Q1 2021 Personalis Inc Earnings Call
[music].
Okay.
Good day and thank you for standing by welcome to the personality of first quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need the press star one on your telephone.
Please be advised the today's conference is being recorded if you require any further assistance. Please press star zero.
I don't know lifetime of the conference over to your first speaker today, but it's Caroline corner Investor Relations. Please go ahead.
Thank you operator welcomed the personnel since first quarter 2021 earnings call. Joining me on today's call of John West President and Chief Executive Officer, and Aaron Tachibana Chief Financial Officer.
This call will include forward looking statements, including statements regarding the markets in which we operate including potential market sizes trends and expectations of our product services and technology trends and demand for our products personnel is expected financial performance expenses and position in the market and the impact of the COVID-19 pandemic on our operations and our customers' operations.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. We encourage you to review our most recent filings with the SEC, particularly the risk factors described in our 10-Q for the first quarter of fiscal year 2021 to be filed today and our 10-K for fiscal year 2020, the forward look.
Statements, we provide during this call including expectations for future performance of based on our reasonable beliefs and expectations of up to day personnel of undertakes no obligation to update these statements except as required by applicable law. Please.
Please note that in these prepared remarks personnel at the management will refer to the company's oncology business. This represent the category of customers and it reflects the all biopharma and all other customers. Excluding the V. A N V. P of most of whom use personnel of services for applications in oncology.
And when referring to population sequencing, we are referring to the V. A N V P or other potential customers of within this market.
Our press release with our first quarter 2021 adult is available on our website www dot personnel of Dot com under the investors section and includes additional details about our financial results. Our website also has our latest SEC filings, which we encourage you to review all of them.
According of today's call will be available on our website by five P. M Pacific time today.
Now I'd like to turn the call over to John for his comments on first quarter of business highlights.
Thank you Carolyn.
Personnel of this has continued to grow.
We achieved another overall revenue record during Q1, and it was our 19th consecutive quarter of growth.
Our oncology business, which has received orders well above revenue levels since Q3 of 2019.
As the increasingly the same the resulting backlog of turned to revenue.
In Q1, our revenue from this business grew three 4% over the same period of the prior year.
In Q1, new orders again significantly exceeded the revenue.
And so far in Q2, we expect that yet again.
The strategy of our oncology business, that's been the support drug development at the leading edge of cancer biology.
Strategy is working.
And our population sequencing business. We have now received all of the samples required to complete our current orders putting us in a great position through Q3.
We are also engaged with the VA MVP about options for a further order under our existing contract with them, which expires in August of this year.
We are optimistic that our relationship with the VA MVP will not only continue but broaden impart by leveraging capabilities. Initially developed the oncology side of our business.
Given all of this progress we will now resume giving full year guidance, reflecting our improved visibility.
Our mission is to help cancer patients live better and longer lives and we've developed our immuno I D. Next platform with this objective in mind.
The next platform provides our pharmaceutical customers with the capability to better understand the cancer patients' genetic profile, which.
Can help the drug developer therapy selection and the ongoing monitoring of the tumor to help the tech recurrence.
Do you believe that in order to better understand the cancer patients tumor.
Both tissue and liquid biopsies together can provide the most comprehensive view.
Moving to the optimal therapy and treatment decisions being made.
Both of our tissue and liquid biopsy based offerings had been designed specifically to meet the needs of our pharmaceutical customers and provide data on all of the approximately 20000 the human change.
We expect our oncology revenue to become a larger part of our total mix in the future as well.
Members of our ability to analyze both tissue and liquid biopsy samples with these platforms.
Tissue samples give us access to RNA entered the immune cells, which of infiltrated the patient's tumor.
Also by analyzing liquid biopsy samples were able to provide information about a patient's tumor across multiple time points.
The used together, we believe our oncology platforms provide our customers with the most comprehensive analysis of tumor burden and biomarker identification of.
All of them today.
The continued to execute well to our strategy and later this year, we plan to expand our liquid biopsy offering with the launch of next personal.
Minimal residual disease or <unk> offering that will be designed to track changes in a specific patient's tumor.
We have begun to process customer provided samples to ensure our product development customer requirements and are very encouraged by those initial results.
We believe that with the ability to monitor over a thousand mutations next personal will compare favorably in terms of sensitivity and information contest with panels from competitors the contract can identify and track.
The only dozens or hundreds of mutations.
We also believe that the personal will be applicable to both pharmaceutical research and clinical diagnostic markets in the future.
Now I would like to provide six recent highlights and accomplishments from Q1.
First we continue to make encouraging progress with our exome scale next liquid biopsy products.
As you recall, we launched this product in August 2020.
We received orders from several customers.
We have now delivered our first customer order and based upon that data the customers already asking us the process additional samples.
Our first publication authored jointly with one of our customers showing the utility of our index liquid biopsy together, whether our bureau of I D. Next analysis of tissue from the same patients.
We also presented a poster showcasing the state of the art results using the ex liquid biopsy at the recent ACR conference.
We believe that next liquid biopsy biopsy.
She will also work synergistically with <unk> personal when it is released and the liquid biopsy based products will contribute increasingly to revenue as we enter 2020 true.
Second we announced the collaboration with the tariffs.
The front end tissue sequencing services based on our advanced next exome to help them identify variance day, what years to design their signature of personalized liquid biopsy test. Additionally.
Additionally for sales provides expert tumor tissue sequencing services from.
The multiple liquid biopsy companies leveraging our deep knowhow in the processing of formalin fixed paraffin embedded or F N b.
From many different cancer types.
Expect our long term growth to be of based on our own products, including our own liquid biopsy products, but these partnerships show how personnel. So has come to be respected as the technological leader in our field and they supplement our revenue as we build our business.
Third we announced the collaboration with map cure of L. L C.
Company jointly owned by Beijing Limited and spring works Therapeutics incorporated.
We plan to use our next platform for their clinical trials and companion diagnostic development.
We believe our work with companies such as map here is the strong testament to our technology and capabilities.
It will also allow us to showcase our genomic profiling platform within our clinical setting, which we expect to assist us with future of regulatory approvals for our next platform of products and services.
Fourth our customer base has broadened substantially over the last year.
We have now received orders from the majority of the top 10 oncology focused pharmaceutical companies.
Since we introduced the next platform in 2019 as of the end of Q1, we have received next orders from 50 different customers in.
In Q1, we added another large global pharmaceutical company as the customer starting with an order of almost $1 billion.
We believe this growing adoption of next further highlights the power of our platform and the comprehensiveness is important to our customers.
Fifth over the past few quarters, we highlighted some of our initial plans to establish a lab and commercial operations in the People's Republic of China and to partner with Berry genomics.
Our team continues building our laboratory in Shanghai, and we are hiring additional employees.
Customer engagement is very good.
For a pharmaceutical company to include personnel sales social biopsy samples from clinical trial patients from China.
They need to apply to the Chinese regulatory authority H G. R. A C four of permission.
We are supporting preparation of a number of these applications and anticipate that HCR AC decisions could be received as early as Q3 this year.
And a number of these cases these are international clinical trials for which per sales has already received multimillion dollar orders.
The samples using our next platform from the portions of the trial outside of China.
We're also in discussions with the number of Chinese pharmaceutical companies.
All of their potential use of our next platform in their clinical trials in China.
We continue to expect that our operations in China will begin in 2021 with moderate revenues and begin ramping in 2022.
All of this project will take some time to meaningfully contribute to our top line. We believe this is an important investment we look forward to updating you on our progress.
Sixth and finally in addition to the achievements just mentioned we also recently announced the addition of Doctor what are your buyers to our board of directors Dr.
Dr. Byers has extensive health care industry experience and most recently <unk>.
Served as the Chief Medical Officer, and Chief Healthcare strategist at Blue Cross Blue Shield of Arizona.
In addition, he has been active in governments, having served as physician health advisor to the United States Senate Committee on labor and human resources.
As health Commissioner for Us from state of Indiana, and as Commissioner of Health for the city of New York.
Dr. Myers received his MBA degree from Harvard and subsequently his MBA from Stanford.
Dr Myers will be instrumental in helping personnel grow and scale in the future.
I'd now like to update you on the population sequencing part of our business, which is sometimes referred to in the field of population genomics.
We continue to build the funnel.
<unk> opportunities and we are early discussions with several of these prospects.
The initial discussions are going well and are encouraging we expect that we will have additional customers and revenue from these new commercial opportunities in 2022.
Our work with the VA MVP program represents the largest population sequencing effort within the United States.
The VA now targets enrollment of 2 million veterans and over 825000 veterans have enrolled so far.
Personally I also has been contracted so far to sequence over 146000, VA MVP samples with approximately 29000 currently remaining to be sequence.
We have been the sole provider for the V. A N V piece will genome sequencing project.
For the last eight plus years and have been awarded multiple contracts by the VA MVP. During this time.
Our existing contract with the VA MVP ends in August 2021, however, the VA MVP and place additional orders with personnel all of us under our existing contracts and we are now in active discussions with the VA about that.
On our last earnings call, we were cautious due to the ongoing pandemic that as we've had more discussions from the VA MVP, we have become quite optimistic that we will receive an order between now and the end of summer.
We are also encouraged by the long term prospects for VA MVP.
Early April the White House released the fiscal year 2022 top level of budget proposal, which we believe is a positive sign relative to continued funding for the VA MVP.
The White House noted that their request includes $882 million for V. A R. M D and referred to it as quote the largest year over year increase in recent history.
Unquote.
It headlines that this proposed budget quote the invest in research critical to veterans Health States Unquote.
They are proposal represents a 12% increase in funding specifically for VA research.
Okay.
In December we announced we had become the first the core profit company to sequence more than 100000 whole human genomes in the United States, which was an important milestone for us we expect that total to grow to more than 150000 whole human genomes by the.
End of 2021.
Some will be for population sequencing and others will be cancer genomes.
We expect our unparalleled experience in scale with the VA MVP.
Position us well for new population of sequencing opportunities.
Given our clinical experience and worked with pharma, we also see future opportunities to help trenches transition.
Population of research to population health.
And two of them involved pharma in the future.
I would now like to expand on the synergy between the population sequencing in oncology parts of our business in particular, those that go beyond the more obvious operational and cost synergies.
Our extensive experience with the whole genome sequencing.
Bind with our deep expertise in cancer has allowed us to launch the whole genome sequencing from cancer samples.
We believe that this will be increasingly important in the future, particularly in cancers, such as breast and prostate which have relatively low mutational burdens.
Using our cancer of whole genome technology can identify up to 20 times more somatic areas.
To serve as the basis for personalized cancer assets.
We believe this will let us achieve high sensitivity, even in cancers, which have low mutational rates, which had been the surgically resected or which had relatively low amounts of cell free DNA until the blood.
We believe this can be of leading technology and some very large market opportunities and we'll have more to say about this is these product developments progress.
In summary, I'm very proud we have continued to show strong growth, particularly in our oncology business.
Customer interest and adoption of Max has been excellent and our pipeline of compelling new products as rich.
We have the capital required to invest in our growth initiatives, such as new products like next personal.
Enhancing our clinical and regulatory capabilities expanding collaborations that further highlight the utility of our next platform.
Expanding our operations in foreign locations.
And expanding capacity to support our revenue growth.
We believe this puts us in a strong position for near and long term growth.
With that I will now hand, it over to Aaron for our financial results.
Thank you John and good afternoon, everyone.
We had another great quarter and achieved a new record revenue level once again from our focus and strong execution.
During my prepared remarks, I will provide details about our financial results from the first quarter of 2021, and the guidance for the second quarter and the full year.
Total revenues from the first quarter of 2021 were $29 million of 3% from $20 2 million from the prior quarter and up 9% from $19 2 million from the same period of the prior year.
The $29 million with the new record high for quarterly revenues and the growth was primarily driven by an increase in genomic testing services provided the biopharma customers.
Aside from the VA MVP Biopharma and all other customers accounted for revenues of $7 $7 million in the first quarter, representing a 74% increase over the same period of the prior year.
This was our second consecutive quarter with the year over year increase of more than 70%, which highlights a couple of key points.
First customer orders that we've won over the past year and a half are converting to revenue.
In the first quarter revenues from our next platform exceeded $4 million, which is the highest quarterly level achieved thus far.
Second new order amounts continue to exceed revenue reported each quarter, which provides confidence that our biopharma revenue will continue to grow into the future.
Our current Biopharma revenue is mostly from tissue samples.
As we ramp our liquid biopsy offerings in the future. This should help accelerate growth due to the multiple pie points or in other words, the number of tests per patient.
For the first quarter, the VA MVP revenue of $13 $2 million was higher by 5% from last quarter and was 10% lower compared with $14 8 million the same period of the prior year.
If you recall, we do not have specific testing turnaround times for the VA MVP. Therefore, we have the ability to modulate volume up or down to complement the biopharma sample testing volume, which can have some variability from time to time.
The VA MVP unfulfilled orders were $33 million at the end of the first quarter and based upon current estimates we expect the until till the orders to convert to revenue over approximately the next two quarters.
Gross margin was 35, 6% per the first quarter compared with 31% from the prior quarter and 21, 1% with the same period of the prior year.
The sequential increase of five five percentage points was primarily due to sample processing efficiencies and the slight reduction in expenses.
The year over year increase of 14, five percentage points was primarily due to customer mix operating leverage from the 74% increase in Biopharma volume and lab efficiency improvement.
We typically do not provide gross margin detail by customer type. However, it's important to note that the VA MVP gross margins continue to be solid due to a high volume and the single service offering which has been automated and has a very efficient sample testing process.
Over the next couple of years, there could be some gross margin variability due to headwinds from investments in new capabilities capacity.
Spansion from China and others.
Longer term, we expect the gross margins to increase as we achieve scale.
Operating expenses were $19 $9 million in the first quarter compared with $13 7 million per the same period of the prior year.
R&D expense was $9 5 million in the first quarter compared with $6 4 million from the same period last year and SG&A expense was $10 4 million in the first quarter compared to $7 3 million for the same period last year.
The increase in R&D expense was from new product development and the increase in SG&A was due to commercial expansion.
Public company costs, and continuing to enhance our infrastructure.
Net loss for the first quarter was $12 4 million compared with the net loss of $9 1 million for the same period of the prior year.
The net loss per share for the first quarter was 29.
And the weighted average basic and diluted share count was $42 3 million compared with the net loss per share of 29.
And the weighted average basic and diluted share count of 31 3 million with the.
Same period of the prior year.
Now onto the balance sheet.
We exited the first quarter with the strong balance sheet with cash and short term investments of <unk>.
$353 $4 million.
In the first quarter, we used $11 $7 million of cash from operations due to the net loss and working capital needs.
Capital equipment expenditures were minimal and we paid $4 million.
And as mentioned during our last conference call, we expect our cash usage to increase from the mid $40 million range in 2020.
Two of level between 80 and $90 million in 2021 day.
Investing in the many growth initiatives in front of us.
Now I'd like to turn the guidance.
Our business has performed really well through the pandemic and customer orders for the next platform had been robust over the last year in the half or so.
This gives us more confidence about the outlook for both the second quarter and the rest of 2021.
And with this in mind for the.
The second quarter of 2021.
We expect total company revenue to be approximately $21 $3 million.
And we expect Biopharma and all of the customer revenues, excluding the VA MVP.
To be in the range of $7 three to $7 $7 million.
Representing a year over year growth rate of 54% to 62%.
Net loss is expected to be in the range of $16 million to $17 million and the weighted average basic and diluted share count is expected to be approximately $43 million.
For the full year of 2021, we expect total company revenue to be approximately $85 million.
And we expect Biopharma and all of the customer revenue, excluding the VA MVP to be in the range of 30 to 32 million, representing an annual growth rate of 33% to 42%.
Net loss of is expected to be in the range of 70% to $75 million due to increasing increase in expenses and the weighted average basic and diluted share count is expected to be approximately $44 million.
We plan to provide an update to this information during our next earnings call.
Now I will turn the call back over to the operator to begin the Q&A session.
Operator.
As a reminder to ask the question you will need to press the star one on your telephone again that pace of SAR. One the withdraw your question press the pound or hash key please.
Please standby, while we compile the Q&A roster.
Your first question comes from the line of Savant from Morgan Stanley. Your line is open.
This is Hugo on for Charles Thank you for taking our questions.
Hello.
Hi.
Thinking about positioning the Mardi offering in light of the multiple players coming onto the market.
And as of.
The follow up what are your views on tumor informed versus tumor agnostic approach from R&D.
I'd be happy to answer that yes. So personnel is expected to have the highest performance MRV offerings available in the market as I mentioned, we expect to be in a position to monitor over of thousands genetic variance and this gives us enormously more sensitivity from what most of the other products on the market look at the much much.
Smaller numbers of genetic variance and that directly limits of the sensitivity of that they would would have so we expect to be most sensitive.
And also because of this rich content, we expect to be the most informative not only about quantitative sensors of the of the tumor or detection of the tumor but also some characterization of how the tumor is changing.
Overtime.
So I think that gives you an idea of the relative.
Positioning of the product and then in terms of of tumor informed versus.
Tumor agnostic.
If we look at a tumor agnostic approach that means that your adult use any information about where the genetic variants are located so when you sequence of the the DNA from the plasma.
Generally in of tumor, let's say something like breast cancer I'd only have one mutation out of every million bases across the genome and since the sequence reads are only a few hundred basis long at maintenance that something like 99, 9% of the sequence reads don't have any useful information they don't patch of.
And so it's an enormously inefficient approach and actually it's not very sensitive.
As a result of our approach has been one to wholeheartedly adopt the tumor informed approach. We think it's the only way to achieve the kind of sensitivity that we're targeting and the perform.
The performance that we've seen on the customer provided the samples that we've already been working with is fantastic. So we'll have more to say about that of the product comes out but I don't think theres any question that the tumor informed approach is the is the hands down performance one of them.
Got it that was very helpful color. Thank you and then how do you think about entering the clinical market down the road.
Yeah.
As an important next step for personnel.
We anticipate doing that probably in the next few years here, we've been building our business based on pharmaceutical companies to start with and.
These are often very advanced customers and there's no issues with reimbursement so we've been able to achieve.
Strong relative financial performance based on <unk>.
Of that going forward. Our view is that the diagnostics that are available today are not sufficiently informative and the patients.
Patients will do better if they can have not only richer information, but just more sensitive information there is a lot of.
The information there are tumors, where we can tell the the tumor eventually comes back and is eventually detected by the genetic tests in the in the plasma, but sometimes a year or two can go by with the cancer not being detected and since we see that the cancer is a.
Is the same cancer as was existed before surgery, because you can see the genetic fingerprint of the fact that it was not detected at all of those intervening time points means that the the tests just weren't sensitive enough and we've been able to look at the data from tests like that extrapolate.
Back in time, and we can see the kind of sensitivity that would be required to detect most of those cancers at much earlier time points than than is currently being done and that's what we're developing in our next personal.
So the ability to look at thousands of or more genetic variance, we think will be.
Transformative and be something that will be I mean, obviously the more advanced testing generally would be the kind of thing that you might start with at <unk>.
Hi on the cancer medical centers, and so that would be of.
A reasonable starting place for us.
We have been working on.
The FDA approval for our next platform, we think that FDA approvals also important for the diagnostic market. So perhaps those are some of the steps and we'll have more to say about that as we make progress towards the the clinical market, but it is of.
It is a major opportunity for us.
Thank you.
Your next question comes from the line of the share count from Cowen Your line is open.
Hey, good afternoon, everybody and thank you for taking my questions.
So.
I guess on next personal I'm, just wondering just the start there if you could share.
What we should be looking for in terms of upcoming R&D and commercial stage gates or milestones for that product line.
Yeah, So as I've mentioned, the where we're now at a point, where we're able to start testing.
Customer provided the samples we have a number of customers that we've worked with over the years on a variety of advance.
The topic some of them are very very interested in seeing what they can see with the <unk>.
<unk> personal because of the kind of performance. We're talking about is so differentiated and so I think what youll see is that you know what.
We'll come to a form of launch of the product. We've said, we'll do that in 2021 I would expect by the time, we've done that will actually of run it on a substantial number of samples both from customers and collaborators.
It will be off and running with that we do see interestingly a.
As I mentioned in the prepared remarks the.
A lot of potential synergy between the next personal and next liquid biopsy, because let's imagine youll have the patients that has been.
The tumor of surgically resected. So we can use our next platform on the tissue to identify the.
The genetic variance.
And then use next personal to see if the tumor is coming back and if it is coming back it might be at extreme.
The extremely low levels, but we can then watch it if it in fact progresses and grows.
Once it gets up to a certain level.
In fact, if you'd be able to detect it with the exome scale test then you can bring in the exome scale of liquid biopsy and have a much more comprehensive view of what's going on in it.
In the interim between the time when the the tumor was physically resected and the time that it comes back you can anticipate that there may have been a lot of new mutations that maybe how it's.
Advancing or if it's basically the drug treatment of baby escaping the drug and so just tracking the mutations that were in the tumor back at the time of the surgical resection of Europe, you'll you'll be missing a lot of of the variance.
Looking with the next liquid biopsy of the whole exome level. It gives you the ability to see the mutations that have happened wherever they have happened in the in the exome.
And to be able to detect the so we see those three products our next platform from tissue and our next.
The next personal and next liquid biopsy, all working together to provide a comprehensive view of the of the patients tumor as it's evolving over time.
Super helpful, John and kind of using that segue from personal.
Liquid it it's nice to hear that you delivered your first customer ordered of next for that.
Liquid biopsy.
What do you expect from the ramp to look like from here and then are the initial use cases likely on retrospective samples or is there a.
Do you think that theres going to be early use of the prospective samples as well.
So that's a good question the.
The early work as we've said from the beginning of this as kind of a new category of nobody else is really ahead of the commercial.
Whole exome scale liquid biopsy up to this point and so people are having to figure out what's the best use for that how well does it work and so forth. So we expect that in 2021, a lot of that activity will be pilots, we have a bunch of those kinds of orders now or.
Continuing the process samples for customers and people are beginning to look at it I would say the you know the initial comment from you know we make from the the first customer who got their first results back was already Wow, we wanted to do more of this and.
Some of them.
A lot of times, they're in situations, where people are trying to make decisions fairly quickly. So the the fact that we can sometimes turn these things around reasonably quickly as is helpful.
So I'd say the I would expect that some of the samples will be prospective and going forward just like the kind of described how this might be involved in the treatment of of patients.
We'd expect that it could be <unk>.
Prospective on the other.
The hand of lot of our customers and pharma have been collecting liquid biopsy samples for an extended period of time and so they have those banks and so that leads to the retrospective use.
Because we have so much of our oncology business in the pharmaceutical space.
I would expect that a fair amount of our the.
The next liquid biopsy business in the early period of time will be retrospective with pharmaceutical companies.
Okay.
One last one.
The other day ACR.
The poster from personalities specific to next liquid biopsy in pan cancer shutting patterns for right C.
The T DNA for cancers with different genetic backgrounds in tissue of origin.
You know in terms of just digging a little bit deeper on that data I'm wondering if you'd be willing to talk a little bit more.
About what we might expect moving forward I'm, especially interested in commentary about the heterogeneity.
As I'm sure you. Appreciate this has implications for tumor agnostic versus tumor informed liquid biopsies.
And then secondly.
Rested and the utility of or whole exome in other words.
Have you seen anything in terms of of how many actionable insights.
Are you identifying that are being the best buy predefined valves.
Yes, absolutely the.
One of the collaborators we have worked with it's a it's of a high end medical center of they haven't released their data yet so we can't.
Describe it in too much detail, but they were doing work in the.
A certain kind of cancer and what we were able to show using the next liquid biopsy was the they identified variants that appeared to be fairly significant in terms of.
The progression of these tumors and it turned out these were in genes that just aren't in the conventional small panels, obviously by having an extra them we have all of the Giants.
But if you look across the conventional diagnostic tests they tend to be much more limited sets of of genes and they just don't include the genes that are involved in particularly of tumor escape of lot of times. The people design of these panels on the really designed to capture of the genetic variance that may have caused the cancer in the first place the tumor.
Escape from therapy kind of happening in other genes that aren't necessarily in those categories and therefore arent on those panels. So I think this is an example of this is why it is helpful to the sort of future proofing that happens by having all of the genes is that we're not presupposing, which change you should look at what can be just look at the mall.
Thanks, a lot John.
Okay. Thank you.
<unk>.
Your next question comes from the line of Patrick Donnelly from Citi. Your line is open.
Great. Thanks. This is Jesse on for Patrick Thanks for taking the question.
Apologies if I missed this but can you just remind us of the timing for the new China lab and just what if any revenues you factored into the guidance in 2021.
And then you just you mentioned in your conversations with some of your existing customers that <unk> been working.
With the clinical trials in other geographies. So just curious if few of the sense around what proportion of the market. This new lab will open up.
Within your existing customer base.
Maybe I'll, let Aaron start off of him that he's been very involved in our China operation.
Yes, so in terms of the China lab.
2021 is going to be the year, where we develop it build it out.
We're almost ready to go right now in terms of begin testing, we've got the equipment showing up from the facilities then.
Completed we've hired our first few employees.
Unfortunately, we haven't been able to travel back and forth due to the pandemic and restrictions on both sides, but we're going to go through development of training over the next couple of months and then we expect the lab to be able to process samples. This year on the test store pilot basis and from the <unk>.
Revenue standpoint, we don't have much revenue built into the guidance. This year from China. This is really kind of be a build out year. So the.
The revenue opportunity is really in two.
2022, and beyond in terms of percentage of the market that this opens up.
It's going to open up the Nx.
Greenlee large market not only in China, but.
Outside of China, we have a lot of our global pharmaceutical.
<unk>, who actually are thrilled we're setting up in China, and we're going to have access to even more samples outside of China because of this capability as they want to run global clinical trials.
I guess I would support that I think one of the from.
And it's really around was that we have cases, where we're working with.
Pharmaceutical company and they're going to the Chinese regulatory authorities to get permission to run the <unk>.
Test like ours on the samples inside China, but because we have been supporting them and saying you know if we got the the regulatory position will be.
Building up the lab and we will do those things for you in China, It's already helped us close.
Orders were just the single order it can be in the multimillion dollar category.
The portion of the clinical trial, which is outside of China. Many large international pharmaceutical companies are running trials that are.
The recruiting patients.
In many many countries around the world simultaneously and so we can process the samples from patients and all of the non China countries out of our.
California lab.
And then process the ones from the China in our Shanghai lab. Once we have permission for that so I think part of what we'll see is that there'll be the revenue that gets reported eventually as being revenue from China will only be the revenue that's actually where the samples of sequence in China, but actually the we expect of much more significant.
Most of becoming from all of the non China revenue out of that was sort of the the portions of those clinical trials the.
Were being run in all of the other countries. So we see this as a truly international effort and having the China lab gives us access to those trials and to do the non China parts as well.
Okay, Great. That's really helpful. And then just can you provide.
An update on the Pops seek pipeline outside of the VA MVP.
I think you mentioned do you expect to start having new relationships in 2022. So just curious what the timeline looks like from when youll be bidding on those and when we could hear about some actual award decisions.
Yeah. So personnel all of this has brought him onboard lead for the business development side of our activity.
And when the stay in September of last year highly experienced individuals.
And we used to work at the genomics medicine, the Ireland with the big population sequencing effort, there, but knowledgeable about the population sequencing projects all over the world we can.
Leveraging his contacts and others to then.
The engaged with groups and I'd say, it's been remarkable the interest there a lot of times. These projects have been done.
To this by academic groups inside of the countries and they're not really set up to do production the scale of sequencing to bring pharma into the mix.
What a lot of these countries watches is something where this actually is the clinical component to it as well so the people who are being sequenced and benefit from the data from their own genomes and so that's the that's a component that we're bringing to this as well. So I think there's now we do see.
A fair amount of interest on this these are large government programs. So the decision process can be fairly lengthy but I think we said that the reason we would expect to see the first additional orders on that in 2022.
With where the first revenue also in 'twenty, two and I think that's still looks like Thats about on track, it's always hard to know where these things exactly the timing, but we had a review of some of those earlier this week and the.
There are multiple countries where the the.
Possibly getting that I wouldnt say its boiling yet, but it's the things are definitely suffering from <unk>.
Getting to be pretty interesting so.
I think of we just have to be able the patient to get to a point, where there's a contract we announced but I think we're definitely on the on a good track here.
Okay. That's great. Thank you.
Okay.
Your next question comes from the line of Mark Massaro from BP IAG. Your line is open.
Hi, Mark Heaney Vivian.
From Bohai.
Great.
Thank you.
Yes.
Any update on how the.
Per our partnership is progressing well.
What milestones we should be looking for there.
And if I could just out of follow up in the.
You talked about Biopharma, becoming a larger portion of revenue mix.
The forward.
Just wanted to check in and see if that kind of held true.
Yeah, great. So I was just trying to be happy to answer those.
Yeah, I'd say the relationship with Natera has been great there.
I'm really trying to move forward on this I think the anything that wasn't part of the implications in terms of their revenue because I think some of what they need to.
Disclose so kind of weak.
Don't forget disclosing things to do with them.
The revenue on the other hand, it is a very active program and the.
This is a.
Clinical program there.
The components.
Where I think they've disclosed they work both with the.
Pharmaceutical companies, but they also see the Sigma.
Significant market that they can address quite early with the lab developed test in the on the.
Clinical diagnostic side, and we anticipate being able to support.
Both of those and it's you know it's a good early entry for US and you know their product is very different from what we're doing.
The with our next personal so we really kind of two different positions in the.
And the market and I think personnel will benefit from both of them. So yes.
We're pretty there's a lot of effort going on in the in that area at this point and we're pretty excited about them.
I think on the.
On the Biopharma side the.
We of the two different parts of our business of the population of sequencing side and they the oncology side and in the past they've been viewed as being quite differently than others, but the financial reporting purposes, they've ended up being broken out.
I'd say, we see over time, but these will these are both likely to converge and there'll be more and more of a blurring of the lines between the as I mentioned the some of the.
Population sequencing groups that we're talking to now.
They're pretty interested in the involvement of pharma, we've been talking with the number of pharma companies, who actually are quite interested in being involved in the population sequencing efforts that where we're bringing to market. So this is an example of something where there's clearly overlap.
The population sequencing in the past was really mostly about the whole genome sequencing of People's germ line genomes from blood that is the.
It's become more clinically oriented there's of cancers obviously.
To be a major component of this and the and so the advantage of the personnel springs as we have.
The the largest experience of having one of the world commercially sequencing of.
100000, or more whole human genomes, but then.
But then also.
Having process, you know huge numbers of cancer samples and having the the clinical potential there as well. So the fact that we can sort of put that altogether for the country.
And.
Engaged with pharmaceutical companies, who may be interested in both the data, but also in helping to finance some of these efforts and.
I think these are these are the things where we see the the.
The two businesses overlapping more and more so.
As we at this point.
Let's say you can see the you know the kind of growth that we've had recently.
The oncology side of our business has been growing more rapidly than the population sequencing side I think we think both sides of the business, we're going to grow over time. If you look 10 years out and said, which is larger I think the oncology business is likely to be the.
The big business the population sequencing. Meanwhile, we'll have probably taken on more and more elements of oncology.
And more and more of a diagnostic elements. So the the two businesses are likely to increasingly overlap.
As opposed to being kind of a separate almost competing businesses.
Okay awesome. Thanks, so much.
Good day.
And just unrelated follow up.
To provide an estimate on the line.
The head of <unk>.
The contract.
The have already for getting a task order.
Touch on like some of the competitive market.
Non-GAAP.
Sure Joe So the strength, we have we've been talking with the VA about this actually we have an existing contract with the V. Eight that's been going on for a number of years.
The the VA has been able to issue additional task orders, which they've done multiple times over the years.
And I would say the our current indication is that the given the step of the Theyre likely to take is an additional task order, we expect that that would probably happen between now and the end of August at some point.
We've been having multiple discussions about the and exactly what that could contain but we expect it to be largely a continuation of the kind of work we're doing in the perhaps expanding into some new interesting.
Areas. Because this is an extension of an existing contract. We already have there is no competitive aspect to it.
This would be just expansion in more money being put towards the project. We've been the only whole genome sequencing provider to the million veterans program since 2012.
So it's a long term relationship and we've done a lot of things to try to be the best possible partner for the VA and I think it's just been of great relationship there.
We really admire what they're doing.
We've been able to bring some of our skills to help out.
Great. Thanks for taking the question.
Great. Thank you.
Your next question comes from the line of Mike Matson from Needham and company. Your line is open.
Hi, good afternoon, thanks for taking my questions.
Yeah, I guess I wanted to start with the gross margin so.
Obviously volume should help there, but I just wanted to get an update on what youre doing aside from just seeing the volumes growth to improve your gross margins.
And the western.
Sure I'll take the John in terms of gross margins. So we had a great quarter here in Q1 of the gross margins are highly dependent upon the volume volume is important and so you can see with <unk>.
More than $75 million of Biopharma revenue.
Margins did scale accordingly, and in terms of the path forward with <unk>.
Highly automated the VA MVP testing process, we're going to be doing the same thing with biopharma today, It's a little more manual so we do require more labor.
For sample process than we do on the VA MVP side and so that's another level of we're going to be able to play with as we go forward to improve margins and when you look at scale our objectives are to get the scale from the top line standpoint.
And at that point in time, you're going to see personnel with margins of equivalent the other peers in this industry.
Okay. Thanks, and then.
I just wanted to go back to the the tear out partnership.
So are you it sounds like Youre planning to continue to offer your services to sequence other companies tissue samples to support their liquid biopsies. Even after you launch your own I mean, you don't share okay.
One of your thoughts on that it's.
Not viewed as competing with with your own product one test or is it just the market is just so large that it's just not really.
The kind of.
Kind of cannibalize your own test at this point.
I don't see that is the problem and I think it's I think it's a very large market and the products. The other companies tend to be quite different from ours. You know there are companies, taking a variety of different strategies people on this call Ive talked about you know tumor informed versus the tumor agnostic and things like that so you know we work with companies on both sides of that divide.
We're interested in and supporting the growth of this whole area and we think there's money to be made off of the law.
Long term I think the main revenue growth driver for personnel as will be our own products I think that would be true of any any company that actually you know theres a lot of other good companies in the market that are doing other kinds of work that doesn't really duplicate what we're doing.
And so we're happy to have to work with them and it can be part of the overall overall mix but.
Make no mistake, our role is not to be just of kind of a supporting actor of here.
We expect personnel of maybe one of the largest companies in the space over time, and we think we of the technology and IP to make that happen. So I think it would be these are definitely helpful relationships for us along the way, but a few model, where we get to five to 10 years out it's almost all of it is going to be based on.
The products of the personnel of says.
Okay. Thanks, and then just as far as the population sequencing goes.
It sounds like you are in discussions with some other potential customers there, but yes.
I was just wondering if you could maybe talk about the types of groups that are interested in population sequencing I mean, it seems like it's mostly it would mostly be governmental groups, but I mean are there other.
Private industry groups or <unk>.
Organizationally or anything that are looking at doing this and then.
Is it limited to the U S or is it really of global thing, where you could you could do work for.
Maybe other governments or things like that.
Well, yeah, I'd say the majority of the other programs, we're talking with are outside the United States. Other there are population sequencing.
It is and probably 70 or 80 countries in the world. So we've been talking with quite a few of those folks so.
Talking to people of all over the world on that and the.
That could include.
So in some cases ones where they.
They want to get started by sending samples to California, because we're set up and sort of they could do it at scale quickly and efficiently today that way, but we know there's a lot of these groups and wanted to have build out of the economic advantage of this locally and so we've taken the experience that we've been getting by setting up our own lab in Shanghai China.
And that that certainly opens up ideas, but you know if.
If we needed to have labs in the other countries as well.
Once you've done one at a distance like that with all of the barriers and the differences that there are between.
The U S and China. It we could certainly do that between the U S and many other such.
Trees.
In terms of your you talked about institutional types. So certainly some of these are initiatives I'd say many of these are initiatives that day.
They were may be initiated by the.
Governmental groups just as the genome, England project was which was one of the first in this category on the other hand the.
We do see it as we've talked with pharmaceutical companies about this they have a pretty serious interest in this kind of data as well and it's really synergistic because for a lot of the countries. They would like to have clinical trials running their countries sooner rather than later because it means some of the cancer patients. They have have access potentially each of these potentially life saving given the state.
The art drugs.
Good for them.
Economically.
And if the.
Patients from their country.
The part of the clinical trial than the genetics, they're not you're not ending up with drugs being approved the only based on Caucasian genetics from the people of European descent, but you'd really like to have pharmaceutical developments be attuned to the genetics of people from all over the world and farmer wants that as well the the.
There's a huge market that's outside of the.
The U S and Europe, and so forth debt is people, who have a lot of diverse genetics and those can be real opportunities from the drug development standpoint, as well so I think involving these other countries and evolve in pharma.
I think I imagine the different mix of institutions in the past. This was really just governmental research but I.
I think looking forward, it's hard to imagine that the institutional mix doesn't start to include a significant pharma component.
And that can be of real win win.
Okay, great. Thank you.
I had one more comment by the way.
You had an earlier question about gross margins I think Aaron really covered that in the way, but one of the other elements of what's happening here is that the sequencing technology continues to improve and although in principle, you could say well that could benefit everybody who's making these diagnostics, but it's not actually quite true.
Personnel sales developed much larger much more advanced diagnostic testing that we.
We use enormous amounts of sequencing if you look at some of the cancer panels that are the.
The main stream out of the market today, we were either FTAA filings, you'll see that they've used maybe of 1 billion basis at a time per patient and you know a 1 billion sounds like a lot, but actually these days, it's a pretty small number we're running tests, where we've been sequencing of up to a trillion basis.
The first sample and say you don't hugely more and so you know if somebody's only sequencing of 1 billion basis at a time and Illumina. The state of the art sequencer is today already can handle six trillion basis. Every time, you know the G&A run them.
It's hard to leverage more because you just don't have that many samples of one time, whereas because of personnel has been much more expansive in terms of the advanced biology, we've been looking at.
Many of our tests involves hundreds of billions of basis of sequencing and so these new platforms will help us disproportionately and so when we see it.
Aluminum for example of who's talked about the $100 genome or associated with with some of their.
The other activities they've talked about guaranteeing the 43% reduction in prices.
By the year of 2025 and things like that personnel. It's just one of the companies most likely to benefit from that because of the cost of sequencing comes down we're using so much sequencing that the.
Production of the cost of sequencing that will help us disproportionately we estimate that last year about 4% of all of DNA sequence in the world with statements by personnel. So.
We're getting to be one of the larger laboratories in the world and we absolutely look forward to the $100 genome technologies and will be the first to sign up for them as soon as the available.
Okay, great. Thanks for the really thorough answer on that.
Thanks.
As a reminder to ask a question you will need to press the star one on your telephone again that pace of Star. One. Your next question comes from the line swam pakula from H C. Wainwright. Your line is open.
Thank you. This is RK from H C. Wainwright good afternoon, John and.
Alright.
How are you kind of okay.
Most of my questions have been asked but I just want though.
Understand a little bit about the mob pure relationship that you have where you are trying to help out in the not only in the clinical trials, but also of.
For the clinical diagnostics in the companion diagnostic.
They are trying to develop.
So is this.
Is this one.
Two of the many of that you are looking at in the sense.
Four.
The one thinks about revenue of sustenance.
Having a companion.
Having to work with the companion diagnostic can be can be really helpful. As long of the life of the drug is in the market. So.
How do you.
How do you suppose this really.
This relationship where the act as an example through in light of traditional players.
To the similar.
Collaboration with you.
Yeah. That's of Great question. So we do see companion diagnostic development is an important part of what we're doing we think that the the kinds of technologies that have been used for companion diagnostics up to this point of been very simple, we see a lot of <unk>.
Real time Pcr.
Like single biomarker kinds of of tests, and so the ability to move beyond that to more sophisticated.
The Biomarkers is really what the hell of lot of our next platform has been.
The aimed at and so the the map cure the effort is one.
Typically a new drug in a clinical trial would have to go through phase one of if that's successful then phase two and then that successful phase III and so forth. So that it can be an extended period of time, but we would expect to work with them on that and they can begin using the platform. We have now and then as we're taking our platform through the F D. A anyways.
This would be something that where.
There would be need to be of parallel effort.
With them as they make progress through trials and obviously, it's gated by whether the trials were successful or not.
Assuming that the that the drug continues to be successful and they go onto one one phase after and other than the scale of that effort can increase it can help us certainly financially.
And yes, we absolutely are talking with other pharmaceutical companies also about this kind of companion diagnostic development.
People have been interested to see that as something that's you know it's considered quite sophisticated of a whole exome and transcriptome big used out of companion diagnostic scale.
<unk> pharma, but actually when we talk with the FDA.
I think the people we spoke with the very advanced scientifically the completely understand why that makes sense and obviously, we have to do our homework to get to an F. D. A.
The approval.
But I'd say the people involved the same.
Being an optimistic and you know go team, let's make it happen so the.
We have of an increasingly large team working towards the <unk>.
F D a.
The single site PMA.
We're filing for end of I.
I think it's going to be an important driver for the future of our business.
Thank you John.
Debt.
I don't have any additional questions at this time, but of the doctors from.
Okay, great that's good to hear it from there okay.
And there are no further questions of where the phone line at this time. This concludes today's conference call. Thank you for participating you may now disconnect.
Thank you all thanks Bye bye.
[music].
Okay.
[music].
Mhm.
Yes.
[music].
Okay.
Non.
[music] true.
Right.
Yeah.
The dividend.
And the growth.
Hello.
Yes.
[music].
The growth.
[music].
We are moving.
[music].