Q2 2022 Personalis Inc Earnings Call
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Yeah.
Good day and thank you for standing by welcome to the Q2 2022 personnel 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.
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Please be advised that today's conference is being recorded.
Now like to hand, the conference over to your Speaker today Caroline corner Investor Relations. Please go ahead Carolyn.
Thank you operator welcome to personnel for the second quarter of 2022 earnings call joining.
Joining me on today's call are John West, President and Chief Executive Officer.
We're actually Gonna Chief Financial Officer.
All statements made on this call that do not relate to matters of historical facts should be considered forward looking statements within the meaning of the U S Securities laws.
Example, any statements and trends and expectations for our financial performance this year and longer term 2022 cashes cash runway the timing for initiating clinical revenue from our new facility, new orders for products services, and technology clinical and regulatory milestones and our market opportunity business outlook.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations.
I encourage you to review our most recent filings with the SEC, including the risk factors described in our 10-Q for the second quarter 2022.
To be filed today.
<unk> undertakes no obligation to update these statements except as required by law.
Our press release with our second quarter 2022 results is available on our website at Www Dot personnel dot com under the investors section and includes additional details about our financial results.
Our website also other latest SEC filings with U R parochial.
A recording of today's call will be available on our website by five P. M Pacific time today.
Now I'd like to call turn the call over to John for his comments and second quarter business highlights.
Thank you Carolyn and good afternoon, everyone.
I am pleased with our pleased with our progress this quarter as we drove growth from our oncology business by 74% over the same period of the prior year.
This reflects increasing demand for our highly differentiated and comprehensive cancer tests.
Our pharmaceutical customers are increasingly seeing the value of our platform and they are incorporating it in their clinical trial designs right from the start.
In fact, approximately two thirds of our backlog for orders received for which we are awaiting samples is for prospective trial patients.
Prospective trials are conducted with current patients who are being followed over time.
Whereas retrospective studies are based on patient samples collected in the past.
In addition, we remain focused on preparing the company for success in the clinical diagnostic market, which I will highlight later.
Our customer base continues to broaden.
More than 70 customers have now ordered services using our next platform, including most of the top 10 global pharmaceutical companies as measured by their annual revenues.
We are also in discussions with several potential pharmaceutical customers about next personal our <unk> test and our funnel of business opportunities continues to expand.
We expect Biopharma orders for next personal to ramp throughout the remainder of this year with the potential for significant revenue acceleration in 2023 and beyond.
Our next platform provides biopharmaceutical customers with the most comprehensive analysis of tumor burden and biomarker identification available today to provide a better understanding of each cancer patients' genetic profile.
We also believe that tissue and liquid biopsies together can provide a more complete view leading to optimal therapy and treatment decisions.
Our tissue and liquid biopsy based offerings provide data on all of the approximately 20000 human genes.
The breadth and depth that is notably differentiates us from competitive offerings.
Tissue samples give us access to RNA, which can indicate certain tumor drivers answer the immune cells, which may have infiltrated a patient's tumor and can indicate therapy response.
By analyzing liquid biopsy samples, we can provide information about a patient's tumor across multiple time points from small blood samples.
Next personal has been optimized for maximum sensitivity, particularly for one in the amount of tumor DNA in blood plasma is very low such as an early stage cancer.
After surgical resection.
And patients with complete response to therapy.
We believe that the earlier you can detect cancer recurrence the better your odds of beating it.
This simple concept has driven intense efforts to improve cancer diagnostics.
Next generation sequencing has proven transformative in this respect enabling highly sensitive detection of fragmented tumor DNA in blood plasma.
We have focused on what this technology can do for the detection of molecular residual disease MRV. The detection of very few cancer cells that have so far survived therapy and persists below the detection threshold a conventional technologies.
While these advancements are cause for excitement.
<unk> for cancer patients requires more and early detection of recurrence. It also necessitates data for long term management.
Our next personal design also provides that information.
Even whether tumors caught early has successfully eliminated survivors are at a substantial substantially increased risk.
Developing a secondary cancers. This is because treatment rarely addresses the underlying cause of the malignancy.
Next personal has been designed to look for both recurrence of a prior cancer and the possibility of a new cancer.
With more than 20 million cancer survivors in the United States alone. There is a significant population in need of ongoing detection and careful active long term management.
Personality ethos has always been to build for the future.
This ethos drove us to develop next personal one of the worlds most sensitive MRV assays, which can detect circulating tumor DNA with 10 to 100 fold increase sensitivity relative to contemporary tests.
The next personal wasn't felt just detect cancer recurrence as early as possible. It was built to help cancer survivors actively defend their health by tracking both relapsed and secondary tumors.
The next personal platform is built to integrate custom content based on each patients individual tumor.
As well as fixed content, that's common across tumor types.
By capturing such a broad swath of data next personal generates critical molecular information that May guide therapeutic decision, making.
Our objective is to provide oncologists with information needed for them to advise on the optimal course of action for patient treatment.
Next personal therefore provides DNA sequencing coverage of variance, which may indicate drug therapy options response to therapy or emergent resistance to therapy.
We consider this approach not just tumor informed.
<unk> had simply tumor informed.
To that end, we have recently been issued at additional U S patent for our novel methods for detecting molecular residual disease <unk>.
And recurrence by using whole genome sequencing of a patient's tumor to identify variance with a personalized liquid biopsy assay.
I am pleased that our team has been recognized for our innovation with the granting of this new patent.
In addition, we announced yesterday that we have filed a lawsuit against foresight diagnostics for patent infringement.
In the U S District Court for the district of Colorado, where foresight is based.
The series based on this new patent along with two other U S patents issued to personnel.
These three patent spend two separate patent families, which claim priority back to 2013 and 2016, respectively.
While we will not be discussing any further details regarding this litigation in todays call I will say that as we indicated in our press release yesterday at our recent blog post personnel as a pioneer in the field of leveraging whole genome sequencing for medical applications and we have invested hundreds of millions of dollars in research and.
Ultimate across a broad array of disciplines since the company's founding over a decade ago and I can tell you that we stand firm in our resolve to protect that investment at our leadership position in the field.
I would now like to comment on our recent progress and some of our planned milestones regarding our clinical diagnostic efforts.
Although we have slowed hiring in general we are selectively hiring staff with clinical and medical experience within a diagnostic setting as we prepare for our clinical launch.
In support of our new diagnostic business. We're also incorporating clinical protocols in our new facility and we remain on target to begin moving in during late Q3 <unk>.
Conducting clinical qualifications during Q4.
And initiating clinical revenue from our new facility in early 2023.
We are also making progress to complete the validation study for our next Dx test, which is our tissue based diagnostic offering.
Our next platform.
We expect to use this validation data to apply for a New York state regulatory approval and to submit to the Palmetto multi X technology assessment process. Later this year with the aim of receiving a favorable reimbursement ruling for multiplex in early 2023.
Our medical Affairs team continues to forge relationships with World class medical institutions.
These relationships are critical as the cancer centers of excellence set the standard of care.
We are in discussions with multiple institutions and we'll provide further updates in the future.
With all of our progress on the mentioned of milestones today, we expect to be well positioned for entry into the clinical diagnostic market using our comprehensive tissue base next Dx test and.
And we expect to begin selling a small volume of these tests to oncologist before the end of this year.
In addition to next Dx. We're also planning a laboratory developed test or <unk> version of our <unk> test next personal and expect to complete this milestone in 2023.
We expect physicians, who began using our next Dx test May later also use our next personal test since the two can provide complementary information.
We expect that the path to reimbursement for our next personal LDC will also began via assessment by the Palmetto <unk> program.
Recently, we added ladish off to the <unk> Board of directors and she brings extensive clinical diagnostic experience for very executive roles at Thermo Fisher and Roche diagnostics welcome Marty.
Okay.
Yes.
Finally, I want to briefly comment on the exciting wave of breakthroughs in DNA sequencing technology that have been announced this year and what it could mean for personnel.
We have been an early access customer of ultimate genomics for example, which is at the forefront of realizing the 100 dollar channel.
Most personnel as products are large scale, using either <unk> or whole genome sequencing.
We built our platform expecting that the throughput and cost of sequencing will decrease over time.
As that happens and because of the size of our platform. We think we can benefit more than other companies, whose products may use much less sequencing.
New sequencing platform is focused on high throughput at lower cost potentially give us opportunities to reduce the cost of our large assays.
In summary, our team continues executing on our strategic priorities and growing our oncology business. Despite some economic headwinds that Aaron will comment on.
Customer adoption of our next products has been excellent and we continue to drive further adoption and increased penetration with new and existing customers.
We have compelling products and pipeline efforts for both Biopharma and clinical diagnostic test markets.
We have a strong balance sheet positioning us 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.
During my prepared remarks, I will provide detail about our financial results for the second quarter of 2022 and guidance for the full year.
Total company revenue for the second quarter of 2022 was $18 $2 million.
<unk> pharma and all other customers, excluding the VA MVP accounted for revenue of $14 2 million in the second quarter, a 74% increase over the same period of the prior year.
The year over year increase in oncology revenue was driven by the continued adoption of our next platform, which accounted for more than 75% of the oncology revenue in the quarter.
For the second quarter.
<unk> revenue of $4 million was 70% lower compared with $13 5 million for the same period of the prior year and the decline was consistent with our expectations.
As of the end of the second quarter, we have fulfilled all of our VA MVP backlog.
Gross margin was 23, 5% for the second quarter compared with 37, 7% for the same period of the prior year.
The year over year decrease at 14, two percentage points was primarily due to the expected under absorbed overhead costs from the 70% lower revenue volume from the VA MVP.
And an increase in expenses to support our growing oncology revenue.
Within our production laboratory.
We use more direct materials and sequencing equipment capacity for the VA MVP whole genome samples.
While our oncology business requires a higher proportion of labor and overhead expenses.
Such as direct and indirect labor.
Lab supplies.
Facility footprint.
And other related costs compared with the VA MVP.
Over the next couple of years, we expect gross margin variability due to headwinds from the lower VA MVP volume investments in new capabilities, such as dedicated production lines for liquid biopsy offerings, providing diagnostic tests, while we work to increasingly secure reimbursement expanding in China.
Adding our new facility and others.
However.
We expect our gross margins to increase longer term as we achieve scale by growing our oncology revenue.
Operating expenses were $32 2 million in the second quarter compared with $23 1 million for the same period of the prior year.
R&D expense was $16 3 million in the second quarter compared with $11 7 million for the same period last year and SG&A expense was $15 9 million in the second quarter compared with $11 4 million for the same period last year.
The increase in R&D expense was for new product development hiring employees to build our clinical and medical infrastructure and sample test expenses preclinical validation work.
The increase in SG&A was due to commercial expansion and continuing to enhance our infrastructure.
Net loss for the second quarter was $27 5 million compared to a net loss of $15 million for the same period of the prior year. The net loss per share for the second quarter was 60.
And the weighted average basic and diluted share count was $45 6 million compared with a net loss per share of 34.
And a weighted average basic and diluted share count of $44 million for the same period of 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 $233 5 million.
In the second quarter, we used $33 1 million of cash due to the net loss working capital needs and capital equipment purchases.
We continue to work on extending our cash runway as far as possible and as at the end of the second quarter, we reduced our 2022 cash usage estimate to approximately $125 million.
Down from $140 million at the beginning of this year.
This amount includes a one time investment of approximately $40 million for the construction and fit up of our new facility and this amount is net of $15 million for tenant improvements from the landlord.
We are managing and investing our cash prudently and <unk>.
<unk> two years of cash on the balance sheet.
We have invested in many initiatives since our IPO three years ago and believe several of them are very close to generating revenue.
Now.
I would like to turn to guidance.
During the first half of this year, our revenue was impacted by a slowdown of customer sample shipments to us due to COVID-19.
We like our peers have also seen slower and reduced patient enrollment for clinical trials.
With recession concerns we are also seeing customer orders slow down a bit.
Given that more than half of our Biopharma work is now for prospective clinical trial projects delayed and reduced patient enrolment is having a bigger impact on our near term revenue than before when most of our business was for retrospective projects.
It is not entirely clear with patient sample shipments to us will accelerate again, but given that our backlog is healthy we are optimistic that our longer term revenue.
We are optimistic about our longer term revenue growth opportunity.
For the full year of 2022, our guidance is unchanged and we continue to expect total company revenue to be in the range of <unk> $62 million to $67 million.
And we expect oncology revenue from Biopharma and other customers to be in the range of $55 million to $60 million.
Net loss is expected to be in the range of $110 million to $115 million.
Now I will turn the call back over to the operator to begin the Q&A session.
Operator.
Thank you very much at this time, we will conduct a question and answer session. As a reminder to ask a question.
Star one on your telephone and wait for your name to be announced.
And by when we combined the Q&A roster.
Okay.
Okay.
Our first question comes from the line of Jacob <unk> with Morgan Stanley .
Your line is now open.
Hi, This is Neil on for David Thanks for taking my question.
To get the ball Rolling can you speak to some of the month over month trends, you've been seeing as far as delays on the prospective trial side of things and any high level color on how youre thinking about utilization heading into the second half.
Yeah. So this is Aaron hi, Neil in terms of what we're seeing month over month.
We are.
Been seeing some slowdown since the beginning of this year and its continuing right now primarily because of the summer months, we're heading into here.
During the month of July we have seen some slowdown in.
It's our estimation that we will continue to see this.
Through the month of September .
Got it thank you and how about in the Shanghai lab, how our operations progressing there I know you mentioned a slowdown due to COVID-19 driven delays in.
In the first quarter do you see any.
Foreseeable risk in the second half as well.
Yes, so just to be clear Neil we don't have any revenue being produced from our Shanghai operation just yet we're going through internal lab qualifications Shanghai was closed down for about three months due to the lockdown that they had several months ago for the last couple of months our employees have been back in the lab and we are going through internal qualifications we.
To get through these protocols through.
Through the next month month, and a half or so, but then expect to begin working with our first customer from whom we have orders from and we expect to maybe realize or recognize a very small amount of revenue later this year in the fourth quarter.
Ramping in 2023, obviously.
Okay, and then any comments on how the partnership with <unk> is progressing and how.
We should think about that heading into 2023.
Yes, Hi, this is Sean I think the partnership with Natera has been going quite well I think the things that we do are quite complementary personnel says a lot of experience in sequencing difficult FFA samples from all different kinds of cancer.
Terra has years of experience doing cell free DNA sequencing through there now.
Non invasive prenatal testing and so forth so.
A combination of where we do some of the upfront.
Tissue sequencing from <unk> and then they do their cigarette Terra test on the backend.
A lot of sense and it gets at the strengths of each of the two companies. So that's.
Revenue, that's been growing for us and I think a good relationship.
Great and one last from me.
So just give me some of the disruption seen with genetic test compares how are you thinking about these are these events in relation to the clinical launch ramp.
The potential for winning any minder market share.
Yes, I think this is John I would say that.
As always I should be able to access customers. So.
When the pandemic started it after that we were pretty concerned about not being able to meet with customers, but actually we found that we've been operating the business for now well over two years kind of working from home mode.
And in a mode, where we cannot physically meet with customers hardly ever.
On the other hand, I think what we've found as we've gotten good at that and that in some cases, it's actually easier I'd say in the past, particularly if you needed to have a group meeting with people who might be hard to find a time that there wasn't always somebody out of the office on the other hand.
The.
With travel bans, so significantly reduced a bit particularly business travel we found that often it's easier. So we ended up catching people maybe recap the main zone, but we can actually get a group together. So I think we're pretty optimistic about.
The ability to move forward, we've found that we've been able to be very effective with <unk>.
Engagement pharmaceutical customers and the people that we've been hiring for our clinical sales team are deeply experienced and have a lot of connections in the field. So I think that they will have good access to those potential customers.
Great. Thanks.
Okay.
Thank you we will prepare our next question.
Okay.
Okay.
Our next question comes from Max Masucci with Cowen go ahead.
Hi, This is Stephanie on for <unk>. Thanks for taking my question.
Erin I appreciate the color you provided earlier on gross margin. In addition to the lower VA MVP revenue along with the growing oncology related investments were there any abnormal or nonrecurring factors that impacted.
Gross margin performance in Q2, and how should we think about the variability in gross margins for the coming quarters.
Yes, hi, Stephanie so in terms of what we saw in Q2.
Most of that impact taking the margins down to 23, 5%, we're really tied to under absorbed labor and overhead.
And most of that came from the expectation with the lower VA MVP volume in addition.
We do use a fair amount of capacity and capability in our lab to do work for research and development work, meaning some new product testing testing and validation.
Validation work for samples.
Some of our studies and so we did see some of that volume being a little bit less in the second quarter, as well, which contributes to the underutilization. Okay. Because some of those costs would be charged directly to R&D. So those were the nuances. In addition, again at a high level.
The VA MVP most of the costs there are variable with direct material. The only fixed cost use there are the the sequences the equipment in a small amount of the footprint, but with biopharma.
It's very very labor intensive and a lot of overhead and so with biopharma.
Continuing to ramp or starting to ramp.
The gross margin profile will improve out in time, but right now we do have a fair amount of underutilization.
Got it thanks, so much for that question I'll color.
Additionally.
I know you've mentioned previously that involves disclosed specifics forecast from the tariff, but given the large contribution from the tariff. This quarter is there any additional color on our general guidance you can provide on how to think about terra contributions going forward. What we sell so just looking at the Appalachia frequent quarter to forecast future contributions.
Yes. This is John I think we see the <unk> area is one that has a lot of growth to it and.
Can't speak directly to the <unk> products, they have to speak for their own products and I think they are speaking tomorrow afternoon.
In general this is an area with enormous growth potential.
They are one of the earlier companies in this space and so I think it would be.
Likely to expect that their business will continue to grow and we'd be happy to support them in that regard I think more than that.
They have to be the one speaking to the volume on their product.
Got it understood and if I could squeeze in one more it's great to hear that you are an early access customers.
Platform would be curious to hear how your experience with.
Welcome a quick question.
The performance of the platform that you're offering.
Yeah. So this is John sorry, I guess.
Brings us to go back to old memories of Celexa. When we had our first system. This out before it became part of alumina.
Early technologies. The one comment I would say is I think it's terrific that there really pursuing the $100 genome.
Reising at that kind of level now so that's not just a concept for the future.
What they have we have the instrument in the house now since January we've been trying it on various different applications. We don't have anything to announce specific on that but I'd say it is I would say a very encouraging.
Platform. It is not a drop in the substitute for the aluminum platform as it does there are certain things that it does frankly, a better if there are other things that it doesn't do as well and so I think we have to pick the right applications, where that is particularly suited to and I think that was true when we brought out the celexa sequencer is back in 2006 two.
Seven timeframe.
We were people said, you're going to replace capillary sequencing actually capillary sequencing continue to happen, but there were a lot of new applications that were.
<unk> made possible by us introducing next gen sequencing back at that time, and so I think we'll see some of the same kinds of things here.
The ultimate sequencer will enable some new applications that are there.
People have not done before and certainly personnel should be open to that but.
We see ultimate as one of the interesting platforms. Illumina has certainly has talked about also being on the road to the $100 genome they've talked about their new chemistry X coming next year not clear to us whether that will come with a new instrument, but we remain very interested in advances in the aluminum platform also.
Where they have things to say, we will certainly be.
Looking at that and being interested in being in early access side and so forth.
Got it thanks, so much for that color and thanks again for taking my questions.
Thank you.
Thank you standby.
We queue up the next question.
Okay.
Mike Matson with Needham <unk> company.
Okay.
Your next.
Sure.
Hi, guys. This is Joseph voluntary Mike Thanks for taking our questions.
Okay.
Maybe just one more on the backlog I. Appreciate you guys given all the color that you did.
<unk>.
But I guess as we're looking towards the rest of 'twenty. Two if you could maybe dissect some of the customers and the backlog maybe.
The proportion.
Larger more more.
Profitable pharmaceutical companies versus maybe some of the smaller ones who are burning cash right now.
And how and if youre worried or the risk of maybe the smaller unprofitable companies canceling orders in future. Thank you.
Sure Hi, Joseph this is Erin so I'll take a shot at that.
Maybe just at a high level, so I won't give any specific backlog numbers, but just in general.
We're doing business now with our with more than 70 customers on the next platform and so that is far different than three years ago. When we had just a handful and so our customer base is far more diversified today than it was before.
Having said that.
Large pharma is a bigger portion of our revenue.
And so therefore more of the backlog is going to be weighted towards larger pharma okay.
In terms of the smaller biotech and Biopharma customers, we do have a fair amount of business with them and they are included in our backlog.
In terms of some of those customers.
With the equity markets, where they are at today they've had some challenges in terms of burning capital in some of these <unk> gone out of business. So we have seen.
Some of our backlog deteriorate from that but I would say where we're at today. The backlog is at a very healthy position compared to where we were a year ago or even two years ago and that gives Jon and high confidence that we can grow this business, 50% per year as we go forward from an oncology revenue.
Endpoint.
Okay.
Okay great.
Very encouraging.
Thanks for that and then sure.
Obviously, you guys did give some more information on the patent infringement case.
I know you guys can't really comment on the.
The case itself, but could you maybe just give a little bit more detail on the strength of the patents that you have I believe they go back to somewhere around 2013, there could you maybe give any color about any previous cases that had been file there litigated maybe the results of those.
Yes. This is John speaking, yes, you have it right.
We have a number of different patents. The earliest one let's go back to January of 2013.
What are the things we filed.
My prior experience with <unk> and other sequencing companies before that.
Working on the human genome for actually I've been involved around for almost 40 years now.
When we sequence the first human genome it seem like this huge thing and then.
With a select set technology, we can sequence. The first one on a next gen platform just on north one instrument that was amazing so.
When we started the company was based on having had.
Some of the first genomes in the whole World then we add our my family six months actually.
We have realized that we could phase the genomics, which was something other people hadn't done up to that point. So we had a lot of experience with whole genome sequencing right at the beginning of the company.
And that led us to look at how do we go beyond that because at that point youre getting youre somebody's whole genome sequence that seemed like the complete answer you had all of the entire genome what else could there be.
Starting personnel as we thought there could be a lot of opportunity to build on this and so we spent a lot of time really understanding in detail both what the performance of whole genome sequencing, but thinking about how do you have combined if you have multiple genomes. How do you combine those for phasing how do you combine that with exome sequencing for.
Ample how do you combine things, where maybe you have a whole genome from.
<unk> sample with other things based on a liquid biopsy sample.
GM actually changes some overtime and thats reflected particularly in cancer.
Cancer, and so you can see that on the plasma samples. So we realized there was a lot of opportunity to build on the whole genome.
And we also ended up with a lot of business.
The sequencing whole genomes, which made us that much more expert as time went by and the sequencing platform has got to be better. We became one of the largest laboratories in the world sequencing whole human genomes. We've now sequenced over 150000 genomes. So this is an area. We've been just deeply immersed in for a long time, if you look across.
Our management team, we have people who have been involved in all kinds of advanced sequencing at the genome level literally for decades, and so I think that that's that's.
What led us to be in a position to file some of the early IPA because to us. It wasn't all that early we've been working on for quite a while and we had a we were able to leverage the.
Expertise, who were to say we need to develop a next level here and that led to the early patent filings that we have we haven't had any.
Litigation it personnel other than this it has been our only.
Case like that but it is not unusual in this field has been litigation at other companies that I've worked at before.
So I think we feel like this is just normal and we have to stand up for the IP that we have because it's so central particularly to the position we have with next personal.
A lot of its differentiation is based on things that we have patented very early on.
We just wanted to get an appropriate credit for that.
Yes, I think as other companies with their IP.
Yes, Okay, yes, absolutely that makes sense.
And then if I could just fire one quick one Alex sure.
In relation to.
The head count in China, I believe you said last quarter.
Around 10 people have been hired I guess, just wondering if that number has changed and should we expect.
A large uptake in.
And staff.
I guess in 2023 when volumes are expected to start ramping.
Yes, so Joe this is Aaron so the head count in Shanghai is still in that ballpark plus or minus a few we have not hired a significantly higher number than that and it's our anticipation.
To get through the next few months get through early customer qualification here with what we have.
Proof things out and then in 2023, we'll hire to support whatever that revenue needed right. So as we receive more orders and we have more volume if we need to add more variable capacity or capability in the form of labor. We will do so other than that we're trying to preserve capital to make sure that we can extend our.
Runway, so we're going to be cautious in all areas.
Okay, great that makes sense well. Thank you guys for taking our questions and congrats on the quarter.
Thanks Joseph.
Thank you very much just queuing up on next.
Question.
Thank you. Our next question comes from Jason <unk> with Citibank.
Go ahead.
Oh.
This is Lucy on for Patrick and Jason I was just wondering if you could talk about on that.
Personal side, you talked about progress there.
Just broadly what milestones should we look at as we go into the second half of the year. Thank you.
I think in terms of next personnel. This is John and I think we're seeing a lot of adoption there individual pharmaceutical companies that buy into that.
Some of the opportunities we're looking at are fairly large, but generally pharmaceutical companies.
Not looking for us to talk about the individual cases, so we may be able to comment on.
As the orders ramped more or less ideas of the scale of that and the uptake of <unk>.
Of the platform I would say that if I look back to where we were three months ago.
I think we've made a lot of progress on the interest side people are beginning to realize the power of this the scale of it. Thank you.
Youll see more as we go forward with.
We're working with a number of.
I am very high end academic collaborators and some of those we expect that we will be able to announce and I think there'll be some some really good opportunities there.
I expect that we'll have access to.
Quite a few samples through that that will lead to some pretty impressive data frankly is fairly quickly because in some cases. The samples are already banked samples I think as we have more and more data. There I think that'll be something people will look through and see the potential of the platform and that will lead to the.
The more and more uptake on the pharma side.
Yes, I think the funnel of.
Our potential customers is large almost every large pharmaceutical company we've spoken to.
Intensely interested in this area in particular, because there is opportunity to move cancer drugs from only late stage patients now more and more into adjuvant treatment of patients. So this almost doubles the cancer patient population, which is an enormous change in opportunity in there.
Pharmaceutical world and so tests like ours that could be involved in.
And that kind of work I think are an enormous opportunity with pharma and then obviously ultimately on the diagnostic side.
Great. Thank you and then just as you're talking about club at a little bit earlier can you I guess, having that pan out versus your expectations and further our senior.
What's your thoughts around that.
And that's it for me thank you.
Yes, I think it's been panning out very well relative to expectations I think we always knew that.
What we've done is so much more sensitive than what other people have had before us that sometimes it takes people a little while to realize that it's actually real.
So that's why we introduced the idea of next Gen sequencing as well that it was so astonishingly further ahead that it took a while for people to appreciate that what you were talking about was real and it was that big of a difference in how to think about how it could transform what they're doing so I think we do see people, where maybe they ask about it to start with.
They're interested in they don't quite get it at some point you see the light bulb goes off and.
Really and sometimes you've done pilot studies and after the pilot people, even just astonished at the results.
That's led to some pretty serious interest certainly.
Multi multibillion dollar potential contracts.
To work on things with with pharmaceutical companies, So I think youll see that.
As Aaron said I think in his remarks, we expect to see that.
The orders ramping this year and the <unk>.
Revenue, particularly ramping next year with extra sale just to add to what John just said. So if you look back three years ago again, we had just a handful of customers on the next platform sitting here today, we have more than 70 customers on the next platform more than 75% of our revenue in the second quarter was from the <unk>.
Option of next.
Our <unk> offering we believe is very very sensitive more sensitive than other comparable in the marketplace today.
Like John said the interest from pharma is enormous and so the funnel has grown significantly over the last three to five months and we're anticipating a lot of orders coming in later this year and into 2023. So we're really excited about what this ramp can be in terms of revenue in 2023.
Today, most of our revenue is from our tissue based offering from next as we go into 2023 and beyond we're going to complement that tissue offering with liquid biopsy, the <unk> offering and thats going to add multiple time points. So our market our total.
Total available market is going to expand significantly.
We're really excited about the revenue opportunity.
Great. Thank you.
Sure.
Thank you queuing up our next question.
Okay.
Sure.
Okay.
Our next question comes from the line of Mark Massaro.
<unk>.
Hey, guys. Thanks for the questions and I have been hopping around calls Tonight. So if you've covered this I apologize, but can you maybe just provide an update on next Dx obviously, that's your entree into the clinic.
Are you on track to submit to mold X I think it's pretty soon and are you still hoping to obtain Medicare reimbursement by yearend.
Yes. This is John thanks for being on the call.
So next Dx, we are pretty much on track, we do expect to begin side, we actually have our first.
Salespeople onboard now and we'll be beginning to bring in customers there.
Multi X, we expect to actually submit to multi X by the end of this year, we expect the.
If things go well, we would have a reimbursement positive reimbursement decision.
Early in 2023.
Okay perfect.
And then I understand that the next personal it is certainly gaining interest from Biopharma.
But maybe I wanted to just double check to see where you are at in terms of the clinical launch.
In the past you've talked about first half of 'twenty three.
And maybe can you just give us.
Some expanded color on your path to reimbursement.
In the last month or so there were pretty I think three significant Mardi test that received.
<unk> reimbursement.
I think all of those develop the evidence to support that I guess, maybe just.
Update on where you are in terms of evidence development to secure reimbursement.
Yeah. So this is John I think our expectation as you say the first customers we have for <unk>.
<unk> personal already our pharmaceutical customers, we expect that that will be the biggest revenue ramp for us next year.
I don't think we've said exactly when in 2023, we would expect that to be available as a lab developed test, but that is certainly on our radar for.
2023.
We do see that as being something we'd want to take to multi X we've been laying out the right.
Validation plan for that.
In terms of the evidence development is likely to be clinical.
Clinical validity that's needed as opposed to the clinical utility of early detection.
In this case has already been pretty well established or at least in the in the clinical indications for which other people already have reimbursement, we expect that we'd be in a position.
To show that we are.
Non non inferior as the official word we would expect to be frankly, a hell of a lot better but.
We'll be showing that I think we'll have a pretty good validation to.
To talk with <unk> about our.
Our expectation is that.
Positive multi X decision on that could be in 2024, but I don't think we have been a more specific about that yet we do see it as a big opportunity, but frankly, I see pharma as a pretty big opportunity in the near term as well.
A lot of movement to this area in pharma.
Okay Awesome and then one final question on Mardi.
Yes.
The market leader I think looks at 16 variants and.
Aspiring entrants are looking somewhere between 40 and 80 or so.
You're looking to track about 1800, I guess can you just comment on what early feedback youre getting from pharma customers about.
The size of monitoring 1800 different variants.
And maybe just what youre hearing and are there any concerns about how to interpret this and what youre doing to kind of.
And still confidence that.
Tracking more is superior.
Yes.
We don't ask the customers to look at every one of the 1800 variants, we take care of that park for them. So our ended up we ended up with a very simple result, which is just that we detect the tumor or not and if we detected it at what level. It was so that's pretty easy to understand I think the key thing is we can see the tumor at a much lower.
Our level than other tests to the sensitivity difference can translate into if youre thinking about the development of a tumor.
Cancer types have different growth rates, but the tumor volume doubling time.
It can be anywhere between a few months and even as long as a year. So if euro 10 to 100 times more sensitive you can be looking at detecting recurrence potentially even in some cases years earlier and so I think as we have.
Clinical data that we expect to have from collaborators.
That shows that more I think people forget but already.
People understand this field enough to see the difference in terms of sensitivity. The other piece that I would say is that in addition to the 1800 variance that we look at four.
Recurrence detection of the quantification.
We actually look at almost the same number as well as Thats part of what we call the fixed content of the assay. So thats not tumor informed that's that's the same for every patient and that gives us a broader view. So that if you have detected recurrence you wanted to what can I do about at what direction I gave the patient or if im giving them a particular drug is.
The tumor, but getting to escape for them at the source of the ongoing actual management of the patient once you've determined that there is a recurrence happening.
We actually have content on the platform for that as well and so I think.
Part of what when we looked at the at this field thats been in some years ago that we were.
Thats it from as a commercial product we said the amount of sequencing people are doing is almost.
Ridiculously low I mean, it's understandable various different to get started with but.
There is a lot that you could tell and its not that expensive.
I guess, we've been a very high end.
<unk> user for quite a few years.
Over five years ago, we began working with the people at.
Ultimate genomics. So we can see that the $100 genome was read it real and it was coming so we've been we've been planning for that and I think our sense is not actually all that expensive to be able to look at it as much content as we have and it's so much more informative for the.
Clinicians and for the pharmaceutical companies. So I think we've just tried to move straight to that what we think will be the future of this field and generally the things. We're looking at will be clinicians are used to looking at therapy selection tests that have a lot of content to them and we'll be able to do the same kinds of things, but with combined all in a single integrated assay along.
The <unk> test.
That sounds great. Thanks, so much for the color.
Great. Thank you.
Great. Our next question comes from the line of Derik de Bruin Bank of America.
Hey, Thanks for taking my questions I've also been bouncing around in March It took all of the ones I wanted to ask.
I'll.
I'll do this one can we talk can we just talk preliminarily on what's your sort of initial thoughts are in 'twenty three I mean, I know, it's early but there's a lot of moving parts. You are trying to manage opex any incremental color you can sort of give you. The time, you know where the consensus estimates are and just some general thoughts on capital raise.
And stuff like that just just some general thoughts given the et cetera.
Touchy topic these days.
Yeah. So this is Aaron hi, Derik in terms of 2023. So it is early for us to give any type of guidance, but in terms of maybe directional.
Insight, we'll try and provide that in terms of looking at the topline or.
Our goal is to grow our oncology revenue at least 50% year over year. So 2023 based upon what we can see today.
We don't see a reason why that's not possible, we're going to be entering into the clinical diagnostic market with the favorable reimbursement ruling early in 2023. So we should have some next dx.
Clinical revenue in 2023 cant really say exactly how much that's going to be just yet we will have to wait and see.
More to come in that regard Biopharma has been strong for us in the past and again, it's been with predominantly our tissue based offerings. So as we get take up here with our next personal from Biopharma in 2023.
We believe we have a great opportunity.
A ramp ramp up their China is going to start to come online in 2023 alright.
It's probably going to be moderate revenue in terms of where we'll be we had one customer that's placed orders with us and we've got several others that are evaluating our platform and capability in China and so it's hard to know exactly where those will come in but we're expecting a little bit of revenue from China as well in terms of.
The opex.
And cash spend we're being prudent right now we have.
We've slowed down hiring quite a bit.
Higher.
Quite a few employees over the last couple of years, that's given us a lot of capability to get into the clinical market, we still have <unk>.
Commercial team to continue to expand in the clinical area and we have the reimbursement capability in the billing teams that we have to continuously expand and.
Those will be commensurate with volume right as we start to see the favorable reimbursement rolling and things are going to really take off we will add to that but.
We're going to be prudent with cash.
Spend so to speak.
Our goal is to continuously extend the runway as we get out in time.
You asked about capital raise.
Can't really chat about right now we don't really know.
See that in the cards based upon where our equity values at today. So we're going to again continuously stretch out our cash runway as far out as we can.
Come on.
You said on the call about the cash level to that by the end of the year because of.
The efforts to bring costs down also helped on that yes. So our our cash usage in 2022 is expected to be about $125 million at this point in time, we've reduced it from $1 40, just six months ago.
If we can continue to reduce it we will and again there is some one time amounts in that $125 million 40, EBIT for this new building, which won't repeat so when we get into 2023, our operating cash burn of somewhere in the $80 million to $85 million range.
And obviously, if we can grow top line, even faster that will help us from a gross profit standpoint and pay for some of the investments we need to make.
Maybe one more item I would add is that when you look at other companies, sometimes they'll they'll talk about liquid biopsy as being a substitute for tissue biopsies that actually in our case with the kind of products that we've developed we have our whole next platform. That's been built on tissue based samples and now we've been adding liquid biopsies.
Those are almost entirely additive there's people that are using those in addition to the tissue offerings not instead of them and so with all of the new things like next personal.
Or has the potential to be purely additive as opposed to.
Like being a new version of a product where you swap out the old one.
Great.
Thanks for the detail I am sorry, Patrick I appreciate it. Thank you. Thank you.
Thank you and just a reminder, that if you have a question. Please press star one wanted to raise your hand.
We have one more question. Our next question comes from the line of Archer.
From H H C Wainwright and company. Thank you.
Hey, good afternoon, John and Aaron.
The author in for RK.
Most of my question is the answer.
Just wonder regarding the clinical diagnostic business.
Could you just give us more color on your impaction.
Is there any.
Pilot project in place already.
Sure.
We expect launching that.
Next year right.
Yes. So this is John so in terms of the diagnostic business and working with some of the Kols. We actually do have some projects underway with a number of groups. We've talked about our work with UCSD in the past for example, thats progressing.
Work, that's been going on at the Mayo clinic with a group there.
We have other collaborators that we havent named gap, where we're beginning to get.
We received we actually have received samples and we are now beginning to process them. So I don't have anything new in terms of names to announce today, but we're definitely making progress on.
Sequencing samples doing the analysis and having people get results I think in time. This is the kind of I think it was mentioned earlier the evidence development that will put us in a position.
Credibility, both for customer adoption and for reimbursement.
Thank you I appreciate that.
Bedroom.
The quarter.
Okay. Thank you.
Great at this point.
There are no more questions. So we want to thank you for your participation in today's conference. This concludes the program you may now disconnect.
The conference will begin shortly.
To raise your hand during Q&A you can dial star one one.
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Okay.
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Yes.
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