Personalis Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 11 speakers on the call.

Operator

Good day and welcome to the Personalis Second Quarter 2024 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the call over to Caroline Korner, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Welcome to Personalis' 2nd 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 Rich Chen, 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 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 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 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 Q2 2024 results is available on our website, www.personalis.com, under the Investors section that includes additional details about our financial results. Our website also has our latest SEC filings, which we encourage you to review. A recording of today's call will be available on our website by 5 pm Pacific Time today. Now, I would 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. I'm very proud of our team at Personalis as we continue to fight cancer and help patients with our novel technology. For those of you joining one of our calls for the first time, welcome. Personalis is one of the leaders in the fast growing MRD testing market.

Speaker 2

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. The MRD market is expected to mature into a $20,000,000,000 market and with our first of its kind ultra sensitive MRD test, Personalis has emerged as a leader in this space. Our technologies are able to spot cancer when there's only about one fragment of tumor DNA circulating in a 1,000,000 DNA fragments in the blood. Our platforms are used by many of the world's top biopharma companies to improve clinical trial results by new ways to personalize treatment empower a new generation of therapies. Earlier this year, we laid out our strategy to drive Personalis to $100,000,000 in revenue in 2025.

Speaker 2

Now this operational milestone has at its core 3 growth engines and its effect has been to shift us into a higher growth mode. In the Q2, we achieved revenue of $22,600,000 up 35% year over year. This growth was driven by our biopharma business which grew 117% 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. Our strong Q2 revenue also helped us to increase our guidance for the full year by $3,000,000 and we now expect full year revenue in the range of 79 $1,000,000 to $81,000,000 We're particularly pleased to have been able to deliver this top line growth while also making improvements to both our cost and margins as Aaron will cover shortly. I'll now review progress this quarter on our 3 growth engines.

Speaker 2

First, the first growth engine, when an MRD is the most important as we focus on turning personnel into a clinical diagnostic powerhouse. As I noted, MRD testing uses a liquid biopsy to find evidence of minimal residual disease or cancer recurrence and to monitor therapy effectiveness. We laid out our win in MRD strategy 6 quarters ago and we've been executing on 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 the 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 and clinical trials and 4, commercialize Next Personal with a partner centric model.

Speaker 3

Now to delve into

Speaker 2

the first pillar, we previously explained how we're developing evidence to support Next personal's clinical usage and reimbursement in lung cancer, breast cancer and IO therapy monitor. 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 with potentially better outcomes.

Speaker 3

The clinical studies that have been done to

Speaker 2

date indicate we can detect cancer many months ahead of imaging. The data also suggests that patients who are classified as MRD negative meaning our test doesn't detect circulating DNA from the tumor largely do not experience recurrence. Having more confidence in a negative result may allow a doctor to deescalate patients from unnecessary therapies and procedures potentially avoiding toxicities and ultimately saving the healthcare system money. Our focus on these indications is intentional and our data is demonstrated that NEXT Personal can win in these markets. To elaborate a bit on our approach, lung cancer and breast cancer shed very little DNA in the blood, so cancer is difficult to detect without an ultra sensitive approach.

Speaker 2

Lung and breast cancers can be aggressive when they recur, so early detection is critical. For patients on I O therapy, we believe the potential decision to switch treatment requires the insights from monitoring that are provided by our ultra sensitive test. These factors make breast cancer, lung cancer and therapy monitoring the ideal indications for us. In October of 2023, we launched the 1st commercial ultra sensitive MRD test into the clinic. Next Personal is being marketed alongside our Medicare reimbursed tumor profiling test NextDx, which is used to help put patients on appropriate therapy.

Speaker 2

We started our commercial journey with just 10 doctors in an early access program and we've been adding incrementally. As we previously stated, our intention is to gradually add more doctors into the program until we receive reimbursement.

Speaker 3

Our quarter over quarter growth continues

Speaker 2

to be healthy as we delivered 561 clinical tests in the 2nd quarter, a 66% increase from the 338 results delivered in the Q1 of this year. In addition, TIP has commenced their commercial launch of Nex Personal late in the Q2 and we expect this to fuel additional growth.

Speaker 3

Early feedback has been the clinicians are seeing

Speaker 2

a leap in actionability from our approach. If you remember, we report circulating tumor DNA in the blood down to 1 part per million, which means that if there is just one fragment of tumor DNA circulating in about a 1000000 DNA fragments in the blood, we expect to see it and quantify it. This is a leap forward in the field. The extra analytic sensitivity we report on with our next personal test unmask a region that has previously been hard to see consistently. We call that region the ultra sensitive MRD range.

Speaker 2

About 30% of the ctDNA positive samples in our clinical testing have been in this ultra sensitive range. That is a jump in the actionability of MRD testing and means physicians can see cancer recurrence earlier, have more discrimination and monitoring therapy and have more confidence that patients with negative ctDNA results are in fact cancer free. Indeed, we've had many anecdotes relate from our early access doctors that the ultra sensitive range is allowing them to see cancer sooner and intervene with a patient to get them the management they need and also to consider de escalating therapy when our test determines patients are negative for ctDNA. For example, a female patient from the Northeast receiving therapy for breast cancer tested positive with our next personal test. Her physician saw low traces of cancer in the ultra sensitive range for over several months.

Speaker 2

And luckily for this patient, the detected levels trended downwards until the patient's cancer finally became undetectable. Continued monitoring can potentially help inform taking patients like this OFF therapy in the future and provide reassurance to both the doctor and the patient. Moving to our 2nd pillar, we're focused on building and publishing clinical evidence to gain reimbursement and continue to work with many of the top thought leaders around the world. In previous calls and during the ASCO webinar, we talked about the importance

Speaker 3

of our work with 2 of

Speaker 2

the leading cancer centers in Europe, Roammarston in breast cancer and Valda Hebron in immunotherapy monitoring. Both of these collaborators have provided access to studies that are broad and comprehensive. The case of Royal Marston and the Institute of Cancer Research in the UK, which are one of the leading global institutions of breast cancer, the study included patients across the major breast cancer subtypes including HR HER positive, HER2 positive and triple negative breast cancer and patients were followed in this study for a medium of 6 years. The study results were highlighted at ASCO during a podium presentation and the results were compelling. Next Personal detected early stage breast cancer, a medium of 15 months before imaging scans for patients.

Speaker 2

For Valdohebron or VHIO, the work is in pan cancer and included greater than 120 patients across 18 different cancer subtypes. The study showed that next personal could be potentially used to predict immunotherapy response for patients. Similar to what we're seeing with our breast cancer studies, our test is detecting traces of cancer well ahead of imaging scans. These Royal Marsden results in the VHIO studies for immunotherapy monitoring join our TRACERx work in lung cancer to form the backbone of our efforts to gain Medicare reimbursement. Investigators in all three of these studies, Rome Arden, CHIO and TRACER X are working to submit manuscripts to peer reviewed journals, which is a key step for us ultimately to submit for Medicare reimbursement.

Speaker 2

Once those manuscripts are published, we can then submit the individual doc series for each of the indications to Medicare. There were 2 other datasets at ASCO that highlighted next personal that are also worth noting. One was a study with Dana Farber for HER2 positive patients that showed next personal was correlated with outcomes in patients receiving neoadjuvant therapy. Neoadjuvant therapy is given to these patients before surgery to try to shrink the tumor before the cancer is removed. And the second study, this one with Duke deepened the data indicating next personal could be used to predict immunotherapy response.

Speaker 2

The 3rd pillar of our next personal strategy is to leverage our biopharma relationships to drive the use of next personal in clinical trials. We're engaged with the most

Speaker 3

excuse me, with most of the

Speaker 2

world's top biopharma companies and have continued to generate excitement around our next personal test most recently from discussions at ASCO. Customers want and need an ultra sensitive approach to ensure that the most appropriate patients enter into clinical trials. For example, we believe that our ultra sensitive assay means that patients testing negative are much less likely to have a 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 be an excellent approach to optimize biopharma trials. We have booked 1,000,000 of dollars of revenue from biopharma customers for MRG projects to date and expect the growth to accelerate.

Speaker 2

Now move on to the 4th and final pillar, commercializing Expersonal in the clinical market using a partner centric model. In December, we announced our key partnership with Temphis to commercialize Nexpersonal in the clinics with oncologists and recently, Temphis announced the launch of our products to their customers. To quickly review, we expect to leverage Temphis' 200 plus salespeople channel to co commercialize NextPerson Accelerate Growth. Personalis will be responsible for processing samples in our lab, obtaining reimbursement and invoicing health insurance payers and patients under the arrangement while paying Tempa's fair market value for the commercial services they provide to us. Overall, the deal is worth approximately $30,000,000 for personnel should all milestone payments be triggered and if Tempest fully exercises their awards.

Speaker 2

We expect this to allow us to ramp up commercial efforts quickly with minimal additional cash investments. We're now on the TIPUS requisition and we're processing samples sent to our lab. The goal for the balance of the year is to purposely grow our efforts together, learning how to work seamlessly as partners, integrating our business systems and refining our message to oncologists. This way we're set to drive accelerated growth together on the backside of reimbursement approval. The Tipis relationship is working extremely well today.

Speaker 2

Our cultures and our teams work well together and we're confident that we're creating something great for doctors, patients and payers. While we made strides with our 1st growth engine, our win in MRD strategy to establish Nex Personal as a leading MRD test. We've also made progress with our 2nd growth ambition leveraging our Immuno ID Next platform to deepen relationships with biopharma customers who use the offering to pioneer new therapies. Our biopharma business grew 117% year over year and we had solid performance across our product portfolio. Customers primarily use our amino ID.

Speaker 2

NEXT platform in 2 ways. First, they leverage our platform to power translational research and find new biomarkers and insights that can enable their drug discovery efforts. 2nd, companies in the personalized cancer vaccine or the PCV market use our platform to create a molecular fingerprint of a patient's tumor to develop personalized therapy. We previously told you about our partnership with Moderna in which Moderna is utilizing our platform in their mRNA cancer program. Moderna and its partner Merck are enrolling patients and our collaboration with Moderna is important driver of revenue for us in 2024 2025.

Speaker 2

We have several other partners that work in this space as well. The 3rd engine of our growth is growing our personnel 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 as a part of their MRD product to help them scale while they work to build in house capabilities. As planned, they've reached the point where they can now run the product in their lab and we expect to wind down our work with Natera by the end of 2024.

Speaker 2

We have no intention to extend the current commercial arrangement. With other strategic parts of our business accelerating quickly, TCV, biopharm MRD projects and our clinical diagnostic business, the additional capacity will shift to support those critical parts of our business. I should also note we're having other discussions exploring scaling up enterprise work in 2025. Our second important enterprise relationship is the VA. Now 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 lifestyle affect health and veterans.

Speaker 2

We've helped power this program with the VA for over 10 years. The VA informed us this quarter that they plan to renew the contract another year and we expect to receive a new purchase order by the end of September. Before I turn it over to Aaron, I have a couple of important corporate updates. First, we recently completed an agreement with Myriad Genetics to cross license patent estates covering tumor informed approaches to detect minimal residual disease or MRD. Both companies value tumor informed approaches for cancer patients and have developed deep foundational patent states in the field and each sees the benefits of an ultra sensitive approach is key to making MRD testing the standard of care.

Speaker 2

The agreement we entered into help solidify each company's freedom to operate in the MRD market and broadens access to the benefits of MRD testing for cancer patients. Personalis and Myriad are each pioneering tumor informed genome scale approaches to power ultra sensitive MRD test enabling cancer recurrence detection early or in more refined therapy monitoring than alternative approaches. Additionally, we settled our litigation with foresight which resulted in us granting them a license to our MRD patents. This is a great outcome for personalisis. 1, our IP that we've developed over many years is valuable.

Speaker 2

We were able to show that and we're will we pay royalties moving forward. And secondly, we can focus on running our business and putting litigation costs behind us. Both the cross license agreement with Myriad

Speaker 3

and the settlement should give investors confidence in

Speaker 2

the value of our IP, the strength of its protection and our ability to create value from it. With that, I'll now turn it over to Aaron to review our financial results. Thank you, Chris.

Speaker 3

Total company revenue for the Q2 2024 was $22,600,000 an increase of 35% compared with $16,700,000 for the same period of the prior year. The increase in revenue was driven by higher volume from biopharma and personalized cancer vaccine customers, which was partially offset by declines from the BAMBP. Biopharma revenue grew 117% compared to the same period last year and the growth was primarily from Immuno ID Next. In addition, we recognized $100,000 of clinical revenue from our NextDx tumor profiling test. Gross margin expanded to 35.6% for the 2nd quarter compared with 28.7% for the same period of the prior year.

Speaker 3

The year over year increase of 6.9 percentage points was primarily due to product cost reduction and operating leverage from the 35% increase in revenue. Over the last year and a half, our focus has been to reduce the product costs and to reduce lab operations expenses to drive margins higher. Recall that just a few quarters ago, our gross margin was only 19%, so we are making very good progress. Also, we had over 4 percentage points of unreimbursed clinical test costs during the Q2, otherwise gross margins would have been closer to 40%. 1 of our top goals is to continue expanding gross margin.

Speaker 3

As we go forward, we expect margins to continuously improve with scale, although there could be some quarter to quarter variability due to fluctuations in volume, and reimbursed clinical test costs and other factors. Operating expenses were $24,900,000 in the 2nd quarter compared with $30,100,000 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. R and D expense was $13,000,000 in the 2nd quarter compared with $17,900,000 for the same period last year and SG and A expense was $11,900,000 compared with $12,100,000 for the same period last year. Net loss for the Q2 was $12,800,000 compared with $24,000,000 for the same period of the prior year.

Speaker 3

The 2nd quarter net loss included a $3,000,000 non cash gain related to fair value accounting of the outstanding warrants issued to TEPAS. This non standard income was a result of the decrease in fair market value of the warrants at June 30, 2024 compared with the fair market value at the end of last quarter. And for clarification, the accounting implications for the warrants have no bearing on the cash value they are exercised in the future. Now onto the balance sheet. We finished the 2nd quarter with a strong balance sheet with cash and short term investments of $87,000,000 During the quarter, we used $8,400,000 to fund operations and we have more than 1.5 years of cash on the balance sheet, which is expected to last through the Q1 of 2026.

Speaker 3

Now I'd like to turn to guidance. For the Q3 of 2024, we expect total company revenue in the range of $21,000,000 to $22,000,000 revenue from pharma test, enterprise sales and other customers in the range of $17,000,000 to $18,000,000 and revenue from population sequencing of approximately $4,000,000 And for the full year, we increased our guidance and now expect total company revenue in the range of $79,000,000 to 81,000,000 an increase from our prior guidance of $76,000,000 to $78,000,000 Revenue from PharmaTest, Enterprise sales and other customers in the range of $71,000,000 to $73,000,000 an increase from our prior guidance of $68,000,000 to $70,000,000 and this estimate includes revenue from Natera of approximately $21,000,000 to $22,000,000 of which $5,000,000 to $6,000,000 is expected in the second half of the year. Population sequencing revenue to be approximately $8,000,000 non GAAP net loss of approximately $75,000,000 a decrease from our prior guidance of $77,000,000 and exclude any income or expense related to the outstanding warrants issued to Tempest. And cash usage is expected to be approximately $60,000,000 a decrease from our prior guidance of $62,000,000 We look forward to updating you on our progress during the next conference call in a few months.

Speaker 3

And with that, I will turn the call back over to the operator to begin the Q and A session. Operator?

Operator

Thank Our first question is coming from Yoko Oku from Morgan Stanley.

Speaker 4

Hi, this is Madison on for Yuko. How are you guys?

Speaker 2

Hi, Madison. Hey, Madison.

Speaker 4

Hi. Congrats on the quarter and thanks for taking the question. I have a 2 part here. Just first one, I was wondering should Moderna's PCV eventually secure FDA approval? I was just wondering if you could remind us what the potential upside could be on that?

Speaker 4

And are you specked into the product? Or is it possible that another sequencing vendor could also start to sequence for Moderna once approved? Moderna

Speaker 2

relationship,

Speaker 3

so we are ecstatic about how this Moderna relationship, so we are ecstatic about how this has been operating. Again, we've been partners with Moderna since 2016 to 2017. In terms of where this goes upon commercialization, that's something for Moderna to talk about. We're not really talking too much about the upside or the opportunity. We just know that it is a huge opportunity for us.

Speaker 3

We're excited about it, That should come from the Moderna folks to talk about. In terms of the offering, so again, today samples are taken from patients and the patient samples are sent to Personalis. We profile them and we send back this rich informative set of data back to Moderna. So they can then customize a vaccine or a therapy for that individual patient. In terms of, again, the relationship, we believe we have a very, very solid relationship and Moderna values our platform.

Speaker 3

So in terms of the longer term prospects, we feel very confident about this going into the future.

Speaker 4

Got it. Okay. That's good to hear. And then just on with Tempest launching their own MRD solution, I was wondering how you make sure that they are incentivized to also market next personnel, like what is the kind of incentive structure there put in place for the product so that they get an equal commercial push from the sales force?

Speaker 2

Yes. No, great question. I mean, first of all, just backing up, while we're on the Tempest requisition like we're growing the number of Tempest sales reps that are selling the product over time aggressively to be able to gain the volume. So it's like right now we're starting the journey and moving it up slowly. Tempus' product is a blood based.

Speaker 2

It's not the same type of product. It's a tumor naive product. Ours is a tumor normal product. They positioned it colorectal cancer. We're positioned at long, breast and I O therapy monitoring.

Speaker 2

So products are positioned a little bit differently. And I think it's actually really, really great to have both products under the same proof, because the truth is for some patients, you're not going to have the access to the tissue and you're just going to have access to the blood. And so, I think if you just step back and think about it, Tipis is uniquely the company that stitched together both a tumor naive and a tumor and a tumor normal approach under one roof and they're really set up to accelerate growth in the marketplace with a comprehensive

Speaker 4

Got it. That's good to hear. Thanks so much for the time.

Speaker 3

Thanks, Madison.

Operator

Next question on the line will be coming from Mark Massaro from BTIG.

Speaker 5

Hey guys, this is Vivien on for Mark. Thanks for taking the questions. I just wanted to touch on next personal reimbursement. Just remind us how you're thinking about a potential crosswalk or gap flow there for pricing, Just where you think that will land and any potential upside as it relates to potential ADLP status? Thanks.

Speaker 2

Yes. Great question. I mean, I we build all of our economic models assuming we get similar to what other players have been reimbursed in the marketplace. But there's a couple different shots on goal to drive that higher. One is that the test in and of itself is a more resource intensive test than an exome based test.

Speaker 2

Medicare reimburses based on that. So we think that's one way just fundamentally that the test should be priced higher because it's a more resource intensive test to run, which is how these tests ultimately are priced. And secondarily, there is a shot to get ADLT status, so we're working on managing. But the expectation we've set is that we're tracking to have gross margins greater than 60% even if we don't achieve any of those things. We're set up well and the Tempest relationship brings sales and marketing cost down in that 20% to 25% range.

Speaker 2

And so we built the economics from there and then the rest of it will just drive the numbers to be a more lucrative before able to achieve higher reimbursement.

Speaker 5

Perfect. Thanks so much for the color there. And then just a follow-up on Moderna has sort of exceeded expectations. Can you just remind us, I think they've expanded the number of indications they're looking at on PCV. So maybe just touch on that and then also your longer term outlook on the pharma side of the business?

Speaker 5

Thanks.

Speaker 3

Sure. Thanks, Vivien. So in terms of the Moderna relationship, remember, they're in the Phase 3 clinical trial right now with melanoma patients. They had treat success in Phase 2. In terms of the volume that we're seeing today, a lot of that is because of the Phase III trial.

Speaker 3

So the number of patients in the Phase III trial significantly outpaced what you'll see in Phase I or Phase II. In terms of other cancer types, yes, they are focused on additional cancer types as well, right. But in terms of talking too much in terms of specifics, that's something again that should come from them, but they are working on others as well.

Speaker 5

Great. Thanks so much for taking the questions.

Speaker 3

Thank you.

Operator

Next question will be coming from Thomas Flaten from Lake Street.

Speaker 6

Good afternoon, guys. I appreciate you taking the questions. Chris, you mentioned in an earlier response kind of gating the Tempest efforts here in the near term. Can you talk to us a little bit about exactly how you're going to do that? How many reps are you going to bring on and are you going to pace those reps, so you don't overburden the system with too much volume when you're not getting paid?

Speaker 6

Any color there would be super helpful.

Speaker 2

Yes. So they we've started out with a small number of tempest reps that are actually trained in marketing and talking about product. The plan is to grow that over time. So it's a to graduate it or approach that's that enlarges the resources put at the sales process as we go. If you remember, there's actually some volume gates also built into the agreement.

Speaker 2

So that Tempest has agreed not to exceed certain numbers on a year to year basis and we've all been sort of aligned around that. So the idea part of the challenge here is how to show increasing clinical traction with doctors and investigators so that they're using the product and they feel comfortable. At the same point in time managing the burn rate and running those tests. Because you want to be at a spot where the run rate of running test is good enough so that the revenue really explodes when you're able to get reimbursement because you've already got a running start. So we're trying to walk that tight rope and we've structured the agreement and the commercial rollout plan with Tempest to achieve that.

Speaker 2

We think we believe we're on our way to executing on a way that's consistent with that.

Speaker 6

Got it. And you mentioned in your prepared remarks, the publications for each of the key data sets in breast and IO and lung. Any visibility into timing of that? I guess the follow on to that would be what are your expectations now around submission of dossiers to CMS?

Speaker 2

Yes. So a couple of things on that. I mean all the data has been run and the data has now been publicly out there. All the data looked awesome. I mean, it was great this quarter to see the breast cancer data, which created a really nice buzz in the community and in the IO therapy monitoring was also an oral presentation and it's gotten a lot of interest and excitement.

Speaker 2

And that joins the TRACERx data. So you've got multiple studies where the test is really showing that it adds great value. So investigators are working on those papers now. They're being put together. They're all in different phases, but they're all sort of nearing the end of it.

Speaker 2

We don't actually control the submission of those. They write and drive those publications because they're in their name, but we're optimistic that those will be submitted soon. We'll submit to Medicare as soon as those are published. So to be clear, like Medicare wants to see a peer reviewed study in order to consider an application. So that's the next step in the journey for us is to have those studies actually submitted and published.

Speaker 2

And that's what we're working on and that's in the investigators' hands right now. Giving to add Rich, Rich is with Vance. We're on track. It is a fee break and we're hopeful to get these published

Speaker 3

soon.

Speaker 2

Just one of the really great things about us from an executional standpoint is we are executing on a plan that we laid out more than a year ago about how this all would all happen. And we've we have gotten the data, we've gotten the study set up, we've gotten the samples in here, we've run the samples, the samples have been discussed in scientific meetings and the data has all been running, the papers are all happening exactly the way we had talked about doing it in the plans that we had laid out. So we've been executing in a really, really rapid pace and I'm proud of the team for bringing it up to this point.

Speaker 6

Great. Appreciate taking the questions. Thanks guys.

Speaker 2

Thanks.

Operator

Our next

Speaker 7

This is Joseph on for Mike. A couple of questions here. Maybe I think you said 4%, there was a 4%, I guess revenue headwind, what are you going to call it from clinical tests that weren't reimbursed. Are these tests that you plan to go after for reimbursement or have you kind of already excluded this from future revenue?

Speaker 3

Yes. I mean,

Speaker 2

we the costs are in the quarter. We certainly don't insurance companies for them, but we just don't expect to get paid for them because they're not medically necessary or in the case of Medicare, we don't know. But so they weighed down gross margins. So I think Aaron's point was if they hadn't if those hadn't been in there weighing them down, which is all part of the investment we're making into the growth and I think we all appreciate what we're doing there. The gross margin would have been near 40%.

Speaker 2

So we've made tremendous progress, I think is the larger point with the gross margin company.

Speaker 7

Yes, absolutely. Tremendous progress on margins and cash burn overall. I guess maybe just on cash burn, the reduction in the guidance for cash burn, I was just curious, is that coming from further, I guess, cost reduction initiatives or was this mostly coming from upside from raising the revenue guidance?

Speaker 3

It's really from the revenue and the gross profit, right? Revenue went

Speaker 2

up $3,000,000 gross profit there as well.

Speaker 7

Okay, great. And then just maybe one more. You had mentioned the Duke data set being predictive. I assume this was immuno ID of immunotherapy response. Just curious if you kind of see that use of sorry, yes.

Speaker 2

It's actually Next Personal, it's the MRD product.

Speaker 7

I see. Okay. Okay. That makes perfect sense. But I guess the question then, do you see that use case mostly sticking with pharma or is there a potential to use that use case in the clinical setting for immunotherapy eligibility?

Speaker 2

No, absolutely. Certainly across the clinic, it's one of the large use cases for these MRD assays, because doctors it's tough, you're stimulating the immune system and so it's tough on imaging to see whether or not your therapy is working because you could have an immune response and the tumor looks like it's growing on imaging, looks like the patient is getting worse, but indeed the immune system and the drugs are working exactly the way you would think it would be. So you would be misled. And so these blood tests are actually I think taking over for doing a lot of the heavy lifting in terms of monitoring. So it's one of the key use cases.

Speaker 2

There are now 3 data sets supporting the use here. 1 is with UKE, which is melanoma and another one with Duke, which is the gastric patients. And then the VHIO data set, which is pan cancer, that's really the key one and the other 2 support it. So there's 3 data sets that are coming together to support the reimbursement for IO therapy monitoring and it's one of the key use cases. Anything to add, Rich?

Speaker 8

Yes. No, it's just like you said, 40% of all cancer patients are eligible for immunotherapy, but actually only 12% of patients actually respond. So if you think about that, it becomes really critical to be able to understand whether these patients are actually having a response to immunotherapy. And so MRD is definitely one of the key tools now that they can use and we're showing the data that is highly predictive of response and so that's definitely one of the key indications.

Speaker 7

I see. Okay. It makes perfect sense. I had read that comment as, I guess testing for eligibility pretreatment rather than monitoring, but thanks for clearing that

Speaker 2

up. No, absolutely it's monitoring. It's key and it's one of the big parts of the $20,000,000,000 estimated $20,000,000,000 market. Thanks.

Operator

Our next question will be coming from Arthur Hee from H. C. Wainwright.

Speaker 9

Hey, good afternoon, Chris and Aaron, VJ and Arthur for RK. Congrats on the quarter. I had a couple of quick ones. So first, regarding the total Medicare test, the 561, How about the physician right now enrolled in the EAP? Does that number bumped also?

Speaker 2

That's well, that includes all the tests that we got, which are from those physicians and some tempest physicians that were added towards the later last quarter. So they're coming from that group. Now we did grow the number of physicians. We started with 10 and we've been slowly growing that out. And so it does there are more physicians being added, not in a particularly great clip, but that's what that is.

Speaker 2

Got you. Thanks for

Speaker 9

the color. And my second question is, so regarding the razor guidance for the regarding revenue, it seems to be coming more from the Pharma testing business. I'm just curious, is this driven more by the Immune I and D service? Or there's some interest in the next personnel from the pharma?

Speaker 3

So it's actually both. So most of the revenue today is from Immuno ID. NEXT. The pharmaceutical business has been very, very strong over the last few quarters in Q2 especially. The pipeline for Next Personal with our biopharma customers is growing rapidly.

Speaker 3

And so we're going to start to see that start to take up over the next few quarters here as we go forward.

Speaker 2

Got

Speaker 9

you. That's good to hear. The last question is, so for the next person though, what's your plan when you're looking beyond the breast cancer, lung cancer and the IO therapy monitoring? What's the potential beyond that?

Speaker 3

We haven't really stated anything beyond that just yet, Arthur. So right now, we're focused on these cancer types. It's close to half of the market. It's going to give us plenty of things to keep us busy with over the next couple of years. So right now, we're hunkered down and focused on these cancer types.

Speaker 9

Got you. Thanks, Aaron, and thanks for taking my question.

Operator

We have another question from Dan Brennan from T. B. Cowen.

Speaker 10

Hey, it's Joe on for Dan. So it's really nice revenue performance in the quarter at 22.6%, which is well on your way to the run rate to hit the $100,000,000 in 2025 levels. So we get closer, can you just share some thoughts about how you're feeling about achieving this milestone, especially with Natera business rolling off? It would be great if you could kind of walk through expectations for different revenue buckets in terms of MRD vaccines, enterprise and VA?

Speaker 3

Sure. Great. Thanks for the question. In terms of looking ahead into 2025, we haven't given specific guidance as to the buildup of it. But the way to look at it, so in Chris' prepared remarks, he talked about the enterprise work with Natera ending by the end of this year.

Speaker 3

So we can assume and you folks can assume that there's going to be 0 from Natera in 2025. We're going to have about $22,000,000 in 'twenty four from Natera. You could assume most of that is going to be offset by our biopharma increase. Biopharma will increase from not only Immuno ID Next, but also Next Personal. Again, the funnel is growing immensely and we're expecting that to start to take up here over the next few quarters.

Speaker 3

In addition, we're also engaged and looking for additional enterprise type of work. And so we're optimistic that there could be something in the horizon as well. The VA MVP might be $7,000,000 to $8,000,000 So if you assume the current run rate there, that's it's going to be flat, all right. But most of the buildup or growth is going to come from biopharma.

Speaker 2

Got it. And then it

Speaker 10

would be great to get a little more color on the Myriad deal. This will where both personnel's Myriad looking to get out of this agreement and then maybe in the lens of like it seems personal is kind of changing its IP strategy from one where you were previously enforcing your patents and now it seems like you're sharing your IP with Marriott and settling Foresight. So that will be it.

Speaker 2

Yes. I mean, I think it's all about patient access and having a model that is comprehensive and enlarging and helps all build the market. And but in a way that actually you want to create value for the IP. So in the case of Myriad, they have a lot of deep foundational work there and by doing the cross license deal, we give each other make sure that each other can move in a way that we both have freedom to operate. And I think that's really good for both companies, for shareholders and for patients and doctors and is a way for us to be appropriately spending money.

Speaker 2

In the case of foresight, there's some great IP and we end up with royalties there and moving forward, we'll continue to find ways to bring value for the IP that we've developed. Got it. Thanks.

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Earnings Conference Call
Personalis Q2 2024
00:00 / 00:00