GUARDANT HEALTH, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, beliefs, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the year endedDecember 31, 2021 and in Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q.
Overview
We are a leading precision oncology company focused on helping conquer cancer globally through use of our proprietary tests, vast data sets and advanced analytics. Today our proprietary tests are helping to realize the full potential of precision oncology by providing patients and their doctors critical insights that can inform decisions at all stages of the disease, from detecting early signs of cancer, to monitoring cancer recurrence, to guiding treatment decisions. We believe that the key to conquering cancer is unprecedented access to its molecular information throughout all stages of the disease, which we intend to enable by our tests. By looking at the unique dimensions of cancer found in blood, including genomic alterations, methylation, and fragmentomics, we are unlocking insights that can increasingly help patients across all stages of cancer, including at its earliest, when it's most treatable. We provide our Guardant360 LDT, Guardant360 CDx and GuardantOMNI blood-based tests and Guardant360 TissueNext tissue-based tests for advanced stage cancer, Guardant Reveal blood-based tests to detect residual and recurring disease in Stage II-III colorectal cancer patients, and Guardant360 Response blood-based tests to predict patient response to immunotherapy or targeted therapy 8 weeks earlier than current standard-of-care imaging. Our Guardant360 CDx test was the first comprehensive liquid biopsy test approved by theU.S. Food and Drug Administration , or the FDA, to provide tumor mutation profiling with solid tumors and to be used as a companion diagnostic in connection with non-small cell lung cancer, or NSCLC. InApril 2022 , we presented new data from our broad portfolio of blood tests at theAmerican Association for Cancer Research Annual Meeting which demonstrated the ability of our investigational next-generation Guardant SHIELD multi-cancer assay to accurately detect early-stage cancers and identify the tumor tissue of origin with high accuracy. To help identify cancer at the earliest stages, inMay 2022 , we launched Shield LDT, a blood-based test to detect early signs of colorectal cancer in average-risk adults age 45 and older who show no symptoms and are not up to date with recommended screening guidelines. From a simple blood draw, the test uses a novel multimodal approach to detect colorectal cancer signals in the bloodstream, including DNA that is shed by tumors. Using data collected from our tests, we have also developed our GuardantINFORM platform to further accelerate precision oncology drug development by biopharmaceutical companies by offering them an in-silico research platform to unlock further insights into tumor evolution and treatment resistance across various biomarker-driven cancers. We currently perform our tests in our clinical laboratory located inRedwood City, California . OurRedwood City laboratory is certified pursuant to the Clinical Laboratory Improvement Amendments of 1988, or CLIA, accredited by theCollege of American Pathologists , or CAP, permitted by theNew York State Department of Health , or NYSDOH, and licensed inCalifornia and four other states. OurSan Diego laboratory is CLIA-certified, and we expect to commence testing in theSan Diego laboratory by the end ofJune 2022 , upon receipt of CAP accreditation for research and limited clinical purposes. InFebruary 2022 , we received CAP accreditation for our laboratory inJapan where we expect to commence processing samples following receipt of additional certification for processing In Vitro Diagnostic, or IVD, samples and reimbursement approval. We generated total revenue of$96.1 million and$78.7 million for the three months endedMarch 31, 2022 , and 2021, respectively. We also incurred net losses of$123.2 million and$107.4 million for the three months endedMarch 31, 2022 , and 2021, respectively. We have funded our operations to date principally from the sale of our stock, convertible senior notes, and revenue from our precision oncology testing and development services and other. As ofMarch 31, 2022 , we had cash, cash equivalents and marketable securities of approximately$1.6 billion .
Factors affecting our performance
We believe there are several important factors that have impacted and that we expect will impact our operating performance and results of operations, including:
•Testing volume, pricing and customer mix. Our revenue and costs are affected by
the volume of testing and mix of customers from period to period. We evaluate
both the volume of tests that we perform for patients on behalf of clinicians
and the number of tests we perform for biopharmaceutical companies. Our
performance
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depends on our ability to retain and broaden adoption with existing customers,
as well as attract new customers. We believe that the test volume we receive
from clinicians and biopharmaceutical companies are indicators of growth in each
of these customer verticals. Customer mix for our tests has the potential to
significantly affect our results of operations, as the average selling price for
biopharmaceutical sample testing is currently higher than our average
reimbursement for clinical tests because we are not a contracted provider for,
or our tests are not covered by clinical patients' insurance for, the majority
of the tests that we perform for patients on behalf of clinicians. Revenue from
clinical tests for patients covered by Medicare represented approximately 44%
and 39% of our precision oncology revenue from clinical customers during the
three months ended March 31, 2022 , and 2021, respectively.
•Payer coverage and reimbursement. Our revenue depends on achieving broad
coverage and reimbursement for our tests from third-party payers, including both
commercial and government payers. Precision oncology revenue from tests for
clinical customers is calculated based on our expected cash collections, using
the estimated variable consideration. The variable consideration is estimated
based on historical collection patterns as well as the potential for changes in
future reimbursement behavior by one or more payers. Estimation of the impact of
the potential for changes in reimbursement requires significant judgment and
considers payers' past patterns of changes in reimbursement as well as any
stated plans to implement changes. Any cash collections over the expected
reimbursement period exceeding the estimated variable consideration are recorded
in future periods based on actual cash received. Payment from commercial payers
can vary depending on whether we have entered into a contract with the payers as
a "participating provider" or do not have a contract and are considered a
"non-participating provider". Payers often reimburse non-participating
providers, if at all, at a lower amount than participating providers. Because we
are not contracted with these payers, they determine the amount that they are
willing to reimburse us for any of our tests and they can prospectively and
retrospectively adjust the amount of reimbursement, adding to the complexity in
estimating the variable consideration. When we contract with a payer to serve as
a participating provider, reimbursements by the payer are generally made
pursuant to a negotiated fee schedule and are limited to only covered
indications or where prior approval has been obtained. Becoming a participating
provider can result in higher reimbursement amounts for covered uses of our
tests and, potentially, no reimbursement for non-covered uses identified under
the payer's policies or the contract. As a result, the potential for more
favorable reimbursement associated with becoming a participating provider may be
offset by a potential loss of reimbursement for non-covered uses of our tests.
Current Procedural Terminology, or CPT, coding plays a significant role in how
our tests are reimbursed both from commercial and governmental payers. In
addition, Z-Code Identifiers are used by certain payers, including under
Medicare's Molecular Diagnostic Services Program, or MolDx, to supplement CPT
codes for our molecular diagnostics tests. Changes to the codes used to report
to payers may result in significant changes in its reimbursement. If their
policies were to change in the future to cover additional cancer indications, we
anticipate that our total reimbursement would increase. In January 2021 , a
proprietary laboratory analyses, or PLA code was issued for our Guardant360 CDx
with an effective date in April 2021 . Additionally, based on this new PLA code,
we applied to the Centers for Medicare and Medicaid Services or CMS for our
Guardant360 CDx test to become an advanced diagnostic laboratory test, or ADLT.
In March 2021 , CMS approved ADLT status to the Guardant360 CDx test, based on
which Medicare paid us at the lowest available commercial rate per test, from
April 1, 2021 to December 31, 2021 . Effective January 1, 2022 , Medicare has
started to reimburse Guardant360 CDx services at the median rate of claims paid
by commercial payers and this rate will apply until December 2023 . In March
2022 , Palmetto GBA , the Medicare administrative contractor for MolDX, has
conveyed coverage for our Guardant360 TissueNext test under the existing local
coverage determination. The policy covers our Guardant360 TissueNext test for
Medicare fee-for-service patients with advanced solid tumor cancers. We are in
the process of negotiating reimbursement for our Guardant Reveal and Guardant
Response tests from commercial and governmental payers. Due to the inherent
variability and unpredictability of the reimbursement landscape, including
related to the amount that payers reimburse us for any of our tests, we estimate
the amount of revenue to be recognized at the time a test is provided and record
revenue adjustments if and when the cash subsequently received differs from the
revenue recorded. Due to this variability and unpredictability, previously
recorded revenue adjustments are not indicative of future revenue adjustments
from actual cash collections, which may fluctuate significantly. Additionally,
if coding changes were to occur, payments for certain uses of our tests could be
reduced, put on hold, or eliminated. This variability and unpredictability could
increase the risk of future revenue reversal and result in our failing to meet
any previously publicly stated guidance we may provide.
•Biopharmaceutical customers. Our revenue also depends on our ability to
attract, maintain and expand relationships with biopharmaceutical customers. As
we continue to develop these relationships, we expect to support a growing
number of clinical studies globally and continue to have opportunities to offer
our platform to such customers for development services, including companion
diagnostic development, novel target discovery
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and validation, as well as clinical study enrollment. For example, our tests are
being developed as companion diagnostics under collaborations with
biopharmaceutical companies, including AstraZeneca, Amgen, Daiichi Sankyo,
Janssen Biotech , and Radius Health.
•Research and development. A significant aspect of our business is our
investment in research and development, including the development of new
products. In particular, we have invested heavily in clinical studies as we
believe these studies are critical to gaining physician adoption and driving
favorable coverage decisions by payers. With respect to Guardant Reveal, in
October 2021 , we initiated a 1,000-patient prospective, observational,
multi-center study, which we refer to as the ORACLE study, designed to evaluate
the performance of our Guardant Reveal liquid biopsy test to predict cancer
recurrence after curative intent treatment, across 11 solid tumor types. With
respect to Shield, in December 2021 , we completed enrollment toward a
prospective screening study, which we refer to as the ECLIPSE study, aiming to
evaluate the performance of our Shield assay in detecting colorectal cancer in
average-risk adults. In addition, in January 2022 , we enrolled the first patient
in a nearly 10,000-patient prospective, registrational study, which we refer to
as the SHIELD study, to evaluate the performance of our next-generation Guardant
SHIELD assay in detecting lung cancer in high-risk individuals ages 50-80 and
the study is anticipated to run in approximately 100 centers in the United
States and Europe . We have expended considerable resources, and expect to
increase such expenditures over the next few years, to support our research and
development programs with the goal of fueling further innovation.
•International expansion. A component of our long-term growth strategy is to
expand our commercial footprint internationally, and we expect to increase our
sales and marketing expense to execute on this strategy. We currently offer our
tests in countries outside the United States primarily through distributor
relationships, direct contracts with hospitals or partnerships with research
organizations. In May 2018 , we formed and capitalized a joint venture, Guardant
Health AMEA, Inc. , which we refer to as the Joint Venture, with SoftBank,
relating to the sale, marketing and distribution of our tests generally outside
the Americas and Europe . We expect to rely on the Joint Venture to accelerate
commercialization of our products in Asia , the Middle East and Africa . In
February 2021 , an affiliate of the Joint Venture with SoftBank, submitted an
application to Ministry of Health, Labour and Welfare , or the MHLW, for
regulatory approval of Guardant360 CDx. In December 2021 , MHLW granted
regulatory approval of Guardant360 CDx as a companion diagnostic for identifying
patients with metastatic NSCLC who may benefit from treatment with LUMAKRAS™
(sotorasib). In March 2022 , MHLW granted regulatory approval of Guardant360® CDx
in patients with advanced solid tumors. MHLW also approved Guardant360 CDx as a
companion diagnostic to identify patients with microsatellite instability-high
(MSI-High) solid tumors who may benefit from Keytruda® (pembrolizumab) and
patients with MSI-High advanced colorectal cancer who may benefit from Opdivo®
(nivolumab).
In November 2021 , we exercised our call right contained in the joint venture
agreement with SoftBank to purchase all of the shares held by SoftBank and its
affiliates in consideration for the payment of the aggregate purchase price to
be determined based on an independent third-party valuation. The aggregate
purchase price will be no less than $78.0 million , which was determined based on
20% internal rate of return on the $41.0 million of capital invested by SoftBank
in May 2018 as stipulated in the joint venture agreement. SoftBank and us have
initiated a process to determine the independent valuation of the Joint Venture,
which includes the appointment of independent appraisers by both SoftBank and
us. We expect to complete this transaction before the end of the second quarter
of 2022.
•Sales and marketing expense. Our financial results have historically, and will
likely continue to, fluctuate significantly based upon the impact of our sales
and marketing expense, increase in headcount, and in particular, our various
marketing programs around existing and new product introductions.
•General and administrative expense. Our financial results have historically,
and will likely continue to, fluctuate significantly based upon the impact of
our general and administrative expense, and in particular, our stock-based
compensation expense. Our equity awards, including market-based and
performance-based restricted stock units, are intended to retain and incentivize
employees to lead us to sustained, long-term superior financial and operational
performance.
•COVID-19 Global Pandemic. The global coronavirus 2019, or COVID-19, pandemic
has negatively affected, and we expect will continue to negatively affect, our
revenue and our clinical studies. For example, our biopharmaceutical customers
are facing challenges in recruiting patients and in conducting clinical studies
to advance their pipelines, for which our tests could be utilized. In addition,
disruptions caused by the pandemic have adversely affected the quantity and
quality of certain sequencers, reagents, blood tubes and other similar materials
that are critical to our commercial and research and development programs. We
currently have a limited amount of stock of these components. Failure in the
future to secure sufficient supply of critical
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components could materially and adversely affect our ability to manufacture or
supply marketed products and product candidates or complete our ongoing research
and development programs on the timelines previously established, which could
materially and adversely affect our business and future prospects. The severity
of the impact on our business will depend on a number of factors, including the
duration and severity of the pandemic and the impact of any variants of the
virus on us, our customers, and our suppliers.
While each of these areas presents significant opportunities for us, they also
pose significant risks and challenges that we must address. See Part I, Item
1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended
December 31, 2021 , and Part II, Item 1A, "Risk Factors" of this Quarterly Report
on Form 10-Q, for more information.
Components of results of operations
Revenue
We derive our revenue from two sources: (i) precision oncology testing and (ii) development services and other.
Precision oncology testing. Precision oncology testing revenue is generated from sales of our tests to clinical and biopharmaceutical customers. Inthe United States , throughMarch 31, 2022 , we generally performed tests as an out-of-network service provider without contracts with health insurance companies. We submit claims for payment for tests performed for patients covered byU.S. private payers. We submit claims to Medicare for reimbursement for Guardant360 clinical testing performed for qualifying patients diagnosed with solid tumor cancers of non-central nervous system origin and for Guardant360 CDx clinical testing performed for qualifying patients diagnosed with solid tumor cancers who meet the criteria of Medicare's National Coverage Determination for Next Generation Sequencing established sinceMarch 2018 . Revenue from clinical tests for patients covered by Medicare represented approximately 44% and 39% of our precision oncology revenue from clinical customers during the three months endedMarch 31, 2022 , and 2021, respectively. Development services and other. Development services and other revenue primarily represents services, other than precision oncology testing, that we provide to biopharmaceutical companies and large medical institutions. We collaborate with biopharmaceutical companies in the development and clinical studies of new drugs. As part of these collaborations, we provide services related to regulatory filings to support companion diagnostic device submissions for our test panels. Under these arrangements, we generate revenue from progression of our collaboration efforts, as well as from provision of on-going support. In addition to companion diagnostic development and regulatory approval services, we also provide clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect, GuardantINFORM, and kits fulfillment related services for our biopharmaceutical customers. In addition, we derive royalty revenues from licensing our technologies. Development services and other revenue can vary over time as different projects start and complete.
Costs and operating expenses
Cost of precision oncology testing. Cost of precision oncology testing generally
consists of cost of materials, inventory write-downs, direct labor, including
employee benefits, bonus, and stock-based compensation; equipment and
infrastructure expenses associated with processing test samples, such as sample
accessioning, library preparation, sequencing, quality control analyses and
shipping charges to transport blood samples; freight; curation of test results
for physicians; and license fees due to third parties. Infrastructure expenses
include depreciation of laboratory equipment, rent costs, depreciation of
leasehold improvements and information technology costs. Costs associated with
performing our tests are recorded as the tests are performed regardless of
whether revenue was recognized with respect to the tests. Royalties for licensed
technology are calculated as a percentage of revenues generated using the
associated technology and recorded as expense at the time the related revenue is
recognized. One-time royalty payments related to signing of license agreements
or other milestones, such as issuance of new patents, are amortized to expense
over the expected useful life of the patents. While we do not believe the
technologies underlying these licenses are necessary to permit us to provide our
tests, we do believe these technologies are potentially valuable and of possible
strategic importance to us or our competitors.
We expect the cost of precision oncology testing to generally increase in line
with the increase in the number of tests we perform, but we expect the cost per
test to decrease modestly over time due to the efficiencies we may gain as test
volume increases, and from automation and other cost reductions.
Cost of development services and other. Cost of development services and other
primarily includes costs incurred for the performance of development services
requested by our customers comprising of direct labor and material costs
including any inventory write-downs. For development of new products, costs
incurred before technological feasibility has been achieved are reported as
research and development expenses, while costs incurred thereafter are
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reported as cost of revenue. Cost of development services and other will vary
depending on the nature, timing and scope of customer projects.
Research and development expense. Research and development expenses consist of
costs incurred to develop technology and include salaries and benefits including
stock-based compensation, reagents and supplies used in research and development
laboratory work, infrastructure expenses, including allocated facility occupancy
and information technology costs, contract services, other outside costs and
costs to develop our technology capabilities. Research and development expenses
also include costs related to activities performed under contracts with
biopharmaceutical companies before technological feasibility has been achieved.
Research and development costs are expensed as incurred. Payments made prior to
the receipt of goods or services to be used in research and development are
deferred and recognized as expense in the period in which the related goods are
received or services are rendered. Costs to develop our technology capabilities
are recorded as research and development unless they meet the criteria to be
capitalized as internal-use software costs. We expect that our research and
development expenses will continue to increase in absolute dollars as we
continue to innovate and develop additional products, expand our genomic and
medical data management resources and conduct our ongoing and new clinical
studies.
Sales and marketing expense. Our sales and marketing expenses are expensed as
incurred and include costs associated with our sales organization, including our
direct sales force and sales management, client services, marketing and
reimbursement, medical affairs, as well as business development personnel who
are focused on our biopharmaceutical customers. These expenses consist primarily
of salaries, commissions, bonuses, employee benefits, travel expenses and
stock-based compensation, as well as marketing, sales incentives, and
educational activities and allocated overhead expenses. We expect our sales and
marketing expenses to increase in absolute dollars as we expand our sales force,
increase our presence within and outside of the United States , and increase our
marketing activities to drive further awareness and adoption of our tests.
General and administrative expense. Our general and administrative expenses
include costs for our executive, accounting and finance, information technology,
legal and human resources functions. These expenses consist principally of
salaries, bonuses, employee benefits, travel expenses and stock-based
compensation, as well as professional services fees such as consulting, audit,
tax and legal fees, and general corporate costs and allocated overhead expenses.
We expect that our general and administrative expenses will continue to increase
as we incur additional costs to support the growth of our business. These
expenses, though expected to increase in absolute dollars, are expected to
decrease modestly as a percentage of revenue in the long term, though they may
fluctuate as a percentage of revenue from period to period due to the timing and
extent of these expenses being incurred.
Interest income
Interest income consists of interest earned on our cash, cash equivalents and marketable securities.
Interest expense
Interest expense consists primarily of charges relating to amortization of debt issuance costs.
Other income (expense), net Other income (expense), net consists of foreign currency exchange gains and losses, non-recurring payments due and received in relation to the settlement of license and patent disputes, net of credit losses, and the relief fund grant from theDepartment of Health and Human Services , or HHS, under theU.S. Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates. 39
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Results of operations
The following tables set forth the significant components of our results of operations for the periods presented.
Three Months Ended
March 31,
2022 2021
(unaudited)
(in thousands)
Revenue:
Precision oncology testing $ 84,136 $ 63,729
Development services and other 11,963 14,936
Total revenue 96,099 78,665
Costs and operating expenses:
Cost of precision oncology testing(1) 30,684 23,590
Cost of development services and other 1,297 5,157
Research and development expense(1) 81,757 55,508
Sales and marketing expense(1) 64,432 34,338
General and administrative expense(1) 41,267 67,935
Total costs and operating expenses 219,437 186,528
Loss from operations (123,338) (107,863)
Interest income 778 1,551
Interest expense (644) (646)
Other income (expense), net (48) (290)
Loss before provision for income taxes (123,252) (107,248)
Provision for (benefit from) income taxes (24) 110
Net loss $ (123,228) $ (107,358) (1)Amounts include stock-based compensation expense as follows:
Three Months Ended
March 31,
2022 2021
(unaudited)
(in thousands)
Cost of precision oncology testing $ 1,164 $ 767
Research and development expense 5,343 4,300
Sales and marketing expense 5,525 2,880
General and administrative expense 12,767 47,122
Total stock-based compensation expense $ 24,799 $ 55,069 Comparison of the Three Months Ended
Revenue
Three Months Ended March 31, Change
2022 2021 $ %
(unaudited)
(in thousands)
Precision oncology testing $ 84,136 $ 63,729 $ 20,407 32 %
Development services and other 11,963 14,936 (2,973) (20) %
Total revenue $ 96,099 $ 78,665 $ 17,434 22 %
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Total revenue was
Precision oncology testing revenue increased to
Precision oncology revenue from tests for clinical customers was$66.0 million for the three months endedMarch 31, 2022 , up 32% from$49.8 million for the three months endedMarch 31, 2021 . This increase in clinical testing revenue was driven primarily by an increase in sample volume related to our Guardant360 CDx and Guardant360 LDT tests and revenue from products launched in 2021, including Guardant Reveal, Guardant360 Response and Guardant 360 TissueNext, and an overall increase in the average selling price per Guardant360 CDx test primarily due to advanced diagnostic laboratory test, or ADLT, status being received from Medicare effectiveApril 1, 2021 . Total tests for clinical customers increased to 27,100 for the three months endedMarch 31, 2022 , from 18,390 for the three months endedMarch 31, 2021 . Precision oncology revenue from tests for biopharmaceutical customers was$18.1 million for the three months endedMarch 31, 2022 , and$13.9 million for the three months endedMarch 31, 2021 , respectively. This increase in revenue was primarily due to an increase in tests. Total tests for biopharmaceutical customers increased to 5,100 for the three months endedMarch 31, 2022 , from 3,522 for the three months endedMarch 31, 2021 , primarily due to an increase in the number of biopharmaceutical customers and their contracted projects. Development services and other revenue decreased to$12.0 million for the three months endedMarch 31, 2022 , from$14.9 million for the three months endedMarch 31, 2021 , a decrease of$3.0 million , or 20%. This decrease in development services and other revenue was primarily due to the progression of collaboration projects with biopharmaceutical customers for companion diagnostic development and regulatory approval services, and discontinuation of our Guardant-19 tests inAugust 2021 , partially offset by royalty revenues earned during the three months endedMarch 31, 2022 . Our revenue may be adversely impacted by the COVID-19 pandemic in future periods depending on the duration and severity of the pandemic and the impact of any variants of the virus. Cost of Revenue Three Months Ended March 31, Change 2022 2021 $ % (unaudited) (in thousands)
Cost of precision oncology testing
30 %
Cost of development services and other 1,297 5,157 (3,860) (75) %
Total cost of revenue $ 31,981 $ 28,747 $ 3,234 11 %
Cost of revenue was $32.0 million for the three months ended March 31, 2022 ,
compared to $28.7 million for the three months ended March 31, 2021 , an increase
of $3.2 million , or 11%.
Cost of precision oncology testing was $30.7 million for the three months ended
March 31, 2022 , compared to $23.6 million for the three months ended March 31,
2021 , an increase of $7.1 million , or 30%. This increase in cost of precision
oncology testing was primarily attributable to an increase in sample volumes,
resulting in a $3.0 million increase in production labor and overhead costs, a
$2.6 million increase in material costs, and a $1.6 million increase in other
costs, including costs related to kits, freight and curation of test results for
physicians.
Cost of development services and other was $1.3 million for the three months
ended March 31, 2022 , compared to $5.2 million for the three months ended March
31, 2021 , a decrease of $3.9 million , or 75%. This decrease in cost of
development services and other was primarily due to a decrease in labor costs
and materials, related to the progression of companion diagnostic development
and regulatory approval service contracts, and discontinuation of our
Guardant-19 tests in August 2021 .
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Operating Expenses
Research and development expense
Three Months Ended March 31, Change
2022 2021 $ %
(unaudited)
(in thousands)
Research and development $ 81,757 $ 55,508 $ 26,249 47 %
Research and development expenses were $81.8 million for the three months ended
March 31, 2022 , compared to $55.5 million for the three months ended March 31,
2021 , an increase of $26.2 million , or 47%. This increase was primarily related
to continued investment in our clinical studies and next-generation
technologies, resulting in an increase of $9.7 million in personnel-related
costs for employees in our research and development group, including a $1.0
million increase in stock-based compensation, an increase of $8.3 million in
outside service fees related to clinical studies and product development, an
increase of $4.1 million related to allocated facility and information
technology infrastructure costs, and an increase of $2.1 million in
post-acquisition related contingent consideration.
Sales and marketing expense
Three Months Ended March 31, Change
2022 2021 $ %
(unaudited)
(in thousands)
Sales and marketing $ 64,432 $ 34,338 $ 30,094 88 %
Selling and marketing expenses were $64.4 million for the three months ended
March 31, 2022 , compared to $34.3 million for the three months ended March 31,
2021 , an increase of $30.1 million , or 88%. This increase was primarily related
to commercial infrastructure buildout and marketing activities to support
existing products and new product launch, resulting in an increase of $22.6
million in personnel-related costs, including a $2.6 million increase in
stock-based compensation, an increase of $2.8 million in professional service
expenses related to marketing activities, an increase of $2.4 million in office
administrative costs, and an increase of $2.2 million related to allocated
facilities and information technology infrastructure costs.
General and administrative expense
Three Months Ended March 31, Change
2022 2021 $ %
(unaudited)
(in thousands)
General and administrative $ 41,267 $ 67,935 $ (26,668) (39) %
General and administrative expenses were $41.3 million for the three months
ended March 31, 2022 , compared to $67.9 million for the three months ended March
31, 2021 , a decrease of $26.7 million , or 39%. This decrease was primarily due
to a decrease of $34.4 million in stock-based compensation, as tranche 1 and
tranche 2 of the market-based restricted stock units issued to our Co-Chief
Executive Officers were fully expensed as of March 31, 2021 and December 31,
2021 , respectively. This decrease was offset by an increase of $3.1 million in
professional service expenses related to outside legal, accounting, consulting
and IT services, an increase of $2.4 million in acquisition related contingent
consideration, and an increase of $2.2 million related to allocated facilities
and information technology infrastructure costs.
Interest income
Three Months Ended March 31, Change
2022 2021 $ %
(unaudited)
(in thousands)
Interest income $ 778 $ 1,551 $ (773) (50) %
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Interest income was$0.8 million for the three months endedMarch 31, 2022 , compared to$1.6 million for the three months endedMarch 31, 2021 , a decrease of$0.8 million , or 50%. This decrease was primarily due to a decrease in cash and cash equivalents and marketable securities balances, partially offset by an increase in interest rate as theU.S. Federal Reserve increased the risk-free interest rate. Interest expense Three Months Ended March 31, Change 2022 2021 $ % (unaudited) (in thousands) Interest expense $ (644)$ (646) $ 2 * * Not meaningful Interest expense was primarily attributable to amortization of debt issuance costs related to our convertible senior notes issued inNovember 2020 , for the three months endedMarch 31, 2022 , and 2021.
Other income (expense), net
Three Months Ended March 31, Change
2022 2021 $ %
(unaudited)
(in thousands)
Other income (expense), net $ (48) $ (290) $ 242 *
* Not meaningful
Other income (expense), net was immaterial for the three months ended March 31,
2022 , and 2021.
Provision for income taxes
Three Months Ended March 31, Change
2022 2021 $ %
(unaudited)
(in thousands)
Provision for (benefit from) income
taxes $ (24) $ 110 $ (134) (122) %
Provision for (benefit from) income taxes was immaterial for the three months
ended
Liquidity and capital resources
We have incurred losses and negative cash flows from operations since our inception, and as ofMarch 31, 2022 , we had an accumulated deficit of$1.1 billion . We expect to incur additional operating losses in the near future and our operating expenses will increase as we continue to invest in clinical studies and develop new products, expand our sales organization, and increase our marketing efforts to drive market adoption of our tests. As demand for our tests are expected to continue to increase from physicians and biopharmaceutical companies, we anticipate that our capital expenditure requirements could also increase if we require additional laboratory capacity. We have funded our operations to date principally from the sale of stock, convertible debt and through revenue from precision oncology testing and development services and other. As ofMarch 31, 2022 , we had cash and cash equivalents of$573.6 million and marketable securities of$977.1 million . Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to provide liquidity while ensuring capital preservation. Additionally, we have investments held in marketable securities consisting ofUnited States treasury securities that can be immediately liquid. Based on our current business plan, we believe our current cash, cash equivalents and marketable securities and anticipated cash flows from operations, will be sufficient to meet our anticipated cash requirements for more than 12 months from the date of this Quarterly Report on Form 10-Q. We may consider raising additional capital to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons. As revenue from precision oncology testing and development services and other is expected to grow long-term, we 43 -------------------------------------------------------------------------------- Table of Contents expect our accounts receivable and inventory balances to increase. Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued expenses, which could result in greater working capital requirements. If our available cash, cash equivalents and marketable securities and anticipated cash flows from operations are insufficient to satisfy our liquidity requirements including because of lower demand for our products as a result of lower than currently expected rates of reimbursement from our customers or other risks described in our Form 10-K for the year endedDecember 31, 2021 , we may seek to sell additional common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or products or grant licenses on terms that are not favorable to us. Additional capital may not be available to us on reasonable terms, or at all.
Cash flows
The following table summarizes our cash flows for the periods presented:
Three Months Ended March 31,
2022 2021
(unaudited)
(in thousands)
Net cash used in operating activities $ (28,619) $ (16,291)
Net cash provided by investing activities $ 110,808 $ 123,870
Net cash used in financing activities $ (12) $ (69,953)
Operating activities
Cash used in operating activities during the three months ended March 31, 2022 ,
was $28.6 million , which resulted from a net loss of $123.2 million , partially
offset by non-cash charges of $44.5 million and net change in our operating
assets and liabilities of $50.2 million . Non-cash charges primarily consisted of
$24.8 million of stock-based compensation, $7.2 million of depreciation and
amortization, $6.9 million of non-cash operating lease costs, $2.4 million of
amortization of premium on marketable investments, and $2.4 million of
revaluation adjustments to contingent consideration. The net change in our
operating assets and liabilities was primarily the result of a $21.9 million
decrease in prepaid expenses and other current assets, primarily driven by a
$25.0 million one-time payment pursuant to a settlement and license agreement
entered into in December 2021 , a $13.7 million increase in accrued compensation
due to increased personnel, a $13.3 million decrease in accounts receivable
primarily driven by collection from our clinical and biopharmaceutical customers
and receipt of royalty payments, a $8.0 million increase in accrued expense and
other liabilities, and a $3.8 million decrease in other assets, partially offset
by a $5.9 million increase in inventory due to higher testing volumes, and a
$3.1 million payment of operating lease liabilities net of receipt of tenant
improvement allowance.
Cash used in operating activities during the three months ended March 31, 2021
was $16.3 million , which resulted from a net loss of $107.4 million , partially
offset by non-cash charges of $67.9 million and net change in our operating
assets and liabilities of $23.2 million . Non-cash charges primarily consisted of
$55.1 million of stock-based compensation, $5.0 million of depreciation and
amortization, $3.9 million of non-cash operating lease costs, and $3.3
million of amortization of premium on investment. The net change in our
operating assets and liabilities was primarily the result of a $12.0 million
increase in accounts payable, a $8.9 million increase in accrued compensation
due to increased personnel, a $5.3 million decrease in accounts receivables and
a $4.4 million increase in accrued expenses and other liabilities, partially
offset by a $6.2 million increase in inventory due to higher testing volumes,
and a $2.8 million payment of operating lease liabilities net of receipt of
tenant improvement allowance.
Investing activities
Cash provided by investing activities during the three months endedMarch 31, 2022 , was$110.8 million , which resulted primarily from proceeds from the maturities of marketable securities of$310.0 million , partially offset by purchases of marketable securities of$163.7 million , purchases of property and equipment of$22.7 million , and purchases of non-marketable equity and other related investments of$12.8 million . 44 -------------------------------------------------------------------------------- Table of Contents Cash provided by investing activities during the three months endedMarch 31, 2021 , was$123.9 million , which resulted primarily from maturities of marketable securities of$204.1 million , partially offset by purchases of marketable securities of$70.7 million , and purchases of property and equipment of$9.6 million . Financing activities
Cash used in financing activities during the three months ended
Cash used in financing activities during the three months endedMarch 31, 2021 , was$70.0 million , which was primarily due to taxes paid related to net share settlement of restricted stock units of$73.6 million , partially offset by proceeds from exercise of stock options of$4.5 million .
Critical accounting policies and estimates
We have prepared our consolidated financial statements in accordance with accounting principles generally accepted inthe United States of America , or GAAP. Our preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures at the date of the consolidated financial statements, as well as revenue and expenses recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. Our significant accounting policies are described in more detail in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . During the three months endedMarch 31, 2022 , there were no material changes to our critical accounting policies from those discussed previously.
Recent accounting pronouncements
Not applicable.
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