Personalis, Inc.

Ladies and gentlemen, greetings and welcome to the Personalis fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please signal the operator by pressing star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Caroline Connor, from Investor Relations. Please go ahead.

Thank you, Operator. Welcome to PersonAlysis' fourth quarter 2024 earnings call. Joining today's caller, Chris Hall, Chief Executive Officer and President, Aaron Tashibana, 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 meaning of U.S. securities laws. For example, any statements regarding trends and expectations for our financial performance this year and longer term, cash runway, revenue expectations and timing, reimbursement goals, size and booking of orders, products, services, technology, clinical milestones, the outcome and timing of reimbursement decisions, expectations for existing and future collaboration activities, cost expectations, our market opportunity, and business outlook. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. We encourage you to review our most recent filings with SEC, including the risk factors described in our most recent filings. Personnel's undertakes no obligation to update these statements except as required by applicable law. Our press release with our fourth quarter and full year 2024 results is available on our website, www.personnels.com. under the Investor section and includes additional details about our financial results. Our website also has the 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 on fourth quarter business highlights.

Thank you, Caroline. Good afternoon, everyone, and thank you for joining us for our fourth quarter and full year 2024 call. For those of you joining 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 effectiveness and to detect cancer recurrence. The MRD market is expected to mature into a $20 billion market, and with our ultra-sensitive MRD test, Next Personal, we believe Personalis is positioned for success. Our technology is able to spot cancer when there's only one fragment of tumor DNA circulating and a million DNA fragments in blood. Our tumor profiling platforms and tests are cutting-edge. We're able to see more with high sensitivity, and as a consequence, our platforms and tests are used by many of the world's top biopharma companies to improve clinical trial results, personalize treatment, empower a new generation of therapies. Before we dive into our 2024 accomplishments, I want to share another case from this last quarter that highlights the power of our ultra-sensitive test, Next Personal, to change care. During the last call, I discussed how a physician using Next Personal was able to spot a recurrence of breast cancer and get their patient access to therapy ahead of imaging. This quarter, one of our cases involved a woman in her 70s with stage 3 lung cancer that was being treated with chemotherapy plus immunotherapy. The doctor did a series of three Next Personal tests over several months that showed the level of circulating tumor DNA was increasing with each test, suggesting the treatment regimen wasn't working. Notably, all the results were in the ultra-sensitive range. As a reminder, the ultra-sensitive range covers measurements of circulating tumor DNA below 100 parts per million that our next personal test excels in quantifying and that could be missed with less sensitive tests. Based on these results, the doctor switched the patient to a dual immunotherapy regimen with subsequent next personal test indicating an improved response. We hear many antidotes like this, and they demonstrate how our platforms are impacting clinical care. And frankly, stories like this motivate us every day at Personalis. 2024 was a significant year for the company. We laid out a multi-year strategy to grow our business with a focus on our win and MRD strategy, and we made big strides. Our full-year revenue of $84.6 million grew 15% over 2023, driven by biopharma growth of 60% year-over-year, which more than offset the expected decline from our enterprise customer. The growth from biopharma was fueled by an acceleration of clinical trial patient samples from Moderna's Phase III melanoma trial during the first three quarters of 2024. For those new to Personalis, We provide Moderna with our tumor profiling capabilities to help enable them to create personalized neoantigen therapies for patients. Neoantigens are present only in cancer cells, and our platform is used to identify them so that individualized therapies can be created. At the end of 2024, we agreed to a long-term extension of our agreement with Moderna to be their partner for ongoing clinical trials through to commercialization. We expect this relationship to be a key driver of revenue growth for us in the next decade. For our clinical business, 2024 was a pivotal year as we ramped our commercial efforts to pioneer the ultra-sensitive MRD testing market. We drove a solid increase in test volumes as we continued to generate compelling clinical evidence that highlighted the power of Next Personal to detect cancer recurrence earlier than standard of care imaging and instill more confidence in negative ctDNA results. Our collaborators demonstrated outstanding MRD results for breast, lung, and IO therapy monitoring using Next Personal and submitted manuscripts detailing these findings to medical journals, which we expect to see published in coming quarters. Once published, these studies are expected to support our submissions for Medicare reimbursement. On the IP front, we successfully settled our litigation with foresight in a way that underscored the value of our MRD intellectual property. We also cross-licensed our MRD patents with Myriad Genetics for tumor-informed MRD approaches to ensure clear freedom to operate for each company. We believe this patient-centric approach is best for us as a business, but importantly, best for doctors, patients, and payers. Lastly, in 2024, we raised a significant amount of capital. In total, we raised approximately $115 million net of expenses by closing two strategic investments and using our ATM. The first strategic investment with Tempus expanded and accelerated our clinical distribution partnership, and the second investment was by Merck. Merck has been a longtime collaborator, and we're thrilled to deepen our relationship with them. We ended 2024 with $185 million in cash on the balance sheet. and we have a strong liquidity position to continue ramping up our clinical volume ahead of reimbursement coverage. We believe 2025 will be another pivotal year for personnel as we drive our win in MRD strategy and ramp up our testing volumes, touching more and more patient lives. We're confident that this is working and ushering in a new way of managing cancer patients, enabling physicians to intervene sooner when a patient recurs and to have more confidence in a negative MRD result. There are three key areas we'll be tracking as we move through the year. These are the core elements of executing on the next chapter of our WIN and MRD strategy. First is clinical usage. We've gained significant traction in the clinical marketplace as we delivered 1,441 molecular tests in the fourth quarter, an increase of 52% compared with 945 tests in the third quarter. The core of our strategy is a partner-centric approach and we're working with Tempus, leveraging their approximately 200-person sales force to bring our approach to oncologists. In 2024, the PersonAlysis and Tempus commercial teams learned how to work together to relay the value of NextPersonal to doctors, and the growth we're seeing today is indicative of the strength of the relationship. Physician feedback has been positive, and retention is high. We believe our growth is a testament to the power of our ultra-sensitive approach and the compelling data we've been generating. Since launching our test commercially in the fourth quarter of 2023, we've grown test volume by at least 40% sequentially each quarter, and our goal is to continue to increase test volume by 30% to 40% each quarter until we achieve reimbursement. We've been adding billing and customer care staff and focusing our internal teams on reducing turnaround time and scaling our lab to meet the increasing demand. Additionally, we have built out our sales team to complement Tempest's effort and are ready to hire additional commercial team members to accelerate sample growth on the backside of reimbursement. Second is deepening the clinical evidence and achieving reimbursement. We are on track to get CMS reimbursement for at least two indications in 2025. As we've previously discussed, we've focused our evidence generation on three indications, breast cancer, lung cancer, and IO therapy monitoring. We've previously summarized the findings from the investigators at Royal Marston for breast cancer, VHIO for therapy monitoring, and TracerX for lung cancer, and those three studies and their results power three different Medicare submissions. We're pleased to report that our collaborators have now submitted manuscripts for all three of those invitations to peer-reviewed journals. Additionally, the breast cancer paper was recently accepted, and we have now submitted for Medicare coverage in breast cancer ahead of our internal expectations. Publication is pending, and we won't say more about it until it is in the press, but we're excited with this progress towards Medicare reimbursement. When the VHIO and Tracer X papers are accepted for publication, we plan to submit for Medicare reimbursement for immunotherapy, monitoring, and earlier stage 1 cancer, respectively. In summary, we are tracking to achieve reimbursement at least two of the indications this year, and I look forward to updating you as this continues to unfold. Our clinical study pipeline continues to deepen with now over 20 studies in progress. And breast cancer, we're working with Vanderbilt, John Hopkins, and other institutions on the PREDICT study, an approximately 180-patient study in early-stage triple-negative breast cancer and HER2-positive breast cancer, and have an ongoing prospective study called Be Stronger 1 in triple-negative breast cancer that has now enrolled more than 80 patients. We have an ongoing study with Dana-Farber on HER2-positive patients, and the Institute Curry on an approximately 100-patient early-stage triple-negative breast cancer study. We're also working with MD Anderson on an additional breast cancer study. In iotherapy monitoring, we're working with Valdehebron or VHIO, UKE in two different melanoma studies, Duke in a study of gastric cancer patients, and UCSD on a pan-cancer iotherapy study across eight different subtypes. In early-stage lung cancer, we're continuing to work with TRACERx team, and we're pushing forward on another study called DARWIN2. As the year progresses, collaborators will be presenting results of many of these studies at conferences. We expect this data to continue to highlight the importance of an ultrasensitive CT DNA detection and breast, lung, and IO therapy monitoring, as well as other cancer types. All of this is pointing towards a better way for managing cancer patients with an ultrasensitive approach. We, of course, at Personalis are not done, and we expect to announce additional studies through the year. Deepening the clinical evidence is important to gain clinical traction and payer acceptance. The third area we will be tracking for investors is progress with our biopharma customers. Most of our biopharma revenue comes from our leading ImmunoID Next platform, which is an advanced tumor profiling platform used to support translational research and novel therapies. The ImmunoID Next platform remains a platform of choice for biopharma companies developing immunotherapies, but we see other opportunities to serve biopharma customers. To those ends, our tumor profiling product set will continue to broaden with new versions developed to capture additional business from biopharma companies that have grown to trust Personalys as a partner. This approach will expand the spectrum of biopharma use cases that our platforms can reach. And, of course, we are deep into our second year of selling Next Personal for MRD testing to biopharma companies. Biopharma customers want and need an ultra-sensitive approach to more effectively select patients for clinical trials and to more accurately monitor trial results. And we believe Next Personal elegantly meets the market needs. The ultra-sensitive approach may allow customers to get an answer regarding success or failure of clinical trials more quickly and more accurately. We believe this can make for increased efficiency and can translate to significant revenue for our biopharma customers by getting answers sooner. We've done multiple pilots and technology assessments in 2024, and the value we create for biopharma customers is increasingly appreciated. We grew the revenue from MRD testing from biopharma companies more than 50% in 2024 and expect continued growth in 2025. The strategy of driving our ultra-sensitive testing into biopharma customers while evolving our tumor profiling platforms to win more business should drive our growth in 2025, and I look forward to reporting on our progress in coming quarters. We're running fast towards multiple milestones in 2025. I believe it will be a significant year for personnel and, most importantly, for cancer patients as we execute against our growth drivers and redefine the way cancer is managed with an ultra-sensitive MRD approach. I want to take a minute to address our 2025 four-year guidance. We have two core areas of focus in 2025. First, we are driving volume growth in front of next personal reimbursement, and we are confident that we can continue to grow in test volumes at 30% to 40% each quarter. Second, we are driving towards reimbursement this year and plan to achieve reimbursement at least two indications by the end of the year. We're guiding revenue to be in the range of $80 to $90 million. Aaron will further discuss the details in a minute, but I wanted to provide some high-level context. That is, we're modeling a run rate that is comparable to full-year 2024, despite the loss of the lion's share of Natera's business. When you take into account an expected decline of about $20 million from Natera's business, our expected growth rate in full-year 2025 is around 31% at the midpoint of our guided range. We expect 2025 will be another transformative year for personnel, and we appreciate all the investors that came into the story this last year and are now part of our journey to pioneer ultra-sensitive MRD testing. We have created a unique company that is poised to be a key part of the fight against cancer. And of course, that only happens because of the dedication and passion of our employees who work so hard to help us achieve our mission and improve the journey for cancer patients. With that, I will now turn it over to Aaron to review our financial results.

Thank you, Chris. I will discuss our fourth quarter and full year 2024 results and then cover our guidance for 2025. Total revenue for the fourth quarter of 2024 was $16.8 million, representing a 15% decrease compared with $19.7 million for the same period of the prior year. The decrease in revenue was expected and driven by lower volume from Natera, who has continued to reduce test volume as they transition to their own in-house lab, and also lower volume from the VAMVP as 2024 task order was mostly fulfilled in the third quarter. These reductions were partially offset by a 6% increase in biopharma revenue compared with the same period of the prior year. In addition, we recognized 0.2 million of clinical revenue from our MEXT-DX tumor profiling test. Gross margin was 27.1% in the fourth quarter, compared with 26.5% for the same period of the prior year. The year-over-year increase of 60 basis points was primarily due to favorable customer mix from the increase in biopharma volume. In the fourth quarter, we saw an impact of approximately 8 percentage points to our gross margin due to unreimbursed test costs. Excluding those costs, gross margin would have been approximately 35%. Operating expenses were $22.7 million in the fourth quarter compared to $29.2 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. The fourth quarter R&D expense was $11.5 million compared with $13.6 million for the same period of the prior year, and SG&A expense was $11.2 million compared with $11.5 million for the same period of the prior year. In the fourth quarter of 2023, we classified $4 million of employee severance costs as restructuring within the income statement, and it's included within the $29.2 million previously mentioned. Net loss for the fourth quarter was $16.4 million compared with $26.6 million for the same period of the prior year. Next, I will provide results for the full year of 2024. Total company revenue for the full year of 2024 was $84.6 million, representing a 15% increase compared with $73.5 million for 2023. The increase was driven by growth from Biopharma, which was fueled by Moderna's Phase III clinical trial, which had robust patient enrollment through the first three quarters of the year, and more than offset the decline in revenue from Natera and the VAMVP. Gross margin was 31.7% for the full year of 2024, compared to 24.8% for 2023. The year-over-year increase of 6.9 percentage points was primarily due to favorable customer mix from the increase in biopharma volume, as well as cost reduction. In the full year of 2024, unreimbursed test costs impacted gross margins by approximately 4 percentage points. Excluding those costs, gross margin would have been approximately 36%. Operating expenses were $95.1 million for the full year of 2024 compared to $128.1 million for the full year of 2023. Most of the year-over-year decrease was attributed to actions taken to reduce headcount in 2023 and also a one-time facility lease impairment expense of $5.6 million in 2023. R&D expense was $48.9 million in 2024 compared with $64.8 million in 2023. SG&A expense was $46.2 million in 2024 compared with $49.7 million for 2023. And a bit of clarification for 2023. There is $8.1 million in employee severance costs for headcount reduction shown in the restructuring line of the income statement, and it's included within the total operating expense amount of $128.1 million previously mentioned. Net loss for the full year of 2024 was $81.3 million compared with the net loss of $108.3 million for 2023. We reduced our net loss year over year by increasing gross profit dollars from higher volume and reducing product costs and operating expenses. Now on to the balance sheet. We finished the fourth quarter with a strong balance sheet with cash and short-term investments of $185 million. During the quarter, Merck made a strategic investment of $50 million into Personalis by purchasing common stock at a price of $3.56 per share, which was the closing price of our common stock on December 18, 2024. This investment underscores the strength of our partnership with both Merck and Moderna. Throughout 2024, we operated cost-effectively and reduced our cash usage down to $46.8 million for the full year, which was approximately $20 million lower than 2023. Now I'd like to turn to guidance. For the first quarter of 2025, we expect total company revenue in the range of $17 to $18 million. Revenue from pharma tests and services and all other customers in the range of $10 to $11 million. And revenue from population sequencing plus enterprise customers of approximately $7 million. And for the full year of 2025, we expect total company revenue in the range of $80 to $90 million. This range is a bit wider due to the variability of reimbursement timing and prices. Revenue from pharma tests and services and all other customers in the range of $62 to $64 million. Population sequencing plus enterprise customers in the range of $15 to $16 million. Clinical revenue in the range of $3 to $10 million. Gross margin in the range of 21% to 23%, which is lower than the 32% for 2024 due to the impact of investing in clinical test volume ahead of reimbursement. Net loss of approximately $85 million, which includes approximately $20 million of unreimbursed test costs, and Cash usage in the range of $75 to $80 million, with the majority of the increase in cash usage compared with 2024, for investing in clinical test volume, clinical studies, and commercial capabilities for ramping up our clinical volume before and after reimbursement. We look forward to updating you on our progress during the next conference call in a few months. And with that, I will turn the call back over to the operator to begin the Q&A session. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Thomas Flatton from Lake Street. Please go ahead.

Hey, good afternoon, guys. Thanks for taking the question. Congrats on the quarter. Hey, Aaron, just sticking with guidance for a second, you have grouped together enterprise sales and the VA MVP program. Should we read into that that they're continuing the Terra revenues, or is there a different enterprise customer in there?

So, Thomas, basically what we've done is we've guided both together. So there would be revenue from both, right? The VA contract is $7.5 million, so you can assume $7.5 to $8 million for the VA balance would be for enterprise customers.

Great. Great. And then maybe for Chris, I know you've mentioned how many tests you've done, but we haven't heard, at least I don't recall hearing, the number of customers you've had. And then if you're willing to share that, and then any thoughts on reorder rate for those physicians that have been using the test so far. Next person will do it.

Yeah, we're closing in on about 300 doctors last quarter using the test now, so that continues to grow really nicely. You see that in the volume that's coming from both our organic patients group, which is only just a small group of about four-ish people, and then Tempus, which is, you know, which has got a couple hundred people out carrying the message to doctors. So, you know, closing in on 300. The retention has been super high. We talked about it last quarter. We, you know, talked about how, you know, it was in the high 90s reorder rate. You know, we're not going to disclose that quarter over quarter and, you know, so many moving parts about what doctors, you know, do and how they and how they practice. But we feel like, you know, the retention has been high, and we feel like the value is just being underscored every day. You know, about 40% of our results, of our positive results, are in the ultra-sensitive range. When physicians start to see the power of that, you know, they're sold. And there's so many success stories that we run into around finding cancer sooner and being able to intervene and being able to see things, therapeutic response, and get the patient on the right track. The right therapy and these things are underscoring the value and helping to cement the retention.

Super helpful. Thanks for taking the questions.

Thank you. The next question comes from the line of Yuko Oku from Morgan Stanley. Please go ahead.

Hi. This is Madison. I'm for Yuko. Thanks for taking the question. Congrats on the quarter. Just wondering if we could start. I realize you gave color on first quarter, but wondering how we should be thinking about the phasing of the top line as we look out to the rest of 2025?

Yeah, so basically in terms of the revenue guide, $85 million at the midpoint. And the way we look at it, Madison, is it's probably half, first half, half of the revenue in the second half. And in terms of the mixture there, so biopharma is going to be probably – 40% first half, 60% second half, but the enterprise, customer's enterprise revenue would be the opposite. In addition, clinical sales, the guide there is $3 million to $10 million. Most of that is going to be in the second half, right, primarily because it's pending reimbursement.

Got it. Okay, that's very helpful. And then on gross margins, I know last quarter I think you noted a potential headwind of about 15% 18 percentage points from unreimbursed tests. Is that still how you're thinking about it? And then just given the uncertainty of the specific timing of reimbursement, how should we be thinking about the GM cadence over the year?

Yeah, so that's the primary reason why we did provide a gross margin guide. Our gross margin guide for the full year of 25 is 21 to 23%. In 2024, we achieved 32%. If we didn't have the unreimbursed test costs in 2024, we probably would have been around 36%. And going into 2025, as we assume no unreimbursed test costs, gross margins would be up between 40% and the low 40s, right? So there would be approximately 17% to 18% of headwinds due to the unreimbursed test costs.

Okay, thank you. Thank you.

Ladies and gentlemen, if you wish to ask a question, please press star and one. The next question comes from the line of Swayam Pakula Ramakant from HC Wainwright. Please go ahead.

Thank you. Thanks, Chris and Aaron. So when you talked about the three areas that you would be monitoring for growth in 25 and beyond, you know, regarding when you're talking about the clinical use, as you said, you know, not only utilizing the Tempus commercial team, but also you will be building a commercial team. Is this, how much of an impact is it going to be on SG&A in 25, or is this going to be pending reimbursement and all that? So most of that will actually be in late 25, early 26. How should we think about that piece?

Yeah, I mean, we've always said we'll have a small team. I mean, we're mostly planning on depending on Tempest, but we'll always, you know, have a small team for some of the relationships and also to work with the Tempest team in the field and be able to, you know, fill in some gaps and work. And you learn a lot from doing that. We expect that team to be small. We've always said it'll be It would be relatively small investment in the next year or two. And nothing about today's call suggests that that's not the case. And we'll continue to just grow it as we go through the year by onesies and twosies. And a little bit more aggressive as we have line on site exactly on reimbursement. But you always want to get in front of it because it takes some time to find the right people and get them into place and get them trained. But it won't be.

Okay, okay. And then talking about the reimbursement, it's great that you already have one submission done for breast cancer. In terms of what to expect on that in the sense, in general, how long does it take for some of these submissions to come to a decision point? And in terms of the next submission, Next one, I thought you said lung cancer. If that is true, you know, is there any way we can gauge the timing on it? Or is this just TBD?

Yeah, I mean, so we have never said that the next one would be lung cancer or IO therapy monitoring. What we have gotten to this point is all three of the key publications have been submitted and the lung cancer and the IO have been submitted. The journey of going through those, that process with journals is variable, okay? And, you know, if the lung cancer one gets accepted before the IO one, we'll submit with the lung cancer. And if the IO one gets submitted sooner, then we'll submit for IO sooner. You know, our intention, to be clear, while we're saying we expect to get two of three over the finish line, Um, we're, we're shooting for all three. Uh, our, our goal is to have all three accepted and all three submitted and move the ball forward on all three. And that's what our internal goal is. And that's what we're shooting for. But I mean, I think there's, you know, realistically something, you know, always tends to happen. You know, the time on the, on the, on the, um, the time from submission onwards, I think we, we think about it as six months plus or minus in general. I think sometimes it goes as long as nine. Um, and it could go as fast as three, but that's sort of where it is. But I expect the back half of the year is when we'll start being able to make announcements on that. But we were super excited to be able to move the ball forward and be able to get to the point where we could submit, and the submission looks great, and we're really confident that we're on the right track here.

Yeah, yeah, perfect. Thanks for taking my questions. Thank you. Thanks.

Thank you. The next question comes from the line of Dan Brennan. from TD Cowen. Please go ahead.

Hi, this is William Ruby. I'm for Dan. Just one question for you. With a cash usage of $75 to $80 million, are you anticipating that you'll potentially look to the capital markets this year?

So we have plenty of capital in terms of what we've got on the balance sheet. What we've been saying, William, is that we have cash to give us the cash flow break-even. In terms of Going back to the markets to raise capital, we'll have to look at how things come together the rest of the year. And if there's an area where maybe we need to further invest in, call it evidence or other areas of our business, then we'll look at different opportunities.

But sitting here today, there's no specific need to come back to the market. Thank you. Sure.

Thank you. Ladies and gentlemen, as there are no further questions, this concludes the question and answer session. The conference of personalities has now concluded. Thank you for your participation, and you may now disconnect your lines.

Thank you.