Pursuant to another investment in non-marketable securities purchased by the Company, the Company acquired rights to purchase the investee at a pre-determined price subject to additional adjustments based on the performance of the Company, on or before October 1, 2023, and acquired rights to obtain the exclusive license of the investee's certain technologies. In June 2023, the Company decided not to exercise such rights and recorded an impairment of $7.0 million for the nine months ended September 30, 2023, included in other income (expense), net on the Company's condensed consolidated statements of operations.
No other impairment or downward adjustments to the carrying value of the Company's non-marketable securities have been otherwise recorded.
Concentration of Risk
The Company is subject to credit risk from its portfolio of cash equivalents held at one commercial bank and investments in marketable debt securities. The Company limits its exposure to credit losses by investing in money market funds through a U.S. bank with high credit ratings. The Company’s cash may consist of deposits held with banks that may at times exceed federally insured limits, however, its exposure to credit risk in the event of default by the financial institution is limited to the extent of amounts recorded on the condensed consolidated balance sheets. The Company performs evaluations of the relative credit standing of these financial institutions to limit the amount of credit exposure.
The Company also invests in investment-grade debt instruments and has policy limits for the amount it can invest in any one type of security, except for securities issued or guaranteed by the U.S. government. The goals of the Company’s investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive after-tax rate of return. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, investment type and issuer, as a result, the Company is not exposed to any significant concentrations of credit risk from these financial instruments.
The Company is subject to credit risk from its accounts receivable. The majority of the Company’s accounts receivable arises from the provision of precision oncology services, and development services and other, primarily with biopharmaceutical companies and international laboratory partners, all of which have high credit ratings. The Company has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. Accounts receivable are recorded net of allowance for credit losses, if any.
A significant customer is any biopharmaceutical customer, clinical testing payer, or international laboratory partner that represents 10% or more of the Company’s total revenue or accounts receivable balance. Revenue attributable to each significant customer, including its affiliated entities, as a percentage of the Company’s total revenue, for the respective period, and accounts receivable balance attributable to each significant customers, including its affiliated entities, as a percentage of the Company’s total accounts receivable balance, at the respective condensed consolidated balance sheet date, are as follows:
For the three and nine months ended September 30, 2024, the Company recorded $18.2 million and $31.9 million, respectively, as revenue related to performance obligations satisfied in prior periods. For the three and nine months ended September 30, 2023, the Company recorded $7.4 million and $12.2 million, respectively, as revenue related to performance obligations satisfied in prior periods.
Contracts with multiple performance obligations
Contracts with biopharmaceutical customers and international laboratory partners may include multiple distinct performance obligations, such as provision of precision oncology testing, the above-mentioned development services, and digital sequencing technology licensing, among others. The Company evaluates the terms and conditions included within its contracts with biopharmaceutical customers and international laboratory partners to ensure appropriate revenue recognition, including whether services are considered distinct performance obligations that should be accounted for separately versus together. The Company first identifies material promises, in contrast to immaterial promises or administrative tasks, under the contract, and then evaluates whether these promises are both capable of being distinct and distinct within the context of the contract. In assessing whether a promised service is capable of being distinct, the Company considers whether the customer could benefit from the service either on its own or together with other resources that are readily available to the customer, including factors such as the research, development, and commercialization capabilities of a third party as well as the availability of the associated expertise in the general marketplace. In assessing whether a promised service is distinct within the context of the contract, the Company considers whether it provides a significant integration of the services, whether the services significantly modify or customize one another, or whether the services are highly interdependent or interrelated.
For contracts with multiple performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines standalone selling price by considering the historical selling price of these performance obligations in similar transactions as well as other factors, including, but not limited to, the price that customers in the market would be willing to pay, competitive pricing of other vendors, industry publications and current pricing practices, and expected costs of satisfying each performance obligation plus appropriate margin; or by using the residual approach if standalone selling price is not observable, by reference to the total transaction price less the sum of the observable standalone selling prices of other performance obligations promised in the contract.
Deferred revenue, which is a contract liability, consists primarily of payments received in advance of revenue recognition from contracts with customers. For example, development services and other contracts with biopharmaceutical customers often contain upfront payments which results in the recording of deferred revenue to the extent cash is received prior to the Company's performance of the related services. Contract liabilities are relieved as the Company performs its obligations under the contract and revenue is consequently recognized. As of September 30, 2024 and December 31, 2023, the deferred revenue balance was $32.5 million and $22.9 million, respectively, of which $3.0 million and $5.0 million was considered long-term and recorded within other long-term liabilities on the accompanying condensed consolidated balance sheets. Revenue recognized in the nine months ended September 30, 2024 that was included in the deferred revenue balance as of December 31, 2023 was $12.6 million, and revenue recognized in the nine months ended September 30, 2023 that was included in the deferred revenue balance as of December 31, 2022 was $12.7 million, respectively.
Transaction price allocated to the remaining performance obligations
Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenues in future periods. The Company expects to recognize substantially all of the remaining transaction price in the next 1-2 years.
Costs of Precision Oncology Testing
Cost of precision oncology testing generally consists of cost of materials, cost of labor, including bonus, benefit and stock-based compensation, equipment and infrastructure expenses associated with processing test samples (including sample accessioning, library preparation, sequencing, and quality control analyses), freight, curation of test results for physicians, phlebotomy, and license fees due to third parties. Infrastructure expenses include depreciation of laboratory equipment, lease costs, amortization of leasehold improvements, and information technology costs. Costs associated with performing the Company’s tests are recorded as the tests are performed regardless of whether revenue was recognized with respect to that test.
Cost of Development Services and Other
Cost of development services and other primarily includes costs incurred for the performance of development services requested by the Company’s biopharmaceutical customers, and costs associated with the Company's partnership agreements and delivery of Shield screening tests. 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 reported as cost of development services and other.
Research and Development Expenses
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 facility occupancy and information technology costs, contract services, other outside costs and costs to develop the Company's 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 technology capabilities are recorded as research and development expenses unless they meet the criteria to be capitalized as internal-use software costs.
Stock-Based Compensation
Stock-based compensation related to stock options granted to the Company’s employees, directors and nonemployees is measured at the grant date based on the fair value of the award. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective awards. Compensation expense for stock options with performance metrics is calculated based upon expected achievement of the metrics specified in the grant.
The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted under the 2012 Stock Plan (as amended and restated), or the 2012 Plan, the 2018 Incentive Award Plan, or the 2018 Plan, the 2023 Employment Inducement Incentive Award Plan, or the 2023 Plan, and stock purchase rights granted under the 2018 Employee Stock Purchase Plan. The Black-Scholes option-pricing model requires assumptions to be made related to the expected term of an award, expected volatility, risk-free rate and expected dividend yield.
The Company measures the grant date fair value of its service-based and performance-based restricted stock units issued to employees and non-employees based on the closing market price of the common stock on the date of grant. For restricted stock units with only service-based vesting conditions, compensation expense is recognized in the Company’s condensed consolidated statement of operations on a straight-line basis over the requisite service period. Compensation expense for restricted stock units with performance metrics, or PSUs, is calculated based upon expected achievement of the metrics specified in the grant, and is recognized in the Company’s condensed consolidated statement of operations using an accelerated attribution model over the requisite service period for each separately vesting portion of the award. No stock-based compensation expense is recorded for PSUs, unless it is determined to be probable that the related performance metrics will be met. In addition, a cumulative adjustment will be recorded in the period when the probability of achieving the related performance metrics is adjusted. Any PSUs that remain unvested at the end of the performance period will be forfeited. Forfeitures are accounted for as they occur.
Net Loss Per Share
The Company calculates basic net loss per share by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period determined using the treasury stock method or the as-if converted method, as appropriate. For purposes of this calculation, stock options, restricted stock units, shares issuable pursuant to the employee stock purchase plan, and contingently issuable shares under the convertible senior notes are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive.
New Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board, or FASB, issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance will be effective for the annual reporting periods beginning the year ended December 31, 2024, and for interim reporting periods beginning January 1, 2025, with early adoption permitted, and should be applied retrospectively. The Company expects to provide required disclosures upon the effective date.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which amended existing income tax disclosure guidance, primarily requiring more detailed disclosures on the effective tax rate reconciliation and income taxes paid. This guidance will be effective for annual reporting periods beginning the year ended December 31, 2025, with early adoption permitted and can be applied on either a prospective or retroactive basis. The Company expects to provide required disclosures upon the effective date.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income (Topic 220): Expense Disaggregation Disclosures, which requires additional disclosures of specified information about certain costs and expenses in the notes to financial statements. This guidance will be effective for annual reporting periods beginning the year ended December 31, 2027, and for interim reporting periods beginning January 1, 2028, with early adoption permitted and can be applied on either a prospective or retroactive basis. The Company is currently assessing the impact of adopting this accounting pronouncement on its consolidated financial statements.
Property and equipment, net consist of the following:
September 30, 2024
December 31, 2023
(unaudited)
(in thousands)
Machinery and equipment
$
125,296
$
118,117
Leasehold improvements
103,419
102,298
Computer hardware
36,068
34,417
Construction in progress
7,250
7,508
Furniture and fixtures
7,993
7,999
Computer software
2,063
2,065
Property and equipment, gross
$
282,089
$
272,404
Less: accumulated depreciation
(156,920)
(127,308)
Property and equipment, net
$
125,169
$
145,096
Depreciation expense related to property and equipment was $10.1 million and $10.3 million for the three months ended September 30, 2024, and 2023, respectively, and $30.2 million and $29.9 million for the nine months ended September 30, 2024, and 2023, respectively.
Accrued Expenses
Accrued expenses consist of the following:
September 30, 2024
December 31, 2023
(unaudited)
(in thousands)
Operating lease liabilities
$
27,383
$
27,950
Contingent consideration arrangements
12,500
6,500
Other
31,788
29,025
Total accrued expenses
$
71,671
$
63,475
4. Fair Value Measurements, Cash Equivalents and Marketable Securities
Financial instruments consist of cash equivalents, marketable securities, accounts receivable, net, prepaid expenses and other current assets, net, and accounts payable and accrued liabilities. Cash equivalents and marketable securities are stated at fair value. Prepaid expenses and other current assets, net, and accounts payable and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.
Fair value is defined as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritized the inputs into three broad levels as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements were as follows:
The Company measures the fair value of money market funds based on quoted prices in active markets for identical securities. Income deposit funds and U.S. government debt securities are valued taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities; prepayment/default projections based on historical data and other observable inputs.
In July 2022, one of the Company's equity investees, Lunit Inc., or Lunit, completed its initial public offering, or IPO, subsequent to which, the Company started to account for the investment in Lunit at fair value on a recurring basis, and classified the investment as marketable equity securities within Level 1 of the fair value hierarchy as the investment is valued using the quoted market price. The Company was subject to a 2-year lock-up period from Lunit's IPO date, during which the Company shall not transfer Lunit's shares between accounts, establish or cancel pledges, sell, or withdraw such shares, without approval from the Korea Exchange. In November 2023, Lunit issued bonus shares to its existing shareholders by allocating one new share for each existing share, and the Company was subject to the same lock-up period with the same restrictions for these bonus shares which expired in July 2024. In the third quarter of 2024, the Company sold a portion of its investment in Lunit. As of September 30, 2024 and December 31, 2023, the balance of the investment in Lunit was $31.3 million and $98.0 million, included in prepaid expenses and other current assets, net, and other assets, net, respectively, on the Company's condensed consolidated balance sheets. In addition, the Company recorded $1.2 million and $29.3 million unrealized losses during the three and nine months ended September 30, 2024, respectively, on the investment in Lunit held as of September 30, 2024, and recorded $16.6 million and $84.5 million unrealized gains during the three and nine months ended September 30, 2023, respectively, on the investment in Lunit held as of September 30, 2023, included in other income (expense), net on the Company's condensed consolidated statement of operations.
There were no transfers between Level 1, Level 2 and Level 3 during the periods presented.
Acquisition-related contingent consideration is measured at fair value on a quarterly basis and changes in estimated contingent consideration to be paid are included in general and administrative expense in the condensed consolidated statements of operations. The fair value of acquisition-related contingent consideration is estimated using a multiple-outcome discounted cash flow valuation technique. Contingent consideration is classified within Level 3 of the fair value hierarchy, as it is based on a probability that includes significant unobservable inputs. The significant unobservable inputs include a probability-weighted estimate of achievement of certain commercialization milestones, and discount rate to present value the expected payments. A significant change in any of these input factors in isolation could have a material impact to fair value measurement. As of September 30, 2024 and December 31, 2023, the Company's acquisition-related contingent consideration liability was $7.3 million and $6.5 million, respectively, of which $1.8 million and $5.0 million was considered long-term and recorded within other long-term liabilities on the Company's condensed consolidated balance sheets.
The following table summarizes the activities for the Level 3 financial instruments:
Contingent Consideration
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(unaudited)
(in thousands)
Fair value — beginning of period
$
6,960
$
6,440
$
6,540
$
6,430
Increase in fair value
340
220
760
230
Fair value — end of period
$
7,300
$
6,660
$
7,300
$
6,660
The Company considers the fair value of the Convertible Notes as of September 30, 2024, and December 31, 2023, to be a Level 2 measurement. The fair value of the Convertible Notes is primarily affected by the trading price of the Company's common stock and market interest rates. As such, the carrying value of the Convertible Notes does not reflect the market rate. See Note 6, Debt, for additional information related to the fair value of the Convertible Notes.
The following table sets forth the computation of the basic and diluted net loss per share:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(unaudited)
(in thousands, except per share data)
Net loss, basic and diluted
$
(107,754)
$
(86,102)
$
(325,367)
$
(292,406)
Net loss per share, basic and diluted
$
(0.88)
$
(0.73)
$
(2.66)
$
(2.66)
Weighted-average shares used in computing net loss per share, basic and diluted
123,051
117,736
122,406
109,791
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share, as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. The following weighted-average common stock equivalents were excluded from the calculation of diluted net loss per share for the periods presented as they had an anti-dilutive effect:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(unaudited)
(in thousands)
Stock options
3,753
3,662
3,892
3,485
Restricted stock units
5,104
3,219
4,938
3,382
MSUs
—
2,261
646
2,261
PSUs
1,292
438
1,071
379
ESPP obligation
197
132
228
191
Convertible senior notes
8,225
8,225
8,225
8,225
Total
18,571
17,937
19,000
17,923
12. Income Taxes
The income tax expense for the three and nine months ended September 30, 2024 was determined based upon estimates of the Company’s effective income tax rates in various jurisdictions. The difference between the Company’s effective income tax rate and the U.S. federal statutory rate is primarily attributable to state income taxes, foreign income taxes, the effect of certain permanent differences, and full valuation allowance against domestic net deferred tax assets.
The income tax expense for the three and nine months ended September 30, 2024, and 2023, relates primarily to state minimum income tax and income tax on the Company’s earnings in foreign jurisdictions.
13. Segment and Geographic Information
The Company operates as one operating segment. The Company's chief operating decision makers are its Co-Chief Executive Officers, who review financial information presented on a consolidated basis for the purposes of making operating decisions, assessing financial performance and allocating resources.
The following table sets forth the Company’s revenue by geographic areas based on the customers’ locations:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(unaudited)
(in thousands)
United States
$
180,105
$
135,735
$
505,568
$
383,908
International
11,371
7,295
31,634
24,986
Total revenue
$
191,476
$
143,030
$
537,202
$
408,894
As of September 30, 2024, and December 31, 2023, 99% and 98%, respectively, of the Company’s long-lived assets and right-of-use assets are located in the United States.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 ended December 31, 2023and 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 guarding wellness and giving every person more time free from cancer. We are transforming patient care by providing critical insights into what drives disease through our advanced blood and tissue tests, and real-world data. Our tests help improve outcomes across all stages of care, including screening to find cancer early, monitoring for recurrence in early-stage cancer, and helping doctors select the best treatment for patients with advanced cancer. For patients with advanced-stage cancer, we have commercially launched Guardant360 laboratory developed test, or LDT, and Guardant360 CDx, the first comprehensive liquid biopsy test approved by the U.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, and breast cancer. We have also launched the Guardant360 TissueNext tissue test for advanced-stage cancer, Guardant Reveal blood test to detect residual and recurring disease in early-stage colorectal, breast and lung cancer patients, and Guardant360 Response blood test to predict patient response to immunotherapy or targeted therapy eight weeks earlier than current standard-of-care imaging.
We also collaborate with biopharmaceutical companies in clinical studies by providing the above-mentioned tests, as well as the GuardantOMNI blood test for advanced-stage cancer, and the GuardantINFINITY blood test, a next-generation smart liquid biopsy that provides new, multi-dimensional insights into the complexities of tumor molecular profiles and immune response to advance cancer research and therapy development. Using data collected from our tests, we have also developed our GuardantINFORM platform to help biopharmaceutical companies accelerate precision oncology drug development through the use of this in-silico research platform to unlock further insights into tumor evolution and treatment resistance across various biomarker-driven cancers.
For early cancer detection, in May 2022, we launched the Shield LDT test to address the needs of individuals eligible for colorectal cancer screening. From a simple blood draw, Shield uses a novel multimodal approach to detect colorectal cancer signals in the bloodstream, including DNA that is shed by tumors. In December 2022, we announced that the ECLIPSE study, a registrational study evaluating the performance of our Shield blood test for detecting colorectal cancer in average-risk adults, met co-primary endpoints. In addition, in March 2023, we submitted a premarket approval application, or PMA, for our Shield blood test to the FDA. In July 2024, we received FDA approval of our Shield blood test for colorectal cancer screening in adults age 45 and older who are at average risk for the disease, and in August 2024, our Shield blood test became commercially available in the U.S. as the first blood test approved by the FDA for primary colorectal cancer screening, meaning healthcare providers can offer Shield in a manner similar to all other non-invasive methods recommended in screening guidelines. Shield is also the first blood test for colorectal cancer screening that meets coverage requirements by Medicare. We also expect to expand into lung and multi-cancer screening with our investigational, next-generation Shield assay.
We currently perform clinical, research use only, and investigation use only tests in our laboratory located in Redwood City, California. Our Redwood City laboratory is certified pursuant to the Clinical Laboratory Improvement Amendments of 1988, or CLIA, accredited by the College of American Pathologists, or CAP, permitted by the New York State Department of Health, or NYSDOH, and licensed in California and four other states. We also perform research use only tests in our laboratory located in San Diego, California. In addition, our Redwood City, San Diego and Palo Alto, California laboratories are currently operated as centers for our research and technology development.
We generated total revenue of $191.5 million and $143.0 million for the three months ended September 30, 2024, and 2023, respectively, and $537.2 million and $408.9 million for the nine months ended September 30, 2024, and 2023, respectively. We also incurred net losses of $107.8 million and $86.1 million for the three months ended September 30, 2024, and 2023, respectively, and $325.4 million and $292.4 million for the nine months ended September 30, 2024, and 2023, 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. In May 2023, we completed a follow-on underwritten public offering, in which we issued and sold 14,375,000 shares of our common stock at a price of $28.00 per share and received net proceeds of $381.4 million after deducting underwriting discounts and commissions and other offering costs of $21.1 million. In December 2023, we completed a registered direct offering with an investment management firm, in which we issued and sold 3,387,446 shares of our common stock at a price of $26.77 per share, and received net proceeds of $90.6 million. As of September 30, 2024, we had cash, cash equivalents, restricted cash and marketable debt securities of approximately $1.0 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 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. Precision oncology revenue from clinical tests for patients covered by Medicare represented approximately 38% and 45% of our precision oncology revenue from clinical customers for the three months ended September 30, 2024, and 2023, respectively, and approximately 40% and 44% of our precision oncology revenue from clinical customers for the nine months ended September 30, 2024, and 2023, 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 started to reimburse Guardant360 CDx services at the median rate of claims paid by commercial payers. In March 2022, Palmetto GBA, the Medicare administrative contractor for MolDX, 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. In July 2022, Palmetto GBA conveyed coverage for our Guardant Reveal test for fee-for-service Medicare patients in the United States with stage II or III colorectal cancer whose testing is initiated within three months following curative intent therapy, with an effective date of December 2021. In April 2023, Palmetto GBA conveyed coverage for our Guardant360 Response test for fee-for-service Medicare patients in the U.S. with metastatic or inoperable solid tumors who are on an immune checkpoint inhibitor therapy, tested four to ten weeks from therapy initiation. Effective January 1, 2024, Medicare has increased the reimbursement rate for our Guardant360 LDT test to the same rate as our Guardant360 CDx test.
In August 2024, following the FDA approval, our Shield blood test met the coverage requirements by Medicare based on the criteria established in its National Coverage Determination for blood-based colorectal cancer screening tests. The test is covered once every three years for eligible Medicare beneficiaries.
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 and validation, as well as clinical study enrollment. For example, our tests are being developed as companion diagnostics under collaborations with biopharmaceutical companies.
•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. In addition, with respect to Guardant Reveal, in December 2022, we entered into a partnership with Susan G. Komen®, the world’s leading breast cancer organization, to bring the patient perspective to the development of clinical studies that help identify early-stage breast cancer patients who are at high risk of disease recurrence and may benefit from additional monitoring or therapy. With respect to Shield, in December 2022, we announced that the ECLIPSE study, a registrational study evaluating the performance of our Shield blood test for detecting colorectal cancer in average-risk adults, met co-primary endpoints. The test demonstrated 83% sensitivity in detecting individuals with colorectal cancer. Specificity was 90% in both individuals without advanced neoplasia and in those who had a negative colonoscopy result. These results exceed the performance criteria set forth by the CMS for reimbursement. This test also demonstrated 13% sensitivity in detecting advanced adenomas. Based on these study results, in March 2023, we submitted a PMA to the FDA for our Shield blood test. In July 2024, we received FDA approval of our Shield blood test for colorectal cancer screening in adults age 45 and older who are at average risk for the disease, and in August 2024, our Shield blood test became commercially available in the U.S. as the first blood test approved by the FDA for primary colorectal cancer screening, meaning healthcare providers can offer Shield in a manner similar to all other non-invasive methods recommended in screening guidelines. Shield is also the first blood test for colorectal cancer screening that meets coverage requirements by Medicare. In addition, to evaluate the performance of our investigational, next-generation Shield assay in detecting lung cancer in high-risk individuals ages 50-80, in January 2022, we initiated a nearly 10,000-patient prospective, registrational study, which we refer to as the SHIELD LUNG study. 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, and partnerships with local research organizations and laboratory companies.
In May 2018, we formed and capitalized Guardant Health AMEA, Inc., with SoftBank, relating to the sale, marketing and distribution of our tests generally outside the Americas and Europe, and to accelerate commercialization of our products in Asia, the Middle East and Africa. In June 2022, we purchased all of the shares held by SoftBank and its affiliates, and upon completion of the transaction, we obtained full control over operations of Guardant Health AMEA, Inc. In July 2023, Japan's Ministry of Health, Labour and Welfare granted national reimbursement approval for our Guardant360 CDx test for patients with advanced or metastatic solid tumor cancers in Japan.
In December 2020, we signed our first public private partnership agreement with Vall D'Hebron Institute of Oncology, or VHIO, one of Europe’s leading cancer research institutions, and in May 2022, the first blood-based cancer testing services in Europe based on our digital sequencing platform became available at the VHIO testing facility in Spain. In October 2021, we signed a partnership agreement with The Royal Marsden NHS Foundation Trust, or Royal Marsden, a premier cancer center within the United Kingdom, or the UK, for patient care, research and teaching of all types of cancer, and in April 2023, the blood-based cancer testing services based on our digital sequencing platform became available at Royal Marsden testing facility in the UK. In September 2024, we signed a partnership agreement with the Agostino Gemelli University Polyclinic Foundation IRCCS, one of Italy’s largest and most renowned hospitals known for its advanced oncology services, including diagnostics, treatment, and research, to establish an in-house liquid biopsy testing service within its hospital system.
In June 2022, we signed a strategic partnership agreement with Adicon Holdings Limited, or Adicon, a leading independent clinical laboratory company based in China, and in December 2023, the blood-based cancer testing services based on our digital sequencing platform became available at Adicon's testing facility, which offers our industry-leading comprehensive genomic profiling tests to biopharmaceutical companies to advance clinical research and the development of new cancer therapies in China.
The success of our international expansion strategy depends on a number of factors, including the internal and external constraints placed on our international laboratory partners and biopharmaceutical companies in the context of broader global, regional and U.S. economic and geopolitical conditions. For example, deterioration in the bilateral relationship between the United States and China may impact international trade, government spending, regional stability and macroeconomic conditions. The impact of these potential developments, including any resulting sanctions, export controls or other restrictive actions that may be imposed against governmental or other entities in, for example, China, may contribute to disruption of our international partnerships and instability and volatility in the global markets, which in turn could adversely impact our operations and weaken our financial results.
•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 performance-based restricted stock units, are intended to retain and incentivize employees to lead us to sustained, long-term superior financial and operational performance.
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, 2023, 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, including those tests delivered by labs operated by our strategic partners. In the United States, through September 30, 2024, 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 by U.S. private payers. We also submit claims to Medicare for reimbursement for our Guardant360 CDx, Guardant360 LDT, Guardant360 TissueNext, Guardant Reveal and Guardant360 Response clinical testing performed for qualifying patients. Precision oncology revenue from clinical tests for patients covered by Medicare represented approximately 38% and 45% of our precision oncology revenue from clinical customers during the three months ended September 30, 2024, and 2023, respectively, and 40% and 44% of our precision oncology revenue from clinical customers during the nine months ended September 30, 2024, and 2023, respectively.
Development services and other. Development services revenue primarily represents services that we provide to biopharmaceutical companies, large medical institutions and international laboratory partners. 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 other development services, including clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect and GuardantINFORM. Other revenue includes amounts derived from licensing our technologies, kit fulfillment, and delivery of our Shield screening tests.
Cost of precision oncology testing. Cost of precision oncology testing generally consists of cost of materials, including inventory write-downs; cost of 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, and quality control analyses; freight; curation of test results for physicians; phlebotomy; 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. While we do not believe the technologies underlying the third-party 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 biopharmaceutical customers, and costs associated with our partnership agreements and delivery of Shield screening tests, which comprise of 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 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 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 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 overhead expenses. In addition, our general and administrative expenses also include severance costs related to workforce reduction. 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, restricted cash and marketable debt securities.
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, unrealized and realized gains and losses of marketable equity securities, and impairment of non-marketable equity securities and other related assets. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.
Results of operations
The following tables set forth the significant components of our results of operations for the periods presented.
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(unaudited)
(in thousands)
Revenue:
Precision oncology testing
$
180,604
$
133,423
$
503,351
$
372,060
Development services and other
10,872
9,607
33,851
36,834
Total revenue
191,476
143,030
537,202
408,894
Costs and operating expenses:
Cost of precision oncology testing(1)
66,095
53,648
191,116
148,111
Cost of development services and other(1)
8,394
3,966
21,090
16,424
Research and development expense(1)
87,306
93,851
254,210
277,338
Sales and marketing expense(1)
97,880
68,934
260,172
216,100
General and administrative expense(1)
49,129
36,174
128,243
118,135
Total costs and operating expenses
308,804
256,573
854,831
776,108
Loss from operations
(117,328)
(113,543)
(317,629)
(367,214)
Interest income
13,257
11,690
42,038
21,477
Interest expense
(646)
(644)
(1,936)
(1,933)
Other income (expense), net
(3,007)
16,885
(47,272)
56,490
Loss before provision for income taxes
(107,724)
(85,612)
(324,799)
(291,180)
Provision for income taxes
30
490
568
1,226
Net loss
$
(107,754)
$
(86,102)
$
(325,367)
$
(292,406)
(1)Amounts include stock-based compensation expense as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(unaudited)
(in thousands)
Cost of precision oncology testing
$
1,484
$
1,092
$
4,020
$
3,470
Cost of development services and other
2,410
436
3,400
1,387
Research and development expense
18,643
8,491
38,413
25,390
Sales and marketing expense
13,215
5,061
27,633
18,387
General and administrative expense
14,017
6,739
30,579
17,805
Total stock-based compensation expense
$
49,769
$
21,819
$
104,045
$
66,439
In November 2020 and May 2021, we granted restricted stock units with certain performance metrics, or PSUs, consisting of a performance period of 4 years combined with an additional service period requirement of six months
should the vesting criteria be met, with a grant date fair value of $113.40 per share and $148.19 per share, respectively. Before the third quarter of 2024, no compensation expense for these PSUs had been recorded since the achievement of the performance metrics did not meet the criteria for accrual. In the third quarter of 2024, the performance metrics of these PSUs were considered to be achieved; as such we recorded a cumulative charge of $23.5 million in stock-based compensation expense related to these PSUs, based on 221,347 shares granted with fair values of $113.40 per share and $148.19 per share, of which $2.2 million was recorded to cost of development services and other, and $11.1 million, $6.3 million and $3.9 million was recorded as components of research and development expense, sales and marketing expense, and general and administrative expense, respectively.
Comparison of the Three Months Ended September 30, 2024 and 2023
Revenue
Three Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Precision oncology testing
$
180,604
$
133,423
$
47,181
35
%
Development services and other
10,872
9,607
1,265
13
%
Total revenue
$
191,476
$
143,030
$
48,446
34
%
Total revenue was $191.5 million for the three months ended September 30, 2024, compared to $143.0 million for the three months ended September 30, 2023, an increase of $48.4 million, or 34%.
Precision oncology testing revenue increased to $180.6 million for the three months ended September 30, 2024, from $133.4 million for the three months ended September 30, 2023, an increase of $47.2 million, or 35%.
Precision oncology revenue from tests for clinical customers was $141.2 million for the three months ended September 30, 2024, up 36% from $103.9 million for the three months ended September 30, 2023. This increase in clinical testing revenue was driven primarily by an increase in sample volume and increase in reimbursement for our tests. Total tests for clinical customers increased to approximately 53,100 for the three months ended September 30, 2024, from approximately 43,900 for the three months ended September 30, 2023. The increase in reimbursement for our tests for the three months ended September 30, 2024 was primarily attributable to an increase in Medicare reimbursement for our Guardant360 LDT test to $5,000, effective January 1, 2024; and an increase in both Medicare Advantage and commercial payer reimbursement.
Precision oncology revenue from tests for biopharmaceutical customers was $39.4 million for the three months ended September 30, 2024, up 34% from $29.5 million for the three months ended September 30, 2023. This increase in revenue was driven primarily by an increase in sample volume. Total tests for biopharmaceutical customers increased to approximately 10,500 for the three months ended September 30, 2024, from approximately 7,500 for the three months ended September 30, 2023.
Development services and other revenue increased to $10.9 million for the three months ended September 30, 2024, from $9.6 million for the three months ended September 30, 2023, an increase of $1.3 million. Other revenue includes amounts derived from delivery of our Shield screening tests during the three months ended September 30, 2024.
Cost of Revenue
Three Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Cost of precision oncology testing
$
66,095
$
53,648
$
12,447
23
%
Cost of development services and other
8,394
3,966
4,428
112
%
Total cost of revenue
$
74,489
$
57,614
$
16,875
29
%
Total cost of revenue was $74.5 million for the three months ended September 30, 2024, compared to $57.6 million for the three months ended September 30, 2023, an increase of $16.9 million, or 29%.
Cost of precision oncology testing was $66.1 million for the three months ended September 30, 2024, compared to $53.6 million for the three months ended September 30, 2023, an increase of $12.4 million, or 23%. This increase in cost of precision oncology testing was primarily attributable to an increase in sample volumes, resulting in a $10.3 million increase in material costs, and a $1.5 million increase in production labor and overhead costs.
Cost of development services and other was $8.4 million for the three months ended September 30, 2024, compared to $4.0 million for the three months ended September 30, 2023, an increase of $4.4 million. This increase in cost of development services and other was primarily due to costs associated with providing Shield screening tests, and costs associated with our companion diagnostics collaboration projects and other service agreements with biopharmaceutical customers during the three months ended September 30, 2024.
Operating Expenses
Research and development expense
Three Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Research and development expense
$
87,306
$
93,851
$
(6,545)
(7)
%
Research and development expenses were $87.3 million for the three months ended September 30, 2024, compared to $93.9 million for the three months ended September 30, 2023, a decrease of $6.5 million, or 7%. This decrease was primarily due to a decrease of $15.4 million in outside services costs primarily driven by a reduction in the ECLIPSE clinical study costs as the study nears completion, and a decrease of $3.9 million in material costs, partially offset by an increase of $11.1 million in stock-based compensation primarily related to the PSUs discussed in the Results of operations section above.
Sales and marketing expense
Three Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Sales and marketing expense
$
97,880
$
68,934
$
28,946
42
%
Sales and marketing expenses were $97.9 million for the three months ended September 30, 2024, compared to $68.9 million for the three months ended September 30, 2023, an increase of $28.9 million, or 42%. This increase was related to commercial team buildout and marketing activities to support existing products and the Shield product launch, primarily resulting in an increase of $10.1 million in other personnel costs, an increase of $7.7 million in marketing activity related costs, and an increase of $3.2 million in information technology infrastructure costs. This increase was also attributable to an increase of $8.2 million in stock-based compensation, primarily related to the PSUs of $6.3 million discussed in the Results of operations section above.
General and administrative expense
Three Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
General and administrative expense
$
49,129
$
36,174
$
12,955
36
%
General and administrative expenses were $49.1 million for the three months ended September 30, 2024, compared to $36.2 million for the three months ended September 30, 2023, an increase of $13.0 million, or 36%. This increase was primarily due to an increase of $7.3 million in stock-based compensation, including $3.9 million related to the PSUs discussed in the Results of operations section above, and an increase of $3.0 million in other personnel costs.
Interest income was $13.3 million for the three months ended September 30, 2024, compared to $11.7 million for the three months ended September 30, 2023, an increase of $1.6 million, or 13%, primarily attributable to higher rates of return on our investments.
Interest expense
Three Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Interest expense
$
(646)
$
(644)
$
(2)
—
%
Interest expense was primarily attributable to the amortization of debt issuance costs related to our convertible senior notes issued in November 2020, for the three months ended September 30, 2024, and 2023.
Other income (expense), net
Three Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Other income (expense), net
$
(3,007)
$
16,885
$
(19,892)
(118)
%
Other income (expense), net was a $3.0 million expense for the three months ended September 30, 2024, primarily attributable to $1.7 million of net unrealized and realized losses recorded for our marketable equity security investment in Lunit, Inc. during the period. Other income (expense), net was a $16.9 million income for the three months ended September 30, 2023, primarily attributable to $16.6 million of unrealized gains recorded for our marketable equity security investment in Lunit, Inc. during the period.
Provision for income taxes
Three Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Provision for income taxes
$
30
$
490
$
(460)
(94)
%
Provision for income taxes was immaterial for the three months ended September 30, 2024, and 2023.
Comparison of the Nine Months Ended September 30, 2024 and 2023
Revenue
Nine Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Precision oncology testing
$
503,351
$
372,060
$
131,291
35
%
Development services and other
33,851
36,834
(2,983)
(8)
%
Total revenue
$
537,202
$
408,894
$
128,308
31
%
Total revenue was $537.2 million for the nine months ended September 30, 2024, compared to $408.9 million for the nine months ended September 30, 2023, an increase of $128.3 million, or 31%.
Precision oncology testing revenue increased to $503.4 million for the nine months ended September 30, 2024, from $372.1 million for the nine months ended September 30, 2023, an increase of $131.3 million, or 35%.
Precision oncology revenue from tests for clinical customers was $397.2 million for the nine months ended September 30, 2024, up 34% from $295.7 million for the nine months ended September 30, 2023. This increase in clinical testing revenue was driven primarily by an increase in sample volume and increase in reimbursement for our tests. Total tests for clinical customers increased to approximately 149,400 for the nine months ended September 30, 2024, from approximately 126,500 for the nine months ended September 30, 2023. The increase in reimbursement for our tests for the nine months ended September 30, 2024 was primarily attributable to an increase in Medicare reimbursement for our Guardant360 LDT test to $5,000, effective January 1, 2024; and an increase in both Medicare Advantage and commercial payer reimbursement.
Precision oncology revenue from tests for biopharmaceutical customers was $106.1 million for the nine months ended September 30, 2024, up 39% from $76.4 million for the nine months ended September 30, 2023. This increase in revenue was primarily due to an increase in sample volume. Total tests for biopharmaceutical customers increased to approximately 29,425 for the nine months ended September 30, 2024, from approximately 20,350 for the nine months ended September 30, 2023.
Development services and other revenue decreased to $33.9 million for the nine months ended September 30, 2024, from $36.8 million for the nine months ended September 30, 2023, a decrease of $3.0 million. Other revenue includes amounts derived from delivery of our Shield screening tests during the nine months ended September 30, 2024.
Cost of Revenue
Nine Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(dollars in thousands)
Cost of precision oncology testing
$
191,116
$
148,111
$
43,005
29
%
Cost of development services and other
21,090
16,424
4,666
28
%
Total cost of revenue
$
212,206
$
164,535
$
47,671
29
%
Total cost of revenue was $212.2 million for the nine months ended September 30, 2024, compared to $164.5 million for the nine months ended September 30, 2023, an increase of $47.7 million, or 29%.
Cost of precision oncology testing was $191.1 million for the nine months ended September 30, 2024, compared to $148.1 million for the nine months ended September 30, 2023, an increase of $43.0 million, or 29%. This increase in cost of precision oncology testing was primarily attributable to an increase in sample volumes, and an increase in average cost per sample primarily due to changes in product mix, resulting in a $33.7 million increase in material costs, a $6.4 million increase in production labor and overhead costs, and a $2.4 million increase in other costs, including costs related to collection kits, freight and professional services.
Cost of development services and other was $21.1 million for the nine months ended September 30, 2024, compared to $16.4 million for the nine months ended September 30, 2023, an increase of $4.7 million. This increase in cost of development services and other was primarily due to costs associated with our companion diagnostics collaboration projects and other service agreements with biopharmaceutical customers, and costs associated with providing Shield screening tests during the nine months ended September 30, 2024.
Operating Expenses
Research and development expense
Nine Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Research and development
$
254,210
$
277,338
$
(23,128)
(8)
%
Research and development expenses were $254.2 million for the nine months ended September 30, 2024, compared to $277.3 million for the nine months ended September 30, 2023, a decrease of $23.1 million, or 8%. This decrease was primarily due to a decrease of $30.4 million in outside services costs primarily driven by a reduction in the ECLIPSE clinical study costs as the study nears completion, a decrease of $10.5 million in material costs, and a decrease of $3.0 million in information technology infrastructure costs, partially offset by an increase of $13.0 million in stock-based compensation, primarily related to the PSUs of $11.1 million discussed in the Results of operations section above, and an increase of $7.7 million in other personnel costs.
Sales and marketing expense
Nine Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Sales and marketing
$
260,172
$
216,100
$
44,072
20
%
Sales and marketing expenses were $260.2 million for the nine months ended September 30, 2024, compared to $216.1 million for the nine months ended September 30, 2023, an increase of $44.1 million, or 20%. This increase was related to commercial team buildout and marketing activities to support existing products and the Shield product launch, primarily resulting in an increase of $19.1 million in other personnel costs, an increase of $9.3 million in marketing activity related costs, and an increase of $8.3 million in information technology infrastructure costs. This increase was also attributable to an increase of $9.2 million in stock-based compensation, primarily related to the PSUs of $6.3 million discussed in the Results of operations section above.
General and administrative expense
Nine Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
General and administrative
$
128,243
$
118,135
$
10,108
9
%
General and administrative expenses were $128.2 million for the nine months ended September 30, 2024, compared to $118.1 million for the nine months ended September 30, 2023, an increase of $10.1 million, or 9%. This increase was primarily due to an increase of $12.8 million in stock-based compensation, including $3.9 million related to the PSUs discussed in the Results of operations section above, and an increase of $10.1 million in other personnel costs, partially offset by a decrease of $7.5 million in severance costs related to a workforce reduction incurred in the first quarter of 2023, and a decrease of $7.1 million in legal expenses.
Interest income was $42.0 million for the nine months ended September 30, 2024, compared to $21.5 million for the nine months ended September 30, 2023, an increase of $20.6 million, primarily attributable to higher rates of return on our investments.
Interest expense
Nine Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Interest expense
$
(1,936)
$
(1,933)
$
(3)
—
%
Interest expense was primarily attributable to the amortization of debt issuance costs related to our convertible senior notes issued in November 2020, for the nine months ended September 30, 2024, and 2023.
Other income (expense), net
Nine Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Other income (expense), net
$
(47,272)
$
56,490
$
(103,762)
(184)
%
Other income (expense), net was a $47.3 million expense for the nine months ended September 30, 2024, primarily attributable to $47.2 million of net unrealized and realized losses recorded for our marketable equity security investment in Lunit, Inc. during the period. Other income (expense), net was a $56.5 million income for the nine months ended September 30, 2023, primarily attributable to $84.5 million of unrealized gains recorded for our marketable equity security investment in Lunit, Inc., partially offset by $29.1 million of impairment recorded for our non-marketable equity security investments and other related assets during the period.
Provision for income taxes
Nine Months Ended September 30,
Change
2024
2023
$
%
(unaudited)
(in thousands)
Provision for income taxes
$
568
$
1,226
$
(658)
(54)
%
Provision for income taxes was immaterial for the nine months ended September 30, 2024, and 2023.
Liquidity and capital resources
We have incurred losses and negative cash flows from operations since our inception, and as of September 30, 2024, we had an accumulated deficit of $2.5 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 of September 30, 2024, we had cash, cash equivalents, restricted cash and marketable debt securities of $1.0 billion. 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.
Based on our current business plan, we believe our current cash, cash equivalents and restricted cash 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 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 liabilities, which could impact our working capital balances.