Q3 2021 Personalis Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the personality third quarter 2021 earnings Conference call.
At this time, all participants are in a listen only malady.
Later, we will conduct a question and answer session and instructions will follow at that time.
It's eight and once you require operator assistance, please but still I didn't do well on your Touchtone telephone as a reminder, this call may be recorded.
Now I'd like to have the conference over to your first speaker today that is Caroline corner Investor Relations. Please go ahead.
Thank you operator welcome to personnel third quarter 2021 earnings call Jenny Me on today's call at southwest President and Chief Exec Officer.
Sure and Eric <unk>, Chief Financial Officer.
All statements made on this call that did not relate to matters of historical fact should be considered forward looking statements within the meaning of U S. Security fast for example, any statements regarding trance an expectation for financial performance, New ordered products services and technology. These statements are subject to risks and uncertainties that could cause the actual results to.
<unk> materially from our current expectation we encourage you to review our most recent filings with the S. E C, particularly the risk factors, describing our tend to you for the third quarter of fiscal year 2021 to be filed today and our 10-K for physical your 2020th.
Personnel to undertake no obligation to update these statements except as required by applicable law.
Press releases that third quarter 2021 results is available on our website www dot personnel dot com under the investors section and includes additional details about our financial results. Our website also and I started like the SEC filings between encourage you to review a recording of today's call will be available on our website by at 11 a M.
Am Pacific time today, now I'd like to turn the call over to John size comment in third quarter business highlights.
Thank you curled.
Personally I was continues to grow driven particularly by our oncology business in Q3 revenue Tomorrow and colors. Your business route 50% over the same period of the prior year. It is.
Increase sequentially over each of the last two quarters.
New orders received in Q3 for more than three times the amount of revenue for the quarter.
In addition, more than half of the orders are for prospective clinical trials.
Or pharmaceutical customers are increasingly saying the value of our platform and incorporating it in their clinical trial designs right from the start.
We expect our oncology revenue to become the largest part of our revenue in two four of this year and based upon the midpoint of our updated guidance the sequential increase of 57%.
Our pharmaceutical customer base has brought them substantially over the last year and that contributed meaningfully to the record orders we received in Q3.
Our partnership with no. Tara is also continue to grow it in Q3, it was 10% of our total revenue.
The terrorism adoption of our next irksome gives them access to its relatively large footprint for identifying somatic variance for their signal terror and murder your chest.
It also lets personality participate in a part of the emerging market, which is complementary to our own product next personal which we plan to launch next month.
We see a lot of opportunity in the emerging markets and are pleased with our progress today.
We also continue to make progress in Asia.
Plans to establish a lab and commercial operations in China, or continuing well we have now hired about 10 employees at our cheapest begun to qualify our laboratory in Shanghai.
Have received significant pharmaceutical customer orders and those customers are now pursuing local regulatory approvals, we expect to begin working with customers within a few months and be in a position to recognize revenue in 2022.
In Japan, we have also we we also have several major international pharmaceutical companies that are now order. It next further supporting our efforts to expand in China.
It Asia.
Our next platform provides biopharmaceutical customers a better understanding of each cancer patients genetic profiles.
Both tissue and liquid biopsies together can provide the most comprehensive ya.
Leading to the optimal therapy and treatment decisions.
Both of our tissue.
Liquid biopsy based offerings provide data on all of the approximately 20000 human genes.
Tissue samples give us access to RNA enter the immune cells, which have infiltrated a patient's tour.
By Analysing liquid biopsy samples were able to provide information about a patient's tumor across multiple time points from small blood samples.
When used together, we believe our oncology platforms provide our customers with the most comprehensive analysis of tumor burden and biomarker identification available today.
It personnel is we actually plan to liquid biopsy products for two different applications next.
Next personal has been optimized for maximum sensitivity, particularly for when the amount of tumor D. N a and blood plasma is very low such as an early stage cancer after surgical resection or in patients with complete response to therapy.
The largest segments of this population are those who have or have survived breast and prostate cancer.
To detect potential cancer recurrence, we can look at a patient's blood plasma for the mutational signature of their tumor.
But these two cancer types have such low mutational burden, but they can be difficult to detect.
We realized early on that we would be able to overcome this liquid biopsy sensitivity problem by leveraging our considerable high volume of whole genome sequencing experience.
Using tissue whole genome sequencing, we can identify 20 times more somatic variance to serve as the basis for personalized cancer assays.
By looking for tumors fingerprints at over a thousand Lo Si.
And being able to select cancer and switch have a low level of background sequencing errors, we gained tremendous sensitivity.
Our internal data now confirms this approach can result in a sensitivity down to a few parts per million.
This sensitivity advantage may translate into much earlier detection Ah.
Patients cancer recurrence.
We believe this can be a leading technology for some very large market opportunities and we'll have more to say about that when we formally launched the product next month.
Next liquid biopsy you are a whole extra room liquid biopsy product is optimized for late stage cancers were in the amount of tumor DNA and the blood is higher and tumors maybe increasingly complex.
For that application the rich information from an irksome can provide much more insight.
We continue to make encouraging commercial progress with next liquid biopsy.
Notably in Q3, we received a multimillion dollar order for the use of our tissue and liquid biopsy full excellent products together.
Each at multiple time place.
Personnel. This is also filed patents related to liquid biopsy methods for many years and in Q3, we received two patties two new patterns in this area.
We believe that our liquid biopsy based products will contribute increasingly to revenue in 2022.
Yeah.
Personnel as technological and scientific leadership has led to strong adoption by pharmaceutical companies, who use it to analyze the response of cancer patients and their clinical trials.
We believe that these same advantages can be important for all cancer patients not just those in clinical trials.
As a result, we are taking steps to build a clinical diagnostic business for therapy selection and monitoring.
We believe that the combined market potential of these opportunities is approximately $30 billion in size in the United States.
And with that I'd like to comment on a recent progress.
First we are continuing to build our regulatory clinical and reimbursement capabilities, we've been hiring employees with clinical and medical experience with a diet with an a diagnostic setting.
And we will continue to hire and invest in this area.
Recently, we announced the hiring of Bob Bruce as Vice President reimbursement strategy and execution.
Bob has extensive experience with reimbursement and he brings over 25 years of experience, including since 2015 is V. P. A reimbursement at clinical genomics, where he was instrumental in obtaining reimbursement for their M. R. D test, which will be particularly relevant as we launch our next personal Hell D T offering.
Also in support of our new diagnostic business, we will be incorporating F. D. A complaint protocols within our new facility, which we plan to move into within a year or so.
To build a strong clinical diagnostic business. We believe that it is important to work with world class medical institutions to that and we recently announced a collaboration with the Mayo clinic.
This collaboration establishes us as a preferred provider to the Mayo clinic for clinical diagnostic and research sequencing and and I also services using our next Dx test, particularly in the area immuno oncology.
In addition, the Mayo clinic will be able to use aggregated D identified patient data for research that may lead to development of new and improved treatments and systems that will ultimately benefit cancer patients.
We're excited about the opportunity to work with a renowned Mayo clinic to focus on helping cancer patients live better and longer lines mission and vision that we both share.
Although we still have work to do we believe that we will be well positioned for entry into the clinical diagnostic market using our comprehensive next Dx test.
He had a plan to L. D. T version of our next personal test.
I'd now like to update you on the population sequencing part of our business.
In September we received the task order from the V. A M V P of approximately $10 million.
Although this is less than in pre COVID-19 years, we believe that the V. A M V. P remains committed to the program, which has been underway since at least 2011.
Since early 20th 20.
V. A has cared for a tidal wave of Covid cases than a major contributor to Covid vaccine clinical trials.
That's needed millions of veterans and launched research initiatives related to Covid.
We believe that this contributed to them differing unexpected 20th 21 sequencing R. S T.
And extending our work for them with the task or do we just received.
And proud to say that we have continued on a strong execution during the last year and a half during the Covid pandemic.
Since it began we have needed to deal with some consumable shortages that we have been nimble and also implemented more rigor unfocused around our supply chain, which has kept us in a good position to continue driving revenue growth.
In summary, we continue to execute extremely well and growing our oncology revenue customer.
Customer adoption of next has been excellent and our pipeline a compelling new products is rich.
We believe we have the capital required to invest in our growth initiatives and believe this puts us in 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 morning, everyone.
We had another great quarter and achieved a new record revenue level for oncology.
During my prepared remarks, I will provide detail about our financial results for the third quarter of 2021, and our guidance for the fourth quarter and the full year.
Total revenues for the third quarter of 2021 or $22.3 million up 3% from 21.7 million for the prior quarter ended up 12% from 19.8 million for the same period of the prior year.
Aside from the V. A M V P biopharma and all other customers accounted for revenues of $8.6 million in the third quarter represent 5% sequential increase and a 50% increase over the same period of the prior year.
This was our fourth consecutive quarter with a year over year increase of more than 50% and nine MVP revenue and highlights a couple of key points.
First customer orders that we have one 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 increase in the future.
Also.
Our current Biopharma revenue is mostly from tissue samples as we ramp or liquid biopsy offerings. We expect this to accelerate growth due to the multiple time points or in other words, the number of tests per patient.
For the third quarter, the B M. B P revenue of 13.7 million was hired by 1% from last quarter and was 3% lower compared to 14.1 million for the same period of the prior year.
The V. A MVP unfulfilled orders were $12.9 million at the end of the third quarter and based upon current estimates we expect the unfulfilled orders to convert to revenue during Q4, this year and Q1 of 2022.
Gross margin was 36.2% for the third quarter compared with 37, seven <unk> for the prior quarter and 26.9% for the same period of the prior year.
The year over year increase of 930 basis points was primarily due to operating leverage from the 50% increase in biopharma and non MVP volume customer mix and lab efficiency improvement.
Over the next couple of years, we do expect some gross margin variability due to headwinds from investments and new capabilities, such as dedicated production lines for F. D. A approved offerings running.
Running diagnostic tests, while we work to increasingly secure reimbursement.
Adding more capacity expanding in China and others.
And longer term, we expect our gross margins to increase as we achieve scale.
And with our oncology revenue, becoming a larger portion of total revenue.
Operating expenses were 25 $8 million in the third quarter compared with $15 million for the same period of the prior year R&D expense was $13.6 million in the third quarter compared with 7.2 million for the same period last year and SG&A expense was $12.2 million in the third quarter compared with.
Seven 8 million for the same period last year.
The increase in R&D expense was for new product development, and continuing to build our clinical and medical infrastructure.
The increase in SG&A was due to commercial expansion continuing to enhance our infrastructure and public company cost.
Net loss for the third quarter was $17.7 million compared with a net loss of $9.5 million for the same period of the prior year the.
The net loss per share for the third quarter was 40 cents and the weighted average basic and diluted share count was 44.5 million compared with a net loss per share of 27 cents and a weighted average basic and diluted share count to $35.5 million for the same period of the prior year.
Now onto the balance sheet we.
We finished the third quarter with a strong balance sheet with cash and short term investments of $305 $2 million in the third quarter, we used approximately $23.7 million of cash due to the net loss working capital needs and capital equipment purchases.
We expect our full year 2021 cash usage to increase from the mid 40 million dollar range in 2020 up to a level of approximately $85 million due to investing in many growth initiatives.
Now I'd like to turn to guidance.
We continue to drive oncology revenue growth through our farmer partnerships and the adoption of our next platform.
Our backlog in this area has increased significantly and gives us confidence about our future potential growth.
For the.
Fourth quarter of 2021, we expect total company revenues to be in the range of $22 million to $24 million and we expect biopharma and all of the customer revenues, excluding the V. A N b P to be in the range of 12.5% to 14.5 million.
Representing a year over year growth rate of approximately 77% at the midpoint.
Net losses is expected to be in the range of $22 million to $23 million and the weighted average basic and diluted your account is expected to be approximately 45 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 in the range of 37 to 39 million up from our prior guidance of $34 million to $35 million, representing an annual growth rate of 69% at the midpoint.
Net losses expected to be in the range of $67 million to $68 million due to the increasing expenses and the weighted average basic and diluted share count is expected to be approximately $45 million.
We plan to provide 2022 full year revenue guidance during our next earnings call. When we report our fourth quarter and full year 2021 results.
Now I will turn the call back over to the operator to begin to Q&A session operator.
Thank you. Thank you.
You said you had a man if you have a question at this time. Please can I start then the number one I got a touchtone telephone.
If your question has been answered or do you wish to remove yourself from the heel. Please pass the palm Kiki.
We ask that you please limit yourself to one question and one follow up.
One moment for your first question.
Your first question has won a lineup <unk> savant with Morgan Stanley.
Hi, This is Neil Ram on for pages Savant.
Just had one question on the MVP. So now that you have the current period has there been any recent dialogue with the V. A on the potential for another task order.
Looking at March 2022.
Yes. This is John Thanks, very much for your question of this morning. So we haven't yet I think it's a little bit early for that uhm in general the be a what it would look at a a new new request for proposal historically that would be something we'd start to see activity on in <unk>.
May or June of next year.
They were going to do something for the next fiscal year and I haven't heard anything else other than that.
[noise] got and one other question and this is related to your comments on consumables.
Can you provide us with some color on higher managing supply chain disruptions in any initiatives to manage inventory and hand, while working through backlog in 2022, and if you perceive as having any impact to gross margins.
So this is John I think we've come out of it and prior quarters actually starting back in the early 20th 20, when we started to see the pandemic beginning to ramp up we actually invested a fair amount in additional inventory and it wasn't necessarily a huge dollar amount, but it was.
A lot of physical material, because we know that many of the things that can slow you down or be a problem are small low cost items like plastic pipette tips. So we had a frankly a wall of boxes of pipette tips and other items like that to make sure we didn't run out and we've been able to continue.
Production, we have seen issues, where this issue a shortage of lab qualified plastic has led to delays from some of our reagents suppliers because they have the reagent, but they don't have a bottle to put it in and we've been navigating around that in general we've increased our safety stocks substantially and we've been <unk>.
Active from Ah purchasing sandpoint, so we've been able to stay on track, but it's certainly been something we've had to spend a lot more time and effort on I'm. So far fingers crossed it's in fact than going well, we've been able to keep up production Ah each quarter, but it's definitely a a very active they are of course.
Got it that's it for me thank you.
Great. Thanks.
Your next question comes from the lineup Kevin <unk> Oppenheimer.
Okay. Good morning cause I'm a great. Thanks.
Good morning, maybe just two quick ones from us as we think you know.
2022, and beyond I'm kind of our new span and and the investments and.
Uhm.
The build out for clinical diagnostics should should we think about.
A need for somewhat larger clinical trials around their.
Their next person all our anarchy are kind of some of the on their clinically oriented yeah diagnostic tests Park Uhm reimbursement to act and the commercial model there.
I I think that given the performance of the personnel as product and and the fact that it's in some ways breaking new ground. So we will make sense for us to have clinical studies that demonstrate that I'm not sure that that will be required to achieve initial reimbursement, but we do expect there'll be studies like that.
And that's part of the reason that we're partnering with the Mayo clinic and you almost can't imagine a better place to work with it then.
Then the Mayo clinic, they have about 12000 cancer patients per year, just a almost every type of cancer and so I think there'll be a terrific partner.
And that and I think that will help us to conduct studies like that on a relatively efficient and expeditious basis, but yes, absolutely. We look forward to working with them and I would expect that we will have other partnerships with other.
Medical centers that will will be able to announce over time as well.
And can you provide an update on the company's China lab expansion and and X U S. Uhm Biopharma I guess scout to one comment on popsy cause well, but specifically.
The final how's that.
Okay.
Yeah. So I think the lab bill that has gone well we have a good team. There now we are now beginning to process Mmm Noncustomers samples just to show that we can get the exact same results in Shanghai as we do in Menlo Park I think the key thing to understand about the the China areas that we've ended up receiving some <unk>.
Orders from large international pharmaceutical companies, where.
Something like 95% of the value of the order will be processing or 11, California.
And perhaps 5% will be processed in Shanghai, but the fact that we were able to do the part and sign up to to deliver the identical product in Shanghai has been instrumental in us actually receiving those orders and so the if you look at revenue actually run in the Shanghai lab that.
That will that will take some time to grow and will be probably relatively modest in the early period of time, but that doesn't mean, it isn't having a material impact on our overall results because it helps us win these international clinical trials, where some of the recruiting sites have to be in.
I'm trying to set up that helps you there, but we are we are seeing a lot of positive feedback from our particularly the larger pharmaceutical companies that do operated many countries in parallel and we're trying to is important for them.
Great. Thanks for taking my questions.
Great. Thank you.
Again, if you have a question. Please five star then the number one I got Touchtone telephone.
Your next question got someone online a Patrick Donnelly, what's the city.
Hey, guys. Thanks for taking my questions, maybe 100 oncology orders you, obviously encouraging traction there you know I know when you talk about the V. A couple of months ago, you talked about what growth we could expect for 22.
As the momentum increase since the enemy again clearly the numbers came in really strong <unk>. It doesn't feel like you need a whole lot of orders to hit the numbers you talked about but would love to just talk through the set up there and how you feel about the numbers.
Yeah, I'd say, we're killing great about Q4, I mean, you're so I was predicting now with the new guidance at the midpoint that quarter on quarter growth in our oncology business would be 57%. So that's a pretty strong.
Ramp with 77% year on year. So I think we're feeling great about that many of them. There are these are things that have been coming together for some time.
A number of large pharmaceutical companies that have really been scaling up uhm pretty rapidly for us. There. So I think we had expected over time that the oncology business would become the largest part of our business for the long term.
Uhm relative to the population sequencing and to some extent with you know the way that this is played out with orders. The order we received from the V. A was lower than I think we had thought was possible for those here on the other hand, the orders from the the farmers side then.
Most of the tidal wave and I think that's been you know the two of those upset each other to some extent. So I think we're basically just turning that corner soon.
Sooner than we thought we would and actually that's a good place to be so we're we're excited about the growth of the the cancer of business. That's the the biggest part of our company for the future and an enormous available market.
Just to elaborate on that a little bit Patrick. So yeah go ahead of withdrawn with John just went through if you go back a year and a half to two years ago.
A large order for US was a couple of hundred thousand dollars and we had a significant concentration with just a couple of large pharmaceutical partners.
If you look at the third quarter, we had three times the new orders come in compared to revenue, we reported and if you look at the mixture of those orders you know we had several customers that were multi millions of dollars of orders in that batch. In addition, we had several customers who.
Who had hundreds of thousands of dollars of orders. So in terms of the penetration that we've been after over the last couple of years with the adoption of the next platform. It's working and we've got that most of the large top 10 pharmaceutical companies as our customers today and.
We're focused now on deeper penetration with all of them and we believe we have a long ways to go and we're really excited about where we're at today and going into the fourth quarter and then into next year. We're not we're not providing guidance for 2022, just yet, but we're very confident that we can grow at least 50% in 2022 because of all the order too.
Faction, we've seen to date.
That's really helpful. Bye gang and and maybe you can following up on that you talked about the V. A it sounds like your expectation given where the backlog is.
Basically we should assume it's gonna fully done by <unk> and then beyond that should we just model.
Sensually nothing is that's that's kind of a message going out I just want to make sure we were thinking about the model right for next year.
Yeah. So in terms of the V. A MVP, we've got enough backlog right now that'll be fulfilled here in Q4, and then into Q1, the RFP process like jointed alluded to would come out in the summer time, and so no second third fourth quarter right now I think from a modeling standpoint safe to model.
Zero basically will know more if we went in the next contract in the summer time, and we've been a partner good partner for the last nine years or so and we're very confident that when an RFP process comes out will be able to win but we just don't know the size or scale of that and so right now I think it's prudent to be conservative.
Very helpful. Thank you guys sure. Thanks Patrick.
Your next question, what's on the line of Arthur He with H C waning right.
Alright, good money I around the the author painful arkie. Thank you for taking my question. So I believe if I recall correctly.
You mentioned.
The oncology business about 50% off from the tissue biopsy could you give us more color on the that coming you order in terms of make some tissue in the body and it could have a biopsy and.
How's your internet thinking driving more that they quit a tissue biopsy.
Business I.
Yeah, I would say I'd <unk> I'd just like to.
Go ahead and put her as well.
I was just going to clarify we didn't say, 50% has come from liquid biopsy I think we've we've said is.
In terms of the the growth that we've seen it's been substantial.
Most of the business. We've had to date has been from tissue. We had done a great job here in the third quarter in the last couple of quarters with orders for liquid biopsy are exome scaled liquid biopsy, but we believe that going forward is really the great opportunity for us to scale with liquid biopsy R X one product as well as R. M. R D <unk>.
Personal that's going to be coming out next month.
So very little liquid biopsy to date.
Okay I see so is there any trend you guys see through there and your order for the the mixer.
This is John I guess, so what is the thing I might want to highlight is that.
We actually see a customers ordering both of them together I think in some other companies because they don't have a tissue product they'll sometimes portray liquid biopsy is just being an alternative to tissue biopsy, but actually you got different information from liquid biopsy compared to what you get with tissue and they're both valuable so we've seen.
I think I <unk>, we highlighted one of our customers ordered.
For a clinical instead of clinical trials with they're running their combining both the liquid biopsy and the tissue biopsy at multiple time points each.
Through the clinical trial. So you can see with the tissue biopsy you to see things like RNA and you can see the immune cells that have infiltrated the tumor. So those are things you can't see with a liquid biopsy, but the liquid biopsy is obviously a way easier way to get multiple.
A time points. So we find that and I think we encourage this the customers use the two of them together each each one complements the other and so I think you'll see since we actually have both that the you know the capability to use them together actually is a real advantage for customers and so we think will see somewhat more of that.
Okay. Thank you. Thank you for a color.
Yeah. Thank you.
I'm not showing any other questions at this time, ladies and gentlemen, thank you for participating in today's conference. This concludes today's program you may all disconnect.
Everyone have a great day.
Thank you.
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