Good day, ladies and gentlemen, and welcome to the Personalis Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded.

I would now like to hand the conference over to your first speaker today that is Caroline Corner, Investor Relations. Please go ahead..

Thank you, operator. Welcome to Personalis' fourth quarter 2021 earnings call. Joining me on today’s call are John West, President and Chief Executive Officer; and Aaron Tachibana, Chief Financial Officer.

All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements within the meaning of U.S. securities laws. For example, any statements regarding trends and expectations for our financial performance, new orders, products, services and technology.

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, particularly the risk factors described in our 10-K for fiscal year 2021 to be filed today.

Personalis undertakes no obligation to update these statements, except as required by applicable law. Our press release for the fourth quarter and full year 2021 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’d like to turn the call over to John for his comments and fourth quarter business highlights..

Thank you, Caroline. Personalis continues to grow in particular our oncology business. In Q4, revenue from our oncology business was $15.4 million and grew 102% over the same period of the prior year.

In addition, new orders and customers in Q4 were once again higher than the amount of revenue reported for the quarter, which gives us confidence that we can grow our oncology revenue by more than 50% in 2022 over 2021.

Our pharmaceutical customers are increasingly seeing the value of our platform and incorporating it in their clinical trial designs right from the start. Our customer base has broadened substantially over the last year and we're doing business with most of the top 10 global pharmaceutical companies, which we define by their annual revenue level.

Additionally, we have more than 60 customers that have ordered services for our NeXT Platform. We recently also received our first customer order for NeXT Personal from a top global pharmaceutical customer and have started to receive samples as part of that pilot.

Our partnership with Natera also continued to grow in Q4 and allowed us to process approximately $5 million of clinical samples in the quarter. We have continued to make progress in Asia. In Shanghai, China, we have now hired about 10 employees and we are working on our internal laboratory qualification protocols.

Today, we have received a significant dollar value of orders from pharmaceutical customers, who are pursuing local regulatory approvals. We expect to begin working with these customers within a few months and be in a position to potentially recognize revenue from some of these customers by the second half of 2022.

In Japan, we also have several large international pharmaceutical companies that are now ordering NeXT, further validating our opportunities in Asia.

We believe our NeXT Platform provides biopharmaceutical customers with the most comprehensive analysis of tumor burden and biomarker identification available today and a better understanding of each cancer patient's genetic profile.

We believe that both tissue and liquid biopsies together can provide a more complete view leading to optimal therapy and treatment decisions. Both our tissue and liquid biopsy based offerings provide data on all of the approximately 20,000 human genes.

Tissue samples give us access to RNA and to the immune cells, which have infiltrated a patient's tumor. By analyzing liquid biopsy samples, we're able to provide information about a patient's tumor across multiple time points from small blood samples. At Personalis we've designed two liquid biopsy products for two different applications.

NeXT Personal has been optimized for maximum sensitivity, particularly for when the amount of tumor DNA and blood plasma is very low, such as an early stage cancer, after surgical resection or in patients with complete response to therapy. The largest segments of this population are those who have or have survived breast and prostate cancer.

To detect potential cancer recurrence, we look in a patient's blood plasma for the mutational signature of their tumor, but these two cancer types have such low mutational burdens that they can be difficult to detect.

We realized early on that we may be able to overcome this liquid biopsy sensitivity problem by leveraging our considerable high volume, whole genome sequencing experience. Using tissue whole genome sequencing, we can identify 20x more somatic variants to serve as the basis for personalized cancer assays.

By looking for tumors known mutations at up to 1,800 positions spread over the genome and being able to select cancer variants that have a low level of background sequencing errors, we gain tremendous sensitivity. Our internal data now confirms this approach can result in analytical sensitivity down to approximately a few parts per million.

This sensitivity advantage may translate into much earlier detection of a patient's cancer recurrence. Once residual disease or recurrence is detected, questions may arise about how best to treat a patient.

NeXT Personal also provides DNA sequencing coverage by variants which may indicate drug therapy options, response to therapy or emergent resistance to therapy. We consider this approach, not just tumor informed, but comprehensively tumor informed.

Our ultimate goal is not just to detect cancer, but to provide key information over the entire course of the patient's disease. We believe this can be better for patients, more informative for pharmaceutical customers and a big – larger business opportunity.

We believe NeXT Personal can be a leading technology for some very large market opportunities and expect to have more to say about this about customer wins in this area in a few months. NeXT liquid biopsy.

Our whole exome liquid biopsy product is optimized for late-stage cancers, where the amount of tumor DNA in the blood plasma is higher and tumors may be increasingly complex. For that application, we believe the rich information from an exome can provide deeper insights.

We believe that our liquid biopsy based products will contribute increasingly to revenue in 2022 and beyond. Personalis’ technological and scientific leadership has led to strong adoption by pharmaceutical companies who use our services to analyze the response of cancer patients in their clinical trials.

We believe that these same advantages can be important for all cancer patients, not just those in clinical trials. As a result, we're taking steps to build the clinical diagnostic business for therapy selection and monitoring. We believe that the combined market potential of these opportunities is approximately $30 billion in the United States.

I would now like to comment on our recent progress in some of our planned milestones regarding our clinical diagnostic efforts. First, we are continuing to build our regulatory clinical and reimbursement capabilities.

We have been hiring employees with clinical and medical experience within a diagnostic setting, and we'll continue to hire and invest in this area. Also in support of our new diagnostic business. We'll be incorporating FDA compliant protocols within our new facility, which we are targeting to move into during Q3 of this year.

Second, we are completing a validation study for our NeXT Dx Test, which is our tissue based diagnostic offering based on our NeXT platform to apply for New York state regular approval. We also plan to submit data to the MolDx tech assessment process, and hope to receive a favorable reimbursement ruling for MolDx during the second half of 2022.

Third, we believe it's essential to work with world class medical institutions. To that end, we announced a collaboration with the Mayo Clinic in Q4, and recently announced one with the Moores Cancer Center at UC San Diego Health.

In these collaborations, we provide clinical diagnostic testing and research sequencing and analysis services using our tissue based NeXT Dx Test. We have begun to test clinical patient samples and are excited about the opportunity to work with these renowned cancer centers.

If we achieve favorable reimbursement – a favorable reimbursement decision for our NeXT Dx Test from MolDX, as discussed earlier, we may also recognize revenue in the future from some of these collaborations. Given the advanced nature of our NeXT Dx Test.

We believe it is a good fit for high end cancer centers, which have a dual mandate for both clinical care and research. If these key opinion leaders have a positive experience using our tests, we are optimistic that this will also support broader use of our platform by other clinicians in the future.

Although we still have work to do, we believe that we will be well positioned for entry into the clinical diagnostic market using our comprehensive tissue based NeXT Dx Test by Q2 to Q3 of this year. In addition, we're also planning an LDT version of our liquid biopsy based NeXT Personal test.

We expect clinicians who begin using our NeXT Dx Test may later also use our NeXT Personal test, since the two can provide complimentary information. We expect that the path to reimbursement for our NeXT Personal LDT will also be begin via assessment by the Palmetto and MolDx program.

We will continue to provide updates about our clinical diagnostic progress as we go forward. Next, I would like to comment on our population sequencing business. In September, 2021, we received a task order from the VA MVP of approximately $10 million, which was significantly less than in prior years.

At that time we expected the reduced order amount was to be followed by a formal RFP process and a potential new contract to be awarded sometime late in Q3 of 2022. However, recent discussions with our contacts at the VA MVP indicated that there will not be an RFP process in 2022.

Accordingly, we are not planning to receive any new orders from the VA MVP this year. We're expecting to recognize any revenue beyond the current order and contract. Given the current strong growth, we have already experienced on our oncology business though.

And the large opportunity we see there, we plan to focus almost entirely on cancer as we go forward. We continue to add to our Board of Directors to compliment our strategic direction and priorities. Olivia Bloom will join our Board of Directors effective March 1.

She currently serves as Geron Corporation’s Executive Vice President and Chief Financial Officer. Geron is a clinical stage biopharmaceutical company focused on hematologic myeloid malignancies, welcome Olivia.

In summary in Q4 and all of 2021, we continue to execute extremely well in growing our oncology business, despite the ongoing pandemic, which has made things more challenging. Our team has done a terrific job in overcoming these challenges. Customer adoption of NeXT has been excellent.

And our pipeline of compelling new products is rich for both the biopharma and clinical diagnostic test markets. We have a strong balance sheet with capital to invest in our growth initiatives and believe this puts us in a strong position for both near and long term growth. With that, I will now hand it over to Aaron to our financial results..

Thank you, John. And good afternoon, everyone. We had another great quarter and continue to accelerate oncology revenue growth. During my prepared remarks, I will provide detail about our financial results for the fourth quarter and guidance for the full year of 2022.

Total company revenue for the fourth quarter of 2021 was $20.7 million up 3% from $20.2 million for the same period of the prior year.

Oncology, biopharma and all other customers accounted for revenue of $15.4 million in the fourth quarter, representing a 79% sequential increase from the prior quarter and a 102% increase over the same period of the prior year.

The increase in oncology revenue was driven by strong adoption of our NeXT platform, which accounted for approximately 85% of the oncology revenue in the quarter. Customer orders remain strong in the fourth quarter and exceeded reported revenue levels, which gives us confidence that our biopharma revenue will continue to increase in the future.

Also, as we ramp our MRD liquid biopsy offering for both biopharma customers and as a clinical diagnostic test in the future, we expect revenue growth to further accelerate due to the multiple time points, or in other words, the number of tests per patient.

For the fourth quarter, the VA MVP revenue of $5.3 million was 58% lower compared with $12.6 million for the same period of the prior year. The VA MVP unfulfilled orders were $7.6 million at the end of the fourth quarter. And based upon current estimates, we expect the unfulfilled orders to convert to revenue during Q1 through Q3 of 2022.

With a full year of 2021, total company revenue was $85.5 million, up 9% from $78.6 million in 2020. For oncology, biopharma and all other customers excluding the VA MVP accounted for revenue of $39.8 million for the full year of 2021, representing a 77% increase and $22.5 million in 2020.

The oncology revenue growth was driven by strong adoption of our NeXT platform. And for the VA MVP, revenue was $45.7 million for the full year of 2021, which was 19% lower than in 2020. Gross margin was 38.7% for the fourth quarter, compared with 30.1% for the same period of the prior year.

The year-over-year increase of 860 basis points was primarily due to operating leverage from the 102% increase in oncology test volume, customer mix and lab efficiency improvement.

Over the next couple of years, we do expect some gross margin variability due to headwinds from investments and new capabilities such as dedicated production lines for FDA-approved offerings, providing diagnostic tests, while we work to increasingly secure reimbursement, adding more capacity in our new facility, expanding in China and others.

And longer term, we expect our gross margins to increase as we achieve scale and our oncology revenue becomes a larger portion of total revenue. Operating expenses were $28.2 million in the fourth quarter, compared with $19.4 million for the same period of the prior year.

R&D expense was $14.5 million in the fourth quarter, compared with $6.5 million for the same period last year. And SG&A expense was $13.7 million in the fourth quarter, compared with $10.9 million for the same period last year.

The increase in R&D expense was for new product development, hiring employees to build our clinical and medical infrastructure and sample test expenses for clinical validation work.

Our R&D expense level will continue to increase over the next year as we expand collaboration work, the clinical validation to secure reimbursement for our NeXT Dx and NeXT Personal test. The increase in SG&A was due to commercial expansion and continuing to enhance our infrastructure.

Net loss for the fourth quarter was $20.2 million compared with a net loss of $13.3 million for the same period of the prior year.

The net loss per share for the fourth quarter was $0.45 and the weighted average basic and diluted share count was $44.8 million compared with a net loss per share of $0.34 and a weighted average basic and diluted share count of $39 million for the same period of the prior year. Now on to the balance sheet.

We finished the fourth quarter with strong balance sheet with cash and short-term investments of $287.1 million. In the fourth quarter, we used $18.2 million of cash due to the net loss, working capital needs and capital equipment purchases.

With the full year of 2021, our cash usage was approximately $78 million and increased from the $42 million in the prior year due to investments made for growth initiatives, such as new products, building our diagnostic test business, establishing our lab in China and others.

We expect our 2022 cash usage to increase to approximately $140 million, which includes a onetime investment of approximately $45 to $50 million for construction and setup of our new facility. And this amount is net of $15 million for tenant improvements from the landlord.

We believe that we are in a healthy position with more than two years [ph] of cash on the balance sheet, which will allow us to invest in our growth initiatives that will enable long-term revenue growth. Now I’d like to turn to guidance.

With our recent revenue shift and focus weighted towards oncology and development of our clinical diagnostic test business, we believe it’s time to focus on the longer-term revenue opportunity and therefore plan to move to annual guidance. However, I will provide some color into what we are seeing thus far in Q1.

Similar to Q3 of 2021 when the Delta variant created some headwinds, we are experiencing similar delays with sample receipts from customers that we believe is related to Omicron. These headwinds may create some delays for the timing of revenue this quarter; however, we do not expect the revenue to be lost.

In addition to sample delays, we have continued to experience supply chain tightening for some consumables, our mitigation plans, including adding buffer stock and multi-vendor sourcing when possible.

Although the pandemic continues to make things a bit more challenging, we are extremely optimistic about our longer-term opportunities to drive oncology revenue growth. For the full year of 2022, we expect total company revenue to be approximately $67 million.

And we expect oncology revenue from biopharma and other customers to be approximately $60 million a year-over-year increase of 51%. Net loss is expected to be in the range of $110 million to $115 million. Now I will turn the call back over to the operator to begin the Q&A session..

Thank you. [Operator Instructions] Our first question comes from Derek Broene [ph] of Bank of America. Your line is open..

Hi..

Hi Derek..

Thank you for the question. Hey, this is John on for Derek. On the biopharma side, the long-term gross drivers are obviously your proprietary products, but in the shorter term, the partnerships like the one with Natera have proven incremental to say the least.

Could you speak to the durability of the relationship? I’ve heard that Natera has commented on the quality of your work, but curious of the ramp in the durability of volume from Natera given that the company’s commented on its in-house capability..

After that, I haven’t heard their comments on their in-house capability. I expect them and they sequence lots of things. Natera had come to Personalis some years ago and looked to leverage the capabilities, not just our abilities to sequencing, but the advantages of our NeXT exome, which are substantially broader than a standard exome.

Our expectation is that this could be a pretty long-term relationship with Natera. We look forward to continue working with them. In time, I think investors should be looking at Personalis growth in our own products, including in particular our NeXT Personal product, which we’ve talked about some on the call today..

Got you. And then just one more for me. Could you – it’s great to hear that you’ve hired 10 employees and you’re making progress. Could you comment – I think you’ve commented in the past that the 5% of non-customer samples were processed in Shanghai versus the rest of California.

Could you comment on that volume mix there?.

I’m not sure. I quite understood that the question that in general, we find that the advantage of us having initiated a lab in inside China is not only the volume that we have inside China and the orders that we get there, but they’re often part of international clinical trials where actually the majority of the samples are from outside China.

And so we already see this and the orders we’ve received that the dollar value of the samples that will actually be processed in Shanghai is significantly smaller than the dollar value of all the other samples that will be processed on the rest of the world from the same clinical trial.

So it’s certainly kind of a halo effect with the halo is actually pretty substantial..

Got you. Got you. And do you – we’ve seen some issues rise with the CDMOs and the CROs in China.

Are there any political risks that you see with your business at all?.

Yes, I mean, certainly the United States has a – say in between relationship with China, frankly I’ve optimistic, there are a lot of smart people in China wanting to do a lot of good things and it’s important for China to continue to advance with advanced pharmaceuticals that have in many of which have been developed in the West, but they’re sensibly running clinical trials inside China to make sure that those drugs are well suited to people with a different genetic background for example.

So, I think that there’s an underlying motivation that makes sense for there to be continued adoption of Western pharmaceuticals in China – trials to confirm that those are appropriate and pharma companies will continue to need services like ours to support those clinical trials.

So I think it’s a sort of a macro level separate from this, there can be issues. I think there’s a pretty substantial reason for the pharmaceutical business to continue to work there.

And frankly, in the past, I’ve had great relationships with people in laboratories in China, great scientists there and the pharmaceutical people we’ve met there have also been super..

Got you. Thank you..

Our next question comes from Tejas Savant of Morgan Stanley..

Hey John, Aaron, thanks for taking my question. This is Edmund for Tejas. Just to start off, hey, on the MVP, RFP process and not having one in 2022. I was wondering if you guys were able to get to the point of the conversation to have some visibility on 2023..

Yes, I’d say it’s – our understanding is that the MVP is unclear how they’re going to go forward. They have a lot of samples and it would be certainly there is an opportunity for them to sequence those samples. But I think they’re doing some rethinking of things.

I think in terms of Personalis investors should be focused primarily on our oncology of business. If there are opportunities with large scale sequencing, we’ve certainly probably done more whole genome sequencing than almost anyone in the United States.

And so if those opportunities come up, they may incrementally help us from a sort of essentially a financing standpoint, but I think our focus will be on the oncology business. And particularly with the excitement we’re seeing around the NeXT Personal platform, that’s where we’re going to be putting a lot of our energy here.

And I think that’s what investors should focus on..

Understood. And I guess coming to a kind of a regional perspective on COVID impacts and I guess what you’re seeing in China, some of your peers have mentioned pockets of weakness in Asia and given your expansion efforts in Asia and particularly China’s zero COVID tolerance policy.

I was wondering if you can provide some color on what you’re seeing on the ground in terms of more recent impacts..

Yes, that’s a good question. I’d say we’re just beginning to get going with those folks. We’re doing internal validation efforts at this point and working towards being able to begin processing samples from customers.

But we – there’s not yet at the full set of regulatory authority approvals for the trials we, Personalis isn’t one that applies it’s our customers who have to apply to the Chinese regulatory authority, HGRAC.

And so, as they get through that process, I expect that then we’ll start to see sample flow and maybe get be that are feeling for whether they’re the some of the issues that you brought up where our sense is that we will probably be starting mostly with retrospective samples from retrospective clinical trials. So those samples would already exist.

They’d still have to be shipped to us, but it’s a little different from having to have enrollment in live clinical trials. Usually this business kind of business starts on the retrospective side. And then as you kind of build up some working relationship, it can transition into more and more of involvement in prospective clinical trials.

I would think that retrospective trials would be less effective by COVID-related issues than prospective ones..

Understood. Thank you very much for the time..

Great. Thank you..

Our next question comes from Kevin DeGeeter of Oppenheimer..

Hi. Thanks for taking my questions. Can you just following up on population sequencing more generally, John, are there, are you still interested in opportunities, outside of the U.S.

or beyond [Technical Difficulty] from a resource standpoint primarily focused on building new business relationships on the oncology and non population sequencing side?.

Yes, I think it’s a good question today. We’ve certainly been interested in that up to this point.

I think what we’ve been hearing is that the population sequencing projects that have been most advanced and let’s say if you looked at the UK, for example, the applications that they found tended to divide into people who had rare inherited diseases and people who had cancer.

And what we found is that the – I think for more cases where there are rare inherited diseases, there certainly will be ongoing testing for that kind of thing. It’s less of a population sequencing issuance becomes more for people who are severely affected by those diseases. Then it becomes more of a diagnostic test for them.

I think the big opportunity that’s been coming out of those, and we hear this out of the UK and other countries as well is the interest in cancer. And as people look at cancer, when people started working on population sequencing, which is now almost a decade ago, a lot of it was term line sequencing.

And then began to be tumor sequencing, but generally of just one time point with a cancer patient. So if you had a tissue sample from a biopsy of a cancer patient, then that might be the sequence. What we’re seeing is with the capability to leverage cell-free DNA.

And now in particular with the ability to use tumor informed assays that are so much more sensitive, we’re seeing a lot of interest in expanding the efforts which maybe they came out of population sequencing to start with, but a lot of the same people are actually transitioning their efforts into cancer related efforts.

And so we’ve had people that we’ve spoken to initially on the POPSEQ [ph] you said, well, actually, maybe we’re not going do so much from a population sequencing standpoint, but could we talk about your cancer effort? And so actually some of those conversations that started on the POPSEQ dimension actually ended up migrating into actually what looked like they could be pretty nice opportunities more in the oncology space and particularly with the breakthrough kind of capability of NeXT Personal.

The ability to look down to sort of part per million sort of sensitivity is exciting to a lot of people. And some of those – the people in those programs have a lot of samples and would like to move forward with some of those things. So I think there’s – we’ll have to see how that goes, but the – I don’t think it’s a loss of that area.

What we’re seeing is that the people who are in the POPSEQ programs themselves are often looking for the most clinical relevance and for many of them that clinical relevance is turning out to be in cancer, which ends up then being pretty well aligned with what we’re ending up focusing on.

So a long-winded answer to your question, but hopefully it gives you an idea of where that’s going..

Very helpful. And then just maybe a question as a follow-up on – how do you think about exploring menu expansion – the question to the clinical market – and then more into 2023, you know, where there's traditionally some pretty obvious synergies with having broader menu and kind of more products in the back for a sales force themselves..

Yes, so, the sound on your phone is a little challenging, but if I understand it, you're asking about potential for menu expansion of our offerings, particularly including the clinical side through this year and also into 2023..

That's correct..

Great. Okay. So yes, I'd say, we see there have been quite a bit of menu expansion. I mean, it's all pretty much in cancer, but what we were – what Personalis has been doing in cancer up to this point has been mostly sequencing tumor tissue samples. And for the majority of customers, those are one sample – one-time point per patient.

We do have some customers, who are doing multiple time point tissue samples per patient. That's probably not the most common thing. And we introduced the whole exome liquid biopsy a while ago, but again where we're seeing the excitement is on the NeXT Personal side, particularly looking at very early stage cancers.

And I'd say, in the past, we had very little of our business in early stage, but it does as a sort of a menu expansion expanding from metastatic cancer into early stage cancer is a really substantial increase for us and expanding from one time point per patient to something maybe have data that we're working with people on now where we've got 10 time points per patient.

And I think those numbers will go up. So that becomes a pretty substantial expansion.

And it's not just about therapy selection at the beginning, but if – before that, if there's been surgical resection to detect that recurrence, but also once you see recurrence, very few MRD tests are actually in a position to be able to guide once they see recurrence of the cancer to say what to do about it.

And so, I think, part of our expansion is not only to have an MRD capability in our NeXT Personal test, but to complement that also with something where out of the same test you're also getting information that would guide what drug to choose.

If you are choosing a particular drug, do you see resistance mutations coming out? Ultimately if that happens, then what would be the appropriate second line therapy and to be simultaneously quantifying the ups and downs of the tumor, so the physician has full information. So I think our footprint in cancer is broadening out a lot.

And it's to earlier stage cancers and to many more time points per patients, right. It's maybe a little different from what you might call a menu expansion, but it's a very big expansion of the potential market that we're seeing..

Our next question comes from Patrick Donnelly of Citi..

Patrick, hi..

Hi, guys. Thanks for taking the question. John, maybe on NeXT Personal, nice to see that launch out there, getting your first order.

Can you just talk about, I guess, the initial reception and then expectations as we get into 2022? What we should be looking for in terms of the ramp there? Just curious in terms of what the construct of the guide is with – the guide included?.

Yes. So we're obviously not guiding separately for that product. I think that the – with the initial reaction we're seeing from people, including people that I think we would consider as key opinion leaders, I think you'd see some pretty exciting involvement and programs there. These are of things where – the first thing people will do is a pilot.

They're going to – they'll – they may have samples, or in fact, the first order we received from a large pharmaceutical company came actually quite rapidly after we talked to them about the product and it turned out they had samples that were available that they wanted to use for a pilot.

So that those have already arrived and we're already doing the pilot. So that part is getting going and I think we'll see that from other customers. I think it in general we are – we don't have a lot of data on the mix of retrospective versus prospective uses here.

I would say that five years ago, our sense was that not that many pharmaceutical companies had been routinely collecting cell free DNA samples in their clinical trials, but I think that's changed pretty substantially now. There has been a lot of recognition of the potential there. And so, I think, there probably are a lot more banked samples.

And so, we may be able to see, I would expect that after the pilots and I – is kind of the same situation as I described in China.

The first business I would expect to see would tend to be retrospective orders, where people say, boy, I have this project, I already ran, but I need more sensitivity, could we do this with NeXT Personal? And once they get past the pilot, those could be retrospective orders.

And then I think as people become more and more confident in the technology and come to appreciate what it can do, I think you'll see just like our next platform has ended up being increasingly order those – in prospective use in clinical trials where it gets written into the trial from the beginning.

I think we'll see that kind of thing as the follow on in the NeXT Personal sense. So certainly as we gain more experience over the quarters, we'll try to keep you filled in on that, but that's – the sequence I would expect is sort of pilots first, pilots leading into retrospective trials and then the prospective side.

That's sort of the pharma part of it. And then as we develop the LDT version of NeXT Personal, then that broadens out into the potential for diagnostic revenue and we'll have to talk about reimbursement, getting a MolDx decision there as well.

That's probably more into – the – by the time we look at reimbursement for NeXT Personal, that's probably well out into 2023 somewhere..

Okay. That's helpful. And then Aaron, you talked a little bit about sample receipts maybe from customers being a little delayed, supply chain tightening, it seems like it could impact 1Q, encouraging to see you guys maintain that 50% plus pharma growth.

Can you just talk about, I guess, a little bit of the cadence as we go through the year that feels like anything lost in 1Q will be recaptured throughout the year, obviously by the full year guide. But just any cadence would be helpful in terms of how we think about modeling out the year..

Sure. So similar to what we saw in Q3 of last year, we are seeing Omicron slowing things down. It's harder for our customers to get a hold of the samples from their CROs and then get them shipped because of employees or their subcontractor employees having some issues from an illness standpoint. So we're seeing that type of slowness.

And our orders that we've received over the last 12 to 15 months have been phenomenal. And so, we have the backlog and the orders or the revenue will not be lost. It's just going to be delayed a few months or so here, everything that's going to get pushed out to the right.

And in terms of the cadence or the split here through the year, I would say more the revenue is going to be in the second half of the year than the first half of the year. And so, I'm not going to give numbers, specific numbers, but in terms of ranges here, we probably could have done 15 to maybe 20% more revenue here in Q1 had to have the samples.

And so, we're – that's the type of delay we're seeing. And so things are just going to get pushed out to the right..

Helpful. Thank you guys..

Okay. Thanks, Patrick..

Our next question comes from Max Masucci of Cowen..

Hi. This is Stephanie on for Max. Thanks for taking the question. Just wanted to follow up on some of the comments you've made for NeXT Personal. So it's great to hear the traction that you've been getting.

Do you expect NeXT Personal to be used more to guide therapy decisions in the adjuvant setting or for cancer recurrence monitoring in patients that are one to two years out from surgery for the clinical version of the test?.

Yes. So, I think, our goal with NeXT Personal has been a little different from some of the other MRD products where people will talk about trying to detect recurrence earlier than radiology. I mean, it's good to do that, but it's not when you want, when you want the answer, it's right away.

I mean, so ideally you wouldn't be talking two years out and then ideally you would know if you do a test a few weeks after the surgery and if you have sensitivity down in the – at this sort of parts per million range for most patients, we expect that we'll have a pretty definitive answer.

It doesn't mean if you got a negative – maybe it's worth checking again in the future, but it should be more definitive. We've seen data from some of the earlier technologies that's been published where you see time point after time point where the test result is that nothing is found.

And then year and a half, two years, two and a half years out recurrence is detected and it turns out it – it is detected earlier than radiology, but it means the patient had cancer for maybe two years and the test just wasn't sensitive enough to pick it up.

And so, when we started working on this some time ago, you said, that's really not where you want to be. You want to be in a position where you've been sensitive enough that ideally you would have the answer really almost right after surgery.

And so that actually changes the – what the business looks like as well, because they – if you have to test time point after time point after time point until you detect something, that's a lot of time points and a lot of testing, and that might sound better from a business point of view.

It's not great for the patient, which you really want is something. If you can detect the recurrence very early, because you have the sensitivity, then there is still a lot of time points to with that.

They have much more to do with managing the patient now that you know that – once you know that there is recurrence, if there is, or if there is residual disease, there is a question of how do you manage that.

And down at the part per million range, we estimate that in some cases it may be because the surgeon that's taken out the primary tumor and the surrounding Sentinel lymph nodes.

But there is a hesitancy by surgeons to go too far and take out too many lymph nodes because that has other problems for the patient later on because the lymph system is supposed to drain the tissue and take out all the lymph nodes. So the drainage isn't – doesn't work very well anymore.

So this is sort of trade off where the surgeons want to get all of the cancer that they don't want to go too far further than necessary. And so, what the residual disease we're talking about in some cases can be just maybe they should have gone one lymph node further.

And if you can detect that early, then if you do a PET CT, you may be able to see that residual disease, you may be able to have a second surgery and take that out and the patient maybe finished, so that could be very positive. If the cancer is more, it can't be localized that way, or if it's spread further then it's likely an issue of drug therapy.

And for that then you're going to want to have all the information of not only classic therapy selection looking at driver mutations that could be addressed by a particular drug, but we now understand more that many, many targeted therapies and also immunotherapies suffer from escape mechanisms where the tumor mutates in a way that lets it essentially go around the therapy and you can wait for to see that on radiology where the patient has progressed.

But actually what you'd like to do is see if from a molecular standpoint so you can detect it earlier. And that's been our strategy with NeXT Personal is to build in the capability to see not only the driver mutations you might want to target, but also to be able to see fairly comprehensively the potential escape mutations.

You're not giving somebody a targeted drug when the tumors already started to move on from that. So I think our view is that the market is likely to shift to being much more about managing these patients because we actually hope to be able to make decisions much earlier in the patient's trajectory about whether they have recurrence or not.

And if they do, to get on with managing it, rather than just continuing to do time point after time point where you're just not sensitive enough. So sorry, bit long-winded answer. But hopefully our perspective is that the sensitivity will make so much difference that it will actually change the market..

Got it. Thank you. That's really helpful. And as a follow up. Just wanted to touch on your partnership with the Mayo Clinic.

So could you provide us some color on how that partnership has been progressing specifically in terms of generating clinical utility data? Did you experience any impact from the wave of Omicron cases?.

Yeah, I think it's probably too early for us to talk about results from that. We do expect that it's been, we're very happy with the relationship that, it's a – Mayo Clinic is a fairly large institution and they have a lot of people involved very actively in many aspects of oncology. So that takes a degree of coordination and planning.

I think the scale of what we're going to see might be pretty encouraging. So I think that's taking some time. But we may want to defer the commentary until I think later in this year, we may have a lot more to say about the Mayo Clinic. It is – we are thrilled with the relationship..

Got it. Understood. Thanks for taking the questions..

Yeah. Great. Thank you. Appreciate your questions..

Our next question comes from Joseph Conway of Needham..

Hi guys. It's Joseph on from Mike. I guess quick question around Natera.

Is the company sending you in terms of samples, certain type of cancer, certain type of patient, as you highlighted earlier, maybe certain type with a very low mutation frequency or is it more or less just general overflow in terms of the samples that being sent to you?.

Yeah, just to be careful. I mean, Natera is an important customer for us and I think that generally, if you want information about what Natera is doing, you probably have to ask Natera. We are – generally our policy, not to comment on what our customers are doing without their authorization.

So certainly if Natera wanted to speak about that, that'd be great. It's up to their product, but I think we have to be – we can't really disclose things they haven't authorized us to disclose..

Sure. Okay. Absolutely. No worries. And then maybe just a general line, just looking ahead towards the rest of the year as you know Personalis tries to increase awareness of the NeXT Platform, NeXT Personal, NeXT Dx.

I guess what do you guys have planned to drive awareness among KOLs I guess, some of the conferences coming up here in the next six months or any publications planned?.

Yeah. We actually expect to be pretty active on that front. We are hopeful that the we will begin to transition out of COVID period of time. That's certainly said with fingers crossed, but we have, there are conferences coming up that are currently scheduled to be hybrid where they're part in-person and part online.

And we have a team of people who are there gung ho to go to the conference in person and be there and say, two years, we haven't been able to have a booth. We're going to get out there and meet some customers and talk to clinicians. And so we are definitely out to engage on that front.

One of the things that's different from the past is that during this period of time, we've also been beginning to build up a medical affairs team. And so, whereas in the past we would've had a commercial team staffing those kinds of things.

And we certainly still would, but medical affairs is – group in medical affairs is also now increasingly active in that. And looking ahead to the engagement with clinicians and key opinion leaders in addition to our commercial team, which is probably more focused on the folks in pharma that would be current customers.

So I think it'll be a dual outreach to the people who we need to work within pharma, but also kind of an advanced group beginning to work on in engagement with clinicians and KOLs more out of our medical affairs team..

Okay, great. That's helpful. Thanks for taking our questions..

Yeah. I mean, I think on the – actually just maybe one more thing on the clinical outreach side, I think we've commented on this, that our commercial strategy there has a lot to do with focusing on high end cancer centers. This is groups like the Mayo Clinic and we talked about the UCSD work and so forth.

These are – these kinds of leaders and KOLs are a really good fit for our technology because often they have this dual mandate of clinical patient care, but also they have a second mandate for research. And our product is right at the intersection of those two things and can do a terrific job of both. And so that's very appealing to them.

And they also typically have – they can have cases that are quite a bit harder because many of them are what would be called tertiary referral centers.

So if you're a physician working in a community practice and you've got a patient where this is just not going away, you kind of expect it to and it's getting more, if you say this is getting out of my league here. You may refer them to one of the top larger cancer centers.

And so those cancer centers often have they not only have a lot of patients, but they often have a lot more complicated patients. And so many of the things where the kind of the – I'll call them the corner cases of the oncology world, they tend to be a lot more of those specialized cases.

And again, the comprehensiveness of our platform, somebody may have an unusual gene fusion that isn't one of the standard ones. We will pick it up with NeXT Personal. We have a much better capability to do that because of our transcriptome capability and so forth.

So I think the – when we think about how we commercialize the working with these large centers is important, both because our product is such a good match there, but also we are looking for the KOL relationships. I think we're trying to create a new standard of cancer care by having really dramatically more information.

And that's actually what these KOLs often are excited about when working with us is, is to go beyond sort of the classic small cancer panel and have this broader information. So I think that'll be a good fit and it will feed right into where we want to go from a commercial standpoint..

Okay, great. Yeah, that makes, that makes a lot of sense. Thank you..

Thank you..

[Operator Instructions] Our next question comes from Arthur He of H.C. Wainwright.

Hey, good afternoon, John and Aaron, Arthur in for RK. Thanks for taking my question. So I basically, I have two questions. So first congratulations on the launch for the NeXT Personal.

So I just want to pick up your brains to regarding how is your strategy to push for the Personal for the diagnostic revenue on that?.

Yeah. So I understand you're asking about NeXT Personal and diagnostic revenue.

I was wondering if you can repeat what's the core question about that?.

So I just want to understand what your what's your strategy try to push on that front for the increase there?.

Sure. Yeah. So the approach we're taking is that the product we brought out to start with is targeted at pharmaceutical companies that's gets us up and running with scale. We will be working on validation of that. And ultimately looking for that we run as an LDT.

I think we'll, when we're prepared to describe that it'll be a little bit later, but that's the goal is for it to be a lab developed test.

And we would look for then reimbursement, I think mention in the prepared remarks we’re expecting that our reimbursement path there, there's a pretty good foundation of there have been a reasonable number of other MRD tests that have been approved and given the performance we have, we think that we would fit in with those kinds of things.

So the expectation is that we would work with, again, probably the Palmetto MolDx program, because we're located in California, we're covered by the MAC of the Medicare Contractor, Noridian, but they typically defer significantly in their decisions to input from the Palmetto MolDx program.

So our plan would be to march down the road with developing the analytical validation data and the clinical dossier, so that we can take the test to MolDx and get a positive reimbursement decision there. So I think those are probably the path to reimbursement.

And then again, the kinds of groups that are likely to be early adopters will be the high end cancer centers that we're talking about. Because again, they tend to have interest in combination of clinical care and research, and they often have very challenging patient cases.

So I think that NeXT Personal, just like our NeXT Dx test will sort of pave the way in doing that. But then we expect that many of the same clinicians will be interested in NeXT Personal as it becomes an LDT. So they can also use that because the two tests are complimentary, it would make sense for a physician to use both..

Okay, great. Thanks. Thanks for that additional color. And then, my second question is regarding the Natera.

Could you remind us what's the current scope between the collaboration between you guys and Natera? And is there any possibility to expand those scope to the to the NeXT Platform and other product or future product you guys are working on?.

Yeah, I'd say we enjoy working with Natera and I think there's been – I think we find that the things we're doing are quite complimentary and so, we certainly are interested in exploring whether there can be a broader set of products that get brought onto that. Right now the business is going well with the two companies working together.

I think most of these kinds of things, people want to get started with one product and see that it works well on both sides and make sure that the interaction between the companies goes well. And the connection between like from our limb system to their limb system and a lot of the practical laboratory connections I feel like that's going quite well.

And I think there certainly is potential for a broader relationship because of the kinds of technologies that we're developing are somewhat different from what Natera is developing.

And some of them may be useful to Natera, but right now I'd say the focus there is on, we provide front end sequencing for the Signatera test and right now that's what the business looks like today..

Okay. Great. Thanks for answering my question..

Great. Thank you..

All right. I'm not showing any further questions. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day..

Thank you..