Yahoo Finance Personalis, Inc. (NASDAQ:PSNL) Q1 2024 Earnings Call Transcript
Personalis, Inc. (NASDAQ:PSNL) Q1 2024 Earnings Call Transcript May 8, 2024
Personalis, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: 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.
Aaron Tachibana: 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 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 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 p.m. Pacific Time today. Now, I would like to turn the call over to Chris for his comments and first quarter business highlights.
Chris Hall: Thank you, Aaron. Good afternoon, everyone and thank you for joining us. I am very proud of our team at Personalis as we continue to fight cancer with our novel 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 ultra-sensitive MRD test, we are able to spot cancer when it’s only one fragment of tumor DNA circulating in a 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 three underlining growth engine is our loadstar 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, NeXT 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 will now review progress this quarter on the three 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 are executing on our Win-in-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 the leader in this space. Our Win-in-MRD strategy has four pillars: first, to focus and launch our test in cancer types where an ultra-sensitive 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, leverage our deep relationships to accelerate adoption by biopharma partners and power our revenue growth by the use of NeXT Personal in clinical trials; and lastly, to commercialize NeXT Personal with a partner centric model.
To delve into the first pillar, we have previously explained how we are developing evidence to support NeXT Personal’s clinical usage and reimbursement in early stage lung cancer, breast cancer and immunotherapy monitoring. We believe our ultra-sensitive technology allows us to see cancer earlier, which may provide the information to deescalate patients from unnecessary therapies and procedures, potentially sparing patients from toxicity and saving healthcare dollars. Just as 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 showed very little DNA into the blood which are difficult to detect without an ultra-sensitive approach.
Early detection is critical in these indications. For patients on IO therapy, we believe the potential decision to switch treatment requires the insights from monitoring that are provided by ultra-sensitive test. 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 ultra-sensitive MRD test to commercially enter the market. And with that launch, we now have two laboratory developed tests or LDTs on the market, the other being our Medicare reimburse test, NeXT Dx, which is used by physicians to put a patient on targeted therapy. The adoption of these tests has been rapid 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 are pleased with this traction as the number of physicians that were warring in Q1 remained fixed to 10 through the quarter. There are two key metrics that I want to talk about and dive into: first, all 10 of our early access physicians are ordering and 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 one part per million, which means if there is just one fragment of tumor DNA circulated in a million DNA fragments in the blood, we expect to see and quantify it. This is a leap forward for the field. The extra sensitivity we report on with our NeXT Personal assay, which are values between 1 and 100 parts per million unmask a region that has previously been hard to see consistently.
We call that region the ultra-sensitive MRD range. Until 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 ultra-sensitive range. That’s a significant jump in the performance of MRD testing. It means that physicians can see cancer recurrence earlier, have more discrimination and monitoring therapy and have more confidence that ctDNA patients that are negative are likely cancer free. Indeed, we have had many anecdotes relayed from our 10 early access doctors that the ultra-sensitive range is allowing them to see cancer earlier with their patients and intervene to get them the management they need.
We believe it is the ultra-sensitive range that allows the doctor to see cancer sooner and seeing it sooner is the cornerstone of our Win-in-MRD strategy. Now moving into the second pillar. We are 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 have talked about the importance of our work with Royal Marsden in breast cancer and VHIO 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 are focusing on patients with early stage disease for several subtypes, including ER-positive, HER2-positive and triple-negative breast cancer.
For VHIL, the work is pan-cancer across many cancers 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 VHIL for immunotherapy monitoring. We are excited that at the upcoming ASCO conference to work with both of these collaborators will be featured as oral podium presentations. We also have three other studies featured at ASCO, one, with Dana Farber on HER2-positive patients and other with Duke for immunotherapy monitoring for gastric patients, and lastly, one in colorectal cancer patients. Having this breadth of data should underscore our commitment at 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 UKE 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 ultra-sensitive range. In addition, our work in collaboration with AstraZeneca on their Matrix study was presented. The Matrix abstract showed NeXT Personal achieve very strong sensitivity and specificity on blinded test samples provided by AZ down to the lowest levels at two parts per million. Subsequently, we were selected as the partner by AstraZeneca for MRD testing in their upcoming trials. We have also presented data from collaborators with a personalized cancer vaccine company and our analytical validation data for NeXT Personal that was recently published was also at the AACR conference.
The third pillar of our NeXT Personal strategy is to leverage our biopharma relationships to drive the use of NeXT Personal in clinical trials. We are engaged with most of the world’s top biopharma companies and have continued to generate excitement around our NeXT Personal test, most recently, from discussions at AACR. Customers want to need an ultra-sensitive approach to ensure that the most appropriate patients enter into a clinical trial. For example, we believe that our ultra-sensitive assay means that patients tested negative are much, much less likely to have a recurrence. Our biopharma customers can then expect that these patients are less likely to benefit from a therapeutic intervention, holding out the promise that NeXT Personal could be an excellent approach to optimize Bharat biopharma trials.
Indeed, here in the first quarter, we booked record new orders for NeXT Personal. The product helped to drive our strong Q1 financial performance and we believe it will be a driver of revenue moving forward and important way for us to deepen the clinical utility of NeXT Personal. Now, I will move on to the fourth and final pillar commercializing NeXT Personnel using a partner-centric model. In December, we announced our key partnership with Tempus to commercialize NeXT Personal Dx, the NeXT Personal in the clinic with oncologist. To quickly review, we expect to leverage Tempus’ up to approximately 200 person sales channel to co-commercialize NeXT Personal and accelerate growth. Personalis will be responsible for processing samples in our lab, obtaining reimbursement and invoicing health insurance, payers and patients under the arrangement, while paying Tempus fair market value for the commercial services they provide to us.
Overall, the deal is worth approximately $30 million for Personalis should all the milestone payments be triggered and if Tempus fully exercises there weren’t. We expect this to allow us to ramp up commercial efforts quickly with minimal additional cash investments. We plan to launch with Tempus this quarter by expanding our early access program to include some of Tempus’ clients. The goal is to learn how to work together as partners, integrating our business systems, or finding our message to oncologists, so we are set to drive accelerated growth together on the backside of reimbursement approvals. Now, while we made strides with our first growth engine, our Win-in-MRD strategy to establish NeXT Personal as the leading MRD test, we also made progress with our second growth engine, leveraging our ImmunoID NeXT platform to deepen relationships with biopharma customers, who use the offering to pioneer new therapies.
Our biopharma segment grew 55% year-over-year and we had solid performance across our product portfolio. Customers primarily use our ImmunoID NeXT platform in two ways. First, they use our platforms to power translational research and find new biomarkers and new insights that can power their drug discovery efforts. Second, companies in the personalized cancer vaccine market use our platform to create a molecular fingerprint of a patient’s tumor to power a personalized therapy. We have previously told you about our partnership with Moderna, in which Moderna is utilizing our platform in their mRNA cancer program. Moderna and its partner Merck are enrolling patients and our collaboration with Moderna is an important driver of revenue for us in 2024 and 2025.
We have several other partners that work in this space as well. The third growth engine, third engine of our growth strategy is growing our Personalis inside approach as we service enterprise customers. In these relationships, partners adopt our platforms and technologies to power their solutions and provide new insights to their customers. Our work with Matera involves leveraging our sequencing platform to analyze the exome as a part of their MRD product. We believe our relationship is strong and mutually beneficial and are optimistic that it will extend into 2025. The second important enterprise relationship is the VA. The VA utilizes our whole genome sequencing capabilities to power the million federal program, a national research program looking at how genes and lifestyle affect the health of veterans.
We have helped power this program with the VA for years. Both of these relationships are examples, how our platforms drive value for partners, and importantly, provide sequencing scale for Personalis. Now before I turn it over to Aaron to go deeper on the financials, I have a few exciting corporate updates. First, we continue to innovate and deepen our strong intellectual property position. We had two new patents recently issued by the USPTO in fact, one just yesterday, relating to the use of two of our core technologies, tumor-informed personalized assays in the first patent and boosted exome panels in the second patent, each to inform cancer vaccine treatments. This latest patent is the fourth U.S. patent to issue in 2024. And today, our number of issued U.S. patents is over 30.
We believe we have a deep set of IP protecting our pioneering work on both MRD and PCV. We are engaged in litigation with Foresight Diagnostics to enforce and protect some of our IP relating to MRD. As often the case, there will be ups and downs along the way in that journey. However, we are confident we are setup for long-term success to establish an industry leading position around the use of whole genome sequencing for MRD and are optimistic about the path forward. And second, we crossed two milestones this quarter. We processed our 400,000 samples since our company’s inception. And importantly, we completed our 175,000 whole genome sequencing sample. Whole genome is the foundation of our NeXT Personal MRD test and these milestones underline both our sequencing scale and unique operational capabilities.
With that, I will now turn it over to Aaron to review our financial results.
Aaron Tachibana: Thank you, Chris. Our strong first quarter 2024 financial results demonstrate 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 in 2024. Total company revenue for the first quarter 2024 was $19.5 million and increased 4% compared to $18.9 million for the same period of the prior year. The increase in revenue was driven by higher volume from biopharma and Personalis cancer vaccine customers, which was partially offset by declines from the Terra 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 tests NeXT Personal, which is beginning to ramp-up with many customers.
In addition, we achieved a significant milestone and recognize our first clinical revenue in the amount of $0.2 million for NeXT Dx, which we received Medicare reimbursement coverage in January of this year. Gross margin was 20.1% for the first quarter compared to 25.1% for the same period of the prior year. The year-over-year increase of three 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 be 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 non-cash gain related to fair value accounting of the outstanding warrants issued to Tempus. This non-standard 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 on 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 million to $19 million and revenue from population sequencing of approximately $1.5 million. And for the full year of 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 test, 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 revenues 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: Thank you. [Operator Instructions] The first question comes from Yuko Aku with Morgan Stanley. Please go ahead.
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