Dive Brief:

• Guardant Health beat analyst expectations in the third quarter, pulling in $74.6 million in revenue as testing levels returned to pre-pandemic levels.

• However, management warned investors on a Thursday earnings call that the pace of the recovery is set to slow as the surge in COVID-19 cases in the U.S. ratchets up pressure on the healthcare system. 

• The ease of administering liquid biopsies could give those diagnostics a potential advantage over other forms of testing in times of reduced in-person activity, but Guardant expects any benefits to be offset by the restrictions on its face-to-face interactions with physicians with growth expected to slow in the fourth quarter. 

Dive Insight:

Guardant has continued growing throughout the pandemic, reporting a 23% sales increase in the second quarter, but COVID-19 has still held back its business. The headwind eased somewhat in the third quarter, enabling Guardant to grow clinical volumes for tumor mutation profiling liquid biopsy Guardant360 by 24% sequentially and beat the consensus analyst sales forecast by around $8 million.  

However, growth is set to slow in the fourth quarter. With the U.S. reporting over 100,000 COVID-19 cases a day this week, the headwind caused by the pandemic could worsen, leading Guardant to predict clinical volumes will only grow sequentially in the low single digits in the fourth quarter.

The prediction drew a question from SVB Leerink analyst Puneet Souda, who asked why COVID-19 is slowing Guardant360 growth given "the value of 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." Guardant CEO Helmy Eltoukhy responded by pointing to two factors putting pressure on growth. 

"The efficiency of being able to service and detail physician offices in a remote and virtual environment is just not the same as ... being in-person," Eltoukhy said. "Patient visits are still depressed from pre-COVID times. They're still at around 90% of where they were. So the top of the funnel is still depressed. I think those headwinds are going to increase."

Guardant is seeing growth in some regions suddenly affected by the local resurgence of COVID-19. As the number of cases in an area rises, Guardant loses the ability to detail physicians offices in-person, leading to "reduced conversion and reduced ability to sell," Eltoukhy said.

SVB Leerink's Souda in a note called virtual visits "good but imperfect substitutes" for in-person sales, which is reflective of cancer care during the pandemic. However, Souda said the firm sees it as a near-term phenomenon. 

The sales team is facing those challenges at a time when it may otherwise be able to drive an uptick in growth. In August, Guardant won FDA approval for Guardant360 CDx. Guardant360 was already available as a laboratory developed test but Guardant sees advantages to having the agency's approval.

Cowen analysts in a Friday note called management's update "encouraging" on the FDA-approved Guardant360 CDx , which is expected to further strengthen reimbursement from private payers and improve CMS pricing. 

"Certain private payers view FDA approval as one of the last milestones in terms of really getting over the hump in terms of reimbursement. So those conversations are happening, and we're seeing progress there. [For clinicians,] having FDA approval I think lays to rest a lot of the doubt that existed around liquid biopsy," Eltoukhy said.

Eltoukhy foresees the approval leading to an improved Medicare payment rate, potentially rising from $3,500 to more than $4,000.