Guardant Health: More Catalysts To Power Leaping Growth (NASDAQ:GH)

Be fearful when others are greedy. Be greedy when others are fearful. – Warren Buffett.

Author’s Note: This is an abbreviated version of an article originally published in advance on Feb. 04, inside Integrated BioSci Investing for our members.

In biotech investing, it’s important that you assess a company holistically. That is to say, you should integrate important investment metrics into your analysis. The more you know about the company, the better your analysis. Keep in mind, this does not mean you have to know every detail about your stocks. After all, that is a nearly impossible task. Nonetheless, there are crucial investment criteria like assessing upcoming approval that you need to conduct. By viewing the investment picture as a whole, you can look beyond temporary difficulties.

A prime example of such an integrated analysis that you should conduct is Guardant Health, Inc. (NASDAQ:GH). Over the years, the company gained FDA approval for its liquid biopsy and generated increasing sales. Despite various speed bumps along the way, you can expect Guardant Health to continue its growth trajectory to become a giant company of the future. In this research, I’ll feature a fundamental analysis of Guardant while focusing on the various growth catalysts.

Figure 1: Guardant Health chart.

About The Company

As usual, I’ll deliver a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. Based in Redwood City, California, Guardant Health dedicates its efforts to the innovation and commercialization of novel medical diagnostics. In unlocking the power of precision medicine, the company offers genetic profiling to enhance the treatment outcomes for various cancers.

Figure 2: Diagnostic pipeline.

I noted in the prior article:

Through its Guardant Health Oncology platform, the company successfully launched various liquid biopsy tests like Guardant360 to catch all stages of cancers. Being a company that follows through, Guardant has successfully executed different milestones to enhance shareholder’s value while delivering hope to countless patients over the years.

Figure 3: Business milestones.

Technology – Revolutionary Liquid Biopsy

As you can appreciate, Guardant is harnessing our capability to detect cancer from a simple blood draw coined liquid biopsy. Notably, this is a huge shift away from the traditional use of a tissue biopsy that has complications and is complex. Therefore, liquid biopsy is much more convenient for both patients and clinicians.

Figure 4: Smart Liquid Biopsy.

Now, Guardant is upgrading its usual liquid biopsy to “Smart Liquid Biopsy” (i.e., SLB). Remarkably, SLB can detect many different cancers of various tissues origin. Importantly, it can detect changes at the DNA (i.e., genomic) level as well as the environmental factors that affect the expression of those genes (i.e., epigenomic).

Putting all that together, you’re looking at 100X more genomic info capturing that yields over 50X higher sensitivity. Simply put, SLB can capture cancer 50X better.

Figure 5: Smart Liquid Biopsy prowess.

Latest Operating Results With Guardant360 For Therapy Selection

From the figure below, you can see that Guardant360 has enjoyed a robust revenue increase year-over-year (YOY). For Fiscal 2022, the topline growth is projected to tally at 28% YOY. Hence, sales are on target to hit the $447M to $450M range. Powering this growth is the clinical volume ramp-up at a 42% pace to reach 124.8K. Biopharma volume is also galvanized at a 20% growth rate to reach 26.0K.

Figure 6: Strong topline growth.

Notably, most revenue comes from the precision oncology business segment with the Guardant360 franchise. Of the various accolades shown in the figure below, I believe that the rapid EMR deployment with EPIC is a huge catalyst. And, you can bet that it’ll fuel further growth for 2023 and beyond.

Figure 7: Guardant360 Blockbuster prospects.

Advancing Label Expansion For Guardant360

As you know, growing by label expansion is sophisticated and prudent. On that remark, Guardant is enjoying the fruits of its label expansion. That is to say, the company recently gained FDA approval for Guardant360 as a companion diagnostic (i.e., CDx) with Orsedu of the Menarini Group. As such, they would be used for the treatment of patients afflicted by ESR1 mutation in ER+/HER2- advanced (i.e., metastatic) breast cancer.

As you can see, the ERS1 mutation is the culprit causing treatment resistance to endocrine therapy. By leveraging Guardant360 as a CDX, docs can catch cancers having ESR1 to optimize their treatment with Orsedu. The more you know precisely about the enemy (cancer), the better your chances of survival. Comment on the development, the President, Co-Founder, and CEO (Dr. Helmy Elthoukhy) enthused:

This FDA approval is great news for breast cancer patients with ESR1 mutations, who now have, for the first time, an approved treatment for their specific type of cancer and a blood-based companion diagnostic. We are pleased that the Guardant360 CDx liquid biopsy is now approved so that oncologists and their patients can access comprehensive genomic profiling to see if they are eligible to receive this therapy.

Additionally, Guardant announced that they partnered up with AnHeart to advance Guardant360 as a CDx for its drug taletrectinib for advanced metastatic ROS1-positive non-small cell lung cancer (NSCLC). In my view, that is a great development because it signals much more aggressive label expansion to come. As a domino effect, Guardant would enjoy more revenue growth while patients would have access to a much more precise/personalized treatment for their cancer.

Recurrence Monitoring/MRD With Guardant Reveal

You can see that GuardantReveal is poised to capture a much larger (i.e., $20B) market. Anticipate to launch in 2023, GuardantReveal detects circulating tumor DNA (i.e., ctDNA) for MRD assessment in early-stage colorectal, breast, and lung cancers. Monitoring MRD via a simple blood draw is an ingenious way for docs to track the treatment progress of cancers. With its upcoming launch, you can see that revenues should jump more aggressively.

Figure 8: Guardant Reveal to capture a larger market.

Upcoming Growth With Guardant Shield For Early Detection

Perhaps, the biggest growth opportunity for Guardant is in its early cancer screening with the Guardant Shield franchise. In this nice, the market for various cancer screening is estimated at $100B which is gigantic. From my prior research, you can see that the first indication for this franchise is colorectal cancer (i.e., CRC) detection. The latest Phase 3 (ECLIPSE) trial all boiled down to the figure below.

Figure 9: ECLIPSE results.

Precisely speaking, Shield posted 83% sensitivity which is how well the test picks up CRC. When you assess a diagnostic test, you should focus on sensitivity rather than specificity (i.e., how accurate the diagnostic test is). Usually, docs would only use a diagnostic test if its sensitivity is at least 90%.

At 83% sensitivity, you can argue that Shield is NOT competitive against colonoscopy and Cologuard. Nonetheless, I believe that Shield’s extremely high adherence rate (i.e., 90%) would boost its utility. And, that’s why Guardant estimated (the combined sensitivity with adherence) together to be most competitive. Regarding approval forecasting, you should check the previous article.

Intellectual Property Protection

As you know, protecting intellectual properties (i.e., IP) is extremely important for a growth company like Guardant. Without successful IP protection, the company would lose its profit margin due to competitors. You saw the case with Amarin Corporation (AMRN) when management was unable to defend its IP. That is to say, Amarin’s lead drug sales tumbled while the stock crashed.

On this front, Guardant recently disclosed that the U.S., District Court Magistrate (Judge Christopher Burke) issued a favorable decision regarding Illumina’s claims against Guardant in a lawsuit filed back on March 17 last year. Accordingly to the company,

We are pleased with Judge Burke’s recommendation that nearly all of Illumina’s claims be dismissed as filed. We continue to believe that Illumina has no basis for challenging the ownership of our patents and that this lawsuit is nothing more than an attempt to impede our mission to improve cancer care and save patients’ lives.

Financial Assessment

Just as you would get an annual physical for your well-being, it’s important to check the financial health of your stock. For instance, your health is affected by “blood flow” as your stock’s viability is dependent on the “cash flow.” With that in mind, I’ll assess the 3Q2022 earnings report for the period that ended on September 31.

Given that I already went into detail about the financials in the prior article, I’ll briefly go over key metrics here. Accordingly, Guardant procured $117.4M compared to $94.7M for the same period a year prior. The research and development (R&D) spending for the respective periods registered at $100.0M and $70.9M. There were also $161.9M ($1.58 per share) net losses compared to $107.5M ($1.06 per share) net declines for the same comparison. Of the balance sheet, Guardant had $1.1B in cash, equivalents, and investments. Hence, there should be adequate capital to fund operations into 4Q2024.

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are “growth-cycle dependent.” At this point in its life cycle, the main concern for Guardant is whether the company can gain FDA approval for Guardant Shield for CRC in early 2024. Moreover, the other important risk is whether Guardant can cut costs while continuing to ramp up revenues. Furthermore, there is a concern about whether Guardant360 can gain more FDA approval as a CDx.

Conclusion

In all, I maintain my buy recommendation on Guardant Health, Inc. with a 4.8/5 stars rating. You can expect Guardant Health to continue garnering more success in the coming years. With the current trajectory, the flagship (Guardant360) is generating an extremely robust revenue increase. Riding the latest label expansion and more expansions as a companion diagnostic, Guardant360 would deliver more leaping sales growth. Meanwhile, Guardant Reveal is poised to generate substantial profits this year with its launch. More importantly, it’ll play a lifesaving role in catching cancer recurrence. Concurrently, Guardant Shield planted the long-term growth seeds in capturing the mega-blockbuster early cancer detection market.