Personalis, Inc. (NASDAQ:PSNL) Q3 2023 Earnings Call Transcript

Personalis, Inc. (NASDAQ:PSNL) Q3 2023 Earnings Call Transcript November 7, 2023

Personalis, Inc. beats earnings expectations. Reported EPS is $-0.48, expectations were $-0.54.

Operator: Good afternoon and welcome to Personalis Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator instructions] After today’s prepared remarks there will be an opportunity to ask questions. [Operator Instructions]. Please also note that this even is being recorded today. I would now like to turn the conference over to Caroline Corner, Investor Relations. Please go ahead.

Caroline Corner: Thank you, operator. Welcome to Personalis’ third quarter 2023 earnings call. Joining 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, reimbursement goals, size and booking of orders, products, services, technology, clinical milestones, the outcome and timing of reimbursement decisions, expectations for existing and future collaboration activities, health expectations, the outcome of legal proceedings to enforce patents, the validity or enforceability of our patents and our market opportunity 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 Quarterly Report on Form 10-Q. Personalis undertakes no obligation to update these statements, except as required by applicable law. Our press release for the third 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 PM Pacific Time today. Now, I would like to turn the call over to Chris for his comments and second quarter business highlights.

Chris Hall: Thank you, Caroline. Good afternoon, everyone, and thank you for joining us. We’re thrilled with the progress we made since we updated you in August. We exceeded our revenue goals for the third quarter and increased our full-year guidance. We presented compelling data on NeXT Personal with the team at TRACERx. We launched the NeXT Personal clinical test. We deepened our collaborators in breast cancer, and we strengthened our management team. I’m very proud of the team at Personalis for delivering on the commitments we’ve made to investors and our continued focus to execute our win in MRD strategy and establish NeXT Personal as the centerpiece of a better management paradigm for cancer patients. Let’s start with our commercial traction.

As mentioned in our press release, we reported $18.2 million in quarterly revenue powered by nice growth in each of our business lines, biopharma, enterprise sales, including Natera, and population sequencing for the VA MVP. That performance represents 23% year-over-year growth. I’d like to point out that we’ve managed this growth despite an environment where biopharma companies have been cutting their spending on clinical trials and related services, and the actions we took earlier this year to streamline and remove non-profitable business. Given our commercial traction, we’re raising our guidance to $73 to $74 million. Now, while our revenue goal in Q3 exceeded our goals and allowed us to increase guidance, we’re most excited about the progress we’re making in executing our win in MRD strategy.

MRD testing, using liquid biopsy tests to find residual or recurrent cancer and to monitor treatment effectiveness, is expected to grow into a $20 billion plus market. As a reminder, our win in MRD strategy has four pillars. First, focus and launch our test in cancer types, where an ultrasensitive liquid biopsy test can 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, to commercialize NeXT Personal with a partner-centric model. And fourth, to leverage our deep biopharma relationships to power the development of clinical evidence by the use of NeXT Personal in clinical trials. I’ll next review each of these strategies and the progress we’ve made this quarter.

First, starting with indications for ultra-sensitive tests. We’ve chosen to focus on early-stage lung cancer, breast cancer, and immunotherapy monitoring because a high-sensitivity test is uniquely suited to detect recurrence very early and to guide treatment decisions and to de-escalate low-risk patients off of therapy. Let me elaborate about high sensitivity and why that matters for our key indications, as it’s at the heart of our strategy. We detect cancer at levels down to one part per million. What this means is that NeXT Personal may find residual or recurrent disease when there is only as few as one circulating cancer DNA fragment among a billion normal DNA fragments in the blood, allowing our test and platform to detect cancer earlier than competitive technology.

And it can do this not just for some patients, but consistently for most patients across many different cancer types and stages. We believe NeXT Personal can provide confidence that, one, when we detect cancer, we see it earlier, when patient management can be modified to result in more favorable outcomes, and two, when we don’t see cancer, the patient will likely remain disease-free and may not need additional therapy. In early lung cancer and some types of breast cancer, our approach is particularly well-suited to escalate and de-escalate therapy. Detecting the cancer recurrence early may be the key to getting a patient the therapy they need to save their lives, and NeXT Personal sensitivity may be key to identifying patients with low risk of recurrence so they can potentially avoid additional treatments.

We’ve kicked off our commercial journey by launching our NeXT Personal test for early access clients. We’ve confirmed this quarter that NeXT Personal can detect cancer as low as one part per million, and we’ve completed the analytical studies and documentation needed to launch the test. The launch has been met with robust early demand, with several doctors sending us samples. We continue to deepen the clinical evidence of our tests with early adopters and expect to ramp up rapidly post-Medicare coverage. As a reminder, we’re managing towards obtaining Medicare coverage in late 2024. The second part of our win in MRD strategy is to develop clinical evidence with top institutions and thought leaders around the world to demonstrate the clinical validity and utility of our tests.

In early stage lung cancer, we’re working with TRACERx Consortium led by lung cancer expert Dr. Charles Swan and teams at Cancer Research UK, the Francis Crick Institute, and University College London. Previously, this group conducted research on prior generations of MRD assays and identified significant opportunities for detection improvement and is now using NeXT Personal to determine the clinical value of an ultra-sensitive assay for early stage lung cancer. The TRACERx team presented compelling clinical evidence at ESMO a couple of weeks ago, highlighting the power of the NeXT Personal assay. There were three key findings. First, we are seeing higher sensitivity, up to four times higher, than other liquid biopsy tests analyzed by TRACERx. Second, we found lung cancer six to 11 months ahead of standard imaging and significantly ahead of other tests.

And third, we have the ability to determine low and high recurrence risk, which could lead to improved therapy decisions. We expect the complete cohort results from the TRACERx study to be published in mid-2024. In breast cancer, we’re actively processing samples from our Royal Marston collaboration. Royal Marston is one of the leading global institutions in breast cancer, and our work is focusing on patients with early stage disease for several subtypes, including ER positive, HER2 positive, and triple negative breast cancer. The Royal Marston collaboration provides us access to a well-annotated set of samples with known clinical outcomes. We plan to use our work here to provide a clinical data set to support our medical coverage of breast cancer.

The data set is expected to be showcased in mid-2024. Excitingly, we recently added two new collaborators in breast cancer to augment our path for Medicare coverage. First, we’re now working with Dana-Farber in breast cancer, which provides us a robust set of HER2 respectively gathered samples, and also the Institute Curie, which gives us access to a study that was a prospectively gathered triple negative breast cancer patients. These are extremely important because we now have multiple prospective cohorts that we can leverage to drive both commercial success and underpin our reimbursement submission. Additionally, for breast cancer, we have our own prospective clinical trial called B-STRONGER, and it has begun. We’ve made progress establishing committed sites and are targeting to begin enrolling patients late this year.

For IO-therapy monitoring, we have multiple collaborations underway. Our key study is a pan-cancer data set with Vall d’Hebron Institute of Oncology or VHIO, designed to demonstrate and leverage the efficacy of NeXT Personal for I/O therapy monitoring. VHIO gives us access to a large, well-annotated bank of prospectively gathered samples that are the cornerstone of our efforts to achieve reimbursement coverage for pan-cancer IO-therapy monitoring. We have begun testing VHIO patient samples, and we expect to present clinical data next year. This is an exciting collaboration, and it joins existing work we’ve announced on melanoma and I/O therapy with the University Medical Center Hamburg-Eppendorf, also known as UKE, and also our Duke relationship.

We’re driving hard to process all the samples across these many collaborations and expect collaborators and investigators to record data through 2024 and to submit for multiple – and to be able to be submit this data from – into multiple publications. With all this data gathered, we plan to submit for reimbursement coverage in all three cancer types next year, and we’re targeting to achieve coverage for at least one of them in 2024. The third part of our strategy is a unique partner-centric path towards commercialization. We’re seeking partnerships that help us amplify our message to the marketplace, helping us market and sell our test in a capital-efficient manner. We continue to work on that core part of our strategy, and we believe it provides significant opportunities to accelerate commercial traction while minimizing investment.

The fourth and final part of our strategy is to leverage our biopharma relationships and establish infrastructure to submit NeXT Personal as the assay of choice to determine clinical trial enrollment, monitor therapy effectiveness, and develop new insights into treatment pathways. This quarter, we continue to deepen our business with pharma clients, and in particular, driving next personnel forward in several discussions. Growing these relationships is important to us, and in September, we announced that Ms. Deepshika Bhandari joined Personalis as SVP Regulatory Quality and Clinical Compliance. Most recently, she was VP Regulatory Affairs at Grail and has also held leadership roles at Roche Diagnostics. She and her team are charting a path forward to establish our NeXT Personal assay as the clinical trial enrollment assay of choice for our pharma partners.

NeXT Personal was the key driver of revenue growth moving forward, and over the last quarter, we’ve demonstrated strong performance for the test and one of the best data sets available globally. We’ve deepened the list of our blue-chip collaborators, and we launched our product. Our product progress and executed on our win an MRD strategy has been impressive, but we’ve also made progress in other parts of the business. As we mentioned before, our platform is powering personalized cancer therapies. As announced earlier this year, we are a key partner for Moderna’s clinical trial work as they pursue regulatory approval of their personalized therapies. We are partnered with Moderna across their clinical studies, and as Merck and Moderna disclosed, they’ve begun enrolling patients in their Phase 3 clinical trial for melanoma.

We expect this partnership to be a significant driver of revenue for us in 2024 and 2025. With thousands of new cancer patients each year in the U.S. alone, our aspirations are for Personalis’ technology to power the development of next generation vaccines and therapies as we are doing with our Moderna partnership. Lastly, turning to our population sequencing business, we recently received a new task order from the U.S. Department of Veteran Affairs’ Million Veterans Program known as the VA MVP in the amount of $7.5 million. This relationship stretches back several years, and we are proud to continue supporting the VA MVP in their initiatives. It’s an exciting time at Personalis with much progress across multiple fronts, and we appreciate our collaborators, partners, and investors being part of our journey to establish an ultra-sensitive test at the forefront of the MRD market.

With that, I’ll now turn it over to Aaron to review our financial results for the quarter.

Aaron Tachibana: Thank you, Chris. We executed very well in the third quarter and continue to meet our financial commitments. I will be providing detail about our third quarter financial results and guidance for the fourth quarter and full year. Total company revenue for the third quarter of 2023 was $18.2 million and increased 23% compared with the same period of the prior year, primarily due to higher volume from biopharma customers, enterprise, which includes Natera, and population sequencing volume from the VA MVP. Gross margin was 19.1% for the third quarter compared to 28.7% for the prior quarter and 16.7% for the same period of the prior year. The sequential decline of 9.6% was primarily due to the impact of lower selling prices to Natera as a result of their volume-based pricing structure and to a lesser extent, higher allocated facility costs to the operations lab now that all production testing has been moved from Menlo Park over to the new Fremont facility.

The year-over-year increase of 2.4% was primarily due to operating leverage from higher revenue volume. Operating expenses were $34.3 million in the third quarter and included a one-time non-cash impairment charge of $5.6 million for a write-down of the remaining lease asset for the Menlo Park facility that we recently vacated, compared with $29.7 million for the same period of the prior year. Excluding the one-time charge, operating expenses were $28.7 million and decreased $1 million from the same period last year. We continue making progress to reduce our expense base by limiting investments to high-priority initiatives, such as deepening clinical evidence to pursue reimbursement, transitioning to lower-cost sequencing platforms, and others.

R&D expense was $16.7 million in the third quarter, compared with $15 million for the same period last year, and SG&A expense was $12 million, compared with $14.8 million for the same last year. Net loss for the third quarter was $29.1 million, compared with a net loss of $26.5 million for the same period of the prior year. Excluding the non-cash impairment charge mentioned earlier, the net loss would have been $23.5 million. The net loss per share for the third quarter was $0.60, and the weighted average basic and diluted share count was $48.7 million, compared with the net loss per share of $0.58, and a weighted average basic and diluted share count of $45.9 million for the same period of the prior year. Now on to the balance sheet. We finished the third quarter with a strong balance sheet with cash and short-term investments of $120.7 million.

During the quarter, we used $16.5 million of cash primarily to fund operations, and we expect our cash balance to last approximately two years. Now, I’d like to turn to revenue guidance. For the fourth quarter of 2023, we expect total company revenue between $19 to $20 million, revenue from pharma tests, enterprise sales, and other customers between $18.5 million to $19.5 million, and revenue from population sequencing of approximately $0.5 million. And for the full year of 2023, we have increased our revenue guidance due to the strong demand for both pharma and enterprise sales. We now expect total company revenue between $73 million to $74 million, with oncology revenue from pharma, enterprise sales, and other customers between $64 million to $65 million, and population sequencing revenue to be approximately $9 million.

In addition, we expect net loss of approximately $103 million, which is $10 million lower than the loss of $113 million in 2022, and the net loss of $103 million includes the one-time charge of $5.6 million for the Menlo Park facility. Cash usage is expected to be below $70 million and represents a reduction of approximately $50 million from 2022. 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: We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Patrick Donnelly with Citi. Please go ahead.

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Q&A Session

Patrick Donnelly: Hi, guys. Thanks for taking the questions. Maybe one just on the MRD side. You talked about the pharma opportunity there. Can you just talk about what the funnel looks like at the moment in terms of those opportunities? Just trying to think about how to size that revenue opportunity, the activity you’re seeing, and expectations going forward here?

Chris Hall: As you know, we’ve worked with, I think, the last, over time, I think we’ve worked with 16 of the top 20 biopharma companies with our ImmunoID platform. And that platform powers a lot of the translational kind of work that they do. So we’ve built relationships into many of those companies. We have been engaged in discussions. We originally launched it as an RUO product. And we’ve been building the revenue base in NeXT Personal over the last year. We announced a relationship with AstraZeneca, where they’ve begun using the assay and some their efforts. And we’ve been – and since, as the data has come out with TRACERx, we’ve continued to get significant interest. We’ve been in benchmarking, pilot studies with several biopharma companies.

And we expect the revenue on the biopharma side for NeXT Personal to be one of the nice revenue growths in 2024 as we move through the year. Those trials can be larger and can be significant. So we’re excited about the journey.

Patrick Donnelly: Okay. That’s helpful. And then you mentioned the reimbursement side, going for Medicare coverage in 2024. Can you just talk about, I guess, the pathway there, what hurdles you have to clear? Reimbursement timing is always tricky. So I guess, when are you thinking that could come during the year? And again, what are the key catalysts, milestones we should be keeping an eye out for as you progress towards that?

Chris Hall: Yes, no, absolutely. So, I mean, we – it is one of the things that is always tricky to try to predict timing because there’s a lot of it beyond our control. But what is in our control is getting the samples with collaborators. And we’ve picked some of the top collaborators. I think there’s seven or eight studies now we’re working with across our core indications. And, you know, the key thing there is to have analytic validity studies that show that the assay is robust across multiple different conditions and gets the performance numbers that we did. We’ve completed all that with the launch of the product. We’ll be submitting that data for publication. And that’ll be one of the data sets, the publication there that will underpin reimbursement success and progress.

The others will be clinical evidence in each one of these indications. And so the core thing to watch for over 2024 is the publication of the clinical evidence, because that publication of the clinical evidence that the test is valid in lung cancer, breast cancer, and I/O therapy, and that there’s clinical utility there, i.e. we can accelerate a doctor and a patient knowing when cancer is present. Getting that published will be important to get through the coverage hurdle with Medicare. And so we plan on having all that accomplished across these indications and be able to submit for coverage in 2024. And our goal is to have one of those done, Patrick, by the end of 2024. Because I think we’ll always hit some roadblocks along the way, depending on the different indications.

So we’re shooting to be able to submit for all three and we’re targeting to get one over the finish line by the end of the year.

Patrick Donnelly: Great. I appreciate it, guys.

Aaron Tachibana: Absolutely. And, you know, for us, the quarter has been really one of sort of checking off more and more boxes of lowering the risk for investors. The risk of getting the test live, we’ve checked that off. The risk of the early clinical evidence, we checked that off this quarter with some great evidence. And next is – the next big one is reimbursement. And we keep stitching together the data to be able to check that off. So that’s where we are.