Guardant Health, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Guardant Health develops and commercializes precision oncology tests and related services, including its Shield early cancer detection test. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $128.7 | $96.1 |
| Gross profit and gross margin | $75.6; 58.8% | $64.1; 66.7% |
| Operating loss | ($134.1) | ($123.3) |
| Net loss | ($133.5) | ($123.2) |
| Net loss per share, diluted | ($1.30) | ($1.21) |
| Cash used in operating activities | ($74.4) | ($28.6) |
Precision oncology testing revenue was $113.4 million, up 35%; development services and other revenue was $15.3 million, up 28%. Cash and cash equivalents were $223.6 million and short-term marketable debt securities were $713.4 million at March 31, 2023, totaling approximately $937.0 million. Current assets were $1.104 billion versus current liabilities of $204.2 million.
The company reported $1.150 billion principal amount of 0% convertible senior notes due 2027, with a net carrying amount of $1.138 billion. Stockholders’ equity was negative $44.6 million, and accumulated deficit was $1.796 billion.
Material changes versus the prior-year quarter
- Revenue increased 34%, driven primarily by clinical testing: clinical customer tests rose to over 39,100 from approximately 27,100, and related revenue grew 39% to $91.5 million.
- Biopharmaceutical testing revenue increased to $21.8 million from $18.1 million; test volume rose to approximately 6,150 from 5,100.
- Cost of revenue rose 66% to $53.1 million, faster than revenue growth, reducing gross margin to 58.8% from 66.7%.
- Research and development expense increased 14% to $93.1 million and sales and marketing expense increased 18% to $76.1 million. General and administrative expense declined 2% to $40.4 million, including $7.5 million of severance costs associated with a workforce reduction.
- Operating cash use increased to $74.4 million from $28.6 million. Investing activities provided $157.2 million, mainly due to maturities of marketable securities; this offset the operating cash outflow in the quarter.
Outlook, risks and unusual items
- Management expects existing cash, cash equivalents, marketable debt securities and anticipated operating cash flows to cover anticipated cash requirements for more than 12 months from the filing date. The company expects further operating losses and increased investment in clinical studies, product development, sales and marketing; it may seek additional capital if performance falls short of its operating plan.
- Management reported that the Shield ECLIPSE study met co-primary endpoints; the filing cites 83% sensitivity for colorectal cancer and 90% specificity. The company submitted a premarket approval application for Shield to the FDA in March 2023. FDA review and reimbursement remain important milestones, not assured outcomes.
- Key business risks include uncertain payer coverage and reimbursement, revenue-estimation variability, customer and test-volume mix, clinical-study execution, supply availability, and international expansion and geopolitical conditions. The filing reported no material changes to previously disclosed risk factors.
- Other expense included a $5.5 million impairment of a non-marketable equity investment, partly offset by $3.9 million of unrealized gains on marketable equity securities. No material realized gains or losses on marketable debt securities were reported.
- Legal matters include patent litigation with TwinStrand, an Illumina lawsuit alleging intellectual property and employment-related claims, a false-advertising dispute with Natera, and a U.S. Attorney’s False Claims Act investigation concerning Guardant360 billing. The company says outcomes are uncertain and generally cannot estimate potential losses.
- Management stated that disclosure controls and procedures were effective as of March 31, 2023; no material change in internal control over financial reporting was identified during the quarter.
Most important facts for investors to verify
- Whether revenue growth and clinical test-volume gains continue, and whether cost growth allows gross margins to recover.
- Shield FDA review, future clinical evidence, and the timing and scope of payer coverage and reimbursement.
- Operating cash burn relative to management’s more-than-12-month liquidity assessment and any need for additional financing.
- Resolution and potential financial or operational effects of the disclosed litigation and False Claims Act investigation.
- The effect of the 2027 convertible notes, potential dilution, and the company’s substantial lease commitments on future liquidity.