Shares of Guardant Health, a company specializing in precision medicine and liquid biopsies for cancer detection, experienced a decline of 10.6% by 10:05 a.m. ET on Monday morning, following a drop of 8.70%.
Monday marked the first opportunity for investors to respond to an announcement made by Guardant late on Friday. The company revealed its intention to raise $400 million through a new stock offering to support its operations.
Guardant’s Financial Needs
Guardant disclosed its plans in an 8-K filing with the Securities and Exchange Commission (SEC). According to the filing, the company intends to “offer and sell up to $400.0 million” in new shares at market prices, “from time to time at its sole discretion.”
Given Guardant’s current market capitalization of $3.2 billion, this suggests an increase in the company’s share count by approximately 12.5%, resulting in a similar dilution for existing shareholders. Furthermore, not all of the $400 million will remain with Guardant, as 3% of the funds raised will be allocated to the investment bank Jefferies, which is managing the stock sale.
Reasons for Guardant’s Cash Requirement
While investors are understandably cautious about the potential dilution of shares, they should not be surprised by this development. Despite its rapid growth, with annual sales nearly tripling to $644 million over the past five years, Guardant has yet to achieve profitability and continues to consume cash.
The company’s cash burn over the past year is close to $300 million. Although this is a slight improvement from the previous year, it remains negative. Most analysts predict that Guardant will not become free-cash-flow-positive until 2028.
To reach that milestone, analysts estimate that Guardant will need to roughly double its annual revenue, indicating that the goal is still some distance away. Until Guardant attains the necessary scale to generate sufficient cash independently, investors should be prepared for additional stock offerings and capital raising efforts, along with further dilution of shares.
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