Guardant Health, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Guardant Health is a precision oncology company offering cancer testing and biopharmaceutical development services.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $96.1 million | $78.7 million |
| Gross profit and gross margin | $64.1 million; 66.7% | $49.9 million; 63.5% |
| Operating loss | $123.3 million | $107.9 million |
| Net loss | $123.2 million | $107.4 million |
| Net loss per share | $1.21 | $1.09 |
| Cash used in operating activities | $28.6 million | $16.3 million |
- Precision oncology testing revenue rose 32% to $84.1 million; development services and other revenue fell 20% to $12.0 million.
- Clinical testing revenue was $66.0 million, up 32%; clinical test volume rose to 27,100 from 18,390. Biopharmaceutical testing revenue was $18.1 million, with volume increasing to 5,100 from 3,522.
- At March 31, cash and cash equivalents were $573.6 million and marketable securities were $977.1 million, totaling approximately $1.55 billion. Current assets were $1.11 billion and current liabilities $228.8 million.
- Convertible notes had $1.15 billion principal outstanding, carry a 0% coupon, and mature in November 2027. Net carrying value was $1.14 billion. The company also reported $241.9 million of operating lease liabilities.
- Capital expenditures were $22.7 million. Investing cash inflow of $110.8 million primarily reflected maturities of marketable securities, rather than operating cash generation.
Changes versus prior year
- Revenue grew 22%, led by higher testing volumes, newer products, and higher average Guardant360 CDx pricing following Medicare ADLT status. Medicare clinical tests represented approximately 44% of clinical-customer precision oncology revenue, versus 39% a year earlier.
- Cost of revenue increased 11%, slower than revenue growth; reported gross margin consequently improved to 66.7% from 63.5%.
- Research and development expense increased 47% to $81.8 million, and sales and marketing expense increased 88% to $64.4 million, reflecting clinical-study investment and commercial expansion.
- General and administrative expense decreased 39% to $41.3 million, chiefly because prior-year expense included substantial market-based stock compensation. Total stock-based compensation declined to $24.8 million from $55.1 million.
- Operating cash use increased to $28.6 million from $16.3 million. Marketable securities had $16.4 million of gross unrealized losses at quarter-end; the company classified these as temporary and recorded no credit-loss impairment.
Outlook, risks and notable items
- Management stated available cash, cash equivalents, marketable securities, and anticipated operating cash flows should fund the current plan for more than 12 months. It expects continued losses and higher spending on studies, product development, sales, marketing, and potentially laboratory capacity; no specific revenue or earnings guidance is provided in the supplied filing text.
- The company expected to begin testing at its San Diego laboratory by the end of June 2022, subject to CAP accreditation for the relevant purposes. Japan laboratory accreditation and further certification and reimbursement approvals were also needed before processing IVD samples.
- Following exercise of its call right over SoftBank’s joint-venture interest, the company recorded a $78.0 million current liability, the contractual minimum purchase price. Final valuation was pending, and management expected completion before the end of Q2 2022; payment could be in cash, shares, or a combination, based on SoftBank’s election.
- Key risks include uncertain payer coverage and reimbursement, customer and project concentration, clinical-study execution, competition, and pandemic-related disruption to customers and supplies. One biopharmaceutical customer accounted for 30% of Q1 revenue.
- Legal matters include TwinStrand patent litigation, Illumina’s trade-secret and intellectual-property suit, and a U.S. Attorney’s Civil Investigative Demand concerning billing of government-funded programs for Guardant360 tests. The company said it could not predict the CID outcome or reasonably estimate potential losses for the described matters.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. It reported no material changes to previously disclosed risk factors.
- After quarter-end, the company reported April research data for its investigational multi-cancer assay and launched Shield LDT in May for colorectal cancer screening. These are developments described in the filing, not Q1 revenue results.
Investor verification points
- Track clinical and biopharmaceutical test volumes, realized reimbursement, and the sustainability of the reported revenue growth and margin improvement.
- Monitor operating cash burn and spending growth against the company’s stated liquidity runway.
- Confirm the final SoftBank joint-venture purchase price, payment form, and closing timing.
- Follow the government billing investigation and litigation for developments that could create financial, operational, or reputational exposure.
- Verify progress toward laboratory readiness, regulatory and payer approvals, and evidence supporting adoption of newer products, including Shield.