Business context and reporting period
Guardant Health, Inc. (Nasdaq: GH) filed its Form 10-K for the fiscal year ended December 31, 2021. The company develops and sells precision-oncology tests and related services, including Guardant360 testing for advanced cancers, Guardant Reveal for residual disease, and tests and platforms for biopharmaceutical customers. The filing also reports unaudited fourth-quarter results.
Financial performance and liquidity
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Total revenue | $373.7 million | $286.7 million |
| Precision oncology testing revenue | $304.3 million | $236.3 million |
| Development services and other revenue | $69.3 million | $50.4 million |
| Gross profit / gross margin | $250.7 million / 67% | $194.2 million / 68% |
| Operating loss | $411.0 million | $255.0 million |
| Net loss | $384.8 million | $246.3 million |
| Net loss per share, basic and diluted | $4.00 | $2.60 |
| Cash used in operating activities | $209.0 million | $103.9 million |
At December 31, 2021, cash and cash equivalents were $492.2 million and marketable securities totaled $1.14 billion, or approximately $1.63 billion combined. The company reported $1.13 billion of convertible senior notes, net, due 2027; the notes carry a 0% stated interest rate. Total liabilities were $1.56 billion. Management said available cash, equivalents, marketable securities and anticipated operating cash flows were expected to fund requirements for more than 12 months from the filing date.
For Q4 2021, revenue was $108.1 million versus $78.3 million in Q4 2020; net loss was $72.3 million versus $93.0 million. Net loss attributable to common stockholders was $90.9 million in Q4 2021, including an $18.6 million adjustment related to redeemable noncontrolling interest.
Material changes versus the prior comparable period
- FY revenue increased 30%. Clinical-customer precision-oncology revenue rose 38% to $236.4 million, with tests increasing to 87,600 from 63,254. Biopharmaceutical tests increased to 18,600 from 15,983; related revenue rose to $67.9 million from $64.5 million.
- Gross margin declined one percentage point to 67%, reflecting product mix, lower average selling prices and higher average test costs, partly offset by improved development-services margins.
- Operating expenses rose to $784.7 million from $541.7 million. Research and development increased 76% to $263.2 million and sales and marketing increased 80% to $191.9 million, as the company expanded product development and commercial operations.
- Operating cash use nearly doubled. Investing activities used $63.2 million, while financing activities used $66.8 million, primarily reflecting $83.8 million of taxes paid on net share settlement of restricted stock units.
- FY 2021 included $151.4 million of stock-based compensation and a $25.0 million one-time payment recorded in other income under a settlement and license agreement. The agreement also contributed royalty revenue in development services and other.
Outlook, risks, contingencies and unusual items
The filing provides no specific numerical revenue or earnings guidance. Management expects continued operating losses and higher research, clinical-study, sales and marketing investment; it also expects test volume growth, while noting that reimbursement, customer mix and pricing can materially affect revenue and margins.
Key risks include uncertain payer coverage and reimbursement, retrospective payment reductions or recoupments, dependence on Medicare and a limited number of payers and suppliers, competition, scaling laboratory capacity, and the effects of COVID-19 on demand, studies and supply. Guardant360 and certain other products are offered as laboratory-developed tests, making potential changes to FDA oversight a significant regulatory risk.
In January 2022, the company received a civil investigative demand from the U.S. Attorney for the Northern District of California concerning billing government-funded programs for Guardant360. The company said it was cooperating and could not predict the outcome. In December 2021, it settled worldwide patent litigation with Foundation Medicine; the agreement provides for a $25.0 million payment and royalties in exchange for a non-exclusive license. The company also exercised its call right to acquire SoftBank’s interest in its joint venture. The minimum purchase price of $78.0 million was recorded as a current liability; final valuation and payment terms were pending, with completion expected by the end of Q2 2022.
The independent auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded internal control over financial reporting was effective at year-end.
Important facts for investors to verify
- Whether clinical and biopharmaceutical test growth converts into durable revenue and improved gross margins, given variable reimbursement and customer mix.
- Collections, payer recoupments and the estimates underlying clinical-test revenue recognition; the auditor identified precision-oncology revenue estimation as a critical audit matter.
- The outcome and potential financial or operational consequences of the government billing investigation.
- The final SoftBank joint-venture purchase price, form of consideration and resulting cash, dilution or earnings impact.
- Cash burn relative to the approximately $1.63 billion liquidity balance, the 2027 convertible notes and planned R&D and commercial spending.
- Clinical and regulatory progress for Guardant Reveal and Guardant SHIELD, including study results, reimbursement and required approvals.