Personalis, Inc.

particularly the risk factors described in our 10-Q for the third quarter of fiscal year 2021 to be filed today and our 10-K for fiscal year 2020. Personnelist undertakes no obligation to update these statements except as required by applicable law. Our press release of our third quarter 2021 results is available on our website, www.personnelist.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. Our recording of today's call will be available on our website by 11 a.m. Pacific time today. Now I'd like to turn the call over to John for his comments on third quarter business highlights.

Thank you, Carolyn. Personalist continues to grow, driven particularly by our oncology business. In Q3, revenue from our oncology business grew 50% over the same period of the prior year. It has increased sequentially over each of the last eight quarters. New orders received in Q3 were more than three times the amount of revenue for the quarter. In addition, more than half of the orders are for prospective clinical trials. Our pharmaceutical customers are increasingly seeing the value of our platform and incorporating it in their clinical trial designs right from the start. We expect our oncology revenue to become the largest part of our revenue in Q4 of this year, and based upon the midpoint of our updated guidance, a sequential increase of 57%. Our pharmaceutical customer base has broadened substantially over the last year, and that contributed meaningfully to the record orders we received in Q3. Our partnership with Natera has also continued to grow, and in Q3, it was 10% of our total revenue. Natera's adoption of our next exome gives them access to its relatively large footprint for identifying somatic variants for their Signatera MRD test. It also lets Personalis participate in a part of the MRD market, which is complementary to our own product, Next Personal, which we plan to launch next month. We see a lot of opportunity in the MRD market and are pleased with our progress to date. We also continue to make progress in Asia. Our plans to establish a lab and commercial operations in China are continuing well. We have now hired about 10 employees, and our team has begun to qualify our laboratory in Shanghai. We have received significant pharmaceutical customer orders, and those customers are now pursuing local regulatory approvals. We expect to begin working with customers within a few months and be in a position to recognize revenue in 2022. In Japan, we have also – we also have several major international pharmaceutical companies that are now ordering NEXT, further supporting our efforts to expand in China and Asia. Our NEXT platform provides biopharmaceutical customers a better understanding of each cancer patient's genetic profile. Both tissue and liquid biopsies together can provide the most comprehensive view, leading to the optimal therapy and treatment decisions. Both our tissue and and liquid biopsy-based offerings provide data on all of the approximately 20,000 human genes. Tissue samples give us access to RNA and to the immune cells which have infiltrated a patient's tumor. By analyzing liquid biopsy samples, we're able to provide information about a patient's tumor across multiple time points from small blood samples. When used together, we believe our oncology platforms provide our customers with the most comprehensive analysis of tumor burden and biomarker identification available today. At Personalis, we actually plan two liquid biopsy products for two different applications. Next Personal has been optimized for maximum sensitivity, particularly for when the amount of tumor DNA and blood plasma is very low, such as in early stage cancer, after surgical resection, or in patients with complete response to therapy. The largest segments of this population are those who have or have survived breast and prostate cancer. To detect potential cancer recurrence, we can look in a patient's blood plasma for the mutational signature of their tumor. But these two cancer types have such low mutational burden that they can be difficult to detect. We realized early on that we would be able to overcome this liquid biopsy sensitivity problem by leveraging our considerable high volume whole genome sequencing experience. Using tissue whole genome sequencing, we can identify 20 times more somatic variants to serve as the basis for personalized cancer assays. By looking for a tumor's fingerprint at over 1,000 loci and being able to select cancer variants which have a low level of background sequencing errors, we gain tremendous sensitivity. Our internal data now confirms this approach can result in sensitivity down to a few parts per million. This sensitivity advantage may translate into much earlier detection of a patient's cancer recurrence. We believe this can be a leading technology for some very large market opportunities, and we'll have more to say about that when we formally launch the product next month. Next, liquid biopsy. Our whole exome liquid biopsy product is optimized for late-stage cancers, where the amount of tumor DNA in the blood is higher and tumors may be increasingly complex. For that application, the rich information from an exome can provide much more insight. We continue to make encouraging commercial progress with Next Liquid Biopsy. Notably, in Q3... We received a multimillion-dollar order for the use of our tissue and liquid biopsy full exome products together, each at multiple time points. Personalis has also filed patents related to liquid biopsy methods for many years, and in Q3, we received two new patents in this area. We believe that our liquid biopsy-based products will contribute increasingly to revenue in 2022. Personnel's technological and scientific leadership has led to strong adoption by pharmaceutical companies who use it to analyze the response of cancer patients in their clinical trials. We believe that these same advantages can be important for all cancer patients, not just those in clinical trials. As a result, we are taking steps to build a clinical diagnostic business for therapy selection and monitoring. We believe that the combined market potential of these opportunities is approximately $30 billion in size in the United States. I would now like to comment on our recent progress. First, we are continuing to build our regulatory, clinical, and reimbursement capabilities. We have been hiring employees with clinical and medical experience within a diagnostic setting, and we will continue to hire and invest in this area. Recently, we announced the hiring of Bob Bruce as Vice President, Reimbursement Strategy and Execution. Bob has extensive experience with reimbursement and he brings over 25 years of experience, including since 2015 as VP of Reimbursement at Clinical Genomics, where he was instrumental in obtaining reimbursement for their MRD test, which will be particularly relevant as we launch our next personal LDT offering. Also, in support of our new diagnostic business, we will be incorporating FDA-compliant protocols within our new facility, which we plan to move into within a year or so. To build a strong clinical diagnostic business, we believe that it is important to work with world-class medical institutions. To that end, we recently announced a collaboration with the Mayo Clinic. This collaboration establishes us as a preferred provider to the Mayo Clinic for clinical diagnostic and research sequencing and analysis services using our NextDx test, particularly in the area of immuno-oncology. the Mayo Clinic will be able to use aggregated, de-identified patient data for research that may lead to development of new and improved treatments and systems that will ultimately benefit cancer patients. We're excited about the opportunity to work with the renowned Mayo Clinic to focus on helping cancer patients live better and longer lives, a mission and vision that we both share. Although we still have work to do, we believe that we will be well-positioned for entry into the clinical diagnostic market using our comprehensive NextDx test and a planned LDT version of our next personal test. I'd now like to update you on the population sequencing part of our business. In September, we received a task order from the VA MVP of approximately $10 million. Although this is less than in pre-COVID-19 years, we believe that the VA MVP remains committed to the program which has been underway since at least 2011. Since early 2020, the VA has cared for a tidal wave of COVID cases, been a major contributor to COVID vaccine clinical trials, vaccinated millions of veterans, and launched research initiatives related to COVID. We believe that this contributed to them deferring an expected 2021 sequencing RFP and extending our work for them with the task order we just received. I am proud to say that we have continued our strong execution during the last year and a half during the COVID pandemic. Since it began, we have needed to deal with some consumable shortages, but we have been nimble and also implemented more rigor and focus around our supply chain, which has kept us in a good position to continue driving revenue growth. In summary, we continue to execute extremely well in growing our oncology revenue. Customer adoption of Next has been excellent, and our pipeline of compelling new products is rich. We believe we have the capital required to invest in our growth initiatives and believe this puts us in a strong position for both near and long-term growth. With that, I will now hand it over to Aaron for our financial results.

Thank you, John, and good morning, everyone. We had another great quarter and achieved a new record revenue level for oncology. During my prepared remarks, I will provide detail about our financial results for the third quarter of 2021 and our guidance for the fourth quarter and the full year. Total revenues for the third quarter of 2021 were $22.3 million, up 3% from $21.7 million for the prior quarter, and up 12% from $19.8 million for the same period of the prior year. Aside from the VA MVP, BioPharma and all other customers accounted for revenues of $8.6 million in the third quarter, representing a 5% sequential increase and a 50% increase over the same period of the prior year. This was our fourth consecutive quarter with a year-over-year increase of more than 50% in non-MVP revenue and highlights a couple of key points. Customer orders that we have won over the past year and a half are converting to revenue. Second, the new order amounts continue to exceed revenue reported each quarter and increases our backlog. This provides us with confidence that our biopharma revenue will continue to increase in the future. Also, our current biopharma revenue is mostly from tissue samples. As we ramp our liquid biopsy offerings, we expect this to accelerate growth due to the multiple time points, or in other words, the number of tests per patient. For the third quarter, the VAMVP revenue of $13.7 million was higher by 1% from last quarter and was 3% lower compared with $14.1 million for the same period of the prior year. The VAMVP unfulfilled orders were $12.9 million at the end of the third quarter and based upon current estimates, we expect the unfulfilled orders to convert to revenue during Q4 of this year and Q1 of 2022. Gross margin was 36.2% for the third quarter compared with 37.7% for the prior quarter and 26.9% for the same period of the prior year. The year-over-year increase of 930 basis points was primarily due to operating leverage from the 50% increase in biopharma and non-MVP volume, customer mix, and lab efficiency improvement. Over the next couple of years, we do expect some gross margin variability due to headwinds from investments in new capabilities such as dedicated production lines for FDA-approved offerings, running diagnostic tests while we work to increasingly secure reimbursement, adding more capacity, expanding in China, and others. And longer term, we expect our gross margins to increase as we achieve scale and with our oncology revenue becoming a larger portion of total revenue. Operating expenses were $25.8 million in the third quarter compared with $15 million for the same period of the prior year. R&D expense was $13.6 million in the third quarter compared with $7.2 million for the same period last year, and SG&A expense was $12.2 million in the third quarter compared with $7.8 million for the same period last year. The increase in R&D expense was for new product development and continuing to build our clinical and medical infrastructure. The increase in SG&A was due to commercial expansion, continuing to enhance our infrastructure, and public company costs. Net loss for the third quarter was $17.7 million, compared with the net loss of $9.5 million for the same period of the prior year. The net loss per share for the third quarter was 40 cents, and the weighted average basic and diluted share count was $44.5 million compared with the net loss per share of 27 cents and a weighted average basic and diluted share count of $35.5 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 $305.2 million. In the third quarter, we used approximately $23.7 million of cash due to the net loss, working capital needs, and capital equipment purchases. We expect our full year 2021 cash usage to increase from the mid $40 million range in 2020 up to a level of approximately $85 million due to investing in many growth initiatives. Now, I'd like to turn to guidance. We continue to drive oncology revenue growth through our pharma partnerships and the adoption of our next platform. Our backlog in this area has increased significantly and gives us confidence about our future potential growth. For the fourth quarter of 2021, we expect total company revenues to be in the range of $20.2 to $20.4 million, and we expect BioPharma and all other customer revenues, excluding the VAMVP, to be in the range of $12.5 to $14.5 million, representing a year-over-year growth rate of approximately 77% at the midpoint. Net loss is expected to be in the range of 22 to 23 million, and the weighted average basic and diluted share count is expected to be approximately 45 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 37 to 39 million, up from our prior guidance of 34 to 35 million, representing an annual growth rate of 69% at the midpoint. Net loss is expected to be in the range of 67 to 68 million due to the increase in expenses, and the weighted average basic and diluted share count is expected to be approximately 45 million. We plan to provide 2022 full-year revenue guidance during our next earnings call when we report our fourth quarter and full-year 2021 results. Now, I will turn the call back over to the operator to begin the Q&A session. Operator?