Personalis, Inc.

Thank you for standing by. Welcome to the Personalis First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would like to hand the conference over to your first speaker today, Ms. Caroline Corner, Investor Relations. Please go ahead.

Thank you, Operator. Welcome to PersonAlysis' first quarter 2021 earnings call. Joining me on today's call are John West, President and Chief Executive Officer, and Erin Toshibana, Chief Financial Officer. This call will include forward-looking statements, including statements regarding the markets in which we operate, including potential market sizes, trends and expectations for products, services, and technology, trends and demand for our products, personnel's expected financial performance expenses and position in the market, and the impact of the COVID-19 pandemic on our operations and our customers' operations. 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-Q for the first quarter of fiscal year 2021, to be filed today under 10-K for fiscal year 2020. The forward-looking statements we provide during this call, including expectations for future performance, are based on our reasonable beliefs and expectations as of today. Personalis undertakes no obligation to update these statements except as required by applicable law. Please note that in these prepared remarks, Personalis management will refer to the company's oncology business. This represents a category of customers. It reflects all biopharma and all other customers excluding the VA MVP, most of whom use personnel services for applications in oncology. And when referring to population sequencing, we are referring to the VA MVP or other potential customers within this market. Our press release with our first quarter 2021 results is available on our website, www.personals.com, under the investor 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 John for his comments on first quarter business highlights.

Thank you, Carolyn. Personnel has continued to grow. We achieved another overall revenue record during Q1, and it was our 19th consecutive quarter of growth. Our oncology business, which has received orders well above revenue levels, since Q3 of 2019 has increasingly seen the resulting backlog turn to revenue. In Q1, our revenue from this business grew 74% over the same period of the prior year. In Q1, new orders again significantly exceeded revenue. And so far in Q2, we expect that yet again. The strategy of our oncology business has been to support drug development at the leading edge of cancer biology. That strategy is working. In our population sequencing business, we have now received all of the samples required to complete our current orders, putting us in a great position through Q3. We have also engaged with the VA MVP about options for a further order under our existing contract with them, which expires in August of this year. We are optimistic that our relationship with the VA MVP will not only continue, but broaden in part by leveraging capabilities initially developed the oncology side of our business. Given all of this progress, we will now resume giving full year guidance, reflecting our improved visibility. Our mission is to help cancer patients live better and longer lives. and we developed our ImmunoID Next platform with this objective in mind. The Next platform provides our pharmaceutical customers with the capability to better understand a cancer patient's genetic profile, which can help with drug development, therapy selection, and ongoing monitoring of the tumor to help detect recurrence. We believe that in order to better understand a cancer patient's tumor, both tissue and liquid biopsies together can provide the most comprehensive view, leading to the optimal therapy and treatment decisions being made. Both our tissue and liquid biopsy-based offerings have been designed specifically to meet the needs of our pharmaceutical customers and provide data on all of the approximately 20,000 human genes. We expect our oncology revenue to become a larger part of our total mix in the future as we leverage our ability to analyze both tissue and liquid biopsy samples with these platforms. Tissue samples give us access to RNA and to the immune cells which have infiltrated a patient's tumor. Also, by analyzing liquid biopsy samples, we're able to provide information about a patient's tumor across multiple time points. Used together, we believe our oncology platforms provide our customers with the most comprehensive analysis of tumor burden and biomarker identification available today. We continue to execute well to our strategy, and later this year, we plan to expand our liquid biopsy offering with the launch of Next Personal, our minimal residual disease, or MRD, offering that will be designed to track changes in a specific patient's tumor. We have begun to process customer-provided samples to ensure our product development meets customer requirements and are very encouraged by those initial results. We believe that with the ability to monitor over 1,000 mutations, Next Personal will compare favorably in terms of sensitivity and information content with panels from competitors that can identify and track only dozens or hundreds of mutations. We also believe that Next Personal will be applicable to both pharmaceutical research and clinical diagnostic markets in the future. Now I would like to provide six recent highlights and accomplishments from Q1. First, we continue to make encouraging progress with our Exome Scale Next Liquid Biopsy product. As you recall, we launched this product in August 2020 and have received orders from several customers. We have now delivered our first customer order and based on that data, the customer is already asking us to process additional samples. We have our first publication, authored jointly with one of our customers, showing the utility of our Next Liquid Biopsy together with our ImmunoID Next analysis of tissue from the same patients. We also presented posters showcasing the state-of-the-art results using Next Liquid Biopsy at the recent AACR conference. We believe that Next Liquid Biopsy will also work synergistically with Next Personal when it is released and that liquid biopsy-based products will contribute increasingly to revenue as we enter 2022. Second, we announced a collaboration with Natera to provide front-end tissue sequencing services based on our advanced Next Exome to help them identify variants they will use to design their Signatera personalized liquid biopsy test. Additionally, Personalis provides expert tumor tissue sequencing services to multiple liquid biopsy companies, leveraging our deep know-how in the processing of formalin-fixed paraffin-embedded, or FFE, tissue for many different cancer types. We expect our long-term growth to be based on our own products, including our own liquid biopsy products. But these partnerships show how Personalis has come to be respected as a technological leader in our field, and they supplement our revenue as we build our business. Third, we announced a collaboration with Mapcure LLC, a company jointly owned by Beijing Limited and Springworks Therapeutics Incorporated. We plan to use our next platform for their clinical trials and companion diagnostic development. We believe our work with companies such as Mapcure is a strong testament to our technology and capabilities. It will also allow us to showcase our genomic profiling platform within a clinical setting which we expect to assist us with future regulatory approvals for our next platform of products and services. Fourth, our customer base has broadened substantially over the last year. We have now received orders from a majority of the top 10 oncology-focused pharmaceutical companies. Since we introduced the next platform in 2019, as of the end of Q1, we have received next orders from 50 different customers. In Q1, we added another large global pharmaceutical company as a customer, starting with an order of almost a million dollars. We believe this growing adoption of Next further highlights the power of our platform and the comprehensiveness is important to our customers. Fifth, over the past few quarters, we highlighted some of our initial plans to establish a lab and commercial operations in the People's Republic of China and to partner with Berry Genomics. Our team continues building our laboratory in Shanghai, and we are hiring additional employees. Customer engagement is very good. For a pharmaceutical company to include personnel analysis of biopsy samples from clinical trial patients in China, they need to apply to the Chinese regulatory authority, HGRAC, for permission. We are supporting preparation of a number of these applications, and anticipate that HGRAC decisions could be received as early as Q3 this year. In a number of these cases, these are international clinical trials for which Personalis has already received multi-million dollar orders to process samples using our Next platform from the portions of the trial outside China. We're also in discussions with a number of Chinese pharmaceutical companies about their potential use of our Next platform in their clinical trials in China. We continue to expect that our operations in China will begin in 2021 with moderate revenues and begin ramping in 2022. While this project will take some time to meaningfully contribute to our top line, we believe this is an important investment. We look forward to updating you on our progress. Sixth and finally, in addition to the achievements just mentioned, We also recently announced the addition of Dr. Woody Myers to our board of directors. Dr. Myers has extensive healthcare industry experience and most recently served as the chief medical officer and chief healthcare strategist at Blue Cross and Blue Shield of Arizona. In addition, he has been active in government, having served as physician health advisor to the United States Senate Committee on Labor and Human Resources, as Health Commissioner for his home state of Indiana, and as Commissioner of Health for the City of New York. Dr. Myers received his MD degree from Harvard and subsequently his MBA from Stanford. Dr. Myers will be instrumental in helping personnel grow and scale in the future. I'd now like to update you on the population sequencing part of our business, which is sometimes referred to in the field as population genomics. We continue to build a funnel of commercial opportunities, and we are in early discussions with several of these prospects. Initial discussions are going well and are encouraging. We expect that we will have additional customers and revenue from these new commercial opportunities in 2022. Our work with the VA MVP program represents the largest population sequencing effort within the United States. The VA now targets enrollment of 2 million veterans, and over 825,000 veterans have enrolled so far. Personalis has been contracted so far to sequence over 146,000 VA MVP samples with approximately 29,000 currently remaining to be sequenced. We have been the sole provider for the VA MVP's whole genome sequencing project over the last eight plus years and have been awarded multiple contracts by the VA MVP during this time. Our existing contract with the VA MVP ends in August 2021. However, the VA MVP can place additional orders with personnel under our existing contract, and we are now in active discussions with the VA about that. On our last earnings call, we were cautious due to the ongoing pandemic, but as we've had more discussions with the VA MVP, we have become quite optimistic that we will receive an order between now and the end of summer. We are also encouraged by the long-term prospects for VA MVP. In early April, the White House released their fiscal year 2022 top-level budget proposal, which we believe is a positive sign relative to continued funding for the VA MVP. The White House noted that their request includes $882 million for VA R&D and referred to it as, quote, the largest year-over-year increase in recent history, unquote. It headlined that this proposed budget, quote, invests in research critical to veterans' health needs, unquote. Their proposal represents a 12% increase in funding, specifically for VA research. In December, we announced we had become the first for-profit company to sequence more than 100,000 whole human genomes in the United States. which was an important milestone for us. We expect that total to grow to more than 150,000 whole human genomes by the end of 2021. Some will be for population sequencing and others will be cancer genomes. We expect our unparalleled experience and scale with the VA and BP to position us well for new population sequencing opportunities. Given our clinical experience and work with pharma, We also see future opportunities to help transition population research to population health and to involve pharma in the future. I would now like to expand on the synergy between the population sequencing and oncology parts of our business, in particular those that go beyond the more obvious operational and cost synergies. Our extensive experience with whole genome sequencing combined with our deep expertise in cancer, has allowed us to launch whole genome sequencing from cancer samples. We believe that this will be increasingly important in the future, particularly in cancers such as breast and prostate, which have relatively low mutational burdens. Using our cancer whole genome technology can identify up to 20 times more somatic variants to serve as the basis for personalized cancer assays. We believe this will let us achieve high sensitivity, even in cancers which have low mutational rates, which have been surgically resected, or which shed relatively low amounts of cell-free DNA into the blood. We believe this can be a leading technology and some very large market opportunities, and we'll have more to say about this as these product developments progress. In summary, I'm very proud we have continued to show strong growth. particularly in our oncology business. Customer interest and adoption of Next has been excellent, and our pipeline of compelling new products is rich. We have the capital required to invest in our growth initiatives, such as new products like Next Personal, enhancing our clinical and regulatory capabilities, expanding collaborations that further highlight the utility of our Next platform, expanding our operations in foreign locations, and expanding capacity to support our revenue growth. We believe this puts us in a strong position for near and long-term growth. With that, I will now hand it over to Aaron for our financial results.

Thank you, John, and good afternoon, everyone. We had another great quarter and achieved a new record revenue level once again from our focus and strong execution. During my prepared remarks, I will provide details about our financial results for the first quarter of 2021 and our guidance for the second quarter and the full year. Total revenues for the first quarter of 2021 were $20.9 million, up 3% from $20.2 million for the prior quarter and up 9% from $19.2 million for the same period of the prior year. The $20.9 million was a new record high for quarterly revenues and the growth was primarily driven by an increase in genomic testing services provided to BioPharma customers. Aside from the VAMDP, BioPharma and all other customers accounted for revenues of $7.7 million in the first quarter, representing a 74% increase over the same period of the prior year. This was our second consecutive quarter with a year-over-year increase of more than 70%, which highlights a couple of key points. First, customer orders that we have won over the past year and a half are converting to revenue. In the first quarter, revenues from our next platform exceeded $4 million, which is the highest quarterly level achieved thus far. Second, new order amounts continue to exceed revenue reported each quarter, which provides confidence that our BioPharma revenue will continue to grow into the future. Our current BioPharma revenue is mostly from tissue samples. As we ramp our liquid biopsy offerings in the future, this should help accelerate growth due to the multiple time points, or in other words, the number of tests per patient. For the first quarter, the VAMVP revenue of $13.2 million was higher by 5% from last quarter and was 10% lower compared with $14.8 million for the same period of the prior year. If you recall, we do not have specific testing turnaround times for the VAMVP. Therefore, we have the ability to modulate volume up or down to complement the biopharma sample testing volume, which can have some variability from time to time. The VAMVP unfulfilled orders were $30.3 million at the end of the first quarter, and based upon current estimates, we expect the unfulfilled orders to convert to revenue over approximately the next two quarters. Gross margin was 35.6% for the first quarter compared to 30.1% for the prior quarter and 21.1% for the same period of the prior year. The sequential increase of 5.5 percentage points was primarily due to sample processing efficiencies and a slight reduction in expenses. The year-over-year increase of 14.5 percentage points was primarily due to customer mix, operating leverage from the 74% increase in biopharma volume, and lab efficiency improvement. We typically do not provide gross margin detail by customer type. However, it's important to note that the VAMVP gross margins continue to be solid due to a high volume and a single service offering, which has been automated and has a very efficient sample testing process. Over the next couple of years, there could be some gross margin variability due to headwinds from investments in new capabilities, capacity, expansion for China, and others. Longer term, we expect our gross margins to increase as we achieve scale. Operating expenses were $19.9 million in the first quarter, compared with $13.7 million for the same period of the prior year. R&D expense was $9.5 million in the first quarter, compared with $6.4 million for the same period last year. And SG&A expense was $10.4 million in the first quarter, compared to $7.3 million for the same period last year. The increase in R&D expense was for new product development, and the increase in SG&A was due to commercial expansion, public company costs, and continuing to enhance our infrastructure. Net loss for the first quarter was $12.4 million, compared with the net loss of $9.1 million for the same period of the prior year. the net loss per share for the first quarter was 29 cents and the weighted average basic and diluted share count was 42.3 million compared with the net loss per share of 29 cents and the weighted average basic and diluted share count of 31.3 million for the same period of the prior year. Now onto the balance sheet. We exited the first quarter with a strong balance sheet with cash and short-term investments of $353.4 million. In the first quarter, we used $11.7 million of cash from operations due to the net loss and working capital needs. Capital equipment expenditures were minimal, and we paid .4 million. And as mentioned during our last conference call, we expect our cash usage to increase from the mid-$40 million range in 2020 up to a level between $80 and $90 million in 2021 due to investing in the many growth initiatives in front of us. Now I'd like to turn to guidance. Our business has performed really well through the pandemic, and customer orders for the next platform have been robust over the last year and a half or so. This gives us more confidence about the outlook for both the second quarter and the rest of 2021. And with this in mind, for the second quarter of 2021, we expect total company revenues to be approximately $21.3 million. And we expect BioPharma and all other customer revenues, excluding the VAMVP, to be in the range of $7.3 to $7.7 million, representing a year-over-year growth rate of 54 to 62 percent. Net loss is expected to be in the range of $16 to $17 million, and the weighted average basic and diluted share count is expected to be approximately $43 million. For the full year of 2021, we expect total company revenues to be approximately $85 million. And we expect Biopharma and all other customer revenues, excluding the VAMVP, to be in the range of 30 to 32 million, representing an annual growth rate of 33 to 42 percent. Net loss is expected to be in the range of 70 to $75 million, due to increase in expenses and the weighted average basic and diluted share count is expected to be approximately 44 million. We plan to provide an update to this information during our next earnings call. Now, I will turn the call back over to the operator to begin the Q&A session. Operator?

As a reminder, to ask a question, you will need to press star one on your telephone. Again, that is star one. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Savant from Morgan Stanley. Your line is open.

Hello, this is Yuko on Fortejas. Thank you for taking our questions.

Very nice.

Hello. How are you thinking about positioning the MRD offering in light of the multiple players coming onto the market? And as a follow-up, what are your views on tumor-informed versus tumor-agnostic approach for MRD?

I'd be happy to answer that. Yes, so personnel expects to have the highest performance MRD offering available on the market. As I mentioned previously, We expect to be in a position to monitor over 1,000 genetic variants, and this gives us enormously more sensitivity. Most of the other products on the market look at much, much smaller numbers of genetic variants, and that directly limits the sensitivity that they would have. So we expect to be most sensitive, and also because of this rich content, we expect to be the most informative, not only about quantitative senses of the tumor or detection of the tumor, but also some characterization of how the tumor is changing over time. So I think that gives you an idea of the relative positioning of the product. And then in terms of tumor-informed versus tumor-agnostic, if we look at a tumor-agnostic approach, it means that you don't use any information about where the genetic variants are located. So when you sequence the DNA from the plasma, Generally, in a tumor, let's say something like breast cancer, you might only have one mutation out of every million bases across the genome. And since the sequence reads are only a few hundred bases long, it means that something like 99.9% of the sequence reads don't have any useful information. They don't catch a variant. And so it's an enormously inefficient approach and actually not very sensitive. As a result, our approach has been one to wholeheartedly adopt the tumor-informed approach. We think it's the only way to achieve the kind of sensitivity that we're targeting, and the performance that we've seen on the customer-provided samples that we've already been working with is fantastic. So we'll have more to say about that as the product comes out, but I don't think there's any question that the tumor-informed approach is the hands-down performance letter.

Got it. That was very helpful, Culler. Thank you. And then how are you thinking about entering the clinical market down the road?

Yeah, so this is an important next step for personnel. We anticipate doing that probably in the next few years here. We've been building our business based on pharmaceutical companies to start with, and these are often very advanced customers, and there's no issues with reimbursement. So we've been able to achieve strong relative financial performance based on that. Going forward, our view is that the diagnostics that are available today are not sufficiently informative and that patients will do better if they can have not only richer information but just more sensitive information. There's a lot of information. There are tumors where we can tell that the tumor eventually comes back and is eventually detected by a genetic test in the plasma, but sometimes a year or two can go by with the cancer not being detected. And since we see that the cancer is the same cancer as existed before surgery, because you can see the genetic fingerprint, the fact that it was not detected at all those intervening time points means that the tests just weren't sensitive enough. And we've been able to look at the data from tests like that, extrapolate back in time, and we can see the kind of sensitivity that would be required to detect most of those cancers at much, much earlier time points than is currently being done, and that's what we're developing in our next personal product. So the ability to look at 1,000 or more genetic variants we think will be transformative and be something that will mean a lot. Obviously, more advanced testing generally would be the kind of thing that you might start with at high-end cancer medical centers, and so that would be a reasonable starting place for us. We have been working on FDA approval for our next platform. We think that FDA approval is also important for the diagnostic market. So perhaps those are some of the steps, and we'll have more to say about that as we make progress towards the clinical market. But it is a major opportunity for us.

Thank you.

Your next question comes from the line of Doug Schenkel from Kevin. Your line is open.

Hey, good afternoon, everybody, and thank you for taking my questions. So I guess on next personal, I'm just wondering, just to start there, if you could share your what we should be looking for in terms of upcoming R&D and commercial stage gates or milestones for that product line.

As I mentioned, we're now at a point where we're able to start testing customer-provided samples. We have a number of customers that we've worked with over the years on a variety of advanced topics. Some of them are very, very interested in seeing what they can see with Next Personal because the kind of performance we're talking about is so And so I think what you'll see is that, you know, we'll come to a formal launch of the product. We've said we'll do that in 2021. I would expect by the time we've done that, we'll actually have run it on a substantial number of samples, both from customers and collaborators, and, you know, we'll be off and running with that. We do see, interestingly, as I mentioned in the prepared remarks, a lot of potential synergy between Next Personal and Next Liquid Biopsy because let's imagine you have a patient that has been, their tumor is surgically resected, so we can use our NEXT platform on that tissue to identify the genetic variants. We can then use NEXT personal to see if the tumor is coming back, and if it is coming back, it might be at extremely low levels, but we can then wash it if it, in fact, progresses and grows. Once it gets up to a certain level where, in fact, you'd be able to detect it with the exome scale test, then you can bring in the exome scale liquid biopsy and have a much more comprehensive view of what's going on. And, you know, in the interim, between the time when the tumor was surgically resected and the time that it comes back, you can anticipate that there may have been a lot of new mutations. This may be how it's advancing, or if it's drug treatment, it may be escaping the drug. And so just tracking the mutations that were in the tumor and back at the time of surgical resection, you'll be missing a lot of the variants. But by looking with the next liquid biopsy at the whole exome level, it gives you the ability to see new mutations that have happened wherever they've happened in the exome and to be able to detect those. So we see those three products, our next platform from tissue and our next personal and next liquid biopsy all working together to provide a comprehensive view of the patient's tumor as it's evolving over time.

Super helpful, John. And kind of using that segue from personal to liquid, it's nice to hear that you delivered your first customer order for next liquid biopsy. What do you expect the ramp to look like from here? And then are the initial use cases likely on retrospective samples, or do you think that there's going to be early use in prospective samples as well?

Yeah, so it's a good question. The early work, as we've said from the beginning, this is kind of a new category. Nobody else has really had a commercial whole exome scale liquid biopsy up to this point, and so people are having to figure out what's the best use for that, how well does it work, and so forth. So we expect that in 2021, a lot of that activity will be pilots. We have a bunch of those kinds of orders now, and we're continuing to process samples for customers, and people are beginning to look at it. I would say the initial comment from we made from the first customer who got their first results back was already, wow, we want to do more of this. And some of them, you know, a lot of times they're in situations where people are trying to make decisions fairly quickly. So the fact that we can sometimes turn these things around reasonably quickly is helpful. So I'd say I would expect that some of the samples will be prospective. And going forward, as I kind of described, you know, how this might be involved in the treatment of a patient is I would expect that it could be prospective. On the other hand, a lot of our customers in pharma have been collecting liquid biopsy samples for an extended period of time, and so they have those banked, and so that leads to the retrospective use. And because we have so much of our oncology business in the pharmaceutical space, I would expect that a fair amount of our next liquid biopsy business in the early period of time will be retrospective with pharmaceutical companies.

Okay. One last one. At AACR, there was a poster from Personalis specific to next liquid biopsy and pan-cancer shedding patterns for CT DNA for cancers with different genetic backgrounds and tissue of origin. In terms of just digging a little bit deeper on that data, I'm wondering if you'd be willing to talk a little bit more about what we might expect moving forward. I'm especially interested in commentary about heterogeneity, you know, as I'm sure you appreciate this has implications for tumor agnostic versus tumor-informed liquid biopsies. And then secondly, you know, I'm interested in, you know, the utility of whole exome. In other words, you know, have you seen anything in terms of how many actionable insights are you identifying that are being missed by predefined panels?

Yeah, absolutely. One of the collaborators we've worked with, it's a high-end medical center. They haven't released their data yet, so we can't describe it in too much detail, but they were doing work in a certain kind of cancer. And what we were able to show using Next Liquid Biopsy was that they identified variants that appeared to be fairly significant in terms of the progression of these tumors. And it turned out these were in genes that just aren't in the conventional genes. small panels obviously by having an exome we have all the genes but if you look across the conventional diagnostic tests they tend to be much more limited sets of genes and they just don't include you know the genes that are involved in particularly tumor escape a lot of times the you know people design these panels and they're really designed to capture the genetic variants that may have caused the cancer in the first place but tumor escape from therapy can happen in in other genes that aren't necessarily in those categories and therefore aren't on those panels. So I think this is an example. This is why it's helpful to the sort of future-proofing that happens by having all the genes is that we're not presupposing which genes you should look at. We can just look at them all.

Thanks a lot, John.

Good. Okay.

Thank you. Your next question comes from the line of Patrick Donnelly from Citi. Your line is open.

Great. Thanks. This is Jesse on for Patrick. Thanks for taking the question. Apologies if I missed this, but can you just remind us on the timing for the new China lab and just what, if any, revenues you factored in for the guidance in 2021? And then you just, you mentioned in your conversations with some of your existing customers that you've been working, you know, with clinical trials and other geographies. So Just curious if you have a sense around what proportion of the market this new lab will open up within your existing customer base.

Yeah, I'll let Aaron start off on that. He's been very involved in our China operation.

Yeah, so in terms of the China lab, 2021 is going to be the year where we develop it, build it out. We're almost ready to go right now in terms of begin testing. We've got equipment showing up. The facility has been completed we've hired our first few employees unfortunately we haven't been able to travel back and forth due to the pandemic and restrictions on both sides but you know we're going to go through development of training over the next couple of months and then you know we expect the lab to be able to process samples this year on a test or pilot basis and from the revenue standpoint We don't have much revenue built into the guidance they share from China. This is really going to be a build out year. So the revenue opportunity is really in 2022 and beyond. In terms of percentage of the market that this opens up, it's going to open up an extremely large market, not only in China, but outside of China. We have a lot of our global pharmaceutical partners who actually are thrilled we're setting up in China and we're going to have access to even more samples outside of China because of this capability as they want to run global clinical trials.

I guess I'd support that. I think one of the comments earlier on was that we have cases where we're working with a large pharmaceutical company and they're going to the Chinese regulatory authorities to get permission to run a test like ours on samples inside China. But because we've been supporting them and saying, great, you know, if we get the regulatory position, we'll be, you know, we're building out the lab and we'll do those things for you in China. It's already helped us close, you know, orders where just a single order can be in the multimillion dollar category for the portion of the clinical trial, which is outside of China. Many large international pharmaceutical companies are running trials that are, you know, recruiting patients in many, many countries around the world simultaneously. And so, we can process the samples from patients in all the non-China countries out of our California lab and then process the ones from China in our Shanghai lab once we have permission for that. So I think part of what we'll see is the revenue that gets reported eventually as being revenue from China will only be the revenue that's actually where the samples are sequenced in China. But actually we expect a much more significant boost to be coming from all of the non-China revenue we have that was sort of the portions of those clinical trials that were being run in all the other countries. So we see this as a truly international effort, and having the China lab gives us access to those trials and to do the non-China parts as well.

Okay, great. That's really helpful. And then just can you provide an update on, you know, the POPC pipeline outside of the VAMVP? I think you mentioned you expect to start having new relationships in 2022. So just curious, you know, what the timeline looks like for when you'll be bidding on those and when we could hear about some actual award decisions. Thanks.

Yeah. So Chris Nellis has, we brought in on board a lead for the business development side of our activity. And I want to say in September of last year, highly experienced individual, and we used to work at Genomics Medicine Ireland with a big population sequencing effort there, but knowledgeable about population sequencing projects all over the world. We've been leveraging his contacts and others to then engage with groups. And I'd say it's been remarkable, the interest there. A lot of times these projects have been done prior to this by academic groups inside of the countries, and they're not really set up to do production scale sequencing to bring pharma into the mix. And what a lot of these countries want is something where this actually has a clinical component to it as well. So the people who are being sequenced can benefit from the data from their own genomes. And so that's a component that we're bringing to this as well. So I think there's now, we do see a fair amount of interest on this. These are large government programs, so the decision process can be fairly lengthy. But I think we said that we would expect to see the first additional orders on that in 2022, uh, with, with first revenue also in 22. And I think that still looks like that's about on track. It's always hard to know what these things exactly the timing, but we had a review of some of those earlier this week. And, you know, there are multiple countries where the, the, you know, the pots beginning, I wouldn't say it's boiling yet, but it's, you know, things are definitely simmering and, and getting to be pretty interesting. So, um, you know, I think we just have to be a little patient to, We get to a point where there's a contract we announce, but I think we're definitely on a good track here. Okay. That's great. Thank you.

Your next question comes from the line of Mark Mazzaro from BTIG. Your line is open. Good.

Hi, Mark. Hi, Mark. So if you could just provide an update on how the Natera partnership is progressing, what milestones we should be looking for there, and if I could just add a follow-up. In the past, you've kind of talked about biopharma becoming a larger portion of revenue mix looking forward. So just wanted to check in and see if that still kind of held true.

Yeah, great. So this is John. I'd be happy to answer those. Yeah, I'd say the relationship with Natura has been great. They've been really trying to move forward on this. I think anything that would have implications in terms of their revenue is, I think, something that they need to disclose. We won't be disclosing things to do with their revenue. On the other hand, it is a very active program. This is a clinical program. There is a component where I think they've disclosed they work both with pharmaceutical companies, but they also see a significant market that they can address quite early and with a lab-developed test on the clinical diagnostic side, and we anticipate being able to support both of those, and it's a good early entry for us. And, you know, their product is very different from what we're doing with our next personal, so we're kind of two different positions in the market, and I think personnel will benefit from both of those, so. I'd say we're pretty – there's a lot of effort going on in that area at this point, and we're pretty excited about them. I think on the biopharma side, we have the two different parts of our business, the population sequencing side and the oncology side. And in the past, they've been viewed as being quite different. For financial reporting purposes, they've ended up being broken out. I would say we see over time that these will – These are both likely to converge, and there will be more and more blurring of the lines between them. As I mentioned, some of the population sequencing groups that we're talking to now, they're pretty interested in the involvement of pharma. We've been talking with a number of pharma companies who actually are quite interested in being involved in these population sequencing efforts that we're bringing to market. So this is an example of something where there's clearly overlap. Population sequencing in the past was really mostly about whole genome sequencing of people's germline genomes from blood. But as these become more clinically oriented, there's cancers, obviously, can be a major component of these. And so the advantage that personnel brings is we have probably the largest experience of anyone in the world commercially sequencing, you know, 100,000 or more whole human genomes. But then also... having processed huge numbers of cancer samples and having the clinical potential there as well. So the fact that we can sort of put that all together for a country and engage with pharmaceutical companies who may be interested in both the data but also helping to finance some of these efforts, I think these are things where we see the two businesses overlapping more and more. So at this point, I'd say you can see the kind of growth that we've had recently the oncology side of our business has been growing more rapidly than the population sequencing side. I think we think both sides of the business are going to grow over time. If you looked 10 years out and said which is larger, I think the oncology business is likely to be the big business. But population sequencing, meanwhile, will have probably taken on more and more elements of oncology and more and more diagnostic elements. So the two businesses are likely to increasingly overlap as opposed to being kind of separate, almost competing businesses.

Okay. Awesome. Thanks so much. So just an unrelated follow-up, are you able to provide an estimate on the likelihood of renewing the VA contract, some visibility for getting a task order? And if you could touch on like some of the competitive factors that go into that.

Sure, yeah. So this is John. We've been talking with the VA about this. Actually, we have an existing contract with the VA that's been going on for a number of years. The VA has been able to issue additional task orders, which they've done multiple times over the years. And I would say our current indication is that the step that they're likely to take is an additional task order. We expect that that would probably happen between now and the end of August at some point. We've been having multiple discussions about, you know, exactly what that could contain, but we expect it to be largely a continuation of the kind of work we're doing and perhaps expanding into some new interesting areas. Because this is an extension on an existing contract we already have, there is no competitive aspect to it. This would be just expansion and more money being put towards the project. We've been the only whole genome sequencing provider to the Million Veterans Program since 2012. So it's a long-term relationship, and we've done a lot of things to try to be the best possible partner for the VA. And I think it's just been a great relationship. We really admire what they're doing, and we've been able to bring some of our skills to help out.

Okay, great. Thanks for taking the question.

Great. Thank you. Your next question comes from the line of Mike Mattson from Needham and Company. Your line is open.

Hi, good afternoon. Thanks for taking my questions. I guess I wanted to start with gross margins. So, you know, obviously volume should help there, but I just wanted to get an update on what you're doing aside from, you know, just seeing the volumes grow to improve your gross margins.

Sure, I'll take that, John. In terms of gross margins. So we had a great quarter here in Q1. The gross margins are highly dependent upon volume, right? Volume is important. And so you can see with more than seven and a half million dollars of biopharma revenue, you know, our margins, you know, did scale accordingly. And in terms of the path forward, you know, we've highly automated the VAMVP testing process. We're going to be doing the same thing with biopharma. Today it's a little more manual. And so we do require more labor per sample process than we do on the VA MVP side. And so that's another level we're going to be able to play with as we go forward to improve margins. And when you look at scale, our, our objectives are to get to scale from the top line standpoint. And at that point in time, you're going to see, you know, personnel with margins equivalent to other peers in this industry.

Okay. Thanks. And then, um, I just wanted to go back to the Natera partnership. It sounds like you're planning to continue to offer your services to sequence other companies' tissue samples to support their liquid biopsies even after you launch your own. Just what are your thoughts on that? Do you not view it as competing with your own product, own tests, or is it just the market is just so large that it's just not really kind of, you know, going to cannibalize your own test at this point.

I don't see that as a problem. I think it's, I think it's a very large market and the products that, you know, other companies tend to be quite different from ours. You know, there are companies taking a variety of different strategies. People on this call have talked about, you know, tumor informed versus tumor agnostic and things like that. So, you know, we work with companies on both sides of that divide and we've you know, we're interested in supporting the growth of this whole area, and we think there's money to be made off of that. In the long term, I think the main revenue growth driver for Personalis will be our own products. I think that would be true of any company. But actually, you know, there's a lot of other good companies in the market that are doing other kinds of work that doesn't really duplicate what we're doing. And so, you know, we're happy to work with them, and it can be part of the overall mix. But To make no mistake, our role is not to be just kind of a supporting actor here. We expect Personnelis to be one of the largest companies in this space over time, and we think we have the technology and IP to make that happen. So I think these are definitely helpful relationships for us along the way, but if you model where we get to five to ten years out, it's almost all going to be based on the products that Personnelis has.

Okay, thanks. And then just as far as the population sequencing goes, it sounds like you're in discussions with some other potential customers there. But yeah, you know, I was just wondering if you could maybe talk about the types of groups that are interested in population sequencing. I mean, it seems like it's mostly it would mostly be governmental groups. But I mean, are there other, you know, private industry groups or organizations or anything that are looking at doing this? And then you know, is it limited to the U.S., or is it really a global thing where you could do work for, you know, maybe other governments or things like that?

Well, yeah, I'd say the majority of the other programs we're talking with are outside the United States. There are population sequencing initiatives in probably 70 or 80 countries in the world, and, you know, we've been talking with quite a few of those folks, so we're talking to people all over the world on that. And That could include some cases, ones where they want to get started by sending samples to California because we're set up and certainly could do it at scale quickly and efficiently today that way. But we know that a lot of these groups want to have, you know, build out of the economic advantage of this locally. And so we've taken the experience that we've been getting by setting up our own lab in Shanghai, China, and that certainly opens up ideas that, You know, if we needed to have labs in other countries as well, you know, kind of once you've done one at a distance like that with all the barriers and, you know, differences that there are between the U.S. and China, we could certainly do that between the U.S. and many other countries. In terms of your, you know, you talked about institution types. So certainly some of these are, I'd say many of these are initiatives that they were maybe initiated by, governmental groups, just as the Genome England project was, which was one of the first in this category. On the other hand, we do see, as we've talked with pharmaceutical companies about this, they have a pretty serious interest in this kind of data as well, and it's really synergistic because for a lot of the countries, they would like to have clinical trials run in their countries sooner rather than later because it means some of the cancer patients they have have access potentially to these potentially life-saving, state-of-the-art drugs. It's also good for them economically, and if patients from their country are part of the clinical trial, then the genetics, you know, they're not ending up with drugs being approved only based on Caucasian genetics from, you know, people of European descent, but you'd really like to have pharmaceutical developments be attuned to the genetics of people from all over the world, and pharma wants that as well. There's a huge market that's outside of you know, the U.S. and Europe and so forth, that is, you know, people who have a lot of diverse genetics, and those can be real opportunities from a drug development standpoint as well. So, you know, I think involving these other countries and involving pharma, I think I imagine a different mix of institutions. In the past, this was really just governmental research, but, you know, I think looking forward, it's hard to imagine that the institutional mix doesn't start to include a significant pharma component, and that can be a real win-win. Okay, great. Thank you. I have one more comment. By the way, you had an earlier question about gross margins. I think Aaron really covered that in a way. But one of the other elements that's happening here is that sequencing technology continues to improve. And although in principle you could say, well, that could benefit everybody who's making these diagnostics, but it's not actually quite true. Personalis has developed much larger, much more advanced diagnostic testing that, you know, we use enormous amounts of sequencing technology. If you look at some of the cancer panels that are mainstream on the market today, we read their FDA filings, you'll see that they use maybe a billion bases at a time per patient. And, you know, a billion sounds like a lot, but actually these days it's a pretty small number. You know, we're running tests where we've been sequencing up to a trillion bases per sample. And so, you know, hugely more. And so, you know, if somebody's only sequencing a billion bases at a time, And Illumina's state-of-the-art sequencers today already can handle six trillion bases every time you run them. It's hard to leverage more because you just don't have that many samples at one time. Whereas, because personnel has been much more expansive in terms of the advanced biology we've been looking at, you know, many of our tests involve hundreds of billions of bases of sequencing. And so these new platforms will help us disproportionately. And so when we see Illumina, for example, has talked about the $100 genome or associated with some of their other activities. They've talked about guaranteeing a 43% reduction in prices by the year 2025 and things like that. Personalis is one of the companies most likely to benefit from that because as the cost of sequencing comes down, we're using so much sequencing that the reduction in the cost of sequencing is will help us disproportionately. We estimate that last year about 4% of all DNA sequenced in the world was sequenced by personnel. So we're getting to be one of the larger laboratories in the world, and we absolutely look forward to the $100 genome technologies, and we'll be the first to sign up for them as soon as they're available.

Okay, great. Thanks for the really thorough answer on that.

As a reminder, to ask a question, you will need to press star 1 on your telephone. Again, that is star 1. Your next question comes from the line of Swayam Pakula from HC Wainwright. Your line is open.

Thank you. This is RK from HC Wainwright. Good afternoon, John and Aaron.

Hi. How are you?

Doing good. Most of my questions have been asked, but I just want to understand a little bit about the map cure relationship that you have where you're trying to help out in the not only in the clinical trials but also for the clinical diagnostic I mean the companion diagnostic that they're trying to develop so is this is this one is this first of the many that you're looking at in the sense you know for if one thinks about revenue sustenance, you know, having to work with a companion diagnostic can be really helpful as long as the life of the drug is in the market. So how do you suppose this relationship would act as an example to invite additional players to do similar collaboration with you?

That's a great question. So we do see companion diagnostic development as an important part of what we're doing. We think that the kinds of technologies that have been used for companion diagnostics up to this point have been very simple. We see a lot of real-time PCR and very single biomarker kinds of tests. And so the ability to move beyond that to more sophisticated biomarkers is really what a lot of our next platform has been aimed at. And so the MAP cure effort is one, you know, typically a new drug in a clinical trial will have to go through phase one, and if that's successful, then phase two, and then if that's successful, phase three, and so forth. So it can be an extended period of time, but we would expect to work with them on that, and they can begin using the platform we have now. And then as we're taking our platform through the FDA anyways, this would be something where we're there would need to be a parallel effort with them as they make progress through trials. And obviously it's gated by whether the trials are successful or not, but assuming that the drug continues to be successful and they go on to one phase after another, then the scale of that effort can increase. It can help us certainly financially. And, yes, we absolutely are talking with other pharmaceutical companies also about this kind of companion diagnostic development. I think people have been interested to see that something that's considered quite sophisticated, a whole exome and transcriptome being used at a companion diagnostic scale by pharma. But actually, when we talked with the FDA, I think the people we spoke with, they're very advanced scientifically. They completely understand why that makes sense. And obviously, we have to do our homework to get to an FDA approval. But I'd say the people involved seem... upbeat and optimistic, and, you know, go team. Let's make it happen. So we have an increasingly large team working towards the FDA single site PMA that we're filing for, and I think it's going to be an important driver for the future of our business.

Thank you, John. I don't have any additional questions at this point, but I'll talk to you soon.

Okay, great. Good to hear it. And there are no further questions over the phone line at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.