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Has Guardant Health Lived Up to the Hype?

By Jason Hawthorne – Sep 29, 2020 at 6:30AM

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This company's diagnostic blood tests made it a hot IPO two years ago, but competitors are catching up, and COVID-19 could derail its critical study.

Humans have known for a long time that a person's blood can tell us a lot about their health. In 1628, William Harvey discovered how blood circulated through the body, and in 1665 the first successful blood transfusion was performed with dogs. It would be almost another 150 years before a successful transfusion was performed on a person. Today, scientists are using our understanding of blood to investigate cancers and take a more personalized approach to disease treatment.

Guardant Health (GH -0.63%) went public with a popular IPO in 2018, soaring 70% on its first day of trading. The oncology company has continued its ascent, rising by about 230% since. The excitement over blood tests that can detect cancers and lead to personalized treatments has not abated. Companies such as Freenome, Thrive, and Grail have joined Guardant on the hunt for tiny fragments of cancer DNA in patients' blood. But has Guardant Health capitalized on widespread excitement and built a large-enough foothold in the industry?

Blood being drawn from an arm by a clinician with blue gloves on.

Image source: Getty Images.

Identification, monitoring, and screening

In its initial investor presentation, Guardant pointed to three main milestones in its effort to bring a broad cancer-screening toolkit to market. First, the company's Guardant360 and OMNI products are focused on detecting advanced-stage cancers so that appropriate treatments can be employed. Management estimates that there exists a $6 billion market opportunity for these screening services. Second, the company's LUNAR-1 program focuses on testing cancer survivors for recurrence of their diseases. Management estimates this opportunity at $15 billion. Third, the LUNAR-2 program is designed as a screening tool for routine cancer testing in the earliest and most treatable disease stages. Management's estimate of this product's opportunity has climbed to $30 billion from $18 billion since the company went public two years ago.

The company's first advanced-stage detection product, Guardant360 CDx, was recently approved as the first liquid biopsy for all solid tumors. The company had worked with AstraZeneca (AZN -0.32%) in order to identify patients who would benefit from the drug maker's non-small cell lung cancer treatment. Guardant Health's test works by simultaneously detecting mutations in 55 tumor genes rather than one gene at a time.

The other detection product, GuardantOMNI, is designed to recognize 500 different gene mutations. The system can help biopharmaceutical partners speed up clinical trials by identifying patients who display drug resistance and by exploring additional patient groups who, because of their unique genomes, are especially poised to benefit from a drug. Management presented positive data supporting the new test at the April 2019 American Association of Cancer Research (AACR) conference.

The LUNAR-1 program is intended to monitor patients in remission for cancer recurrence and focuses on colorectal, lung, breast, and ovarian cancers. Data presented at the AACR conference centered on overall patient recovery from colorectal cancer and demonstrated an ability to detect the disease as early as stage 1.

The company's LUNAR-2 screening program rests on its ECLIPSE study of patients. Leveraging the aforementioned ability to detect colorectal cancer in asymptomatic individuals, this study plans to enroll 10,000 average-risk people ages 45 to 84 with the goal of an earning U.S. Food and Drug Administration (FDA) approval for the cancer screening tool.

The best-laid plans

Investors typically value a company based on its profitability. However, evaluating a young company like Guardant (that is losing money) can be tricky. While many point to revenues as a sign of health, it's important to understand management's strategy and what activities, if successful, will lead to greater revenues and profits over time.

Transforming stand-alone blood tests into a comprehensive screening toolkit requires a lot of data in order to prove the system's accuracy and usefulness. And to get a lot of data, you need to perform a lot of tests. That requires partnerships with pharmaceutical companies and oncologists. Prior to the COVID-19 pandemic, Guardant Health was working hard those to win those teammates and collect data. Partnerships were increasing, and this was leading to more tests using its 360 and OMNI products.

Milestone

Biopharma Partners

Oncologists

Sept 2020 Presentation

60+

7000+

2018 IPO

50+

6000+

Source: Guardant Health Investor Presentation. Chart by author. 

Guardant360 Testing Volume

slowing growth for four quarters from 89% to 15% in most recent quarter

Data source: Guardant Health. Chart by author. YoY = Year Over Year.

GuardantOMNI Testing Volume

decliing test volume growth for four straight quarters from 111% to -47% in most recent quarter

Data source: Guardant Health. Chart by author. YoY = Year Over Year.

The company was clearly growing test volumes pre-COVID-19. Management said in a recent earnings call that while volumes were dented in the first quarter, they experienced a resurgence toward the end of quarter ended June 30.

Looking to the future, although enrollment for the all-important ECLIPSE study was also negatively impacted by the pandemic, the company continued to expand test sites and enroll patients. Management still expects to meet its goal of 150 sites by the third quarter and to have 10,000 patients enrolled in the study by Nov. 2021, as originally projected.

In June, management launched a new platform, GuardantINFORM, that aggregates the genome data from its more than 100,000 tests to date. This data will allow partners to better serve patients by identifying potential drug resistance, accelerating trials, finding additional patients who may benefit from a treatment, and tracking tumor evolution. 

The results are ready

Biotechs can be notoriously risky investments. Many companies swing for a home run and end up striking out instead. Scientific discoveries are exciting, but they can benefit your original investment's competitors just as easily. For example, Foundation Medicine, a company acquired by Roche Holding AG (RHHBY -1.27%) in 2018, swiftly followed FDA approval of the Guardant360 CDx test with an FDA approval of their own liquid biopsy test.   Other cancer testing biotechs have moved beyond blood. Exact Sciences (EXAS -0.02%) recently began marketing a test for colorectal cancer using fecal matter. Therefore, having the best blood testing product may not be enough for Guardant to succeed. The company will also have to outperform alternative testing technologies.

In its two years as a public company, Guardant management has demonstrated expertise and a customer focus that has led to more partnerships, increased testing volume, and innovative new products. The handling of the ECLIPSE study through COVID-19 has proven that Guardant management is reliable and can stay on track in the face of challenges, a critical attribute in the fast-moving world of cancer research. This combination of attributes in a leadership team makes for a good investment in any industry. Investors interested in getting in on the action of cancer diagnosis and treatment would be wise to consider adding shares of Guardant Health to their portfolios.

Jason Hawthorne owns shares of Guardant Health. The Motley Fool owns shares of and recommends Guardant Health. The Motley Fool recommends Exact Sciences. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Guardant Health Stock Quote
Guardant Health
GH
$50.78 (-0.63%) $0.32
Roche Holding Ltd. (ADR) Stock Quote
Roche Holding Ltd. (ADR)
RHHBY
$40.57 (-1.27%) $0.52
AstraZeneca PLC Stock Quote
AstraZeneca PLC
AZN
$66.00 (-0.32%) $0.21
AstraZeneca Stock Quote
AstraZeneca
AZN
$11,060.00 (0.09%) $10.00
Exact Sciences Stock Quote
Exact Sciences
EXAS
$41.49 (-0.02%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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