Guardant Health, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. Amounts below are in U.S. dollars. Guardant Health develops and commercializes precision oncology tests and related services, including liquid biopsies for advanced cancer and its Shield colorectal cancer screening test.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $117.4M | $94.8M | $322.6M | $265.5M |
| Precision oncology testing revenue | $102.1M | $79.3M | $278.3M | $215.6M |
| Development services and other revenue | $15.4M | $15.5M | $44.4M | $49.9M |
| Gross profit and gross margin | $76.9M; 65.5% | $64.0M; 67.5% | $213.4M; 66.2% | $176.1M; 66.3% |
| Operating loss | $(144.6)M | $(107.3)M | $(398.3)M | $(312.8)M |
| Net loss | $(162.0)M | $(107.5)M | $(514.7)M | $(312.5)M |
| Net loss per share, diluted | $(1.58) | $(1.06) | $(5.04) | $(3.11) |
| Cash used in operating activities | Not presented quarterly | $(218.7)M | $(132.0)M |
At September 30, 2022, cash and cash equivalents were $158.3M and marketable debt securities were approximately $956.5M, for combined cash and marketable debt securities of about $1.115B. The company reported $1.137B of convertible notes, net ($1.15B principal), due in 2027, and $166.7M of stockholders’ equity. Nine-month capital expenditures were $67.5M.
Material changes versus the prior period
- Q3 revenue rose 24%; precision oncology testing revenue increased 29%, supported by higher clinical and biopharmaceutical test volumes. Clinical tests were approximately 32,400 versus 22,806; biopharmaceutical tests were approximately 6,750 versus 4,839.
- For the first nine months, revenue rose 22%, while development services and other revenue declined 11%, primarily reflecting changes in collaboration projects and the discontinuation of Guardant-19 tests.
- Q3 operating expenses increased, notably research and development by 41% and sales and marketing by 60%, reflecting product development, clinical studies, commercial expansion and launch support. General and administrative expense fell 18%, mainly because market-based stock compensation was lower.
- Operating cash use increased to $218.7M from $132.0M for the comparable nine-month period. The company completed its acquisition of SoftBank’s Joint Venture interest for $177.8M in cash; a related $99.8M fair-value adjustment contributed to the nine-month loss.
Outlook, risks and unusual items
- Management expects continued losses and higher spending on research and development, clinical studies, sales and marketing; it also expects possible increased capital needs for laboratory capacity. It stated that available cash, cash equivalents, marketable debt securities and anticipated cash flows should fund the current plan for more than 12 months from the filing date. No numerical revenue or earnings guidance was provided in the filing text.
- Q3 other expense included $13.2M of unrealized losses on marketable equity securities and a $5.3M impairment related to rights to purchase a non-marketable investee. Nine-month results also included the $99.8M Joint Venture liability fair-value adjustment.
- Key business risks include uncertain payer coverage and reimbursement, revenue-estimation variability, customer and test-volume mix, clinical-study execution, and availability of critical laboratory supplies. Management cited pandemic-related disruption and potential U.S.-China geopolitical effects on international partnerships.
- Legal matters include patent litigation with TwinStrand Biosciences, Illumina’s intellectual-property and trade-secret claims, a false-advertising dispute with Natera, and a U.S. Attorney’s Civil Investigative Demand regarding Guardant360 billing to government-funded programs. The company is defending or cooperating as applicable; outcomes and potential losses are uncertain and generally not estimable from the filing.
- Customer concentration is notable: Customer A represented 30% of revenue in both Q3 and the first nine months of 2022.
Investor verification points
- Track clinical and biopharmaceutical test volumes, realized reimbursement and revenue per test, including any subsequent-period revenue adjustments.
- Assess whether revenue growth can outpace rising research, commercial and infrastructure costs, and monitor operating cash burn and liquidity.
- Review progress and evidence from Shield’s ECLIPSE study and other clinical programs, along with regulatory and reimbursement milestones.
- Monitor the outcome and financial implications of the disclosed litigation and government investigation.
- Verify the performance and carrying values of marketable and non-marketable investments, and the ongoing impact of the Joint Venture acquisition and convertible notes.