Personalis Q1 2023 Earnings Call Transcript

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May 3, 2023

There are 10 speakers on the call.

Operator

Greetings ladies and gentlemen, and welcome to Personalis First Quarter of 2023 Earnings Conference Call. At this time, all participants are in listen only mode. There will be a question and answer session following the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Caroline Korner of Investor Relations.

Speaker 1

Thank you, operator. Welcome to Personalis' Q1 2023 earnings call. Joining me on today's call are Chris Hall, Chief Executive Officer and President and Aaron Tachibana, Chief Financial Officer and Chief Operating Officer and Rich Shen, Chief Medical Officer and EVP, R and D. All statements made on this call that do not relate to matters of historical fact should be considered forward looking statements within the meaning of the U. S.

Speaker 1

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, size and booking of orders, products, services, technology, clinical milestones, the outcome and timing of reimbursement decisions, expectations for our 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. We encourage you to review our most recent filings with the SEC, including the risk factors described in our most recent annual report on Form 10 ks. Personal Health undertakes no obligation to update these statements except as required by applicable law.

Speaker 1

Our press release for the Q1 2023 results is available on our website, www.personnel.com under the Investors section and includes additional details about our financial results. Our website also has the latest SEC filings, which we encourage you to review. A recording of today's call will be available on our website by 5 P. M. Pacific Time today.

Speaker 1

Now I'd like to turn the call over to Chris for his comments and Q1 business highlights.

Speaker 2

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 Personalis is uniquely positioned for its technology to power the 2 most important developments occurring in oncology. One is creating personalized diagnostic assays to monitor patients with cancer and the second is delivering personalized therapies patients. Both of these developments in the management of patients require 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.

Speaker 3

It's been a few months

Speaker 2

Our product addressing this space is a tumor informed personalized liquid biopsy test called Next Personal. Our focused strategy involves pursuing 3 cancer indications: early stage breast cancer, early stage lung cancer and immunotherapy monitoring and finding partners for other cancer indications. We picked early stage breast cancer, lung cancer and immunotherapy monitoring because we believe our technology is uniquely suited to guide treatment decisions in those indications based on its ultra high sensitivity. At the heart of our win in MRD strategy, our aggressive product performance goals, which we call ultra high sensitivity. We aim to achieve

Speaker 3

and can do this

Speaker 2

not just for a few patients, but consistently for most patients across many different cancer types and stages. We believe When we do see 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. First, we were chosen by AstraZeneca and TRACER expert MRD studies. We extended our partnership with AstraZeneca so that they will use Next Personal to explore ultra sensitive MRD measurements Clinical Research and Drug Development.

Speaker 2

We were also selected by Doctor. Charles Swanton in the TRACER X study, one of the world's most major initiatives to determine treatment options and effectiveness for patients with early stage lung cancer. We will work with the TRACERx samples and leadership group to determine the value of an ultra sensitive assay such as ex personal and lung 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. Put another way, these global leaders are choosing to work with us because of our ultra sensitive MRD capability.

Speaker 2

2nd, a few weeks ago at the American Association For Cancer Research Annual Meeting, Initial findings from our UKE collaboration were presented. Liquid biopsy pioneer Doctor. Klas Pantel is using NEXT Personal to track tumor response to immunotherapy and he highlighted results from late stage melanoma patients. This study, although early, showed extremely promising results. First, the next Personal detected ctDNA levels down to the ultra sensitive level of 1 part per million consistently across patients.

Speaker 2

2nd, that 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. 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 RECIST criteria. And 4th, the patients that were ctDNA negative had significantly increased overall survival compared to ctDNA positive patients. Now having data come together that it's demonstrating that we can execute on our win in MRC key strategy was very gratifying. Equally important is that we made exciting progress this quarter on our goal to have reimbursement for next personal in one indication by the end of 2024.

Speaker 2

While that's an aggressive timeline, we have already made progress by announcing key collaborations this quarter and studies each of our focused clinical indications. First, the TRASERx collaboration jump started our efforts in lung cancer. The TRASER X consortium is led by lung cancer expert Doctor. Charles Swan and teams at Cancer Research UK, the Francis Crick Institute and University College London. The study will deploy NEXT Personal to provide even more sensitive MRD detection for the groundbreaking lung cancer initiative along with insights about how tumor biology changes over time.

Speaker 2

As mentioned, the TRACERx consortium selected NeX Personal because of its ultrasensitivity as well as its ability to scan for both common cancer and patient specific mutations. Prior research findings from TRASORx have shown that MRD testing was able to identify recurrent for detection improvement. We believe our collaboration with TRACERx and other collaborations like it will ultimately enable more informed decisions about patient care much earlier in a patient's journey. 2nd, we announced a collaboration in melanoma and IO therapy monitoring with the University Medical Center Hamburg, Heppendorf, also known as UKE. That collaboration, along with the previously announced Duke and UCSF relationships, provide a strong foundation for us to be able to show the efficacy of next personal for IO be monitored.

Speaker 2

3rd, we engage with the academic breast cancer consortium and Criterium to establish a The trial will be carried out in 2 stages. In the first stage, samples will 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 PAC CR measurement. The 2nd stage will involve a 5 year follow-up to further establish clinical validity and performance of next personal and early stage triple negative breast cancer. We're expecting these studies and trials to showcase Nex Personal's ultra sensitivity and ability to provide insights important for patient therapy decisions. And we're not done.

Speaker 2

In all three indications, we are laser focused on engaging leading collaborators in the world and accessing rich sample biobanks for accelerating studies and we look forward to sharing additional announcements as we continue to make progress through the year. Lastly, in terms of our march to establish Next Personalis, the market leader in MRD, We remain on track to launch Nex Personal for clinical use by the Q4 of this year. There's a strong sense of energy and optimism at 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 many months or even years earlier than imaging. Beyond enabling ongoing monitoring for patients on targeted therapies, Next Personal was designed to changed the paradigm for how cancer is actively managed.

Speaker 2

Its ultrasensitivity 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 or therapies when unnecessary. In order to enable the smarter and more that we believe will be better for patients, better for physicians and better for the healthcare system. The Personalis technology is key to enabling of Oncology Biopharma Products. As announced earlier this year, we are a key partner for Moderna's clinical trial work as they pursue regulatory approval of their personalized cancer vaccine. Over the years, Personalisys 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.

Speaker 2

Each patient's cancer is different and we believe that customizing the 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 vaccine. There are thousands of new cancer patients each year in the U. S. Alone and our aspirations are for personalisis technology to power the development of next generation vaccines and therapies.

Speaker 2

Due to 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 We submitted our data to MolDX for coverage of our next Dx product and we completed our efforts to reduce our cash earned and extend our runway into 2025. It's an exciting time at Personalis and we appreciate our investors being a part of our journey. I'll now turn it over to Aaron to review our financial results.

Speaker 3

Thank you, Chris. We executed well in the Q1 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 Q1 financial results and guidance for the Q2 full year. Total company revenue for the Q1 of 2023 was $18,900,000 and increased 24% compared with the same period of the prior year, primarily due to strong oncology revenue performance. Our oncology revenue, which includes revenue from pharma tests, enterprise and other customers, was $15,900,000 and increased by 35% over the same period of the prior year.

Speaker 3

The year over year increase of oncology revenue was driven mostly by the increase in volume from Natera, which accounted for half of our total revenue in the quarter. 1st quarter revenue from population sequencing, which includes the VA MVP was 3,000,000 Gross margin was 25.1 percent for the Q1 compared with 28.1% for the same period of the prior year. The year over year decrease of 3% was primarily due to under absorbed overhead costs. Our lab expenses have increased over the last year and a half to support our growing oncology revenue volume. And for background, testing cancer samples requires more labor and overhead compared with testing samples for the VA MVP.

Speaker 3

Over the next couple of years, we expect some gross margin variability due to fluctuating test volume, operating at cost for our new facility and DUNDERS. Longer term, we expect our gross margins to increase as we achieve scale by growing our oncology revenue. Operating expenses were $34,600,000 in the 1st quarter and included a one time non recurring restructuring charge of $3,900,000 associated with the reduction in force and closure of our China lab operation compared with $32,600,000 for the same period of prior year. Excluding the restructuring charge of $3,900,000 our operating expenses were $30,700,000 and decreased $1,900,000 from the same period last year. R and D expense was $16,600,000 in the 1st quarter compared with $17,100,000 for the same period last year and SG and A expense was $14,100,000 in the 1st quarter compared with $15,500,000 for the same period last year.

Speaker 3

Net loss for the Q1 was $28,700,000 compared with a net loss of $28,200,000 for the same period of the prior year. The net loss per share for the Q1 was $0.61 and the weighted average basic and diluted share count was 46,700,000 compared with the net loss per share of $0.63 and a weighted average basic and diluted share count of 45,000,000 for the same period of the prior year. Now onto the balance sheet. We finished the Q1 with strong balance sheet with cash and short term investments of 148,900,000 In the Q1, we used $18,700,000 of cash due to the net loss, working capital needs and capital equipment purchases. We remain on track to reduce our 2023 cash usage down to approximately $75,000,000 for the full year, which is significantly lower compared to $119,000,000 used during the prior year.

Speaker 3

Now I'd like to turn to guidance. For the Q2 of 2023, We expect total company revenue to be $16,000,000 to $17,000,000 revenue from pharma tests, enterprise sales and other customers to be $13,000,000 to $14,000,000 which is lower than the Q1, primarily due to reduced sample volume from Natera and revenue from population sequencing of approximately $3,000,000 For the full year of 2023, There is no change to our guidance and we expect total company revenue to be $68,000,000 to $72,000,000 with oncology revenue from pharma, enterprise sales and other customers to be $59,000,000 to 63,000,000 Population sequencing revenue to be approximately $9,000,000 and expected to be recognized during the 1st three quarters. Net loss of approximately $103,000,000 and cash usage of approximately $75,000,000 a reduction of $44,000,000 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 NEXT Personal and completing the next personal clinical lab diagnostic test for commercial launch.

Speaker 3

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

Operator

Thank you very much, sir. Ladies and gentlemen, we will now be conducting the question and answer session. Our first question comes from Priti Krishtelant of Morgan Stanley.

Speaker 4

Hi, this is Gabby on for Tejas. Thanks for taking my question. So just to So your pharma and bio segment saw a lot of strength this quarter, but The guide remained the same. So just kind of curious if some conservatism is baked in the guide there?

Speaker 3

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 Q2, Q3 and Q4 in terms of Natera is going down. The Natera volume is going down, which is going to be offset by increased revenue from personalized cancer vaccine and biopharma, which will offset that.

Speaker 3

So that's why the guide is the same as what we had last time. That makes sense.

Speaker 4

Okay. Yes, yes, that makes sense. Thank you. And then on Natera, are there any updated thoughts on how revenue might tail off 24, is that remaining the same?

Speaker 3

Yes. So in terms of what we said, so the Natera volume will start to tail off from Q2 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 all.

Speaker 4

Okay, great. Thanks. And then on pharma and biotech customers, are you still seeing some headwinds with sample delivery from your pharma customers? And just given some of the commentary from some companies as of Are you still seeing cautious spending from pharma and biotech customers? And if so, how has this dynamic changed from last quarter?

Speaker 4

And do you anticipate these dynamics to continue throughout the remainder of 2023?

Speaker 3

Yes. So obviously, with the recession here, pharma is being prudent on They're spending, so we are seeing some things being a little bit tighter there from that perspective. In terms of sample flow from pharma, it always can be a little bit variable or lumpy, so to speak, in terms The timing of when samples come in, but for the most part, we're beyond the COVID situation where trials and patient enrollment were a lot slower. So we're beyond that at this point in time, but there is some variability in terms of when samples do show up.

Speaker 4

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

Speaker 3

Thanks. Thanks, Debbie.

Operator

The next question comes from the line of Dan Brennan of Cowen and Co.

Speaker 5

Hey, this is Joe on for Dan. Thanks for taking the questions. Just first, gross margins came in well ahead of our model, at 25% in Q1. Were there 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?

Speaker 3

Yes. So in terms of the benefits here in Q1, there were some one time benefits in terms of some favorable mix. We had more volume from the VA MVP That showed up in Q1 compared to prior quarters or last year. In terms of the way forward though, Gross margins, we expect it to be in the low 20% range, primarily because of more costs coming online from our new facility.

Speaker 5

Great. Thanks. And then just on the $6,300,000 of pharma tested service revenue, there any way to think about that in terms of oncology testing versus revenue associated with personalized cancer vaccine? And then maybe if possible same goes for the 30,000,000 ish That I think is implied for pharmacists in service for 2023. Yes.

Speaker 3

So we haven't broken that out specifically in terms of 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. Personalized cancer vaccine revenue has been roughly somewhere between 4% 5% 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 it 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.

Speaker 5

Great. Thanks.

Speaker 3

Thank you, John.

Operator

Thank you. The next question comes from the line of Patrick Donnelly of Citi.

Speaker 6

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 Q4. You mentioned that you're submitting your first indication for Medicare coverage in 2024. I guess what's your line of sight into the eventual like commercialization of this test?

Speaker 6

I know thinking way down the line, but just some more color there Thank you.

Speaker 2

Yes. Thanks. We were it's Chris. We're planning to launch it by the end of this year into a few key select clinics and we will grow the adoption through 2024. We're focusing on 3 indications, Early stage breast cancer, early stage lung cancer and therapy monitoring or IO and we're building data around each one of those 3 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.

Speaker 2

Now that could be prospective registry trials And or that could be working with academic medical institutions 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 XtX, which is our cancer genomic profiling product to be to have that ordered at the same time, so a clinician from the tissue block. So we think that products will work synergistically and we expect the revenue to grow quickly there. That's a $25,000,000,000 market overall.

Speaker 2

So you can imagine just as we chip away at that, we expect the growth rates to pick up dramatically as we move that more aggressively into launch post coverage.

Speaker 6

Understood. Thank you. And then just on Margins in the second half of the year, given that there is the one time cost I mean, the one time benefit, excuse me, that you had this quarter, Should we think of them sequentially increasing off of the 2Q base? Just wondering the right way to think about that. Thank you.

Speaker 6

That's it for me.

Speaker 3

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 headcount of 30% and the So if you remove that and take the expenses pretty much flat through the rest of the year, that will get you to what we

Speaker 6

expect. Thank you.

Speaker 3

Sure.

Operator

Thank you. The next question comes from the line of Mike Matson of Needham and Co.

Speaker 7

Yes, thanks. I hate to keep going back to Natera, but it is kind of important from a modeling perspective. I think you had said on the last call that You expected $27,000,000 to $30,000,000 this year from Natera. I didn't hear you reiterate that. Is that still the case or is that number come down from that?

Speaker 3

It's going to come down a little bit from 27 to 30, Mike, it could be a couple of $1,000,000 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 thought. And then into 2024, Not exactly sure what that volume will look like early 2024, but we're assuming very little in the 1st part of 2024 is going away after that.

Speaker 7

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 to grow your revenue and find offsets for that completely or?

Speaker 3

We do, Mike. We're very optimistic about Project we've won in 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 recent 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 NEX platform and taking a look at NEX personal now as well.

Speaker 3

So we believe we have a few other growth drivers that are going to offset the hole that the Natera departure will fill.

Speaker 2

We also expect that the clinical Laboratory revenue will be growing more significantly in 2024 also. Obviously, it's coming from a smaller base, but it will start to be Become more meaningful in 2024 because we plan to be on the backside of the next Tx 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 will be getting reimbursed and then we'll be in the launch of the next personal. And while the revenue will be low, we expect there'll still be some revenue there starting to come through. So we're optimistic about where it will be next year revenue.

Speaker 7

Okay, great. And then just with NextDx, I mean, that's going to be Potentially, you could have reimbursement, I guess, later this year.

Speaker 5

That's correct.

Speaker 7

I mean, is that I mean, what's the revenue opportunity there? Is it I mean, I heard you mentioned that it's going to be kind of used together with the personal MRD test, but is there a real revenue opportunity with that as kind of standalone or do you really need to get kind of personal going before you

Speaker 3

can generate meaningful revenue?

Speaker 7

Well, there is.

Speaker 2

Well, there is. I think 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 measure TMB provides a more discriminating way to front the therapy and we think we have the most confidence So a way to approach the targeted therapies. But the market is there's a lot of competition there. We're being careful relative to sales and marketing spend. So we're gaining it in a way that is thoughtful about the revenuecost burn, sales marketing versus revenue Expense.

Speaker 2

And so we think it's a standalone business. It's quite it's a great business and there's a lot of companies have been built on the back of them We believe we'll be able to get a toehold in it. You could throw a huge field force at it, but in this climate, we're being really thoughtful about how we do it and moving In an incremental way that leverages learnings that we go and builds the business rationally. Okay, got it. And then just

Speaker 7

all the it was good to hear detail on all those the trials that you're involved with particularly for personal. But I was curious if personnel bearing any of the cost of those trials or those all being funded by Outside groups, either companies or academic facilities?

Speaker 3

So we're funding those studies and The collaboration, Mike, in terms of the need to do that, 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 KOLs that we've landed.

Speaker 2

But I would note that like the beauty of these collaborations is that you don't have to pay for a prospective clinical trial and the time involved to get the samples. 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 The stronger trial that we announced 2 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, datasets around these tests. So you have to do that. 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 start it and I would argue really So that's the approach that we're going at.

Speaker 2

Rich, do you have anything to add to that?

Speaker 8

Yes. It's Everything Chris said is absolutely true. And also the other thing is that 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 is going to really allow us to accelerate the data generation.

Speaker 3

Okay, great. Thank you. Thanks, Mike.

Operator

Thank you. The next question comes from Sean Lee of H. C. Wainwright.

Speaker 9

Good afternoon, guys, and thanks for taking my question. I just have a quick question, if you could provide some additional Regarding the timelines of the X Sighted studies, for example, for the first stage where you're comparing the MRD analysis with Next personnel versus PCR, how long would that take before you move on to the expanded stage of the 5 year follow-up?

Speaker 8

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, multicenter trial for early stage triple negative breast cancer that we're doing with the Academic Breast Cancer Consortium and Criterium. They've slid into 2 phases. The first phase where we're Coming to correlation, we're looking at performance in the neoadjuvant phase

Speaker 2

of treatment for these patients.

Speaker 8

We expect that we'll start getting some data out of that in kind of the year to year and a half timeframe. And then we'll be moving on to the 2nd phase. And obviously, in 2nd phase, we'll be following the patient out through their adjuvant therapy and looking at outcomes 5, 6 years out.

Speaker 9

Okay, great. Thanks for that. That's all I have.

Operator

Thank you. Ladies and gentlemen, we have no further questions in the queue and we have reached to end up a question and answer session. Please note that this does conclude today's event. Thank you for attending and you may now disconnect your lines.

Speaker 3

Thank you.

Speaker 1

Goodbye.

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