Q3 2022 Personalis Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the personnel is third quarter 2022 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
During this call may be recorded I would now like to hand, the conference over to your first speaker today. It is Caroline corner Investor Relations. Please go ahead.
Thank you operator welcome to personnel since third quarter of 2022 earnings call. Joining me on today's call are John West President and Chief Executive Officer, and Aaron Tachibana, 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 U S Securities.
For example, any statements regarding trends and expectations for our financial performance this year and longer term cash runway revenue expectations of timing new orders product services technology, the timing of data publication clinical clinical and regulatory milestones the outcome and timing of reimbursement decisions future.
<unk> activities cost expectations, 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.
Encourage you to review our most recent filings with the SEC, including the special note regarding forward looking statements and risk factors described in our 10-Q for the third quarter of 2022 filed today personnel undertakes no obligation to update these statements except as required by applicable law.
Our press release with our third quarter 2022 result 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 has our latest SEC filings, which we encourage you to review a recording of today's call will be available on our website by five P. M Pacific time today.
Now I'd like to turn the call over to John for his comments on third quarter business highlights.
Thank you Carol.
In Q3, all of our revenue pay for oncology business, which was up 73% over the same period from the prior year.
Going forward, we expect the centerpiece of our oncology business.
We are emerging.
<unk> SaaS.
<unk> personal.
Given us important for our future and the progress we've made since Q2 I will focus today on this revolutionary new platform.
I believe that next personal is the most sensitive and most virtually informative cancer in more details in the world.
Although we see a lot of potential for this platform and advanced pharmaceutical clinical trials and that adoption has already begun. This platform is ultimately intended to provide key information for oncologists to use in making decisions for the treatment of individual cancer patients.
When we began the development of next personal we completely rethought what was needed.
All other emerging platforms detect cancer recurrence earlier than radiology, we believe that it was not good enough patient.
Patient is being monitored with first generation <unk> assays, often received negative results for a year or more only to have the cancer eventually rise again above the limit of detection.
During that initial year, the patient actually has cancer, but the test is not sensitive enough to detect it.
We asked ourselves what sensitivity would it take.
Using published data from earlier technologies.
We extrapolated back to the point, just after surgical resection and calculated what level the tumor signal in the blood plasma it might have been.
In one case after another we found less sensitivity at a part per million should be able to make the detection.
Protecting tumor DNA in blood plasma at a part per million is a daunting challenge requiring a sensitivity improvement of as much as 100 fold.
Sequencing the blood plasma more deeply will not help because there are only a few thousand copies of the genome and a typical plasma samples.
To detect the cancer signature at a few part per million requires at least a few million molecules each spanning a known tumor mutational signature.
We realized that we would need to combine the signal from over 1000 different positions on the genome and sequence of few thousand unique molecules at each of those to unmask. The data required from a few million dollars total molecules.
It is not easy to find and thousands of mutations in a single tumor sample.
From our experience sequencing tens of thousands of cancer <unk>, we knew that would not be enough.
According to the American cancer Society by far the largest number of cancer survivors people at risk of cancer recurrence or those who have had breast or prostate cancer.
Those two cancer types in particular have low rates of tumor mutation.
We realized that the only way to consistently identify for thousands of mutations we needed from these cancers was to use whole genome sequencing of.
The tumors.
Personnel as first working on this problem and filed our foundational patents about a decade ago.
At that time deep whole genome sequencing was very expensive, but we believe the cost would come down.
Over the years, we also drove down our own cost of whole genome sequencing by the automation and optimization that we implemented sequencing whole human genomes for the VA million veterans program.
Personnel has now sequenced over 150000 whole human genomes a number that we believe is more than any other for profit U S company.
We have leverage this experience to pioneer whole genome tumor informed mrna testing and achieve our goal of part per million sensitivity.
When we planned our MRO detest sensitivity was not the only dimension we re imagined.
While sensitivity is essential for the initial detection of cancer recurrence.
And in <unk> can be used to monitor the growth of the recurrent cancer.
Just monitoring on its own is not good enough.
Physicians will need information about a recurrent cancer to decide how to fight. It for example, what would be the best first line therapy.
Is the patient responding to the first line therapy.
Is the tumor developing resistance to the therapy and if so what options are there for second line treatment.
Is the cancer detected even a recurrence at all or could it be a new cancer with different characteristics from the original.
To help physicians fight recurrent cancer, and frankly to deserve ongoing test reimbursement. After recurrence has been detected we realized that integrating tumor characterization capabilities into our test could make an mrna result, much more actionable.
To address the question as just mentioned.
Sensitive mrna assay, we pioneered a method to combine tumor agnostic content, which is the same for every patient with tumor informed content, which is different for every patient in a single assay.
Our software combined these two data types and we synthesize all of this content together.
Custom assay designed for each patient.
Presentations about MLD, often focus on detection of recurrence after surgical resection and that is a huge need.
Metastatic patients can also benefit from a sensitive mrna assay.
This may seem counterintuitive since metastatic cancers can be much larger than early stage cancers and shed much more DNA in the blood plasma.
What we and others have found though is that the amount of tumor DNA in a patient's blood plasma can drop dramatically.
Actual response to therapy.
It can fall by more than a factor of 100 and just a few weeks.
In one published study using an earlier technology patients responding to immunotherapy fell below the limit of MRV detection and stayed there sometimes almost two years before re growth of the cancer. Finally brought the MRI <unk> signal back above the limit of detection.
Just as in the case with surgical resection patients had cancer the whole time, but the <unk> assay was not sensitive enough to detect it.
And the advanced diagnostics field.
Tim.
Talented leaders often are drawn to what they perceive to be the next big opportunity.
Okay.
In planning for our diagnostic business.
<unk> has recruited new leadership.
And medical Affairs clinical development reimbursement diagnostic sales marketing lab operations and general management.
As we have recruited our advanced <unk> platform next personal has been an amazing magnet drawing some of the best talent from leading companies across our industry.
While it is a broad group I would like to highlight in particular, our recent addition of Chris Hall, as senior Vice President of our diagnostic business from.
From 2010 through 2019, Chris progress from Chief commercial officer to COO and ultimately president.
Zero site.
For almost a decade before that he held leadership roles at Berkeley Heart Labs, which was acquired by Solera diagnostics. This is a great addition to our senior management team welcome Chris.
<unk> top management key opinion leaders in our field are also attracted to transformational new technologies.
Over the last year, we have found kols to be increasingly drawn to our next personal mrna platform.
We have signed and are executing on a growing set of collaborations and expect to be testing thousands of plasma time points across many different cancer types and stages.
We expect to announce more of these collaborations in the coming months.
Quite a few of these collaborations involve sets of longitudinal patient samples, which have been collected over many years.
We anticipate that data from these collaborations will lead to important publications and conference presentations in 2023.
We expect these publications to lay an important foundation for our future reimbursement applications.
Initial data from our collaborations is beginning to be generated and the results show exactly what we anticipated we see patients whose entire MRC MRV trajectories are below the limits of detection of earlier technologies, but which we can detect with our per familiar and sensitivity.
In some cases tumors appear to be beginning the process of escape from immunotherapy.
At a level that would not normally be detected yet.
We also see mutations which indicate that.
Mono therapy does fail targeted therapy could be a second line possibility.
In addition to academic and nonprofit Kols, we should've seen early pilots in pharma now lead to larger scale adoption.
Two pharma, who have placed orders over $1 million each.
We've seen that interest in our platform is growing in pharma in the United States Europe and China.
Notably, we see a growing interest in use of <unk> personal and clinical trials of personal cancer vaccines and other personalized neo antigen targeted therapies.
Personal as the centerpiece.
In it we are pioneering personalised diagnostics designed and synthesize to individually for each patient at a level, we've never seen before attempting.
Each test targets over 4000, Schoeneck Lo Si and over 2000 of those are personalised, so the patient being tested.
The mutations which caused cancer are personal in the fight against the cancer is also a deeply personal one.
Appropriate to our company name personnel as we are now creating cancer diagnostic tests, which are highly personal as well.
Given the importance of this strategy to our future we have initiated an evolution of our company brand as we enter into the clinical market.
Please join us at the <unk> Conference in Boston next week for first premium.
Given its strategic importance I've focused so far today on our end Mardi assay next personal and the launch of our diagnostic business to support it.
Before I hand, this over to Aaron for our financial results I would like to mention three other areas of progress.
First in Q1, we recognized approximately one and a half million dollars of revenue from an excellent scale liquid biopsy project.
For a leading global pharmaceutical company.
Interestingly as we work with Kols on R. M. R. D test next personal we find they often ask them to combine it's deep sensitivity.
With the breath of our liquid biopsy excellent test and select time points [laughter] and our tissue based immuno I D next platform as.
As a starting point.
Second in September we were awarded an exclusive five year contract and an initial 10 million dollar order from the veterans administration million Veterans program.
Personnel also has been the sole provider so the whole genome sequencing to the V. A M V P for 10 years.
VA MVP has also begun to enroll veterans into the program once again after a break during the pandemic and they are now up to approximately 900000 enrollees with a stated goal of enrolling the one millionth veteran in 2023.
After the contract was awarded we were notified that the contract is under protest by a competitive better.
Assuming a favorable outcome expect to begin receiving samples within a few months and we expect to recognize revenue from the most recent order in the first half of 2023.
[noise].
Third I want to briefly comment on the exciting wave of breakthroughs in DNA sequencing technology that had been announced this year and how that can help personnel is drive cross slower in the future as we run very large assays.
We have mentioned being an early access customer of ultimate genomics, which is at the forefront of realizing the 100 dollar genome.
In addition, alumina recently announced they are noticing X plus sequencer.
And then we'll have twice the throughput of the current noticing platform had in approximately 60% lower cost per base.
Replace one of the first orders for our system. So that we can test and evaluated once it becomes available.
This matters because most personnel as products are large scale using either deep exome or whole genome sequencing.
We built our platform expecting that the throughput and cost of sequencing will decrease over time.
That happens and because of the size of our platform. We think we can benefit more than other companies who have products that use much less sequencing than ours.
New sequencing platforms focused on high throughput at lower costs potentially give us opportunities to reduce the cost of our larger assays and they are an important part of our plan to improve our gross margins.
In summary, we C. R. M. R. D test next personal which takes the personalization of cancer diagnostics to a much more advanced level.
His patience and oncologists will want to see the need the best test to actively manage their cancer.
We believe that we have the best <unk> for the clinical market and that is why we believe we will win in the marketplace.
It will build on the base, we have built with our farm and other customers and is beginning to take off with customers New company leaders and Kols.
We have a strong balance sheet to support this and look forward to telling you more in the quarters to come.
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 details about our financial results for the third quarter of 2022.
And guidance for the full year.
Totally company revenue for the third quarter of 2022 was $14 $9 million and decreased 33% compared with the same period of the prior year, which was expected due to the 13.7 million dollar decline.
<unk> revenue.
The entire $14 $9 million was from our oncology business, which continued to perform well with revenue increasing by 73% over the same period of the prior year.
The year over year increase in oncology revenue was driven mostly by the volume increase from the terror, which accounted for half a bar oncology revenue in the quarter.
Gross margin with 16.7% for the third quarter compared with $36, 2% for the same period of the prior year.
The year over year decrease of 19.5% was primarily due to the expected under absorbed overhead costs from the decrease in revenue volume from the VA MBP and also an increasingly expensive to support our growing oncology revenue volume.
Within our production laboratory, we use more direct materials and sequencing equipment capacity for the DEA MDT whole genome samples.
Well, our oncology business requires a higher proportion of labor and overhead expenses, such as direct and indirect labor lap supplies facility footprint and other related costs compared with the VA MVP.
Over the next couple of years, we expect some gross margin variability due to the fluctuating VA MVP volume.
Investments in new capabilities, such as dedicated production lines for liquid biopsy offerings, providing diagnostic tests, while we work to increasingly secured reimbursement <unk>.
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 $29.7 million in the third quarter compared to the $25 $8 million for the same period of the prior year.
R&D expense was $14 $9 million in the third quarter compared with $13 $6 million for the same period last year and SG&A expense was $14 $8 million for the third quarter compared to $12.2 million for the same period last year.
The increase in R&D expense was for product development.
Building, our clinical and medical infrastructure and sample test expenses for clinical validation work.
The increase in SG&A was due to commercial expansion and continuing to enhance our infrastructure.
Net loss for the third quarter was $26 $5 million compared with a net loss of $17.7 million for the same period of the prior year.
The net loss per share for the third quarter was 58.
And the weighted average basic and diluted share count was $45.9 million compared with a net loss per share of 40.
And a weighted average basic and diluted share count $44 $5 million for the same period of the prior year.
We finished the third quarter with a strong balance sheet with cash and short term investments of $192 $8 million.
In the third quarter, we used $47 million with cash due to the net loss.
Working capital needs construction of our new headquarters facility and capital equipment purchases.
We continue to work on extending our cash runway as far out in time as possible and as of the end of the third quarter.
We have more than two years of cash on the balance sheet.
R 2022 full year cash you suggest is approximately $120 million, which we have reduced from $140 million at the beginning of this year.
This amount includes a one time investment of approximately $38 million for the construction instead of our new facility.
And this amount has net a $13 million for tenant improvements from the landlord.
We expect approximately $4 million a building costs to be paid in early 2000 2003.
And we expect $2 million of that amount to be reimbursed by the landlord.
Although our liquidity is very good we continue to manage an industrial cash prudently.
Now I'd like to turn to guidance.
And the first half of this year or revenue was impacted by slower and reduced patient enrollment for clinical trials due to COVID-19.
Despite these headwinds we remain on track to achieve oncology revenue results that are within our original guidance range.
For the full year of 2022, we expect total company revenue to be in the range of 63% to $64 million and we expect oncology revenue from Biopharma and other customers to be in the range of 55, five to 56 $5 million.
No additional da MVP revenue beyond the $7.5 million recognized in the first half of 2022.
And net loss is expected to be in the range of $111 million to $114 million.
We are planning to provide our 2023 guidance on our fourth quarter and full year 2022 conference call.
At that time, we should have more clarity about the da MVP.
And importantly, we.
We expect to have a better sense of recovery trends for Biopharma customer clinical trial enrollment and the ensuing sample shipments.
We look forward to providing more information at that time.
Now.
I will turn the call back over to the operator to begin the Q&A session.
Brighter.
Thank you, ladies and gentlemen, and you have a question at this time. Please press. The start then one one on your Touchtone telephone we ask that you. Please limit yourself to one question and one follow up one moment for our questions.
Our first question comes from Thf's Savant with Morgan Stanley . Please go ahead.
Hi, this is neil on for pages.
Recently cautioned tightening budgets among large pharma customers would you characterize us as broad based dynamic you're seeing among these customers are you seeing any more pronounced issues among smaller or midsize biotech.
And I made the evolving macro backdrop any high level color you can share with us on how you thinking about this trend, having a potential impact on growth or sample shipments in 2003.
Hi, Thanks.
Thanks for the question Ah, Yes, so in terms of what's been happening recently.
What's the recessionary concerns in the overall macro backdrop, we have seen a slowdown with biopharma demand primarily because of their budget concerns and then watching their spend.
In addition.
Definitely been a little bit tougher for the smaller biotech who maybe have.
Cash constraints or have to go raise additional money to be able to move forward with trials and projects. So we have seen that.
Over the last several months here in terms of.
When it will start to improve right now based upon what we do see it is continuing today and so.
It's our anticipation this could go on into early 2023, but hopefully things start to turn around and <unk>.
Cancer is.
Something that is a global problem.
Needs to be solved in drug discovery is an important aspect of pharmaceutical companies work on and we believe we have a great tool and platform to help them with it and so hopefully this is a short term dynamics that we're dealing with.
Understood and on a related note some of your appearance.
Note into our customer slowdown clinical trial cyclists unrelated.
Relates to staffing charges are.
Are you seeing any sort of similar dynamic impacting on the sample shipping delays or any of your on hiring efforts.
Yeah, so the sample shipments coming back in from trials, it's definitely slower as well primarily because when you look at our backlog today, two thirds of our backlog as prospective clinical trials, meaning page.
Patient enrollment and sample collection have to occur before we can do work on these projects and so with some of the things that have gone on with staffing shortages starting from the pandemic.
It's been going on now for several months and so that's another reason for some of the <unk>.
Constriction of the tightening in terms of sample flow to us.
Say that this is probably agree with everything that is said here I think that pharma has multiple different needs and one of the areas. We're seeing a lot of interest and now as pharma focus on.
Clinical trials that effect drugs being used an earlier stage cancers for example, and.
Instrument basis after surgical resections. So I think as people are beginning to understand the capability of our next personal platform. Even if if next year is a more difficult.
Overall budget environment, I think the strength of our new product will help us there and pharma, we're beginning to see the farmer go through pilot studies with next personal and as I mentioned, we're beginning to see some larger scale take up and that I think is more firm I get through that pilot stage I think that can lead to growth next year, even if the owner.
We're all market area.
Is a bit constricted because of recessionary issues.
Got it and then one last for me one.
One of the other new entrants in the M. R E space recently, saucy pushback with the FDA requesting for additional clinical data in Oregon. So care coverage do you foresee. This response, having any any implications on your efforts as you proceed and marketing opportunity.
Yes.
I think that the the performance of our test and the richness of its information are quite different from some of the other platform. So obviously be careful about that and that's part of the reason that we have set up such extensive <unk>.
Collaboration so that we will have really thorough data, we're looking at thousands and thousands of samples that are going to be processed and to some extent the scale of laboratory that we built when we were working with the VA MVP puts us in great shape to be able to handle such large sample items, but I think.
The FDA and also.
Insurance companies will be looking for <unk>.
Extensive published.
Peer reviewed data.
And I think with the collaboration is that we have setup I think we're going to have some fantastic data and some amazing publication. So I think we may be in a different position from some of the other companies in the space.
Great I appreciate the time.
Okay. Thank you one moment for our next question.
Our next question comes from maximum Cichy from counting please go ahead.
Hey, good afternoon, thanks for taking the questions.
John one for you to start I'm, just curious how you're thinking about the ideal timing or strategy around refreshing are updating your your sequencing infrastructure and.
Understanding that it takes time to complete that the infrastructure up upgrade just.
For instance, we luck in a few years down the road and is there any way that we can sort of ballparks, where the perch sample gross margin.
<unk> could.
Could improved Chandler generally how it compares to what you're saying today.
Yeah, that's a great question I would say the.
The timing is you know, we're working with the ultimate platform.
So not been commercially released our understanding is that may be released on a full blown basis in the middle of next year. So that may help us quite a bit just to put it in context, our current sequencing costs on the high end novaseq platforms that we already have would be the equivalent of about a 500 dollar genome.
So we're going from a 500 dollar genome down to 100 dollar Jan would be an 80% reduction in our sequencing costs and for many of our products sequencing is the largest single element of cost of goods sold so an 80% reduction in a prime costs like that could be very substantial.
We did order one of the first.
Of the new Illuminant, Noah seats X plus systems.
Back when the original nervously came out we were 10.
In this case, you just ordered one sort of see how it goes and compare it with the Ultima system. We've been hearing that that may be delivered in February I think our expectation is these new platforms, usually take a little while to have the the the issues get shaken out of them and frankly to compare the two the two platforms, but let's say by this.
Time next year I.
I would expect aluminum will actually be delivering.
The large flow cell that they expect for the.
X plus system, if that's what really will bring the cost down so somewhere at that point that will probably have early access to.
Something like that so I'm guessing that by the time that the costs really comes out of those aluminium systems.
To the extent that we take our products to that platform.
These seeing improvements in gross margin that might begin in early 2004.
Similar kind of thing if we ended up bringing some of the products onto the.
Onto the ultimate.
A lot for them, but it could be quite a substantial reduction in cost of goods sold given how much sequencing. We put it that's intentional that we designed our products to be the cancer diagnostic test so the future not to be designed around the icy or something from the from the past, which many of the competing products are so I think those as those new.
Sequencing platforms come out and we can really get them into production I think that'll help us substantially from a gross margin standpoint.
That's fantastic.
And you know I I know, it's only been about a month since you announced a partnership with a link.
I would just be.
Be great to hear and where you see the protean proteomics technology like the P.
P. A technology sort of addressing you know any key limitations of the corps M. R D platform.
And then if you just take a look at some of the differentiating factors of next personal compared to some of the other Ah Margie platforms that are out there whether you see differences in the value of.
Of the synergies that that can be had at <unk> start to sort of work.
Work proteomics entity.
In to the equation and a more meaningful way for I'm Marcie.
That's right, Yeah, I would say.
<unk> will be something that would be pretty exploratory for us I can't say, we have anything to say publicly about that it's an area where interested.
Interested in it will certainly work with that but.
Just not the centerpiece of what we're doing.
I think I'm on the <unk> side, the the different two key differences are dramatically higher sensitivity, which means cancer recurrence, maybe we detected like a year earlier than with some other platforms. So really substantial difference for patients and in addition to the fact that our MRE DSA isn't just whatever it is.
It's not just measuring.
Whether the cancer is record or not it is not just quantifying it but it's providing deep characterization of the tumor we know that many tumors.
Have a lot of dynamics to them that there may be certain some loans that are changing relative to others and that may substantially affect the success of treatment you may say resistance to the therapy that the patient is put on but opportunities to use a different therapy.
So that richness of data to guide the actual decisions over.
Oncologist not just detecting are not detecting.
It's really pretty transformational different I think we're pretty.
Pretty much the only.
Test the tumor and perform tests that has that kind of capability and the tumor agnostic tests, just aren't really sensitive enough. So I think I would say we have the best of both worlds in that regard I think it's an important difference and we put a lot into that about half of the content of next personal is not aimed at M. R. D. It's aimed at.
Characterizing the tumor and seeing how the tumors changing dynamically and I think that will turn out to be a really winning strategy for us.
Great now I'll I'll sneak out one final one in here and I will acknowledge probably front running this question by at least a year, but it'd be great to hear your opinion. So I mean, we're starting to see the next page.
Development and optimization notes M marquee monitoring platform and <expletive>.
One obvious anecdote would be rising interest and acceptance that we've seen the.
No friend, Marty approaches that employ upfront and whole genome nurses whole at some sequencing, but yeah, there's rumblings in Sky Patel.
Potential integration laundry technologies and whatnot. So if you if you look at your your IP portfolio, you know I. It would just be great to hear you know which aspects of the platform you feel are best protected.
Protected you know most defensible things of that sorry.
Sure.
The two key areas that we focused on from an eyepiece standpoint, it would have been the use of our whole genome sequencing upfront to identify the largest number of variants.
We've talked a bunch about that and then also IP around the combination of what we would call fixed and variable content the fixed content being the tumor agnostic content on their variable thing that the personalized content to do with that and.
Individuals. So those are two real centerpieces, we have IP that covers a variety of other things, but I think if you're focused on those.
Those two pieces those would be the most helpful. I'd say in terms of longer each sequencing.
Not so useful in the MRE space, because again mardy is mostly being measured from self free DNA and most of the sultry DNA molecules average about 165 basis long.
So even though it would be.
Belonging technologies are admirable the molecules just aren't long enough to do require it. So I think it's part of the reason that we focused on some of the very high throughput shorter read platform is like ultimate genomics, because I think liquid biopsy is an enormously important tool going forward and it's pretty much all short molecules. So.
I think that's that's more important for us at least an oncology than than the longer he platforms.
Great well, thank you as always for the great color I appreciate it thanks.
Thanks mix.
Thank you one moment for our next question.
Our next question comes from Patrick Donnelly with City. Please go ahead.
Hi, This is lindsay on her Patrick Thanks for taking my question I was just wondering I think last card. He mentioned that the only thing I needed a new Shanghai facility in the beginning of next corner and you'd like to see <unk> kind of accelerate their 2023, and that's kind of the same timeline. They should think about just given the reason.
<unk>. Thank you.
Yeah. So we don't we don't anticipate any revenue here in 2022, we believe it's going to accelerate into 2023.
In terms of the expectations, we haven't given formal guidance or an estimate just yet but revenues are going to be moderate in 2023, and then ramp from there.
I would say that one of the things that's important to understand about our initiative in China has been that it was really all driven by pharmaceutical companies, saying that they really needed to have a capability to run it.
International clinical trials, where they're recruiting patients all over the world and from anywhere in the world other than China. They can just ship the samples to us and that works fine, but they are not allowed to ship samples auto China. So they asked us to open.
Open a facility in China, where we could handle the samples just directly on trying to return the data to them in China with that's enabled though is for large international trials, where maybe that only 5% of the patients are actually being enrolled in China, the other 95% or outside of China, but because we can do that 5%.
In China, we get the entire deal and so we have seen revenue we haven't recognized revenue actually processed in China, yet, but we've had millions of dollars worth of orders from pharmaceutical companies, where we want it in part because we had we could handle that small percentage that's in China in so the larger part of our revenue that will be it.
Caused by us, having or the benefit of us having a China operation.
We will actually be recognized here in California.
Oh, great. Thank you. That's that's interesting and then on supply chain I think last quarter.
You said that that this quarter.
There'll be some alleviation.
Is that still the same way to think about you know if he hadn't Q4 hundred to 2023 as well I'm just going off the ability of your question earlier. Thank you that's it for me.
I'm sorry can you clarify the question again, we didn't quite understand.
Yeah, just anything on on what you're seeing on supply chain I think he may have touched a little bit on this on when you still got labor as well I was just wondering if you could elaborate on that are you able to hear me.
Yes, and that was about it. Thank you okay yeah. Thank.
Yeah, Yeah, I think we have supply chain issues substantially a couple of years ago when Covid first started.
But I would say.
It's probably pretty much back to normal at this point I don't see that being a restriction for us and many of the issues that we had in the past because of reagents that were used for RNA because the primary vaccines were made from earn a lot of those reagents suddenly had shortages in some of the lab plastic where are sort, but that's kind of a thing.
The past at this point, where.
Generally able to get what we need and I will see supply chain as being a limiting factor for us.
Great. Thank you.
Thank you one moment for our next question.
Our next question comes from <unk> from <unk>. Please go ahead.
Okay, I think I need.
Mmm.
<unk>.
I'm, sorry could you say about that.
What package kind of requests Megan.
Corner, and how we should think about modeling.
To me in any potential list may be contemplating can be arriving you coming back on.
Sure. So in terms of the gross margins Vivian in terms of the Q3 dynamics compared to a year or so ago.
The 20 point decline or 19 point decline was predominantly from volume.
Although we had a little bit of expense.
Expenses going up because of the the Biopharma business and supporting that which is more labor intensive for the most part it's been the drop off in the VA MVP volume that cause most of the reduction in margin points.
In terms of the VA MBP. So is John had mentioned in the prepared remarks.
One of the competitive bidders did file a protest and so until we hear back from.
From the VA in terms of the outcome, it's hard for us to know exactly what the sample flow is going to look like but from our estimation at this point in time, the $10 million order. We did receive it's our expectation that we would fulfill that in the first half of 2023.
We're very pleased about the the contract award primarily because it is a five year exclusive contract.
We've been the sole provider with the <unk> for the last close to 10 years now and so.
It's exciting that they're they're collecting or they're collecting samples again to enrolling new veterans and in terms of the number of samples that they have in their freezer in Boston, It's still a significant number it's probably more than 700000 samples.
And so we believe that the program has many many years to run.
This is John I would just comment that protests like this are not that unusual we had one of these with the VA contract that we received back in 2013 and.
We of course respect the VA well.
We'll go through I think Ah a thorough process on this but but what happened with us at least back in 2013 was after a period of of a re analysis of things. We ended up being stolen award of the contract and so we hope to hear about this in the next month or two year, and obviously will communicate.
It was.
Having a stroke.
Well, we certainly look forward to continuing what's been over a 10 year track record with the W. Yet.
Got it thanks, so much for that.
Can you also 19 I'm initiating help me each week oncologist for next yeah can you get your information from the <unk>.
<unk> explanation and could you also give us a chance pinky and demand that.
Thanks.
So the timing, we expect the <unk> submission to be in the first quarter.
Of next year and hope to have an approval.
The second quarter. So that's the I think basically the timing, but we have been going out with Earth launched our salesforce with brought out the newest version of our next TX test at the end of September we've been beginning to receive.
Orders for the test and we've been beginning to ambush them to payers. So I think it'll be.
Pretty small revenue until we got the the reimbursement decisions on line, but we are actually processing tests and invoicing them today.
And I think I mean, thanks for taking my question.
Thanksgiving.
Thank you one moment for our next color.
Our next question comes from <unk> from Bank of America. Please go ahead.
[noise] Hi, good afternoon. This is shaun on for Derek [noise].
Mm [noise].
With the cash with the cashiers being down this year and in terms of your thoughts on operations cash burned for 2020th <unk> are you still looking at the range of 80 85 million or.
Yeah.
Has there been any update there.
Yeah, Hi, John This is Aaron so in terms of the cash on balance sheet. So we do have more than two years of cash on balance sheet at the end of Q3.
In terms of looking forward. So the operating cash burn, we're expecting that to be below $85 million.
This year 2022 is a little bit unusual because we are setting up our new headquarters facility and it's going to cost us roughly $38 million or so.
Cash this year, but going forward.
The operating burn is going to definitely be below $85 million.
Right, Thanks for that and yes, taking.
Any cashews for the new building, what sort of Capex him and are you looking at are are you expecting any additional orders of new instruments.
Yeah, so in terms of.
New capacity.
Capex so as we look forward here.
Most of the spend right now that we see as for the new facility in terms of Ah refresh on sequencing equipment, I think John answered that a little bit ago.
There's a lot of.
Potentially exciting new technologies in the marketplace. None of them are really production ready just yet.
So we don't see ourselves, adding any sequencing capacity with older technology.
We're going to get through.
The next several quarters here with what we have and then we'll have to take a look at where some of the suppliers or add like alumina in Ultima and.
Yeah, I would just kind of I think in terms of the new facility part of the expenditure than we've had this year already for the new facility actually has been.
New equipment, not and Sequencers, but in terms of a lot of the robotics, we use a lot of high end laboratory robots that can be five to $700000 apiece, and there's quite a few of them and we need to get the new lab up and running while the old lab is still running so we've actually.
Added a fair amount in terms of laboratory robotic equipment. This year, that's brand new for the new facility and that's been part of the cash burn.
And building up a new facility, so I think in a way.
By the time, we're fully in there for it to next year I think we'll be in great shape in terms of the robotics, which can be a substantial.
<unk>. So I think the question maybe on the sequencer side, but at this point.
We have to see how well the new instruments work when.
It's a little bit has come out with an instrument, but they've said they won't have the high throughput flow sell for which is probably the biggest driver for that platform. That's projected via alumina to be in the second half of next year, We don't know Gwen and the second half so.
If it turns out that that's you know early in the second half and it works well out of the box then.
We could be looking at things and and the third or fourth quarter. If it turns out that a new flow so isn't really red.
Ready until near the end of next year, then it could be 2024 before that would drive some.
Uptake on the platform.
Gotcha I appreciate it and if I could squeeze and just one more your the terror contributions has been pretty steady the last couple of quarters between seven and 8 million any potential changes sir.
If you could speak to that that'd be great.
And so we haven't given any formal guidance are estimates around in the terror volumes and the terror volume.
Has continued to tick upbringing increase over the last several quarters here and we believe we have a pretty good partnership with Tara and.
In terms of where this volume goes longer term.
We believe that the tumor informed M are deep products are the way to go and the terror has done a good job in the marketplace on the commercial front getting reimbursement and so it's our expectation that our business with the terror.
Could continue to grow as we go into the future.
And I think people have asked us about we haven't had mardi products and obviously, we're helping Tara where there M. R. D a product and I've asked about whether that's an issue at all.
The products are so different that they really drove us different parts of the market. So we actually see them as a it's a way of happy to work with and the terror and.
Help on the front end of what they're doing and they're a segment of the market and we have our own product coming but it's going to be addressing different parts of the market. So I think they are both of those plenty of room for both products and I look forward to a lot of growth in their Marty segment.
[laughter]. Thank you.
Alright, Thank you John .
One moment for our next question.
Our next question is from Mike Mattson with medium. Please go ahead.
Hi, guys. This is just a fan from Mike.
Maybe a question on the tariff first saw a press release today the day now Sir.
Agreement with the da NDP for.
Basically at six taken care of processing for the Veterans Affairs can you maybe speak to your involvement essential involvement in that but I guess, maybe more importantly is there potential for a similar contract or maybe competitive bidding with the <unk>.
M B P.
For using next personal in these efforts.
And then kind of what this personnel that's really at the deal in the coming months a year to really be an option for the V. A and M. R. D testing. Thanks.
Great question, Let's say, it's just to clarify a couple of things.
Contracted no Tara one from the VA was not from the MVP from the clinical side of the VA. So the million veterans program as a research project that is funded entirely out of the research side of the of the VA the Mardi testing that Tara one.
Through the the.
The clinical side, so they are really different segments.
Personnel was not in a position to compete for any of that the MRV part at this point because we don't have the diagnostic version of R. M.
<unk> product out yet we expect that in.
2000 2003.
And at that point, we would have things and again, we would be a.
Pursuing probably different parts of that market from what.
Tara is doing but once we have our the diagnostic version of next personal then that would be something we'd be happy to work with the VA or other major hospital system is to to implement.
Okay. Yeah. Thank you for the clarification and then we I guess, we haven't gotten too much commentary on any future population sequencing contracts obviously.
<unk> and your task order for the D. M V P, which is encouraging.
But just given that we're kind of scene reduced farm has been going into this recessionary environment are you seeing any increased or decreased interest from gov.
Governmental bodies to take on some types of efforts like these when they're in the United States There are international.
Oh sure I'm happy to answer that yes, we actually discuss what they're looking.
Looking at uptake opportunities outside the United States, a couple of years ago, and we found two things one was that.
Many of those countries want that work to actually be done in their own country.
An issue of employment and building up local.
Sequencing capabilities in addition to the generating the data.
And so rather than us setting up subsidiaries and all those countries to do those things. We've often found those those efforts are gone.
Often too academic labs inside of those those countries and say also a lot of population sequencing efforts really slowed down during the pandemic when it was difficult to recruit patients in hospitals were chock full of of the patients. So that's probably beginning to speed up more but we've just put all of our effort into the oncology side of the business, we see such an opportunity.
They're.
Particularly with being able to so sensitive we detect cancer when it's either after surgical resection or when the patient has responded to an immunotherapy were today, there's really almost no solution to that problem that can really see what's going on.
And so that's what we put our energies into so at this point, we will happily continue to work with the VA MVP.
And if there were opportunities Opportunistically would look at population sequencing, but that's no longer an area that we're really actively pursuing from a commercial standpoint, I think there's a way that will be augmenting our afirma businesses with expanding our farmers business into many more time points because of the.
Of the of Mardi product, but then also supplementing it with diagnostic revenue bulk from our next year excess as it gets reimbursements.
With our next personal test.
Okay. Thank you very much for taking our questions Smith.
Thank you.
Thank you again, if you have a question. Please press start then one one on your Touchtone telephone please.
Please stand by for the next question.
Our next question comes from either he with HD Wainwright. Please go ahead.
Hey, good afternoon, a giant Erin these answering encore hockey.
I just had a quick long on the VA program, so assuming the thyroid a favorable outcome for the initial contract.
When crue here.
<unk> called the following four year option and what what's the main factor too to drive their distinction in your opinion. Thank you.
So this is shaun so the.
That this goes forward, we would be working off of the task order that was issued back at the end of September .
Possible there could be additional task orders during this year, we don't know whether that will happen or not [laughter].
It's in our prior experience, where we had multiyear contracts generally the amount of money that would be a.
Flight each year or towards the contract would be decided in September of that year, often near the end of September because of standards. The government fiscal year. So it wasn't unusual for it to be the last last few weeks of September .
At this point the with this contract decision and assuming that there is no issue with the protests.
The the V. A is now free to go ahead and continued issue task orders to us over the next.
The next five year period of time.
Without having to do any competitive re-met or anything like that so I think the we don't know what the size of that will be obviously the V. A has the option to start something completely new if they wanted to but the most straightforward thing is since we've been doing sequencing for them for over a decade.
And they've just given us this contract that's that's so easily extensible that way.
Directly what's happened is vick just expenditures every year.
The amount of money that they could afford to spend on them. But then that's been the next year's task order I'm usually happens in September .
Okay. Thanks, Thanks for taking my question.
Okay. Thank you I'm not showing any further questions ladies and gentlemen, thank you for participating in today's conference. This concludes today's program you may I'll disconnect have a great day.
Thank you.
[music].
[music].
[music].