Q1 2023 Personalis Inc. Earnings Call

Speaker 1: All.

Speaker 2: Greetings, ladies and gentlemen, and welcome to Piss analysis, first quarter of 2023 earnings conference call.

Speaker 2: At this time, all participants, I listen early mode.

Speaker 2: There won't be a question and answer session following the formal presentation.

Speaker 2: If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad.

Speaker 2: As a reminder, this conference is being recorded.

Speaker 2: I would now like to turn the contents over to the Caroline corner, I think this is the relations.

Speaker 3: Thank you, Operator. Welcome to Personnel's first order of 2023 earnings call. Joining me on today's call are Chris Hall, Chief Executive Officer and President and Aaron Tashibana, Chief Financial Officer and Chief Operating Officer and Rich Shen, Chief Medical Officer and EVP R&D.

Speaker 3: All statements made on this call that do not relate to matter to the historical facts should be considered forward looking statements within the meaning of the U.S. security laws. For example, any statements regarding transit expectations for our financial performance this year in longer term, cash runway, revenue expectations and timing, size and booking of orders, products, services, technology, clinical milestones, the outcome and timing of reimbursement decisions.

Speaker 3: Expectations for existing and future collaboration 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.

Speaker 3: We encourage you to review our most recent findings of the SEC, including the risk factors described in our most recent annual report on Form 10K. Personal Health undertakes no obligation to update the statement except it's required by a applicable law. Our press release of the first quarter of 2023 results is available on our website, www.personalis.com under the Investor Section and includes additional...

Speaker 4: Thank you, Caroline. Good afternoon, everyone, and thank you for joining us. Since I was appointed CEO in March, I've only become more convinced that personalization deeply positioned for its technology to power the two most important developments occurring predominant on college.

Speaker 4: Both of these developments in the management of patients require just discriminating technology that is able to illuminate the uniqueness of each patient's tumor and provide actionable information that can change the arc of the disease. It's been a few months since we laid out our strategy to win in the MRD and go after what we estimate to be a $25 billion in MRD mark. Our product addressing this space is a tumor informed personalized liquid by off-seat test called Next Personal.

Speaker 4: Our focus strategy involves pursuing three cancer indications, early stage breast cancer, early stage lung cancer, and immunotherapy monitoring, and finding partners for other cancer indications.

Speaker 4: We picked early stage breast cancer, lung cancer, and immunotherapy monitoring because we believe our technology is uniquely suited to guide treatment decisions and those indications based on its ultra-high sensitivity.

Speaker 4: At the heart of our Women in MRD strategy, our aggressive product performance goals, which we call ultra-high sensitivity, we aim to achieve cancer detection and levels down to one part per million.

Speaker 4: for most patients across many different cancer types and stages. We believe next-personal can find cancer before other technologies and importantly can provide confidence that one when we don't seek cancer, the patient will likely remain disease-free and may not need additional therapy. And two, when we do seek cancer, we see it earlier. At a time when patient management can be changed to make a difference. This quarter we had exciting early data demonstrating next-personal's performance for sensitivity. And we expect this to continue as additional study data is published through the year.

Speaker 4: We were also selected by Dr. Charles Swanton and the TracerX study, one of the world's most major initiatives to determine treatment options and effectiveness for patients with early stage loan cancer. We will work with the TracerX samples and leadership group to determine the value of an ultra-sensitive assay such as next-personal and loan cancer patients. I'll add more color to the TracerX relationship in a minute, but it is important to point out that high-end collaborations are important validations of our technology and performance claims.

Speaker 4: But in other way, these global leaders are choosing to work with us because of our ultra-sensitive MRD capability.

Speaker 4: Second, a few weeks ago at the American Association for Cancer Research annual meeting, initial findings from our UKE collaboration were presented.

Speaker 4: Liquid biopsy pioneer Dr. Klaus Puntel is using NextPersonal.

Speaker 4: This study, although early, showed extremely promising results, first, the next personal detected CTDNA levels down to the ultra-sensitive level of one part per million consistently across patients. Second, the ultra-high sensitivity was needed to accurately classify the MRD status, nearly a third of the patient time points analyzed, and the MRD status would have been incorrectly called as negative with less sensitive methods.

Speaker 4: The third, 100% of positive ctDNA detection, even at the lowest levels, had confirmed tumor findings on imaging. And similarly, 100% of the negative ctDNA detections were complete responders via RASIS criteria.

Speaker 4: And fourth, the patients that were CTDNA negative had significantly increased overall survival compared to CTDNA positive patients.

Speaker 4: Now, having data come together that it's demonstrating that we can execute on our win and MRC strategy was very gratifying.

Speaker 4: Equally important is that we made exciting progress this quarter on our goal to have reimbursement for next personal and one indication by the end of 2024.

Speaker 4: While that's an aggressive timeline, we have already made progress by announcing key collaborations to this quarter and studies in each of our focused clinical indications.

Speaker 4: First, the TRACERx collaboration jump-started our efforts in lung cancer. The TRACERx consortium is led by lung cancer expert Dr. Charles Swan and teams at Cancer Research UK.

Speaker 4: As mentioned, the TRACERx Consortium selected next-personal because of its ultra-sensitivity, as well as its ability to scan for both common cancer and patient-specific mutations. Prior research findings from TRACERx have shown that MRD testing was able to identify recurrent tumors in patients with non-small cell lung cancer well before they were detectable using CT scans, but there remains significant opportunity for detection improvement.

Speaker 4: We believe our collaboration with Tracer X and other collaborations like it will ultimately enable more informed decisions about patient care much earlier in a patient's journey.

Speaker 4: Second, we announced the collaboration in melanoma and Iotherapy monitoring with the University Medical Center, Hamburg, Hepins War. Also known as UK.

Speaker 4: That collaboration, along with the previously announced Duke and UCSF relationships, provides a strong foundation for us to be able to show the efficacy of next personal for IOCARPB monitor.

Speaker 4: Third, we engage with the Academic Breast Cancer Consortium and Criterium to establish a clinical trial that is expected to enroll approximately 900 patients at up to 30 U.S. sites.

Speaker 4: The trial will be carried out at two stages.

Speaker 4: In the first stage, samples would be collected from each patient for both pathological, complete response path CR and MRD analysis to assess whether MRD using next-personal correlates with standard of care path CR measurements.

Speaker 4: The second stage will involve a five-year follow-up to further establish clinical validity and performance of next-personal and early stage triple negative breast cancer.

Speaker 4: We're expecting these studies and trials to showcase next person's ultra-centred activity and ability to provide insights important for patient therapy decisions.

Speaker 4: And we're not done. In all three indications, we are laser focused on engaging leading collaborators in the world in accessing rich sample bio banks for accelerating studies. And we look forward to sharing additional announcements as we continue to make progress through the year.

Speaker 4: Lastly, in terms of our March to establish next, a personality that the market leader in MRT.

Speaker 4: We remain on track to launch Next Personal for clinical use by the fourth quarter of this year.

Speaker 4: There's a strong sense of energy and optimism and personalism that we are on the cusp of doing something profound in the cancer market.

Speaker 4: We believe NEX personal represents a substantial leap in MRD sensitivity and brings the field closer to the next standard of care in oncology.

beyond the possibility of catching cancer recurrence for many months or even years earlier than imaging.

Beyond enabling ongoing monitoring for patients on targeted therapies, next personal was designed to change the paradigm for how cancer is actively managed.

Its ultra sensitivity is the key to providing patients the confidence that they don't have minimal residual disease and this will enable physicians and patients to make the best decisions.

From escalating treatment when needed, to eliminating procedures for therapies when unnecessary. In order to enable the smarter and more inexpensive care model, incremental improvements are not enough.

and next personal super sensitive performance numbers will usher in a new paradigm that we believe will be better for patients, better for physicians, and better for the healthcare system.

The personnel's technology is key to enabling the next personal product to transform the cancer diagnostic market.

And the same technology is also powering the next generation of oncology bioformer products.

As announced a layer of this year, we are a key partner from a Dernis clinical trial work, as they pursue regulatory approval of their personalized cancer vaccine.

Over the years, Personalis has worked with several companies by providing genomic test information about the patient's cancer so that a personalized vaccine could be developed specifically for each individual patient.

Each patient's cancer is different, and we believe that customizing a therapy for each patient is an extremely good idea. And with the recent success of mRNA technology for COVID, there's a new focus on the opportunity for cancer vaccines.

There are thousands of new cancer patients each year in the ESOLO and our aspirations are for personalities' technology to power the development of next-generation vaccines and therapies.

E2 enabling our vision for next person will transform the lives of cancer patients and for our technology to power new ways of treating cancer patients is a focus on blocking and tackling execution by the company, by what I believe is one of the most talented teams in the industry.

We executed in Q1. We delivered over 24% year-over-year growth, and we exceeded our forecast. We submitted our data to Moldex for coverage of our next DX product.

And we completed our efforts to reduce our cash burn and extend our runway into 2025. It's an exciting time of personnel and we appreciate our investors being a part of our journey. I'll now turn it over to Aaron to review our financial results.

Thank you, Chris.

We executed well in the first quarter and although it's still early

We are beginning to see the benefits of our strategy to focus on areas where we expect to win.

as Chris mentioned earlier. I will now provide detail about our first quarter financial results and guidance for the second quarter and full year. Total company revenue for the first quarter of 2023 was $18.9 million and increased 24% compared with the same period of the prior year, primarily due to strong oncology revenue performance.

accounted for half of our total revenue in support.

First quarter revenue from population sequencing, which includes the VAMVP, was $3 million.

Gross margin was 25.1% for the first quarter compared with 28.1% for the same period of the prior year.

The year-over-year decrease of 3% was primarily due to underabsorbed overhead costs.

Our lab expenses have increased over the last year and a half to support our growing oncology revenue markets.

And for background, testing cancer samples requires more labor and overhead compared with testing samples for the VAMVP.

Over the next couple of years, we expect some gross margin variability due to fluctuating test volume, operating at lower utilization rates, providing diagnostic tests while we continue to increase our efforts to secure reimbursement.

Over the next couple of years, we expect some gross margin variability due to fluctuating test volume, operating at lower utilization rates, providing diagnostic tests while we continue to increase our efforts to secure reimbursement, BOST for a new facility, and rosters.

Longer term, we expect our gross margins to increase as we achieve scale by growing our oncology revenue. Operating expenses were $34.6 million in the first quarter and included a one-time, non-recurring, restructuring charge of $2.5 million.

a 3.9 million associated with the production enforce and closure of our China lab operation compared to a 32.6 million per the same period of prior year.

Our operating expenses were 30.7 million and decreased 1.9 million from the same period last year. R&D expense was 16.6 million in the first quarter compared to 17.1 million for the same period last year. And SGNA expense was 14.1 million in the first quarter compared to 15.5 million for the same period last year. R&D expense was 14.2 million in the first quarter compared to 15.5 million for the same period last year.

Net loss for the first quarter was 28.7 million compared with a net loss of 28.2 million for the same period of the prior year.

The net loss per share for the first quarter was 61 cents and the weighted average basic and diluted share count was 46.7 million compared with the net loss per share of 63 cents and a weighted average basic and diluted share count of 45 million in the same period of the prior year.

Now onto the balance sheet. We finished the first quarter with a strong balance sheet with cash and short-term investments of $148.9 million. In the first quarter, we used $18.7 million of cash due to net loss, working capital needs, and capital equipment purchases.

We remain on track to reduce our 2023 cash usage down to approximately $75 million for the full year.

which is significantly lower compared to $199 million used during the prior year.

Now, I'd like to turn to guidance. For the second quarter of 2023, we expect total company revenue to be $16 to $17 million, revenue from pharma tests, enterprise sales, and other customers to be $13 to $14 million, which is lower than the first quarter, and is lower than the second quarter.

primarily due to reduced sample volume from the tarot and revenue from population sequencing of approximately 3 million.

for the full year of 2023.

year of 2023. There is no change to our guidance.

And we expect total company revenue to be $68 to $72 million, with oncology revenue from pharma, enterprise sales, and other customers to be $59 to $63 million.

population sequencing revenue to be approximately 9 million and expected to be recognized during the first three quarters. Net loss of approximately 103 million.

and cash usage of approximately 75 million, a reduction of 44 million from 2022. We look forward to updating you on our milestones as we make progress throughout the year.

This includes obtaining reimbursement for NextDx, showcasing evidence for NextPersonal, and completing the NextPersonal Clinical Lab Diagnostic Test for commercial launch.

Please stay tuned for future updates. And with that, I will turn the call back over to the operator to begin the Q&A session.

Operator. Thank you very much. Ladies and gentlemen, we will now be conducting the question and answer session.

If you would like to ask a question, please press star then 1 on your telephone keypad.

The confirmation channel indicates that a line is in the question queue. You may press star 2 to leave the queue. We ask that you please limit your questions to one and one follow up.

For participants using speak equipment it made necessary to become a handset before pressing the star keys.

Our first question comes from Tejas Zavant of Morgan Stanley . Hi, this is Gabby on for Tejas. Thanks for taking my question. So just to start, so your pharma and biosigment saw a lot of strength this quarter.

But the guy remain the same, so just kind of curious if some conservatism is baked in the guide there.

Hi Gabby, this is Darren. In terms of the guide, so it did not change from last quarter. In terms of what we did say in the prepared remarks, so our guide to...

in terms of the Matera is going down. So the Matera volume is going down, which is going to be offset by increased revenue from personalized cancer vaccine and biopharma, which will offset that. So that's why the guide is the same as what we had last time. That makes sense? Yeah, yeah, that makes sense. Thank you. And then on Matera, are there any updated thoughts on how revenue might tail off in 24? Or is that remaining the same? Yes, in terms of what we said, so the Matera volume will start to tail off from 2.2 this year through the end of the year.

It's our expectation that there might be a little bit that shows up in terms of samples in early 2024, but from a modeling standpoint, we're not assuming much revenue in 2024 at

Okay, great, thanks. And then on pharma and biotech customers, are you still seeing some headwinds of sample delivery from your pharma customers? And just given some of the commentary from some companies as of late, are you still seeing cautious spending from pharma and biotech customers?

And if so, how is this dynamic change from last quarter? And do you anticipate these dynamics to continue throughout the remainder of 23?

So obviously with the recession here, you know, pharma is being prudent on their spending.

So we are seeing some things being a little bit tighter there from that perspective. In terms of sample flow from form, it always can be a little bit...

variable or lumpy, so to speak in terms of the timing of what samples come in. But for the most part, you know, we're beyond the COVID situation where, you know, trials and impatience or enrollment are a lot slower. So we're beyond, you know.

That at this point in time, but you know, there is some variability in terms of what samples do show up

Okay, great. Thank you. That's it for me.

Okay, great, thank you, that's it for me.

The next question comes from the line of Dan Brennan of Cohn and Cun.

Hey, this is Joe on for Dan. Thanks for taking the questions. Just first, gross margins came in well ahead of our model, around 25% in Q1. Will there be some one-time benefits in the quarter that we should be cognizant of, or is this more a result of the pruning unprofitable biopharma revenue?

Yeah, so in terms of the benefits there in Q1, there were some one-time benefits in terms of some favorable mix. We had more volume from the BAMVP that showed up in Q1 compared to prior quarters or last year. In terms of the way forward though, you know, gross margins, we expected to be in the low 20% range for a mental state because of...

And then maybe if possible, same goes for the 30 mil in ish that I think is implied for pharmacogenetic service for 2023. Yeah, so we haven't broken that out specifically in terms of the personalized cancer vaccines, but we're very excited about where it's headed to the back half of this year and into 2024.

In terms of, again, we haven't really disclosed the dollar amounts. The personalized cancer vaccine revenue has been roughly

you know, somewhere between four and five percent of our total cancer revenue. So that's kind of the way to look at it. Over time, we believe it's going to, or we expect to increase as a percent of the total oncology revenue, primarily because of the success we've had here with a large project with Moderna. Great. T

Thank you. The next question comes from the line of Patrick donelli of City.

Hi, you got Lizzie on for Patrick. So I was just wondering on the next personal LDT launch that's supposed to happen in the fourth quarter. You mentioned that you're submitting your first indication for Medicare coverage in 2024. I guess what's your line of sight into, you know, the eventual, eventual.

2024, we're focusing on three indications, early stage breast cancer, early stage lung cancer and therapy monitoring or IO therapy monitoring and therapy monitoring. And we're building data around each one of those three now and we plan to submit for coverage.

going through the end of 2024 and gunning that way. We will grow the footprint as we go, probably with early collaborators in particular in 2024 that can deepen the evidence.

set. Now that could be prospective registry trials and or that could be working with academic medical institutions to start to use it in their clinics. And we expect it as we get coverage to ramp quickly post coverage and we'll have a field force in place. We're getting a lot of positive feedback around the strategy of having next DX, which is our.

cancer genomic profiling product to be, you know, to have that ordered at the same time. So a clinician can send us a sample over that test and send us a sample for next personal at the same time from one set of samples cut from the tissue block. So we think the products will work synergistically.

And we expect the revenue to grow quickly there. That's a $25 billion market overall. So you can imagine just, you know, as we chip away at that, we expect the growth rates to pick up dramatically as we move that more aggressively to launch post coverage.

I'm going to say thank you. And then just on margins for a second half of the year, given that there's the one time cost, I'm going to one time benefit, excuse me, that you had this quarter. Should we think of them sequentially increasing off of the QQ base?

Just wondering the right way to think about that. Thank you. That's it for me. Sure. So, Lizzie, in terms of the way to think about the expenses as we go forward, so we called out the one-time expenditures of restructuring, and that was primarily from the reduction of headcounts of 30% and the closure of our China lab.

So if you remove that and take the expenses pretty much flat through the rest of the year, that'll get you to what we expect.

Thank you.

Thank you. The next question comes from the Lord of Mark, Merton of Needham and Co.

Yeah, thanks. I hate to keep going back into terror, but it's kind of important from a modeling perspective. I think you had said on the last call that you expected 27 to 30 million this year from the terror. I didn't hear you reiterate that as.

Is that still the case or is the number come down from that? It's going to come down a little bit from 27 to 30, Mike. It could be a couple million dollars less than that primarily because of some of the information we've got that's more current with where Natera wants to go. So we see that it's going to decline a little bit quicker than what we saw.

2024 is the going away.

Okay and I think last call you also said that you felt that you could continue to grow even in 2024 because that's going to be a pretty significant headwind as that kind of goes away. Do you think you can grow continue grow your revenue to find offsets for that? We do. We're very optimistic about

Project week one and personalized cancer vaccine. We're way under penetrated as well in terms of biopharma. We're highly focused on.

landing more projects with Next Personal into pharma. And as you saw in one of our press releases, we have a great relationship with AstraZeneca and we're looking to continue to deepen that relationship and further penetrate other large pharmaceutical companies that we've been doing business with that are on the Next platform and...

you know, taking a look at next personal now as well. So we believe we have a few other growth drivers that are going to offset.

the hole that the Natera departure will fill. We also expected the clinical laboratory revenue will be growing more significantly, and 24 also. Obviously, it's coming from a smaller base, but will still start to be.

become more meaningful and 24 because we plan to be on the backside of the next DX reimbursement and we'll have a nice building base of business from ordering doctors at that point in time, which we're building now and that'll be getting reimbursed and then we'll be in the launch of the next personal and wow.

That's correct. Is that, I mean, what's the revenue opportunity there? I mean, I heard you mention that, you know, it's gonna be kind of used together with the personal, you know, MRD test, but is there a real revenue opportunity with that as kind of a standalone, or do you really need to get kind of personal going before you can generate meaningful revenue? Well, there is. I think it...

There is and we believe we have the most discriminating way to baseline cancer therapy in the market and we think that we're well ahead of what other people are doing especially in particular with fusions and the exome you know measured T and B provides a more discriminating way to front the therapy and we think we have the most comprehensive.

a way to approach the targeted therapies. But the market is, there's a lot of competition there. And we're being careful relative to sales and marketing spend. So we're gaining it in a way that is thoughtful about the revenue slash cost burn sales marketing versus revenue.

expense. And so we think it's a standalone business. It's quite, it's quite, it's a great business. There's a lot of companies that have been built on the backs of it saying, we believe we'll be able to get a toehold in it. We could throw a huge field force at it, but in this climate, we're being really thoughtful about how we, how we do it and moving in an incremental, in an incremental way.

that leverages the learnings that we go and builds the business rationally.

Okay, got it. And then, you know, just all the, it was good to hear, you know, the detail on all those the trials that you're involved with, basically for personal. But I was curious as, you know, as personal as bearing any of the cost of those trials, or those all being funded by, you know, outside groups, either companies or academic facilities.

So we're funding those studies and the collaborations, Mike, in terms of...

need to do that you know we understand it's something that is relatively expensive but that's why we've chosen to do business with a lot of the higher-end KLLs that we've landed. But I would note that like the beauty of these collaborations is that you don't you don't have to pay for a prospective clinical trial and the time involved to get the sample.

So you're accessing samples and work that was done previously and while you're funding the development of the data around it.

it's significantly less expensive than prospectively doing what we're doing in our P stronger trial that we announced two days ago where we are going out and doing that. And it's important to do that too because you've got to be able to build ever deeper data and clinical utility, you know, data sets around these tests. So you have to do that. you

But getting going with data sets with some of the top folks in the world with some of the better annotated data sets is really a way to jump started and I would argue really inexpensively. So that's the approach that we're going at.

Rich, do you have anything to add to that? Yeah, everything Chris said is absolutely true. And also, the other thing is it helps us accelerate the data generation. So the fact that we have these retrospective data sets, very large data sets that we're going to be looking at like TracerX, outcomes have been accumulated over many, many years. And so we know what happened with these patients.

It's going to really allow us to accelerate the data generation. Okay, great. Thank you. Thank you. Thank you. A lady sent you an email just to remind her, if you want to ask a question, you're welcome to press star and then one to place the solve for the question queue. Thank you.

The next question comes from Sean Lee of H.C. Wainwright. Good afternoon guys and thanks for taking my question. I just have a quick question.

could provide some additional color regarding the timelines of the expected studies. For example, for the first stage where you're comparing the MRD analysis with next personal versus PCR, how long would that take before you move on to the expanded stage of the five-year follow-up?

This is Rich. Hi Sean. So for the Be Stronger study, which is I think the one you're referring to, this is our prospective multi-year, multi-center trial for early stage triple negative breast cancer that we're doing with the academic breast cancer consortium and Criterium.

They've split into two phases. The first phase where we're doing the correlation, we're looking at performance in the neoadjuvant phase of treatment for these patients. We expect that we'll start getting some data out of that in the year to year and a half time frame.

following the patients out through their adjuvant therapy and looking at outcomes five, six years out.

Ladies and gentlemen, we have no further questions in the queue and we have reached the end of the question and answer session.

Please note that this does conclude today's event. Thank you for attending and you may now disconnect your lines.

note that this does conclude today's event. Thank you for attending and you may now disconnect your lines. Thank you.

Thank you for attending and you may now disconnect your lines.

Goodbye!

I.

And that that that have se TE that that F and.