Guardant Health Inc

NASDAQ:GH

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Guardant Health Q3 2020 Earnings Call. At this time all participants are in a listen-only-mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to your speaker today, Carrie Mendivil with Investor Relations. You may begin.

[Carrie Mendivil, IR]

Thank you. Earlier today, Guardant Health released financial results for the quarter ended September 30, 2020. If you've not received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to [e-mail].

Joining me to today from Guardant is Helmy Eltoukhy, Co-Founder and Chief Executive Officer and AmirAli Talasaz, Co-Founder & President, and Derek Bertocci, Chief Financial Officer.

Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appear in the section entitled Forward Looking Statements in the press release Guardant issued today. For a more complete list and description, please see the Risk Factors section of the company's Annual Report on Form 10-K for the year ended December 31, 2019, and in its other filings with the Securities and Exchange Commission. Except as required by law, Guardant disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information that is accurate only as of the live broadcast, November 5, 2020.

With that, I'd like to turn the call over to Helmy.

[Helmy Eltoukhy, Co-Founder & CEO]

Thanks, Carrie. Good afternoon, and thank you for joining our third quarter 2020 earnings call. During the quarter we continued to make substantial progress across our business, driven by our commitment to serve patients. Consistent with these values, I will start off our call with a patient story.

A 44 year old non-smoker was diagnosed with Stage 4 adenocarcinoma, type of non-small cell lung cancer. His oncologist originally ordered a limited panel [indiscernible] but he was confirmed negative for EGFR ALK ROSI and PDL1. So his oncologist selected chemotherapy pembrolizumab, for first-line IO treatment, despite not having complete biomarker testing.

However, the patient failed to respond to treatment and was being considered for hospice. Fortunately, his oncologist then decided to try liquid biopsy for a complete genomic assessment of his tumor and order a Guardant360 test. We quickly identified a BRAF mutation.

Based on this result, the oncologist was able to put him on a corresponding target [ph] therapy, a combination of dabrafenib and trametinib for treatment. His story demonstrates the importance of the precision oncology paradigm. It underscores the challenge of using tissue to get guideline-complete genotyping and how our liquid biopsy platform is uniquely qualified to address the needs of patients at all progression time points.

Turning to our business, we ended the third quarter with $74.6 million of revenue growing 23% over the third quarter of 2019. Clinical volumes for Guardant360 grew to 16,950 tests, a 28% increase compared to the third quarter of 2019 and a 24% increase compared to the second quarter of 2020. So turning back to the levels we saw in mid-March, pre-pandemic.

I am proud of the Guardant team to continue to successfully serve our customers, despite the challenging backdrop. However, over recent weeks, there has been a resurgence of COVID cases in some regions across the United States. We are seeing some early signs indicating that this resurgence will adversely affect clinical volumes, as renewed or continued up as closures are resulting in overall reduced in-person cancer patient visits and limited access.

During the quarter FDA approval of Guardant360 CDx helped us achieve a key catalyst for adoption of comprehensive genomic profiling in patients with any solid tumor cancer. And as a companion diagnostic to identify non-small cell lung cancer patients with EGFR ALK, coration [ph] who may benefit from treatment with tagrisso. This approval was the landmark decision, demonstrating the value liquid biopsy delivers to oncologists and more importantly to the patients they treat.

We applaud the FDA further and collaborative review process and for approving the first comprehensive genomic profiling liquid biopsy test. FDA approval of the Guardant360 CDx assay was based on multiple studies comprising more than 5000 samples and represents what we believe to be one of the most rigorous validation of the clinical and analytical performance of a liquid biopsy test.

Following FDA approval, we launched two versions of Guardant360 in September, the first product Guardant360 CDx is FDA approved version of our assay. We are confident that our FDA approval will help to accelerate wider adoption of guideline recommended genomic profiling and increase the number of advanced cancer patients who receive potentially life changing treatments.

Specifically, we expect FDA approval to strengthen reimbursement by advancing conversations with private payers and further improving Medicare pricing, extend momentum for a companion diagnostics business and advance the use of Guardant360 with physicians who have been slow to adopt comprehensive genomic profiling over the medium to long term.

The second product, we launched the next generation version of our Guardant360 laboratory developed test or LDT. That doubles down on our commitment to continue innovating in this space and offer additional biomarkers to our customers, as they become relevant.

This exciting new version provides even higher performance than previous versions of Guardant360. It includes additional homologous repair deficiency genes in an effort to keep up with the continued expansion in the PARP inhibitor space, NTRK2 and NTRK3 fusions and a best in class tumor mutational burden or TMB score, which was recently approved in tissue as a biomarker for pembrolizumab for solid tumor patients who have progressed following prior treatment.

Our blood-based TMB assay is highly differentiated and built upon deep sequencing of two mega bases of genomic content. It uniquely integrates information about tumor setting levels, somatic driver alterations, and chip mutations to provide a robust TMB score that can help identify more patients and other TMB test.

This product offering allows us to address the barrier of confidence in liquid biopsy among some late adopters with an FDA approval and opportunity to provide enhanced features to those customers who are regularly using liquid biopsy in clinical practice.

Overall, I could not be more proud of the Guardant team for the progress made this year. It's hard to believe it was only a little over two years ago, when we became a public company and broadly presented our vision to address the continuum of cancer care for screening to recurrence monitoring, to therapy selection, with a portfolio of practice changing products.

There is clearly a growing appreciation of this vision and a growing realization of the potential of liquid biopsy to truly transform the field of oncology. Since our IPO, we have made incredible progress establishing liquid biopsy as a vital clinical tool for therapy selection in advanced cancer patients.

Achievement of several key milestones, including securing reimbursement have made the $6 billion addressable market attainable, as comprehensive genomic profiling become standard of care. We've also made significant progress with our LUNAR programs, aggressively addressing the even larger opportunities in the recurrence monitoring and screening populations.

These programs are initially focused on colorectal cancer, which will serve as a beachhead for expansion of monitoring and screening for multiple cancer types. I'm confident from recent data that our LUNAR-1 assay for recurrence monitoring is best in class from both a performance and clinical workflow perspective.

I'm also encouraged by the breakneck speed with which our team is executing ECLIPSE, our colorectal screening trial, and that if successful, will address significant unmet need.

With that, I will now turn the call over to AmirAli for more detail on our Biopharma business and our LUNAR program.

[AmirAli Talasaz, Co-Founder & President]

Thanks, Helmy. Starting with our Biopharma business. As Helmy mentioned, during the quarter, we reached a critical milestone for our CDx business with FDA approval of Guardant360 CDx. Since FDA approval in mid-August, our CDx discussions have accelerated and we believe our first approval will pave the way for A new companion diagnostic partnerships.

We have another strong quarter for development services and others revenue, growing 63% to $14.2 million led by increasing CDx services. Under sample testing front, biopharma sample volume of 3071 tests was 42% below the prior year period, but grew 9% from the second quarter of 2020 due to the expansion of our customer base.

Our robust CDx pipeline demonstrates that are biopharma partners are recognizing the value of CGP to accelerate clinical trial enrollment. To that end, a new study published in Nature Medicine, led by the National Cancer Center Hospital East, NCCHE in Japan, demonstrated that the Guardant360 liquid biopsy is not only concordant to tissue genotyping, but also accelerates clinical trial enrollment. It takes more actionable alterations, and achieves similar treatment response rate and progression free survival in patients with advanced gastrointestinal cancer.

Patient with advanced gastrointestinal cancer, including gastric and colorectal cancer were matched to novel therapies that target the specific biomarkers identify. Compared to tissue genotyping, the Guardant360 spend up screening by threefold and improve trial enrollment rates by 132%.

We are also making great progress with GuardantINFORM, our rear rolled clinical genomic platform, which we launched in June to help accelerate research and development of the next generation of cancer therapeutics. GuardantINFORM, combined with a robust genomic data from each Guardant360 tests with the identified clinical information for each patient.

Our biopharma partners are finding significant value in longitudinal real world evidence, which gives insight into how patients are treated based on their mutation profile, as well as patterns of drug response, resistance and tumor evolution. We are excited by the number of deals we have signed to date and by the number of active discussions that are going with additional customers.

Now, turning to our LUNAR program. Since our inception, we have been committed to commercializing tests across the continuum cancer care that will offer a superior clinical utility, meaning, hey offer physician actionable information for patient care. So similar to the beachhead approach we took with Guardant360 to establish clinical utility non-small cell lung cancer. We are using a focus strategy for establishing clinical utility of our LUNAR assays in colorectal cancer. In spite of the broad applicability of our LUNAR technology to multiple cancer types.

Turning to ECLIPSE. We are continuing to see robust patient enrollment. We have now nearly 150 sites that are on boarded and actively enrolling patients. Overall, we are very pleased with our progress and are on track to complete the enrollment within a 24 month timeframe announced last November.

We applaud the recent decision from USPSTF to expand their recommended screening guidelines to 45 to 49 age population. This aligns with the enrollment criteria of ECLIPSE, which was designed to assess performance in that age group.

We are also pleased with the recent draft NCD proposed by CMS for blood based CRC screening. The data we have previously presented indicates that the performance of our LUNAR-2 assay exceeds the minimum requirements in the draft NCD and we are optimistic that the results of ECLIPSE trial will confirm that our assay meets those requirements. This development of this draft proposal reaffirms our choice of CRC as a beachhead of our early detection program.

Finally, during the quarter FDA granted emergency use authorization of Guardant-19 for using detection of SARS-CoV-2. The test is being offered to Guardant Health employees and select partner organizations, while we are leveraging our expertise in liquid biopsy testing, and are proud of the contribution that we are making in battling the pandemic, serving cancer patients remain our top focus.

With that, I will now turn the call over to Derek Bertocci for more information and details on our financials. Derek?

[Derek Bertocci, CFO]

Thanks, AmirAli. Revenue for the third quarter of 2020 totaled $74.6 million, up 23% from $60.8 million in the prior year quarter. The increase was driven by an increase in precision oncology testing revenues, resulting from significant increases in clinical sample volume and average selling price or ASP per test, as well as higher development services and other revenue.

Total precision oncology testing revenue for the third quarter was $60.4 million comprised of $48.4 million from clinical tests and $12 million from biopharmaceutical tests.

Precision oncology revenue from clinical tests included $4.3 million in revenue received from Medicare for samples processed in 2019 [ph] Given the age of the samples associated with this revenue, we do not believe it to be indicative of ordinary course of operations.

Third quarter clinical precision oncology volume totaled 16,950 tests, up to 28% from the prior year quarter, and up 24% from the second quarter of 2020, which was especially impacted by the COVID-19 pandemic.

Clinical precision oncology ASP was $2,852 in the third quarter of 2020, up 23% from $2,319 in the prior year period. The 23% increase in clinical ASP over the prior year quarter was due principally to the reimbursement from Medicare for testing of non-lung cancer samples, in addition to lung samples starting in March 2020.

As a result of the evolution of coverage for the testing of Medicare patients, when changes encourage it permitted, we have submitted appeals and revised claims for samples processed in prior years. In the third quarter of 2020, we recorded $4.3 million of revenue for payments from Medicare from appeals and revised claims for samples processed in the prior year.

In the third quarter of 2019, we recorded $5.5 million of revenue from Medicare appeals, excluding the impact of revenue from Medicare appeals. Clinical ASP in the third quarter was approximately $2,600 per sample, down from approximately $2,700 per sample in the second quarter. The decline was due principally to commercial payers with whom we are a non-covered provider, beginning to provide lower payments for tests.

Precision oncology revenue from biopharmaceutical tests in the third quarter totaled $12 million, down 44% from $21.4 million for the prior year quarter. But up 6% from $11.4 million in the second quarter of 2020.

Third quarter pharma precision oncology volume totaled 3071 tests, down 42% for the entire year quarter, but up 9% from the second quarter of 2020, due mainly to additional customer programs. ASP was $3,919, down 3% from $4,052 in the prior year period. The ASP was driven mainly by changes in the proportion of total biopharmaceutical tests using the GuardantOMNI test, which has a higher selling price than the Guardant360 test.

Development services and other revenue in the third quarter totaled $14.2 million, up 63% from the prior year quarter. The increase from the prior year was primarily due to companion diagnostic revenue.

Gross profit for the third quarter of 2020 was $53.4 million, compared to a gross profit of $42.3 million in the same period of prior year. Gross Margin in the third quarter was 72% as compared to 70% during the third quarter of 2019. The increase in gross margin compared to the third quarter of 2019 was primarily due to the increase in clinical precision oncology sample volumes, as well as to the higher clinical precision oncology ASP.

Total operating expenses for the third quarter of 2020 were $127.6 million, a 113% increase from $59.8 million in the third quarter of 2019. R&D expenses for the third quarter of 2020 were $36.2 million, compared to $24.6 million in the third quarter of 2019. The increase was primarily attributable to increased spend to support our LUNAR programs, including the ECLIPSE clinical trial, our FDA submission for garden Guardant360 CDx, and other research and development programs.

Sales and marketing expenses for the third quarter of 2020 were $25.1 million, compared to $18.8 million in the third quarter of 2019. The increase with due to growth in sales and marketing staff, plus spend on programs to increase education and awareness about liquid biopsy.

General and administrative expenses for the third quarter were $66.3 million, compared to $16.4 million in the third quarter of 2019. G&A expenses for the third quarter of 2020 included $15.1 million in stock based compensation or SBC, including expense related to market based restricted stock units, brands, companies founders on May 26 2020, as compared to $1.7 million in SBC in the third quarter of 2019. The remaining increase in G&A expense is $1.5 million, which was primarily due to additional staff to support the growth of the company. Legal expenses, and the cost of compliance with requirements been a large accelerated public filings with the SEC.

Net loss attributable to attributable to Guardant Health common stockholders was $77.7 million or $0.78 per share for the third quarter of 2020 compared to $12.8 million or $0.14 per share in the third quarter of 2019. We ended the third quarter of 2020 with slightly over $1 billion in cash, cash equivalents and marketable securities.

Beginning in the second quarter of 2020, we added disclosure of adjusted EBITDA, a non-GAAP financial measure to our financial reporting, to assist management and investors in evaluating the performance of our core business. By removing the impact of income or expenses attributable to material non-cash items, specifically stock-based compensation, and fair value measurements due to the subjectivity, management judgment, and market fluctuations involved around these amounts.

We exclude certain other items because we believe that these income or expenses do not reflect expected future operating expenses. Additionally, certain items are inconsistent amounts and frequency, making it difficult to perform the meaningful evaluation of our current or past operating performance.

You will find a detailed presentation of non-GAAP adjusted EBITDA and a full reconciliation to GAAP net loss attributable to Guardant Health common stockholders in our Q3 2020 press release results and quarterly 10-Q filed with the SEC.

Our use of adjusted EBITDA as a non-GAAP financial measure is not intended to be considered in isolation from a substitute for or as superior to the corresponding financial measure prepared in accordance with GAAP. Non-GAAP adjusted EBIT was a loss of $14.6 million in the third quarter of 2020, compared to a $9 million loss in the third quarter of 2019.

The impact of COVID-19 created headwinds for the oncology space during the third quarter. And due to its unpredictable evolution, we do not believe that we can reasonably estimate the magnitude or duration of specific impacts on our business. Accordingly, we're not reinstating financial guidance at this time.

Where we sit today, we believe the effects from COVID are likely to continue to impact the oncology space in the near term. As Helmy mentioned, there has been a resurgence of COVID cases in some regions across the US. And we are seeing signs indicating that this resurgence will adversely affect clinical volumes.

While we have been successful in continuing to serve our customers in this environment, we expect that clinical volumes for the fourth quarter will only grow modestly in the low single digits compared to the third quarter 2020 given this resurgence.

Regarding our Biopharma business, we expect that Biopharma sample volumes will continue to grow in Q4 at rate similar to Q3. We expect development services revenue to remain strong and be comparable to Q3.

At this point, I'd like to turn the call back to Helmy for closing comments.

[Helmy Eltoukhy, Co-Founder & CEO]

Thank you, Derek. Before closing, I want to again thank our team at Guardant for the dedication and effort they have shown, particularly over the last few months, I believe we have a truly unique opportunity at Guardant to expand unprecedented access to cancers, molecular information throughout all stages of the disease.

With that, we will now open it up to questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Puneet Souda from SVB. Your line is open.

[Puneet Souda, SVB]

Yeah. Hi, Helmy. Thanks for the question. So first one, on clinical volumes. Clinical volumes didn't decline as much for you during the COVID lows of the second quarter, as compared to the some of the other diagnostic peers. So we weren't expecting a major recovery for you in the third quarter here, given that backdrop. But just trying to understand some of the comments that you made around COVID resurgence, is that - I understand the conservatism there. But is there anything else that we need to keep in mind? You know, after all, the value of G360 liquid has been the ease of access and it's a blood based test and accessible to the patients in their home setting with the phlebotomist.

So just trying to understand, you know, how to frame that, given the second - sort of second wave of COVID, that's coming here, and then on G360 LDT, if you can help us understand if that's going to be meaningful next quarter, obviously, you're having some unique features here with TMB and a number of additional genes?

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah, great question. So in terms of the COVID - in terms of the clinical volume, the efficiency of being able to service and detail physician offices, in a remote and virtual environment is just not the same as you know, being in-person. But I think we saw a very quick recovery to pre-COVID levels because of the agility of our teams on both medical affairs and commercial teams, of really being able to convert to this new normal, this new environment of being able to detail and service our clients and our customers and physicians through this new virtual means.

That being said, I think it's - you know, it's challenging, we're seeing record numbers of COVID cases. I mentioned before that cancer patients have about a 30% mortality rate due to COVID. So, they are a population that is heavily in danger [Technical Difficulty] in this environment. And I think it's why, you know, we're continuing to see growth in this environment. You know, so we saw 28% year-over-year growth in terms of, you know, clinical volume.

I think if you think about what the backdrop looks like in oncology, physicians visit – patients visits are still depressed from pre-COVID times, you know, they’re still at around 90% of where they were. So top of the funnel is still depressed, there is stuck headwinds there and I think those headwinds are going to increase. And so we’re seeing some regions that will do well, where we see growth and all of a sudden where there is resurgence of COVID, you know, there are more office closures, and there's more care been taken by the physicians in those practices. And so we feel very good about in our managing in this environment, but that being said, COVID is still very real and still a very large concern in this environment.

In terms of…

[Puneet Souda, SVB]

Yeah, on G360, and then if I could actually wrap it up into another question. FDA approval of G360 was great to see, can you just walk us through the G360 version to LDT what is the regulatory pathway there as well?

[Helmy Eltoukhy, Co-Founder & CEO]

I think as we alluded to on the call, we now have this framework where we have a FDA approved product with Guardant360 CDx. That product has best in class turnaround time. Its an amazing tool, wealth of clinical evidence supporting it in terms of one of the most previously validated test, liquid biopsy test out there, and its something that is extremely useful for the first-line setting, and very useful for onboarding physicians who maybe aren't used to using CGP in a day in day out basis. And so we see that as a very important piece of our product portfolio.

That being said, the field is continuing to evolve very rapidly, new biomarkers are being added, there are new clinical trials. And so continuing having LDT test, like our next generation Guardant360, which we launched at the same time, is going to be important for us to remain really best in class in terms of biomarkers that are available to test for in terms of our physicians, and for their patients.

And so, Guardant360 LDT is a commitment to continuing to move fast in this field. And we're seeing very nice engagement on both sides, there are early adopters out there that want, you know, look for new biomarkers and look for, you know, essentially next generation types of clinical trials, as well as thinking about the progression setting where you may need to look at some extended options for those patients.

And so we see, having these two products really complement, they complement each other and help really segment the market in a way that drives value for both types of physicians.

[Puneet Souda, SVB]

That's very helpful. And last one, if I could ask Helmy on multi cancer screening, you're a leading company in the space in liquid biopsy. And just wanted to get your thoughts on how Guardant views the multi cancer screening opportunity in the light of the two large pre revenue transactions that have happened in the space?

[Helmy Eltoukhy, Co-Founder & CEO]

AmirAli, do you want to take this?

[AmirAli Talasaz, Co-Founder & President]

Yeah, sure. So as [indiscernible] our lead indication is CRC, we think we are far away, all other kind of players who are trying to build log base CRC screening assay. The performance says that we clearly increased compliance in that space, compliance to screening. The same core platform technology, in fact, is applicable to the set other cancer types. So for different kinds of settings, we have looked at other cancer types like breast cancer and lung cancer.

So - but you know, on the clinical utility side of it, you're starting from CRC and generating evidence on that side and building the regulatory and reimbursement pathway to our lead indication. But you could imagine in terms of the life cycle of our LUNAR-2 assay, other cancer types would be added to – since the core platform is compatible to multi-cancer screening.

[Puneet Souda, SVB]

Okay, great. Thank you.

[Operator]

Tycho Peterson from JPMorgan. Your line is open.

[Tycho Peterson, JPMorgan]

Hey, thanks. Helmy, I'll start with the FDA approval for G360 CDx. Can you just talk on, you know, the expected pace of private payer coverage expansion and how much volume lift in ASP improvement we can expect from the approval?

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah, great question. So, you know, we're definitely seeing a pickup in terms of conversations with private payers, I think there's a lot of momentum there. Certain private payers view FDA approval as one of the last, you know, milestones, in terms of really getting over the hump in terms of reimbursement. So those conversations are happening, and we're seeing progress there. I would say that I think in this quarter, we added - this last quarter, we added over 10 million covered lives. So we continuing to make very good progress on that front.

In terms of improvement in ASP, there are a couple of I think different components to that, especially on the Medicare side. The indication for our FDA approved product is wider in terms of Medicare population, its a test that can be used in the first-line setting, and so rather than just 85% of our Medicare volume being covered, under the LTD, we believe that we can be in the 90% to 95% range for the NCD, that we now are covered by for Guardant360 CDx.

And then I mean, longer term, we think in the next few quarters, we'll be able to qualify for a DLT [ph] status with a unique code. And we think, at least on the Medicare side, that should move up our payment rate from $3500 to something that, you know, would likely be over $4,000. And so we're, you know, very, I think optimistic about continued improvement in ASP over the medium to longer term.

[Tycho Peterson, JPMorgan]

Okay, that's helpful. And then on Omni, the ESMO guidelines now endorse large panels, including the use of a TMB. So, can you talk to how the US guideline conversations are shaping up and whether peer coverage will accelerate or does it largely depends on FDA approval? And how should we think about the difference between the enhanced G360 test versus Omni since both can do TMB now?

[Helmy Eltoukhy, Co-Founder & CEO]

Can I take this AmirAli?

[AmirAli Talasaz, Co-Founder & President]

Yeah, I probably take the last parts in terms of the differentiation of these two products. So as Helmy mentioned, in this Guardant360 LDT is a next generation Guardant360. its treated like – you can look at it more as a market segmentation, but there are a sector of market that FDA approved Guardant360 CDx would be a better fit for their clinical use cases, its going to be FDA approval of Guardant360 CDx, would accelerate some of the guideline enhanced around that product.

Having said that, there's other part of market sector that really they want to have access to the latest and greatest in terms of biomarker testing. And when you think about the lifecycle management of this product portfolio that we are talking about, most probably we can expect. We are not a lifecycle around Guardant360 CDx, and a lifestyle around Guardant360 LDT, and the current version of LDT could be the future generation of CDx, and the next, next generation would be the Guardant360 LDT that we are talking about. But as you know, making some guideline changes will take time.

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah, I think the first part of your question. Yeah, I mean, I think we see it as a certain positive. You know, TMB is broad sequencing, is an important part of CGP. And the more - certainly there have been some payers that have come on board, and we see that as a positive developments into the space.

[Tycho Peterson, JPMorgan]

Okay. And then lastly, on the clinical studies, I think last quarter, you alluded to, maybe you could finish enrolling the ECLIPSE study early. Is that something that is still on the table in your view? And then also, when should we get an update on LUNAR-1 readout time? Thanks.

[Helmy Eltoukhy, Co-Founder & CEO]

So on ECLIPSE, this morning, always we mentioned, we are on track to finish the enrollment on the originally stated timeline of 24 months, which effectively is like November of next year for us. And we are very excited with the progress that we made. And you know, with some of the additional sites that we brought on, we are given a space in use this resurgence of COVID will generate some, you know, maybe short interruption in our trial that we haven't experienced yet. But if it carry some kind of issues, still we would be able to finish the trial on time. So we would be done with it by November of next year, in terms of enrollment.

So our studies are going - studies on LUNAR-1 side is multi years, and it's going to take some time. We are very excited with conversations that we had with KOLs who are using actually LUNAR-1 assay in their clinical trials in the CRC setting. And we've made actually pretty good progress. We've actually - the market leading performance in terms of the technical performance and what it's really required in the clinical setting, to really have MRD test embedded in the clinical workflow, we are very excited that one of our partners have submitted a publication that actually highlights the performance of the test that we have, relative to the experience that they have. So hopefully, when that paper gets published, you know, we can talk about the details at the right time, but we are excited with what we see right now.

[Tycho Peterson, JPMorgan]

Okay, thank you.

[Operator]

Doug Schenkel from Cowen. Your line is open.

[Doug Schenkel, Cowen]

All right. Good afternoon. Thanks for taking my questions. I want to start by going back to the topic of your FDA approval for G360. I'm just wondering if that has changed the tone of discussions with clinicians, especially in the community where, except that some newer technologies, you know, sometimes just takes a little bit more time.

And sort of related to that regarding, again, FDA approval, Foundation Medicine also got approval over the summer, with FoundationOne Liquid? Has that changed competitive dynamics at all? Or would you kind of look at it differently, and maybe suggest that we kind of think about, more FDA approvals in this class being good for all tests, kind of, you know, rising tide lifts all boats, just given how much market is like to penetrate?

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah, no, great question, Doug. So, in terms of the first part of the question, yeah, we are seeing very nice engagement with I would say the middle majority and laggards in the field, having an FDA approval, I think lays to rest, a lot of the doubt, that existed around liquid biopsy. In fact, you know, I think we are seeing record numbers in terms of number of unique physicians ordering the test on a monthly basis. And so, we're seeing, I think, really good metrics in terms of that level of engagement.

That being said, we are in a highly impacted environment with COVID in terms of being in to detail physician offices, in person basis, a lot of it is virtual, there's just no doubt that there's a reduced conversion and reduced ability to sell in a remote environment. So that's going to continue to impact this space.

But, you know, I think we've always said that FDA approval is a catalyst over the medium to longer term. A lot of these physicians that have been slow to adopt it, it will take time to get them to use, you know, these types of tests, and then finally use it on a kind of every patient type of basis. And - but those early conversations have been really good.

And I would agree with the second part of your statement as well, that we see that day approval, even FDA approval by competitors, has really shining a light in terms of the utility of liquid biopsy, that liquid biopsy should be part of the standard of care, really bringing focus to the conversation. And so we see that as a overall positive for the space. We see it as clarifying this space as well, in terms of really reducing the noise that exists, and really just focusing on those FDA approved products in the space.

But that being said, we’re very confident we have, you know, what we believe is really a best in class product in terms of performance, sensitivity of breath, and as well as service level. And so we're - you know, I think we're very bullish and very optimistic in terms of continuing to grow, use of Guardant360 and overall CGP in the space.

[Doug Schenkel, Cowen]

Thanks for that Helmy. And maybe just one more on a different topic, the CMS proposal on, how they are trying to outline a path to reimbursing colorectal cancer, liquid biopsy screening tests. I'm just curious, at a high level, what you think of the proposal, and then more specifically, how this either impacts or doesn't impact your thinking on LUNAR2 timelines in terms of when you could get reimbursement from CMS?

And then kind of the last part, sorry for the long question, but what do you think the most important things are that need to be addressed during the comment, period? Thank you.

[Helmy Eltoukhy, Co-Founder & CEO]

AmirAli, do you want to take this?

[AmirAli Talasaz, Co-Founder & President]

Doug, so you're pretty excited with this broad base CRC screening, it's still in draft form, the proposal. Even without this draft, you know, based on conversation we have with CRC sound bullish, you know, all FDA approval of the test, we could get actually some favorite coverage from CMS. But now, I think the guideline is more clear.

I think that the way the draft was in CRC screening as it is retained [ph] pretty good. And you know, still we have some comments that we're working on, that we would like to see some kind of changes. But in general, it's pretty good in terms of performance matrix that they have, based on all the data that gets presented so far, we go across to about those performance. So then we think those are the right bar, or having a test that could make any impact.

We don't expect this would accelerate our reimbursement timeline in a significant way, but all would be dependents to the - in the time gap between FDA approval and formal CMS approval. We were expecting that timeline would be short but now with this guidance it could be maybe slightly shorter.

[Doug Schenkel, Cowen]

Great. Thank you guys, again.

[Helmy Eltoukhy, Co-Founder & CEO]

Thanks, Doug.

[Operator]

Derik de Bruin from Bank of America. Your line is open.

[Derik de Bruin, Bank of America]

Hi, good afternoon. So the bulk of our incoming questions lately have been around LUNAR-1 and how that test compares to some of the other more personalized TRACERx based methods that are coming in. I mean, other than the workflow advantages, which are - which are clearly obviousness, can you sort of talk about head to head performance? And there's been any studies done into like, how the tests, you know, how LUNAR-1 is going to compare to these other tests in terms of how they're going to perform? That's going to be the real incoming questions that we've gotten from clients.

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah, I would say that, they'll start and then AmirAli can patch in. I think there's a misconception frankly, that something that tissue - is tissue informed is necessarily better than something that is a blood only. And I think what we're seeing with some of the recent data is, you know, we have a very differentiated method by which we're looking very broadly, not just the genomic space, but the epigenomics space.

And you can see that, most companies that are going towards early detection and trying to detect cancer at its earliest stages, are really following a pathway that leads towards epigenomics, methylation on some of these other markers.

And so we feel very confident that we have a very unique approach for the minimum residual disease space, in this in this LUNAR assay we have that looks at both dimensions, the methylation and genomic alteration simultaneously. And we really see no deficit or no reduction and sensitivity versus some of these other methods that, you know, they're sequencing the tumor, but they're kind of just simply looking at a few mutations in the blood and then tracking them.

So we have a very, I think, much more, I think, you know, rigorous comprehensive approach to looking at residual disease. It has a lot of advantages, both from a biology and performance point of view. But just as importantly, from a clinical workflow point of view, being able to actually return result, within a week or two, rather than, you know, many, many, weeks time to treatment, time to making a decision is vitally important in the clinical space. And it's no different in the adjuvant setting.

[Derik de Bruin, Bank of America]

Great…

[AmirAli Talasaz, Co-Founder & President]

You know, as I mentioned the other publication review that's basically publication on one of our KOL partners, so they are waiting for that publication. So if we come in press, and we can talk about it more, but very excited with what they found. So please stay tuned.

[Derik de Bruin, Bank of America]

Great. And then just one quick follow up. Can you talk a little bit about the biopharma volumes, you said, an increase on the quarterly increase between Q3 and Q4, and how should we think about that volume picking up, sort of going into next year? I mean, are you still being restrained by samples not being delivered or they're still issued or trials being delayed, to some sort of color on when you expect the biopharma samples to begin picking up?

[AmirAli Talasaz, Co-Founder & President]

So in terms of actually, Q2, we saw huge impact in August and Q3 was modestly better than Q2, and q4 we are consensus to see similar level of progress relative to Q3, modestly we are growing. And you know, that is still COVID has some impact in terms of the distraction to our biopharma companies have some major programs around some COVID related activities. But also what we are saying is, there is a life cycle in our partnership with pharma companies that conversations are getting graduated from sample testing to prospective studies, and then CDx development, and for different programs one sample testing gets graduated and goes to, let's say, CDX conversation, we are seeing some kind of shift of revenue from one market to the other market, that could generate some kind of up and downs in terms our volume testing, maybe as their…

[Helmy Eltoukhy, Co-Founder & CEO]

Just a couple of other comments that I think are helpful, we were encouraged. While we certainly have a deep trough in Q2, we're encouraged by the growth in Q3, what we expect to see continued growth at that rate of growth in Q4. And underlying that, we're encouraged by the broadening of the base of customers who are working with us. And so if there can be as you know, in the pharma business, individual programs that sort of grow, blossom, and then they complete and then you know, you're filling in with others. But we're what we're happy with is that we're seeing a broadening set base of customers. And so in the future, we're hoping that those will be to the kind of growth that we saw in the past.

[Derik de Bruin, Bank of America]

Thank you.

[Operator]

Brian Weinstein from William Blair. Your line is open.

[Brian Weinstein, William Blair]

Hey, guys. Thanks for taking the question. Just to go back to a couple questions to go on the CMS draft on CRC, I wanted to see if I heard AmirAli comment, right? Did you think that that would potentially shorten the timeframe for coverage, because our readout it was with inclusion now required in one of the guidelines that you might actually extend it? So I wanted to make sure I understood the thought process there. And then also, do you think that there's a need for advanced and a normal goalpost to be added to the final document there?

[Helmy Eltoukhy, Co-Founder & CEO]

Maybe I’ll start, that's actually no different the requirements and kind of statutorily that's required for coverage by CMS in the setting. So we don't really see that as a big difference in terms of previous thinking and what was, you know, typically required versus what's being proposed.

I think this only further, you know, I think, gives us confidence in terms of being able to have a timeline that is extremely quick, and I think reaffirms our choice of colorectal cancer as a beachhead for early detection program.

[AmirAli Talasaz, Co-Founder & President]

So, I think really depends to the clinical application, if you want to increase the compliance rate to screening really like, you know, the performance of early stage detection should be enough. The way that actually we designed the ECLIPSE study, we are going to look at the sensitivity of the Phase 1 in CRC specificity when we look at CRC and advanced carcinoma [ph] because we are expecting that we are going to take that functionality advance carcinoma cases. But in terms of guidance and requirement for broad base based on everything we know in this field and conversation we had with KOLs having even broad based assay that can detect early stage CRC can increase compliance rate in a very significant way. So maybe that performance criteria they have should be sufficient.

[Brian Weinstein, William Blair]

Got it. Thank you. And then separately, have you guys looked at or are you interested in the nodule management space? Given how deep you are in lung cancer management? Does it make sense for you to enter the discussion there around something maybe post-CT nodule management, we saw a small study or like you were involved in there, but I'm really just not sure how much to make it big, because I don't think I've heard you talk about it before?

[AmirAli Talasaz, Co-Founder & President]

Maybe look at those as pipeline activities for us. You know, we eventually I think some line data and a few months before we went - I guess, even two years ago, or more than two years ago. So the reality of this platform technology is it's really a multi-cancer platform technology. We have seen some performers in bunch of cancer types already. Still, we have a bunch of work ahead of us. Still, we don't want to distract ourselves on the [indiscernible] this time, we get to the utility of other cancer types besides CRC.

When you look at it this way that what we are - the platform technology that we have, not only look at genomic markers, but we can look genomics, but methylation patterns, fragmentation patterns, which basically the signals could come from multiple sources, like you know, from, from tumor microenvironment, potentially even some signals from immune response. That's what we are asking with our platform technology, which is a very broad concept. And we are excited with some early data that we have, but those are very early. So let's look at those more as pipeline activities for us.

[Brian Weinstein, William Blair]

Understood. Thank you.

[Helmy Eltoukhy, Co-Founder & CEO]

Thanks, Brian.

[Operator]

Patrick Donnelly from Citi. Your line is open.

[Patrick Donnelly, Citi]

Thanks. Helmy, maybe one for you, just on the resurgence, on the clinical volume side for 4Q. Just trying to figure out I guess how much impact you guys have seen quarter to date already in terms of the October trends versus some level of conservatism baked in? I mean, I know even three months ago, you guys had some conservatives for 3Q with the potential second wave. How are you viewing this quarter in terms of the resurgence? I mean, how much impact have you seen already? And how much are you seeing kind of currently versus the fear of what's to come, I guess, in the next two months or so?

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah, that's a good question. I would say it's really along the lines of what we commented on back in our Q2 earnings call. We're seeing these regional flare-ups. We're seeing impact on kind of short term basis, depending on the region and the level of fear that exists. And, you know, clearly we're in a much more, I would say, high alert time, the US crossing 100,000 cases per day, in terms of new infections.

And so there's I think a well founded - you know, I think it's a level of - you know, I think, a well founded kind of level of - I think, conservatism on the part of the physicians in terms of really trying to make sure that they keep their patients as healthy as possible.

We're also - this is not just reflected in our own data, you're seeing in the patient visit data, and overall oncology field data, that there's a fluctuation there from week to week, in terms of in-person patient visits.

The field in general has moved very significantly to remote visits. And so all of that reduces the number of opportunities for patient engagement and physician engagement. Virtual calling is, you know, just not as effective as being in-person.

But that being said, we are seeing excellent metrics in terms of number of physician, as in terms of unique physician orders, really, in terms of share of voice in the field. So, we're very confident that despite these headwinds, we're doing, I think, you know, something that is really second to none in terms of the ontology diagnostic space. But it's going to continue to be a challenge. It's not the same type of conversion that we had a year ago, pre COVID.

[Patrick Donnelly, Citi]

That's helpful. And then maybe just pick up on your last point there, I was kind of wondering how orders tracked for the unique new physician versus existing accounts. To your point, they're just about kind of virtually calling, how do you see the ability to open these new accounts during what was pretty nice recovering 3Q, did you see that accelerate? And how should we expect that to trend in the near future here?

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah, we saw a low in Q2. But that being said, we're back, you know, I wouldn't say we're back to 100%, in terms of new ordering MDS, but very close to that in terms of Q3. So we still have the ability to be able to add new physicians. We certainly think that the approval is something that has helped, as well, help us not just engage new positions, but re-engage those, that maybe tried us a long time ago. And now realize that this is much more validated and something that is worth their time.

[Patrick Donnelly, Citi]

Great, thanks, Helmy.

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah, thanks.

[Operator]

Tejas Savant from Morgan Stanley. Your line is open.

[Tejas Savant, Morgan Stanley]

Hey, guys. Good evening. So just a couple of ones you're telling me AmirAli. So first on GuardantINFORM, you know, you've probably got north of 100,000 patients in the clinical genomic database here. So can you update us on some of the work you're doing there to monetize that offering and what the pipeline looks like? Particularly since you know, it's likely to be a very high margin offering for you?

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah, it's good. AmirAli, do you want to take that?

[AmirAli Talasaz, Co-Founder & President]

Yeah, sure. So that's very exciting business for us. From business perspective also generating lots of new clinical data to show the value of liquid biopsy there, and that we are even more excited in what we're doing in GuardantINFORM looking at the longitudinal real world evidence. One of the unique advantage of liquid biopsy is and you know, the database that we have is multiple lead time points that we have from different patients.

And you could really see what's happening to a patient as a result of treatments over the course of relatively long period of time, when a patient is getting tested multiple times, that has opened up some interesting opportunities for us.

The sideline into real world evidence in terms of single points. Data, we've seen a lot of excitement by our biopharma partners, almost with all biopharma partners that we had, we had some interesting conversation around GuardantINFORM, we have signed bunch of deals and many more deals are in the pipeline of conversation.

Still its ready for us so, and we have to go through this process of conversation to really be able to access that offer [indiscernible] for next year better. So - but it's an exciting area of emerging business for us.

[Tejas Savant, Morgan Stanley]

Got it. And then just a couple of ones on LUNAR here. I mean, just in terms of the implications of the Palmetto draft LCD, would you consider accelerating your plans to submit for other indications beyond colorectal, particularly, as you know, the space gets a little bit more competitive here, in light of the supportive reimbursement landscape.

And then on LUNAR-2 I mean, this goes back to an earlier question around, you know, some of the M&A activity in the space, but in terms of your own commercial channel, build out efforts ahead of launch, are you sort of incrementally more open to considering partnerships in the space versus a go it alone strategy, as far as that, you know, targeting those physicians is concerned?

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah, no, great question. So and the first one, we've always had a roadmap of starting with initial beachhead cancer, that's colorectal for LUNAR1program. And we've made excellent progress there. And I think we're very excited with the capabilities of the platform.

But that being said, we have research and multiple cancer types. We're very confident from the data, you know, we have, but we can make a big impact in terms of the field and other cancer types as well, and some of the main cancer types that would benefit from residual disease monitoring, or recurrence monitoring.

We think we have some unique capabilities for the platform and some of those other cancer types that, you know, maybe aren't very amenable to some of the more simplistic approaches that are out there. So yeah, that's certainly something that is in our roadmap, and something that certainly going to be a next step for us.

I would say, in terms of the LUNAR-2 side of things. Can you remind me what the question was?

[Tejas Savant, Morgan Stanley]

Yeah. So I was just asking around your plans for the commercial channel build out. I mean, given that the other partnerships that have just been struck in the space?

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah, so we're certainly open to those types of partnerships. We partner with many of our pharma companies on the therapy selection side in terms of the companion diagnostic component of our test. And that's going to be no different on the early detection.

So that being said, I think we are in the early stages of planning in terms of the building out that commercial channel. It is a very different commercial channel in terms of the primary care setting. It's one of the reasons we, you know, did this recent fundraising a couple quarters ago, is to really be able to invest in building out a really differentiated and leading commercial channel in that space. And doing so in a way that's aggressive that is timed, you know, with a potential launch of a product in for colorectal screening.

So, yeah, it's something we're very committed to. And we believe that really making sure that we engage all channels, not just, you know, personal promotion, but digital promotion, direct to consumer, as well as partnering with other stakeholders, as those are all on the table and all going to be components of our commercial framework.

[Tejas Savant, Morgan Stanley]

Got it. Thanks so much for the color.

[Helmy Eltoukhy, Co-Founder & CEO]

Thanks.

[Operator]

[Operator Instructions] Your next question comes from the line of Sung Ji Nam from BTIG. Your line is open.

[Sung Ji Nam, BTIG]

Hi, thanks for taking the questions. Just a couple of quick ones. Firstly, I was curious, what's the rationale of the enhanced Guardant360 versus, I guess more broadly using GuardantOMNI? Are there different use cases? And also, I mean, are there were - you know, are there price sensitivity factors involved? Because I've always thought that Omni was kind of the next generation 360?

And then the follow up question is totally different. It's just - I know, it's a not a core business, but with your contributions from COVID testing this quarter, and do you anticipate meaningful contribution, given I think the capacity you guys have it pretty sizable in the coming quarters? Thank you.

[Helmy Eltoukhy, Co-Founder & CEO]

AmirAli, do you want to take?

[AmirAli Talasaz, Co-Founder & President]

Yeah, regarding Guardant360 LDC, the next generation, what- in a market that we DRx is to be in, not many doctors in fact would enjoy it, I think a lot of information that a 500 gene panel like GuardantOMNI produces. And in fact, it could be negative for them. So that's from a customer's side.

And on the reimbursement side, there are definitely some anxiety of using extremely broad panels in terms of potential off label drug uses for biomarkers that may be their clinical relevance of those biomarkers. At this time, it's not proven yet. So we think the next generation Guardant360 pro clinical testing that this product is what we put in the market, one side as a tool mega based panel similar to Omni that we have for pharma. And basically does the TNB calling [ph] based on that contest.

And also look at 80 plus genes, which are very clinically relevant, and also we enhance that panel, as Helmy mentioned, attract site, HRD sites to really match all the biomarkers that based on guidelines, people are interested to test.

And then, COVID, yeah, so regarding COVID, actually, we, maybe let Derek comment about our COVID revenue in Q3. But since it's not really the focus of our business, we are not really expecting COVID revenue to play a massive role in our revenue in Q4 and the quarters to come. Because really like you are laser focusing there on COVID.

Having said that, we are excited about this EUA component. We got really like the offering of the test to Guardant employees and partners and maybe making our working environment as safe as we can, has been very important for us to keep the productivity level high during this pandemic with, you know, state of mind that you know, that our employees have, now that you're doing this testing for Guardant employees.

Also, we open it up to a bunch of partners, but we are not commercially pushing it in a significant way. Derek?

[Derek Bertocci, CFO]

Yeah. So Sung Ji, we recorded a $1 million worth of revenue for COVID-19 tests. And we report it in the development services line items. Because we don't want to confuse or combine it with our oncology testing, which is precision oncology testing. So that has stayed clean and it's really small, sitting in the development services. And we don't as AmirAli suggested, we are not working on it to become a bigger element and we don't expect it to become the element.

[Sung Ji Nam, BTIG]

Sounds great. Thank you so much.

[Helmy Eltoukhy, Co-Founder & CEO]

Thank you.

[Operator]

There are no further questions at this time. And this concludes today's conference call. You may now disconnect. Thank you.

[Helmy Eltoukhy, Co-Founder & CEO]

Yeah. Thank you.