsies, making them a more reliable tool for early cancer detection and treatment monitoring. There is still a lot left to be seen in the early stage tumor ID category.
Integration with AI and Big Data: The integration of artificial intelligence and big data analytics with liquid biopsy platforms could further enhance their predictive power and clinical utility, enabling more precise and personalized cancer care.
2024 Q1 Guardant Health Earnings Call Presentation
Clinical Conclusion
The incorporation of liquid biopsies into clinical practice represents a paradigm shift in oncology, offering numerous benefits over traditional tissue biopsies. Guardant Health’s innovative products and strategic positioning in this rapidly evolving market highlight its potential for significant growth and market leadership. The scientific advancements and practical applications of liquid biopsies, as discussed in the Translation Medicine publication and University of Chicago Medicine article, underscore the transformative impact of this technology on cancer diagnosis and treatment.
By leveraging the latest advancements in liquid biopsy technology, Guardant Health is poised to continue its upward trajectory, providing investors with a compelling opportunity in the precision medicine space.
Stock analysis
Guardant Health’s stock may have just found a local and global bottom. After trading at a historical low of $15.81 on 4/18/24, the share price has rocketed upwards to north of $26 as of 5/28/24 open trading. Long-term holders are likely underwater based on the 5-yr price chart below, with an absurd all-time high of > $180 per share in February 2021, but is there a case to dollar cost average down? Or, if you were fortunate enough to accumulate at the recent lows in April, is it already time to cash out? My trading approach here is to leverage cash-secured puts as a means of getting paid to wait. I like that GH is once again an accelerating grower, showing that their R&D spend is not all for naught.
Credit: Yahoo Charts
| Guardant Health Net Revenue and Growth: FY20 – FY23 | ||
| Period | Total Revenue ($m) | Growth (%) |
| FY2020 | 286 | 33% |
| FY2021 | 373 | 30% |
| FY2022 | 449 | 20% |
| FY2023 | 563 | 25% |
| TTM Q1 FY2024 | 603 | N/A |
Peer-comparison: Exact Sciences and…
It’s difficult to claim that Guardant Health has anything more than one direct peer. As a Mid-cap, Guardant is seeking market success like Exact Sciences, which struts large cap status at around a $10B market cap. Exact Sciences was a first mover in the non-invasive oncology screening space with its landmark product, Cologuard, a stool sample evaluation kit. Who would’ve known that there was such valuable data locked up in poop? Experts from both Guardant Health and Exact Sciences will continually claim that the populations they serve are under-screened and under-diagnosed. Currently, I believe the market opportunity is not a zero-sum game. There is significant room for growth of these non-invasive tests for both companies. Below, you’ll see that Guardant Health is set to expand its offerings into multiple indications all the while seeking the evidence for maximum fidelity of specific and sensitive testing to increase the likelihood of utilization and market uptake. Guardant also just received a head nod on May 23rd from the FDA Advisory Committee Panel for their latest product, Guardant Shield.
Growth projections relative to peers
| FY23-24 Financials for Medical Consumables as of 5/15/24 | ||||||
| Company | Enterprise Value (Billion $) | FY24 Revenue Projection (Billion $) | FY23 Revenue (Billion $) | Revenue Growth Projection (%) | EV to Forward Sales Ratio | Similarity to GH |
| Guardant Health | 3.16 | 0.68 | 0.563 | 20.7 | 4.65 | n/a |
| Exact Sciences | 12.16 | 2.83 | 2.5 | 13.2 | 4.3 | Strong |
| DexCom | 49.38 | 4.28 | 3.62 | 18.2 | 11.54 | Modest |
| Illumina | 19.13 | 4.5 | 4.5 | 0 | 4.25 | Modest |
DexCom and Illumina are thrown into the mix here. You can see that DexCom trades at a significant premium as they’re achieving impressive growth at an entirely separate scale ($50B versus $3B). This may be due to the massive opportunity in the diabetes population. Illumina is in-line, but they’re shifting away from a close peer as they go through the Form 10 process to divest the Grail business.
DexCom’s business model is like Guardant Health in that the continuous glucose monitoring market is a patient care journey continuum that has one-time device costs and ongoing consumable costs relative to the disease burden for each patient. Like Guardant Health’s “GuardianINFINITY”, the smart liquid biopsy platform that will facilitate real-world evidence collection and potentially increase screening volume, DexCom has a treasure trove of data in diabetes management now available on its Clarity platform. These insight generation flywheels are highly valuable because access to and trust with the core product are driven upwards. The data also helps support innovation.
Illumina offers a variety of products including sequencing platforms, microarrays, and related consumables and services. Their high-throughput sequencing systems are widely used in academic, clinical, and pharmaceutical research. They’re a market leader in next-generation sequencing (NGS), providing solutions that enable researchers to conduct comprehensive genomic analysis efficiently and cost-effectively. The company is known for its continuous innovation in sequencing technology, driving advancements in precision medicine and personalized healthcare. Illumina formerly had an early detection arm called Grail, but they’ve divested the company to re-focus their core business. Grail’s Galleri product is a multi-cancer detection test and their team has similar aspirations as Guardant to claim as much of the addressable market as possible.
2024 Q1 Guardant Health Earnings Call Presentation
In the revised guidance we saw a rise in revenue projection of about 3-4%, or $15-20M for FY2024. Gross margins also were up by a percentage point. Cash burn improved by about 16%. With updated “cash, cash equivalents, restricted cash & marketable securities” of $1.129B as of Mar 31, 2024, the growth accelerator here is very sustainable with target FCF at -$280M. The 65%+ rise from April lows could not possibly be attributed in entirety to this earnings release plus the positive catalyst associated with the Shield launch. This is why I believe intermediate term cash-secured puts are now a better option for bullish exposure versus outright stock ownership.
Cash Secured Put Table
As of 5/28/24 trading @ 1:00pm, the following table below demonstrates key metrics for trading Guardant Health at intermediate-term strikes.
Of the three trades outlined, I like trade 2. Trading perpetually @ the $22.5, 6/21 strike would net annualized returns of about 16%. As always, this includes an annual return discount for the probability of trade success, and a 30% discount for tax income implications. The break-even price is listed. If the stock price is at or below break-even, then the trade will be deemed a loss. Consider these trades as a wealth-generating strategy to potentially gain exposure to Guardant Health.
Conclusion
The incorporation of liquid biopsies into clinical practice represents a paradigm shift in oncology, offering numerous benefits over traditional tissue biopsies. Guardant Health’s innovative products and strategic positioning in this rapidly evolving market highlight its potential for significant growth and market leadership. The scientific advancements and practical applications of liquid biopsies, as discussed in the ASCO publication and University of Chicago Medicine article, underscore the transformative impact of this technology on cancer diagnosis and treatment.
By leveraging the latest advancements in liquid biopsy technology, Guardant Health is poised to continue its upward trajectory, providing investors with a compelling opportunity in the precision medicine space.
Disclosure: I have no positions in Guardant Health and no intentions of entering a position in the immediate future.
