GuardantHealth GH - A mini dive of an old friend

It’s been a long time since Guardant Health was a popular holding on this board, and if it wasn’t previously a holding here, it would probably be pretty OT, but I’ve still been holding onto a very small position and did a bit of a mini dive today so thought I would post a quick summary in case it’s of interest to anyone else here that is also still following the story

I actually started looking into it morning, after initially contemplating selling a small amount of my Alteryx from my IRA, potentially to buy some Fastly. It won’t make me popular here to say it, but I concluded that, even at much lower growth rates, given AYX’s valuation, I still think it is a better place for my money than FSLY, even plugging some pretty aggressive growth rates for FSLY (up to +90% over the next year) into my calculations. Take that for what it’s worth, as I’ve been very wrong about some of the highest growth companies on this board so far in 2020, and I’m the first to admit, I could well be proven wrong here too.

Although I said in my July review that GH is one of my lower conviction holdings, I do like the idea of shifting at least some of my portfolio into less tech/SaaS/cloud type companies which have had such an extraordinary run for an extended amount of time and may see a bit of a letdown as we come out of the pandemic’s impact on everyone working remotely.

Skipping to the conclusion, I did increase my GH holdings a bit today, although still small, from about 0.4% of my portfolio at the end of July, adding about 150% to my previous GH position, to just over 1% of my portfolio now. Most all of it is in Jan’22 call options (admittedly making an already high risk/high reward stock, even more so).

GH is releasing earnings this Thursday, along with many other companies we follow, so note that buying right before earnings certainly has added risk as well.

Guardant Health Background

I’ll keep it high level and I am certainly no expert in this field or business

GH basically has developed blood tests, liquid biopsies, to screen for cancers, which are much less invasive (and much less costly) than taking a tissue sample, as has historically been the process.

Their products/services are:

Guardant 360 and Guardant OMNI

360 and OMNI screen for late stage cancers, to help determine therapies, treatments etc. This is where their revenue currently comes from, although still considered pre-FDA approval, which limits the allowable uses (and sales). FDA approval for 360 is expected later this year, which would expand their opportunities to monetize, increase health insurance reimbursements for their tests, and could potentially lead to more medicare coverage, which when it comes to cancer testing, would be big. They currently estimate the TAM for these products to be $6 Billion in the U.S. alone.

Lunar-1 and Lunar-2

This is further out, but potentially where the big money may eventually lie. GH’s Lunar program is all about detecting early stage cancers. Think getting a standard Lunar blood test at every annual physical doctor visit check up, even if you have no reason to suspect that you might have cancer. Finding an early stage cancer with a routine, inexpensive, liquid biopsy, could tremendously reduce the costs to treat the patient, compared to if the cancer was not detected until it was much further along or had spread (and save lives). If this early detection leads to much lower costs, you can bet insurance companies would happily reimburse the costs of these tests, even in lower risk patients. The estimated TAM for Lunar-1 is $15 billion, and for Lunar-2 could be more than $30 billion (just in the U.S.)

A good simple summary in this Fool article:…

Guardant360’s sequencing method is 1,000 times more effective than standard sequencing methods and results in 99.9999% specificity (the ability of a test to detect a positive without it being a false positive). Nearly all false-positive cancers can be ruled out by Guardant360.

As a result, the test has become very popular among oncologists (doctors who specialize in cancer). Since its launch in 2014, between 7,000 to 8,000 oncologists have used Guardant’s tests. In the first quarter of 2020, the number of clinical tests distributed amounted to 15,257, representing a 60% growth from the same quarter last year.

Bad Blood – Theranos

When I first suggested GH as an investment to friends, I often received the response that it sounds like what Theranos was doing, which as we now know, was essentially a big fraud. I recently read the book, Bad Blood, about the story of Theranos and it’s founder Elizabeth Holmes (which is a really great read btw) and I am comfortable that GH is nothing like the deceptive, untested, practices of Theranos. This could be something that is holding back the stock price of GH a bit, as, until they get further FDA approvals and more widespread use, it’s easy to associate all companies in this realm with the one big high profile company that did something similar and ultimately turned out to be essentially worthless.


Revenue in recent periods ($millions):

Quarter  Revenue  YOY%  Sequential%
Q1’18       17
Q2’18       19
Q3’18       22
Q4’18       33
Q1’19       37    118%     12%
Q2’19       54    184%     46%
Q3’19       61    177%     13%
Q4’19       63     91%      3%
Q1’20       68     84%      8%

So note that these are all before they’ve received any real FDA approvals, and most all of their revenue so far has been from Guardant360 and Guardant OMNI (not from Lunar which is earlier in development).

COVID has definitely negatively impacted the company. Clinical patient visits (where their test are performed) were down significantly in recent months, believed to be -30% in March when the pandemic was just starting to close U.S. markets. They didn’t provide guidance last quarter. Some estimates for Q2’20 are -20% vs prior year, which would be about $45m, down from $54m. That being said, there could also be some pent up demand as markets open up, which could lead to outsized growth in the futre, which could lead to positive guidance in this week’s call, if management is willing to give any guidance at all yet.

So there is probably some pessimism already baked in to the stock price. I believe each earnings announcement in the past year has been viewed favorably and generally resulted in a jump in the stock price, followed by drifting back down. The stock price is actually lower today than where it was a year ago, despite the company making good progress, and potentially being much closer to FDA approval for Guardant360.

Exact Sciences Corp (EXAS) also provides less invasive cancer screenings and they announced Q2 earnings last week. Their products are much further along and specifically focus on colon cancer, they had increased revenues in Q2 (possibly becomes some of their tests use a stool sample which can be collected by the customer at home without needing to visit a clinic), but the stock went down about -6% after reporting. They say April screenings were about one-third of what they had previously been, trending back up through June. I suspect GH saw at least a similar decline in April, likely trending better recently too.

Customer Concentration

In 2019, two of GH’s customers were responsible for 40% of total revenue (one at 26% and one at 14%). In Q1 2020, they said they had two big customers that each made up exactly 20% of revenue (40% combined), which I assume are the same companies. Losing one or both of them would obviously be a huge negative, especially if they switched to a competitor’s product, although my understanding is that GH is still ahead of anyone else trying to do liquid blood biopsies, overall right now.

Balance Sheet and Cash Flows

GH made some smart moves recently to shore up their balance sheet. At the end of March 2020, they had more than $750 million in cash and marketable securities.

Their operating cash bleed has only been:

-$72m FY 2017
-$72m FY 2018
-$47m FY 2019
-$13m Q1 2020 (-$52m annualized)

So only losing -$50m or so, even with all of the research and development costs you would expect from this type of company, would allow that $750m to last a very long time. They also just raised another $360 million in June, so they will likely have over $1 billion of cash and marketable securities at the end of Q2 2020.

They have no debt.

Could they be acquisitive? Do they need the funds to gear up for FDA approval leading to buildup of inventory for expected subsequent rapid growth? Are the development costs for the big ticket Lunar programs going to require much more spending than they have required in the past few years? I don’t know, but it doesn’t seem like running out of money is a concern for this company anytime soon.

Although their accounts receivable is not a huge number or exposure, as of 12/31/19, they had no reserve for allowance for doubtful accounts, meaning they expected to get paid 100% from essentially every single customer billing that was owed to them, rare for any company in any industry. At 3/31/20, they did reserve $150k as an estimate for credit risk on receivables. I presume the pandemic caused them to want to be slightly more conservative here. But assuming, over the long term, much of their billings come from insurance or medicare, I wouldn’t place credit risks as a huge factor in looking at GH as an investment, although I imagine the costs comply with and navigate those billings are more expensive to support than other businesses.

Softbank and WeWork effect

Guardant Health was surprisingly impacted by WeWork’s woes because GH’s biggest investor, previously owning more than 30% of the company was a Softbank fund. Softbank was also a big investor in WeWork and when WeWork imploded, Softbank suddenly had to raise cash and liquidity quickly and they sold quite of a bit of their GH holdings. That excess supply of GH shares for sale in the market has probably been one of the drags on its stock price over the past nine moths or so.

Further details for those interested:…

Other Random Thoughts

Any medical tech company like GH is going to be highly dilutive. That just comes with the territory as they need to reward employees, investor, and insiders with options. If it’s a winner like I hope it will be, although a lot of the spoils will go to those insiders, other investors should fare very well too.

After we have a COVID vaccine, will the pandemic bring more attention to preventative / early detection opportunities, especially where spending a little more money early can result in big treatment savings (and life or death savings) in the long run? Or will attention continue to be focused on preventing or limiting new future viral pandemics for a while, potentially taking attention away from technologies that favor other diseases like the cancers that GH scrrens for?

The large majority of Seeking Alpha articles related to GH seem to be very positive, which strikes me as unusual and strange. Or am I overthinking it and should I take that as a reassurance that a company like GH that has the ability to shoot up suddenly (e.g. on FDA approval or takeover rumor) would be less of a target of a short seller that might want to spread hit pieces online?

In Conclusion

Buying GH today is buying into the belief that their tests will get approval, get insurance/medicare reimbursement, become either the leader or one of the most commonly accepted liquid biopsy tests and get widespread use, leading to many periods of multi-hundred percent growth. Or at least a couple years of progress and approvals leading to a buyout by a much larger pharma company, maybe for 3x to 4x today’s market cap.

The rewards of the company being a success would be so great that you don’t need to allocate a big amount of a portfolio to a company like this in order to have nice rewards, but there is also a very real chance that the value of the company could contract quickly if they don’t demonstrate consistent results and steps towards becoming the kind of disrupter that they aspire to be. To me, it’s the type of investment that you might need to buy when the opportunity is there, but before big announcements come, as waiting for more news or updates is likely to cost you much more to buy in later than a typical (e.g. tech) company, which this board has consistently demonstrated that having a handful of really smart motivated people can often interpret results fast enough to still buy (or sell) at favorable prices before the rest of the market catches on to, or reflects, the new data.

Hopefully this was of some interest to some of you. It will be very interesting to see their results and possible guidance on Thursday. If anyone else has continued to follow this story, please do share, or feel free to poke holes in anything and everything that you believe I am wrong about. Given that it has always been a small holding for me, I haven’t spent as much time poring over Guardant’s filings or reports yet, but it’s an interesting story with a huge potential if they get it right.



Thanks for posting this, mekong.

I also have been holding onto a small position of GH. Sometimes I add a little, when the prices drops; sometimes I sell a little, when there is a spike. I dont treat it like a typical high-growth stock.

That said, I have been holding on to this stock because I believe in the company and bought into the rumors of the (next level?) FDA approval being imminent–last year. I haven not heard much on that front in 2020–perhaps because of the COVID focus this year.

Thanks for bringing up GH mekong. I’ve been adding recently as well because it seemed like a reasonably valued, under-the-radar hyper-growth opportunity with incredible potential and material near-term catalysts such as FDA approval (which is on track from last earning call’s commentary), pan-cancer Medicare LCD (will start to see effects this quarter and full next quarter) and its mobile phlebotomy services business which should continue to drive revenue growth in the near-term.

Under the current LCD, Guardant Health is reimbursed for one-third of Guardant360 tests used by Medicare patients. The company expects the expanded LCD to result in reimbursement for at least two-thirds of Medicare volumes. This made it the first and only liquid biopsy to be broadly covered for use across the vast majority of advanced solid tumors. It’s clear that GH is the leader in liquid biopsies for advanced-stage patients.

While COVID will adversely impact testing volumes in the near term, I still believe GH should be a long-term beneficiary. Commentary on EXAS’ CC supports this: “COVID-19 will accelerate the adoption of Cologuard by 1-2 years. Patients and physicians are also looking for smarter, faster answers to guide their cancer treatment decisions, elevating the importance of our precision oncology tests. Diagnostic testing will play a larger and more meaningful role in cancer care because of COVID-19." While GH is not in the same business as EXAS, I believe liquid biopsy’s benefits over tissue biopsy is especially pronounced in this environment

My main concern is competition in early detection (LUNAR 2) and I haven’t found much information out there.

Recent June results coming out of their ECLIPSE study for their LUNAR-2 test for detecting early-stage colon cancer had a sensitivity of 90%, meaning it detected 90% of patients who actually had colon cancer and had a specificity of 96.6%, meaning it correctly identified 96.6% of patients who didn’t have cancer. Exact Sciences mainly competes in this area with their stool-sample test Cologuard, which had a sensitivity of 92% to 94% depending on the stage of colon cancer and a specificity of 90% in patients with negative colonoscopy results. So pretty encouraging data on GH’s side. EXAS is also developing its own liquid biopsy test but for other cancers.

More concerningly, GRAIL and Thrive are competitors in early detection but with a broader focus on developing a multi-cancer test. They have lower sensitivity currently (in the 70s but specificity is >99%) but they could leapfrog GH if they manage to develop a successful test. I’m also not sure about the status of GH’s patents. I think GRAIL is currently the main threat to the thesis given how well-funded and well-known it is. Any thoughts there?



I also own a small position in GH. Love the concept. Long term I think it will be a big winner. Their technology has tons of advantages.

However, I trimmed 60% recently because I have concerns in the short term. All FDA approvals have been delayed due to COVID, and there has not been an update from the company on expected timing for the pending approval. Also, it’s always possible the approval could be denied or delayed - I believe this is a “first of its kind” type of approval, so it’s a higher than normal level of risk. Combine this with unknown revenues due to possible COVID related slowdowns, and the fact they recently had a small dilution and the overhang of the SoftBank shares, and I decided I would exit most of my shares for now.

I am watching for either a better price, or a clearer path forward with approvals.

One other thing that is a minor annoyance - they are the most un-energetic bunch I have listened to on earnings calls. Lack of enthusiasm.

mixed bag with Q2 earnings, right now the stock is only down about 6% after hours…

I had estimated above that revenue would be down about -20% due to clinics being closed for much of the quarter, or being focused on covid. Instead, revenue was actually up +23%!

I only got to half-listen to the conference call as I was interrupted by a work call, but I think they said that sales prices were significantly higher this year, despite sales volumes being down due to the closures during covid lockdowns. If I hear that right, that certainly makes me optimistic for when volumes are back up without lockdowns that sales prices could potentially remain higher. I’ll have to re-listen to the call replay when I have some more time this weekend.

They didn’t give guidance in the press release, which may be contributing to the stock being down after hours, but I did hear in the call that they said they expect volumes to be up “modeestly” in Q3, compared to Q1. Not compared to Q2 when volumes were down, so they are essentially saying they expect a modest increase in volumes compared to their all time high volume quarter, and they might also be seeing sales price increases (again, I need to double check that I heard that part correctly, or at least confirm that they are expected to remain higher going forward).

Surprisingly, although they had lots of analysts call in, I didn’t hear any of them ask about the FDA approval for Guardant360 until almost the end of the Q&A. Maybe they just assumed management wouldn’t have anything to reveal. When one analyst finally did ask about the FDA approval status, management replied that they are “pleased with the progress” and think they are “very close” to getting approval.

Operating expenses are a lot higher this quarter, but it looks like much of that is stock based comp, which as I noted in my original post above, dilution is going to be high with a company like this and that is just something we’ll have to live with in order to go along for the ride at this stage. At least it is non-cash. Regardless, they do have $1.1 billion of cash and marketable securities, which at their recent cash burn rate, will last more than a decade.

Overall, nothing that concerns me too much here. I am still comfortable having my small 1% position in GH