Personalis, Inc. 10-Q Summary
Business Context and Reporting Period
Personalis provides advanced genetic tests for cancer and sequencing and data-analysis services for population sequencing programs. The filing covers the quarter and nine months ended September 30, 2022. The company operates as one reportable segment and remains loss-making.
Strategically, Personalis is expanding from pharmaceutical and research services into clinical diagnostics through its NeXT Dx and NeXT Personal offerings, while relocating to a larger Fremont, California headquarters and laboratory facility.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $14.9 million | $22.3 million | $48.3 million | $64.8 million |
| Gross profit | $2.5 million | $8.1 million | $11.0 million | $23.7 million |
| Gross margin | 16.7% | 36.2% | 22.8% | 36.5% |
| Loss from operations | $(27.3) million | $(17.7) million | $(83.4) million | $(45.1) million |
| Operating margin | (183.5)% | (79.5)% | (172.7)% | (69.6)% |
| Net loss | $(26.5) million | $(17.7) million | $(82.2) million | $(45.0) million |
| Net loss per share | $(0.58) | $(0.40) | $(1.81) | $(1.03) |
| Operating cash flow | Not separately provided | Not separately provided | $(53.5) million | $(55.6) million |
- Revenue declined 33% year over year in Q3 and 25% for the first nine months.
- Research and development expense increased 10% in Q3 and 39% for the first nine months, while selling, general and administrative expense increased 22% and 36%, respectively.
- Cash and cash equivalents were $83.5 million and short-term investments were $109.2 million at September 30, 2022, totaling $192.8 million. Working capital was $188.2 million.
- Cash, cash equivalents and restricted cash totaled $85.3 million at quarter-end, compared with $107.4 million at December 31, 2021.
- Total debt was $2.5 million, consisting primarily of equipment and software financing. Total liabilities were $75.5 million, including $41.3 million of long-term operating lease liabilities.
- Capital expenditures were $40.4 million during the first nine months, contributing to a $61.2 million property and equipment balance versus $19.7 million at year-end 2021.
- Stock-based compensation was $4.4 million in Q3 and $13.6 million for the first nine months.
Material Changes Versus the Prior Comparable Period
- VA MVP revenue fell to zero in Q3 2022 from $13.7 million and declined 81% for the first nine months, from $40.4 million to $7.6 million. The prior contract had expired, and the new contract was placed under protest.
- Revenue from all other customers increased 73% in Q3 and 67% for the first nine months, driven principally by higher Natera sample volumes and pharmaceutical customer projects.
- Natera represented 50% of Q3 revenue and 38% of nine-month revenue. Merck represented 20% of Q3 revenue and 12% of nine-month revenue.
- NeXT Platform revenue, including Natera-related revenue, increased to $12.5 million in Q3 from $5.5 million and to $31.2 million for the first nine months from $14.8 million.
- Gross margin contracted materially because lower revenue was absorbed by fixed laboratory costs, although management cited improved contribution margins from the customer mix.
- Operating losses widened primarily because of increased clinical infrastructure, product development, hiring, sales and marketing, facilities, and personnel costs.
- Accumulated deficit increased to $329.3 million from $247.1 million at December 31, 2021.
Guidance, Outlook, Risks and Unusual Items
- Management expects current cash, short-term investments and anticipated operating cash flows to fund near-term requirements for at least the next 12 months, while acknowledging that actual cash usage could be higher than expected.
- Management expects 2022 capital expenditures of approximately $40 million to $43 million, net of expected landlord reimbursements, including approximately $30 million related to the Fremont facility. Expected capital expenditures are $7 million to $10 million in each of the following two fiscal years.
- NeXT Dx was relaunched with a clinical-use focus, with initial revenue anticipated in the fourth quarter of 2022. Personalis plans to submit data to the Palmetto MolDx process and anticipates a reimbursement determination in the first half of 2023.
- NeXT Personal was available in the United States as a research-use-only test and was not yet offered directly to cancer patients. Management anticipated increased RUO orders and revenue in 2023 and beyond.
- The new VA MVP contract includes a one-year base period and four one-year renewal options. The initial task order has a value of up to $10.0 million, subject to sample receipt, but a competitor’s protest required an immediate work stoppage and could result in termination.
- Personalis filed patent infringement litigation against Foresight Diagnostics. Foresight filed counterclaims challenging infringement and the validity or enforceability of the asserted patents. The filing states that the financial effect cannot currently be estimated.
- Delays in the Fremont facility build-out delayed lease commencement and caused a $12.9 million reduction in the related right-of-use asset during Q3. The company expects to begin moving into the facility by year-end.
- Principal risks include continued losses, dependence on Natera and government contracts, uncertain VA MVP funding, clinical diagnostic reimbursement and regulatory approval, laboratory and supplier concentration, COVID-19 and supply-chain disruption, cybersecurity and privacy exposure, intellectual property litigation, and the need for additional financing.
- The company had an at-the-market equity program permitting up to $100.0 million of sales, but no shares had been sold under the program as of the filing.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Resolution and commercial consequences of the VA MVP contract protest, including timing and volume of sample deliveries.
- Sustainability of Natera sample volumes and the non-exclusive nature of the Natera relationship.
- Actual Q4 2022 NeXT Dx revenue, progress toward MolDx reimbursement, and the timing of clinical commercialization.
- Progress, cost and regulatory status of the Fremont facility, including CLIA and state laboratory licenses.
- Cash burn, capital expenditures and remaining lease obligations relative to the stated 12-month liquidity assessment.
- Potential costs and outcomes of the Foresight patent litigation and any effect on Personalis’s products or intellectual property strategy.
- Future financing needs and potential dilution under the unused $100.0 million at-the-market program or other securities offerings.