Q2 2021 Personalis Inc Earnings Call
And we will conduct a question and answer session.
And instructions will follow at that time, if anyone should get quiet operator assistance.
And Chris Sorry, and G O key on your Touchtone telephone and as a reminder, this call maybe recorded.
And like to hand, the conference over to your first speaker today that is Caroline corner Investor Relations. Please go ahead.
Thank you operator, welcome to personal analysis second quarter 2021earnings call. Joining me on today's call are John West President and Chief Executive Officer, and Air and Kashi Bono Chief Financial Officer. This call will include forward looking statements, including statements regarding the markets and which we operate including potential market sizes trends and expect.
Patients for our products services and technology, the timing and pace of new orders from customers, including from the U S Department of Veterans Affairs millions bedroom and program market adoption of our new products and personnel are as expected financial performance expenses and position and the market, including our expectations for revenues and net loss for the third quarter and full year.
And of 'twenty 'twenty 1.
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 second quarter of fiscal year 2021 to be filed today and our 10-K for the fiscal year 2020.
The forward looking statements we provide during this call including expectations for future performance are based on our reasonable beliefs and expectations as of today personnel undertakes no obligation to update these statements except as required by applicable law.
Please note that and these prepared remarks personnel and management will refer to the company's oncology business. This represents a category of customers and reflects all biopharma and all other customers. Excluding the VA MVP, most of whom use personnel services for applications in oncology and when referring to population sequencing, we are referring to the VA MVP.
Or other potential customers within this market.
Our press release with our second quarter 2021 result is available on our website www dot personnel and 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 a recording of today's call will be available on our website by 5 P M Pacific.
Time today, and I'd like to turn the call over to John for his comments and second quarter business highlights.
Thank you Carolyn personnel continues to grow.
For Q2, we achieved another overall record revenue level and it was our 20th consecutive quarter of growth.
Note that this growth is not a recovery from a pandemic induced dip a year ago as many other companies have reported.
Although we have seen a variety of delays due to the pandemic.
Personnel as revenue has grown without interruption and all the way true.
This has been driven in particular by our oncology business, which has received orders well above revenue levels since Q3 of 2019.
We are increasingly seeing the resulting backlog convert to revenue and.
And Q2, our revenue from this business grew 72% over the same period of the prior year.
It has increased sequentially over the last 7 consecutive quarters, and Q2 was a new record for us.
In Q2, new orders exceeded revenue once again, and so far and Q3, new orders received are already significantly higher than and all of Q2.
So far and Q3 over half of our orders are for prospective clinical trials.
We see it as a great endorsement of our platform that our pharmaceutical customers are incorporating it incorporating it and their clinical trial designs right from the start.
We also believe that the increasing value of our backlog bodes well for future revenue growth.
The strategy of our oncology business has been to support drug development at the leading edge and a cancer biology, we believe our strategy is working.
Yeah.
Our mission is to help cancer patients live better and longer lives and we developed our immuno idea next platform with this objective in mind.
Our next platform provides our biopharmaceutical customers with the capability to better understand.
Cancer patients and genetic profile, which can help with drug development therapy selection and ongoing monitoring of the tumor to help detect recurrence.
We believe that and in order to better understand and cancer patients tumor both tissue and liquid biopsy is together can provide the most comprehensive you leading to the optimal therapy and treatment decisions being made.
Both our tissue and liquid biopsy based offerings have been designed specifically to meet the needs of our biopharmaceutical customers and provide data on all of the approximately 20000 and human genes.
We expect our oncology revenue to become a larger part of our total mix of revenue going forward as we leverage our ability to analyze both tissue and liquid biopsy samples where these platforms.
Tissue samples give us access to RNA and to the immune cells, which are infiltrated a patients tumor.
Also by analyzing liquid biopsy samples, we were able to provide information about a patient's tumor across multiple time points from small blood samples when.
When used together, we believe our oncology platforms provide our customers with the most comprehensive analysis of tumor burden and biomarker identification available today.
We continue to execute our strategy successfully and later this year, we plan to expand our liquid biopsy offering with the launch of next personal are minimal residual disease or M. R. D offering that will be designed to track changes in a specific patients tumor.
We have been processing customer provided samples to ensure our product development meets customer requirements and we're very encouraged by the initial results and by initial feedback from our customers.
We believe that with the ability to monitor over 1000 and mutations next personal will compare favorably in terms of sensitivity and information content.
With smaller panels on the marketplace today that can identify and track only dozens or hundreds of mutations.
We also believe that next personnel will be applicable to both pharmaceutical research and clinical diagnostic markets and the future.
Now I would like to provide some recent highlights and commentary on our growth drivers from Q2, and thus far and Q3.
First we continue to make encouraging progress with our exome scale next liquid biopsy product.
As you recall, we launched less than a year ago and began with pilot scale customer orders.
We have now begun to see additional orders following initial data delivery from those pilot projects recently and Q3, we received a multimillion dollar order from a customer for the use of our tissue and liquid biopsy full exome products together each at multiple time points.
We are also jointly authored a publication with another 1 of our customers showing the utility of our next liquid biopsy together with our immuno <unk> analysis of tissue from the same patients.
We're very pleased about the customer adoption, thus far and we believe that next liquid biopsy will also work centers mystically with next personal when it is released and that our liquid biopsy based products will contribute increasingly to revenue as we enter 2020.2.
Second our customer base has broadened substantially over the last year.
We have now received orders from a majority of the top 10 oncology focused pharma companies.
Since we introduced the next platform and 2019, we have received next orders from more than 50 different customers.
Okay.
Third earlier this week, we announced publication of and important study, we conducted showing the advantage of our platform and predicting patient response to checkpoint inhibitors.
Checkpoint inhibitors are a new class of cancer drugs, which do not attack the tumor directly, but which instead enable a patient's immune system to attack it.
The most successful of these drugs were first FDA approved.
And late 2014.
And they have now been approved in and are widely used to treat many types of cancer.
And 2015, just after these drugs began to be adopted we recognize that they represent a completely different mechanism of action based on what are called Neo antigens and these are proteins created based on mutated DNA sequences, and which can trigger and immune response to a tumor.
Not all patients respond to checkpoint inhibitors, so theres a need for new biomarkers, which can accurately predict that.
Tumor mutational burden or <unk> has been proposed for that but implemented on small traditional cancer panels. It is just an approximation and and it has not been as successful as desired.
Personnel and this has been developing and now clinically testing increasingly sophisticated technology to identify and rank neo antigens and associated escape mechanisms since 2015.
And our new publication and we show the substantial advantage of RNA ups biomarker over T. M. B for response to checkpoint inhibitor therapy, and 2 independent cohorts of late stage melanoma patients.
This peer reviewed paper appeared and clinical cancer Research a journal published by the American Association for cancer Research.
And this publication provides additional evidence supporting our belief that this biomarker can become an important input to clinical diagnostic decisions and the future.
Alright, immuno idea and ex and our clinical next Dx tests make our advanced capability, including the ops available to pharmaceutical researchers and clinicians for investigational use today.
Fourth we continue building, our regulatory and clinical capability in order to pursue business and the cancer diagnostics market for therapy selection and monitoring.
We believe that the combined market potential of these opportunities is approximately $30 billion and size and the U S. We.
We've been hiring employees with clinical and medical experience within a diagnostic setting and we will continue to hire and invest in this area.
Recent additions are and medical affairs clinical development and genetic counseling.
We believe that our comprehensive next Dx test, including our proprietary Niepce biomarkers for immunotherapy and.
Our upcoming next personal tests and create a powerful product line for our entry into the clinical diagnostic market.
This opens up a tremendous opportunity for personnel and we expect to begin recognizing initial revenue from our laboratory diagnostic tests and 2022.
Over the past few quarters, we highlighted some of our initial plans to establish a lab and commercial operations and then.
People's Republic of China and to partner with Berry genomics we.
We have now hired several employees and have a team to begin and qualifying our laboratory and Shanghai and we expect to begin working with customers before the end of this year.
Customer engagement is very good and they are excited about the services, we will offer it and China.
We have already received multimillion dollar orders from customers to process samples for international clinical trials, using our <unk> platform and the samples related to China are expected to be additive and the future.
Also we're in discussions with a number of Chinese pharmaceutical companies about their potential use of our next platform and their clinical trials in China.
Okay.
We continue to expect that our operations in China will begin in the second half of 2021 with revenues beginning in 2020.2.
While 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.
I'd now like to update you on the population sequencing part of our business. We have received all the samples required to complete our current orders and putting us in a great position and through Q3.
We expect to receive a further order under our existing contract with the VA MVP by the end of September.
We anticipate that our work on that order will begin in Q4 and continue into 2020.2.
<unk> has recently reopened VA MVP enrollment to veterans, which had been closed during the pandemic.
With over 825000, and MVP already continued enrollment will advance them to engagement of their first million patients.
Her work with the VA MVP represents the largest population sequencing effort within the United States. The VA now targets enrollment of 2 million veterans at the pre pandemic enrollment rate of about 100000 veterans per year. This goal could take another 10 to 12 years to achieve but based on our conversations we built.
And that the VA is determined to get there.
This belief is also supported by recent news about the Va's budget and.
In June more detail about the proposed fiscal year, 2020.2 top level budget plans became available and showed that 8 that $902 million was planned for medical and prosthetic research and $84 million for whole health initiatives, which we believe is a positive sign relative to continued funding for the VA MVP.
As it represents a year over year increase of more than 13%.
In June we announced that we became the first for profit company to sequence more than 125000 whole human genomes in the United States, which was an important milestone for us.
We remain on track to sequence 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 experience and scale with the VA MVP to position us well for new population sequencing opportunities.
Given our clinical experience or our clinical experience and our work with pharma. We also see future opportunities to help transition population research to population health and to involve pharma and the future.
Continue to build up a funnel of commercial opportunities and where and early discussions with several of these prospects.
We expect that we will have additional customers and revenue from these new commercial opportunities in 2020.2.
Yes.
I would now like to expand on the synergy between our population sequencing and oncology businesses.
The American cancer Society is estimated that there are over 17 million and cancer survivors and the United States today.
The largest segments of this population are those who have survived breast and prostate cancer.
To detect potential cancer recurrence, we can look and a patient's blood plasma for the mutational signature of their tumor.
But these 2 cancer types have such low mutational burden that they can be difficult to detect.
We realized early on that we might overcome this difficulty by leveraging our whole genome sequencing experience.
Combined with our deep expertise and cancer. It has allowed us to launch whole genome sequencing from cancer samples.
With this technology, we can identify up to 20 times more somatic variance to serve as the basis for personalized cancer assays.
We believe that this will let us achieve high sensitivity for recurrence detection, even and cancers like breast and prostate, which have low mutation rates, which had been surgically resected, and which or which should relatively low amounts of cell free DNA into the blood.
We believe this can be a leading technology and some very large market opportunities and we will have more to say about this as 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 next has been excellent and our pipeline of compelling new products is rich.
We have the capital required to invest and 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 geographically and expanding capacity to support our revenue growth.
We believe this puts us and a strong position for both 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.
Had another great quarter and achieved a new record revenue level once again from our strong execution.
During my prepared remarks, I will provide detail about our financial results for the second quarter of 2021 and.
And our guidance for the third quarter and the full year.
Total revenues for the second quarter of 2021 were $21.7 million up 4% from $20.9 million per the prior quarter and up 11% from $19.5 million per the same period of the prior year.
The $21.7 million was a new record high per quarterly revenues and the growth was primarily driven by an increase and genomic testing services provided to biopharma customers.
Aside from the VA MVP.
<unk> pharma and all other customers accounted for revenues of $8.2 million and the second quarter, representing a 6% sequential increase and a 72% increase over the same period of the prior year.
This was our third consecutive quarter with a year over year increase of more than 70% and our seventh consecutive quarter of sequential increase which highlights a couple of key points.
First customer orders that we have won over the past year and a half are converting to revenue.
Second the new order amounts continue to exceed revenue reported each quarter and increases our backlog.
This provides us with confidence that our biopharma revenue will continue to grow in the future.
Also.
Our current Biopharma revenue is mostly from tissue samples as we ramp our liquid biopsy offerings. We expect this to accelerate due to the multiple time points or in other words, the number of tests per patient.
For the second quarter, the VA MVP revenue of $13.5 million was higher by 2% from last quarter and was 8% lower compared with $14.8 million per the same period of the prior year.
The VA MVP unfulfilled orders were $16.8 million at the end of the second quarter and based upon current estimates we expect the unfulfilled orders to convert to revenue through the first month of the fourth quarter.
Gross margin was 37, 7% from the second quarter compared with 35, 6% from the prior quarter and 24% for the same period of the prior year.
The sequential increase of 2.1 percentage points was primarily due to operating leverage from the 6% increase and Biopharma volume and lab efficiency improvements.
The year over year increase of 13, 7 percentage points was primarily due to operating leverage from the 72% increase and Biopharma volume customer mix labs.
Lab efficiency improvement and cost reduction.
Over the next couple of years, we do expect some gross margin variability due to the headwinds from investments and new capabilities, such as dedicated production lines for FDA approved offerings, adding more capacity and expanding in China and others.
Longer term, we expect our gross margins to increase as we achieve scale and.
And our oncology revenue becomes a larger portion of total revenue.
Operating expenses were $23.1 million and the second quarter compared with $14.2 million from the same period of the prior year.
R&D expense was $11.7 million and the second quarter compared with $6.5 million per the same period last year and SG&A expense was $11.4 million and the second quarter compared with $7.7 million for the same period last year.
The increase in R&D expense was for new product development and continuing to build our clinical infrastructure and the increase in SG&A was due to commercial expansion continuing to enhance our infrastructure and public company costs.
Net loss for the second quarter was $15 million compared with a net loss of $9.3 million from the same period of the prior year.
The net loss per share for the second quarter was 34, and the weighted average basic and diluted share count was $44 million compared with a net loss per share of <unk> 29.
And the weighted average basic and diluted share count of $31.7 million for the same period with the prior year.
Now onto the balance sheet.
We finished the second quarter with a strong balance sheet with cash and short term investments of $328.9 million and the second quarter, we used $24.5 million of cash due to the net loss working capital needs and capital equipment purchases.
As mentioned during our last earnings call, we expect our cash usage to increase from the mid $40 million range and.
2020 up to a level of approximately $90 million and 2021 due to investing and the many growth initiatives and front of us.
Now I'd like to turn to guidance.
Our business has performed really well over the last year and a half due to customers adopting our next platform.
And with new orders continuing to grow faster than revenue. We report we are confident about the outlook for the second half of 2021.
For the third quarter, we expect total company revenues to be approximately $22.2 million and.
We expect Biopharma and all other customer revenues, excluding the VA MVP to be in the range of 7.5 to $8.5 million, representing a year over year growth rate of 40% at the midpoint.
Net loss is expected to be in the range of $17 million to $18 million and the weighted average basic and diluted share count is expected to be approximately $44 million.
For the full year of 2021, we expect total company revenues to be approximately $85 million and we expect biopharma and all other customer revenues, excluding the VA MVP to be and the range of $33 million to $34 million up from last quarter's guidance of 30% to 32 million.
And representing an annual growth rate of 49% at the midpoint.
Net loss is expected to be in the range of $65 million to $70 million due to the increase in expenses and 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.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star and the 1 key on your Touchtone telephone. If your question has been answered or you wish to remove.
Yourself from the queue. Please press the turnkey.
I ask that you please limit yourself to 1 question and 1 follow up.
Your first question is from Derik de Bruin of Bank of America. Your line is now open.
Hi, Good afternoon. This is John on for Derek.
I wanted to ask.
Hey.
I wanted to ask about.
Ah.
1 like how is the China expansion going and 2 on and.
Another node like are there are there any updates on population sequencing programs beyond the VA I know you guys alluded to it a little thank you.
Great happy to answer that so I'd say, we're really happy with.
Ramp up in China from an operational standpoint, we have been able to hire employees.
Well to begin and getting the lab setup, we have equipment going over their computers going over there.
I think the difficulty of course is we can't travel over there right now so that limits, what we can do but I think the key thing is that since we've been pursuing that and clear about our intentions.
The interest from our pharma customers has been terrific and we think it helps us win orders that are outside of China as well because there are a lot of pharmaceutical companies that operate both inside and outside of China, because they need to run clinical trials for their drugs and China as well to get the drugs approved in China and so having.
A partner like personnel that can provide state of the art genetic analysis, both outside of China and the same exact analysis inside China is really valuable to them. So I'd say so far we're pretty excited about it revenue was probably mostly next year, but I think we're pretty pretty positive about that.
And then you had asked about.
Population sequencing efforts other than the V a.
We are continuing to talk with a number of those scripts. There is some pretty interesting leads there I think we'll probably defer any more commentary until we have something more definitive but we continue to think that's a pretty interesting area for us and again I think we have capabilities that are unmatched and that area.
Great. Thank you.
Your next question is from Kevin <unk>.
And of Oppenheimer. Your line is now open.
Hey, Thanks for taking my questions.
I guess, maybe to perhaps III process sorry.
Can you comment about relative growth rate within the biopharma growth flow.
What I think we've traditionally described his retrospective samples Barclay preclinical and nature of our assays versus ongoing clinical trials specifically.
For the clinical piece of that.
And generally growing at a rate faster than our roughly in line and perhaps lost fans.
They're all Biopharma growth.
This is Sean Hi, Kevin.
So what we see is that we're continuing to get strong orders and the area of.
Retrospective clinical trials with the prospective aspect, which which takes a certain amount of commitment from the part of the customers say, they're going to run this all the way through their their trial. That's the part that's really been growing a lot. So when you see US you know we've been talking about our orders going up in Q3 has been phenomenal as far as that's concerned.
A lot of that increase and orders has been the additional layer of prospective trials on top of the retrospect. So it's not kind of 1 instead of the other it's the prospective building on top of the retrospective and.
I think that sets us up for a revenue for years to come from those trials as they enroll.
And maybe as a follow up on that as we think about.
The levers to drive adoption for liquid biopsy, I guess sort of a 2 part question is obviously a practice.
Think about those prospective studies is being.
Our primary area for early adoption and.
No.
Liquid biopsy and then just kind of more generally.
And how should we think about.
And how much visibility and.
2.
Specific customers or GAAP.
And that really.
Could help jumpstart.
Liquid biopsy demanded and kind of pull through from a revenue per socket.
Yeah, Great question, So I would say that the when we launched the product to start with we were clear that since we're looking at 20000 genes and it was pretty different from the liquid biopsy products that were on the market actually much more expensive and.
But that would be something that customers would likely run pilot studies in order to.
See what they can see and understand the value of that so we've been going through that process. This year, we're beginning to see some I think pretty encouraging feedback from that including the orders that we talked about so it is a newer category of liquid biopsy, we think it's potentially a pretty large 1 and at this point.
My knowledge, there's really almost no competition in that space I think we're the only ones who have gone that far out to whole exome scale liquid biopsy, but actually we're finding that it can be remarkably informative and so.
So I think we're optimistic about it will take time to build but I'd say I think that.
Biopsy will be an increasingly large section of our revenue as we go through next year.
Thanks for taking my questions and ill get back in the queue.
Okay. Thanks.
Your next question is from William Buckley.
And of H C. Wainwright your line is now open.
Thank you.
John.
You always think about it.
And what's the next big project and.
And I'm talking about things that.
You want to do and it's in the oncology space and it was very interesting to hear from you about the.
And the stuff that you're doing with the survivors of breast and prostate cancer.
So can you elaborate a little bit more as to how you plan to link that data.
Into.
And I'm guessing more into prediction.
And.
How is that linger and happened and what sort of a product will this be a gain as this product going to be more for.
Developers are for 1.
And 1 of the preclinical level and at the clinical level.
Yeah. Great question. So this is really connected to our next personal product development.
In general there are a number of.
Tumor informed.
Assays that have been developed by a variety of companies in this space many of them look at it.
It doesn't and or a few dozen.
Genetic mutations, but we understand that it can be a lot more sensitive looking for recurrence. If you can look at much larger numbers of mutations there's just much more signals to look for.
And so when we looked at the at the market today with cancer recurrence, we looked at the segments and we saw.
The different types of cancer breast and prostate cancer survivors are really large fraction of the overall cancer recurrence monitoring market and and yet those are cancers, where theres not a lot of mutations it's not zero, but it's just a much lower mutational burden and those cancers.
And then something like melanoma or lung cancer.
And so there tends to be not as much signals and look at if you only.
And the sequence for the smaller panel upfront, but.
But we realized several years ago that we could actually get around that by using whole genome sequencing from the cancer. There are a number of fairly serious technical challenges and that but we think we're largely overcoming those now and all of the experience we have with doing whole genome sequencing with the VA has certainly helped.
It helps us think about that and.
And so by leveraging whole genome sequencing from the tumor.
And we would expect to be able to identify typically over 1000 mutations from.
Even from a breast or prostate cancer, so with that large number of mutations it gives us a lot of signals to look for and the cell free DNA after surgical resection.
Or after.
And the patient has.
Had a complete response to drug therapy.
And so the next personal product will be intended to look for that large signature.
And to be able to identify that signal and and to be really sensitive because of that and.
We also think that in the monitoring space. It's important not just to tell whether a cancer is coming back or not and that's a really important application, but that for many of the people being monitor the cancer is back there just on the question of whether it is people know it is and the cancer is being actively managed and in that case, you really need to know how the cancer is changing and.
So the ability to see new escaped mutations or things like that in the tumor.
And when those begin to happen that's all part of the monitoring aspect and so we think next personal we'll be pretty comprehensive across the board.
With those and it will leverage this capability with <unk>.
Whole genome sequencing as the front end.
A quick 1 on just a corollary to what you were just talking about.
And I would think is the paper that you.
And that was recently published with the checkpoint inhibitor.
And treatment.
So how is the.
And.
How can you develop that market because obviously there is a lot of people out there who are trying to you know.
And does turn how to treat some of these patients who cannot respond.
And to checkpoint inhibitors that population keeps increasing.
So.
And is this.
Segment of the market that you.
You're going to be going after and are you already have certain orders in place from such folks.
Yeah. So certainly many of the customers, we have and the pharmaceutical world are people, who have been developing checkpoint inhibitors. We work with many of the companies in that space, So and a lot of them adopt our platform because of our ability to look at all the genes, which is what's really required to be able to see new and.
<unk> and now with this new biomarker and of our ability to tell which mutations may.
And maybe antigenic.
That's a really differentiated capability and theory other people can generate and exome scale cancer assay that they won't be able to tell which of the mutations actually could generate in EMEA and response and that's something we've worked on since 2015 and this knee apps paper is a great example of the real.
And clinical testing of that.
Thank you John.
Thanks for taking my questions.
Thank you.
Your next question is from Mark Massaro of BPI and your line is now open.
Hey, guys. Thanks for taking my question and I apologize I'm hopping on different calls Tonight. So I may have missed some of the earlier comments, but.
Can you give us a thought.
That process on your reimbursement framework.
And so obviously you know.
As you are starting to sort of transition from a research more and more into the clinical side of diagnostics.
Can you give us a framework for whether or not you plan to sort of effectively crosswalk to existing codes and the market or.
And any any commentary you can make about discussions.
And that you might've had with Palmetto mold ex would be helpful.
Yes. So this is China, and we're not able to talk about.
Specific conversations like that yet, but I would say.
And the concept is that we've developed our next platform. So that it can both look at new state of the art Biomarkers like <unk>, which nobody else has that it can also be well validated for the known Biomarkers theyre already reimbursed and so we would expect to be.
We're able to.
Be reimbursed for use of the next Dx test based on those conventional biomarkers because snacks has been designed specifically to be able to see them really well as you may know.
And next platform does not have the same sequencing coverage everywhere.
<unk> 300 ex sequencing coverage.
Cross the whole exome, but then in the genes that capture and sort of traditional targeted therapy targets and.
And we boost the sequencing coverage up it ends up and over 1000 and next steps. So we're really sensitive and those those changed and so that gives us a clinical utility that aligns with the kind of reimbursement that's already been well established by others. So that gives us a baseline of reimbursement and then we can leverage the additional broader.
Abilities, we have.
Both to attract customers, who may be interested in a combined research and clinical aspect and also ultimately who are interested and leveraging novel Biomarkers like knee ops that nobody else may be able to offer.
Okay and then.
I'm just curious for any additional clarity on the VA. So.
And I believe you said earlier that you do expect a further order by the end of September.
That hasn't come in yet and yet you still maintain the guide for the year. So is it safe to say that your degree of confidence is high that you expected and other order to come in for Q4, and then as we think about beyond Q4 and into 2022.
And what is your degree of confidence in the VA desire to continue the program at similar levels.
Sure, Let's say I can say that we've been working with the VA and I think we've received orders every year since 2012.
I think the only time, we didn't receive an order in September was 1 year was actually data in September we didn't receive it until October.
This year.
Officially and they were would probably come and by the end of August, but again, there can be delays and us the paperwork going through at US receiving net so that's why we're confident about.
September the VA is always looking at it.
It's spending on a variety of different areas and I think we benefit both from the budget, which has been specifically set aside for the million veterans program.
But actually there's a lot of enthusiasm for the program inside the VA and so to the extent that there are funds that were set aside for other things that maybe didn't get completely spent if theyre able to.
Repurpose that towards MVP and the past we've seen that they've done that kind of thing and so that's part of the reason that the orders tend to come a day at the end of the government fiscal year. So I would think it would be complete.
Completely normal for us to say it and kind of late August or even into September. This year, that's sort of that's how it's always worked with with them.
I think we're very confident that will happen based on the conversations we've had and then in terms of the commitment to the program going forward as I think I've mentioned and the remarks.
And we see this as being a long term commitment at the VA when we talk with people there theyre.
And Theyre talking about their March to the first million and their goal is to have $2 million.
And so that will probably take a decade at the current rate of acquiring.
New new veterans being enrolled and the program.
We get a sense.
They're headed for it.
That's the goals and how many of them and started working on this the early planning started back in 2006. So I mean that people have been working on this for 15 years Theyre almost to the first million collected.
And just over 100000 over 125000 and genomes. So I think they're saying it's working they are the number 1.
Population sequencing project and the U S and I think.
They feel like that's taken a lot of work and they are going out there and to keep at it and and do that so we have every indication that they'll do that.
Certainly the budget process, we see happening with <unk>.
They've budget authorization for the VA, that's going through Congress now for FY 'twenty 2.
And by the administration and proposed a 13% increase and a research budget at the VA.
And the White house, specifically and their announcement about this highlighted the fact that this was the largest percentage increase and the VA as research budget and recent memory and we've looked back almost 20 years and not seeing anything of that scale. So I think there is a strong support not only for the VA, but for research and the VA because I think they see that the.
<unk> has a unique ability to do certain kinds of research that you really can't there is no. Other place you can do that kind of research.
And that's super helpful and.
I noticed another emerging genetic testing company.
And recently hired 2 or 3 people out of alumina.
And to fortify I guess, if you want to call it their population sequencing initiatives.
So can you maybe just talk about any changes to.
And the sizing of the market the number of opportunities or maybe even just competitive dynamics as as maybe more than 1 company starts bidding on some of these global contracts.
Yeah. So it's a good question Theres there have been a number of people competing on these kinds of contracts.
Over the years and that includes.
And.
And Europe, there has been some bidding on that kind of thing.
And the middle East as well so I think there are opportunities like that.
And for some of these large projects. These are very large amounts of money, they're going to be spending and they have spent years collecting the samples. So they often want to be really confident and the quality of the data that it's going to match, what's considered the standard and the interest rates today.
And to have somebody that that has the experience that's actually done it that isn't just talking about it for the future and I think personnel us has more experience and that category than anybody in the world and so from that standpoint, and I think we're in a good position to compete for those kinds of things.
We will.
And we'll continue to be cognizant of anybody who could be a competitor, but we have had competitors in the past and at least and the VA business and <unk>.
Spite of the fact that there were other bidders personnel. This 1 and every single case. So we intend to continue being aggressive in that space, but we think we have a great. We've been working on it for enough years and have enough experience now.
We really are these are by far the most experienced company and that space.
That's really helpful. Thanks very much.
Okay. Thanks.
Your next I would say, maybe 1 more item on that is the <unk>.
Is that because.
These groups are looking for there is a lot of value and the statistics, having very large numbers of patients you'll see the VA and trying to go from.
2.2 million patients and so forth the cost of the sequencing matters, a lot and that and so.
And there are other groups that are proposed various things I think it's important to be able to be not only to have the quality, but it is important to be able to compete on the on the cost and so personnel has worked a lot with alumina over the years all of the sequence and we have done for the VA has been using the Illumina platform and I think that's that's all.
And good stead so.
If others are going to enter the space and there have been others that have entered this space using like the Oxford <unk> platform, it's not clear.
All of those other competitors can match in terms of quality of sequence and and costs. So I think those will be those will be challenges for the future for those companies.
Your next question comes from Doug Schenkel of Cowen. Your line is now open.
Good afternoon, guys and thank you for taking my questions.
First is.
Actually a question on China, there's been some recent changes in regulations.
Recently, and various industries, such as technology and food.
We've talked to others in.
Our industry and more broadly across health care. It does seem like there are some concerns that similar types of changes could.
Occur.
And our field that maybe put western firms had a bit of a disadvantage.
I'm just wondering how youre thinking about these things and then specifically to the partnership with Barry do you feel that that puts you in a position where.
Youre better positioned than maybe some others based on that partnership and <unk>.
Being able to navigate any regulation changes.
Yeah. Thanks, Doug I would say, it's definitely an area that we look at carefully and.
<unk>.
And I think the partnership with very definitely helps us in that regard I'd say another aspect of this is that if we were only going to do clinical diagnostic testing I'd say there are going to be Chinese companies that there are Chinese companies that provide that kind of next gen sequencing based clinical diagnostic testing inside.
China and so the Chinese government could have an incentive to tilt.
Tilt the playing field in favor of the home players.
This is a little different case, because our business. There is really aimed at this point net working with international pharmaceutical companies and in those cases, the vast majority of the clinical trials that are being run is actually being run and outside of China and.
And what pharma is looking for is somebody who can provide the same technology, both outside China and.
And inside China, and so a laboratory that only operated inside China for example, and <unk>.
Principal try to compete for the business.
But it largely wouldn't be able to have.
And unless there was a lab like that that had capabilities and the U S and Europe, and so forth as well it wouldn't really be able to provide that other parts. So I do think that personnel.
And our positioning as a company, where we've been focusing on genetic analysis, specifically for pharma and that's been the target customer for us and.
And China is.
Major health and the Chinese government has a real incentive for there to be.
International pharmaceutical companies, having their drugs approved and.
China, and so I think theres, a theres a different incentive.
That may help us through this kind of potential they call it regulatory slash protectionist.
Worried that there might be.
That is different from the situation you might have if this was purely a.
Genetic diagnostic.
We're.
Also if you are a diagnostic business you could be a diagnostic business only inside China and that could be fine you theres not as much benefit to also having the the business outside China.
Thanks for that and.
<unk>.
Completely unrelated follow up regarding.
And regarding next personal index liquid biopsy.
Yes.
Product development efforts, you've been talking about for a while and.
Theyre very personality like more markers more content for not a whole lot money.
But not a whole lot more money if anything at the same price.
And as you move into clinical with these products over time.
I know you appreciate this but youre going to need to do more than just include more content right you need to demonstrate equal or better performance the content arguably matters less than how the assets perform and that the utility and a clinical context, you guys know that as well as anyone and then commercially youre going to need to be.
Good if not better than the incumbents, especially if you're playing catch up so again nothing controversial there I'm just curious.
Assuming you don't disagree when do we see more clinical data and how do you envision differentiating and being better than others. When it comes to test performance.
In terms of utility not just breath. Thank you.
Yeah, So I guess I would say that day.
Let me speak to next personal in particular.
We think that that'll be a product that has substantially better performance and dimension that matters a lot on the clinical side, which is sensitivity for detection and so we see other groups publishing clinical results.
And detecting a cancer when it's coming back at a 10th of a percent allele frequency or.
And maybe a fraction of that we're aiming at a part per million and kind of level. So this is hundreds of times more sensitive than the other products that we see on the market and.
And it directly impacts how early can you see the weather the cancer is coming back or not and so we think thats a very differentiating very clinical feature so and a sense not just about more content and a sense for from a research perspective, but a directly ties into <unk>.
Metric that are.
Our clinical customers, we think we will we will care a lot about.
Youre right that we will need to have the other elements of this from a commercial standpoint.
The sales force the reimbursement all the other elements and.
That's absolutely a front of.
Mine now and I think we'll have more to say about that as we go through through the year and enter into next year, but we're very aware of.
Those other challenges not only the technical performance.
Thank you.
Great. Thank.
Thank you.
Your next question is from Mike Matson with Needham Your line is now open.
Yes, good afternoon, and thanks for taking my question. So I had 1 about this recent data on the and the ops biomarker.
So yeah with PDL, 1 used to compare against.
Predictability of immunotherapy response, and if not is there plans to study that.
Not sure I fully understand the question I understand you are talking about PD lone immunohistochemistry as a biomarker, but the.
Maybe if you could restate the question it would be helpful.
Yes, sure. So I guess you looked at how it compared to <unk>, but I was wondering if you also looked at how your biomarker compared to PDL, 1 and in terms of predicting immunotherapy response.
Alright, so that the study that we published was specifically comparing against other direct.
<unk> biomarkers as opposed to a protein biomarker like PDL 1.
And I think that they're a little bit orthogonal and so they could complement each other.
In general we have cases, where customers are interested in PDL 1.
IHT testing along with our next platform. So we see the 2 working together and in a way it's a net.
An example of the theme we've been talking about the individual well just because the individual biomarkers often are not as predictive as what we would call a composite biomarker and so the composite biomarker that we have and lay ups combines.
Both the neo antigen burden, but also the immune escape elements of that of the tumor, but you could see how that could also be further combined with things like the PDL 1.
<unk>, we do see that the PDL, 1 standing, although it's indicative and some cancer types, it's not required.
For a physician to use the drug I think that's it.
It tends to be mildly indicative, but I'd say its a bit challenging there is a different PDL 1 marker for almost every checkpoint inhibitor and so.
That is considered to be a fairly unsatisfactory biomarker at this point and it doesn't really reflect the core mechanism of action of these drugs, which has to do with the neo antigens and so that's what we've been aiming at all this time has been to get at what's the real underlying mechanism of action of these drugs and so if that if you can see the details of that Mecca.
And as with action and it really lets you would be more definitive about whether a patient will respond or not and we also expect that <unk> will be something that will change over time as the patient evolves the tumor evolves there'll be more mutations which would be more.
Neo antigens, but there can also be more loss of HLA, which is a different kind of escape mechanisms.
We see this will bring this out to start within our tissue platform, but you can imagine wanting to look at that from a liquid biopsy standpoint over time too.
Okay. Thanks, and then as far as and the up goes I mean is that something that would be used for your pharma customers or would you also offer it for clinical use.
Yes, so the answer is yes to both.
It's actually available to our pharmaceutical customers.
Now and they can use it both in their research studies and if appropriate they could they could use it.
With us on our companion diagnostic development it would be inappropriate biomarker for that kind of thing there are.
And the low hanging fruit has largely been taken now and the checkpoint inhibitor space and the challenges now are and there's a number of cancer types for which.
Checkpoint inhibitors are either have not been approved or they're not first line therapy and so just biomarker that's a bit discriminatory on the patients might help advance and let those.
Check point inhibitors get approved and places where they otherwise have not been so I'd say from a pharma standpoint.
That would be the attractive.
Opportunity for them and then on them from a clinical standpoint, we reported out <unk> is an investigational biomarker already today on our next Dx test.
And as we ramp up the.
Diagnostic volume on that test and I think we will see more and more people using that and.
And I think that it will begin to see interest and it's 1 of the things that will really differentiate the platform because so many patients today are getting checkpoint inhibitor drugs and many of who received those drugs don't benefit from them. So I think physicians are very aware of that problem and are looking for something that might at least give them an indication.
<unk>.
Which patients really look like they are the best candidates for those therapies.
Okay, great. Thanks.
Your next question and that's from Patrick <unk> of Citi. Your line is now open.
Thanks for taking the questions guys.
And I was just hoping to talk a little bit about I know you mentioned, a little bit but on the pops seek pipeline outside VA.
Can you talk about I guess, how active the pipeline is and also just timing I think you've always talked about starting to have some relationships and 'twenty 2.
But just in terms of an actual award decisions and things like that just how we should be thinking about that opportunity and and even the magnitude and if you want to talk about that a bit.
Yes, so I would say that in general the programs we've talked to are people looking at many many thousands of patients. So they end up being.
Multimillion dollar programs can be can be larger than that and some cases they.
A number of the groups are.
Exploring how theyre going to go forward. Some groups already have samples that they've collected some groups are just beginning to collect samples. So theres different countries are kind of different stages, I would say that day.
The advance of Covid has not helped in that regard because.
As much as Covid is a challenge and the United States, It's even more of a challenge and some of the other countries and some.
Some of the countries that have interesting population sequencing projects from our point of view have also had very serious COVID-19 outbreaks and so I think they do.
Those discussions are ongoing but people are trying to work through it in the midst of a challenging pandemic and so I think the timing of that we do see it as a 2020, 2 and kind of opportunity and there are programs that are that are interested in moving forward. On this kind of thing that are collecting samples and we will have to compete for that kind of thing but.
Or do you think it is.
Something where as we go through 'twenty 2.
And <unk> be surprised to be able to say to announce some awards and that area.
Some of them will be competitive bids and we'll have to go through that kind of thing, but we've been pretty competitive on that kind of thing and the U S and in the past. So we would certainly aim to be competitive internationally as well.
That's helpful.
And then just circling back on the VA and I know, you've obviously talked about a lot, but it seems like a majority of the investor focus is on that given the timing here can you just kind of talk through the mechanics, and getting getting a new agreement in place is it just kind of all wait and see.
Any discussions and if you could bring us behind the curtain for a minute.
And I get your confidence level and what timing, how we should expect the solid progress over the next.
A few weeks or a couple of months.
And I know you talked a bit about it but the more clarity the better on this.
Yes, that'd be great I mean, we have a relationship with people and the VA who worked on this program and many of the people. We work with today are the same people who have been working with since back in 2012, and we started so it's a pretty long.
Last thing relationship and you get to know the people pretty well.
They're only able to say so much until Theyre actually is and award but in terms of the mechanics. There is no competitive bid. This year this will be a new.
New task order that would be issued on the contract that we already have.
And there are no milestones they need to clear.
And we could get an email tomorrow that says here's your and the order and that would be the whole thing. So we don't think there are any additional.
Steps, we need to take on that we have had discussions with the VA abroad, a variety of ways in which we could advance the service we provide to them that could be that they could leverage on the existing contract.
There's quite a bit of interest and some of those and so I think we'll have to see what they end up deciding they want to to fund, but I'd say the overwhelming sense is that this has been and effort they've been working on since collecting samples since 2011, and so it's been a decade already collecting samples they have something like 300 people working on.
And the project and sort of the shining star.
And some elements of the VA research arena and so.
And we get every every sense that they intend to continue this until they get through the 2 at least 2 million patients and I'd say if anything there is an interest and seeing more clinical.
Content to this and eventually transitioning this into something that's used on an ongoing basis with all veterans. So that's that's perhaps maybe more aspirational and unfunded at this point, but we do see strong funding support and when we speak with people on the political side of the World. We also see that there is strong support for this.
Program.
Amongst both Democrats and Republicans and so it's not it's not a controversial program politically its been something Thats been was well supported under the Trump administration and is now well supported under the bite and administration and so.
There's a great sense of this is an important national program.
And probably be 20 years and the process of building the whole thing we're about halfway through that now.
And I think everybody has their heads down and intends to continue driving forward.
And Thats really helpful is there in terms of timing is there a certain date, where if a day passes you start to get a little concerned and if you don't hear youll get that email like you said.
Just so we can kind of keep an eye on the timing and all of that.
And I'd say, our expectation is that.
The order probably would be signed in August it could be in September.
I think August but sometimes there is we have seen but I would describe as sort of a paperwork delay between when things were signed inside by whoever has the appropriate personnel inside the VA.
And when we actually get that news and can share it with the world. So.
I think it's probably fair to say we are thinking about September if we got to the end of September it didn't have something we would certainly want to think about that but we're in touch with people at the VA on a free.
Early ongoing basis. So if there was some big change or some kind of a major issue.
Expect that people would pick up the phone and we'd be talking about it. It's not just not just waiting I think there is an ongoing work.
Delivering thousands and thousands of genomes to the VA and there's all kinds of just the ongoing operational discussion there. So we're in contact with those folks on.
Every indication we have is everything sort of continuing at this point and.
I think we'll see how it goes with time as it is.
Obviously, we would all like to just know what the results are and and move forward, but I think.
Month, or 2 here and we'll have that answer.
Very helpful. Thank you.
Alright. Thanks.
Once again, if you have a question. Please press the star and the 1 key on your Touchtone telephone.
I'm not showing any further questions I would now like to turn the call back to.
Hey, Rod for any further remarks.
We'd like to thank everyone for joining us today and.
Looking forward to speaking with you again and a few months. Thank you very much. Thank you.
Ladies and gentlemen, thank you goodbye.
And today's conference. This concludes today's program you may all disconnect everyone have a great day.
Okay.
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