Personalis Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 6, 2024

There are 12 speakers on the call.

Operator

Good afternoon, everyone, and welcome to Personalis Third Quarter 2020 4 Earnings Conference Call. All participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this event is being recorded. I'd now like to turn the conference over to Caroline Korner.

Operator

Please go ahead, ma'am.

Speaker 1

Thank you, operator. Welcome to First Analysis' 3rd quarter 2024 earnings call. Joining today's call are Chris Hall, Chief Executive Officer and President Aaron Tashabana, Chief Financial and Chief Operating Officer and Rich Chan, 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 meanings 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, reimbursement goals, 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, 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. Personalis undertakes no obligation to update these statements, except as required by applicable law.

Speaker 1

Our press release with our Q3 2024 results is available on our website, www.personiles.com, under the Investors section and includes additional details about our financial results. Our website also has a related 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 Q2 business highlights.

Speaker 2

Thank you, Caroline. Good afternoon, everyone, and thank you for joining us for our Q3 call. For those of you joining one of our calls for the first time, welcome. Personalis is a leader in the fast growing MRD testing market. MRD stands for minimal residual disease and involves using blood, which is commonly called a liquid biopsy instead of imaging or invasive biopsies to monitor therapy and to detect cancer recurrence after treatment.

Speaker 2

The MRD market is expected to mature into a $20,000,000,000 market and with our ultra sensitive MRD assay, Nex Personal, we believe Personalis is positioned for success. Our technologies are able to spot cancer when there's only one fragment of tumor DNA circulating and a 1000000 DNA fragments in the blood. Our platforms are used by many of the world's top biopharma companies to improve clinical trial results, personalized treatment, empower a new generation of therapies. Before we dive into our Q3 results, I want to share a recent case that highlights the power of Next Personal to find residual and recurrent cancer and impact the patient's care. A doctor began using Next Personal to monitor a female in her 70s who had been diagnosed with Stage 1 HER2 positive breast cancer.

Speaker 2

After the patient had undergone lumpectomy and received standard adjuvant therapy, the doctor began monitoring the patient with Next Personal performing multiple follow-up tests over a 5 month period. Each test showed the cancer still present with circulating DNA tumor at a low level between 25 30 parts per million, which is in the ultra sensitive range. Now as a reminder, the ultra sensitive range are measurements of circulating tumor DNA below 100 parts per million that our next personal test excels in quantifying that could be missed with less sensitive test. In this case, because the next personal test detected persistent small traces of residual cancer, the doctor was concerned and ordered additional imaging that led to finding another breast nodule and starting the patient on radiation with plans for additional chemotherapy. We're beginning to hear many in a dose like this and they demonstrate how our platforms are impacting clinical care.

Speaker 2

Pharma partners and oncologists are noticing and starting to adopt Next Personal and this is driving the performance we experienced this quarter. So now with that example illustrating how we're driving advancements in care, let's switch gears and dive into the quarter. Earlier this year, we laid out a strategy to scale our business with 3 growth engines. In the Q3, we achieved revenue of $25,700,000 up 41% year over year. This improvement was driven by our Avara Pharma 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 our MRD product, Next Personal.

Speaker 2

Our strong Q3 revenue also helped us to increase our guidance for the full year and we now expect revenue in the range of $83,000,000 to 84,000,000 dollars 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. We also raised significant amount of capital this quarter in a cost efficient manner. Aaron will discuss the details in his section, but we raised approximately $62,000,000 from a combination of proceeds from Tempus and from accessing the ATM. Most of this went directly into our bank account and we ended Q3 with $143,700,000 in cash. We believe this takes us into the first half of twenty twenty seven and well past the point where we expect to achieve reimbursement for NEX Personal.

Speaker 2

I'll now review progress this quarter on our 3 growth engines. The first growth engine, Win an MRD, is the most important as we focus on turning Personalis into a clinical diagnostic powerhouse. Minimal residual disease or MRD testing uses a liquid biopsy to find evidence of residual disease or cancer recurrence and to monitor therapy effectiveness. We laid out our Win in MRD strategy back in 2023 and have been laser focused on executing its 4 pillars. 1, focus on cancer types where an ultra sensitive approach can unlock significant value for patients, payers and partners 2, drive reimbursement by developing robust clinical evidence and partnering with top global collaborators 3, leverage our deep relationships to accelerate adoption by biopharma partners and power our revenue growth by the use of Next Personal in clinical trials and 4, commercialize Next Personal with a partner centric model.

Speaker 2

To delve into the 1st pillar, we previously highlighted some of the evidence amassed to support Next Personal's unique clinical usage and reimbursement in lung cancer, breast cancer and I O therapy monitoring. Our focus on these indications is intentional and our data is demonstrated that Next Personal can do exceptionally well and win in these markets. To elaborate a bit on our approach, lung cancer and breast cancer shed very little DNA into the blood. The small traces of cancer can be difficult to detect without an ultra sensitive approach like Nex Personal. Lung and breast cancers can be aggressive when they recur.

Speaker 2

The early detection is critical. For patients on I O 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 this holds out the promise that those patients can seek treatment sooner, many months ahead of imaging with potentially better outcomes. The data also suggests the patients who consistently test MRD negative, meaning our test doesn't detect DNA from the tumor are at much lower risk for recurrence. In the future, having more confidence in a negative result may allow a doctor to spare patients from unnecessary therapies and procedures, potentially avoiding toxicities and saving money for the healthcare system.

Speaker 2

In October 2023, we launched the 1st commercial ultra sensitive MRD 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 demand as we move through the first half of the year. We launched our commercial and marketing collaboration with Tempus in June to strong demand and quickly decided together to accelerate our commercial launch. Tempus now has more than 200 representatives calling on the nation's oncologists. Our success contributed to a healthy quarter over quarter growth as we delivered 9 45 clinical tests in the 3rd quarter, a 68% increase from the 561 results delivered in the Q2 of this year.

Speaker 2

Physicians have provided feedback that they appreciate the increased actionability from using our tests to inform therapy selection intervention. Now if you remember, we report circulating DNA in the blood down to about 1 part per million. The extra analytic sensitivity we report on with next personal test, a mask region that had previously been harder to test consistently, we call that region the ultra sensitive range. We expect our test's heightened ability to detect small traces of cancer to drive our success in the clinical market. And approximately 35% to 40% of the ctDNA positive samples thus far and our clinical testing have been in this ultra sensitive range.

Speaker 2

That is a jump in the actionability of MRD testing. It means physicians can see cancer recurrence earlier, have more discrimination in monitoring therapy and have more confidence that patients with negative ctDNA results are in fact cancer free. I want to take a moment to share one more statistic that underscores the value physicians are placing in our approach. 98% of the physicians who order from us in Q3 have already ordered from us again in Q4. The demand for our approach is high and doctors are largely pleased when they start to utilize Next Personal with their patients.

Speaker 2

Moving to our 2nd pillar, we've previously mentioned our focus on building and publishing the clinical evidence to gain reimbursement. We continue to work with many of the top thought leaders around the world and in fact some of them are deep into the preparation and submission of manuscripts for publications and leading peer reviewed oncology journals. We've previously summarized the findings from investigators at Royal Marston for breast cancer, VHIO for I O therapy and TRACErx 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 to peer reviewed journals for publications. Once these data are published, they will be a key component in our dossier for submission to Medicare for reimbursement for each indication.

Speaker 2

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 2 indications in 2025. 2 of our key studies were highlighted during the 2024 ESMO Conference in Spain. First, an update on our work with the TRACE RX consortium in the area of lung cancer was presented by Charlie Swanton. The podium presentation showcased Next Personal's ability to detect residual cancer up to 9 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. As a reminder, this is one of the larger MRD studies in lung cancer conducted today.

Speaker 2

The second collaboration highlighted was the valviderevoron or VHIO Collaboration in Immunotherapy Monitoring. For VHIO, the work is pan cancer and included an expanded group of patients across 18 different cancer subtypes. The study showed that next personal could potentially be used to predict immunotherapy response for patients. I'm 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. In lung cancer, we're working with the TRACERx group as mentioned.

Speaker 2

In breast cancer, we're working with Royal Marston, Dana Farber on HER2 positive patients and the Institute Curry on an approximately 100 patient early stage triple negative breast cancer study. We're also working with Vanderbilt, John Hopkins and other institutions on the PREDICT study and approximately 180 patient study in early stage TNBC and HER2 positive breast cancer and have an ongoing prospective study called B Stronger 1 that has now enrolled more than 50 patients with TNBC. In IO therapy monitoring, we're working with ZHIO and UKE in 2 different melanoma studies with a group at Duke studying gastric cancer patients with UCSD on a pan cancer IO therapy study and with the TRACER X team on a lung cancer I O therapy study called DARWIN II. The growing data and ongoing studies underline our commitment to demonstrate the value of our approach and platform in patients. The 3rd pillar of our NeXT Personal strategy is to leverage our biopharma relationships to drive the use of NeXT Personal in clinical trials.

Speaker 2

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, the data presented suggest that patients testing negative with our ultra sensitive assay are much more likely to have recurrence. Our biopharma customers can then expect that these patients are less likely to benefit from a therapeutic intervention, holding out the promise that next personal could be an excellent approach to optimize biopharma trials. Additionally, using an ultra sensitive test to monitor results could mean seeing 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 2

We're engaged with most of the world's top biopharma companies and have continued to generate excitement around our next personal test, most recently from discussions at ESMO and ASCO. We continue to expand our book of revenue orders from biopharma customers for MRD projects and expect the growth to begin accelerating through 2025. Now, I'll move on to the 4th and final pillar, commercializing Nexpersonal in the clinical market using a partner centric model. In August, we announced a new chapter in our relationship with Tempes where we agreed to accelerate our commercial activities. We began the commercial journey with an early access program in October of 2023 followed by the Tempus launch at ASCO in June.

Speaker 2

Our efforts have been met with strong demand and interest in an ultra sensitive approach and as a result in August we collectively decided to accelerate our efforts. Their 200 plus salesperson channel is now trained on our product and talking to oncologists. As a reminder, Personalis processes samples in our lab, focuses on obtaining reimbursement, invoices health insurance companies, payers and patients under the arrangement and pays Tembus fair market value for the commercial services they provide to us. As a part of the August expansion, Tembus exercised their warrant for $18,400,000 and invested an additional $17,700,000 in Personalis by buying shares at $5.07 per share. That brought the aggregate deal value to approximately $48,000,000 for Personalis, which includes $12,000,000 in milestone payments, plus the $36,000,000 of equity investment from Tempus.

Speaker 2

The partnership is working extremely well and we're pleased with our progress. Our goal over the next 15 months is to position Personalis next personal with broad clinical usage, scaled operations and rapidly accelerating revenue on the back of reimbursement. While things are clicking along on our first growth engine, our win in MRD strategy, we've also made progress with our second growth engine, leveraging our Immuno ID. Next platform to deepen relationships with biopharma customers

Speaker 3

who are pioneering new therapies. Our

Speaker 2

biopharma business grew 94% year over year and we had solid performance across our product portfolio. Customers primarily use our Immuno ID Next platform in 2 ways. 1st, they leverage our platform to power translational research and find new biomarkers and insights that can enable their drug development efforts. In this regard, we've been working with most of the top 20 global biopharmaceutical companies over the years. 2nd, companies in the personalized cancer vaccine or PCV market use our platform to create a molecular fingerprint of a patient's tumor to develop personalized therapy.

Speaker 2

We've previously highlighted how our partner Moderna is using our platform in their mRNA individualized neoantigen therapy program. Our collaboration with Moderna has been an important driver of revenue for us in 2024 and Moderna and its partner Merck have now enrolled most patients for their Phase 3 clinical trial. Our revenue from Moderna accelerated as they finalized enrollment in their Phase 3 melanoma clinical study. We anticipate that our revenue from Moderna will fall back over the next few quarters while the next set of studies ramps up. We continue to support them on multiple clinical studies and expect that our relationship with Moderna will continue to generate substantial revenue over the next several years.

Speaker 2

The 3rd engine of our growth strategy is growing our personalis inside approach as we service enterprise customers. In these relationships, partners adopt our platforms and technologies to power their solutions. For example, Natera has leveraged our Exome platform

Speaker 4

as a

Speaker 2

part of their MRD product to help them scale while they work to build in house capacities. As previously mentioned, they've transitioned this work in house and we expect to wind down our work with Natera by the end of the Q4. While our biopharma and clinical diagnostic business is accelerating, we're 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. A second enterprise relationship is the VA.

Speaker 2

The VA utilizes our whole genome sequencing capabilities to power the 1,000,000 veteran program, a national research program looking at how genes and life's health and veterans. We've helped power this program for more than 10 years now. And in September, the VA renewed their contract with us for another year. We received a new purchase order in the amount of $7,500,000 that we expect to fulfill in 2025. It's been another excellent quarter and I'm grateful to the team at Personalis, our Early Next Personal clients, our collaborators and partners for all the work, guidance and feedback this quarter as we continue to redefine the MRD market with a more sensitive approach.

Speaker 2

We're building a special company that is impacting patients' lives and helping us to win the fight against cancer. With that, I'll now turn it over to Aaron to review our financial results.

Speaker 5

Thank you, Chris. Total company revenue for the Q3 of 2024 was $25,700,000 representing a 41% increase compared with $18,200,000 for the same period of the prior year. The increase in revenue was driven by higher volume from biopharma customers and the BAMBP, which was partially offset by the expected decline from Natera. Biopharma revenue grew 96% compared with the same period last year and the growth was primarily driven from higher ImmunoIDnext volume from Moderna's PCB projects. Our VA MVP revenue increased 85% compared with the same period last year as we fulfilled the remaining amount of the 2023 to 2024 task order in alignment with the BAMBP's fiscal year end.

Speaker 5

In addition, we recognized $300,000 of clinical revenue from our NextDx tumor profiling test. Gross margin expanded to 34% in the 3rd quarter compared with 19.1% for the same period of the prior year. The year over year increase of 14.9 percentage points was primarily due to favorable customer mix and operating leverage from the increase in revenue volume. Over the last year and a half, our focus has been to reduce product costs, improve productivity, reduce lab operations expenses and improve utilization to drive margins higher. We are making very good progress.

Speaker 5

In the Q3, we saw an impact of over 4 percentage points to our gross margin due to unreimbursed clinical test costs. Excluding those costs, gross margin would have been approximately 38%. One of our top goals is to continue expanding gross margin, but we expect some variability from quarter to quarter along the way. Operating expenses were $23,100,000 in the 3rd quarter compared with $34,300,000 for the same period of the prior year. Most of the year over year decrease was attributed to actions taken to reduce headcount in 2023 and also a facility impairment charge of $5,600,000 for the same period last year.

Speaker 5

R and D expense was $11,700,000 in the 2nd quarter compared with $16,700,000 for the same period last year and SG and A expense was $11,400,000 compared with $12,000,000 for the same period last year. Net loss for the Q3 was $39,100,000 compared with $29,100,000 for the same period of the prior year. The 3rd quarter net loss included a $26,000,000 non cash expense related to fair value accounting for the warrants exercised by Tempus. This non standard expense was a result of the increase in fair market value of the warrants at the time of exercise in early August compared with the fair market value at the end of last quarter. The warrant accounting implications had no impact on the cash value or amount received from Tempest.

Speaker 5

Now onto the balance sheet. We finished the 3rd quarter with a strong balance sheet with cash and short term investments of $143,700,000 During the quarter, we received financing proceeds of $62,200,000 net of expenses from Tempest exercising their warrants for $18,400,000 at an average price of $2 per share, temp is purchasing an additional $16,600,000 of common stock at a price of $5.07 per share and selling $27,200,000 of common stock under the at the market or ATM program at a weighted average price of $5.84 per share. We used approximately $6,000,000 to fund operations in the 3rd quarter and we have approximately 2.5 years of cash on the balance sheet, which is expected to last into the first half of twenty twenty seven. Now I'd like to turn to guidance. Q4 of 2024, we expect total company revenue in the range of $15,000,000 to $16,000,000 and all of the revenue is expected to be generated from pharma tests, enterprise sales and other customers.

Speaker 5

With that, I'd like to provide some context around the 4th quarter guidance and the sequential decline. 1st, throughout 2024, revenue from Moderna accelerated due to the increase in patient volume for their melanoma Phase 3 clinical trial. With most of the patient enrollment now completed, we expect revenue from Moderna to decline by 55% to 60% in the 4th quarter, sequentially down from $8,500,000 in the 3rd quarter. We remain committed and excited about the long term PCB opportunity with Moderna who have partnered with us for many years now. 2nd, we explained on our last call that revenue from Natera would decline in the second half of twenty twenty four.

Speaker 5

We currently expect approximately $2,000,000 to $3,000,000 from Natera in the Q4 as we wind down this project and then no meaningful Natera revenue in 2025. And 3rd, some detail about the VA MVP. In the Q3, we recognized $4,400,000 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. The new $7,500,000 task order recently received is for the period of October 2024 to September 2025 and we expect to fulfill this order between the 1st and third quarters of 2025. And for the full year 2024, we increased our guidance and now expect total company revenue in the range of $83,000,000 to $84,000,000 an increase from our prior guidance of $79,000,000 to 81,000,000 revenue from pharma test enterprise sales and other customers in the range of $76,000,000 to $77,000,000 an increase from our prior guidance of $71,000,000 to $73,000,000 and this estimate includes revenue from Natera of approximately $24,000,000 population sequencing revenue from the VAMVP of approximately $7,000,000 a decrease from our prior guidance of $8,000,000 net loss of approximately $85,000,000 which includes the non cash expense of approximately $18,000,000 related to the warrants exercised by Tempus cash usage in the range of $53,000,000 to $55,000,000 a decrease from our prior guidance of $60,000,000 and the cash burn reduction is a result of higher gross profit dollars from the increase in revenue and expense control.

Speaker 5

We look forward to updating you on our progress during our next conference call in a few months. And with that, I will turn the call back over to the operator to begin the Q and A session. Operator?

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Yako Kiyo of Morgan Stanley. Please go ahead. Thank you.

Operator

It's

Speaker 6

been on for Yako. Thanks for taking the question and congrats on the quarter. Maybe to start off, I know we're now almost 6 months post launch for Next Personal and it sounds like it's been seeing a lot of positive traction here. I know with the expansion with Tempest agreement, you increased

Speaker 7

the quantity of patient samples for NeX Personal that you would accept. Can you just talk a

Speaker 6

bit about the rationale behind this decision ahead of reimbursement and how you're balancing the volume ramp ahead of getting paid?

Speaker 3

Yes. Thanks for the question. Yes. The product has been really well received. And what we originally started was just a handful of tempus reps.

Speaker 3

And we wanted to we want to be able to put ourselves in a position where when we get reimbursement, which we're anticipating in 2025, we have an army of people out that are well trained and have worked with the product and then learned how to be pretty agile telling the story. And so the expansion of the agreement allowed us to have more reps out there talking about it and learning and working with it and allowed us to the tip of folks to better figure out how to integrate it into their story across all of the different environments they work at. 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 on the other side of reimbursement than if we had started out at a slower rate. But we're still gating it. We're still being very thoughtful about it and we're still moving in a thoughtful way.

Speaker 8

So In addition to what Chris just articulated, that was the reason the premise for Tempest exercising their warrants of $18,000,000 in the quarter as well as adding to that in the form of an additional investment of 3,500,000 shares at $5.07 They understand that we don't have reimbursement just yet. So in order to go faster, we do need a little more capital. So that was part of the premise as well.

Speaker 6

Okay. That makes sense. And then maybe just one other one. Wondering how you're thinking about gross

Speaker 7

margin cadence as we look to 2025 as volumes from next personal start to ramp?

Speaker 6

And what are the kind of key levers you're thinking about pulling there to improve gross margin next year?

Speaker 8

Yes. So great question. We haven't provided formal guidance for 2025 yet. We'll do that on our Q4 and full year call early in 2025. Our gross margin for 2024 is probably going to be in the 31% to 32% range based upon where we exited Q3 and what we're looking at for Q4.

Speaker 8

What we can say and again on our last couple of calls now we've stated that we've had headwinds of about 4% to 5% gross margin points for unreimbursed test costs. That's going to increase in 2025 primarily because of the volume increasing as well, right? And so there could be headwinds into gross margins of somewhere between 15% 18% gross margin percentage points. Our gross margins aside from that will accrete, but it's going to we'll have those headwinds to deal with as well. So the gross margins could come down from where they're going to exit 2024 at.

Speaker 8

Don't know the exact amount just yet and we'll provide that clarity early in 2025.

Speaker 6

Got it. Okay. That makes sense. Thanks so much for the time.

Speaker 8

Sure. Thank

Operator

you. Our next question comes from Dan Brennan of TD Cowen. Please go ahead.

Speaker 9

Hey, this is Joe on for Dan. Thanks for the question. You see some really great momentum in MRD, but when I look at the filing, revenue from Moderna increased from 26% to 33% of total sales quarter over quarter, which translates to like 45% sequential revenue growth. So it seems to make a most, if not all of the sequential strength in the pharma business. So I guess the question is 1, did MRD or CGP revenues increase sequentially?

Speaker 9

And 2, is there an opportunity for these revenues to grow before your first Medicare approval?

Speaker 8

Yes. So that's a great question, Joe, and thanks for the question. In terms of PCV with Moderna, so Moderna has accelerated in Q3 as you had mentioned. So it did grow. In addition to that, our Immuno ID Next platform at MRD with biopharma clients did increase as well.

Speaker 8

Okay. It didn't increase as much as Moderna. So Moderna did drive most of the increase in the biopharma line. We did get paid about $300,000 from our CGP NextDx test from Medicare. So that was recorded as revenue as well.

Speaker 3

And the I'll just add the MRD revenue for biopharma companies is also starting to get traction. The buying cycles on these things are longer. We the first time the data was presented on the product was at ESMO last year and that got a lot of biopharma companies starting to spend some time with us in the data that was the TRACERx data. And then the ASCO data around breast and IO really accelerated some of the movement. But buying decisions in these big biopharma companies are not quick.

Speaker 3

They typically start to interact with you. Then they run tests, they run pilots, they may do bake offs. And so we've been moving through that process that we think a really rapid clip and we feel like we're in a position to do really, really well with the revenue growth around MRD coming from biopharma companies prior to reimbursement happening in 2025.

Speaker 9

Got it. Great. And then on the 945 molecular tests in the quarter, is there a way to think about MRD versus profiling? And I just want to confirm that this is no longer just on the 10 physicians that you started with on early access?

Speaker 3

That's right. That's right. That's the combination of some organic growth in the physicians coming from our small number of reps that we've allowed in from the wait list. And then it's coming. Tempus is starting to grow that number out.

Speaker 3

So that number is starting to grow in terms of physicians. We're starting to see the strategy of the CGP test NextDx being sold with the MRD test NextDx is working really well in our customers. Tempus obviously is not selling NextDx and so the tests that are coming from them are just NextDx personal. And so we've you see most of that a lot of that growth is coming from the MRD product quite frankly. But we're really, really pleased with the success we've had executing putting the next DXCGP with CMRG because customers want a one stop shop experience and that's what we're seeing.

Speaker 3

That helpful, Joe?

Speaker 9

Yes. Very. Thanks for the question.

Operator

Our next question comes from Mark Massaro of BTIG. Please go ahead.

Speaker 10

Hey guys, congrats on a good quarter. Thanks for taking my questions. Apologies if you covered this, some of us are hopping multiple calls, but would love to just get your insights about how next personal is being received in the marketplace relative to other MRD tests that are available. Obviously, you guys have talked about the ultra sensitive range. I'm just curious how you think that's resonating?

Speaker 10

How much education needs to go in before people seem to clearly understand what that means? Maybe I'll just start there.

Speaker 3

Yes. I mean, I think that's the core thing and we've really tried to distill that down because every day when we're returning results back to physicians, they're seeing 30%, 40% of the results in the ultra sensitive range of the positive results. And that has been super well received because those are patients that they're able to see more than what they've been able to see before. And we're seeing tremendous retention. I mean that 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 3

The customers are ordering quarter over quarter and sticking with us and we feel like we're in a good spot. Do you want to add something, Rich?

Speaker 7

No, I think you stated it well. I think the ultra sensitive concept is really resonating just like Chris said. And they definitely can understand when they see a low level detection, but it's positive. It's easy to say see that actually that could have been missed if the test was sensitive enough. So, and a lot of these physicians have experienced situations where initial tests other tests have been negative and it goes on to be positive later on.

Speaker 7

Yes.

Speaker 3

And so we think it's working well. And then we've had exactly talked about the example that we used in the script where the patient was in that 20 to 30 PPM range, didn't expect her to be there, started doing looking for evidence of the disease, found it unexpectedly in another spot, and then I was able to take action and those types of cases really cement the value proposition and don't take a ton of education and or teaching to do, right. I think that's what's important. 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 plots etcetera have all tied together well and made it a good story. I will note that one of the things we're doing, Mark, is we're trying to sell customers across the continuum.

Speaker 3

So we learn how to take people that have experience doing testing at MRD testing 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 as we try to make MRD testing standard of care

Speaker 8

as an industry is how do

Speaker 3

we grow their usage. And then we've also found new people, quite frankly, who are trying out and working with MRD testing in the beginning because we want to be able to move the needle on all these different customer segments if we're going to put personnel in a position where we're really pushing the needle forward on this MRD market. And so very, very 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 10

Okay. So the volume number grew I think 68% sequentially for the molecular test. 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 holding back the throttle commercially until you get reimbursement?

Speaker 10

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 resources that you might deploy internally to work together with campus?

Speaker 3

I think it's fair to say we're holding back. I mean we still have a wait list of doctors. We're not pushing hard on it across the board. I mean we're still we're moving in a more aggressive pace with the expansion of the Tembus arrangement, but we're being really thoughtful about it and being purposeful. When we get reimbursement, we will put some more people in the field on our own accord.

Speaker 3

Those staff will drive organic growth that's just for personnel, but they'll also quite frankly work with the Tempes team. Tempes brings a lot of benefits to this. They've got the knowledge, the skill sets of working with these individual institutions are often integrated into the EMRs And we've largely been indifferent about where the samples are coming, but we will apply more people on our in sales and marketing ourselves to accelerate the commercial traction once we get reimbursement. And the other thing we're learning right now also is how to scale the lab. And so growing this thing at this in the last couple of quarters 60% really, we're learning how to get samples in here, how to get them through the system, how to beat all of our lead time commitments that we're making to doctors, how to build for it with customer care and building this business from the ground up, you want to go you want to keep you got to keep moving and keep taxing the system to keep nailing it and that's what we're doing.

Speaker 10

Okay, great. It's nice to see the extra cash coming in the door from multiple sources. I don't know if you covered this already, but can you give us a sense now that your balance sheet is maybe on firmer foundation, how are you thinking about spending in 2025? Maybe walk us through what you're thinking about in terms of commercial organization? And then how do you prioritize the timing of that as reimbursement might come in?

Speaker 3

Yes. I mean, we're

Speaker 8

I would note just appreciate

Speaker 3

the comment 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 sometimes the fundraising can take a big chunk off the top and the way we did this really I think was really cost effective. We're going to we'll stay largely very we'll be in cash conservation mode all the way now to when we get to this company and all the way through to cash breakeven.

Speaker 3

And then as we try to scale it over time to 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 eyes on the bottom line. And certainly in this next phase, we'll be very thoughtful. We'll stay very focused with our current reps in the field until we start to until we know that we're going to get reimbursement and then we'll start to grow it out from there. But we're not going to expand that out ahead of anything, Mark, because you can just burn a lot of money unnecessarily.

Speaker 3

And we have a partner that's actually nailing it in the field for us. So don't really need to. We're getting the traction that we need and we're starting to get installed at many of the top institutions and we're making the progress commercially. You see that in the 60% sequential quarter over quarter numbers that we need to do with what we've got.

Speaker 8

Just one other thing on the capital allocation, Mark. And so inside of our R and D expense, that's $50,000,000 to $55,000,000 per year, roughly 1 third of that goes towards creating clinical evidence. And that's going to stay in a similar range as we go forward into 2025 and we could step it up in 26 primarily because we do have to continue down that path to be able to go get some of

Speaker 3

the private payers today as well into the future. We'll keep driving hard in clinical evidence showing the value of ultra sensitive testing. No clinical utility studies are prospectively gathered before firing that stuff up. We've got all that embedded in our models. And I think investors should feel actually happy that we're going to invest there.

Speaker 3

I think the learnings from all these diagnostic companies is that is always good spending as you build deeper evidence in the well hooked products.

Speaker 10

Okay. Thank you guys.

Operator

Thanks, Mark. Our next question comes from Thomas Flaten of Lake Street Capital. Please go ahead.

Speaker 4

Good afternoon, guys. Great quarter. Congrats. Chris, in your prepared remarks, you mentioned that breast and IO had been submitted to peer reviewed publications. Should we just then extend that logic and assume that those will be the 2 indications that you're seeking to get reimbursement for 2025?

Speaker 4

Or do you think there's an opportunity for lung to kind of leapfrog one

Speaker 3

of them? No, no, no, no. We're all over lung. We're shooting to have 3 out of 3, but we think that 2 out of you want to have 3 shots on goal with the idea of getting 2, if that makes sense, Thomas, that something inevitably on the reimbursement roadmap could happen. And so presumably you could say those 2 marbles are rolling a little faster now, but the LUNG-one could certainly catch up.

Speaker 3

The data looks really strong there. It's one of the larger MRD trials at lung. And so I think we're going to move all 3 of them pretty aggressively. And we have a shot of getting all 3 RAM burst in 2025 to be perfectly honest. That's our internal plan.

Speaker 3

It's just that we think it's prudent to assume that something could happen with 1 of them on the journey, either at a publication or somebody wants us to run some more data to validate something. Anything to add to that, Rich?

Speaker 8

Sorry. Go ahead, Thomas.

Speaker 4

No, please go ahead, Rich.

Speaker 3

No, it was there was nothing more. I was just checking in and he doesn't have any more space. Go ahead.

Speaker 4

Got it. So with the Merck Moderna melanoma study largely enrolled at this point, do you have sense of timing on when these other studies might ramp up and how that might impact your $100,000,000 aspirational target for 2025? Or how should we think about that aspiration target in light of melanoma now being largely done?

Speaker 3

Yes. I mean, I think we set that target knowing that melanoma would largely be done this year. They were pushing pretty aggressively. We're still committed to shooting and pushing for $100,000,000 We haven't guided next year and we don't want that to be implied that we've guided that. That's what we're pushing for internally and building our plans to nail that because that'll be a big spot in the business and that's where we are.

Speaker 3

There's a bunch of studies going. I think they just announced a Phase 3 lung trial that they're pushing forward with and very excited about the relationship with them. And I think it's been another cornerstone relationship for Personalis and we've a great year supporting them in their turn.

Speaker 4

Excellent. Appreciate taking the question. Thank you.

Speaker 8

Thank you, Thomas.

Operator

Our next question comes from Mike Matson of Needham and Company. Please go ahead.

Speaker 11

Hi, guys. It's Joseph on for Mike. So I understand it's still early days with Next Personal and the partnership with Tempus. But I'm just kind of wondering if you've seen out of the 3 indications of a certain indication, whether it be breast, lung or IO has been a predominant driver of volume there. And then maybe if there's not an answer there, if there's a certain data set, whether it be something robust like TRACER that you've heard from physicians or similar contacts that have driven awareness of next personal?

Speaker 3

Yes. I mean, I think that we're seeing it across all three of those indications. IO therapy monitoring, I think probably does it's fair

Speaker 4

to say does a lot of the

Speaker 3

heavy lifting and that's pan cancer. That's probably true across all the use of molecular diagnostics. It's where most of the CGP test are playing or covered. So I think that's always one of the key indications. But there's been a lot of interest in what we're doing with breast and lung.

Speaker 3

We're solving real problems that physicians have with patient care and that insight is being valued and is driving the usage. I think all the data sets have been well received. I think the TRACERx data set and the Rome Arston data set, we're able to show finding cancer 15 months ahead of imaging for lung cancer on average, sometimes as long as 3 years ahead of imaging, but 15 months medium, I think it is. And lung cancer nearly a year ahead of imaging has been really well received and physicians have that's sort of underlying the power of the ultra sensitive approach.

Speaker 11

Okay, great. And then maybe I think Aaron had mentioned that you guys are still having ongoing discussions with other companies for doing additional sequencing work for the enterprise sales. Just kind of wondering what type of contract or relationship would have to exist for you guys to maybe shift focus away from your main strategic efforts, MRD being that main one? I guess, yes, what type of contract, whether size or scope would need to be presented?

Speaker 2

Yes. Go ahead. Do you

Speaker 8

want to answer it? Yes. So good question. In terms of our main focus, winning in MRD is our number one focus, both in the clinic and with biopharma. In terms of discussions, we have some ongoing discussions with potential partners.

Speaker 8

It's going to have to be something where it's not going to take us down or deviate too far away from what we do and what we could add, right? It's going to have to be something along the lines of products that we have and service today to make sure that it can be run-in our lab the same way from an efficiency standpoint, right? It's still an early days, so we don't have anything to report in that regard. But that's just kind of how we think about it today, Joseph.

Speaker 11

Okay. Yes, that's very helpful. That's all the questions from us and congrats on the quarter.

Speaker 3

Thank you.

Operator

Our next question comes from Lee Chen of H. C. Wainwright. Please go ahead.

Speaker 7

Hello. This is Lee Chen for RK. Just a quick question from us. Previously you guided the gross margin for 2025 to be in the low 30s. I wonder if this is still close to and if you have any updated thoughts on that.

Speaker 7

Thank you.

Speaker 8

I'm sorry, we didn't guide 2025 to be in the low 30s. It's really for 2024. 2024, our gross margin estimate is in the low 30s, 31% to 32%. We'll guide for 2025 once we get into our 4th quarter and full year earnings call early 2025.

Speaker 7

Thank you for the question.

Speaker 8

Thank you, Lee. Thanks.

Operator

With no further questions in the question queue, ladies and gentlemen, we have reached the end of the question and answer session. Thank you for attending and you may now disconnect your lines.

Speaker 1

Goodbye.

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Earnings Conference Call
Personalis Q3 2024
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