Personalis, Inc. (NASDAQ:PSNL) Q1 2023 Earnings Call Transcript

Personalis, Inc. (NASDAQ:PSNL) Q1 2023 Earnings Call Transcript May 3, 2023

Personalis, Inc. misses on earnings expectations. Reported EPS is $-0.61 EPS, expectations were $-0.58.

Operator: Greetings ladies and gentlemen. And welcome to Personalis’ First Quarter 2023 Earnings Conference Call. [Operator instructions] As a reminder this conference is being recorded. I would now like to turn the conference over to Caroline Corner of Investor Relations.

Caroline Corner: Thank you, operator. Welcome to Personalis’ first quarter 2023 earnings call. Joining me on today’s call are Chris Hall, Chief Executive Officer and President; and Aaron Tachibana, Chief Financial Officer and Chief Operating Officer; and Rich Chen, Chief Medical Officer and EVP R&D. 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 this year and longer term, cash runway, revenue expectations and timing, size and booking of orders, products, services, technology, clinical milestones, the outcome and timing of reimbursement decisions, expectations for our existing and future collaboration activities, cost expectations and our market opportunities, 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 recent Annual Report on Form 10-Q. Personalis undertakes no obligation to update these statements, except as required by applicable law. Our press release for the first quarter 2023 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 p.m. Pacific Time today. Now, I’d like to turn the call over to Chris for his comments and first quarter business highlights.

Chris Hall: Thank you, Caroline. Good afternoon everyone. And thank you for joining us. Since I was appointed CEO in March, I have only become more convinced that Personalis is uniquely positioned for its technology to power the two most important developments occurring in oncology. One, is creating personalized diagnostic assays to monitor patients with cancer; and the second is delivering personalized therapies to patients. Both of these developments in the management of patients require discriminating technology that is able to illuminate the uniqueness of each patient’s tumor and provide actionable information that can change the arc of the disease. It’s been a few months since we laid out our strategy to “Win in MRD” and go after what we estimate to be a $25 billion MRD market.

Our product addressing the phase is a tumor-informed, personalized liquid biopsy test called NeXT Personal. Our focus strategy involves pursuing three cancer indications, early-stage breast cancer, early-stage lung cancer, and immunotherapy monitoring and finding partners for other cancer indications. We picked early-stage breast cancer, lung cancer, and immunotherapy monitoring because we believe our technology is uniquely suited to guide treatment decisions in those indications based on its ultra-high sensitivity. At the heart of our “Win in MRD” strategy is our aggressive product performance goals, which we call ultra-high sensitivity. We aim to achieve cancer detection at levels down to one part per million. What we mean by that is that NeXT Personal may find residual or recurring disease when there is only SQ as one circulating cancer DNA fragment among a million normal DNA fragments in the blood.

And can do this not just for a few patients, but consistently for most patients across many different cancer types and stages. We believe NeXT Personal can find cancer before other technologies, and importantly can provide confidence that: one, when we don’t see cancer, the patient will likely remain disease free and may not need additional therapy; and two, when we do see cancer, we see it earlier at a time when patient management can be changed to make a difference. This quarter we had exciting early data demonstrating NeXT Personal’s performance for sensitivity. And we expect this to continue as additional study data published through the year. First, we were chosen by AstraZeneca and TRACERx for MRD studies. We extended our partnership with AstraZeneca so that they will use NeXT Personal to explore ultra-sensitive MRD measurements for clinical research and drug development.

We were also selected by Dr. Charles Swanton and the TRACERx study, one of the world’s most major initiatives to determine treatment options and effectiveness for patients with early stage lung cancer. We’ll work with the TRACERx samples and leadership group to determine the value of an ultra-sensitive assay such as NeXT Personal in lung cancer patients. I’ll add more color to the TRACERx relationship in a minute, but it is important to point out that high-end collaborations are important validations of our technology and performance claims. But in other way these global leaders are choosing to work with us because of our ultrasensitive MRD capability. Second, a few weeks ago at the American Association for Cancer Research annual meeting, initial findings from our UKE collaboration were presented.

Liquid biopsy pioneer Dr. Klaus Pantel is using NeXT Personal to track tumor response to immunotherapy, and he highlighted results from late-stage melanoma patients. This study, although early showed extremely promising results. First, the NeXT Personal detected ctDNA levels down to the ultra-sensitive level of one part per million consistently across patients. Second, that ultra-high sensitivity was needed to accurately classify the MRD status nearly a third of the patient time points analyzed and the MRD status would have been incorrectly called as negative with less sensitive methods. The third, 100% of positive ctDNA detection, even at the lowest levels had confirmed tumor findings on imaging and similarly, 100% of the negative ctDNA detections were complete responders via resist criteria.

And fourth, the patients that were ctDNA negative had significantly increased overall survival compared to ctDNA positive patients. Now having data come together that is demonstrating that we can execute on our win in MRD strategy was very gratifying. Equally important is that we made exciting progress this quarter on our goal to have reimbursement for NeXT Personal and one indication by the end of 2024. While that’s an aggressive timeline, we have already made progress by announcing key collaborations this quarter and studies in each of our focused clinical indications. First, the TRACERx collaboration jumpstarted our efforts in lung cancer. The TRACERx consortium is led by lung cancer expert Dr. Charles Swanton and teams at Cancer Research UK, the Francis Crick Institute and University College London.

Photo by CDC on Unsplash

The study will deploy NeXT Personal to provide even more sensitive MRD detection for the groundbreaking lung cancer initiative, along with insights about how tumor biology changes over time. As mentioned, the TRACERx consortium selected NeXT Personal because of its ultra-sensitivity as well as its ability to scan for both common cancer and patient-specific mutations. Prior research findings from TRACERx have shown that MRD testing was able to identify recurrent tumors in patients with non-small cell lung cancer well before they were detectable using CT scan, but there remained significant opportunity for detection improvement. We believe our collaboration with TRACERx and other collaborations like it will ultimately enable more informed decisions about patient care much earlier in a patient’s journey.

Second, we announced a collaboration in melanoma and IO therapy monitoring with the University Medical Center Hamburg-Eppendorf also known as UKE. That collaboration along with the previously announced Duke and UCSF relationships provide a strong foundation for us to be able to show the efficacy of NeXT Personal for IO therapy monitoring. Third, we engage with the Academic Breast Cancer Consortium and Criterium to establish a clinical trial that is expected to enroll approximately 900 patients at up to 30 U.S. sites. The trial will be carried out in two stages. In the first stage, samples will be collected from each patient for both pathological complete response, path CR, and MRD analysis to assess whether MRD using NeXT Personal correlates with standard of care path CR measurements.

The second stage one involve a five-year follow-up to further establish clinical validity and performance of NeXT Personal in early-stage triple negative breast cancer. We’re expecting these studies and trials to showcase NeXT Personal’s ultra sensitivity and ability to provide insights important for patient therapy decisions. And we’re not done. In all three indications, we are laser focused on engaging leading collaborators in the world and accessing rich sample biobanks for accelerating studies and we look forward to sharing additional announcements as we continue to make progress through the year. Lastly, in terms of our March to establish NeXT Personal is the market leader in MRD, we remain on track to launch NeXT Personal for clinical use by the fourth quarter of this year.

There’s a strong sense of energy and optimism at Personalis that we are on the cusp of doing something profound in the cancer market. We believe NeXT Personal represents a substantial leap in MRD sensitivity and brings the field closer to the next standard of care oncology. Beyond the possibility of catching cancer recurrence many months or even years earlier than imaging beyond enabling ongoing monitoring for patients on targeted therapies. NeXT Personal was designed to change the paradigm for how cancer is actively managed. It’s ultra-sensitivity is the key to providing patients with confidence that they don’t have minimal residual disease. And this will enable physicians and patients to make the best decisions from escalating treatment when needed to eliminating procedures or therapies when unnecessary, in order to enable the smarter and more inexpensive care model, incremental improvements are not enough.

The NeXT Personal super-sensitive performance numbers will usher in a new paradigm that we believe will be better for patients, better for physicians, and better for the healthcare system. The Personalis technology is key to enabling the NeXT Personal product to transform the cancer diagnostic market. And the same technology is also powering the next-generation of oncology biopharma products. As announced earlier this year, we are a key partner for Moderna’s clinical trial work as they pursue regulatory approval of their personalized cancer vaccine. Over the years, Personalis has worked with several companies by providing genomic test information about the patient’s cancer so that a personalized vaccine could be developed specifically for each individual patient.

Each patient’s cancer is different and we believe that customizing the therapy for each patient is an extremely good idea. And with the recent success of mRNA technology for COVID, there’s a new focus on the opportunity for cancer vaccines. There are thousands of new cancer patients each year in the U.S. alone, and our aspirations are for Personalis technology to power the development of next-generation vaccines and therapies. Key to enabling our vision for NeXT Personal transform the lives of cancer patients and for our technology to power new ways of treating cancer patients is a focus on blocking and tackling execution by the company, by what I believe is one of the most talented teams in the industry. We executed in Q1, we delivered over 24% year-over-year growth and we exceeded our forecast.

We submitted our data to MolDx for coverage of our NeXT Dx product, and we completed our efforts to reduce our cash burn and extend our runway into 2025. It’s an exciting time of Personalis and we appreciate our investors being a part of our journey. I’ll now turn it over to Aaron to review our financial results.

Aaron Tachibana: Thank you, Chris. We executed well in the first quarter and although it’s still early, we are beginning to see the benefits of our strategy to focus on areas where we expect to win as Chris mentioned earlier. So I’ll now provide detail about our first quarter financial results and guidance for the second quarter and full year. Total company revenue for the first quarter of 2023 was $18.9 million and increased 24% compared with the same period of the prior year, primarily due to strong oncology revenue performance. Our oncology revenue, which includes revenue from pharma tests, enterprise and other customers was $15.9 million and increased by 35% over the same period of the prior year. The year-over-year increase of oncology revenue was driven mostly by the increase in volume from Natera, which accounted for half of our total revenue in the quarter.

First quarter revenue from population sequencing, which includes the VA MVP was $3 million. Gross margin was 25.1% for the first quarter, compared to 28.1% for the same period of the prior year. The year-over-year decrease of 3% was primarily due to under absorbed overhead costs. Our lab expenses have increased over the last year and a half to support our growing oncology revenue volume and for background, testing cancer samples requires more labor and overhead compared with testing samples for the VA MVP. Over the next couple of years, we expect some gross margin variability due to fluctuating test volume, operating at lower utilization rates, providing diagnostic tests while we continue to increase our efforts to secure reimbursement, lost for our new facility and others.

Longer term, we expect our gross margins to increase as we achieve scale by growing our oncology revenue. Operating expenses were $34.6 million in the first quarter and included a one-time non-recurring restructuring charge of $3.9 million associated with the reduction in force and closure of our China lab operation compared to $32.6 million for the same period of prior year. Excluding the restructuring charge of $3.9 million, our operating expenses were $30.7 million and decreased $1.9 million from the same period last year. R&D expense was $16.6 million in the first quarter, compared with $17.1 million for the same period last year. And SG&A expense was $14.1 million in the first quarter compared with $15.5 million for the same period last year.

Net loss for the first quarter was $28.7 million compared with a net loss of $28.2 million for the same period of the year. The net loss per share for the first quarter was $0.61 and the weighted average basic and diluted share count was $46.7 million compared with the net loss per share of $0.63 and a weighted average basic and diluted share count of $45 million for the same period of the prior year. Now onto the balance sheet, we finished the first quarter with a strong balance sheet with cash and short-term investments of $148.9 million. In the first quarter, we used $18.7 million of cash due to the net loss, working capital needs and capital equipment purchases. We remain on track to reduce our 2023 cash use is down to approximately $75 million for the full year, which is significantly lower compared with $119 million used during the prior year.

Now I’d like to turn to guidance. For the second quarter of 2023, we expect total company revenue to be $16 million to $17 million. Revenue from pharma tests, enterprise sales and other customers to be $13 million to $14 million, which is lower than the first quarter, primarily due to reduced sample volume from Natera and revenue from population sequencing of approximately $3 million. For the full year of 2023, there is no change to our guidance and we expect total company revenue to be $68 million to $72 million with oncology revenue from pharma, enterprise sales and other customers to be $59 million to $63 million. Population sequencing revenue to be approximately $9 million and expected to be recognized during the first three quarters. Net loss of approximately $103 million and cash usage of approximately $75 million, a reduction of $44 million from 2022, we look forward to updating you on our milestones as we make progress throughout the year.

This includes obtaining reimbursement for NeXT Dx, showcasing evidence for NeXT Personal and completing the NeXT Personal clinical lab diagnostic test for commercial launch. Please stay tuned for future updates. And with that, I will turn the call back over to the operator to begin the Q&A session. Operator?

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Q&A Session

Operator: Thank you very much, sir. [Operator Instructions] Our first question comes from Tejas Savant of Morgan Stanley.

Operator: The next question comes from the line of Dan Brennan of Cowen & Co.

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

Operator: Thank you. The next question comes from the line of Mike Matson of Needham & Co.

Operator: Thank you. [Operator Instructions] The next question comes from Sean Lee of H.C. Wainwright.

Operator: Thank you, sir. Ladies and gentlemen, we have no further questions in the queue and we have reached the end other question-and-answer session. Please note that this does conclude today’s event. Thank you for attending and you may now disconnect your lines.

Chris Hall: Thank you.

Aaron Tachibana: Thank you.