GH q4 CC notes and my take

GH is a company that I bought back in November. Here is my original write up if you are curious for a more details follow the link.… . In about 8 weeks that position is up a totally silly 151%…and here I was proud of vericel which is up 100% in 8 months. I guess i need to adjust my expectations :). So why is it up so much and where does it go from here?

Liquid biopsy has the potential to be huge but the science behind it has been pretty murky. Again, read my initial post about GH if you want to know more.

My CC notes are mixed in here.

They identified 3 major drivers for 2019.
The first: PASS GH recently reported some initial data from their NILE study which looked at using GH’s test before tissue biopsy for diagnosis. They showed non-inferiority (which is what the study was designed to do) . This, as a proof of concept, was huge because many people I had spoken to didn’t think cfDNA would work.

Second: PENDING is FDA approval of Guardant360 with a pan cancer tumor profiling label

Third PENDING is pan-cancer Medicare coverage based on FDA approval

In addition they have announced large partnerships with SoftBank for Japan, and AstraZeneca. There weren’t many details about Softbank. AstraZeneca is exciting because they are using Gaurdant’s products to develop their drugs as well as find targets clinically in patients. Kind of a double whammy of use.

One of guardant’s drives is not only to show non-inferiority to existing tests but to show actual survival benefits of a blood first paradigm . There are a lot of reasons to think that using a blood test could be better than tissue such as ease of use, decreased cost, decreased morbidity. Astrazeneca showed a 39% overall survival rate at 2 years compared to 18% with tissue based approach.

Long term growth drivers

These are probably where the biggest potential market is.

Lunar 1 - recurrence detection and residual disease detection,
Lunar 2- Early Detection. They anticipate about 20x numbers of patients for lunar-1 and lunar 2.

GH announced the launch of the LUNAR assay for research use ad expect to launch a clinical version of the test for investigational use in the second half of 2019. This is much earlier than I expected. I think the market felt the same way.

2018 Revenue was 90.6 million, up 82% from 2017.
They have about 500 Million Dollars in the bank
They spent around 183 million dollars to make that 90 million of revenue. 50 million of that was Research and development.

So, they lost 90 million dollars.

They plan on upping their R&D as well as sale peoples people to drive more revenue.
They expect to accelerate their losses up to 129 million dollars give or take.
Revenue around 130-135 million (43-49%)

Q&A notes
Is the upside relative to where most Street numbers were driven more by the companion diagnostic piece or is it sort of fundamental clinical strength?
I think we’re seeing, very good progress in all aspects of our business…we’re guiding towards in terms of 35,000 to 37,000 clinical tests,…we’re seeing good progress clinical data releases, some of the investments we’ve made in the commercial team. … similar growth to that on the biopharmaceutical side as well…both sides are seeing that backbone of growth. they expect revenue to be front loaded for 2019

Any additional color on outcomes for NILE study?
That is the secondary endpoint. Data not available yet.

What will drive additonal uptake?
GH sees them needing more NILE data, FDA approval and Medicare coverage.

data in colon and one of the AACR abstracts retrospective analysis, you had 95% detection rate in stage one and two colon.could we see you perhaps launch a standalone assay for early detection in colon, given some of the success others have had with alternatives to colonoscopy?

Early data, need more studies. (but very exciting)

Can you walk us through like what the FDA needs to see the to make sure that you get the pan-cancer label. what’s the risk around not getting that designation?

erything is retrospective testing or model samples that we have to test, and submit the data to FDA. Since we have breakthrough device designation, we are projecting that review cycle would take six months post our PMA submission later in the first half of 2019 or with some maybe minimal impact right after that.

Great. Is there anything specific about anything included in the assay that you have get so specifically to get to pan-cancer?

pre-agreed with the agency, and there are a lot of similarities with type of analytical studies that they wanted to see then for tissue-based testing. So effectively, many different cancer types are going to get tested as part of the analytical validation in order to get the tumor profiling claim across pan-caner types. And all of those cancer studies are already planned and ongoing.

Japan, the Softbank and sort of that expansion of that market, how long should we – when should we start to see a contribution to that?

it’s going to come after a regulatory approval and MHLW reimbursement and that’s going to take some time. There will be a cycle is as long, but, we’re making very good progress on that. There’s a lot of excitement in Japan around this type of testing and providing this type of testing for cancer there

when you started thinking about using liquid biopsy, as a first line in the lung cancer, sort of, how do you think about the market on that?
Yes. We’re seeing that same gap between clinical guidelines and clinical practices and other cancer types. So stay tuned. This is important

My Take
Guardant’s stock isn’t trading based on their numbers. They are pure speculation at this point that is backed up by some promising science that is advancing relatively quickly as well as solid uptake of their existing tests. If we figure they have about 500 million dollars and are losing 100+ million dollars then they have around 4 years of cash…plenty for a company like this.

Their commercial business could take off this year if they get the pan cancer FDA approval and medicare coverage. If those happen then they may burn significantly less cash than they are guiding. Anyways all this is to say, I’m not worried this company will go out of business anytime soon

The market is valuing them like their revenue is going to start doubling soon. I’m more cautious than that. To use Guardant 360 or OMNI for diagnosis is going to require a study for each and every indication unless clinicians get ahead of the studies, which happens and was hinted at in the conference call, otherwise this is going to take years. I do think they have two potentially large catalysts with FDA approach and Medicare approval. But i think the jury is out if that will juice their revenue to >100% growth. I think it is possible but not a sure thing. The reason their conference call was so exciting was they are making lots of progress and have some big milestones coming up this year.

Ok so now GH has 90 million of revenue, ~86 million shares at a price of 93. Marketcap of about 8 billion, minus 500 million of cash for an EV of 7.5 billion. 7.5 billion/90 million = EV/S of 83 which is just silly. Clearly this isn’t a stock you invest in based on valuation.

GH thinks their TAM is around 35 billion. I don’t know what the real number is but I know that if liquid biopsy can fulfill any of the promise above then 90 million of revenue and a marketcap of 8 billion will be silly small.

Lastly, that is a pretty crazy valuation. I don’t plan on selling GH especially since I’d get murdered with taxes and there is too much opportunity here. Can this valuation be justified? If everything pans out I think they could grow pretty darn quickly, but even with 100% growth for 2 years they would have an ev/s of 20 in 2 years…that is crazy. Going to be an exciting year.



Hi Ethan, thanks for the write-up. I think the following (slightly edited) from the conference call, is the key:

Guardant360 is currently covered by Medicare and many private payers including Cigna and many Blue’s plans, which have all adopted reimbursement policies that specifically cover Guardant360 for non-small cell lung cancer. In the fourth quarter of 2018 we were endorsed by the Blue Cross Blue Shield Association, which has led to a sharp step function increase in number of Blues plans adopting positive policies for Guardant360, such as Blue Cross Blue Shield of Florida, Horizon Blue New Jersey and Blue Shield of California to name a few. As a result, we are pleased to update the number of covered lives to over 115 million up from 77 million at the end of Q3.

Saul again here: This has pretty much happened just in the last quarter. Three months ago all they were talking about was one sector of Medicare that had just approved them. That 49% increase in the number of people covered for their product by insurance wasn’t year-over-year, that 49% was sequentially (“from 77 million at the end of Q3").

And they guided to almost 50% revenue increase so they already expect probably 70% growth, at least.

This could snowball, it seems to me. It will quickly get difficult to justify opening up someone’s chest for a lung biopsy when you have a non-invasive method of obtaining the same thing. Just the way I see it.



I forget the exact number but lung biopsies have close to a 20% complication rate. The one caution I’d say is that the study is just for advanced non small cell lung ca. When someone presents with a lung mass you don’t know if it is non small cell, small cell or a metastasis of some other cancer from elsewhere. I think it remains to be seen how physicians use the test for diagnosis. Having said that, I agree with you.


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Congrats to those that got into GH and have a good gain on it, and good luck going forward, but I’m sitting this one out. Just rings too similar to what happened to me with NKTR, which was everyone ringing it’s praises as the holy grail of curing all types of cancer and the price shot up over $100, where I finally bought in, only to have the stock crater shortly after when the story didn’t pan out as was expected (yet, at least).

Probably won’t happen here, I hope not for those invested, but I feel that it’s at that point, and I’m much more comfortable with the likes of MDB over-performance and the potential issues it faces, than going into another biotech that has shot up to ridiculous valuations on future expectations before they come to pass.


It will certainly be interesting to see what happens during the long gaps between material news. After today’s run up, I’m skeptical of the average investor’s ability to hold during no news periods, even of only a few months. I thought I heard someone in the conference call mention the pancancer stuff to come out in about 6 months. That’s a long time in the investing world.


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