Guardant Health, Inc. — FY2022 Form 10-K
Business context and reporting period. Guardant Health is a precision-oncology diagnostics and data company. This annual report covers the fiscal year ended December 31, 2022; quarterly figures below include the three months ended December 31, 2022. Its portfolio includes advanced-cancer profiling, residual-disease monitoring and colorectal-cancer screening, alongside services for biopharmaceutical customers.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $449.5 million | $373.7 million |
| Precision oncology testing revenue | $392.0 million | $304.3 million |
| Development services and other revenue | $57.5 million | $69.3 million |
| Cost of revenue | $156.3 million | $122.9 million |
| Gross margin | 65.2% | 67.1% |
| Operating loss | $544.4 million | $411.0 million |
| Net loss | $654.6 million | $384.8 million |
| Net loss per share, basic and diluted | $6.41 | $4.00 |
| Cash used in operating activities | $309.5 million | $209.0 million |
Revenue increased 20% year over year. Clinical precision-oncology testing revenue grew 26% to $298.1 million, and biopharmaceutical testing revenue rose to $94.0 million from $67.9 million. Clinical test volume increased to approximately 124,800 from 87,600; biopharmaceutical test volume increased to approximately 26,000 from 18,600. The filing attributes growth mainly to higher volumes, including newer products.
Annual operating expenses were $993.9 million, up from $784.7 million. Research and development rose 42% to $373.8 million and sales and marketing rose 56% to $299.8 million, reflecting product, clinical-study and commercial investment. General and administrative expense declined 21% to $164.0 million, primarily because 2021 included substantial stock-based compensation for executive market-based awards. Net loss included a $99.8 million fair-value adjustment related to the SoftBank joint-venture buyout; the company paid $177.8 million to acquire SoftBank’s interest in June 2022.
Q4 2022: Revenue was $126.9 million, compared with $108.1 million in Q4 2021. Operating loss was $146.1 million and net loss was $139.9 million; the comparable Q4 2021 figures were $98.2 million and $72.3 million, respectively.
At year-end, cash and cash equivalents were $141.6 million and short-term marketable debt securities were $869.6 million, totaling about $1.01 billion. Current assets were $1.19 billion and current liabilities $193.2 million. Operating cash outflow was $309.5 million; purchases of property and equipment were $77.5 million. The filing states that cash, cash equivalents, marketable securities and anticipated operating cash flows were expected to fund requirements for more than 12 months from the filing date.
Convertible senior notes had $1.15 billion principal and a $1.137 billion net carrying value at year-end. They bear 0% interest and mature in November 2027, subject to conversion, redemption and repurchase terms. Operating lease liabilities totaled $231.9 million. No EBITDA figure is provided in the filing text.
Material changes, outlook and risks
- Revenue mix and costs: Testing revenue rose, while development-services and other revenue fell 17%, partly reflecting changes in collaboration projects and the discontinuation of Guardant-19 testing. Gross margin declined to 65.2% from 67.1% as testing costs grew faster than revenue.
- Products and studies: Guardant launched the Shield colorectal-screening LDT in May and GuardantINFINITY in September 2022. ECLIPSE results reported 83% sensitivity for colorectal cancer and 90% specificity; sensitivity for advanced adenomas was 13%. The company planned an FDA premarket approval submission for Shield in Q1 2023. The investigational SHIELD LUNG study was enrolling.
- Management outlook: No specific revenue or earnings guidance is provided in the supplied filing text. Management expects continued operating losses and increased investment in research, clinical studies, sales and marketing, and potentially laboratory capacity. It also expects international expansion and related sales and marketing costs to continue.
- Reimbursement and revenue estimation: Clinical-test revenue depends on payer coverage and collections; many commercial payer relationships were out of network. Estimates of clinical revenue use variable consideration and may be revised as cash is collected. Medicare represented about 45% of clinical-customer precision-oncology revenue in 2022. One biopharmaceutical customer accounted for 30% of total revenue.
- Legal and regulatory matters: A January 2022 civil investigative demand from the U.S. Attorney’s Office concerns billing government-funded programs for Guardant360; the company is cooperating and says the outcome cannot be predicted. Other disclosed disputes include patent litigation with TwinStrand and Illumina, and false-advertising litigation involving Natera. Many tests are marketed as LDTs, leaving them exposed to potential changes in FDA oversight. The filing does not provide a clear estimate of possible losses for these matters.
- Other risks: The company reports significant ongoing losses, dependence on reimbursement and test adoption, competition, reliance on limited or sole suppliers including Illumina, and exposure to clinical-study, privacy, cybersecurity and international-operating risks. It disclosed past unauthorized email-system access and phishing activity, but reported no significant system failure, accident or security breach to date.
Most important facts for investors to verify
- Whether test-volume growth converts into improved gross margin and a slower operating cash burn.
- Actual collections, payer coverage changes, Medicare reimbursement rates and any retroactive payer offsets or recoupments.
- Progress and regulatory outcome of the Shield FDA submission, and subsequent clinical and commercial evidence for Shield and Guardant Reveal.
- Developments in the False Claims Act investigation and the TwinStrand, Illumina and Natera matters, including any potential financial or operating effects.
- Cash runway against continued losses, the $1.15 billion convertible notes due 2027, lease commitments and the consequences of any future financing.
- Customer concentration, especially the customer representing 30% of 2022 revenue, and the sustainability of biopharmaceutical contracts.