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Good day, and welcome to the Personalis First Quarter 2024 Earnings Conference Call. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Aaron Tachibana, please go ahead.

Thank you, operator. Welcome to Personalis' First Quarter 2024 Earnings Call. Joining today's call are Chris Hall, Chief Executive Officer and President; and I am Aaron Tachibana, Chief Financial and Chief Operating Officer; and Rich Chen, Chief Medical Officer and EVP of R&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. 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. Our press release with our first quarter 2024 results is available on our website, www.personalis.com, under the Investors section and 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 5:00 p.m. Pacific Time today. Now, I would like to turn the call over to Chris for his comments and first quarter business highlights.

Thank you, Aaron. Good afternoon, everyone, and thank you for joining us. I'm very proud of our team at Personalis as we continue to fight cancer with our noble technologies. 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. MRD stands for minimal residual disease. With our first-of-its-kind ultrasensitive MRD test, we're able to spot cancer when it's only one fragment of tumor DNA circulating in 1 million DNA fragments in the blood. Our technologies are used by many of the world's top biopharma companies to improve clinical trial results by new ways to personalize treatment and power a new generation of more effective therapies. Last quarter, we laid out a strategy to drive Personalis to $100 million in revenue in 2025. This aspirational milestone with 3 underlying growth engine is our large star as we are accelerating Personalis into a higher growth mode. In the first quarter, we achieved revenue of $19.5 million, exceeding the upper end of our guidance of $18 million to $19 million. Our biopharma business grew 55% compared to the first quarter of 2023, driven by strong demand for our core ImmunoID platform to support the individualized neoantigen therapy market as well as increasing demand for our MRD product mix personal. With this increased demand, we have the confidence to increase our full year revenue guidance to $76 million to $78 million from $73 million to $75 million. I'll now review progress this quarter on the 3 growth engines driving us towards our $100 million in 2025 goal and our progress on each. The first growth engine is the most important as we focus on turning Personalis into a clinical diagnostic powerhouse. In order to do that, we're executing on our win and MRD strategy. The MRD market involves using liquid biopsy to find evidence of minimal residual disease or cancer recurrence and subsequently monitoring therapy effectiveness. It's estimated that this market will mature into a $20 billion opportunity over the coming years, and we are establishing Personalis as a leader in the space. Our win and MRD strategy has 4 pillars. First, to focus and launch our tests in cancer types where an ultrasensitive liquid biopsy test and unlock significant value for patients, payers and partners; second, to drive reimbursement by developing robust clinical evidence and partnering with the top global collaborators; third, leverage our deep relationships to accelerate adoption by biopharma partners empower our revenue growth by the use of next personal and clinical trials. And lastly, to commercialize next personal with a partner-centric model. To delve into the first pillar, we previously explained how we're developing evidence to support NeXT Personal's clinical usage and reimbursement in early-stage lung cancer, breast cancer and immunotherapy monitoring. We believe our ultrasensitive technology allows us to see cancer earlier, which may provide the information to deescalate patients from unnecessary to necessary therapies and procedures potentially sparing patients from toxicity and saving health care dollars. This is importantly, we believe we can identify and get recurrent patients to treatment earlier with potentially better outcomes. Our focus on these indications is intentional, and our data has demonstrated that NeXT Personal can win in these markets. To elaborate a bit on our approach, early-stage lung cancer and breast cancer shed very little DNA into the blood, which are difficult to detect without an ultrasensitive approach. Early detection is critical in these indications. For patients on I/O therapy, we believe the potential decision to switch treatment requires the insights for monitoring that are provided by ultrasensitive tests. Now, you might recall that last October, we launched our MRD test NeXT Personal. And today, we are enrolling physicians in an early access program, or EAP. We are the first ultrasensitive MRD test to commercially enter the market. And with that launch, we now have 2 laboratory developed tests for LDTs on the market, the other being our Medicare reimbursed test NeXT Dx, which is used by physicians to put a patient on targeted therapy. The adoption of these tests has been ramping and is exceeding our initial target. We delivered 338 clinical tests in the first quarter, a solid uptick from the 126 results delivered in the fourth quarter of last year. We're pleased with this traction as the number of physicians that were ordering in Q1 remain fixed to 10 through the quarter. There are 2 key metrics that I want to talk about and dive into. First, all 10 of our early access positions are ordering an uptick has been strong across the entire cohort. The second metric involves the actionability of our next personal MRD test for the clinic. If you remember, we report circulating tumor DNA in the blood down to 1 part per million, which means if there is just one fragment of tumor DNA circulated and 1 million DNA fragments in the blood, we expect to see and quantify it. This is a lead forward for the field. The extra sensitivity we report on with our NeXT Personal assay, which are values between 10 and 100 parts per million, a mask a region that has previously been hard to see consistently. We call that region the ultrasensitive MRD range. Inter NeXT Personal clinicians could not routinely detect cancer recurrence at that level and today, they can. About 40% of the ctDNA positive samples thus far in our clinical testing have been in this ultrasensitive range. That's a significant jump in the performance of MRD testing and means that physicians can see cancer recurrence earlier, have more discrimination in monitoring therapy and have more confidence that ctDNA patients that are negative are likely cancer free. Indeed, we've had many antidotes relayed from our 10 early access doctors that the ultrasensitive range is allowing them to see cancer earlier with their patients and intervening to get them the management they need. We believe it is the ultrasensitive range that allows the doctor to see cancer sooner, and seeing it sooner is the cornerstone of our win in MRD strategy. Now, moving to the second pillar. We're focused on building and publishing clinical evidence to gain reimbursement and are working with many of the top thought leaders in the world. In previous calls, we've talked about the importance of our work with Royal Marsden in breast cancer and BHIO and immunotherapy monitoring. Both of these collaborators have provided access to studies that are broad and comprehensive. In the case of Royal Marsden, one of the leading global institutions in breast cancer, we're focusing on patients with early-stage disease for several subtypes, including ER positive, HER2 positive and triple-negative breast cancer. For BHIO, the work is pan-cancer across many cancer types and stages. These studies are anchor studies and that they will be the backbone of our efforts to gain Medicare reimbursement. Royal Marsden for early-stage breast cancer and BHIO for immunotherapy monitoring. We're excited that at the upcoming ASCO conference, the work with both of these collaborators will be featured as oral podium presentations. We also have 3 other studies featured at ASCO, one with Dana Pharma on HER2-positive patients and other with Duke immunotherapy monitoring for gastric patients and lastly, 1 in colorectal cancer patients. Having this brands of data should underscore our commitment of Personalis to developing rich data to support the use of NeXT Personal in the clinic and to gain reimbursement quickly. At the AACR conference in April, some compelling data was presented. Our collaborators from the U.K. gave an oral podium presentation on late-stage melanoma patients where they use NeXT Personal to monitor and detect immunotherapy response, highlighting the importance of detection of ctDNA in the ultrasensitive range. In addition, our work in collaboration with Astra

Thank you, Chris. Our strong first quarter 2024 financial results demonstrates our ongoing commitment to execution against our milestones and scaling revenue. I will be providing details about the first quarter financial results and guidance for the second quarter and full year of 2024. Total company revenue for the first quarter of 2024 was $19.5 million and increased 4% compared with $18.9 million for the same period of the prior year. The increase in revenue was driven by higher volume for biopharma and personalized cancer vaccine customers, which was partially offset by declines from Natera and the VA MVP. Biopharma revenue grew 55% as compared to the same period last year, and the growth was from ImmunoID NeXT and also from our MRD test NeXT Personal, which is beginning to ramp up with many customers. In addition, we achieved a significant milestone and recognized our first clinical revenue in the amount of $0.2 million from NeXT Dx for which we received Medicare reimbursement coverage in January of this year. Gross margin was 28.1% for the first quarter compared to 25.1% for the same period of the prior year. The year-over-year increase of 3 percentage points was primarily due to favorable customer mix from the increase in biopharma revenue and also operating leverage from the increase in total company revenue. Operating expenses were $24.4 million in the first quarter compared to $34.6 million for the same period of the prior year. Most of the year-over-year decrease was attributed to the actions taken to reduce headcount in 2023. R&D expense was $12.8 million in the first quarter compared with $16.6 million for the same period of last year, and SG&A expense was $11.6 million compared to $14.1 million for the same period last year. Net loss for the first quarter was $13 million compared to $28.7 million for the same period of the prior year. The first quarter net loss included a $4.8 million noncash gain related to fair value accounting of the outstanding warrants issued to Tempus. This nonstandard income was a result of the decrease in fair market value of the warrants at March 31, 2024, compared with the fair market value at the end of last quarter. And for clarification, the accounting implications for the warrants will have no bearing on the cash value if they are exercised in the future. Now, on to the balance sheet. We finished the first quarter with a strong balance sheet with cash and short-term investments of $95.4 million. During the quarter, we used $18.8 million to fund operations, and we have approximately 2 years of cash from the balance sheet, which is expected to last through the first quarter of 2026. Now, I'd like to turn to guidance. For the second quarter of 2024, we expect total company revenue in the range of $19.5 million to $20.5 million, revenue from pharma tests, enterprise sales and other customers in the range of $18 billion to $19 billion and revenue from population sequencing of approximately $1.5 million. And for the full year 2024, we now expect total company revenue in the range of $76 million to $78 million, an increase from the prior estimate of $73 million to $75 million. Revenue from Pharma tests, enterprise sales and other customers in the range of $68 million to $70 million, which increased from the prior estimate of $65 million to $67 million. Population sequencing revenue to be approximately $8 million; non-GAAP net loss of approximately $77 million, which decreased from the prior estimate of $80 million, and it does not include any income or expense related to the outstanding warrants issued to Tempus. And cash usage is expected to be approximately $62 million. We look forward to updating you on our progress during the next conference call in a few months. And with that, I will turn the call back over to the operator to begin the Q&A session. Operator?

[Operator instructions] The first question comes from Yuko Aku with Morgan Stanley.

This is Madison on for Yuko. Congrats on the quarters. I just want to start out with the finalization of the FDA's LDT regulation. I was just wondering if you could speak to your strategy and adhering to the requirements and what kind of implications for Personalis you're expecting with respect to NeXT Dx and NeXT Personal?

Yes. Awesome. Thanks for being on Madison. Yes, the FDA issued their final guidance for regulations. And overall, we perceive it to be good for the industry, certainly good for Personalis. We have a quality management system here that we think is super robust. We're regularly expected by most of all the large biopharma companies. We've been operating with ISO certification, New York, et cetera. And we think that what we're doing sort of fits in well with what the agency expects based on the guidance. And so, we feel like we're set up and we think, ultimately, it's good for us. We'll know that there was a grandfathering section around having an LTT live. We have both of those tests or laboratory developed tests and are both on the market as of the effective date, the FDA guidance. So, we think that's good. And secondarily, because of our long relationship with New York. And having New York certification, we submitted both of the test for New York approval. So, ultimately, we expect to have New York approval for both of the tests also. So, we think it's net-net a positive for Personalis and puts us in a good position.

And then just one follow-up one. With following the recent AdCom meeting to evaluate MRD as an endpoint in multiple melanoma trials. Just wondering if you can read through to the solid tumor space and specifically with the panel enterprising sensitivity? How do you see NeXT Personal positions or capturing clinical trial opportunity?

Yes. I would just note, I mean, one of the things I think these 2 dovetails together, I mean clearly, what the agency did with the unanimous approval of using that the multiple myeloma is blood-based, we expect this to continue the margin solid tumor. And I think that the guidance and having the LDT and the quality management systems, et cetera, it's going to make it harder for companies that are well funded ultimately, to build and get the kind of position in the space that you would need to do. So, I think it sort of it works together well, especially if you appreciate that the FDA is going to integrate, we believe at some point, ctDNA is a monitoring metric for these clinical trials, doing that can allow biopharma companies to have results sooner and ultimately speed up access to drugs for patients. But we're engaged with most of the top biopharma companies right now that are either using the technology, assessing the technology or doing pilots or bake-offs. I mean there's always a long sales cycle with biopharma with these products, but the ultrasensitive nature allows them. We believe and what we're starting to see in the data that we're both talking about at industry scientific gatherings and what we're starting to see in our early testing data is that we're seeing almost 40% of the positive results are in the ultra-sensitive range. And those are real patients that we're identifying cancer sooner. And that insight and that discrimination is appealing to biopharma companies that want to have that discrimination in their clinical trials. And they want to make sure if they use a test as an entry point to actually take the drug and go into 2 arms. We want to make sure that the patients that are most likely to recur ultimately enter the trial. And so, we're getting really positive feedback on the assay in that way, too.

The next question comes from Mark Massaro with BTIG.

This is Vivian Bais on mark. I just aspire the way to the guidance beyond the beat. You have a number of offerings, some of which are newer like NeXT Personal, which might not be driving revenue out versus some more mature partnerships like Moderna. So, looking to '24, just curious if there's any area in particular where you're expecting to see strength versus some product lines that might be softer?

Hi, Vivian, this is Aaron. Thank you for the question and being on the call. In terms of the guidance, so we raised guidance primarily because of the strength of biopharma demand in terms of where that strength is coming from. So, immuneoID NeXT is holding it is doing very, very well. We have a lot of pharma headwinds today. But in terms of the opportunity, it's really with the NeXT Personal. We've done really well in the first quarter with NeXT Personal. We have a tremendous funnel that's building. And we see that the growth is going to accelerate as we head through the back half of 2024 with NeXT Person. In addition, Chris mentioned in the prepared remarks that we are seeing strength from the Personalis cancer vaccine side of the business as well, and that's again off of our ImmunoID NeXT platform.

And that kind of dovetails into my next question. So, the 338 NeXT Personal test was late to see it. Does how you're expecting that to ramp throughout the year after Tampus starts marketing it as well? I just wanted to get a sense if reimbursement on that tax would be more of a 2025 event or if there was any updated timing there?

No. I mean our goal this year is to submit the share for all 3 cancer indications and stitch it together, and we think that the data is coming together to allow us to do that. We talked in the prepared remarks that the BHIO and the Royal Marsden data would be featured at ASCO. It's a podium presentation, which we think is great, and we're tracking to be able to get the data ultimately submitted for publisher to be able to submit across the 3 indications for coverage in 2024, which is our state goal. Now, that's aggressive, and we'll continue to grow the number of doctors that are NEOP for our own efforts slowly through our own efforts and then with Tempus. And so, we'll see the number of patients referred to us for NeXT Personal testing continuing to grow through the year.

Maybe just an add on to what Chris has articulated, Vivian. So, we're seeing great strength. We have a lot of demand with doctors wanting to participate in the program. A number of tests are continuing to grow, but there's a balance. We're going to be a little bit careful with how much we take in performed tests on primarily because of reimbursement, right? We don't want to just burn a lot of cash. We want to make sure we learn and we want to ramp, but also there's a cash component of it.

One of the neat things about this relative to volume growth from an investor standpoint, it's always been appealing about the MRD market, is there's always an annuity, right? As you build the first baseline test, you repeat tests over time as this patient sort of go through their cancer journey. There's continued testing of personalized genetic fingerprint that you created for the patient. And so, we're seeing that happen. We're seeing nice growth in a repeat test of the patients that were referred to as previously, which is a really great dynamic in the space.

Next question comes from Dan Brennan with TD Cohen.

Joe on for Dan. Just go a little bit more on the 330 MRD test. What do you need to see to open that way from sub the 250 docs that you mentioned in Q4, is that more capacity or demand? Or is it really just holding back test until you get more widespread reimbursement? So, maybe is there like some sort of cap you're thinking about for annual volumes before you get coverage on the 3 tests?

Yes, the latter, we're moving really slow because of reimbursement. And one of the things, I think it's obvious by looking at all the progress that we've made through 2023 and bringing down the burn rate of the company, extending the cash out of the company is that we're being very thoughtful about where and how we spend the resources that we have. And so it's really important through this journey that we build advocates for the products that we continue to build clinical evidence that we continue to learn the right way to position, talk about the products and that we test the relationship with Tempus and we really get to the point where we feel confident that once we get reimbursement, we can pull the trigger and go super fast. But until we get reimbursement, we're not planning on going super fast because we don't get paid for those samples. And we want to make sure that we're really thoughtful in doing the right thing with investors' money.

And then on the burn, does the 2 years of cash assume a revenue level like at or around the $100 million now that you've implemented your $100 million in 2025 framework? Or is it closer to like compensate a bit lower?

Hi, Joe. Yes, so in terms of the burn, we've mentioned the casual asset through the end of the first quarter of 2026. So, it does contemplate something that's close to that $100 million range in 2025.

And then just last on the patent. Is the core IP that you're importing specific to whole genome quilting as power tumor, solid tumor? Or are there other key aspects of that?

I mean relative to MRD, very broad, both MRD and PCV very broad, both around O gonome and the way in which we do the process. And then there's IP that was mentioned around the exome and the way we boost the exome relative to its use in PCV.

And the point I'd mention it at is just to underline because we spend a lot of time, significant energy in building the protections around what we're doing, and we continue to make progress. And we've been mostly focused on driving the business really aggressively towards MRD, but we wanted to make sure we underline that there is a deep amount of IP here that we think is building getting stronger and that we continue to work on evolving and extending as we invest in R&D. And so, we had some success this quarter and we wanted to underline that as part of our ongoing journey.

The next question comes from Thomas Flaten with Lake Street.

I just want to clarify something with the Trace Direct collaboration. The publication that you'll use for your reimbursement dossier will that be the initial ESMO cohort? Or will that be a publication covering the full cohort, which we expect to see a readout on later this year?

Yes. Thomas, Richard is with us. So, he's going to take that one.

Thomas, thanks for the question. Yes. So, the Publication that will support our reimbursement will be the second publication that entails the entire cohort, so that we're targeting for kind of later this year. And the first publication will come out, but it's only a subset of the data that we need.

And then, Chris, I want to make sure I didn't misunderstand what you said, but did you say that the Natera relationship would persist into 2025? Or did I misunderstand that?

No, I just said that we have a great working relationship, and we're optimistic that we will continue to work with them into 2025.

And if I could just add a third one. Have you discussed this with Tempus and maybe they have an alternate solution of adding NeXT Dx. It strikes me that being able to order both tests through one sales channel would make sense. So, how are you thinking about those 2 tests working in synergy with each other long term? Yes.

So, we are seeing NeXT Dx being ordered with NeXT Personal and our early access clients. And that demand is strong. What we're seeing in the marketplace, and I think everyone has seen in the marketplace is that the power of the MRD testing is unique, differentiated and the CGP testing physicians are seeing more in a way that they're more interchangeable. And so, they're ordering the CGP test paired with the MRD as a convenience play, same patients, same tissue, same, et cetera. And so, we're certainly seeing that. Tempus has their own MRD test. And so, through the samples, not MRD test their own CCP tests. And so, they'll be providing that now I like to do with their customers. And so we expect the NeXT Dx our approach to only come through with the doctors that we sell ourselves.

The next question comes from Mike Matson with Needham.

This is Joseph Conway on for Mike. Maybe just one on pharma demand. Obviously, as you guys said, you've seen increase in demand there. Is that mainly coming from, I guess, new customers coming back in? Or is more existing customers kind of expanding their order books?

Mainly the similar customers that we've had up to now. So, it's not really new customers. It's just the expansion of the order book and the opportunity. In addition, the Moderna relationship has been strong and that business has started to increase as well.

Yes. In the next first moment, we basically have the use of ImmunoID and PCV is really starting to accelerate as Berka Moderna enroll the patients in their clinical trials and then ex personal being a new product and the biopharma is starting to grow. And so, those 2 things are really starting to put wins to our sales relative to financial performance.

And then maybe just for the early access program for NeXT Personal I guess do you have, I guess, an engagement rate for those using NeXT Dx? And then I guess, was that a full quarter that you guys kind of launched NeXT Dx?

Yes. So NeXT Dx, we launched, I would say, 1.5 years ago, and we kept it very, very, very small. It was and it was used by a few physicians. When we launched NeXT Personal as an LDT, laboratory developed test in October, that's when we started to see NeXT Personal be used side by side with or the NeXT Dx the CGP product be used with the MRD product side by side. And I think, I mean, I have to check, but the adoption's been wide across the entire 10 people in the EAP program. I don't know if I can say they're all done that. But certainly, the significant majority, most of them have been using NeXT Dx at the same time that they use NeXT Personal.

And then just maybe one last one. For the molecular, I guess for the positions in the quarter, I guess, for the test, is there an average test per patient that you guys are seeing?

I don't think we have enough time to -- I think we need more time in the past about an average cat per patient because I think a lot of these people are new. But we are starting to see the repeat testing. And in fact, because when you're fixed at 10 physicians, a lot of times in these hypergrowth mode in these companies' launches, you're starting to really sign up a lot of new doctors. So, your V1s are always growing at a dramatic rate because you're growing meter of our doctors in the world where we fix the doctors, we launch into a rhythm of getting the clinical samples coming from those doctors. Now, we've hit the point where the repeat testing is starting to outpace the weekly new tests coming in just because it's starting to accelerate. So, we'll come up with a way that we ultimately talk about that metric, but I don't think we have any insight right now relative to the number of tests per patient. But I think as we get a year, 2 years in the rearview we may start to.

The next question comes from Arthur Hi with HC Winway.

This is [Indiscernible] for Aki. So, I just wanted to get a quick question regarding the arts program for the Personal Dx. For this program, I know you mentioned a doctor on the wait list at the beginning. I'm just curious, is there any more doctors getting on the witness is begetting longer or --

There was growth. Yes, there's been growth in the waiting list. We just decided we're not going to like track that quarter-over-quarter. We thought that the reported test was the best way to provide insight. But what we do have a wait list and then Tempus is starting their discussions. And so, we expect there to be a pent-up demand that they're creating to separately as they engage with customers and discussions.

And regarding the reimbursed application, you guys mentioned the import trying to get for all 3 indications down this year. Besides the data package you prepared for that, what other things you guys prepared to, can increase the chance for getting the reimbursement approved?

Yes. Great question. So, the key thing is the data package. Now, one of the things that we happened to us earlier in this quarter is that the analytical validation data, which looked really, really strong was published. And that is the backbone of every one of the submissions that the test is an answer across multiple cancer types now the 1 part per million and does that with really high specificity. And so, that's like the backbone of every submission whenever you do the analytic validation and this was really strong, really robust and a lot of studies, a lot of work that went into it. We're really proud of it and super excited and it got published so quickly. So, that's sort of the backbone of all 3. And then we have to get clinical data in each one of these 3. So, for lung cancer, early station lung cancer, the work with TRACERx is key there. With breast cancer, the work with Royal Marsden is key there because that's multiple subtypes but we're also working with Dana-Farber. We're working with [Indiscernible], triple-negative breast cancer patients. We have clinical trial we're doing ourselves called stronger. Immunotherapy, we've got the UKE data. With melanoma. We've got the Duke data with faster patients. And then we've got the large BHIO data. So, we continue to make progress running those samples. The key thing there is that collaborators will need to write the articles and they have to submit those articles. And those articles have to be ultimately be accepted for us to drive the submissions. And so, the one piece of this that is always difficult to predict is how long it takes collaborators to write articles and to submit articles and ultimately, for those articles to get articles to be accepted. But we've been very focused on driving this so, that all that comes together this year, and that's been our goal. And right now, we're on plan to accomplish that.