Guardant Health, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless otherwise stated. Guardant Health develops and commercializes precision oncology blood tests, including Guardant360 and GuardantOMNI, and is advancing its LUNAR early-detection program.
Financial performance and liquidity
Amounts in $ millions, except per-share data.
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $67.5 | $36.7 |
| Gross profit / gross margin | $47.0 / 70% | $23.1 / 63% |
| Operating loss | $(34.9) | $(23.7) |
| Net loss | $(31.8) | $(21.4) |
| Net loss attributable to common stockholders / diluted loss per share | $(27.7) / $(0.29) | $(26.1) / $(0.30) |
| Cash used in operating activities | $(13.3) | $(4.3) |
- Precision oncology testing revenue rose 109% to $60.2 million; development services revenue fell 7% to $7.3 million.
- Clinical testing revenue was $38.0 million, with 15,257 clinical tests processed versus 9,521. Biopharmaceutical testing revenue was $22.3 million, with 5,266 tests versus 3,762; higher GuardantOMNI mix lifted average selling price.
- Operating expenses increased to $102.4 million from $60.3 million. Research and development rose 127% to $37.0 million; sales and marketing rose 41% to $25.1 million; general and administrative rose 56% to $19.8 million.
- At March 31, cash and cash equivalents were $152.2 million and marketable securities were $606.1 million, totaling $758.3 million. The company reported $117.6 million of liabilities, including $41.1 million of operating lease liabilities; no conventional borrowings are identified in the filing.
- Management said existing cash, cash equivalents, marketable securities and anticipated operating cash flows should cover anticipated needs for at least 12 months. Accumulated deficit was $380.5 million.
Material changes and unusual items
- Revenue increased 84%, supported by higher test volumes and average selling prices. Gross margin improved from 63% to 70%, reflecting volume, pricing and cost efficiencies.
- March 2020 reimbursement for qualifying non-NSCLC solid tumor tests under Noridian’s draft expanded Medicare coverage contributed to higher clinical test pricing. Continued coverage was uncertain because Noridian had not finalized the draft policy.
- In March, the company settled a patent-license dispute with KeyGene and acquired expanded license rights for a one-time $18.5 million payment. The accounting included $8.5 million of in-process research and development expense and $1.2 million of settlement expense; the filing also reports $17.9 million of cash purchases of intangible assets and capitalized license obligations.
- Inventory increased to $25.1 million from $15.2 million, contributing to operating cash use. Cash flow also reflected higher accounts payable and accrued compensation.
- Short- and long-term marketable securities totaled $606.1 million, down from $648.4 million at year-end. Other comprehensive income included a $6.6 million unrealized gain on available-for-sale securities.
Outlook, commentary and risks
- The company withdrew its full-year 2020 financial guidance, citing uncertainty from COVID-19 and an inability to estimate its operational and financial effects. It reported fewer daily samples beginning in the latter half of March and expected adverse effects on revenue, gross margin, clinical studies and development services.
- COVID-19-related constraints included reduced patient access to healthcare, difficulty recruiting clinical-trial participants, restricted customer outreach and travel, and potential supply-chain disruption. ECLIPSE and COBRA studies were specifically identified as at risk of delay.
- In early April, Guardant began assessing whether it could develop a COVID-19 diagnostic test using its laboratory. The effort was preliminary; scale, costs, regulatory pathway and commercial prospects were undetermined, and success was not assured.
- Management expected research and development, sales and marketing, and general and administrative spending to increase as it invests in clinical trials, products and commercial expansion.
- Key reimbursement risks include potential changes to payer coverage, lower out-of-network rates, retrospective payment reductions or clawbacks, and uncertainty about Noridian’s expanded LCD. The company said approximately 75% of Medicare patients tested for NSCLC were covered by applicable LCDs.
- Customer concentration was notable: two customers each represented 20% of Q1 revenue; one represented 38% of receivables at March 31.
- Other contingencies include patent litigation with Foundation Medicine and Personal Genome Diagnostics, including challenges to patents and counterclaims. No liability for legal proceedings was recorded at March 31. SoftBank’s joint-venture interest has put-call redemption features that could require a purchase under specified circumstances.
Important facts for investors to verify
- Whether clinical and biopharmaceutical sample volumes recovered after the Q1 decline and how COVID-19 affected subsequent revenue, margins and cash burn.
- Whether Noridian finalized, changed or withdrew the expanded LCD, and the resulting impact on Medicare reimbursement and clinical test pricing.
- Progress, enrollment and timing for ECLIPSE, COBRA, Guardant360 FDA review and the COVID-19 test feasibility effort.
- Whether the reported liquidity and stated 12-month funding outlook remain adequate as losses, inventory needs and investment spending continue.
- Developments in patent disputes and any potential financial consequences under the KeyGene settlement or SoftBank joint-venture put-call provisions.