Guardant Health, Inc. — FY 2019 Form 10-K
Business context and reporting period. Guardant Health develops blood-based precision oncology tests and analytics. This annual report covers the fiscal year ended December 31, 2019; it is not a Q4-only filing. Its commercial tests are Guardant360 and GuardantOMNI, while the LUNAR program is in development for earlier-stage cancer applications.
Financial performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Total revenue | $214.4 million | $90.6 million |
| Precision oncology testing revenue | $180.5 million | $78.4 million |
| Development services revenue | $33.9 million | $12.2 million |
| Net loss | $67.9 million | $84.3 million |
| Net loss per share attributable to common stockholders | $0.84 | $2.80 |
| Cash used in operating activities | $47.1 million | $72.2 million |
- Revenue increased 137% year over year. Clinical testing revenue was $101.0 million, and biopharmaceutical testing revenue was $79.5 million. Development services growth reflected new projects, principally companion-diagnostic development and regulatory support.
- Clinical test volume rose to 49,926 from 29,238; biopharmaceutical test volume rose to 20,643 from 10,370. Biopharmaceutical average selling price increased to $3,850 from $3,347, partly because a greater share was GuardantOMNI testing.
- Approximate gross margin, calculated as revenue less cost of testing and development services, was 67.0%, versus 52.3% in 2018. Operating loss was $82.4 million, compared with $92.9 million; operating expenses rose to $296.7 million from $183.6 million as the company invested in R&D and commercial expansion.
- Q4 2019 revenue was $62.9 million, versus $32.9 million in Q4 2018. Q4 net loss was $22.1 million, compared with $25.3 million.
- Cash and cash equivalents were $143.2 million and marketable securities were $648.4 million at year-end, totaling $791.6 million. Working capital was $524.6 million. Operating cash use improved from 2018; investing activities used $317.6 million and financing activities provided $367.3 million.
- Capital expenditures were $18.7 million. Operating cash flow less property and equipment purchases implies approximate free cash flow of negative $65.9 million; this is a derived measure, not a company-reported metric.
- No outstanding senior term loan remained. The balance sheet included $40.4 million of operating lease liabilities and a $6.9 million present-value royalty obligation. Total contractual operating-lease and royalty payments were $77.2 million.
Material changes and notable items
- FY 2019 results reflect adoption of ASC 606, while comparative 2018 figures were not restated. The standard changed timing of clinical-test revenue recognition and development-service milestone revenue. The filing reports ASC 606 increased 2019 precision-testing revenue by approximately $0.35 million versus the prior accounting basis; adoption also increased opening accumulated earnings by $4.9 million.
- Clinical revenue included $6.8 million of 2019 collections from successful appeals relating to 2018 samples; management said this was not representative of ordinary-period results.
- The company raised approximately $349.7 million net from a May 2019 follow-on offering. It also acquired Bellwether Bio in April for $8.7 million of consideration, including contingent consideration, to support early cancer detection work.
- Revenue concentration remained notable: AstraZeneca and affiliates represented 26% of total revenue in 2019; the top five biopharmaceutical customers together represented 38%. One customer accounted for 40% of year-end accounts receivable.
- Revenue growth and loss improvement were accompanied by substantially higher R&D, sales and marketing, and general and administrative expenses. Stock-based compensation increased to $17.0 million from $6.9 million.
Outlook, risks, and contingencies
- Management said existing cash, cash equivalents, marketable securities and anticipated operating cash flow were expected to fund requirements for at least 12 months from the filing date. The company expected further operating losses and higher R&D, selling, laboratory-capacity and capital spending.
- No specific revenue or earnings guidance was provided in the supplied filing text. Management’s plans emphasize broader payer coverage, FDA approval, clinical evidence, continued Guardant360/OMNI adoption, LUNAR development and international expansion.
- Guardant360’s PMA application was submitted to the FDA in Q4 2019, with an additional module submitted in February 2020. Approval was not assured. Palmetto’s December 2019 Medicare coverage expansion was limited by clinical criteria; the timing and scope of an equivalent Noridian determination remained uncertain.
- Key business risks include payer coverage and reimbursement uncertainty, retrospective payer recoupments, dependence on a few biopharmaceutical customers, competitive pressure, unproven early-detection products, FDA/LDT regulatory changes, and reliance on a single Redwood City laboratory and limited suppliers, including Illumina.
- Patent litigation with Foundation Medicine and Personal Genome Diagnostics and a licensing arbitration with KeyGene remained unresolved; the company said outcomes could not be reasonably assessed. The filing does not provide a clear estimate of potential loss.
- A 2018 email-system security incident affected information relating to approximately 1,700 individuals, including PHI for approximately 1,100. The company reported no material financial impact; a separate HHS OCR inquiry was closed without further action.
- The filing identified the emerging novel coronavirus outbreak as a potential disruption to international operations, particularly the SoftBank joint venture’s markets. The company also disclosed that the SoftBank joint venture’s redeemable noncontrolling interest was valued at $49.6 million and includes put/call features that could require a future purchase.
Important facts for investors to verify
- Whether expanded Medicare coverage and commercial payer contracting translate into durable reimbursement and improved average revenue per clinical test, excluding appeal-related collections.
- Whether revenue growth, test volumes, customer concentration and receivables remain sustainable, particularly given the large share from biopharmaceutical customers.
- Progress, timing, regulatory requirements and potential costs for the Guardant360 PMA and LUNAR clinical studies, including ECLIPSE and COBRA.
- Cash burn, capital investment needs and the effect of continued operating losses on the stated liquidity runway.
- Developments and potential financial exposure in the patent disputes, KeyGene arbitration and SoftBank joint-venture redemption arrangements.