Q3 2024 Personalis Inc Earnings Call
Yeah.
Speaker Change: Good afternoon, everyone and welcome to your personality third quarter 'twenty pretty full earnings conference call.
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Speaker Change: A question and answer session will follow the presentation.
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Caroline Corner: I'd now like to turn the conference Caroline corner. Please go ahead ma'am.
Caroline Corner: Thank you operator welcome to personnel since third quarter 2024 earnings call. Joining today's call are Chris Hall, Chief Executive Officer, and President Aaron Tachibana, Chief Financial and Chief operating Officer, and Brittany, Chen Chief Medical Officer, and EVP R&D. All statements made on this call that do not relate to matters.
Speaker Change: Circle back should be considered forward looking statements within the meaning of the U S. Security Bot for example, any statements regarding trends and expectations for our financial performance this year and longer term cash run way revenue expectations on timing reimbursement golf bags and booking of orders product services technology clinical milestones upcoming.
Speaker Change: Finding a reimbursement decisions expectations for our existing and future collaboration activities cost expectations, our market opportunity and 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 risk factors described in our most recent filings.
Speaker Change: Personnel undertakes no obligation to update these statements except as required by applicable law.
Speaker Change: Our press release with our third quarter 2024 result is available on our website www dot personnel dot com under the investors section and includes additional details about our financial results. Our website also as a related SEC filings, which we encourage you to review a recording of today's call will be available on our website by five P. M Pacific time today, now I would like to turn the call.
Speaker Change: To clarify his comments and second quarter business highlights.
Speaker Change: Thank you Caroline and good afternoon, everyone and thank you for joining us for our third quarter call.
Speaker Change: For those of you joining one of our calls for the first time welcome Richard.
Speaker Change: <unk> is a leader in the fast growing MRV testing market.
Speaker Change: Or D stands for minimal residual disease and involves using blood, which is commonly called a liquid biopsy instead of imaging or invasive biopsies to monotherapy and to detect cancer recurrence.
Speaker Change: The MLP market is expected to mature into a $20 billion market with our ultra sensitive and Mardi assay next personal we believe personality.
Speaker Change: <unk> for success.
Speaker Change: Our technologies are able to spot cancer, when theres only one fragment of tumor DNA circulating DNA.
Speaker Change: DNA fragments and the blood.
Speaker Change: Our platforms are used by many of the world's top biopharma companies to improve clinical trial results personalized statement empower and new generation of therapies.
Speaker Change: Before we dive into our third quarter results.
Speaker Change: I wanted to share a recent case that highlights the power of next personal define residual on recurrent cancer and impact of patient care.
Speaker Change: Dr began using next person all the monitor of female and our 70 <unk> had been diagnosed with stage, one or two positive breast cancer. After the patient had undergone lumpectomy and receive standard adjuvant therapy. Dr began monitoring the patient with next personal performing multiple follow up costs over a five month period.
Speaker Change: Each test showed that cancer is still present with circulating DNA timber at a low level between 25 and 30 parts per million, which is in the ultra sensitive range.
Speaker Change: As a reminder, the ultra sensitive range are measurements of circulating tumor DNA below 100 parts per million that our next personnel test excels and quantify that could be mixed in with less sensitive test.
Speaker Change: This case, because the next personal test.
Speaker Change: Persistent small traces of residual cancer.
Speaker Change: Doctor was concerned and ordered additional imaging that led to finding another breast module and starting the patient on radiation with plans for additional chemotherapy.
Speaker Change: We're beginning to hear many anecdotes like this and they demonstrate how our platforms are impacting clinical care.
Speaker Change: Pharma partners and oncologists are noticing and starting to adopt <unk> personal and this is driving the performance we experienced this quarter.
Speaker Change: So now with that example, illustrating how we are driving advancements in care less.
Speaker Change: Switching gears and dive into the quarter.
Speaker Change: This year, we laid out a strategy to scale our business with three growth engines.
Speaker Change: In the third quarter, we achieved revenue of $25 7 million up 41% year over year.
Speaker Change: This improvement was driven by our Biopharma business, which grew 96% year over year led by strong demand for our tumor profiling product that is used to create personalized cancer vaccines for patients as well as increasing demand for MRV product next personal.
Speaker Change: Our strong Q3 revenue also helped us to increase our guidance for the full year and we now expect revenue in the range of 83 to 84 million.
Speaker Change: We're particularly pleased to have been able to deliver this top line growth, while making improvements to both our cost and margins as Aaron will cover shortly.
Speaker Change: We also see significant amount of capital this quarter in a cost efficient manner, Darren will discuss the details in his section, but we raised approximately $62 million from a combination of proceeds from tinnitus and from accessing the ATM.
Speaker Change: Most of this one directly into a bank account and we ended Q3 with 143 <unk>.
Speaker Change: $7 million in cash we believe this takes us into the first half of 2027 and well past the point, where we expect to achieve reimbursement for next personal.
Speaker Change: I'll now review progress this quarter on our three growth engines.
Speaker Change: The first growth engine women and Mardi is the most important as we focus on turning personnel listen to a clinical diagnostic powerhouse minimal residual disease or <unk> testing used as a liquid biopsy to find evidence of residual disease or cancer recurrence and to monitor therapy effectiveness, we laid out our women and Mardi.
Speaker Change: Strategy back in 2023 and have been laser focused on executing its four pillars, one focus on cancer types, where an ultra sensitive approach can unlock significant value for patients payers and partners to drive reimbursement by developing robust clinical evidence and partnering with top global collab.
Speaker Change: <unk> three leverage our deep relationships to accelerate adoption by Biopharma partners empower our revenue growth by the use of next personnel and clinical trials for commercialize next personal with a partner centric model.
Speaker Change: To delve into the first pillar. We've previously highlighted some of the evidence of Masco support next person knoll's unique clinical usage and reimbursement in lung cancer breast cancer and Io therapy monitoring our focus on these indications is intentional and our data has demonstrated that next personal can do exceptionally well and win in these markets to elaborate.
Speaker Change: A bit on our approach lung cancer and breast cancer shed very little DNA into the blood.
Speaker Change: Small traces of cancer can be difficult to detect without an ultra sensitive approach like next personal.
Speaker Change: Lung and breast cancers can be aggressive when they recur. The early detection is critical for patients on Io therapy, we believe the potential decisions to switch treatment requires the insights for monitoring that are provided by our ultra sensitive test the data across multiple studies now indicate we're able to see cancer recurrence earlier and.
Speaker Change: This holds out the promise that those patients can seek treatment sooner. Many months ahead of image, Inc. With potentially better outcomes. The data also suggests that patients who consistently test and margin negative, meaning our test it doesn't detect DNA from the tumor alright, much lower risk for recurrence in the future having more confidence in a negative result.
Speaker Change: Allow a doctor to spar spare patients from unnecessary necessary therapies and procedures.
Speaker Change: Avoiding toxicities and saving money for the healthcare system.
Speaker Change: In October 2023, we launched the first commercial ultra sensitive MRV test into the clinic with our early access program. We started our commercial journey with just 10 doctors and received positive feedback from those physicians and have been able to create significant dampened demand as we move through the first half of the year.
Speaker Change: We launched our commercial and marketing collaboration with Tempus in June.
Speaker Change: Strong demand and quickly decided together to accelerate our commercial launch Tempus now has more than 200 representatives, calling on the nation's oncologist.
Speaker Change: Our success contributed to a healthy quarter over quarter growth as we delivered 945 clinical tests in the third quarter, a 68% increase from the 561 results delivered in the second quarter of this year.
Speaker Change: We have provided feedback that they appreciate the increased action ability from using our test to inform therapy selection intervention as you remember we report circulating DNA in the blood down to about one part per million <unk>.
Speaker Change: <unk> analytics sensitivity, we report on with next personal test a master region that had previously been harder to attack consistently.
Speaker Change: We call that region, the ultra sensitive range, we expect our test heightened ability to detect small traces of cancer to drive our success in the clinical market.
Speaker Change: And approximately 35% to 40% of the Cte DNA positive samples, thus far and our clinical testing have been in this ultra sensitive range.
Speaker Change: That is a jump in the accessibility of MRV testing that means physicians can see cancer recurrence earlier have more discrimination of monitoring therapy and have more confidence that patients with negative <unk> results are in fact cancer free I wanted to take a moment to share one more statistic that underscores the value physicians are placing in our approach 90.
Speaker Change: 8% of the physicians, who order from Q3, if already ordered from US again in Q4, the demand for our approaches Si and doctors are largely pleased when they start to utilize next personal with their patients.
Speaker Change: Moving to our second pillar, we've previously mentioned our focus on building and publishing clinical evidence to gain reimbursement.
Speaker Change: We continue to work with many of the.
Speaker Change: Top thought leaders around the world and in fact, some of them are deep into the preparation and submission of manuscripts for publication in leading peer reviewed oncology journals.
Speaker Change: We've previously summarized the findings from investigators at Royal Marsden for breast cancer.
Speaker Change: Oh for Io therapy, and <unk> for lung cancer, while we won't be providing updates on the publication journey I am pleased to update you that our breast and Io collaborators have now submitted articles in peer reviewed journals for publications.
Speaker Change: Once these data are published there will be a key component in our dossier for submission to Medicare for reimbursement for each indication.
Speaker Change: While our collaborators and the target publication editors control the publication process, our conversations with them give us continued confidence in our goal of achieving reimbursement for two indications in 2025.
Speaker Change: Two of our key studies were highlighted during the 2024 ESMO conference in Spain first an update on our work with the tracer ex consortium in the area of lung cancer was presented by Charlie Swanton.
Speaker Change: The podium presentation showcased next personal <unk> ability to detect residual cancer up to nine months before imaging for a significantly expanded group of patients compared to last year's presentation at ESMO and the clinical data continued to show outstanding results.
Speaker Change: As a reminder, this is one of the larger <unk> studies in lung cancer conducted today.
Speaker Change: The second collaboration highlighted was the valve the Hebron VH Io collaboration in immuno therapy monitoring.
Speaker Change: For <unk>. The work is pan cancer and included an expanded group of patients across 18 different cancer subtypes.
Speaker Change: <unk> showed that next personnel could potentially be used to predict immunotherapy response for patients on <unk>.
Speaker Change: Pleased to update you that we now are working with 14 studies across our core indications breast cancer lung cancer and I O therapy monitoring.
Speaker Change: In lung cancer, we're working with the tracer ex group as mentioned in breast cancer, we're working with Royal Marsden Dana Farber on her two positive patients.
Speaker Change: Institute Curry on an approximately 100 patient early stage triple negative breast cancer study.
Speaker Change: We're also working with Vanderbilt John Hopkins and other institutions on the predict study and approximately 180 patient study in early stage <unk> NBC and her two positive breast cancer and have an ongoing prospective study called be stronger one that has now enrolled more than 50 patients with <unk>.
Speaker Change: D C.
Speaker Change: I O therapy monitoring, we're working with CAH Io and U K in two different melanoma studies with the group and Duke.
Speaker Change: That in gastric cancer patients.
Speaker Change: With U S D on a pan cancer Io therapy study and with the tracer X team on our lung cancer Io therapy study called Darwin to.
Speaker Change: The growing data and ongoing studies underlying our commitment to demonstrate the value of our approach and platform in patients.
Speaker Change: The third pillar of our next personal strategy is to leverage our biopharma relationships.
Speaker Change: Five the use of <unk> personnel in clinical trials.
Speaker Change: Customers want and need an ultra sensitive approach to more effectively select patients for clinical trials and to more accurately monitor trial success for example, with <unk>.
Speaker Change: Data presented suggest that patients testing negative with our ultra sensitive assay are much more likely to have recurrence.
Speaker Change: Our biopharma customers can then expect that these patients are less likely to benefit from a therapeutic intervention.
Speaker Change: Building out the promise that next personal could be an excellent approach to optimize biopharma trials.
Speaker Change: Additionally, using an ultra sensitive test to monitor results could mean being drug effectiveness sooner rather sooner than imaging potentially allowing the drug to get to market faster over time, indeed, the value we create for biopharma clients is increasingly appreciated.
Speaker Change: We're engaged with most of the world's top biopharma companies and have continued to generate excitement around our necks personal test most recently from discussions at ESMO Nasco, we continued.
Speaker Change: Expand our book of revenue orders from Biopharma customers for MRV projects and expect the growth to begin accelerating through 2025.
Speaker Change: Now I'll move on to the fourth and final pillar commercializing next personal in the clinical market using a partner centric model.
Speaker Change: In August we announced a new chapter in our relationship with Tempus or we agreed to accelerate our commercial activities. We began the commercial journey.
Speaker Change: Early access program.
Speaker Change: In October of 2023, followed by the Tempus launch at <unk> in June.
Speaker Change: Our efforts have been met with strong demand and interest and an ultra sensitive approach and as a result in August we collectively decided to accelerate our efforts.
Speaker Change: There are 200, plus sales person channel is now trained on our product and talking to oncologists. As a reminder, personnel is processing samples in our lab.
Speaker Change: Focus is on obtaining reimbursement.
Speaker Change: Invoices health insurance companies.
Speaker Change: Payers and patient signs of the arrangement in place tip is fair market value for the commercial services they provide to us.
Speaker Change: As a part of the August expansion Tempus exercised their warrants for $18 4 million and invested an additional $17 7 million and personality by buying shares at $5 seven per share.
Speaker Change: That brought us the aggregate deal value to approximately $48 million for personality, which includes $12 million in milestone payments plus the $36 million of equity investment from Tempus.
Speaker Change: Partnership is working extremely well and we're pleased with our progress.
Speaker Change: Our goal over the next 15 months is to position personality.
Speaker Change: <unk> personal with broad clinical usage scaled operations and rapidly accelerating revenue on the back of reimbursement.
Speaker Change: Things are clicking along on our first growth engine, our winning <unk> strategy. We've also made progress with our second growth engine, leveraging our immuno <unk> next platform to deepen relationships with Biopharma customers.
Speaker Change: Pioneering new therapies.
Speaker Change: Our biopharma business grew 94% year over year, and we had solid performance across our product portfolio customer.
Speaker Change: Customers, primarily use our immuno.
Speaker Change: Next platform in two ways first they leverage our platform to power translational research and find new Biomarkers and insights that can enable their drug development efforts.
Speaker Change: In this regard we've been working with most of the top 20 global biopharmaceutical companies over the years.
Speaker Change: Second companies in a personalized cancer vaccine, our PCV market use our platform to create a molecular fingerprint of a patient's tumor to develop personalized therapy. We've previously highlighted how our partner <unk> is using our platform and theyre mrna individualized Neo antigen therapy program.
Speaker Change: Collaboration with Madonna has been an important driver of revenue for us in 2024.
Speaker Change: <unk> and its partner Merck have now enrolled most patients for their phase III clinical trial, our revenue from a darn accelerated as they finalize enrollment in their phase III melanoma clinical study, we anticipate that our revenue from a Dana will fall back over the next few quarters. While the next set of studies ramps up we continue to support them on multi.
Speaker Change: Clinical studies and expect that our relationship with Madonna will continue to generate substantial revenue over the next several years.
Speaker Change: The third engine of our growth strategy is growing our personnel inside approach as we service enterprise customers.
Speaker Change: These relationships partners adopt our platforms and technologies to power their solutions for example, MS. Tara has leveraged our exome platform.
Speaker Change: Part of their MRV product to help them scale, while they work to build in house capacities.
Speaker Change: Previously mentioned they've transition this work in house, and we expect to wind down our work with <unk> by the end of the fourth quarter, while our Biopharma and clinical diagnostic business is accelerating.
Speaker Change: Shifting the capacity previously earmarked for Natera to support these other strategic efforts. We also continue to have discussions with other companies about doing sequencing work for them.
Speaker Change: Our second enterprise relationship as the VA the VA utilizes our whole genome sequencing capabilities to power the million veteran program a national research program looking at how genes in life and.
Speaker Change: Health and veterans, we help power of this program for more than 10 years now and in September the VA renew their contract with us for another year, we received a new purchase order in the amount of $7 5 million.
Speaker Change: We expect to fulfill in 2025.
Speaker Change: It's been another excellent quarter and I'm grateful to the team at personalities are early next personal clients, our collaborators and partners for all the work guidance and feedback this quarter as we continue to redefine the market with a more sensitive approach. We're building a special company that is impacting patients' lives.
Speaker Change: Helping us to win the fight against cancer with that I'll now turn it over to Eric to review our financial results.
Eric: Thank you Chris.
Eric: Total company revenue for the third quarter 2024 was $25 7 million.
Speaker Change: In a 41% increase compared with $18 2 million for the same period of the prior year.
Speaker Change: The increase in revenue was driven by higher volume from Biopharma customers and the VA MVP.
Speaker Change: Which was partially offset by the expected decline from Natera.
Speaker Change: Biopharma revenue grew 96% compared with the same period last year and the growth was primarily driven from higher immuno IV next volume from Madonna's PCB projects.
Speaker Change: Our VA MVP revenue increased 85% compared to the same period last year.
Speaker Change: As we fulfilled the remaining amount at the 2023 to 2024 task order.
Speaker Change: Alignment with the VA Mvp's fiscal year end.
Speaker Change: In addition, we recognized <unk> $3 million of clinical revenue from our next Dx tumor profiling test.
Speaker Change: Gross margin expanded to 34% in the third quarter compared with 19, 1% for the same period of the prior year.
Speaker Change: The year over year increase of 14 nine percentage points was primarily due to favorable customer mix and operating leverage from the increase in revenue volume.
Speaker Change: Over the last year and a half our focus has been to reduce product costs improve productivity reduce lab operations expenses and improved utilization to drive margins higher.
Speaker Change: We are making very good progress.
Speaker Change: In the third quarter, we saw an impact of over four percentage points to our gross margin due to unreimbursed clinical test costs.
Speaker Change: Excluding those costs.
Speaker Change: Margin would've been approximately 38%.
Speaker Change: One of our top goals is to continue expanding gross margin, but we expect some variability from quarter to quarter along the way.
Speaker Change: Operating expenses were $23 $1 million in the third quarter compared with $34 3 million for the same period of the prior year.
Speaker Change: Most of the year over year decrease was attributed to actions taken to reduce head count in 2023, and also a facility impairment charge of $5 $6 million for the same period last year R&D expense was $11 7 million in the second quarter compared with $16 7 million for the same period last year.
Speaker Change: SG&A expense was $11 4 million compared with $12 million for the same period last year.
Speaker Change: Net loss for the third quarter was $39 $1 million compared with 29.
Speaker Change: For the same period of the prior year.
Speaker Change: The third quarter net loss included a $26 million noncash expense related to fair value accounting for the warrants exercised by Tempus.
Speaker Change: Non standard expense was a result of the increase in fair market value of the warrants at the time of exercise in early August.
Speaker Change: Paired with the fair market value at the end of last quarter.
Speaker Change: The warrant accounting implications had no impact on the cash value or amount received from tempus.
Speaker Change: Now onto the balance sheet.
Speaker Change: We finished the third quarter with a strong balance sheet with cash and short term investments of $143 $7 million. During the quarter. We received financing proceeds of $62 $2 million net of expenses from tempus exercised their warrants for $18 4 million at an average price of $2 per <unk>.
Speaker Change: Sure Tempus purchasing an additional $16 6 million of common stock at a price of $5 seven per share.
Speaker Change: Selling $27 $2 million of common stock under the at the market or ATM program.
Speaker Change: Weighted average price of $5.84 per share.
Speaker Change: We used approximately $6 million to fund operations in the third quarter, and we have approximately two and a half years of cash on the balance sheet, which is expected to last into the first half of 2027.
Speaker Change: Now I'd like to turn to guidance.
Speaker Change: The fourth quarter of 2024, we expect total company revenue in the range of $15 million to $16 million.
Speaker Change: And all of the revenue is expected to be generated from pharma tests enterprise sales and other customers.
Speaker Change: With that I'd like to provide some context around the fourth quarter guidance and the sequential decline.
Speaker Change: First Rob.
Rob: 2020 for revenue from Madrone accelerated due to the increase in patient volume for the melanoma phase III clinical trial.
Speaker Change: Most of the patient enrollment now completed we expect revenue per <unk> to decline by 55% to 60% in the fourth quarter sequentially down from $8 5 million in the third quarter, we remain committed and excited about the long term PCB opportunity with Madonna, who have partnered with us for many years now.
Speaker Change: Second.
Speaker Change: We explained on our last call that revenue from the Terra would decline in the second half of 2024.
Speaker Change: We currently expect approximately $2 million to $3 million from Terra in the fourth quarter as we wind down This project and then no meaningful near term revenue in 2025.
Speaker Change: And third some detail about the VA MVP in the third quarter, we recognized $4 $4 million of revenue from the 2023 to 2024 task order, which needed to be fulfilled by the end of September aligning with their fiscal year end.
Speaker Change: The new seven and a half million dollars task order recently received if group is through the period of October 2024.
Speaker Change: September 2025, and we expect to fulfill this order between the first and third quarters of 2025.
Speaker Change: And for the full year 2024, we increased our guidance and now expect total company revenue in the range of $83 million to $84 million, an increase from our prior guidance of $79 million to $81 million.
Speaker Change: Revenue from pharma test enterprise sales and other customers in the range of $76 million to $77 million, an increase from our prior guidance of $71 million to $73 million and this estimate includes revenue from the terror of approximately $24 million.
Speaker Change: Population sequencing revenue from the VA MVP of approximately $7 million a decrease from our prior guidance of $8 million.
Speaker Change: Net loss of approximately $85 million, which includes the noncash expense of approximately $18 million related to the warrants exercised by tempus.
Speaker Change: Cash usage in the range of $53 million to $55 million a decrease from our prior guidance of $60 million.
Speaker Change: And the cash burn reduction as a result of higher gross profit dollars from the increase in revenue and expense control.
Speaker Change: We look forward to updating you on our progress during our next conference call in a few months.
Speaker Change: And with that I will turn the call back over to the operator to begin the Q&A session operator.
Speaker Change: Thank you.
Speaker Change: We will now be conducting a question and answer session. If your last answer question. Please press Star and then one on the telephone keypad.
Speaker Change: A confirmation tone will indicate that your line is in the question queue.
Speaker Change: You May press star two to leave the question queue.
Speaker Change: For participants, making use of speak equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Please note to keep everyone the opportunity to participate please limit yourself to one question.
Speaker Change: And one follow up.
Speaker Change: If time allows youre welcome to rejoin the question queue for further questions.
Speaker Change: Our first question comes from Yoko.
Yoko: <unk> of Morgan Stanley. Please go ahead. Thank you.
Yoko: And offer you go thanks for taking my question and congrats on the quarter, maybe start off and no word now almost six months post launch for next person on it sounds like it's been doing a lot of positive traction here.
Speaker Change: And I would say expansion with Panther agreement I'm hearing feet decline. These patient samples ex personal that you would accept can you just talk a bit about the rationale behind this decision I hadn't reimbursement and how you are balancing the volume ramp ahead of getting paid.
Speaker Change: Yeah. Thanks for the question.
Speaker Change: The product has been really well received and what we originally started with just a handful of campus reps.
Speaker Change: And we wanted to only be able to put ourselves in a position where when we get reimbursement which were anticipated in 2025.
Speaker Change: The army of people out that are well trained and have worked with our product and our and kind of be pretty agile, telling the story and so the expansion of the agreement allow us to have more reps.
Speaker Change: Out there talking about it as learning and working with it and allowed us to temper as folks to better figure out how to integrate it into their story across all of them.
Speaker Change: The different environments. They work at it. So we think that's really positive for shareholders because it puts us in a position where revenue growth, we think will be more explosive.
Speaker Change: On the other side of reimbursement and if we had started out at a slower rate, but we're still gaining that were still being very thoughtful about it and we're still we're still moving.
Speaker Change: Thoughtful way.
Speaker Change: And then so and.
Speaker Change: Addition to what Christian has articulated and that was the reason I misspoke tempus exercising the warrant at $18 million in the quarter as well as adding to that in the form of an additional investment of $3 5 million shares at $5 seven and they understand that we don't have reimbursement just yet so in order to go faster.
Speaker Change: We do need a little more capital so that was part of the pregnancy as well.
Speaker Change: Okay that makes sense.
Speaker Change: And then maybe just one other one wondering how youre thinking about gross margin gross margin cadence as we look to 'twenty 'twenty five as volumes from next personal starts ramp and what are the key library.
Speaker Change: He about pulling there to improve gross margin next year.
Speaker Change: Yes. So great question, we haven't provided formal guidance for 2025, yet, we'll do that on our fourth quarter and full year call early in 'twenty five.
Speaker Change: Our gross margin for 'twenty, four is probably going to be in the 31% to 32% range based on.
Speaker Change: And in Q3, and what we're looking at for Q4, what we can say and again on our last couple of calls that we've stated that we've had headwinds of about 4% to 5% gross margin points for unreimbursed test costs.
Speaker Change: It's going to increase in 2025, primarily because of the volume increasing as well right. So there could be headwinds into gross margins of somewhere between 15, and 18 gross margin percentage points, our gross margin aside from that will accrete.
Speaker Change: But this guy.
Speaker Change: We'll have those headwinds to deal with as well so.
Speaker Change: The gross margins could.
Speaker Change: Could come down.
Speaker Change: Exit 2024 that don't know exactly amount to share we'll provide that clarity early in 'twenty five.
Speaker Change: Got it okay that makes sense. Thanks, so much for your time.
Speaker Change: Sure. Thank you.
Speaker Change: Our next question comes from Dan Brennan of TD Cowen. Please go ahead.
Speaker Change: Hey, this is Joe on for Dan Thanks for the question.
Speaker Change: This is some really great momentum and M. A D, but when I look at the filing revenue from Madonna increase from 26% to 33% of total sales quarter over quarter, but transit is like 45% sequential revenue growth.
Speaker Change: So that tends to make up most if not all of the sequential strength in the pharma business, though I guess the question is one did MLD or <unk> revenues increased sequentially and two is there an opportunity for these revenues to grow before your first Medicare approval.
Speaker Change: Yes, so that's a great question, Joe and thanks for the question in terms of PCB with Mcdonald's on Mcdonough has accelerated in Q3 as you mentioned so it did grow in addition to that our immuno <unk> next platform in Denmark D with Biopharma clients did increase as well okay. It didn't increase.
Speaker Change: As much as somebody.
Speaker Change: I'm going to turn it to drive most of the increase in the Biopharma line.
Speaker Change: We did get.
Speaker Change: Paid about $300000 from our CGP next Dx test from Medicare.
Speaker Change: So that was recorded as revenue as well.
Speaker Change: And the.
Speaker Change: Just to add the <unk> revenue from Biopharma companies. It's also.
Speaker Change: Starting to get traction the buying cycles on these things there are our longer we the first time that data was presented on the product is at ESMO last year and that got a lot of biopharma companies starting to spend some time with us and the data that was that tracer data and then to ask O data around breast Nio really accelerated.
Speaker Change: The move that buying decisions in these big Biopharma companies are not.
Speaker Change: Quick they typically start to interact with you.
Speaker Change: And they run test they run pilots they may do bake offs and so we've been moving through that process. It we think a really fast clip and we feel like we're in a position to do.
Speaker Change: Really really well with the revenue growth around R&D coming from Biopharma companies prior to reimbursement happen.
Speaker Change: Happening in 2025.
Speaker Change: Got it great and then on the 945 molecular tests in the quarter is there a way to think about MLD versus profiling and I just want to confirm that this is no longer just under 10 positions that you started with an early access.
Speaker Change: That's right that's right that's a combination of.
Speaker Change: Organic growth in the physicians coming from our small number of reps that we have.
Speaker Change: We've allowed for the wait list.
Speaker Change: And then you know.
Speaker Change: It's coming Tempus is starting to grow that number out so that number is starting to grow in terms of physicians.
Speaker Change: We're starting to see the.
Speaker Change: <unk>.
Speaker Change: The C CGP tests next Dx.
Speaker Change: You know being sold with.
Speaker Change: The MRM D tests next person, who is working really well and our customers Tempus, obviously is not selling next dx and so.
Speaker Change: The tests that are coming from them or just next Arsenal and so you know you see most of that all of that growth is coming from the M. R&D product quite frankly, but we're really really pleased with the.
Speaker Change: The success, we've had executing putting the next Dx CGP with Emaar JV because customers want a one stop shop experience and that's what we're saying.
Speaker Change: Is that helpful. Joe.
Joe Mcdonough: Yeah, Barry Thanks for the question.
Speaker Change: Our next question comes from Mark Massaro of P. T. G. Please go ahead.
Mark Massaro: Hey, guys congrats on a good quarter, thanks for taking my questions.
Speaker Change: Apologies if you've covered this some of us are hopping multiple calls but.
Speaker Change: Would love to just get your insights about.
Speaker Change: How next personal is being received in the marketplace relative to other <unk> tests that are available.
Speaker Change: Obviously, you guys have talked about the ultra sensitive range I'm just curious how you think that's resonating.
Speaker Change: How much education needs to go in before people seem to clearly understand what that means.
Speaker Change: And maybe I'll just start there.
Speaker Change: Yeah, I mean, I think I.
Speaker Change: I think thats the core thing and we've really we really try to distill that down because every day when we're returning results back to physicians.
Speaker Change: Were seen.
Speaker Change: 30%, 40% of the results and the ultra sensitive range of a positive result, and that has been super well received because those are patients that they're able to see more you know more than what they've been able to see before and we're seeing tremendous retention.
Speaker Change: You know, we we put that 90 plus percent number in there, but the physicians that are that have started with us are still working with us.
Speaker Change: And of course customers are ordering in a quarter over quarter and sticking with us and we feel like we're in a good spot you want to add something.
Speaker Change: No I think you stated it well I think the.
Speaker Change: The ultra sensitive concept is really resonating just like Chris said.
Speaker Change: You definitely can understand when they.
Speaker Change: The low level of detection, but it's positive.
Speaker Change: To say see that actually that could have been missed.
Speaker Change: That's it.
Speaker Change: And a lot of these physicians have experienced situations, where initial test other tests have been negative and it goes on to be positive later on yes, and so we think it's.
Speaker Change: It's working well and then we've had actually I talked about the example that we used in the.
Speaker Change: And in the script, where.
Speaker Change: The patient within that 20 to 30 P. P. M range didn't expect her to be there started doing looking for for for evidence of the disease founded unexpectedly at another spot.
Speaker Change: And then you know.
Speaker Change: It was able to take action in those types of cases really cement the value proposition and don't take a ton of education and teaching to do right. I think that's what's that's what is important to be able the ability that we've had to distill this down into the ultra sensitive range tie that to the data that's shown in the by the collaborators with the.
Speaker Change: You know with the plants et cetera have all tied together and made it a good story I will note that one of the things. We're doing park is we're trying to serve customers across the continuum. So we learn how to take people that have experience doing testing.
Speaker Change: They are already testing it up at a good scale in their clinics, we're trying to work with doctors, who dabbled with the technology because part of the challenge. There is we try to make them R&D testing standard of care as an industry is how do we grow their usage and then we've also found new people quite frankly, who are trying out and working with them already testing in the beginning because we want to be able.
Speaker Change: To move the needle on all of these different customer segments. If we're gonna put personality in a position where we are.
Speaker Change: Sure.
Speaker Change: Really really pushing forward on this market and so.
Speaker Change: Very very.
Speaker Change: Purposefully as a part of our execution plan, we're focusing in this phase of the business on learning how to attack each one of those different segments.
Speaker Change: Okay.
Speaker Change: So the the volume number grew I think 68% sequentially.
Speaker Change: The molecular tests you were at 66% in Q2 I'm just curious if that's coincidental that it's about the same growth rate I know, it's early days, but I guess, what I'm really trying to get at is are you intentionally.
Speaker Change: Holding back.
Speaker Change: Throttle commercially.
Speaker Change: Until you get reimbursement, maybe just remind us we've seen other precision oncology labs do that and then I'm just wondering when reimbursement does come in how should we think about it.
Speaker Change: Resources that you might deploy internally to work together with campus.
Speaker Change: I think it's fair to say you were holding back I mean, we still have a waitlist of doctors, we're not pushing hard.
Speaker Change: On an across the board I mean, we're still we're moving in a more aggressive pace with the expansion of the temperature range.
Speaker Change: Thoughtful about it and I'm being being purposeful when we get when we get when we get reimbursement we will have some more people in the field on our own.
Speaker Change: Our court.
Speaker Change: Those staff will drive organic growth that's just for personnel, but also quite frankly, you know work with his team Tempest brings a lot of benefits to this to this they've got the knowledge the skill sets of working with these individual institutions are often integrated into the Mars and we've largely been a different about where the Sam.
Speaker Change: <unk> commented, but we will apply more people on our.
Speaker Change: Sales and marketing ourselves to two accelerate accelerate commercial traction once you get once we get reimbursement.
Speaker Change: And the other thing we're learning right now also is how the scale of the lab.
Speaker Change: So learning growing this thing at this but over the last couple of quarters, 60% really we're learning how to get samples in the air.
Speaker Change: Get them through the system, how to beat all of our lead time commitments that we're making to doctors.
Speaker Change: Bill for it deal with customer care and building this business.
Speaker Change: From the ground up you want to go do you want to keep you got to keep moving it keep taxing the system to keep nailing it and that's what we're doing.
Speaker Change: Okay, great. It's nice to see the extra cash coming in in the door from multiple sources.
Speaker Change: Don't know if you covered this already but.
Speaker Change: Can you give us a sense now that your balance sheet is.
Speaker Change: So maybe on firmer a firmer foundation, how are you thinking about spending in 2025, maybe walk us through what Youre thinking about in terms of commercial organization and then how do you prioritize the timing of that.
Speaker Change: As reimbursement might come in.
Speaker Change: Yes, I mean, we're I wouldn't know just think I appreciate the comment on the on the cash I mean, it's super important and we did in a really cost effective way and we were really excited about that we called that out on the script, but you know sometimes the fund raising can take a big chunk off the top and the way. We did this no really I think I think I think it was really clear.
Speaker Change: Effective.
Speaker Change: We were gonna will stay largely <unk>.
Speaker Change: Barry will be in cash conservation mode. All the way now it's running against the company in.
Speaker Change: All the way through to cash.
Speaker Change: Breakeven and then you know as we try to scale. It over time too highly profitable company. We're very focused on I think we all learned a lot through this last period and we're not going to keep our eye and keep our eyes on the on the bottom line and.
Speaker Change: And certainly in this next phase will be very thoughtful we'll stay very focused with our current reps in the field.
Speaker Change: Till we start to until we know that we're going to get reimbursement and that will start to grow it out grow it out from there.
Speaker Change: Not going to expand that out ahead of anything because you can just burn a lot of money.
Speaker Change: <unk> and we have a partner that's actually nailing it in the field for us So I don't really eat too.
Speaker Change: Getting the traction that we need and we're starting to get installed in many of the top institutions in making the progress partially you see that in the 60% sequential quarter over quarter numbers that we need to do with what we've got.
Speaker Change: Just wanted to talk on the capital allocation one other thing on the capital allocation. So inside of our R&D expenses $50 million to $55 million per year, roughly one third of that goes towards creating clinical evidence.
Speaker Change: And that's going to that's going to stay in a similar range as we go forward into 'twenty five we could step it up in 2006, primarily because we do have to continue down that path.
Speaker Change: To be able to go get some of the private payors.
Speaker Change: As well into the future, we'll keep we'll keep driving hard and clinical evidence showing the value of ultra sensitive testing.
Speaker Change: Clinical utility studies are now prospectively gathered before firing that stuff up we've got all of that embedded in our models.
Speaker Change: And I think investors should feel actually.
Speaker Change:
Speaker Change: Peter.
Speaker Change: We're going to invest there I think I think I think the learnings from all of these diagnostic companies is that as always good spending as you build deeper evidence in a well.
Speaker Change: Okay. Thank you guys.
Speaker Change: Thanks Mark.
Speaker Change: Our next question comes from Thomas Flaten.
Speaker Change: Street Capital. Please go ahead.
Thomas Flaten: Good afternoon, guys great quarter Congrats.
Speaker Change: Chris in your prepared remarks, you mentioned that the breadth and Io had been submitted to a peer reviewed publication should we just then extend that logic and assume that those will be the two indications that you're seeking to get reimbursement for 2025, where do you think theres an opportunity for logging to kind of leapfrog one of them no no no no. We're all over along we plan.
Speaker Change: We're shooting to have three out of three but we think that you know two out of.
Speaker Change: You want to have three shots on goal with idea of getting to that makes sense Thomas that something I evidently on the rehab embarrassment roadmap could happen.
Speaker Change: And so you know presumably you can say those two marvels are rolling a little faster now, but the long one concern like catch up to the data looks really strong there. It's one of the larger M R&D trials upon and.
Speaker Change: I think I think we're going to move all three of them pretty aggressively and we have a shot at getting all three reimbursed in 2025 to be perfectly honest, that's our internal plan.
Speaker Change: It's just that.
Speaker Change: We think it's prudent.
Speaker Change: Two to assume that something could happen with one of them on a journey either in a publication or or or somebody wants to stress some more data to validate something.
Speaker Change: Anything to add to that rich Oh, sorry.
Speaker Change: Hi, Thomas.
Thomas Flaten: Please go ahead rich.
Speaker Change: No. It was it was.
Speaker Change: There was nothing more I just did I was just checking in.
Speaker Change: Any more space.
Speaker Change: Got it so with the Merck Mcdonough melanoma study largely enrolled at this point.
Speaker Change: Do you have a sense of timing on when these other studies might ramp up in and how that might impact your $100 million aspirational target for 2025, or how should we think about that aspirational target in light of melanoma now being largely done.
Speaker Change: Yeah, I mean, I think we set that target knowing the melanoma would largely be done.
Speaker Change: Ours will be done this year. They were they were pushing pretty aggressively for it we're still committed to shooting them pushing for $100 million.
Speaker Change: We haven't guided next year, and we don't want that to be in.
Speaker Change: Apply that we've guided that that's what we're pushing for internally in building our plans.
Speaker Change: To nail that because that'll be a big big spot in the in the business.
Speaker Change: And that's and that's where we are there's a bunch of studies go on I think they just announced that a phase III lung trial, there, they're pushing forward with and very excited about the relationship with them.
Speaker Change: It's been another cornerstone relationship.
Speaker Change: Personality and we've done that.
Speaker Change: Great great year supporting them in their journey.
Speaker Change: Excellent I appreciate you taking the questions. Thank you.
Speaker Change: Thank you Thomas.
Speaker Change: Our next question comes from Mike Matson of Needham and company. Please go ahead.
Mike Matson: Hi, guys just one for Mike.
Mike Matson: So I understand it's still early days with next personal in the partnership with Tempus, but.
Mike Matson: I'm just kind of wondering if you've seen out of the.
Mike Matson: Three indications of a certain indication whether it be breaths.
Mike Matson: Long or Io has been a predominant driver of volume there.
Mike Matson: And then maybe if there's not an answer there.
Speaker Change: There is a certain you know data set whether it be something robust tracer that you've heard from physicians or similar contacts that have.
Speaker Change: Driven awareness of next personal.
Speaker Change: Yeah, I mean, I think that we're seeing it across all three of those indications.
Speaker Change: I O therapy monitoring probably does it's fair to say does a lot of the heavy lifting and that's pan cancer, that's probably true across all of the use of molecular diagnostics, it's where most of the CGP test or play in or coverage. So I think that that's always one of the key indications, but theres been a lot of interest in what we're doing with <unk>.
Speaker Change: And long, we're solving real problems, if physicians have with patient care and that insights and valued and and and and.
Speaker Change: And it's driving the usage I think all of the data sets have been.
Speaker Change: They've been well received you know I think that tracer ex dataset and the.
Speaker Change: Royal Marsden dataset, where we're able to show.
Speaker Change: Finding cancer 15 months ahead of imaging for lung cancer on average sometimes as long as three years ahead of imaging that 15 months I think it is and in lung cancer nearly a year out of imaging has been really well received and physicians.
Speaker Change: Sort of underlying the power of the ultra sensitive approach.
Speaker Change: Okay, great and.
Speaker Change: And then maybe I think erinn.
Erinn: I'd mentioned that you guys are still having ongoing discussions with other companies for doing additional sequencing work for the enterprise sales.
Speaker Change: Just kind of wondering you know.
Speaker Change: What type of contract or.
Speaker Change: No relationship would have to exist for you guys to maybe shift focus away from your main strategic efforts <unk> been that main one I.
Speaker Change: I I guess, what type of contract where their size or scope would wouldn't need to be.
Speaker Change: Presented.
Speaker Change: Yeah go ahead I'm sorry, yes. So good question in terms of our main focus.
Speaker Change: Winning in MRV is our number one focus both in the clinic and with Biopharma in terms of discussions we have some ongoing discussions with potential partners is going to have to be something where it's not going to take us down.
Speaker Change: Or deviate too far away from what we do what we're good at I guess, it's gonna have to be something along the lines of <unk>.
Speaker Change: <unk> that we have in service today to make sure that it can be run in a lab the same way from an efficiency standpoint.
Speaker Change: Alright.
Speaker Change: Still in early days, we don't have anything to report in that regard.
Speaker Change: Just kind of how we think about it today Joseph.
Speaker Change: Okay. Yeah. That's that's very helpful. That's all the questions from us.
Speaker Change: Congrats on the quarter.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, just a reminder, if not how succession he won't stall and then one to pay for itself in the question queue.
Speaker Change: Our next question comes from Lee Chen of <unk>.
Speaker Change: H C. Wainwright. Please go ahead.
Speaker Change: Hello. This is <unk> for me just a quick question from us.
Speaker Change: MS. Lee you guided gross margin for 2000, and when they find to be in the low thirties I Wonder if this is Steve.
Speaker Change: If you have any updated thoughts on that thank you.
Speaker Change: I'm sorry, we didn't guide 2025 to be in the low thirties, and it's really for 2020 for 2020 for our gross margin estimate is in the low thirty's, 31% to 32%.
Speaker Change: Well Guy will guide for 2025, once we get into our fourth quarter and full year earnings call early 2025.
Speaker Change: Thank you for the question.
Lee: Thank you Lee.
Speaker Change: Yeah.
Speaker Change: With no further questions in the question queue, ladies and gentlemen, we have reached the end of the question and answer session.
Speaker Change: Thank you for attending and you may now disconnect.
Speaker Change: Two lines.
Speaker Change: Goodbye.
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