Guardant Health(GH) - 2022 Q4 - Annual Report

Part I Business Guardant Health is a precision oncology company offering proprietary tests and analytics for cancer care, generating revenue from clinical testing and biopharmaceutical collaborations, subject to extensive regulation and focused on international expansion - The company focuses on precision oncology, offering proprietary tests such as Guardant360 CDx, Guardant Reveal, and the new Shield LDT for colorectal cancer screening[21][23] - International expansion is a key strategy, highlighted by the full acquisition of the Guardant Health AMEA joint venture for $177.8 million in June 2022, enhancing control over operations in Asia, the Middle East, and Africa[49][50] - Significant investment in clinical evidence includes the 20,000-patient ECLIPSE study for the Shield blood test, demonstrating 83% sensitivity in detecting colorectal cancer[33][43] - The company relies on a limited number of suppliers, including a long-term agreement with Illumina for sequencers and consumables until January 2033[69] Risk Factors The company faces substantial risks including significant net losses, market acceptance challenges, intense competition, complex regulatory hurdles for LDTs, and cybersecurity threats - The company has a history of significant financial losses, with a net loss of $654.6 million in 2022 and an accumulated deficit of $1.7 billion as of December 31, 2022, making profitability a primary risk[165] - A significant portion of revenue is from a limited number of payers, with Medicare accounting for approximately 45% of precision oncology revenue in 2022, posing a risk from policy changes[185] - Regulatory changes for Laboratory Developed Tests (LDTs) like Guardant360 and Guardant Reveal pose a key risk, potentially leading to more stringent and costly FDA requirements[218][219] - Intense competition exists from liquid biopsy and traditional genomic profiling companies, including Foundation Medicine (Roche), GRAIL, and Exact Sciences, some with greater resources[187][188][189] - Cybersecurity is a notable risk due to handling sensitive patient health information (PHI), where a breach could result in substantial liability and reputational harm[393][394] Properties Guardant Health's headquarters are in Palo Alto, California, with primary CAP-accredited and CLIA-certified laboratories in Redwood City and San Diego, California - The company's headquarters are in Palo Alto, CA, with a 12-year lease for approximately 249,500 sq. ft. from July 2020[400] - Primary laboratory operations are in Redwood City, CA, and San Diego, CA, totaling approximately 200,000 sq. ft.[400] Legal Proceedings The company is involved in significant legal proceedings, including patent infringement lawsuits and a civil investigative demand regarding billing practices, with uncertain outcomes - The company is engaged in ongoing patent infringement litigation with TwinStrand Biosciences and a separate suit with Illumina alleging trade secret misappropriation[657][658] - In January 2022, Guardant Health received a Civil Investigative Demand (CID) from the U.S. Attorney's Office regarding an investigation under the False Claims Act concerning billing for its Guardant360 test[660] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Guardant Health's common stock trades on Nasdaq under "GH"; the company has never paid cash dividends and intends to retain all earnings for growth - The company's common stock trades on the Nasdaq Global Select Market under the symbol "GH"[403] - Guardant Health has never declared or paid dividends, intending to retain all future earnings for business operations and expansion[404] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2022, total revenue grew 20% to $449.5 million, driven by precision oncology testing, though net loss widened to $654.6 million due to fair value adjustments and increased operating expenses, while maintaining strong liquidity Key Financial Results (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $449.5 | $373.7 | +20% | | Precision Oncology Testing Revenue | $392.0 | $304.3 | +29% | | Development Services & Other Revenue | $57.5 | $69.3 | -17% | | Net Loss | ($654.6) | ($384.8) | +70% | | R&D Expense | $373.8 | $263.2 | +42% | | Sales & Marketing Expense | $299.8 | $191.9 | +56% | - Precision oncology revenue growth was driven by a significant increase in clinical test volume, from approximately 87,600 tests in 2021 to 124,800 in 2022[445] - The 2022 net loss included a $99.8 million non-cash charge for fair value adjustments related to the full acquisition of the Guardant Health AMEA joint venture[458][467] - As of December 31, 2022, the company maintained a strong liquidity position with approximately $1.0 billion in cash, cash equivalents, and marketable debt securities[414][463] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its investment portfolio, with foreign currency risk expected to increase with international expansion - The company faces interest rate risk on its investment portfolio; a hypothetical 100 basis point change would impact available-for-sale securities by approximately $4.2 million as of year-end 2022[512] - Foreign currency risk is currently insignificant due to U.S.-centric revenue, but is expected to increase with international expansion[513] Financial Statements and Supplementary Data This section presents Guardant Health's audited consolidated financial statements for fiscal year 2022, including balance sheets, statements of operations, and cash flows, reflecting $1.61 billion in total assets and a $654.6 million net loss Consolidated Balance Sheets As of December 31, 2022, total assets decreased to $1.61 billion, total liabilities were $1.55 billion, and total stockholders' equity significantly decreased to $60.2 million due to the net loss Consolidated Balance Sheet Highlights (as of Dec 31) | Account | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Cash, cash equivalents, & marketable securities | $1,011.2 | $1,630.8 | | Total Assets | $1,610.0 | $2,204.5 | | Convertible senior notes, net | $1,137.4 | $1,134.8 | | Total Liabilities | $1,549.8 | $1,559.5 | | Total Stockholders' Equity | $60.2 | $645.0 | Consolidated Statements of Operations For 2022, total revenue increased to $449.5 million, but loss from operations widened to $544.4 million, resulting in a net loss of $654.6 million or ($6.41) per share, exacerbated by fair value adjustments Consolidated Statement of Operations (Year Ended Dec 31) | Metric | 2022 (in millions) | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | :--- | | Total Revenue | $449.5 | $373.7 | $286.7 | | Total Costs and Operating Expenses | $993.9 | $784.7 | $541.7 | | Loss from Operations | ($544.4) | ($411.0) | ($255.0) | | Net Loss | ($654.6) | ($384.8) | ($246.3) | | Net Loss Per Share | ($6.41) | ($4.00) | ($2.60) | Consolidated Statements of Cash Flows For 2022, net cash used in operating activities increased to $309.5 million, while investing activities provided $149.8 million, and financing activities used $189.1 million, resulting in a $350.3 million net decrease in cash Consolidated Cash Flow Summary (Year Ended Dec 31) | Activity | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net cash used in operating activities | ($309.5) | ($209.0) | | Net cash provided by (used in) investing activities | $149.8 | ($63.2) | | Net cash used in financing activities | ($189.1) | ($66.8) | | Net decrease in cash, cash equivalents and restricted cash | ($350.3) | ($340.7) | Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, a conclusion affirmed by the independent auditor - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[718] - Based on the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, 2022, a conclusion audited and confirmed by the independent registered public accounting firm[719][724] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2023 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2023 Proxy Statement[732] Executive Compensation Information concerning executive compensation is incorporated by reference from the forthcoming 2023 Proxy Statement - Information regarding executive compensation is incorporated by reference from the forthcoming 2023 Proxy Statement[733] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership of certain beneficial owners and management is incorporated by reference from the forthcoming 2023 Proxy Statement - Information regarding security ownership is incorporated by reference from the forthcoming 2023 Proxy Statement[734] Certain Relationships and Related Transactions, and Director Independence Information concerning certain relationships, related transactions, and director independence is incorporated by reference from the forthcoming 2023 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the forthcoming 2023 Proxy Statement[735] Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the forthcoming 2023 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the forthcoming 2023 Proxy Statement[736] Part IV Exhibits, Financial Statement Schedules This section lists exhibits filed with the 10-K, noting the omission of financial statement schedules as information is included elsewhere or not applicable - All financial statement schedules have been omitted as the required information is either not applicable or included within the consolidated financial statements or notes[738]