Q4 2022 Personalis Inc Earnings Call
Yeah.
Good day, ladies and gentlemen, and welcome to the person Nellix.
Quarter 2022 earnings conference call.
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.
A reminder, this call may be recorded I would like to now hand, the conference over to your first speaker today Caroline corner Investor Relations. Please go ahead Caroline.
Thank you operator, welcome to personnel for fourth quarter and full year 2022 earnings call. Joining me on today's call are Aaron Tachibana interim Chief Executive Officer, and Chief Financial Officer, Chris Hall, President and Richard Chan, Chief Medical Officer, and SVP of R&D.
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. For example, any statements regarding trends and expectations for our financial performance this year and longer term cash runway revenue expectations on timing, new orders products services and technology the timing update.
The publication of clinical and regulatory milestones the outcome and timing of reimbursement decisions expectations for our existing and future collaboration activities.
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.
We 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-K for the full year of 2022 to be filed today.
Personnel undertakes no obligation to update these statements except as required by applicable law.
Our press release with our fourth quarter and full year of 2022 results is available on our website www dot personnel dot com under the investors section and includes additional details about our financial results.
Our website also has our latest SEC filings, which we encourage you to revenue.
A recording of today's call will be available on our website by five PM Pacific time today.
Now I would like to turn the call over to Eric for his comments on fourth quarter business highlights.
Yeah.
Thank you Carolyn.
2023 is an exciting personnel as we begin a new chapter in the company's story.
Having built capability, but the sequencing powerhouse is it several years as a trusted partner at many of the world's leading oncology companies.
We believe we now have one of the most discerning technology to both characterize and monitor cancer.
Yeah.
Of driving a new paradigm for cancer management guided care from biopsy due to life with the patient.
To seize the opportunities ahead of US our leadership team has made three key changes in our strategic focus.
First.
We have defined a new strategy to win in MRV, starting with three high impact indications.
I'll be sensitive tumor informed liquid liquid biopsy assay next personal.
It is particularly advantageous for detecting minimal residual disease.
These indications are immunotherapy monitoring breast and lung cancer.
We will speak to this strategy in more detail in a few moments but in short.
Our in house commercial efforts in 2023 to be focused.
<unk> offerings shine most for detecting cancer recurrence.
As possible time.
Longer term.
With the broad utility of our technology limited partner in other cancer indications, giving us access to additional pieces of the entire market, which could become more than $30 billion overtime.
Second.
We have pruned, our biopharma business to focus on profitability.
Last month, we filed an 8-K, claiming that we resized, our employee base, reducing our workforce by approximately 30% and.
And lowering payroll and other expenses by an estimated $20 million annually.
After careful consideration and in line with our cash conservation objectives. We also decided to close our facility in China.
While such restructuring is always difficult.
We believe this puts us in a healthy financial position with the cash runway that is expected to fuel us through 2025.
Also it allows us to be even more strategic and providing compelling products and thats the highest level of service to key Biopharma partners to drive clinical trial success.
And that's an engine to power personalized cancer vaccine development as evidenced by our recent announcement of the extension of our partnership with Madonna.
Yeah.
Finally, we expect that the extension of our cash runway allows for sufficient time to achieve several critical milestones, including launching next personal is an ODT for the clinical market as.
As well as deepening the evidenced in further validating assays ultra high sensitivity and clinical utility.
This validation in turn lays the foundation for obtaining reimbursement and enables us to begin to ramp up test volume.
Subsequently clinical revenues.
Now I will turn the call over to Chris to speak more about the strategy and the milestones that we will be tracking and then he'll provide the financial results and guidance following his remarks.
Chris.
Thank you Anne building upon the transition that Arrow has just laid out we believe there are four key catalyst ahead, which will prepare us for rapid growth into 2024 and beyond.
Yes.
As we seek to grow profitable revenue, we will primarily focus on executing our winning strategy.
Such our 2023 milestones are as follows.
First we expect to receive our first CMS reimbursement coverage decision before the end of Q3 this year for our personalized highly sensitive and ultra comprehensive genomic profile offering next Dx, we launched next Dx to clinicians last year.
To help them find the most appropriate therapies for their patients.
Our clinical sales and medical affairs teams have made solid progress in driving early adoption and booking additional initial revenue.
We expect that a positive Medicare reimbursement decision will accelerate uptake and revenue growth and will also pave the way for success with our <unk> offering.
Second.
We are on track to launch next <unk>.
Personal Dx the ODT version of our <unk> offering into the clinic in the second half of this year.
<unk> personal Dx is designed to find MRV simply stated is infinitesimal traces of cancer, allowing for earlier detection of recurrence as well as to inform and enable therapy decisions and earlier intervention.
As Aaron previously mentioned, our near team near term focus will be on three indications, where our technologies high sensitivity has the potential to make a significant impact.
<unk> therapy monitoring breast cancer and lung cancer, we believe our sensitivity can help overcome current challenges such as distinguishing pseudo progression for progression through imaging alone.
Seeing that therapy is working and helping guide whether to continue stop or switched to other options, we estimate breast and lung cancer alone represents almost 1 billion cases for monitoring each year.
In addition to the clinical launch of next personal Dx as we go through the year. We will also prepare the data and analytical packages for submission to <unk> in 2024, and we expect to obtain reimbursement for our first indication in 2024.
Third we will extend our personality inside strategy inside personal cancer vaccines, where personalities power in both design and manufacturing inside the government's population health program with the continuation of our support for the veterans administration's million veteran program and importantly to our wind <unk> strategy and <unk>.
<unk> diagnostic products with partners with deep verticals, but who lack of MRV solution.
Our personalized cancer vaccine for example, since 2016 personality has been the engine that has enabled several biopharma companies to develop vaccines for clinical trials.
As Aaron noted, we recently announced we are continuing our strategic relationship with Madonna previously our technology allowed them to progress through a phase <unk> clinical trial, we have been working with <unk> on all of their clinical trials in cancer and the announced agreement extends our relationship to continue working with them, including their phase III melanoma clinical.
Mill, which is expected to begin this year.
We're thrilled about this partnership and believe that our compelling technology offerings can help other customers win in this rapidly emerging cancer therapeutics area.
Fourth and finally, we are building or publishing the clinical evidence base to support our broader products and drive our key indications.
2023, we expect to generate data on Io indications with collaborators, including Duke University BC cancer.
K and UCSF. We've also recently partnered with criteria in the academic breast cancer consortium to conduct a prospective clinical trial to validate the clinical performance of next personal to evaluate <unk> in subsequent recurrence in patients with early stage receptible triple negative breast cancer and aggressive.
Cancer with limited treatment options.
And we have work underway in lung cancer.
We look forward to sharing our milestones as we go through the year with that I'll turn it back to Aaron.
Thank you Chris.
I will now provide detail about our financial results for the fourth quarter and full year of 2022 as well as guidance for the first quarter and full year of 2023.
Total company revenue for the fourth quarter of 2022 was $16 7 million.
And decreased 19% compared with the same period of the prior year, which was expected due to the decline in the MVP revenue.
<unk> revenue, which include revenue from pharma test enterprise and other customers with $15 8 million and increased 3% over the same period of the prior year the.
The year over year increase in oncology revenue was driven mostly by the volume increase from the tariff.
Which accounted for almost half of our revenue in the quarter.
Yeah.
For the full year of 2022 total company revenue was $65 million and was above our previous guidance range of $63 million to $64 million.
The total company revenue decreased 21% compared with 2021 due to the expected decline in <unk> revenue.
Revenue from our oncology business increased by 42% for the full year of 2022 compared to 2021, primarily due to the growth in test volume with Natasha.
Gross margin was 13, 8% for the fourth quarter compared with 38, 7% from the same period of the prior year.
Year over year decrease of 24, 9% was primarily due to the expected under absorbed overhead cost from the decrease in revenue volume from the VA MVP.
Also an increase in expenses to support our growing oncology revenue volume and for our new facility.
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 <unk>.
<unk> DP.
Over the next couple of years, we expect some gross margin variability due to the fluctuating VA MVP volume investments in capabilities, such as automation of the production lines, providing diagnostic tests, while we continued to increase our efforts to secure reimbursement.
Costs for our new facility and others.
Longer term, we expect our gross margins to increase as we achieve scale by growing our oncology revenue.
Operating expenses were $34 4 million in the fourth quarter compared to $28 2 million in the same periods of the prior year.
R&D expense was $16 6 million in the fourth quarter compared with $14 5 million for the same period last year and SG&A expense was $17 8 million in the fourth quarter compared with $13 7 million for the same period last year.
The increase in R&D expense was the product development building, our clinical and medical infrastructure and sample test expenses for studies and clinical validation work.
The increase in SG&A was due to commercial interest.
Due to commercial and infrastructure expansion costs for our new facility.
And operations in China, which we are discontinuing.
Net loss for the fourth quarter was $31 1 million compared with a net loss of $20 2 million for the same period of the prior year.
The net loss per share for the fourth quarter was 67.
And the weighted average basic and diluted share count was $46 3 million compared with a net loss per share of <unk> 45.
And the weighted average basic and diluted share count of $44 8 million for the same period of the prior year.
Net loss for the full year of 2022 was $113 3 million.
Compared with a net loss of $65 2 million for 2021.
And was within our previous guidance range of 111.
To $114 million.
The net loss per share for the full year was $2 48.
And the weighted average basic and diluted share count was $45 7 million compared with a net loss per share of $1 49.
And a weighted average basic and diluted share count of $43 9 million for 2021.
Now onto the balance sheet.
We finished the fourth quarter with a strong balance sheet with cash and short term investments of $167 7 million.
In the fourth quarter, we used $25 1 million of cash due to the net loss working capital needs construction of our new headquarters facility and capital equipment purchases.
Our 2022 full year cash usage was approximately $119 million and we significantly reduced it from the original estimate of $140 million at the beginning of the year.
Yes.
2022 was our peak year for cash usage due to the onetime investments in their new facility going forward, we expect our cash cash usage to decline each year as we pursue breakeven and eventually profitability.
Yeah.
Now I'd like to turn to guidance.
A couple of months ago, we began rationalizing our biopharma business and pruning areas that were not profitable enough.
In some cases.
Projects, we took had very low gross margin and others had negative cash flow.
We eliminated resources tied to these areas, including head count cuts that were included within 30% workforce reduction.
We expect these actions to have to have.
Have an impact on revenue and we estimate a reduction of approximately $46 million in 2023 from removing the small and unprofitable biopharma accounts. However.
However, we expect this decline to be more than offset by revenue growth in 2023 from next personal personalized cancer vaccine projects and a small amount of next Dx clinical revenue.
Our full year guidance reflects these dynamics.
For the full year of 2023, we expect total company revenue to be in the range of 60% to $72 million with oncology revenue from pharma enterprise sales and other customers to be in the range of $59 million to $63 million.
VA MVP revenue is estimated to be approximately $9 million and expect it to be recognized during the first three quarters of the year.
Net loss of approximately $103 million in cash usage of approximately $75 million.
Reduction of $44 million from 2022.
For the first quarter of 2023, we expect total company revenue of approximately $17 5 million.
Revenue from pharma test enterprise sales and other customer of approximately $14 5 million.
Revenue from population sequencing as approximately $3 million.
Yeah.
Our revenue volume with new Terra has ramped quickly over the last two years and was $26 $6 million in 2022.
We expect our previous run rates to continue through this year at Natera has come to rely on our high quality exome offering.
However, as <unk> have signaled we do expect their volume with us to decline in 2024 and beyond as they bring their laboratory in Austin, Texas online.
We do expect that our many growth vectors will create year over year growth in 2024, even as <unk> moved that business into their own lab.
We look forward to updating you on our milestones as the year progresses.
These milestones laid the foundation for accelerated growth in the market.
And our key to enabling our vision of powering a new paradigm of cancer management with our technology.
Thank you.
Now I will turn the call back over to the operator to begin the Q&A session.
Operator, Thank you ladies and gentlemen, if you have a question at this time. Please press star one on your telephone keypad. If your question has been answered or you wish to withdraw your question. Please press star one again.
Please wait until your name is announced.
Ask that you please limit yourself to one question and one follow up one.
One moment for our questions. Please.
First question will come from the line obtains us survive.
Savant.
With Morgan Stanley .
Hi, This is Gary on potatoes, thanks for taking my question. So firstly could you elaborate on your announced partnership with Mint Theyre not on personal on the personalized cancer vaccine.
With phase III expected to start this year because this partnership representing meaningful contribution for you as early as 2024 and just how are you thinking about this relationship long term things.
Sure. Thanks for the question in terms of our relationship with Madonna, we've been doing business with them now for the last six to seven years, we have been an integral part in their manufacturing process for personalized cancer vaccine and we're really excited about the success in the phase II trial, with having 44% efficacy in terms of improvement.
Patient results in terms of what we do from a gardener we basically.
Handle a lot of the upfront genomic testing provide them with this information so they're making go and customized.
A therapeutic for each individual patient in terms of.
When the phase III trials will start to move <unk> to talk about it's not up to us to mentioned in terms of the economics were not really allowed to say too much in that regard either but we have been a great strategic partner for Mcdermott and we're really excited about the relationship and where it goes in terms of some of the additional news that came out.
Recently in Mcdermott had their earnings release yesterday, we did talk about this breakthrough designation for the for the first vaccine that we had in <unk>.
Really excited about their success in that regard as well.
Rich did you have anything.
To add on the Mcdonough relationship.
So I think that summarizes it well I think.
We have this long term relationship with <unk> as mentioned.
With our <unk> platform, which is one of the best platforms for helping.
Helping our partners identifying new antigens, which are a key part of their personalized cancer vaccines.
And our platform does an extraordinary job.
Identifying things like mutations expression of those mutations antigen prediction HLA and other information that's needed for their personalized cancer vaccine process.
Great that was helpful.
Could you provide an update on what youre seeing on the sample delivery side since last quarter are you still seeing these headwinds and if so when do you anticipate these headwinds to subside.
Yes, there still are some headwinds in terms of sample delivery.
Our pharma customers are having trouble getting samples from their CRO.
For.
We have a variety of different reasons.
Staffing and things of that nature.
In addition, a lot of pharma and biotech companies have been watching their spend given the recession, that's going on right now and so that's been a headwind as well in terms of some of this business.
Great. Thank you.
Sure.
Next call will come from the line of Patrick Donnelly.
Hi.
Does he on upper Patrick Thanks for taking my question I guess first on China.
I was just wondering on the decision of just continue there.
Do you still see China.
No longer is your presence in the medium term or is this kind of temporary I'm just wondering how you're thinking about that.
Thanks, Hi.
We thank you for the question in terms of China. So when we set out some three years ago and went out to China to go and expand business. There. We had a lot of interest from pharma, who wanted us to pursue that type of an opportunity and help support their global clinical trials.
With regards to where things stand today, we've had to say no to some good ideas, but we believe China is a good idea, but in terms of being able to get to breakeven and even profitability longer term.
It's going to be a headwind for us in terms of.
The costs and the investments required and so unfortunately, we've had to say no to China and in terms of the decision.
Pretty much the decision came two so at this point in time, we do see it as a permanent.
Our Permian into what we've started in China.
Understood. Thank you and then just one follow up I guess, how are you thinking about the cadence for gross margins. This year I think in the last call you mentioned.
It's possible that youre going to receive another.
<unk> X platform.
And ultimately maybe mid this year I was just wondering how youre thinking about that and the potential impacts margins in the back half.
Thank you.
Sure in terms of gross margin. So the way we we view. This 2022 is probably going to be the lowest point for gross margins because of the lot of the investments we've had to make in the severe decline in the VA MVP volume as we go through 2023.
We still have a fair amount of under absorbed labor and overhead primarily due to bringing on new facility online, but the way we see it our gross margins should increase as we get to the back half of 2023 as we bring the <unk> X.
<unk> online.
They won't all come online at once it's going to require us to do some testing and validation before we can move.
Move over customer samples onto that platform. So I would say the <unk>.
Savings this year is going to be minimal we will see the bulk of the savings in 2024.
Thank you our next call will come from the line of Joseph Flanagan.
The Cowen.
Joseph.
Hi, This is Joe on for Matt.
There are 2023 guide for pharma test enterprise failed in other is $59 million to $63 million. What are you assuming for core biopharma testing revenue, excluding the entire partnership and if not a concrete number some growth commentary would be really helpful.
Hi, Joe So mature was almost $27 million for us in 2022.
So in terms of what our guidance contemplates for.
For new Tera somewhere between 27% and $30 million in 2023, so the rest of the core pharma business.
Great and then.
In terms of the strategic review of account along with the reduction in Florida. When you consider these actions are a result of the leadership change and therefore, it sort of change in business model philosophy, and just how is that general trend.
<unk> has been going.
Well in terms of the.
The strategic review of these accounts and what we needed to go again, we have to say no to good ideas and we are in a situation now where we do have to extend our cash runway, primarily because we see that we have the best and the most sensitive MRV tests.
The industry and we in order for us to be able to get it.
To reimbursement and commercialized we need talent right and so from that perspective, we had to go in and look at areas, where we were maybe not as profitable as we needed to be and go and do some pruning and streamlining in that regard.
Chris do you have anything to add in that regard in terms of some of the front I just I just yes.
Yes, I would just say if we step back and we said when we when we built the milestones that we needed to achieve around publishing data that was pivotal in an <unk> assay that was ultra sensitive could change the paradigm for breast and lung cancer patients in Io therapy monitoring we realize that 2024 would be a big year of publishing data.
24 to 25, and stitching together reimbursement decisions in clinical adoption and we really.
Felt like we needed to focus on making that happen and so we've.
Has the company's resources on doing that because we think there is there are two big opportunities that personnel is one is changing.
Changing the paradigm of cancer management met with an ultra sensitive of our DSA.
And that has the kind of performance that we have and we think we are uniquely suited to do that and to win this space and secondly, we think we have.
A really unique opportunity to be in the forefront of the adoption of a brand new therapeutic vector and cancer.
With these personalized cancer vaccines and we've been a partner to many of the companies in the space and clearly we've announced the Madonna relationship, but you develop a personalized cancer vaccine with starting with the personalized information that our platform can uniquely provide and so those two key vectors powering that that industry and being a part of that.
As that comes together and transforms the way cancer is managed and secondly, being able to provide the data all the way from the biopsy to through the patient's life and being able to define that especially in these key indications that are that are massive and our patients are often clinicians are often flying in the dark we really decided as a company to focus in on.
On on making that happen and I'm, asking our resources and.
So that's what we're focused on and we step back from any customer relationships that weren't profitable and werent that werent driving us towards that core that core mission of of being able to to drive and participate in these key industries that are coming together would be at the center piece of them, which we think is.
Is really going to be profitable over time.
That's fair.
Makes sense, yes, no that's great. Thanks for taking the questions.
Sure.
Our next question will come from the line of Vivian bias with B C. G.
Taking the question.
Oh, yes.
Sorry, I've been jumping around on calls here. So I apologize if this has already been covered but.
And I believe you previously indicated that you might plan to commercialize any.
Partnership and opt instead for a sales force with a smaller footprint and so could you just elaborate on the partnership conversations on that front.
As far as expected size of their sales.
Chris did you want to.
Yeah, I'll take it so I mean, we.
<unk>.
As part of the strategic.
The strategic resetting of the company.
We said where can our mrna assay really shine and we thought I O therapy, where you really need the discrimination of what we can do can really informed the decision for a patient and for clinician unique way and we know that in breast cancer, It's a very.
Very low tumor content and often other less sensitive approaches have a hard time with we needed resolution to see that in the ultrasound et cetera has always struggled so we thought that there was an opportunity there to make it make a real difference in how breast cancer patients are managed in and along the way and thirdly with lung cancer, especially early lung.
Cancer patients and so we've decided to focus in on develop the evidence developed a sales channel in those indications and we will staff appropriately to win those spaces. That's the way we're approaching it and.
And the way to go about doing that is to build incrementally as you get coverage and as you get adoption and Thats. The way we will proceed.
Then thirdly, rather than trying to build evidence across every single oncology application at once we've decided to focus on those three and we've begun some discussions about partnering other indications that that we that we think we could use our test and beverage and other companies field force and so far we've had some of those could discussion.
Instead of gone well I think that'll be a journey.
And we're we'll be we'll be updating you as we go along but so far that's been positively received there are several companies in the space that have verticals in.
And different cancer indications.
May not make sense for them to develop an ultra sensitive mrna assay and it may not make sense, but it certainly doesn't make sense for us we see it to build that sales channel and every one of those.
Combined and use our test in those indications and with those sales channels. We can we can go out to market in a unique way, but but but on a path to go out the entire up to $30 billion market and so that's the way we've approached the strategy focus on where we can shine and partner the rest.
Okay. Thank you. Thanks, so much.
We've also previously talked.
<unk> talked about.
Steady cadence of data readout that ACI ESCO as know coming at.
So if you could just give us a flavor for what should what we should be expecting here.
And any plans for a head to head studies with other technologies.
Yes, Richard Richard probably can can jump in and do that yes.
Thank you for your question.
We have a really strong pipeline of.
Next personal studies that are.
They are happening right now with some of the top kols.
Leading cancer centers and I.
I can say that the initial data we see really supports very strongly what we've been saying about the knicks personal high sensitivity Sn.
Potential for impact.
Patients in particular being able to detect cancer earlier also C levels.
The visual cancer at a much lower level than what's been reported by other technologies.
And we continue to expect to begin sharing this data at ACR.
It absolutely 2023, and then other conferences later this year.
And as.
We've talked about a lot of these studies are focused primarily on the Io therapy monitoring breast cancer and lung cancer areas.
Great. Thank you.
Sure.
Thanks Vivian.
Okay.
Okay.
Low are there any other questions.
Operator can you queue. The final question. Please.
Our.
Next question comes from Arthur <unk> with HC Wainwright Your line is open.
Hey, good afternoon guys.
Arthur on for RK. Thanks for taking my question I have two question.
Both on the diagnostic side.
Side of the business. So one is regarding your.
<unk> D.
Diagnostics has to what other things you guys need to finish before you can launch the product.
Rich you want to go with.
Yes, yes, yes.
Jump into it.
Yes, so we're getting very close to the launch of that product as we mentioned, it's going to be launching the two <unk>.
Half of this year.
Yeah.
It's what you would typically do for launching a critical diagnostic products. There are a lot of the base technology has already been developed.
It's mainly.
Doing the validation of the platform with.
<unk>.
Set of samples.
With the intended use.
So so.
<unk>.
Is it very kind of a very well laid out kind of prescriptive process and we expect to we're on track for the launch later this year.
It sounds great and.
So regarding the.
Next yex reimbursement.
Sorry, if I missed could you give us a update for the status.
<unk> decision.
Chris did you want to go into what he said.
Yes, we said that we have been.
We're committed to getting the tests reimbursed.
This year.
Okay. Thank you Ben definitely together and building that building a submission to <unk> and making sure all the data is concordat in and driving that forward and we're optimistic.
With us on that that will happen and we feel like we're on the marketplace.
So it's more like first half or back up.
Yes, I think we said by the by Q3 and the and as we walked through the guidance. Okay. That's certainly.
By the middle by the Middle part of the year.
Got it.
Thanks for taking my question.
Yeah.
Thanks Arthur.
Thank you for your participation in today's conference call. This does conclude the program you may now disconnect.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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Good day, ladies and gentlemen, and welcome to the personality.
First quarter 2022 earnings conference call.
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 as a reminder, this call may be recorded I would like to now hand, the conference over to your first speaker today, Caroline corner Investor Relations.
Please go ahead Caroline.
Thank you operator, welcome to personnel for fourth quarter and full year 2022 earnings call. Joining me on today's call are Aaron Tachibana interim Chief Executive Officer, and Chief Financial Officer, Chris Hall, President and Rich Chen Chief Medical Officer, and SVP of R&D.
Statements made on this call that do not relate to matters have historical facts should be considered forward looking statements within the meaning of the U S Securities laws.
For example, any statements regarding trends and expectations for our financial performance this year and longer term cash runway revenue expectations and timing new orders products services technology, the timing of data publications and clinical and regulatory milestones the outcome and timing of reimbursement decisions expectations for our existing and future collab.
<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.
We 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-K for the full year of 2022 to be filed today.
<unk> undertakes no obligation to update these statements except as required by applicable law.
Our press release with our fourth quarter and full year of 2022 results is available on our website www dot <unk> 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 revenue.
According of today's call will be available on our website by five PM Pacific time Codell.
Now I would like to turn the call over to Eric for his comments on fourth quarter business highlights.
Thank you Caroline.
2023 is an exciting Europe personnel as we begin a new chapter in the company's story.
Having built capability the sequencing powerhouse and with several years as a trusted partner at many of the world's leading oncology companies. We believe we now have one of the most discerning technology to both characterize and monitor cancer.
With the aim.
Are driving a new paradigm for cancer management guided care from biopsy to the life of the patient.
To seize the opportunities ahead of US our leadership team has made three key changes in our strategic focus.
First we.
We have defined a new strategy to win in MRV, starting with three high impact indications, where our highly sensitive tumor informed liquidity liquid biopsy assay next personal.
It is particularly advantageous for detecting minimal residual disease.
These indications are immunotherapy monitoring breast and lung cancer.
We will speak to this strategy in more detail in a few moments but in short.
Our in house commercial efforts in 2023 will be focused where our MRV offerings shines the most for detecting cancer recurrence.
At the earliest possible time.
Longer term.
With the broad utility of our technology limited partner in other cancer indications, giving us access to additional pieces of the entire market, which could become more than $30 billion overtime.
Sure.
Second.
We have pruned, our biopharma business to focus on profitability.
Last month, we filed an 8-K, claiming that we resized, our employee base, reducing our workforce by approximately 30%.
And lowering payroll and other expenses by an estimated $20 million annually.
After careful consideration and in line with our cash conservation objectives. We also decided to close our facility in China.
While such restructuring is always difficult.
We believe this puts us in a healthy financial position with the cash runway that is expected to fuel us through 2025.
Also it allows us to be even more strategic and providing compelling products and thats the highest level of service to key Biopharma partners to drive clinical trial success.
And that's an engine to power personalized cancer vaccine development as evidenced by our recent announcement of the extension of our partnership with Mcdermott.
<unk>.
Finally, we expect that the extension of our cash runway allows us sufficient time to achieve several critical milestones, including launching next personal at the <unk> of the clinical market as.
As well as deepening the evidence and further validating assays ultra high sensitivity and clinical utility.
This validation in turn lays the foundation for obtaining reimbursement and enables us to begin to ramp up test volume and subsequently clinical revenues.
Now I will turn the call over to Chris to speak more about the strategy and the milestones that we will be tracking and then I will provide the financial results and guidance following his remarks.
Chris.
Thank you Anne building upon the transition that era has just laid out we believe there are four key catalyst ahead, which will prepare us for rapid growth into 2024 and beyond.
Yes.
As we seek to grow profitable revenue, we will primarily focus on executing our winning <unk> strategy.
Such our 2023 milestones are as follows.
First we expect to receive our first CMS reimbursement coverage decision before the end of Q3 this year for our personalized highly sensitive and ultra comprehensive genomic profile offering next Dx, we launched next Dx to clinicians last year.
To help them find the most appropriate therapies for their patients.
Our clinical sales and medical affairs teams have made solid progress in driving early adoption and booking additional initial revenue.
We expect that a positive Medicare reimbursement decision will accelerate uptake and revenue growth and will also pave the way for success with our <unk> offering.
Zircon.
We are on track to launch next <unk>.
Personal Dx the ODT version of our <unk> offering into the clinic in the second half of this year.
<unk> personal be actions designed to find MRV simply stated is incontestable traces of cancer, allowing for earlier detection of recurrence as well as to inform and enable therapy decisions and earlier intervention.
As Aaron previously mentioned, our near team near term focus will be on three indications, where our technologies high sensitivity has the potential to make a significant impact.
Oh therapy monitoring breast cancer and lung cancer, we believe our sensitivity can help overcome current challenges such as distinguishing pseudo progression for progression through imaging alone.
Seeing that therapy is working and helping guide whether to continue stop or switched to other options, we estimate breast and lung cancer alone represents almost 1 billion cases for monitoring each year.
In addition to the clinical launch of next personal <unk> as we go through the year. We will also prepare the data and analytical packages for submission to <unk> in 2024, and we expect to obtain reimbursement for our first indication in 2024.
Third we will extend our personnel inside strategy inside personal cancer vaccines, where personalities power in both design and manufacturing inside the government's population health program with the continuation of our support for the veterans administration's million veteran program and importantly to our wind MRV strategy and <unk>.
<unk> diagnostic products with partners with deep verticals, but who lack in MRV solution.
Our personalized cancer vaccine for example, since 2016 personality has been the engine that has enabled several biopharma companies to develop vaccines for clinical trials.
As Aaron noted, we recently announced we are continuing our relate strategic relationship with Madonna previously our technology allowed them to progress through a phase <unk> clinical trial, we have been working with <unk> on all their clinical trials in cancer and the announced agreement extends our relationship to continue working with them, including their phase III melanoma clinical.
Mill, which is expected to begin this year.
We're thrilled about this partnership and believe that our compelling technology offerings can help other customers win in this rapidly emerging cancer therapeutics area.
Fourth and finally, we are building at publishing the clinical evidence base to support our broadest products and drive our key indications.
2023, we expect to generate data on Io indications with collaborators, including Duke University BC cancer.
K and UCSF. We've also recently partnered with criteria in the academic breast cancer consortium to conduct a prospective clinical trial to validate the clinical performance of next personal to evaluate <unk> in subsequent recurrence in patients with early stage receptible triple negative breast cancer and aggressive.
Cancer with limited treatment options.
And we have work underway in lung cancer.
We look forward to sharing our milestones as we go through the year with that I'll turn it back to Aaron.
Thank you Chris.
I will now provide detail about our financial results for the fourth quarter and full year of 2022 as well as guidance for the first quarter and full year of 2023.
Total company revenue for the fourth quarter of 2022 was $67 million and decreased 19% compared with the same period of the prior year, which was expected due to the decline in the MVP revenue.
Oncology revenue, which include revenue from pharma test enterprise and other customers was $15 8 million and increased 3% over the same period of the prior year the.
The year over year increase in oncology revenue was driven mostly by the volume increase from the terror.
Which accounted for almost half of our revenue in the quarter.
Yeah.
For the full year of 2022 total company revenue was $65 million and was above our previous guidance range of $63 million to $64 million.
The total company revenue decreased 21% compared with 2021 due to the expected decline in <unk> revenue.
Revenue from our oncology business increased by 42% for the full year of 2022 compared to 2021, primarily due to the growth in test volume with Natasha.
Okay.
Gross margin was 13, 8% for the fourth quarter compared with 38, 7% over the same periods of the prior year.
Year over year decrease of 24, 9% was primarily due to the expected under absorbed overhead costs from the decrease in revenue volume from the VA MVP.
Also an increase in expenses to support our growing oncology revenue volume and for our new facility.
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.
<unk>.
Over the next couple of years, we expect some gross margin variability due to the fluctuating VA MVP volume investments in capabilities, such as automation of that production line, providing diagnostic tests, while we continued to increase our efforts to secure reimbursement.
Costs for our new facility and others.
Longer term, we expect our gross margins to increase as we achieve scale by growing our oncology revenue.
Operating expenses were $34 4 million in the fourth quarter compared to $28 2 million in the same periods of the prior year.
R&D expense was $16 6 million in the fourth quarter compared with $14 5 million for the same period last year and SG&A expense was $17 8 million in the fourth quarter compared with $13 7 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 studies and clinical validation work.
The increase in SG&A was due to commercial.
Due to commercial and infrastructure expansion costs for our new facility.
And operations in China, which we are discontinuing.
Net loss for the fourth quarter was $31 1 million compared with a net loss of $20 2 million for the same period of the prior year.
The net loss per share for the fourth quarter was 67.
And the weighted average basic and diluted share count was $46 3 million compared with a net loss per share of <unk> 45.
And the weighted average basic and diluted share count of $44 8 million for the same period of the prior year.
Yes.
Net loss for the full year of 2022 was $113 3 million compared with a net loss of $65 2 million for 2021.
And was within our previous guidance range of 111.
To $114 million.
The net loss per share for the full year was $2 48.
And the weighted average basic and diluted share count was $45 7 million compared with a net loss per share of $1 49, and a weighted average basic and diluted share count of $43 9 million for 2021.
Now onto the balance sheet.
We finished the fourth quarter with a strong balance sheet with cash and short term investments of $167 7 million in the fourth quarter, we used $25 1 million of cash due to the net loss working capital needs construction of our new headquarters facility and capital equipment purchases are.
<unk> 2022 full year cash usage was approximately $119 million.
We significantly reduced it from the original estimate of $140 million at the beginning of the year.
2022 was our peak year for cash usage due to the onetime investments in our new facility going forward, we expect our cash.
Cash usage to decline each year as we pursue breakeven and eventually profitability.
Yeah.
Now I'd like to turn to guidance.
Yes.
A couple of months ago, we began rationalizing our biopharma business and pruning areas that were not profitable enough.
In some cases.
Projects, we took had very low gross margin and others had negative cash flow.
We eliminated resources tied to these areas, including head count cuts that were included within 30% workforce reduction.
We expect these actions to have to have an impact on revenue and we estimate a reduction of approximately $4 million to $6 million in 2023 from removing the small and unprofitable biopharma accounts.
However, we expect this decline to be more than offset by revenue growth in 2023 from next personal personalized cancer vaccine projects and a small amount of next Dx clinical revenue.
Our full year guidance reflects these dynamics.
For the full year of 2023, we expect total company revenue to be in the range of 60% to $72 million with oncology revenue from pharma enterprise sales and other customers to be in the range of $59 million to $63 million.
VA MVP revenue is estimated to be approximately $9 million and expect it to be recognized during the first three quarters of the year.
Net loss of approximately $103 million in cash usage of approximately $75 million a reduction of $44 million from 2022.
For the first quarter of 2023, we expect total company revenue of approximately $17 5 million.
Revenue from pharma tests enterprise sales and other customer of approximately $14 5 million.
Revenue from population sequencing as approximately $3 million.
Yeah.
Our revenue volume with Natera has ramped quickly over the last two years and was $26 $6 million in 2022.
We expect our previous run rates to continue through this year as Natera has come to rely on our high quality exome offering.
However, as <unk> signaled we do expect their volume with us to decline in 2024 and beyond as they bring their laboratory in Austin, Texas online.
We do expect that our many growth vectors will create year over year growth in 2024, even as <unk> moved that business into their own lab.
We look forward to updating you on our milestones as the year progresses. These.
These milestones laid the foundation for accelerated growth and the mosquitoes and are key to enabling our vision of powering a new paradigm of cancer management with our technology.
Thank you now I will turn the call back over to the operator to begin the Q&A session.
Operator, Thank you ladies and gentlemen, if you have a question at this time. Please press star one on your telephone keypad.
Question has been answered or you wish to withdraw your question. Please press star one again.
Please wait until your name is announced.
Ask that you please limit yourself to one question and one follow up.
One moment for our questions. Please.
Our first question will come from the line of pays us survive.
Right.
With Morgan Stanley .
Yes.
Hi, This is <unk>. Thanks for taking my question. So firstly could you elaborate on your announced partnership with Madonna on personnel on the personalized cancer vaccine with.
With phase III expected to start this year because this partnership representing meaningful contribution for you as early as 2024 and just how are you thinking about this relationship long term. Thanks.
Sure. Thanks for the question in terms of our relationship with Madonna, we've been doing business with them now for the last six to seven years, we have been an integral part in their manufacturing process for personalized cancer vaccine.
We're really excited about the success in the phase II trial, with having 44% efficacy in terms of improvement.
Patient results in terms of what we do from redundant we basically.
Handle a lot of the upfront genomic testing provide them with this information so they're making go and customized.
A therapeutic for each individual patient in terms of.
When the phase III trial, which will start to return to talk about it's not up to us to mentioned in terms of the economics were not really allowed to say too much in that regard either but we have been a great strategic partner from Mcdonough and we're really excited about the relationship and where it goes in terms of some of the additional news that came out.
Recently in Mcdermott had their earnings release yesterday, we did talk about this breakthrough designation for <unk> for the first vaccine that we have in <unk>.
Really excited about their success in that regard as well.
Rich did you have anything.
To add on the Laguna relationship.
No I think that summarizes it well.
We have this long term relationship with Marin has mentioned.
With our <unk> platform, which is one of the best platforms for helping.
Helping our partners identifying new antigens, which are a key part of their personalized cancer vaccines.
And our platform does an extraordinary job.
Identifying things like mutations the expression of those mutation androgen predictions HOA and other information that's needed for their personalized cancer vaccine process.
Great that was helpful.
Could you provide an update on what youre seeing on the sample delivery side since last quarter are you still seeing these headwinds and if so when do you anticipate these headwinds to subside.
Hi.
Yes, there still are some headwinds in terms of sample delivery.
Our pharma customers are having trouble getting samples from their CRO.
For a while.
A variety of different reasons like staffing and things of that nature.
In addition, a lot of pharma and biotech companies have been watching their spend given the recession, that's going on right now and so thats been a headwind as well in terms of some of this business.
Great. Thank you.
Sure.
Next call will come from the line of Patrick Donnelly.
You have Lindsay Lindsay on upper Patrick Thanks for taking my question I guess first on China.
I was just wondering on the decision to discontinue their.
Do you still see China.
No longer is your presence in the medium term or is this kind of temporary I'm just wondering how youre thinking about that.
Thanks <unk>.
We thank you for the question in terms of China. So when we set out some three years ago and went out to China to grow and expand business. There. We had a lot of interest from pharma, who wanted us to pursue that type of an opportunity and help support their global clinical trials.
With regards to where things stand today, we've had to say no to some good ideas, but we believe China is a good idea, but in terms of being able to get to breakeven and even profitability longer term.
It's going to be a headwind for us in terms of the.
The costs and the investments required and so unfortunately, we had to say no to China and in terms of the decision.
Pretty much the decision we came to some at this point in time, we do see it as a permanent.
Our Permian into what we've started in China.
Understood. Thank you and then just one follow up I guess, how are you thinking about the cadence for gross margins. This year I think in the last call you mentioned.
It's possible that youre going to receive the <unk> X platform.
Martin and ultimate maybe mid this year I was just wondering how youre thinking about that and the potential impacts margins in the back half maybe barb. Thank you.
Sure in terms of gross margin. So the way. We we view. This 2022 is probably going to be the lowest point for gross margins because of a lot of the investments we've had to make in the severe decline in the VA MVP volume.
As we go through 2023.
Still have a fair amount of under absorbed labor and overhead primarily due to bringing on new facility online, but the way we see it our gross margins.
<unk> increase as we get to the back half of 2023, as we bring the <unk> X plus online.
They won't all come online at once it's going to require us to do some testing and validation before we can.
Move over customer samples onto that platform. So I would say the <unk>.
Savings this year is going to be minimal we will see the bulk of the savings in 2024.
Thank you our next call will come from the line of Joseph Flanagan.
The Cowen.
Joseph.
Hi, This is Joe on for Matt.
There are 2023 guide for pharma test enterprise failed in other is $59 million to $63 million. What are you assuming for core biopharma testing revenue, excluding the entire partnership and if not a concrete number thumb growth commentary would be really helpful.
Yes, Hi, Joe So natera was almost $27 million for us in 2022.
So in terms of what our guidance contemplates.
For new Tera somewhere between 27% and $30 million in 2023.
The rest of the core pharma business.
Great and then.
In terms of the strategic review of account along with the reduction in part when you consider these actions. The result of the leadership change and therefore, it sort of change in business model philosophy, and just how is that general trend.
Transition going.
Well in terms of the.
The strategic review of these accounts and what we needed to go again, we had to say no to good ideas and we're in a situation now where we do have to extend our cash runway, primarily because we see that we have the best and the most sensitive MLD test.
The industry and we in order for us to be able to get it.
Through reimbursement and commercialized, we need talent right and so from that perspective, we had to go in and look at areas, where we were maybe not as profitable as we needed to be and go and do some pruning and streamlining in that regard.
Chris do you have anything to add in that regard in terms of some of the floor.
Yes, I would just say we step back and we said when we when we built our milestones that we needed to achieve around publishing data that was pivotal in an <unk> assay that was ultra sensitive could change the paradigm for breast and lung cancer patients in Io therapy monitoring, we realize that 2024 would be a big year of publisher.
<unk> data 24, 25, and stitching together reimbursement decisions in clinical adoption and we really felt like we needed to focus on making that happen.
So we've we've we've matched the company's resources on doing that because we think there are there is there are two big opportunities that personnel is one is.
Changing the paradigm of cancer management met with an ultra sensitive of our DSA that has the kind of performance that we have and we think we are uniquely suited to do that into when the space and secondly, we think we have.
A really unique opportunity to be in the forefront of the adoption of a brand new therapeutic vector and cancer.
With these personalized cancer vaccines and we've been a partner to many of the companies in the space and clearly we've announced the Madonna relationship.
You develop a personalized cancer vaccine with starting with a personalized information that our platform can uniquely provide and so those two key vectors powering that that industry and being a part of that as that comes together and transforms the way cancer is managed and secondly, being able to provide the data all the way from the the biopsy to through.
The patients life and being able to define that especially in these key indications that are that are massive and our patients are often equations are often flying in the dark we really decided as a company to focus in on on making that happen and.
And I'm, asking our resources and exits and so that's what we're focused on and we step back from any customer relationships that weren't profitable.
And there werent that werent driving us towards that core that core mission of of being able to to drive and participate in these key industries that are coming together would be at the center piece of them, which we think is is really going to be profitable over time.
That's fair.
Makes sense, yes, no that's great. Thanks for taking the questions.
Sure.
Our next question will come from the line of Vivian bias with B C. G.
So let me begin with taking the question.
Hi.
Sorry, I've been jumping around on calls here. So I apologize if this has already been covered but.
I believe you previously indicated that you might plan to commercialize any task via partnership and opt instead.
Cadbury Salesforce with a smaller footprint.
Can you just elaborate on the partnership conversations on that front.
And as far as expected size of ethanol price.
Chris did you want to.
Yes, I'll take it so I mean, we we.
We as part of the strategic.
The strategic resetting of the company.
We said where can our mrna assay really shine and we thought I O therapy, where you really need the discrimination of what we can do can really informed the decision for a patient and clinician unique way and we know that <unk> breast cancer, it's a very.
A very very low tumor content and often other less sensitive approaches have a hard time with the needed resolution to see that in the ultrasound et cetera has always struggled so we thought that there was an opportunity there to make it make a real difference in how breast cancer patients are managed in and along the way and thirdly with lung cancer, especially early.
Cancer patients and so we've decided to focus in on develop the evidence developed a sales channel in those indications and we will staff appropriately to win those spaces. That's the way we are.
We're approaching it.
And the way to go about doing that is to build incrementally as you get coverage and as you get adoption and Thats. The way we will proceed.
And then thirdly, rather than trying to build evidence across every single oncology application at once we've decided to focus on those three and we've begun some discussions about partnering other indications that that we said, we think we could use our test and beverage and other companies field force and so far we've had some of those could.
The discussions that have gone well I think that'll be a journey.
And we're we'll be we'll be updating you as we go along but so far that's been positively received there are several companies in the space that have verticals in.
And different cancer indications.
It may not make sense for them to develop an ultra sensitive mrna assay and it may not make sense and certainly doesn't make sense for us we see it to build that sales channel and every one of those so if we could combine and use our test in those indications and with those sales channels. We can we can go out to market in a unique way, but accurate and upon on the path to go after the entire.
Up to $30 billion market and so that's the way we've approached the strategy focus on where we can shine and partner the rest.
Okay. Thanks, so much Chris.
I think you've also previously.
<unk> talked about.
<unk> data readout that ACI ESCO as now coming up.
So can you just give us a flavor for what should what we should be expecting here.
Clients for a head to head studies with other technology.
Yes, certainly rich rich probably can can jump in and do that yes.
Yes, yes. Thank you for your question.
Have a really strong pipeline of.
But less personal studies that are.
They are happening right now with some of the top kols.
Leading cancer centers and I can say that the initial data we see really supports very strongly what we've been saying about the knicks personal high sensitivity as potential for impact upward patient in particular being able to detect.
Answer earlier Ultra C levels.
Residual cancer at a much lower level.
What's been reported by other technologies.
And we continue to expect this year begin sharing this data at ACR.
Absolutely 2023, and then other conferences later this year.
And as we.
We've talked about a lot of these studies are focused primarily on the Io therapy monitoring breast cancer and lung cancer areas.
Okay.
Okay.
Thanks Vivian.
Yes.
Okay.
Okay.
Low are there any other questions.
Operator could you Q the final question. Please.
Our next question comes from Arthur <unk> with HC Wainwright. Your line is open.
Hey, good afternoon guys.
Arthur on for <unk>, Thanks for taking my question.
I have two question.
On the diagnostic.
Side of the business. So one is regarding your.
<unk> D.
Diagnostic test.
What are the other things you guys need to finish before you can launch the product.
Rich you want to go with it.
Yes, yes, yes.
To jump into it.
Yes, so we're getting very close to the launch of that product as we mentioned, it's going to be launching that.
The second half of this year.
It's what you would typically do for launching a critical diagnostic products.
A lot of the base technology has already been developed.
It's mainly.
Doing the validation of the platform with extended.
Set of samples.
With the intended use.
So so.
<unk>.
It's very kind of a very well laid out kind of prescriptive process and we expect to we're on track for the launch later this year.
It sounds great and.
So regarding the <unk>.
Next yex reimbursement sorry.
Sorry, if I missed could you give us a update for the status of reimbursement decision.
Chris do you want to go into what you said.
Yes, we said that we've been where we're committed to getting the tests reimbursed.
This year.
Okay. Thank you Ben definitely together and building that building a submission to <unk>, making sure all the data is concordat on them and driving that forward and we're optimistic.
With us on that that will happen and we feel like we're on we're on pace.
So it's more like first half or back up.
Yes, I think we said by the by Q3 and in the end.
As we walked through the guidance, Okay Im certainly.
By the middle by the Middle part of the year.
Got it.
Thanks for taking my question.
Yeah.
Thanks Arthur.
Thank you for your participation in today's conference call. This does conclude the program you may now disconnect.