Guardant Health, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This annual filing also reports unaudited quarterly results, including the quarter ended December 31, 2020. Guardant Health develops blood-based precision-oncology tests and related data and research services.
Financial and operating results
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $286.7 million | $214.4 million | +34% |
| Precision oncology testing revenue | $236.3 million | $180.5 million | +31% |
| Development services and other revenue | $50.4 million | $33.9 million | +49% |
| Gross profit / gross margin | $194.2 million / 68% | $143.7 million / 67% | Margin +1 percentage point |
| Operating loss | $255.0 million | $82.4 million | Loss widened |
| Net loss | $246.3 million | $67.9 million | Loss widened |
| Net loss attributable to common stockholders | $253.8 million; $2.60 per share | $75.7 million; $0.84 per share | Loss widened |
| Cash used in operating activities | $103.9 million | $47.1 million | Use increased |
| Cash, cash equivalents and marketable securities | $2.04 billion | $791.6 million | Up substantially |
Clinical testing revenue grew to $171.8 million, up 70%, with 63,254 clinical tests sold versus 49,926 in 2019. Biopharmaceutical testing revenue fell to $64.5 million from $79.5 million, and test volume declined to 15,983 from 20,643, primarily reflecting clinical-trial timing. FY2020 non-GAAP adjusted EBITDA loss was $85.2 million versus $53.3 million in 2019; this measure excludes, among other items, substantial stock-based compensation.
In Q4 2020, revenue was $78.3 million versus $62.9 million in Q4 2019. Net loss was $93.0 million, compared with $22.1 million; loss attributable to common stockholders was $93.7 million versus $25.2 million. General and administrative expense was $69.5 million in Q4 2020, including elevated stock-based compensation.
Liquidity, debt and capital
At December 31, 2020, cash and cash equivalents were $833.0 million, short-term marketable securities $961.9 million and long-term marketable securities $246.6 million. Working capital was $1.82 billion. Management said available liquidity and anticipated operating cash flows were expected to fund requirements for more than 12 months from the filing date, while noting additional capital could be needed if plans or operating results underperform.
In November 2020, the company issued $1.15 billion of 0% convertible senior notes due 2027. Their year-end net carrying amount was $806.3 million; the reported estimated fair value was $1.3 billion. The initial conversion price was approximately $139.82 per share. The company spent $90.0 million on related note hedges. Financing cash flow was $1.41 billion, largely from the notes and a June 2020 stock offering that generated $354.6 million net proceeds.
Material changes, outlook and notable items
- Revenue growth reflected higher clinical test volume, improved average clinical reimbursement and expanded Medicare coverage for qualifying solid-tumor patients. The company reported $11.0 million of FY2020 Medicare revenue collected for samples processed in 2019.
- Operating expenses rose sharply: R&D increased 74% to $149.9 million; sales and marketing rose 36% to $106.5 million; and G&A increased 214% to $192.8 million. G&A included $123.0 million of stock-based compensation, including expense associated with market-based awards to the CEO and COO. Total stock-based compensation was $144.1 million, versus $17.0 million in 2019.
- FY2020 operating cash use increased to $103.9 million. Investing cash use was $617.1 million, including $1.13 billion of marketable-security purchases, $36.2 million of property and equipment purchases, and $17.9 million of intangible-asset purchases; maturities of securities partly offset purchases.
- One-time or unusual items included an $8.5 million R&D charge for acquired in-process technology and $1.2 million of settlement expense related to a patent license acquisition. Other income included $1.8 million of CARES Act relief and a $1.0 million patent-dispute settlement receipt. The company also recorded a $7.2 million credit-loss adjustment and others in operating cash-flow reconciliation.
- Guardant360 CDx received FDA approval in August 2020 and was the first FDA-approved comprehensive liquid-biopsy test for tumor mutation profiling in solid tumors; Guardant Reveal launched in February 2021, after year-end. The company also launched GuardantINFORM in 2020 and received emergency use authorization for its Guardant-19 test.
- No specific numerical revenue or earnings guidance is provided in the filing text. Management expects research and development and sales and marketing spending to increase as it develops products, conducts trials and expands commercially. It expects continued operating losses in the near term.
- COVID-19 reduced access to customers and samples, affected clinical-study enrollment and biopharmaceutical trial activity, and created supply and operating uncertainty. Management said the duration and financial impact could not be reliably estimated.
Key risks and contingencies
- Continuing losses, uncertain path to profitability, and dependence on test sales and future payer reimbursement.
- Commercial payer coverage, reimbursement levels, retrospective adjustments and claim collections are uncertain; payer concentration and coding changes could affect revenue. Medicare billing for Guardant360 CDx awaited a new code and pricing process described in the filing.
- Intense competition, lengthy product development and clinical validation, and uncertainty around adoption and commercial success of early-detection and residual-disease products.
- Regulatory and compliance exposure, including potential changes to FDA oversight of laboratory-developed tests, laboratory licensing, privacy and healthcare fraud-and-abuse rules.
- Reliance on a single Redwood City laboratory and limited suppliers, including Illumina for sequencers and related service; disruption could impair testing operations.
- Patent litigation with Foundation Medicine remained pending, including PTAB challenges; the company said it could not reasonably estimate the likelihood of invalidation or loss. The filing states that litigation losses generally could not be reasonably estimated. A separate dispute with Personal Genome Diagnostics was settled in August 2020.
- Two facility leases signed in 2020 had not commenced at year-end and represented $239.5 million of additional future minimum payments; existing operating lease obligations were $60.6 million.
- The SoftBank joint venture has put-call provisions that could require a purchase of SoftBank’s interest, potentially creating significant cash outflow or dilution.
Most important facts for investors to verify
- Whether clinical test growth and higher average reimbursement persist, and how payer collections, denials, appeals and retrospective adjustments affect revenue and cash conversion.
- Whether the decline in biopharmaceutical test volume reverses, given dependence on customer trial timing and concentration: the top five biopharmaceutical customers represented 27% of FY2020 revenue.
- How much of the higher FY2020 net loss reflects recurring investment versus the unusual increase in stock-based compensation and other one-time charges.
- Guardant360 CDx’s Medicare coding, pricing and reimbursement status, and the clinical evidence and commercialization progress for Guardant Reveal and LUNAR products.
- Liquidity use, the costs and occupancy of the new facilities, and the potential conversion, dilution or cash-settlement effects of the 2027 notes and SoftBank joint-venture provisions.
- Status and possible financial consequences of patent disputes, regulatory developments, COVID-19 effects and supplier or laboratory-capacity risks.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2020.