Personalis, Inc. (NASDAQ: PSNL), a leader in advanced genomics for cancer, reported a substantial 41% increase in year-over-year revenue for the third quarter of 2024, amounting to $25.7 million. The growth was primarily attributed to a 96% surge in biopharma sector revenue, driven by the demand for their tumor profiling products and the NeXT Personal MRD assay. The company ended the quarter with $143.7 million in cash, which is expected to fund operations into the first half of 2027. Personalis also raised its full-year revenue guidance to between $83 million and $84 million, reflecting confidence in its strategic growth and the efficacy of its MRD testing solutions.
Key Takeaways
- Personalis reported a significant 41% increase in Q3 revenue year-over-year, totaling $25.7 million.
- The biopharma sector revenue grew by 96%, primarily due to the demand for tumor profiling and NeXT Personal MRD assay.
- The company raised approximately $62 million this quarter and expects its cash balance to last into the first half of 2027.
- Full-year revenue guidance has been raised to $83 million to $84 million, showing strong growth prospects.
- Personalis is focused on becoming a clinical diagnostic leader through a strategy that includes enhancing biopharma partnerships and commercializing NeXT Personal with a partner-centric model.
- The company has seen a strong market adoption, with 98% of physicians reordering tests in Q4.
- Personalis is involved in significant MRD studies and collaborations, including presentations at the 2024 ESMO Conference.
Company Outlook
- Personalis has raised its full-year revenue guidance for 2024 to $83 million to $84 million.
- The company is optimistic about growth in MRD testing prior to Medicare approvals and is focusing on integrating CGP and MRD tests to enhance the customer experience.
- Personalis aims to secure reimbursement for three indications by 2025, with an aspirational revenue target of $100 million.
Bearish Highlights
- Q4 revenue is projected to decline to between $15 million and $16 million, mainly due to a decrease in revenue from Moderna (NASDAQ:MRNA) and Natera (NASDAQ:NTRA).
- Revenue from Natera is expected to fall to $2 million to $3 million in Q4 and no significant revenue is expected in 2025.
- The net loss for Q3 was $39.1 million, influenced by a $26 million non-cash expense related to warrant accounting.
Bullish Highlights
- The gross margin improved to 34% in Q3, up from 19.1% year-over-year.
- Personalis received a new $7.5 million task order from the VA MVP, effective from October 2024 to September 2025.
- The NeXT Personal product has gained positive traction, leading to an expansion of the Tempus agreement to increase patient sample volume.
Misses
- Q4 revenue is expected to be lower than Q3 due to the near completion of Moderna's patient enrollment for their melanoma Phase III trial.
- Population sequencing revenue from the VA MVP is expected to be around $7 million, down from $8 million previously projected.
Q&A Highlights
- Chris Hall emphasized the effectiveness of their molecular diagnostics and the positive reception of ultrasensitive testing results.
- Aaron Tachibana focused on the company's primary strategy around MRD in clinical and biopharma settings.
- The company is holding back on aggressive commercialization until reimbursement is secured, despite having a waitlist of doctors.
Personalis, Inc. continues to demonstrate strong performance and strategic advancements in the genomics field. With its focus on MRD testing and partnerships, the company is well-positioned to capitalize on the growing demand for personalized cancer treatments. The raised revenue guidance and positive reception of their products among physicians signal a robust outlook for Personalis as it works towards becoming a leader in clinical diagnostics.
InvestingPro Insights
Personalis, Inc. (NASDAQ: PSNL) has shown remarkable financial performance in recent quarters, which is reflected in both its market performance and financial metrics. According to InvestingPro data, the company has experienced a staggering 479.56% price total return over the past year, with a particularly strong 253.16% return in the last six months. This aligns with the company's reported revenue growth and raised guidance mentioned in the article.
Despite the impressive revenue growth, InvestingPro Tips highlight that Personalis is "quickly burning through cash" and is "not profitable over the last twelve months." This is consistent with the reported net loss of $39.1 million in Q3, although it's worth noting that a significant portion of this was due to non-cash expenses.
On a positive note, an InvestingPro Tip indicates that Personalis "holds more cash than debt on its balance sheet," which supports the company's statement about having sufficient cash to fund operations into the first half of 2027. Additionally, the tip that "liquid assets exceed short term obligations" suggests a strong short-term financial position, aligning with the company's reported $143.7 million cash balance.
The revenue growth trend is further supported by InvestingPro data showing a 19.2% revenue growth over the last twelve months, with an even more impressive 35.22% quarterly revenue growth. This data corroborates the company's reported 41% year-over-year revenue increase for Q3 2024.
It's important to note that while Personalis is showing strong growth, the InvestingPro Tips also indicate that "analysts do not anticipate the company will be profitable this year," which investors should consider alongside the positive revenue trends.
For those interested in a deeper analysis, InvestingPro offers 11 additional tips for Personalis, providing a more comprehensive view of the company's financial health and market position.
Full transcript - Personalis Inc (NASDAQ:PSNL) Q3 2024:
Operator: Good afternoon, everyone, and welcome to Personalis Third Quarter 2024 Earnings Conference Call. All participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Mr. Caroline Corner. Please go ahead, ma'am.
Caroline Corner: Thank you, operator. Welcome to Personalis’ third quarter 2024 earnings call. Joining today’s call are Chris Hall, Chief Executive Officer and President; Aaron Tachibana, Chief Financial and Chief Operating Officer; and Rich Chen, Chief Medical (TASE:PMCN) Officer and EVP, R&D. All statements made on this call that do not relate to matters of historical facts 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 our 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 the SEC, including the risk factors described in our most recent filings. Personalis undertakes 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.personalis.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 would like to turn the call over to Chris for his comments and third [ph] quarter business highlights.
Chris Hall: 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 expected to mature into a $20 billion market. And with our ultrasensitive 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 the 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 treatment, and power 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 NeXT Personal to find residual and recurrent cancer and impact the patients' care. A doctor began using NeXT Personal to monitor a female in her 70s who have been diagnosed with Stage 1 HER2-positive breast cancer. After the patient had undergone lumpectomy and received standard adjuvant therapy, the doctor began monitoring the patient with NeXT Personal, 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 ultrasensitive range. Now, as a reminder, the ultrasensitive range are measurements of circulating tumor DNA below 100 parts per million that our NeXT Personal test excels and quantifying that could be missed with less sensitive test. 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 biopharma 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, NeXT 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 million 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 Tempus 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, Win-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 Win-in-MRD strategy back in 2023 and have been laser-focused on executing its four pillars. one, focus on cancer types where an ultrasensitive 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 in clinical trials; and four, commercialize NeXT Personal with a partner-centric model. To delve into the first pillar, we've previously highlighted some of the evidence of mass to support NeXT Personal'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 has demonstrated that NeXT Personal 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. So small traces of cancer can be difficult to detect without an ultrasensitive approach like NeXT Personal. Lung and breast cancers can be aggressive when they recur, the 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 ultrasensitive test. 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 of necessary therapies and procedures, potentially avoiding toxicities and saving money for the health care system. In October 2023, we launched the first commercial ultrasensitive 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 Tempus in June to strong demand and quickly decided together to accelerate our commercial launch. Tempus 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 test 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 Personnel test, a mask region that had previously been hard to detect consistently. We call that region the ultrasensitive range. We expect our test 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 ultrasensitive 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. 98% of the physicians who ordered from us in Q3 have already ordered from us again in Q4. The demand for our approach is high and doctors are largely pleased when they start to utilize NeXT Personnel with their patients. Moving to our second pillar. We've 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 in leading peer-reviewed oncology journals. We've previously summarized the findings from investigators at Royal Marsden 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-reviewed journals for publication. 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 NeXT Personnel'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 of Vall d'Hebron 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 NeXT Personal 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 Marsden, 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 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 B-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 DARWIN-2. 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 in clinical trials. Customers want and need an ultrasensitive 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 ultrasensitive 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 ultrasensitive test to monitor results could mean seeing drug effectiveness sooner rather -- sooner than imaging, potentially allowing the 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 the new chapter in our relationship with Tempus, 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 Tempus launch at ASCO in June. Our efforts have been met with strong demand and interest in an ultrasensitive 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, Personalis processes samples in our lab, focuses on obtaining reimbursement, invoices health insurance companies, payers and patients under the arrangement and pays Tempus fair market value for the commercial services they provide to us. As a part of the August expansion, Tempus exercised their warrants for $18.4 million and invested an additional $17.7 million in 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 in 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 ImmunoID 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 the personalized cancer vaccine or PCV market use our platform to create a molecular fingerprint of a patient's tumor to develop personalized therapy. We've 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 (NS:PROR), have now enrolled most patients for their Phase 3 clinical trial. Our revenue from Moderna accelerated as they finalized enrollment in their Phase 3 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 Personalis insight 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 biopharma and clinical diagnostic business is accelerating, we are 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 life 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.
Aaron Tachibana: Thank you, Chris. Total (EPA:TTEF) 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 VA MVP, which was partially offset by the expected decline from Natera. Biopharma revenue grew 96% compared with the same period last year, and the growth was primarily driven from higher ImmunoID NeXT volume from Moderna's PCV projects. Our VA MVP revenue increased 85% compared with the same period last year as we fulfilled the remaining amount of the 2023 to 2024 task order in alignment with the VA MVP'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 1.5 years, 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 with $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 on to 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 Tempus exercising their warrants for $18.4 million at an average price of $2 per share, Tempus 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 2.5 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. Fourth quarter of 2024, we expect total company revenue in the range of $15 million 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 III 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 million 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 VA MVP. 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 through 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 million to $84 million, an increase from our prior guidance of $79 million to $81 million. Revenue from pharma tests, enterprise sales and other customers in the range of $76 million to $77 million, an increase from our prior guidance of $71 million to $73 million, and this estimate includes revenue from Natera of approximately $24 million. Population sequencing revenue from the VA MVP 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 Tempus. Cash usage in the range of $53 million 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?
Operator: Thank you. We will now be conducting the question-and-answer session. [Operator Instructions] Our first question comes from Yoko Kou [ph] of Morgan Stanley (NYSE:MS). Please go ahead. Thank you.
Unidentified Analyst: Sheena [ph] for Yuko. Thanks for taking question and congrats on the quarter. Maybe start off, I know we're now at almost six months post launch for NeXT Personal, and it sounds like it's been seeing a lot of positive traction here. I know with the expansion with Tempus 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?
Chris Hall: Yes. Thanks for the question. Yes, the product has been really well-received. And what we originally started was with just a handful of Tempus 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 in 2025. We have an army of people out that are well-trained and have worked with the product and been learned how to be pretty agile telling the story. And so the expansion of the agreement allows us to have more reps out there talking about it and learning and working with it and allowed us to -- the Tempus folks to better figure out how to integrate it into their story across all of the different environments they work in. And so we think that's really positive for shareholders because it puts us in a position where 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 getting it. We're still being very thoughtful about it, and we're still moving in a thoughtful way.
Rich Chen: In addition to what Chris just articulated, and that was the reason and premise for Tempus 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. We 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.
Unidentified Analyst: 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?
Chris Hall: Yes. 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 2024 is probably going to be in the 31% to 32% range based upon where we exited 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? And so 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 that's going to -- we'll have those headwinds to deal with as well. So the gross margins could come down from 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.
Unidentified Analyst: Got it. Okay. That makes sense. Thanks so much for the time.
Chris Hall: Sure. Thank you.
Operator: Our next question comes from Dan Brennan of TD Cowen.
Unidentified Analyst: Hey, this is Joe on for Dan. Thanks for question. It 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, which translates to like 45% sequential revenue growth. So it seems to be making up most, if not all, 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 approvals?
Chris Hall: Yes. So that's a great question. Hi, Joe, and thanks for the question. In terms of PCV 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.
Rich Chen: And the -- and I'd just add the MRD revenue from biopharma companies is also starting to get traction. The buying cycles on these things are longer. We -- the first time the data was presented on the product was at ESMO 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 some of the movement. But 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 really, really well with the revenue growth around MRD coming from biopharma companies prior to reimbursement happening in 2025.
Unidentified Analyst: 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?
Rich Chen: That's right. That's right. That's a combination of some organic growth in the physicians coming from our small number of reps that we've allowed in from the wait list. And then it's coming -- Tempus is starting to grow that number out. So that number is starting to grow in terms of physicians. We're starting to see the strategy of the CGP test NeXT Dx being sold with the MRD test, NeXT Personal is working really well in our customers. Tempus obviously is not selling NeXT Dx. And so the tests that are coming from them are just NeXT Personal. And so we -- 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 NeXT Dx CGP with the MRD because customers want a one-stop shop experience, and that's what we're seeing.
Chris Hall: Is that helpful, Joe?
Unidentified Analyst: Yes. Thanks very much.
Operator: Our next question comes from Mark Massaro of BTIG. Please go ahead.
Mark Massaro: 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 would love to just get your insights about how NeXT Personnel is being received in the marketplace relative to other MRD tests that are available. Obviously, you guys have talked about the ultrasensitive 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? And maybe I'll just start there.
Chris Hall: Yes. I mean I think that's the core thing, and we really tried to distill that down because every day, when we're returning results back to physicians, they're seeing 30%, 40% of the results in the ultrasensitive range of the positive results. And that has been super well received because those are patients that they're able to see more than what they've been able to see before. And we're seeing tremendous retention. I mean we put that 90-plus percent number in there, but the physicians that are -- 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, Rich?
Rich Chen: No, I think you stated it well. I think the ultrasensitive concept is really resonating, just like Chris said. And they definitely can understand when they see a low-level detection, but it's positive. It's easy to say, see that actually, that could have been missed if the test was sensitive. So -- and a lot of these physicians have experienced situations where the initial test or other tests have been negative and it goes on to be positive later on.
Chris Hall: Yes. And so we think it's working well. And then we've had -- I talked about the example that we used in the script where the patient was in that 20 to 30 PPM range, didn't expect her to be there, started doing -- looking for evidence of the disease, found it unexpectedly in another spot and then was able to take action. And those types of cases really cement the value proposition and don't take a ton of education and/or teaching to do, right? I think that's what's important. The ability that we've had to distill this down into the ultrasensitive range, tie that to the data that's shown in the -- 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 at MRD testing at a good scale in their clinics. We're trying to work with doctors who have dabbled with the technology, because part of the challenge there as we try to make MRD testing standard of care as an 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 Personalis in a position where we're really pushing the needle forward on this MRD market. And so, very, very purposely as a part of our execution plan, we're focusing in this phase of the business on learning how to attack each one of those different segments.
Mark Massaro: 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 Tempus?
Rich Chen: 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 Tempus 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 Personalis, but they'll also, quite frankly, work with the Tempus team. Tempus brings a lot of benefits to this. They've got the knowledge, the skill sets of working with these individual institutions. They're often integrated into the EMRs, and we've largely been indifferent about where the samples are coming, but we will apply more people on our -- in sales and marketing ourselves to accelerate the commercial traction once we get reimbursement. And the other thing we're learning right now also is how to scale the lab. And so growing this thing at this -- in the last couple of quarters, 60% really, we're learning how to get samples in here, how to get them through the system, how to meet all of our lead-time commitments that we're making to doctors, how to build for it with customer care and building this business from the ground up, you want to go -- you want to keep -- you got to keep moving and keep taxing the system to keep nailing it, and that's what we're doing.
Mark Massaro: Okay, great. It's nice to see the extra cash coming in 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 the timing of that as reimbursement might come in?
Rich Chen: Yes, I mean we're -- I would just think -- appreciate the comment on the cash. I mean it's super important, and we did it in a really cost-effective way, and we're really excited about that. We called that out in the script. But sometimes the fundraising can take a big chunk off the top and the way we did this really -- I think it was really cost effective. We we're going to -- we'll stay largely very -- we'll be in cash conservation mode all the way now to when we get this company and all the way through to cash breakeven. And then as we try to scale it over time to a highly profitable company, we're very focused on. I think we all learned a lot through this last period, and we're not going to going to 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 start to -- 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 necessarily. 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 the 60% sequential quarter-over-quarter numbers that we need to do with what we've got.
Chris Hall: Just one other thing on the capital allocation, Mark and so inside of our R&D expense, that's $50 million 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, and 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 …
Rich Chen: Yeah.
Chris Hall: …to pay us as well into the future.
Rich Chen: We'll keep driving hard in clinical evidence and showing the value of ultra-sensitive testing. No clinical utility studies are prospectively gathered before firing that stuff up. But we've got all that embedded in our models. And I think investors should feel actually happy that we're going to invest there. I think the learnings from all these diagnostic companies is that is always good spending as you build deeper evidence in the well of products.
Mark Massaro: Okay. Thank you, guys.
Chris Hall: Thank you, Mark.
Rich Chen: Thank you, Mark.
Operator: Our next question comes from Thomas Flaten of Lake Street Capital. Please go ahead.
Thomas Flaten: 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?
Chris Hall: No. No, no. No, we're all over lung. We -- we're shooting to have three out of three, but we think that two out of -- 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 road map could happen. And so presumably, you could say those two marbles are rolling a little faster now, but the lung one could certainly catch up. The data looks really strong there. It's one of the larger MRD trials in lung. And so I think we're going to move all three of them pretty aggressively. And we have a shot at getting all three reimbursed in 2025. To be perfectly honest, that's our internal plan. It's just that 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 us to run some more data to validate something, …
Thomas Flaten: And …
Chris Hall: …anything to add to that, Rich?
Thomas Flaten: Oh, sorry.
Chris Hall: Go ahead, Thomas.
Thomas Flaten: No, please go ahead, Rich.
Rich Chen: No, there was nothing more. I just -- I was just checking in and hang more, go ahead.
Thomas Flaten: Got it. So with the Merck Moderna melanoma study largely enrolled at this point, do you have a 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?
Chris Hall: Yeah. I mean I think we set that target knowing that melanoma would largely be done this year. They were pushing pretty aggressively forward. 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, and that's where we are. There's a bunch of studies going. I think they just announced a Phase III 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 Personalis, and we've done a great year supporting them in their journey.
Thomas Flaten: Excellent. Appreciate taking the question. Thank you.
Caroline Corner: Thank you, Thomas.
Operator: Our next question comes from Mike Matson (NYSE:MATX) of Needham & Company. Please go ahead.
Unidentified Analyst: Hi guys. It's Joseph on for Mike. So I understand it's still early days with NeXT Personnel and the partnership with Tempus. But I'm just kind of wondering if you've seen out of the three indications of a certain indication, whether it be breast, lung or IO has been a predominant driver of volume there? And then maybe if there's not an answer there, if there's a certain data set, whether it be something robust like TRACER that you've heard from physicians or similar contacts that have driven awareness of NeXT Personnel?
Chris Hall: Yeah. I mean, I think that we're seeing it across all three of those indications. IO therapy 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 are 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 is being valued and is driving the usage. I think all the data sets have been well-received. I think the TRACERx data set and the Royal Marsden data set, we're 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 median, I think it is. And in lung cancer, nearly a year ahead of imaging has been really well received and physicians have sort of underlying the power of the ultrasensitive approach.
Unidentified Analyst: Okay. Great. And then maybe I think Aaron had mentioned that you guys are still having ongoing discussions with other companies for doing additional sequencing work for the enterprise sales. Just kind of wondering what type of contract or 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, yes, what type of contract, whether size or scope would need to be presented?
Chris Hall: Yes. Go ahead, to answer.
Aaron Tachibana: Yes. 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, right? 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.
Unidentified Analyst: Okay. Yes. That’s very helpful. That’s all the questions from us and congrats on the quarter.
Chris Hall: Thank you.
Operator: [Operator Instructions] Our next question comes from Li Chen of H.C. Wainwright. Please go ahead.
Q – Unidentified Analyst: This is Li Chen [ph] for Arthur He. Just a quick question from us. Previously, you guided gross 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.
Aaron Tachibana: 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.
Q – Unidentified Analyst: Thank you for the question.
Aaron Tachibana: Thank you, Li
Chris Hall: Thanks.
Operator: 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.
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