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 company reports one operating segment. This unaudited Form 10-Q covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021.
Strategically, Personalis is emphasizing oncology products, including NeXT Personal, NeXT Dx and the broader NeXT Platform, while reducing reliance on the U.S. Department of Veterans Affairs Million Veteran Program (VA MVP).
Financial Performance and Position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $15.2 million | $20.9 million | Down 27% |
| Cost of revenue | $10.9 million | $13.5 million | Down 19% |
| Gross profit | $4.3 million | $7.4 million | Down 42% |
| Gross margin | 28.1% | 35.6% | Down 7.5 percentage points |
| Research and development | $17.1 million | $9.5 million | Up 80% |
| Selling, general and administrative | $15.5 million | $10.4 million | Up 49% |
| Loss from operations | $(28.3) million | $(12.5) million | Loss increased |
| Operating margin | (185.8%) | (59.8%) | Down 126.0 percentage points |
| Net loss | $(28.2) million | $(12.4) million | Loss increased |
| Net loss per share | $(0.63) | $(0.29) | Loss increased |
Revenue from the VA MVP declined 73% to $3.5 million, while revenue from all other customers increased 53% to $11.7 million. NeXT Platform revenue increased to $7.8 million from $4.3 million, including $3.9 million of incremental revenue from Natera. Customer concentration remained high: Natera represented 27% of revenue, VA MVP 23%, and Pfizer 11%.
Cash used in operating activities was $11.4 million, compared with $11.7 million in the prior-year period. Cash used in investing activities was $3.2 million, including $8.6 million of property and equipment purchases, partly offset by net proceeds from short-term investments. Financing activities provided $0.5 million from equity-award exercises.
At March 31, 2022, cash and cash equivalents were $91.6 million, short-term investments were $175.0 million, and total cash, cash equivalents and short-term investments were $266.5 million. Working capital was $254.2 million. Total debt was $3.6 million, consisting of equipment and software financing, while total liabilities were $93.9 million. Operating lease liabilities totaled $56.5 million, including current and long-term portions. Accumulated deficit was $275.3 million.
Management stated that existing cash, cash equivalents and short-term investments, together with anticipated operating cash flows, are expected to fund near-term capital and operating needs for at least the next 12 months. The company has an unused at-the-market equity program allowing sales of up to $100.0 million.
Material Changes Versus the Prior Comparable Period
- Revenue fell $5.7 million, principally because of lower VA MVP sample volumes.
- Non-VA MVP revenue increased $4.1 million, driven by pharmaceutical demand and Natera sample volumes.
- Gross margin declined because of lower revenue, customer mix and increased labor, equipment and facilities costs.
- Research and development expense increased $7.6 million due to product development, clinical infrastructure hiring and validation testing.
- Selling, general and administrative expense increased $5.1 million, primarily from commercial-team expansion, professional services and Fremont facility costs.
- Net loss more than doubled, from $12.4 million to $28.2 million, and accumulated deficit increased from $247.1 million at December 31, 2021 to $275.3 million.
- Stock-based compensation increased to $4.8 million from $3.1 million.
- Cash and short-term investments decreased by $20.5 million from December 31, 2021, while property and equipment increased to $30.6 million from $19.7 million.
Guidance, Outlook, Risks and Unusual Items
- VA MVP outlook: The company had approximately $4.1 million of remaining VA MVP backlog at March 31, 2022, which it expected to recognize during the second quarter. Management did not expect new VA MVP orders in 2022 and stated that VA MVP revenue could cease after the second quarter absent a new contract or task order.
- Capital expenditures: Personalis expected 2022 capital expenditures of $50 million to $55 million, including $35 million to $40 million through year-end for the Fremont headquarters and laboratory facility, net of expected landlord reimbursements. Expected capital expenditures were $10 million to $15 million in each of the following two fiscal years.
- Facilities: The company planned to begin moving into its approximately 100,000-square-foot Fremont facility in the third quarter of 2022. The facility is intended to expand laboratory, clinical testing, research and development, and commercial capacity.
- Product and commercial outlook: Management expects oncology customers to represent the majority of 2022 revenue and is investing in NeXT Personal, NeXT Dx, clinical collaborations and reimbursement opportunities. The filing provides no formal revenue or profitability guidance.
- Liquidity risk: Personalis has a history of losses and expects additional losses. It may need additional equity, convertible debt or other financing if operating cash flows and existing liquidity are insufficient; such financing may be dilutive or unavailable on acceptable terms.
- Customer concentration: The VA MVP, Natera and other major customers account for a substantial portion of revenue and receivables. Natera’s agreement is non-exclusive and does not require minimum purchases.
- Operational risks: The company relies on limited or sole-source suppliers, including Illumina for sequencers and related materials. COVID-19 disruptions, supply-chain constraints, sample delays, staffing shortages and facility-transition risks could affect operations.
- Regulatory and reimbursement risks: The company markets its tests as laboratory-developed tests and may face increased FDA, CLIA, state, foreign and European IVDR requirements. Reimbursement for NeXT Dx and other clinical offerings remains uncertain.
- Investment losses: Available-for-sale debt securities had $0.9 million of unrealized losses at March 31, 2022, recorded in accumulated other comprehensive loss. Management did not consider the securities other-than-temporarily impaired.
- Legal matters and controls: The filing reports no material legal proceedings. Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material change in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Whether the VA MVP awards a new contract or task order after the approximately $4.1 million remaining backlog is recognized.
- Whether growth in Natera and other oncology customers can offset the expected disappearance of VA MVP revenue.
- Actual progress, spending and regulatory or licensing approvals associated with the Fremont facility transition.
- Quarterly cash burn, capital expenditures and remaining liquidity relative to the company’s continuing operating losses.
- Whether NeXT Personal, NeXT Dx and related collaborations generate meaningful commercial revenue and reimbursement.
- Customer concentration, Natera sample volumes and the non-exclusive nature of the Natera relationship.
- Potential effects of FDA, CLIA, state, IVDR and reimbursement developments on the company’s clinical testing strategy.
- Future financing needs and the potential dilution associated with the $100.0 million at-the-market program or other capital raises.