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spk10: Good day, and thank you for standing by. Welcome to the Q2 2022 Personalist 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Caroline Corner, Investor Relations. Please go ahead, Caroline.
spk02: Thank you, Operator. Welcome to Personnel's second quarter 2022 earnings call. Joining me on today's call are John West, President and Chief Executive Officer, Tashi Banna, Chief Financial Officer. All statements made on this call that do not relate to matters of historical fact 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 2022 cash use, cash runway, the timing for initiating clinical revenue from our new facility, new orders, products, services, technology, clinical and regulatory milestones, and our market opportunity business outlook. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. We encourage you to review our most recent filings with the SEC, including the risk factors described in our 10Q for the second quarter of 2022, to be filed today. Personnelis undertakes no obligation to update these statements, except as required by . Our press release with our second quarter of 2022 results is available on our website, www.personnelis.com, under the investor section, and includes additional details about our financial results. Our website also has our latest SEC filings, which you 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 second quarter business highlights.
spk01: Thank you, Carolyn, and good afternoon, everyone. I'm pleased with our progress this quarter as we drove growth from our oncology business by 74% over the same period of the prior year. This reflects increasing demand for our highly differentiated and comprehensive cancer tests. Our pharmaceutical customers are increasingly seeing the value of our platform, and they are incorporating it in their clinical trial designs right from the start. In fact, approximately two-thirds of our backlog or orders received for which we are awaiting samples is for prospective trial patients. Prospective trials are conducted with current patients who are being followed over time. whereas retrospective studies are based on patient samples collected in the past. In addition, we remain focused on preparing the company for success in the clinical diagnostic market, which I will highlight later. Our customer base continues to broaden. More than 70 customers have now ordered services using our Next platform, including most of the top 10 global pharmaceutical companies as measured by their annual revenues. We are also in discussions with several potential pharmaceutical customers about Next Personal, our MRD test, and our funnel of business opportunities continues to expand. We expect biopharma orders for Next Personal to ramp throughout the remainder of this year, with the potential for significant revenue acceleration in 2023 and beyond. Our next platform provides biopharmaceutical customers with the most comprehensive analysis of tumor burden and biomarker identification available today to provide a better understanding of each cancer patient's genetic profile. We also believe that tissue and liquid biopsies together can provide a more complete view, leading to optimal therapy and treatment decisions. Our tissue and liquid biopsy-based offerings provide data on all of the approximately 20,000 human genes, a breadth and depth that notably differentiates us from competitive offerings. Tissue samples give us access to RNA, which can indicate certain tumor drivers, and to the immune cells, which may have infiltrated a patient's tumor and can indicate therapy response. By analyzing liquid biopsy samples, we can provide information about a patient's tumor across multiple time points from small blood samples. Next, personal has been optimized for maximum sensitivity, particularly for when the amount of tumor DNA in blood plasma is very low, such as in early stage cancer, after surgical resection, or in patients with complete response to therapy. We believe that the earlier you can detect cancer recurrence, the better your odds of beating it. This simple concept has driven intense efforts to improve cancer diagnostics. Next generation sequencing has proven transformative in this respect, enabling highly sensitive detection of fragmented tumor DNA and blood plasma. We have focused on what this technology can do for the detection of molecular residual disease, MRD, the detection of very few cancer cells that have so far survived therapy and persist below the detection threshold of conventional technologies. But while these advancements are cause for excitement, caring for cancer patients requires more than early detection of recurrence. It also necessitates data for long-term management. Our next personal design also provides that information. Even when a tumor is caught early and successfully eliminated, survivors are at a substantially increased risk of developing secondary cancers. This is because treatment rarely addresses the underlying cause of the malignancy. Next Personal has been designed to look for both recurrence of a prior cancer and the possibility of a new cancer. With more than 20 million cancer survivors in the United States alone, there is a significant population in need of ongoing detection and careful, active, long-term management. In recognizing the fast pace of technological innovation, Personnel's ethos has always been to build for the future. This ethos drove us to develop NexPersonal, one of the world's most sensitive MRD assays, which can detect circulating tumor DNA with 10 to 100-fold increased sensitivity relative to contemporary tests. But NexPersonal wasn't built just to detect cancer recurrence as early as possible. It was built to help cancer survivors actively defend their health by tracking both relapse and secondary tumors. The Next Personal platform is built to integrate custom content based on each patient's individual tumor, as well as fixed content that's common across tumor types. By capturing such a broad swath of data, Next Personal generates critical molecular information that may guide therapeutic decision-making. Our objective is to provide oncologists with information needed for them to advise on the optimal course of action for patient treatment. Next Personal, therefore, provides DNA sequencing coverage of variants, which may indicate drug therapy options, response to therapy, or emergent resistance to therapy. We consider this approach not just tumor-informed but comprehensively tumor-informed. To that end, we have recently been issued an additional U.S. patent for our novel methods for detecting molecular residual disease, MRD, and recurrence by using whole genome sequencing of a patient's tumor to identify variants with a personalized liquid biopsy assay. I am pleased that our team has been recognized for our innovation with the granting of this new patent. In addition, we announced yesterday that we have filed a lawsuit against Foresight Diagnostics for patent infringement in the U.S. District Court for the District of Colorado where Foresight is based. The suit is based on this new patent, along with two other U.S. patents issued to Personalis. These three patents span two separate patent families, which claim priority back to 2013 and 2016, respectively. While we will not be discussing any further details regarding this litigation in today's call, I will say that, as we indicated in our press release yesterday and our recent blog post, Personalis is a pioneer in the field of leveraging whole genome sequencing for medical applications. And we have invested hundreds of millions of dollars in research and development across a broad array of disciplines since the company's founding over a decade ago. And I can tell you that we stand firm in our resolve to protect that investment and our leadership position in the field. I would now like to comment on our recent progress and some of our planned milestones regarding our clinical diagnostic efforts. Although we have slowed hiring in general, we are selectively hiring staff with clinical and medical experience within a diagnostic setting as we prepare for our clinical launch. In support of our new diagnostic business, we're also incorporating clinical protocols in our new facility, and we remain on target to begin moving in during late Q3, conducting clinical qualifications during Q4, and initiating clinical revenue from our new facility in early 2023. We are also making progress to complete a validation study for our next EX test, which is our tissue-based diagnostic offering based on our next platform. We expect to use this validation data to apply for a New York State regulatory approval and to submit to the Palmetto Mold EX technology assessment process later this year. with the aim of receiving a favorable reimbursement ruling from Moldy X in early 2023. Our medical affairs team continues to forge relationships with world-class medical institutions. These relationships are critical as the cancer centers of excellence set the standard of care. We're in discussions with multiple institutions and will provide further updates in the future. With all of our progress on the mentioned milestones to date, We expect to be well positioned for entry into the clinical diagnostic market using our comprehensive tissue-based NexDx test. And we expect to begin selling a small volume of these tests to oncologists before the end of this year. In addition to NexDx, we're also planning a laboratory-developed test, or LDT version, of our MRD test, NexPersonal, and expect to complete this milestone in 2023. We expect clinicians who begin using our NextDx test may later also use our NextPersonal test, since the two can provide complementary information. We expect that the path to reimbursement for our NextPersonal LDT will also begin via assessment by the Palmetto-MullDx program. Recently, we added Lani Schaaf to the Personnelist Board of Directors, and she brings extensive clinical diagnostic experience from her executive roles at Thermo Fisher and Roche Diagnostics. Welcome, Lonnie. Finally, I want to briefly comment on the exciting wave of breakthroughs in DNA sequencing technology that have been announced this year and what it could mean for personnel. We have been an early access customer of Ultima Genomics, for example, which is at the forefront of realizing the $100 genome. Most personalised products are large-scale, using either deep exome or whole genome sequencing. We built our platform expecting that the throughput and cost of sequencing will decrease over time. As that happens, and because of the size of our platform, we think we can benefit more than other companies whose products may use much less sequencing. New sequencing platforms focused on high throughput at lower costs potentially give us opportunities to reduce the cost of our large assays. In summary, our team continues executing on our strategic priorities and growing our oncology business despite some economic headwinds that Erin will comment on. Customer adoption of our next products has been excellent, and we continue to drive further adoption and increase penetration with new and existing customers. We have compelling products and pipeline efforts for both biopharma and clinical diagnostic test markets, and we have a strong balance sheet positioning us for both near and long-term growth. With that, I will now hand it over to Aaron for our financial results.
spk03: Thank you, John, and good afternoon, everyone. During my prepared remarks, I will provide detail about our financial results for the second quarter of 2022 and guidance for the full year. Total company revenue for the second quarter of 2022 was $18.2 million, Biopharma and all other customers, excluding the VAMVP, accounted for revenue of $14.2 million in the second quarter, a 74% increase over the same period of the prior year. The year-over-year increase in oncology revenue was driven by the continued adoption of our next platform, which accounted for more than 75% of the oncology revenue in the quarter. For the second quarter, the VAMVP revenue of $4 million was 70% lower compared with 13.5 million for the same period of the prior year. And the decline was consistent with our expectations. As of the end of the second quarter, we have fulfilled all of our VAMVP backlog. Gross margin was 23.5% for the second quarter compared with 37.7% for the same period of the prior year. The year-over-year decrease of 14.2 percentage points was primarily due to the expected underabsorbed overhead costs from the 70% lower revenue volume from the VAMVP and an increase in expenses to support our growing oncology revenue. Within our production laboratory, We use more direct materials and sequencing equipment capacity for the VAMVP whole genome samples, while our oncology business requires a higher proportion of labor and overhead expenses, such as direct and indirect labor, lab supplies, facility footprint, and other related costs compared with the VAMVP. Over the next couple of years, we expect gross margin variability due to headwinds from the lower VAMVP volume, investments in new capabilities such as dedicated production lines for liquid biopsy offerings, providing diagnostic tests while we work to increasingly secure reimbursement, expanding in China, adding our new facility, and others. However, we expect our gross margins to increase longer term as we achieve scale by growing our oncology revenue. Operating expenses were $32.2 million in the second quarter compared with $23.1 million for the same period of the prior year. R&D expense was $16.3 million in the second quarter compared with $11.7 million for the same period last year. And SG&A expense was $15.9 million in the second quarter compared with $11.4 million for the same period last year. The increase in R&D expense was for new product development, hiring employees to build our clinical and medical infrastructure, and sample test expenses for clinical validation work. The increase in SG&A was due to commercial expansion and continuing to enhance our infrastructure. Net loss for the second quarter was $27.5 million compared with the net loss of $15 million for the same period of the prior year. The net loss per share for the second quarter was $0.60 and the weighted average basic and diluted share count was $45.6 million compared with the net loss per share of $0.34 and the weighted average basic and diluted share count of $44 million for the same period of the prior year. Now onto the balance sheet. We finished the second quarter with a strong balance sheet with cash and short-term investments of $233.5 million. In the second quarter, we used $33.1 million of cash due to the net loss, working capital needs, and capital equipment purchases. We continue to work on extending our cash runway as far as possible, and as of the end of the second quarter, we reduced our 2022 cash usage estimate to approximately $125 million, down from $140 million at the beginning of this year. This amount includes a one-time investment of approximately $40 million for the construction and fit-up of our new facility, and this amount is net of $15 million for tenant improvements from the landlord. We are managing and investing our cash prudently and have two years of cash on the balance sheet. We have invested in many initiatives since our IPO three years ago and believe several of them are very close to generating revenue. Now, I'd like to turn to guidance. During the first half of this year, our revenue was impacted by a slowdown of customer sample shipments to us due to COVID. We, like our peers, have also seen slower and reduced patient enrollment for clinical trials. With recession concerns, we are also seeing customer orders slow down a bit. Given that more than half of our biopharma work is now for prospective clinical trial projects, the delayed and reduced patient enrollment is having a bigger impact on our near-term revenue than before when most of our business was for retrospective projects. It is not entirely clear when patient sample shipments to us will accelerate again, but given that our backlog is healthy, We are optimistic about our longer-term revenue growth opportunity. For the full year of 2022, our guidance is unchanged, and we continue to expect total company revenue to be in the range of $62 to $67 million, and we expect oncology revenue from BioPharma and other customers to be in the range of $55 to $60 million. Net loss is expected to be in the range of $110 to $115 million. Now, I will turn the call back over to the operator to begin the Q&A session. Operator?
spk10: Thank you very much. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. please stand by while we combine the Q&A roster. Tejas Savant, our first question comes from the line of Tejas Savant with Morgan Stanley. Tejas, your line is now open.
spk05: Hi, this is Neil for Tejas. Thanks for taking my question. Just to get the ball rolling, can you speak to some of the month-over-month trends you've been seeing as far as delays on the prospective trial side of things and any high-level color on how you're thinking about utilization heading into the second half?
spk03: Yeah, so this is Aaron. Hi, Neil. In terms of what we're seeing month-over-month, we have been seeing some slowdown since the beginning of this year, and it's continuing right now primarily because of the summer months we're heading into here. During the month of July, we have seen some slowdown, and You know, it's our estimation that we'll continue to see this, you know, through the month of September.
spk05: Got it. Thank you. And how about in the Shanghai lab? How are operations progressing there? I know you mentioned a slowdown due to COVID-driven delays in the first quarter. Do you see any, you know, foreseeable risk in the second half as well?
spk03: Yes, so just to be clear, Neil, we don't have any revenue being produced from our Shanghai operation just yet. We're going through internal lab qualifications. Shanghai was closed down for about three months due to the lockdown that they had several months ago. For the last couple of months, our employees have been back in the lab and we're going through internal qualifications. We expect to get through these protocols through the next month, month and a half or so, but then expect to begin working with our first customer from whom we have orders from, and we expect to maybe realize or recognize a very small amount of revenue later this year in the fourth quarter, ramping in 2023, obviously.
spk05: Okay. And then any comments on how the partnership with Natera is progressing and how, you know, we should think about that heading into 2023? Yeah.
spk01: Hi, this is John. I think the partnership with Natera has been going quite well. I think the things that we do are quite complimentary. Personalis has a lot of experience in sequencing difficult FFPE samples from all different kinds of cancer. And, you know, Natera has years of experience doing cell-free DNA sequencing through their non-invasive prenatal testing and so forth. So, you know, having a combination where we do some of the upfront tissue sequencing from FFPE, and then they do their Signatera test on the back end. makes a lot of sense and, you know, gets at the strengths of each of the two companies. So that's revenue that's been growing for us and I think a good relationship.
spk05: Great. And one last from me. So just given some of the disruption seen with genetic testing peers, how are you thinking about these events in relation to the clinical launch ramp and, you know, the potential for winning any mind or market share?
spk01: Yeah, I think this is John. I'd say that the there's always an issue of being able to access customers. So when the pandemic started after that, we were pretty concerned about not being able to meet with customers, but actually we've found that we've been operating the business for now well over two years on a kind of working from home mode and in a mode where we cannot physically meet with customers hardly ever. On the other hand, I think what we've found is we've gotten good at that and that in some cases it's actually easier. I'd say in the past, particularly if you needed to have a group meeting with people, it might be hard to find a time that there wasn't always somebody out of the office. On the other hand, with travel being so significantly reduced, particularly business travel, we found that often it's easier. So we ended up catching people. Maybe we catch them on Zoom, but we can actually get a group together. So I think we're pretty optimistic about the ability to move forward. We've found that we've been able to be very effective with engaging pharmaceutical customers. And the people that we've been hiring for our clinical sales team are deeply experienced and have a lot of connections in the field. So I think that they'll have good access to those potential customers.
spk10: Great. Thank you. Thank you. We will prepare our next question. Our next question comes from Max Masucci with Cohen. Go ahead.
spk08: Hi, this is Stephanie on for Max. Thanks for taking my question. Erin, appreciate the color you provided earlier on gross margins. In addition to the lower VA and VP revenues along with the growing oncology-related investments, were there any abnormal or non-recurrent factors that impacted growth margin performance in Q2, and how should we think about the variability in growth margins for the coming quarters?
spk03: Yeah. Hi, Stephanie. So in terms of what we saw in Q2, most of that impact, you know, taking the margins down to 23.5% were really tied to underabsorbed labor and overhead. And most of that came from the expectation with the lower VAMVP volume. In addition, we do use a fair amount of capacity and capability in our lab to do work for research and development work, meaning some new product testing, testing of validation work for samples for some of our studies. And so we did see some of that volume being a little bit less in the second quarter as well, which contributes to the underutilization, okay, because some of those costs would be charged directly to R&D. So, you know, those were the nuances. In addition, again, at a high level, you know, the VA and VP, most of the costs there are variable with direct material. The only fixed costs used there are the sequencers, the equipment, and a small amount of the footprint. But with biopharma, it's very, very labor intensive and a lot of overhead. And so, you know, with biopharma, you know, continuing to ramp or starting to ramp, you know, The gross margin profile will improve out in time, but right now we do have a fair amount of underutilization.
spk08: Got it. Thanks so much for that additional color. Sure. Additionally, I know you've mentioned previously that you won't disclose specifics around forecasts for Natera revenues, but given the large contribution from Natera this quarter, is there any additional color or general guidance you can provide on how to think about Natera contributions going forward? would you still suggest looking at the average of recent quarters to forecast future contributions?
spk01: Yeah, this is John. I think we see this MRD area as one that has a lot of growth to it, and I can't speak directly to Natera's products. They have to speak for their own products, and I think they're speaking tomorrow afternoon. But in general, this is an area with enormous growth potential, and they're one of the earlier companies in this space, and so I think it would be likely to expect that their business will continue to grow and we'd be happy to support them in that regard. I think more than that, really they have to be the ones speaking to the volume on their product.
spk08: Got it, understood. And if I could squeeze in one more, it's great to hear that you are an early access customer of Ultima's platform. We'd be curious to hear how your experience with Ultima's sequences has been as you've explored the performance of the platform with your offering.
spk01: Yeah, so this is John. So I guess it brings me back to old memories of Celexa when we had our first systems out before it became part of Illumina. You know, these are early technologies. The one comment I would make is I think it's terrific that they're really pursuing the $100 genome and they're pricing at that kind of level now. So that's not just a concept for the future. That's what they have. We have the instrument in-house now since January. We've been trying it on various different we don't have anything to announce specific on that, but I'd say it is a very encouraging platform. It is not a drop-in substitute for the Illumina platforms. There are certain things that it does, frankly, better. There are other things that it doesn't do as well. And so I think we have to pick the right applications that it's particularly suited to. And I think that was true when we brought out the Selexa sequencers back in 2006, 2007 timeframe. People said, you're going to replace capillary sequencing. Actually, capillary sequencing continued to happen, but there were a lot of new applications that were made possible by us introducing next-gen sequencing back at that time. And so I think we'll see some of the same kinds of things here, where the Ultima sequencer will enable some new applications that people have not done before, and certainly personnel should be open to that. You know, we see Ultima as one of the interesting platforms. Illumina certainly has talked about also being on the road to the $100 genome. They've talked about their new Chemistry X coming next year. Not clear to us whether that will come with a new instrument, but we remain very interested in advances in the Illumina platform also. And, you know, when they have things to say, we'll certainly be, you know, looking at that and being interested in being an early access site and so forth.
spk08: Got it. Thanks so much for your time and thanks again for taking my questions.
spk01: Thank you.
spk10: Thank you. Stand by as we queue up the next question. Mike Mattson with Needham and Company. You're next.
spk00: Hi, guys. This is Joseph on for Mike. Thanks for taking our questions. Maybe just one more on the backlog. I appreciate you guys giving all the color that you did. But I guess as we're looking towards the rest of 22, if you could maybe dissect some of the customers in the backlog, maybe the proportion of larger, more profitable pharmaceutical companies versus maybe some of the smaller ones who are burning cash right now. And if you're worried or the risk of maybe the smaller and profitable companies canceling orders in the future. Thank you.
spk03: Sure. Hi, Joseph. This is Aaron. So I'll take a shot at that. And maybe just at a high level, so I won't give any specific backlog numbers, but just in general, we're doing business now with more than 70 customers on the next platform. And so, you know, that's far different than three years ago when we had just a handful. And so our customer base is far more diversified today than it was before. Having said that, you know, large pharma is a bigger portion of our revenue. And so, therefore, more of the backlog is going to be weighted towards larger pharma, okay? In terms of The smaller biotechs and biopharma customers, we do have a fair amount of business with them and they are included in our backlog. In terms of some of those customers, with the equity markets where they're at today, they've had some challenges in terms of burning capital and some have even gone out of business. So we have seen some of our backlog deteriorate from that, but I would say where we're at today, the backlog is in a very healthy position compared to where we were a year ago or even two years ago. And that gives John and I confidence that we can grow this business 50% per year as we go forward from an oncology revenue standpoint.
spk00: Okay, great. That's very encouraging. Thanks for that. And then, obviously, you guys did give some more information on the patent infringement case. I know you guys can't really comment on the case itself, but could you maybe just give a little bit more detail on the strength of the, you know, patents that you have? I believe they go back to somewhere around 2013. Or could you maybe give any color about any previous cases that have been filed or, you know, litigated and maybe the result of those?
spk01: Yeah, this is John speaking. Yes, you have it right. We have a number of different patents. The earliest ones go back to January of 2013. You know, these are the things we've filed. My prior experience with Celexa and other sequencing companies before that, you know, we've been working on the human genome for, actually I've been involved in it for almost 40 years now. And, you know, when we sequenced the first human genome, it seemed like this huge thing. And then, you know, with the Celexa technology, we could sequence the first one, you know, on a next-gen platform just on one instrument. That was amazing. So when we started the company, it was based on having had, you know, some of the first genomes in the whole world done. We had our My Family sequence, actually, and we had realized that we could phase the genomes, which was something other people hadn't done up to that point. So we had a lot of experience with whole genome sequencing right at the beginning of the company. And, you know, that led us to look at how do we go beyond that? Because at that point, Getting, you know, somebody's whole genome sequence, that seemed like the complete answer. You had all of, you know, the entire genome. What else could there be? And, you know, in starting personnel, we thought, you know, there could be a lot of opportunity to build on this. And so we spent a lot of time really understanding in detail both what the performance of whole genome sequencing, but thinking about how do you combine genome. If you have multiple genomes, how do you combine those for phasing? How do you combine that with exome sequencing, for example? How do you combine things where you maybe have a whole genome from a tissue sample with other things based on a liquid biopsy sample? The genome actually changes some over time, and that's reflected particularly in cancer, and so you can see that in the plasma samples. So we realized there was a lot of opportunity to build on the whole genome, and we also ended up with a lot of business sequencing whole genomes, which made us that much more expert as time went by and the sequencing platforms got to be better, we became one of the largest laboratories in the world sequencing whole human genomes. We've now sequenced over 150,000 genomes. So this is an area we've been just deeply immersed in for a long time. If you look across our management team, we have people who have been involved in all kinds of advanced sequencing at the genome level literally for decades. And so I think that's what led us to be in a position to file some of the early IP because to us it wasn't all that early. We've been working on it for quite a while and we had a, we were able to leverage the expertise who were to say, you know, we need to build the next level here. And that led to the early patent filings that we have. We haven't had any litigation at Personnelis other than this. It's been our only case like that. But it's not unusual in this field. There's been litigation at other companies that I've worked at before and So I think we feel like this is just normal and we have to stand up for the IP that we have because it's so central, particularly to the position we have with Next Personal. A lot of its differentiation is based on things that we patented very early on. We just want to get appropriate credit for that. And I think as other companies with their IP.
spk00: Yeah. Okay. Absolutely. That makes sense. Um, and then if I could just fire one quick one out for, um, in relation to, uh, the head count in China, I believe you said last quarter, um, that around 10 people have been hired, I guess, just wondering if that number has changed and should we expect, um, a large, you know, uptake in, in, in staff, I guess, you know, in 2023, when volumes are expected to start ramping.
spk03: Yeah, so Joe, this is Aaron. So the headcount in Shanghai is still in that ballpark, you know, plus or minus a few. We have not hired a significantly higher number than that. It's our anticipation, you know, to get through the next few months, get through early customer qualification here with what we have. prove things out. And then in 2023, we'll hire to support whatever that revenue need is, right? So as we receive more orders and we have more volume, if we need to add more variable capacity or capability in the form of labor, we'll do so. Other than that, we're trying to preserve capital to make sure that we can extend our runway. So we're going to be cautious in all areas.
spk00: Okay, great. That makes sense. Well, thank you guys for taking our questions, and congrats on the quarter.
spk03: Thank you. Thanks, Joseph.
spk10: Thank you very much. Just queuing up our next question. Thank you. Our next question comes from Jason Reaver with Citibank. Go ahead. Hi.
spk09: This is Lizzy on for Patrick and Jason. I was just wondering if you could talk about, on the next personal side, you talked about progress there. Just broadly, what milestones should we look out for as we go into the second half of the year? Thank you.
spk01: Yeah, I think in terms of next personal, this is John, I think we're seeing a lot of adoption there. Individual pharmaceutical companies that by end of that, you know, some of the opportunities we're looking at are fairly large. But generally, pharmaceutical companies are not looking for us to talk about the individual cases, so we may be able to comment on, you know, as the orders ramp more or less, ideas of the scale of that and the uptake of the platform. I would say that, you know, if I look back to where we were three months ago, I think we've made a lot of progress on the interest side. People are beginning to realize the power of this, the scale of it. I think you'll see more as we go forward with we're working with a number of very high-end academic collaborators, and some of those we expect that we will be able to announce, and I think there'll be some really good opportunities there. I expect that we'll have access to quite a few samples through that, and that'll lead to some pretty impressive data, probably fairly quickly, because in some cases the samples are already banked samples. I think as we have more and more data there, I think that'll be something people will look to and see the potential of the platform, and that'll lead to the you know, the more and more uptake on the pharma side. And I think the funnel of potential customers is large. You know, almost every large pharmaceutical company we've spoken to is intensely interested in this area, in particular because there's this opportunity to move cancer drugs from only late stage patients now more and more into adjuvant treatment of patients. So this almost doubles the cancer patient population which is an enormous change and opportunity in the pharmaceutical world. And so tests like ours that could be involved in that kind of work, I think are an enormous opportunity with pharma and then obviously ultimately on the diagnostic side.
spk09: Great. Thank you. And then just as you talk about COVID a little bit earlier, can you, I guess, how did that pan out versus your expectations and for the rest of the year, what's your thoughts around that? And that's it for me. Thank you.
spk01: Yeah, I think it's been panning out very well relative to expectations. I think we always knew that, I mean, what we've done is so much more sensitive than what other people have had before us that sometimes it takes people a little while to realize that it's actually real. I remember we had some of this when we introduced the idea of next-gen sequencing as well, that it was so astonishingly further ahead that it took a little while for people to appreciate that what you were talking about was real and that it was that big of a difference in how to think about, you know, how it could transform what they're doing. So I think we do see people where, you know, maybe they ask about it to start with, and they don't, you know, they're interested, but they don't quite get it. And at some point, you see the light bulb goes off, and they say, really? And sometimes we've done pilot studies, and after the pilot, people have been just astonished at the results. And, you know, that's led to some pretty serious interest. Certainly, you know, multi-multi-million dollar potential contracts to work on things with pharmaceutical companies. So I think you'll see that going. As Aaron said, I think in his remarks, we expect to see the orders ramping this year and the revenue particularly ramping next year with Next Personal.
spk03: Just to add to what John just said, so if you look back three years ago, again, we had just a handful of customers on the Next platform. Sitting here today, we have more than 70 customers on the Next platform. More than 75% of our revenue in the second quarter was from the adoption of Next. Our MRD offering, we believe, is very very sensitive more sensitive than other comparables in the marketplace today and you know like John said the interest from pharma is sent of our revenue in the second quarter was from the adoption of next our MRD offering we believe is very very sensitive more sensitive than other comparables in the marketplace today and you know like John said the interest from pharma is enormous and so The funnel has grown significantly over the last three to five months. And we're anticipating a lot of orders coming in later this year and into 2023. So we're really excited about what this ramp can be in terms of revenue in 2023. And, you know, today most of our revenue is from our tissue-based offering from Next. As we go into 2023 and beyond, we're going to complement the tissue offering with liquid biopsy, the MRD offering, And that's going to add multiple time points. So our market, our total available market is going to expand significantly. And, you know, we're really excited about the revenue opportunity.
spk08: Great. Thank you. Sure.
spk10: Thank you. Curing up our next question. Our next question comes from the line of Mark Massaro with DTIG.
spk04: Hey, guys. Thanks for the questions, and I've been hopping around calls tonight, so if you covered this, I apologize, but can you maybe just provide an update on NextDX? Obviously, that's your entree into the clinic. Are you on track to submit to Moldex? I think it's pretty soon, and Are you still hoping to obtain Medicare reimbursement by year-end?
spk01: Yeah, this is John. Thanks for being on the call. So NextDX, we are pretty much on track. We do expect to be on site. We actually have our first salespeople on board now, and we'll be beginning to bring in customers there. MoldeX, we expect to actually submit to MoldeX by the end of this year. We expect the If things go well, we'd have a positive reimbursement decision early in 2023.
spk04: Okay, perfect. And then I understand that the next personal is certainly gaining interest from biopharma, but maybe I wanted to just double check to see where you're at in terms of the clinical launch. I think in the past you've talked about first half of 23, and maybe can you just give us you know, some expanded color on your path to reimbursement. You know, in the last month or so, there were pretty, I think, three significant MRD tests that received Moldex reimbursement. I think all of those developed the evidence to support that. I guess maybe just an update on where you are in terms of evidence development to secure reimbursement.
spk01: Yeah. So this is John. I think the Our expectation, as you say, the first customers we have for Next Personal already are pharmaceutical customers. We expect that that'll be the biggest revenue ramp for us next year. I don't think we've said exactly when in 2023. We'd expect that to be available as a lab-developed test, but that is certainly on our radar for 2023. We do see that as being something we'd want to take to Maldi X. We've been laying out the right validation plan for that. I think in terms of the evidence development, it's likely to be clinical validity that's needed as opposed to the clinical utility of early detection. And this case has already been pretty well established, so at least in the clinical indications for which other people already have reimbursement, we expect that we'd be in a position to show that we are I think non-inferior is the official word. We expect to be, frankly, a hell of a lot better, but we'll be showing that. I think we'll have a pretty good validation to talk with Moldy X about. Our expectation is that, you know, a positive Moldy X decision on that could be in 2024, but I don't think we've been any more specific about that. yet we do see it as a big opportunity. But frankly, I see pharma as a pretty big opportunity in the near term as well. There's a lot of movement to this area in pharma.
spk04: Okay, awesome. And then one final question on MRD. The market leader, I think, looks at 16 variants and aspiring entrants are looking somewhere between 40 and 80 or so. I think you're looking to track about 1,800 I guess, can you just comment on what early feedback you're getting from pharma customers about the size of monitoring 1,800 different variants and maybe just what you're hearing and are there any concerns about how to interpret this and what you're doing to kind of instill confidence that tracking more is superior?
spk01: Yeah. We don't ask the customers to look at every one of the 1800 variants. We take care of that part for them. So we end up with a very simple result, which is just, did we detect the tumor or not? And if we detected it, at what level it was? So that's pretty easy to understand. I think the key thing is we can see the tumor at a much lower level than other tests do. And the sensitivity difference can translate into, if you're thinking about the development of a tumor, different cancer types have different growth rates, but the tumor volume doubling time can be anywhere between a few months and even as long as a year. So, you know, if you're 10 to 100 times more sensitive, you can be looking at detecting recurrence, you know, potentially even in some cases years earlier. And so, I think as we have the clinical data that we expect to have from collaborators that shows that more, I think people get, but already people understand this field enough to see the difference in terms of sensitivity. The other piece that I'd say is that in addition to the 1,800 variants that we look at for the recurrence detection or the quantification, we actually look at almost that same number as well. That's part of what we call the fixed content of the assay, so it's not tumor-informed. That's the same for every patient, and that gives us a broader view so that if you've detected recurrence, you want to know, what can I do about it? What drug should I give the patient? Or if I'm giving them a particular drug, is the tumor beginning to escape from it and so forth? So the ongoing actual management of the patient, once you've determined that there is a recurrence happening, we actually have content on the platform for that as well. And so I think part of when we looked at this field, and it's been some years ago that we were working on this as a commercial product, we said, the amount of sequencing people are doing is almost ridiculously low. I mean, it's understandable maybe to get started with, but there's a lot that you could tell, and it's not that expensive. I guess we've been a very high-end NovoSeq user for quite a few years, and over five years ago, we began working with the people at Ultima Genomics, so we could see that the $100 genome was real and it was coming. So we've been planning for that, and I think our sense is not actually all that expensive to be able to look at as much content as we have, and it's so much more informative for the clinicians and for the pharmaceutical companies. So I think we've just tried to move straight to that, what we think will be the future of this field, and generally the things we're looking at will be, you know, clinicians are used to looking at therapy selection tests that have a lot of content to them, and we'll be able to do the same kinds of things, but with combined all in a single integrated assay along with the MRD test.
spk04: That sounds great. Thanks so much for the color.
spk01: Great. Thank you.
spk10: Great. Our next question comes from the line of Derek DeBruyne, Bank of America.
spk06: Hey, thanks for taking my questions. I've also been bouncing around, and Mark just took all the ones I wanted to ask. So I'll do this one. Can we just talk preliminarily on what your sort of initial thoughts are in 23? I mean, I know it's early, but there's a lot of moving parts. You know, you're trying to manage OpEx. Any incremental color you can sort of give at this time, you know, you know where the consensus estimates are and just some general thoughts on capital raise and stuff like that. Just some general thoughts given that it's such a touchy topic these days.
spk03: Yeah, so this is Aaron. Hi, Derek. In terms of 2023, so it is early for us to give any type of guidance, but in terms of maybe directional insight, we'll try and provide that. In terms of looking at the top line, our goal is to grow our oncology revenue at least 50% year-over-year. And so 2023, based upon what we can see today, we don't see a reason why that's not possible. We're going to be entering into the clinical diagnostic market with a favorable reimbursement ruling early in 2023. And so we should have some next DX clinical revenue in 2023. Can't really say exactly how much that's going to be just yet. We'll have to wait and see. You know, more to come in that regard. Biopharma has been strong for us in the past. And again, it's been with predominantly our tissue-based offerings. So as we get take-up here with our MRD Next Personal from Biopharma in 2023, we believe we have a great opportunity in terms of ramp-up there. China's going to start to come online in 2023. It's probably going to be moderate revenue in terms of where we'll be. We have one customer that's placed orders with us. We've got several others that are evaluating our platform and capability in China. And so it's hard to know exactly where those will come in, but we're expecting a little bit of revenue from China as well. In terms of the OPEX, And cash spend, we're being prudent right now. We've slowed down hiring quite a bit. We've hired quite a few employees over the last couple of years. That's given us a lot of capability to get into the clinical market. We still have a commercial team to continue to expand in the clinical area. And we have the reimbursement capability and the billing teams that we have to continuously expand. those will be commensurate with volume, right? As we start to see the favorable reimbursement rolling and things are going to really take off, we'll add to that, but we're going to be prudent with cash spend, so to speak. And, you know, our goal is to continuously extend the runway as we get out in time, right? In terms of, you asked about capital raise, you know, that's something that you can't really chat about right now. We don't really you know, see that in the cards based upon where our equity value is at today. So we're going to, you know, again, continuously stretch out, you know, our cash runway as far out as we can.
spk01: I want to comment on what you said on the call about the cash level, too, that by the end of the year, because the efforts to bring costs down also helped on that.
spk03: Yeah, so our, you know, our cash usage in 2022 is expected to be about $125 million at this point in time. We've reduced it from $140 million just six months ago. If we can continue to reduce it, we will. And again, there's some one-time amounts in that $125 million, 40 of it's for this new building, which won't repeat. So when we get into 2023, our operating cash burn is somewhere in the 80 to $85 million range. And obviously, if we can grow top line even faster, that'll help us from a gross profit standpoint and pay for some of the investments we need to make.
spk01: Maybe one more item I'd add is that, you know, when we look at other companies, sometimes they'll talk about liquid biopsies being a substitute for tissue biopsies. But actually, in our case, with the kind of products that we've developed, we have our whole Next platform that's been built on tissue-based samples, and now we've been adding liquid biopsies. Those are almost entirely additive. You know, people are using those in addition to the tissue offerings, not instead of them. you know, with all of the new things like Next Personal, you know, that's all has the potential to be purely additive as opposed to, you know, like being a new version of a product where you swap out the old one.
spk06: Great. Thanks for the detail, Alan. Sure, I appreciate it. Thank you.
spk03: Thanks, Derek. Thank you.
spk10: Thank you. And just a reminder that if you have a question, please press star 1-1 to raise your hand. We have one more question. Our next question comes from the line of Arthur C. from HC Reinright and Company. Thank you.
spk07: Hey, good afternoon, Joanne and Aaron. This is Arthur for RK. Most of my questions have been answered. I just wonder, regarding the clinical diagnostic business, Could you give us more color on your interaction with the KOL physicians at the major cancer centers? Is there any pilot project in place already for this business? We expect launching next year, 2023.
spk01: Yeah, so this is John. So in terms of the diagnostic business and working with some of the KOLs, we actually do have some projects underway with a number of groups. Talked about our work with UCSD in the past, for example, that's progressing. We have work that's been going on at the Mayo Clinic with a group there. We have other collaborators that we haven't named yet where we're beginning to get, we actually have received samples and we're now beginning to process them. So I don't have anything new in terms of names to announce today, but we're definitely making progress on sequencing samples, doing the analysis, and having people get results. So I think in time this is the kind of I think it was mentioned earlier, the evidence development that will put us in a position of credibility both for customer adoption and for reimbursement.
spk07: Thank you. I appreciate that. And congratulations on the quarter.
spk05: Okay. Thank you.
spk10: Great. At this point, there are no more questions, so we want to thank you for your participation in today's conference. This concludes the program. You may now disconnect.
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