Personalis, Inc. Form 10-Q Summary
Business context and reporting period
Personalis provides genomic tests for precision oncology and personalized testing, along with sequencing and data-analysis services for population sequencing programs. The report covers the unaudited quarter ended March 31, 2023. The company operates as one reportable segment and remains loss-making.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $18.9 million | $15.2 million | 24% |
| Cost of revenue | $14.1 million | $10.9 million | 29% |
| Gross profit | $4.7 million | $4.3 million | 9% |
| Gross margin | 25.0% | 28.1% | Down 3.1 percentage points |
| Operating loss | $29.8 million | $28.3 million | 5% higher loss |
| Net loss | $28.7 million | $28.2 million | 2% higher loss |
| Net loss per share | $0.61 | $0.63 | Improved |
| Cash used in operating activities | $15.7 million | $11.4 million | Higher use |
Revenue by customer type was $9.5 million from enterprise sales, $6.3 million from pharma tests and services, $3.0 million from population sequencing and $0.1 million from other sources. Natera represented 50% of revenue, while the VA Million Veteran Program represented 16%.
At March 31, 2023, cash and cash equivalents were $87.2 million and short-term investments were $61.8 million, for total cash and short-term investments of $148.9 million. Working capital was $148.6 million. Total assets were $272.2 million and stockholders’ equity was $193.6 million.
Total debt was $2.6 million, primarily equipment and software financing. Operating lease liabilities totaled $46.8 million, including $40.3 million long term; future minimum operating lease payments totaled $83.0 million. Capital expenditures were $3.8 million in the quarter.
Material changes versus the prior comparable period
- Revenue increased 24%, primarily because enterprise sales to Natera increased 130% to $9.5 million; sample volumes processed for Natera increased more than 150%.
- Pharma tests and services revenue declined 16% because of non-recurring prior-year projects and variability in customer clinical-trial spending.
- Population sequencing revenue declined 14% due to lower VA MVP task-order values. The company expects to recognize the remaining $6.1 million of its initial $10.0 million VA MVP task order by the end of the third quarter of 2023, subject to sample processing.
- Cost of revenue increased faster than revenue, driven by raw materials, facility and laboratory-equipment costs, consumables and labor, reducing gross margin.
- Research and development expense declined 3% and selling, general and administrative expense declined 9%, primarily reflecting the workforce reduction.
- The company recorded $3.9 million of restructuring and other charges, consisting of $3.1 million for a reduction affecting nearly 100 employees and $0.8 million related to closing China operations.
- Interest income increased to $1.3 million from $0.1 million because of higher investment yields.
Guidance, outlook, commentary and risks
- Management expects the workforce reduction and China closure to reduce annualized expenses by approximately $20 million and estimates 2023 cash usage of approximately $75 million, compared with $119 million in 2022.
- The company expects existing cash, cash equivalents and short-term investments, together with anticipated operating cash flows, to fund near-term requirements for at least the next 12 months. Management notes that actual cash usage could exceed expectations and additional financing may be required.
- Capital expenditures are expected to be approximately $5 million to $7 million in each of 2023, 2024 and 2025.
- Management is focusing its strategy on ultra-sensitive minimal residual disease testing, particularly immunotherapy monitoring, breast cancer and lung cancer. Key collaborations include Natera, Moderna, AstraZeneca, Cancer Research UK, University College London, the Francis Crick Institute and other academic and clinical organizations.
- The company expects to complete the closure of its China entity by the end of 2023 and plans to move its CLIA-certified and CAP-accredited laboratory operations from Menlo Park to Fremont during 2023.
- The Fremont facility experienced substantial electrical-power disruption from January through April 2023. Regular electrical service has been restored, but the company incurred temporary-power and remediation costs and expects to seek reimbursement from the landlord.
- Customer concentration is significant: the top five customers represented 84% of revenue, and Natera alone represented 50%. Natera is not required to purchase minimum volumes, and its agreement is non-exclusive.
- The company relies on limited or sole-source suppliers, including Illumina for sequencers and related materials. Regulatory oversight of laboratory-developed tests, reimbursement uncertainty, cybersecurity and data-privacy requirements, intellectual-property disputes, and the ability to obtain future financing remain material risks.
- Personalis is pursuing patent litigation against Foresight Diagnostics. The case was stayed pending potential inter partes review proceedings, and the filing states that the financial effect cannot currently be estimated.
- Disclosure controls and procedures were deemed effective as of March 31, 2023, with no material change in internal control over financial reporting reported during the quarter.
Most important facts for investors to verify
- Whether Natera sample volumes and revenue remain sustainable, given the 50% revenue concentration and non-exclusive agreement.
- Progress, funding and renewal prospects under the VA MVP contract and the timing of the remaining $6.1 million task order revenue.
- Actual cash consumption after the workforce reduction, China closure and other cost-saving measures, relative to the approximately $75 million 2023 estimate.
- Whether gross margins improve as enterprise volumes scale and fixed facility costs are absorbed.
- Completion and regulatory transfer of laboratory operations to Fremont, including any further power disruptions and landlord reimbursement.
- Capital needs and potential dilution if operating losses and cash usage persist beyond management’s runway assumptions.
- Developments in the Foresight litigation and inter partes review petitions, as well as any resulting legal costs or restrictions.
- Commercial adoption, reimbursement and regulatory progress for NeXT Personal, NeXT Dx and other clinical diagnostic offerings.