Guardant Health

Guardant reported 44% revenue growth and 66,000 Shield colorectal cancer screening tests during the second quarter, representing a 50% sequential increase. Management raised full-year revenue guidance to $1.35 billion at the midpoint, 3% higher than the guidance provided in May.

Why it matters: This was another strong result and guidance raise. Full-year guidance for Shield revenue was upgraded to $224 million at the midpoint, an increase of 16.7% from previous guidance, based on 280,000-285,000 tests at an average selling price of about $808 per test. On July 1, UnitedHealth Group agreed to cover Shield for adults 45 years or older, and became the first major US commercial payer to do so. We view this as a strong vote of confidence for Shield from the US's largest commercial payer and as boding well for broader commercial coverage in the future. Although Reveal (molecular residual disease testing) sales are not disclosed, volumes increased over 100% year over year. Reveal continues to be Guardant's fastest-growing product, driven by increasing adoption of the therapy-monitoring use case.

The bottom line: We increase our fair value for no-moat Guardant to $105 per share (from $90) driven by upgrades to our 10-year forecasts for Reveal and Shield sales to $900 million and $3.4 billion (from $500 million and $2.5 b billion), respectively. We still view shares as overvalued and trading in 2-star territory. Guardant's business should have strong growth momentum for the next few years at least, and we expect results to continue to outpace management's own guidance. However, for long-term investors, we caution that there remains significant uncertainty about how its key markets will develop over the long term.

We maintain our fair value estimate of $105 per share.

We expect revenue to grow to over $7 billion in 10 years. This includes over $3 billion for oncology (which includes over $2 billion for Guardant360 and $900 million for Reveal) and $3.4 billion for Shield. Our forecast for Shield assumes 4.5 million tests per year at a price of $750 each. Assuming a testing interval of once every three years, this corresponds to about 11-12% market share of the 120 million American patients aged 45-75 who are recommended for colorectal cancer screening.

We also include a tentative projection of $700 million for multi-cancer early detection. We do not have good visibility on this market, as it could be much larger or much smaller. At this point in time, we think the current technology has limited clinical benefit and does not justify a large market space, but the US has passed legislation that will enable Medicare coverage starting in 2028 and sales could eventually be much larger than our tentative projection.

We forecast EBITDA margins of around 30% in 10 years' time, which we think is quite optimistic but still possible if the business achieves sufficient scale with its current suite of molecular diagnostics.

We forecast the company will be loss-making and cash flow negative until around 2028.

We give Guardant a no-moat rating. It is the first entrant in the liquid-based colorectal cancer screening market and one of the early entrants in the molecular residual disease market. We view both of these as large potential opportunities, but the technologies are still in the early stage of commercialization with significant uncertainty surrounding reimbursement, regulatory approval, and future competitive threats.

Guardant is a leader in liquid biopsy tests, and its core offerings can be roughly split into three categories: genomic profiling of advanced tumors for biomarkers that can guide therapy selection with Guardant360 LDT and Guardant360 CDx, MRD testing and recurrence monitoring after surgical resection with its tumor-agnostic test Reveal, and screening for early-stage colorectal cancer with its liquid biopsy Shield.

Guardant360 Liquid and Guardant360 CDx are its flagship therapy selection tests, and most of the firm’s current revenue is derived from this segment. Guardant360 Liquid was launched in 2014 as a lab-developed test under the name Guardant360 LDT. It now measures over 740 cancer-related genes in the patient’s blood sample and supports all guideline-recommended biomarkers. In August 2020, the FDA approved Guardant360 CDx for clinical use as a companion diagnostic, making Guardant the first company with an FDA-approved liquid biopsy for cancer treatment. This assay tests for 74 genes that can help guide a patient’s treatment plan, and is approved as a companion diagnostic for a number of blockbuster cancer drugs, including Tagrisso (EGFR), Enhertu (HER2), and several others. Although Guardant has a strong brand in liquid-based therapy selection assays, and we think it will rapidly gain market share in the midterm, we think it has relatively low technological barriers to entry and will likely be a competitive market in the long run.

Although therapy selection is Guardant’s main revenue driver right now, in the future, we expect over 50% of its sales will come from MRD testing and colorectal cancer screening. Its MRD test Reveal was launched in 2021, and Guardant commands the second-largest share after market leader Natera. Reveal’s differentiating feature is that it is tumor-agnostic, which means it does not require any of the patient’s tumor tissue. It currently has US approval and Medicare coverage for use in the adjuvant setting of Stage 2 and 3 colorectal cancers as well as the surveillance setting of colorectal cancer.

Natera’s Signatera MRD test is "tumor-informed" and requires a one-time profiling of tumor tissue to improve the liquid-based test’s sensitivity and specificity. Reveal has a simpler workflow, has much faster turnaround for the first test (seven days versus several weeks), and can be used in patients where tumor tissue is unavailable, which is approximately 10%-20% of cases. If Guardant succeeds in establishing its position in this market, we think it has an excellent opportunity to dig a moat, especially since we expect the need to collect clinical data will be a significant barrier to entry for this market.

Currently, the clinical data supporting the various use cases of MRD tests in solid tumors is still developing, and we believe companies that can demonstrate prognostic and predictive value of their MRD tests in specific indications will have a powerful competitive advantage. Right now, MRD testing has the most validation in the adjuvant setting, especially for therapy escalation decisions in higher-risk or stage 3 patients. In the long term, the surveillance setting might be the bigger market.

Guardant is the first mover in liquid-based colorectal cancer screening with its Shield test, which launched as a lab-developed test in May 2022 and received FDA approval in 2024. Prior to broader commercial coverage, we expect the company to focus on the Medicare-covered patient population 65 and older. We estimate the market opportunity at $18 billion-$20 billion for colorectal cancer screening alone. If it is successful in colorectal cancer, we expect the company will quickly approach other major targets, with lung cancer likely to be the next indication. Guardant believes coverage decisions for individual indications will be easier to obtain from payers compared with multicancer, since there is an established framework in place for single-cancer screening already. We also think this can be a potentially moaty market for Guardant, but there are still some hurdles the company will have to overcome to cement Shield as a broadly reimbursed test. Shield could be included in the US Preventive Services Task Force guidelines around 2026, which is a requirement for broad commercial reimbursement.

Guardant will likely be one of several players in the multi-cancer early detection market. However, we do not have good visibility into how this market will ultimately play out. In February 2026, the US passed legislation that authorizes Medicare coverage of MCED testing starting in 2028. Unfortunately, unlike Shield and other colorectal cancer screening tests, we think the current generation of MCED tests does not demonstrate clear clinical benefit due to low specificity, low positive predictive value, and low sensitivity for early-stage solid tumors. Assuming the technology does not see a large improvement in these metrics, we need to see greater buy-in from the practitioner community before we assign high value to this business.

Although we think it is more likely than not that Guardant will achieve positive returns within 10 years, as modeled in our base-scenario scenario, we see a material risk of value destruction given the early stage of commercialization for Reveal and Shield and the competitive crowding in the liquid biopsy space. Additionally, we think it is unlikely Guardant will be profitable until 2028, which approximately coincides with Shield’s broad payer coverage after inclusion in USPSTF guidelines.

Guardant is a leader in liquid biopsy, has been a step ahead of the competition, and is making steady progress toward profitability around 2028.

Guardant’s is building a strong foothold in the MRD market with Reveal, which we view as a market with strong barriers to entry due to clinical data requirements.

Market estimates for Guardant could prove conservative if liquid biopsy adoption occurs faster than anticipated.

Guardant’s Shield could face stiff competition if multicancer early-detection tests eventually achieve comparable sensitivity and pricing.

The prospect of USPSTF guideline inclusion for Shield around 2026-27 (which determines commercial coverage) remains murky.

Although Guardant should enjoy strong growth momentum over the next few years, there is vast uncertainty in how its markets will develop after that.