Personalis, Inc.

Good afternoon, everyone, and welcome to Personalis' third quarter 2024 earnings conference call. All participants are in listen-only mode. The question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press the star key and then zero on your telephone keypad. Please note that this event is being recorded. I'd now like to turn the conference over to Caroline Corner. Please go ahead, ma'am.

Thank you, Operator. Welcome to Person Analysis Third Quarter 2024 Earnings Call. Joining today's call are Chris Hall, Chief Executive Officer and President, Erin Toshibana, Chief Financial and Chief Operating Officer, and Rich Chen, Chief Medical Officer and EVP R&D. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements within the meanings of the U.S. security laws. For example, any statements regarding trends and expectations for our financial performance this year and longer term, cash runway, revenue expectations and timing, reimbursement goals, size and booking of orders, products, services, technology, clinical milestones, the outcome and timing of reimbursement decisions, expectations for existing and future collaboration activities, cost expectations, or market opportunity and business outlook. These statements are subject to risks and uncertainty that could cause actual results to differ materially from our current expectations. We encourage you to review our most recent filings with SEC, including the risk factors described in our most recent filings. Personnel Center takes no obligation to update these statements, except as required by applicable law. Our press release with our third quarter 2024 results is available on our website, www.personals.com, under the Investors section, and includes additional details about our financial results. Our website also has our latest SEC filings, which we encourage you to review. A recording of today's call will be available on our website by 5 p.m. Pacific time today. Now I'd like to turn the call over to Chris for his comments and second quarter business highlights.

Thank you, Caroline.

Good afternoon, everyone, and thank you for joining us for our third quarter call. For those of you joining one of our calls for the first time, welcome. Personalis is a leader in the fast-growing MRD testing market. MRD stands for minimal residual disease and involves using blood, which is commonly called a liquid biopsy instead of imaging or invasive biopsies to monitor therapy and to detect cancer recurrence after treatment. The MRD market is is expected to mature into a $20 billion market, and with our ultra-sensitive MRD assay, next personal, we believe Personalis is positioned for success. Our technologies are able to spot cancer when there's only one fragment of tumor DNA circulating in a million DNA fragments in the blood. Our platforms are used by many of the world's top biopharma companies to improve clinical trial results, personalize treatments, empower a new generation of therapies. Before we dive into our third quarter results, I want to share a recent case that highlights the power of NexPersonal to find residual and recurrent cancer and impact the patient's care. A doctor began using NexPersonal to monitor a female in her 70s who had been diagnosed with stage 1 or 2 positive breast cancer. After the patient had undergone lumpectomy and received standard adjuvant therapy, the doctor began monitoring the patient with NexPersonal, performing multiple follow-up tests over a five-month period. Each test showed the cancer still present with circulating DNA tumor at a low level between 25 and 30 parts per million, which is in the ultra-sensitive range. Now, as a reminder, the ultra-sensitive range are measurements of circulating tumor DNA below 100 parts per million that our next personal test excels in quantifying that could be missed with less sensitive tests. In this case, because the next personal test detected persistent small traces of residual cancer, the doctor was concerned and ordered additional imaging that led to finding another breast nodule and starting the patient on radiation with plans for additional chemotherapy. We're beginning to hear many anecdotes like this, and they demonstrate how our platforms are impacting clinical care. Pharma partners and oncologists are noticing and starting to adopt Next Personal, and this is driving the performance we experienced this quarter. So now, with that example illustrating how we're driving advancements in care, let's switch gears and dive into the quarter. Earlier this year, we laid out a strategy to scale our business with three growth engines. In the third quarter, we achieved revenue of 25.7 million, up 41% year over year. This improvement was driven by our Vara Pharma business, which grew 96% year over year, led by strong demand for our tumor profiling product that is used to create personalized cancer vaccines for patients, as well as increasing demand for our MRD product, Mixed Personal. Our strong Q3 revenue also helped us to increase our guidance for the full year, and we now expect revenue in the range of $83 to $84 million. We're particularly pleased to have been able to deliver this top-line growth while making improvements to both our cost and margins, as Aaron will cover shortly. We also raised a significant amount of capital this quarter in a cost-efficient manner. Aaron will discuss the details in his section, but we raised approximately $62 million from a combination of proceeds from Tempest and from accessing the ATM. Most of this went directly into our bank account, and we ended Q3 with $143.7 million in cash. We believe this takes us into the first half of 2027 and well past the point where we expect to achieve reimbursement for Next Personal. I'll now review progress this quarter on our three growth engines. The first growth engine went in MRD. is the most important as we focus on turning personalis into a clinical diagnostic powerhouse. Minimal residual disease, or MRD testing, uses a liquid biopsy to find evidence of residual disease or cancer recurrence and to monitor therapy effectiveness. We laid out our winning MRD strategy back in 2023 and have been laser focused on executing its four pillars. One, focus on cancer types where an ultra-sensitive approach can unlock significant value for patients, payers, and partners. Two, drive reimbursement by developing robust clinical evidence and partnering with top global collaborators. Three, leverage our deep relationships to accelerate adoption by biopharma partners and power our revenue growth by the use of next personal and clinical trials. And four, commercialize next personal with a partner-centric model. To delve into the first pillar, we previously highlighted some of the evidence amassed to support NextPersonal's unique clinical usage and reimbursement in lung cancer, breast cancer, and IO therapy monitoring. Our focus on these indications is intentional, and our data is demonstrating that NextPersonal can do exceptionally well and win in these markets. To elaborate a bit on our approach, lung cancer and breast cancer shed very little DNA into the blood, Those small traces of cancer can be difficult to detect without an ultra-sensitive approach like Next Personal. Lung and breast cancers can be aggressive when they recur, but early detection is critical. For patients on IO therapy, we believe the potential decisions to switch treatment requires the insights from monitoring that are provided by our ultra-sensitive tests. The data across multiple studies now indicate we're able to see cancer recurrence earlier, and this holds out the promise that those patients can seek treatment sooner, many months ahead of imaging, with potentially better outcomes. The data also suggests that patients who consistently test MRD negative, meaning our test doesn't detect DNA from the tumor, are at much lower risk for recurrence. In the future, having more confidence in a negative result may allow a doctor to spare patients from unnecessary therapies and procedures, potentially avoiding toxicities and saving money for the healthcare system. In October 2023, we launched the first commercial ultra-sensitive MRD test into the clinic with our early access program. We started our commercial journey with just 10 doctors and received positive feedback from those physicians and have been able to create significant demand as we move through the first half of the year. We launched our commercial and marketing collaboration with Tempest in June to strong demand and quickly decided together to accelerate our commercial launch. Tempest now has more than 200 representatives calling on the nation's oncologists. Our success contributed to a healthy quarter-over-quarter growth as we delivered 945 clinical tests in the third quarter, a 68% increase from the 561 results delivered in the second quarter of this year. Physicians have provided feedback that they appreciate the increased actionability from using our tests to inform therapy selection intervention. Now, if you remember, we report circulating DNA in the blood down to about one part per million. The extra analytic sensitivity we report on with next personal test, a master region that has previously been hard to detect consistently, we call that region the ultra-sensitive range. We expect our test's heightened ability to detect small traces of cancer to drive our success in the clinical market. And approximately 35 to 40% of the ctDNA positive samples thus far in our clinical testing have been in this ultra-sensitive range. That is a jump in the actionability of MRD testing. It means physicians can see cancer recurrence earlier, have more discrimination in monitoring therapy, and have more confidence that patients with negative ctDNA results are, in fact, cancer-free. I want to take a moment to share one more statistic that underscores the value physicians are placing in our approach. Ninety-eight percent of the physicians who ordered from us in Q3 have already ordered from us again in Q4. The demand for our approach is high, Doctors are largely pleased when they start to utilize Next Personal with their patients. Moving to our second pillar, we previously mentioned our focus on building and publishing the clinical evidence to gain reimbursement. We continue to work with many of the top thought leaders around the world, and in fact, some of them are deep into the preparation and submission of manuscripts for publications and leading peer-reviewed oncology journals. We've previously summarized the findings from investigators at Royal Marston for breast cancer, VHIO for IO therapy, and TracerX for lung cancer. While we won't be providing updates on the publication journey, I am pleased to update you that our breast and IO collaborators have now submitted articles to peer review journals for publications. Once these data are published, they will be a key component in our dossier for submission to Medicare for reimbursement for each indication. While our collaborators and the target publication editors control the publication process, our conversations with them give us continued confidence in our goal of achieving reimbursement for two indications in 2025. Two of our key studies were highlighted during the 2024 ESMO conference in Spain. First, an update on our work with the TRACERx Consortium in the area of lung cancer was presented by Charlie Swanton. The podium presentation showcased NextPersonal's ability to detect residual cancer up to nine months before imaging for a significantly expanded group of patients compared to last year's presentation at ESMO. And the clinical data continued to show outstanding results. As a reminder, this is one of the larger MRD studies in lung cancer conducted to date. The second collaboration highlighted was the Valdehebron or VHIO collaboration in immunotherapy monitoring. For VHIO, the work is pan-cancer, and included an expanded group of patients across 18 different cancer subtypes. The study showed that NexPersonal could potentially be used to predict immunotherapy response for patients. I'm pleased to update you that we now are working with 14 studies across our core indications, breast cancer, lung cancer, and IO therapy monitoring. In lung cancer, we're working with the TRACERx group as mentioned. In breast cancer, we're working with Royal Marston, Dana-Farber on HER2-positive patients, and the Institute Curie on an approximately 100-patient early-stage triple-negative breast cancer study. We're also working with Vanderbilt, John Hopkins, and other institutions on the PREDICT study, an approximately 180-patient study in early-stage TNBC and HER2-positive breast cancer, and have an ongoing prospective study called Be Stronger 1 that has now enrolled more than 50 patients with TNBC. In IO therapy monitoring, we're working with VHIO and UKE in two different melanoma studies with a group at Duke studying gastric cancer patients, with UCSD on a pan-cancer IO therapy study, and with the TRACERx team on a lung cancer IO therapy study called DARWIN2. The growing data and ongoing studies underline our commitment to demonstrate the value of our approach and platform in patients. The third pillar of our next personal strategy is to leverage our biopharma relationships to drive the use of next personal and clinical trials. Customers want and need an ultra-sensitive approach to more effectively select patients for clinical trials and to more accurately monitor trial success. For example, the data presented suggests that patients testing negative with our ultra-sensitive assay are much more likely to have recurrence. Our biopharma customers can then expect that these patients are less likely to benefit from a therapeutic intervention. holding out the promise that Next Personal could be an excellent approach to optimize biopharma trials. Additionally, using an ultra-sensitive test to monitor results could mean seeing drug effectiveness sooner than imaging, potentially allowing a drug to get to market faster over time. Indeed, the value we create for biopharma clients is increasingly appreciated. We're engaged with most of the world's top biopharma companies and have continued to generate excitement around our next personal test, most recently from discussions at ESMO and ASCO. We continue to expand our book of revenue orders from biopharma customers for MRD projects and expect the growth to begin accelerating through 2025. Now, I'll move on to the fourth and final pillar, commercializing next personal in the clinical market using a partner-centric model. In August, we announced a new chapter in our relationship with Tempest, where we agreed to accelerate our commercial activities. We began the commercial journey with an early access program in October of 2023, followed by the Tempest launch at ASCO in June. Our efforts have been met with strong demand and interest and an ultra-sensitive approach, and as a result, in August, we collectively decided to accelerate our efforts. Their 200-plus salesperson channel is now trained on our product and talking to oncologists. As a reminder, personnel processes samples in our lab, focuses on obtaining reimbursement, invoices health insurance companies, payers and patients under the arrangement, and pays Tempest fair market value for the commercial services they provide to us. As a part of the August expansion, Tempest exercised their warrants for $18.4 million and invested an additional $17.7 million and Personalis by buying shares at $5.07 per share. That brought the aggregate deal value to approximately $48 million for Personalis, which includes $12 million in milestone payments, plus the $36 million of equity investment from Tempus. The partnership is working extremely well, and we're pleased with our progress. Our goal over the next 15 months is to position Personalis' next personal with broad clinical usage, scaled operations, and rapidly accelerating revenue on the back of reimbursement. While things are clicking along on our first growth engine, our win and MRD strategy, we've also made progress with our second growth engine, leveraging our ImmunoID Next platform to deepen relationships with biopharma customers who are pioneering new therapies. Our biopharma business grew 94% year-over-year, and we had solid performance across our product portfolio. Customers primarily use our Amino ID Next platform in two ways. First, they leverage our platform to power translational research and find new biomarkers and insights that can enable their drug development efforts. In this regard, we've been working with most of the top 20 global biopharmaceutical companies over the years. Second, Companies in a personalized cancer vaccine or PCV market use our platform to create a molecular fingerprint of a patient's tumor to develop personalized therapy. We previously highlighted how our partner, Moderna, is using our platform in their mRNA individualized neoantigen therapy program. Our collaboration with Moderna has been an important driver of revenue for us in 2024. and Moderna and its partner, Merck, have now enrolled most patients for their Phase III clinical trial. Our revenue from Moderna accelerated as they finalized enrollment in their Phase III melanoma clinical study. We anticipate that our revenue from Moderna will fall back over the next few quarters while the next set of studies ramps up. We continue to support them on multiple clinical studies and expect that our relationship with Moderna will continue to generate substantial revenue over the next several years. The third engine of our growth strategy is growing our personnel inside approach as we service enterprise customers. In these relationships, partners adopt our platforms and technologies to power their solutions. For example, Natera has leveraged our Exome platform as a part of their MRD product to help them scale while they work to build in-house capacities. As previously mentioned, they've transitioned this work in-house, and we expect to wind down our work with Natera by the end of the fourth quarter. While our bio-pharmacological diagnostic business is accelerating, we're shifting the capacity previously earmarked for Natera to support these other strategic efforts. We also continue to have discussions with other companies about doing sequencing work for them. A second enterprise relationship is the VA. The VA utilizes our whole genome sequencing capabilities to power the Million Veteran Program. a national research program looking at how genes and lives affect health and veterans. We've helped power this program for more than 10 years now, and in September, the VA renewed their contract with us for another year. We received a new purchase order in the amount of $7.5 million that we expect to fulfill in 2025. It's been another excellent quarter, and I'm grateful to the team at Personalis our early next personal clients, our collaborators and partners for all the work, guidance, and feedback this quarter as we continue to redefine the MRD market with a more sensitive approach. We're building a special company that is impacting patients' lives and helping us to win the fight against cancer.

With that, I'll now turn it over to Aaron to review our financial results.

Thank you, Chris. Total company revenue for the third quarter of 2024 was $25.7 million, representing a 41% increase compared with $18.2 million for the same period of the prior year. The increase in revenue was driven by higher volume from biopharma customers and the BAMBP, which was partially offset by the expected decline from Natera. BioPharma revenue grew 96% compared to the same period last year, and the growth was primarily driven from higher immunoID next volume from Moderna's PCV projects. Our VAMVP revenue increased 85% compared to the same period last year, as we fulfilled the remaining amount of the 2023 to 2024 task order in alignment with the VAMVP's fiscal year end. In addition, we recognized $0.3 million of clinical revenue from our NextDx tumor profiling test. Gross margin expanded to 34% in the third quarter, compared with 19.1% for the same period of the prior year. The year-over-year increase of 14.9 percentage points was primarily due to favorable customer mix and operating leverage from the increase in revenue volume. Over the last year and a half, our focus has been to reduce product costs, improve productivity, reduce lab operations expenses, and improve utilization to drive margins higher. We are making very good progress. In the third quarter, we saw an impact of over 4 percentage points to our gross margin due to unreimbursed clinical test costs. Excluding those costs, gross margin would have been approximately 38%. One of our top goals is to continue expanding gross margin, but we expect some variability from quarter to quarter along the way. Operating expenses were $23.1 million in the third quarter compared to $34.3 million for the same period of the prior year. Most of the year-over-year decrease was attributed to actions taken to reduce headcount in 2023 and also a facility impairment charge of $5.6 million for the same period last year. R&D expense was $11.7 million in the second quarter, compared with $16.7 million for the same period last year, and SG&A expense was $11.4 million, compared with $12 million for the same period last year. Net loss for the third quarter was $39.1 million, compared with $29.1 million for the same period of the prior year. The third quarter net loss included a $26 million non-cash expense related to fair value accounting for the warrants exercised by Tempus. This non-standard expense was a result of the increase in fair market value of the warrants at the time of exercise in early August, compared with the fair market value at the end of last quarter. The warrant accounting implications had no impact on the cash value or amount received from Tempus. Now onto the balance sheet. We finished the third quarter with a strong balance sheet with cash and short-term investments of $143.7 million. During the quarter, we received financing proceeds of $62.2 million net of expenses from Tempest exercising their warrants for $18.4 million at an average price of $2 per share Temp is purchasing an additional $16.6 million of common stock at a price of $5.07 per share and selling $27.2 million of common stock under the At the Market or ATM program at a weighted average price of $5.84 per share. We used approximately $6 million to fund operations in the third quarter, and we have approximately two and a half years of cash on the balance sheet which is expected to last into the first half of 2027. Now I'd like to turn to guidance. The fourth quarter of 2024, we expect total company revenue in the range of $15 to $16 million, and all of the revenue is expected to be generated from pharma tests, enterprise sales, and other customers. With that, I'd like to provide some context around the fourth quarter guidance and the sequential decline. First, throughout 2024, revenue from Moderna accelerated due to the increase in patient volume for their melanoma phase three clinical trial. With most of the patient enrollment now completed, we expect revenue from Moderna to decline by 55 to 60% in the fourth quarter, sequentially down from 8.5 million in the third quarter. We remain committed and excited about the long-term PCV opportunity with Moderna, who have partnered with us for many years now. Second, we explained on our last call that revenue from Natera would decline in the second half of 2024. We currently expect approximately $2 to $3 million from Natera in the fourth quarter as we wind down this project and then no meaningful Natera revenue in 2025. And third, some detail about the VAMDP. In the third quarter, we recognized $4.4 million of revenue from the 2023 to 2024 task order, which needed to be fulfilled by the end of September, aligning with their fiscal year end. The new $7.5 million task order recently received is for the period of October 2024 to September 2025, And we expect to fulfill this order between the first and third quarters of 2025. And for the full year of 2024, we increased our guidance and now expect total company revenue in the range of $83 to $84 million and increase from our prior guidance of $79 to $81 million. Revenue from pharma tests, enterprise sales, and other customers in the range of $76 to $77 million, an increase from our prior guidance of $71 to $73 million, and this estimate includes revenue from Natera of approximately $24 million. Population sequencing revenue from the VAMVP of approximately $7 million, a decrease from our prior guidance of $8 million. net loss of approximately $85 million, which includes the non-cash expense of approximately $18 million related to the warrants exercised by Tempest. Cash usage in the range of $53 to $55 million, a decrease from our prior guidance of $60 million, and the cash burn reduction is a result of higher gross profit dollars from the increase in revenue and expense control. We look forward to updating you on our progress during our next conference call in a few months. And with that, I will turn the call back over to the operator to begin the Q&A session. Operator?

Thank you. We will now be conducting the question and answer session. If you would like to ask a question, please press the star and then 1 on your telephone keypad. The confirmation turn will indicate that your line is in the question queue. you may press star 2 to leave the question queue. For participants making use of speak equipment, it may be necessary to pick up your handset before pressing the star keys. Please note, to give everyone the opportunity to participate, please limit yourself to one question and one follow-up. If time allows, you're welcome to rejoin the question queue for further questions. Our first question comes from Yoko.

Kuyo of Morgan Stanley. Please go ahead. Thank you.

I'm for Yuko. Thanks for taking the question and congrats on the quarter. Maybe start off. I know we're now at almost six months post-launch for next personal and sounds like it's been seeing a lot of positive traction here. I know with the expansion with Tempest agreement, you increased the quantity of patient samples for next personal that you would accept. Can you just talk a bit about the rationale behind this decision ahead of reimbursement and how you're balancing the volume ramp ahead of getting paid?

Yeah, thanks for the question. Yeah, the product's been really well-received.

And what we originally started was with just a handful of Tempest reps. And we wanted to – we want to be able to put ourselves in a position where when we get reimbursement, which we're anticipating 2025, we have an army of people out that are well – trained and have worked with the product and learned how to be pretty agile telling the story. And so, you know, the expansion of the agreement allowed us to have more reps out there talking about it and learning and working with it and allowed us to, you know, the tempest folks to, you know, better figure out how to integrate it into their story across, you know, all of the different environments they work at. So we think that's really positive for shareholders because it puts us in a position where, you revenue growth we think will be more explosive on the other side of reimbursement than if we had started out at a slower rate. But we're still gating it. We're still being very thoughtful about it, and we're still moving in a thoughtful way.

In addition to what Chris just articulated, and that was the reason and premise for Tempest exercising their warrants of $18 million in the quarter, as well as adding to that, in the form of an additional investment of 3.5 million shares at $5.07. They understand that we don't have reimbursement just yet, so in order to go faster, we do need a little more capital, so that was part of the premise as well.

Okay, that makes sense. And then maybe just one other one. Wondering how you're thinking about gross margin cadence as we look to 2025 as volumes from next personal start to ramp, and what are the kind of key levers you're thinking about pulling there to improve gross margin next year?

Yeah, so great question. We haven't provided formal guidance for 2025 yet. We'll do that on our fourth quarter and full year call early in 2025. Our gross margin for 24 is probably going to be in the 31 to 32% range based upon where we exit at Q3 and what we're looking at for Q4. What we can say, and again, on our last couple of calls now, we've stated that we've had headwinds of about 4 to 5% gross margin points for unreimbursed test costs. That's going to increase in 2025 primarily because of the volume increasing as well, right? So, You know, there could be headwinds into gross margins of somewhere between 15 and 18 gross margin percentage points. Our gross margins, aside from that, will accrete, but we'll have those headwinds to deal with as well. So, you know, the gross margins could come down where they're going to exit 2024 at. We don't know the exact amount just yet, and we'll provide that clarity early in 2025.

Got it. Okay. That makes sense.

Thanks so much for the time.

Sure. Thank you.

Our next question comes from Dan Brennan of TD Cohen.

Please go ahead.

Hey, this is Joe. I'm for Dan. Thanks for the question. Seems to be some really great momentum in MRD, but when I look at the filing, revenue from Moderna increased from 26% to 33% of total sales quarter over quarter. but translates to like 45% sequential revenue growth. So that seems to make it most, if not all of the sequential strength in the pharma business. So I guess the question is one, did MRD or CGP revenues increase sequentially? And two, is there an opportunity for these revenues to grow before your first Medicare approval?

Yeah, so that's a great question, Joe. And thanks for the question. In terms of PCB with Moderna, so Moderna, has accelerated in Q3, as you had mentioned. So it did grow. In addition to that, our ImmunoID Next platform and MRD with BioPharma clients did increase as well. Okay, it didn't increase as much as Moderna. So Moderna did drive most of the increase in the BioPharma line. We did get paid about $300,000 from our CGP Next DX test from Medicare.

So that was recorded as revenue as well.

And I'll just add the MRD revenue for biopharma companies is also starting to get traction. You know, the buying cycles on these things are longer. The first time the data was presented on the product was at HESBO last year, and that got a lot of biopharma companies starting to spend some time with us in the data. That was the TracerX data. And then the ASCO data around breast and IO really accelerated that. Some of the movement, but, you know, buying decisions in these big biopharma companies are not quick. They typically start to interact with you. Then they run tests. They run pilots. They may do bake-offs. And so we've been moving through that process. We think a really rapid clip, and we feel like we're in a position to do, you know, really, really well with the revenue growth around MRD coming from biopharma companies prior to reimbursement.

happening in 2025.

Got it. Great. And then on the 945 molecular tests in the quarter, is there a way to think about MRD versus profiling? And I just want to confirm that this is no longer just on the 10 physicians that you started with on early access?

That's right. That's right. That's a combination of some organic growth in the physicians coming from our you know, a small number of reps that we've allowed in from the wait list. And then, you know, it's coming. Tempest is starting to grow that number out. So that number is starting to grow in terms of physicians. You know, we're starting to see the strategy of the CGP test next DX, you know, being sold with the MRD test next person was working really well in our customers. Timbus obviously is not selling NextDX, and so, you know, the tests that are coming from them are just Next personal. And so we've, you know, you see most of that, a lot of that growth is coming from the MRD product, quite frankly. But we're really, really pleased with the success we've had executing putting the NextDX CGP with the MRD because customers want a one-stop shop experience, and that's what we're seeing.

Is that helpful, Jim? Yeah, very. Thanks for the question.

Our next question comes from Mark Massaro of PTIG. Please go ahead.

Hey, guys. Congrats on a good quarter. Thanks for taking my questions. Apologies if you covered this. Some of us are hopping multiple calls. But we'd love to just get your insights about how Next Personal is is being received in the marketplace relative to other MRD tests that are available. You know, obviously you guys have talked about the ultra-sensitive range. I'm just curious how you think that's resonating, how much education needs to go in before people seem to clearly understand what that means. Maybe I'll just start there.

Yeah, I mean, I think that's the core thing. And we've really, you know, we've really tried to distill that down because every day when we're returning results back to physicians, you know, they're seeing 30, 40% of the results in the ultra-sensitive range of the positive results. And that has been, you know, super well received because those are patients that they're able to see more, you know, more than what they've been able to see before. And we're seeing tremendous retention. I mean, that's We put that 90-plus percent number in there, but the physicians that have started with us are still working with us. The customers are ordering quarter over quarter and sticking with us, and we feel like we're in a good spot. Do you want to add something?

No, I think you stated it well. I think the ultra-sensitive concept is really resonating, just like Chris said, and You know, they definitely can understand when they see a low-level detection, but it's positive. It's easy to see that actually that could have been missed if the test was sensitive. And a lot of these physicians have experienced situations where the initial tests, other tests have been negative, and it goes on to be positive later on. Yeah, and so we think it's working well.

And then we've had – I talked about the example that we used in the – you know, in the script where, you know, the patient was in that 20 to 30 ppm range, didn't expect her to be there, started, you know, looking for evidence of the disease, found it unexpectedly at another spot, and then, you know, was able to take action. And those types of cases really cement the value proposition, fill this down into the ultra-sensitive range, tie that to the data that's shown by the collaborators with the plots, et cetera, have all tied together well and made it a good story. I will note that one of the things we're doing, Mark, is we're trying to sell customers across the continuum. So we learn how to take people that have experience doing testing, MRD testing at a good scale in their clinics. We're trying to work with doctors who have industry is how do we grow their usage. And then we've also found new people, quite frankly, who are trying out and working with MRD testing in the beginning because we want to be able to move the needle on all these different customer segments if we're going to put personnel in a position where we're really pushing the needle forward on this MRD market. And so very, very purposefully as a part of our execution plan, we're focusing on In this phase of the business, I'm learning how to attack each one of those different segments.

Okay. So the volume number grew, I think, 68% sequentially for the molecular test. You were at 66% in Q2. I'm just curious if that's coincidental that it's about the same growth rate. I know it's early days, but I guess what I'm really trying to get at is are you intentionally – holding back the throttle commercially until you get reimbursement? Maybe just remind us. We've seen other precision oncology labs do that. And then I'm just wondering, when reimbursement does come in, how should we think about resources that you might deploy internally to work together with Tempest?

I think it's fair to say we're holding back. I mean, we still have a wait list of doctors. We're not pushing hard on it across the board. I mean, we're still We're moving in a more aggressive pace with the expansion of the Tempest arrangement, but we've been really thoughtful about it and being purposeful. When we get reimbursement, we will put some more people in the field on our own accord. Those staff will drive organic growth that's just for personnel, but they'll also, quite frankly, work with the Tempest team. Tempest brings a lot of benefits to this. They've got The knowledge, the skill sets of working with these individual institutions are often integrated into the EMRs. And we've, you know, largely been indifferent about where the samples are coming, but we will apply more people in sales and marketing ourselves to accelerate the commercial traction once we get reimbursement. You know, and the other thing we're learning right now also is how to scale the lab. You know, and so growing this thing, At this, the last couple quarters, 60% really, you know, we're learning how to get samples in here, how to get them through the system, how to meet all of our peak time commitments that we're making to doctors, how to build for it, you know, with customer care. And, you know, building this business, you know, from the ground up, you want to go – you want to keep – you've got to keep moving and keep taxing the system to keep nailing it, and that's what we're doing.

Okay, great. It's nice to see the extra cash coming in on the door from multiple sources. I don't know if you covered this already, but can you give us a sense, now that your balance sheet is maybe on a firmer foundation, how are you thinking about spending in 2025? Maybe walk us through what you're thinking about in terms of commercial organization, and then how do you prioritize spending? the timing of that as reimbursement might come in.

Yeah, I mean, we're – I wouldn't know, just appreciate the comment on the cash. I mean, it's super important, and we did it in a really cost-effective way, and we were really excited about that. We called that out on the script. But, you know, sometimes the fundraising can take a big chunk off the top, and the way we did this, you know, really I think was really cost-effective. We – We'll stay largely, we'll be in cash conservation mode all the way now to when we get this company and all the way through to cash break even. And then as we try to scale it over time to highly profitable company, we're very focused on, I think we all learned a lot through this last period and we're not gonna keep our eyes, we're gonna keep our eyes on the bottom line. And certainly in this next phase, we'll be very thoughtful. We'll stay very focused with our current reps in the field. until we know that we're going to get reimbursement, and then we'll start to grow it out from there. But we're not going to expand that out ahead of anything, Mark, because you can just burn a lot of money unnecessarily. And we have a partner that's actually nailing it in the field for us, so we don't really need to. We're getting the traction that we need, and we're starting to get installed at many of the top institutions, and we're making the progress commercially. You see that in numbers that we need to do with what we've got.

Just one other thing on the capital allocation. One other thing on the capital allocation, Mark. And so inside of our R&D expense, that's $50 to $55 million per year. Roughly one-third of that goes towards creating clinical evidence. And that's going to stay in a similar range as we go forward into 2025. We could step it up in 2026, primarily because we do have to continue down that path. to be able to go get some of the private payers to pay us as well into the future.

We'll keep driving hard in clinical evidence and showing the value of ultra-sensitive testing. You know, clinical utility studies are, you know, prospectively gathered before firing that stuff up. We've got all that embedded in our models, and I think investors should feel actually encouraged you know, happy that we're going to invest there. I think the learnings from all these diagnostic companies is that it's always good spending as you build deeper evidence in the well-oiled products.

Okay. Thank you, guys. Thank you.

Our next question comes from Thomas Flurton of Lake Street Capital. Please go ahead.

Good afternoon, guys. Great quarter. Congrats. Chris, in your prepared remarks, you mentioned that Breast and IO had been submitted to peer-reviewed publications. Should we just then extend that logic and assume that those will be the two indications that you're seeking to get reimbursement for 2025, or do you think there's an opportunity for Lung to kind of leapfrog one of them?

No, no, no, no. We're all over Lung. We're shooting to have three out of three, but, you know, we think that, you know, two out of three, You want to have three shots on goal with the idea of getting two. Does that make sense, Thomas, that something inevitably on the reimbursement roadmap could happen? And so, you know, presumably you could say those two marbles are, you know, rolling a little faster now, but the lung one, you know, could certainly catch up. The data looks really strong there. It's one of the larger MRD trials in lung. And so, you know, I think – I think we're going to move all three of them pretty aggressively. If we have a shot at getting all three reimbursed in 2025, to be perfectly honest, that's our internal plan. It's just that, you know, we think it's prudent to assume that something could happen with one of them on the journey, either in a publication or somebody wants to run some more data to validate something.

Anything to add to that, Rich? Oh, sorry. Go ahead, Thomas. No, please go ahead, Rich. No, I would say there was nothing more.

I was just checking in. So with the Merck-Moderna melanoma study largely enrolled at this point, do you have sense of timing on when these other studies might ramp up and how that might impact your $100 million aspirational target for 2025? Or how should we think about that aspirational target in light of melanoma now being largely done?

Yeah, I mean, I think we set that target knowing that melanoma would largely be done this year. They were pushing pretty aggressively. We're still committed to shooting and pushing for $100 million. We haven't guided next year, and we don't want that to be implied that we've guided that. That's what we're pushing for internally and building our plans to nail that because that will be a big spot in the business. Yeah. And that's where we are. There's a bunch of studies going. I think they just announced a phase three lung trial that they're pushing forward with. And we're excited about the relationship with them. And I think it's been another cornerstone relationship for personnel.

And we've had a great year supporting them in their journey. Excellent. Appreciate you taking the question. Thank you. Thank you, Thomas.

Our next question comes from Mike Madsen of Needleland Company. Please go ahead.

Hi, guys. It's Joseph Vaughn from Mike. So I understand it's still early days with Next Personal and the partnership with Tempest, but, you know, I'm just kind of wondering if you've seen out of the, you know, three indications of a certain indication, whether it be breast, lung, or IO has been a predominant driver of volume there. And then, you know, maybe if there's not an answer there, if there's a certain, you know, data set, whether it be something robust like tracer that you've heard from physicians or similar contacts that have, you know, driven awareness of next personal.

Yeah. I mean, I think that we're seeing it across all three of those indications. Iotherapy monitoring, I think, probably does, it's fair to say, does a lot of the heavy lifting, and that's pan-cancer. That's probably true across all the use of molecular diagnostics. It's where most of the CGP tests play and are covered, so I think that's always one of the key indications. But there's been a lot of interest in what we're doing with breast and lung. We're solving real problems that physicians have with patient care, and that insight's being valued and and is driving the usage. I think all the data sets have been well received. You know, I think the TRACERX data set and the Royal Marston data set were able to show finding cancer 15 months ahead of imaging. For lung cancer, on average, sometimes as long as three years ahead of imaging, but 15 months medium, I think it is. And lung cancer nearly a year ahead of imaging has been really well received and physicians have, you know, sort of underlying the power of the ultra-sensitive approach.

Okay, great.

And then maybe I think Aaron had mentioned that you guys are still, you know, having ongoing discussions with other companies for doing additional sequencing work for the enterprise sales. Just kind of wondering, you know, what type of contract or, you know, relationship would have to exist for you guys to maybe shift focus away from your main strategic efforts, MRD being that main one? I guess, yeah, what type of contract, whether size or scope would need to be, you know, presented?

Yeah. Go ahead, .

Yeah, so good question. In terms of our main focus, Winning in MRD is our number one focus, both in the clinic and with biopharma. In terms of discussions, we have some ongoing discussions with potential partners. It's going to have to be something where it's not going to take us down or deviate too far away from what we do and what we're good at. It's going to have to be something along the lines of products that we have in service today to make sure that it can be run in our lab the same way from an efficiency standpoint. Right? It's still in early days, so we don't have anything to report in that regard. But that's just kind of how we think about it today, Joseph.

Okay. Yeah, that's very helpful. That's all the questions from us, and congrats on the quarter.

Thank you.

Ladies and gentlemen, just a reminder, if you have a question, you're welcome to press star and then one. to place itself in the question queue. Our next question comes from Lee Chen of HC Wainwright. Please go ahead.

Hello, this is Lee Chen for OK. Just a quick question from us. Previously, you guided the growth margin for 2025 to be in the low 30s. I wonder if this is still true and if you have any updated thoughts on that. Thank you.

I'm sorry, we didn't guide 2025 to be in the low 30s. It's really for 2024. 2024, our gross margin estimate is in the low 30s, 31% to 32%. We'll guide for 2025 once we get into our fourth quarter and full year earnings call early 2025. Thank you for the question. Thank you, Lee. Thanks.

With no further questions in the question queue, ladies and gentlemen, we have reached the end of the question and answer session. Thank you for attending and you may now disconnect your lines.