Overview
Guardant continues to carry a premium and EV/Sales multiple of ~20X. Our claims index, which correctly forecasted upside in the last 3 quarters, is now indicating clinical sample volume will be lower sequentially based on data through the first 2 months of the quarter and before COVID-19. Anecdotally, COVID-19 is impacting cancer treatments, including biopsies and blood draws, that will have a material impact on sample volume. Under a negative revenue revision cycle, we don't believe GH will hold its current valuation.
We will publish an invite shortly with details to access the presentation.
Thesis Points
- Volume trending sequentially lower 1Q20 versus 4Q19, even before the impact of COVID-19 late in the quarter, setting up a disappointing revenue print and calling into question 2020 guidance.
- COVID-19's is impacting the care of cancer patients who are often immune compromised and at significant risk from contracting the virus. Anecdotally, elective procedure delays include cancer biopsies.
- Historically, the impact of a recession on venture backed biopharma can last multiple years following the end of a recession. Even with a resolution of COVID-19 in the near term, we'd expect the appetite for speculative assets to be significantly lower for several years, similar to prior downturns. For Guardant this will impact the non-clinical testing businesses focused on BioPharma testing and development services, or close to 50% of their revenue.
- Clinical testing volume has not changed since National Coverage Decision and we do not see evidence that testing outside of lung cancer has changed significantly. The company guided to an impact on pricing and volume beginning 2Q20, but we would expect clinical adoption to happen sooner if demand were strong.
- Colon Cancer screening results are interesting, but highly speculative and well beyond current thesis time frame.
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