Personalis, Inc. 2020 Form 10-K Summary
Business context and reporting period
Personalis is a cancer genomics company providing sequencing and data-analysis services to biopharmaceutical, academic, nonprofit and government customers. Its NeXT Platform analyzes approximately 20,000 genes, tumor DNA and RNA, and immune-system characteristics. The company also performs population whole-genome sequencing for the U.S. Department of Veterans Affairs Million Veteran Program (VA MVP).
This Form 10-K covers the fiscal year ended December 31, 2020. Personalis operated as one reportable segment and generated substantially all revenue in the United States. It had 235 employees at year-end.
Financial performance and liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $78.6 million | $65.2 million | +21% |
| Gross profit | $20.1 million | $22.1 million | −9% |
| Gross margin | 25.6% | 33.9% | −8.3 percentage points |
| Operating loss | $42.1 million | $22.4 million | −88% |
| Net loss | $41.3 million | $25.1 million | −64% |
| Net loss per share | $1.20 | $1.39 | Improved due principally to share issuance |
| Cash used in operating activities | $42.7 million | $18.1 million | Greater cash burn |
| Cash and short-term investments | $203.3 million | $128.3 million | +$75.0 million |
| Total debt | None | None | No debt outstanding |
Costs of revenues increased 36% to $58.5 million, faster than revenue growth, primarily because of higher raw-material usage, increased laboratory staffing and capacity investments. Research and development expense rose 27% to $28.6 million, while selling, general and administrative expense rose 53% to $33.7 million. Stock-based compensation increased to $8.2 million from $4.9 million.
Investing cash outflows were $65.1 million, including $61.9 million of net purchases of short-term investments and $3.2 million of property and equipment purchases. Financing cash inflows were $121.3 million, principally from the August 2020 follow-on offering. Working capital was $180.1 million at year-end.
Material changes versus the prior comparable period
- VA MVP revenue increased 29% to $56.2 million and represented 71% of total revenue, compared with 67% in 2019.
- Revenue from all other customers increased 4% to $22.5 million. Approximately one-third of this revenue came from NeXT Platform products, versus insignificant NeXT revenue in 2019.
- Total costs and expenses increased 38%, causing the operating loss to nearly double despite 21% revenue growth.
- NeXT Liquid Biopsy launched in August 2020, with initial customer orders received and initial deliveries expected in 2021.
- SHERPA and NEOPS, machine-learning and biomarker capabilities integrated into the NeXT Platform, launched in December 2020.
- The company completed a follow-on equity offering in August 2020 and received approximately $117.5 million of net proceeds.
- Customer deposits declined to $21.0 million from $36.0 million, contributing to operating cash use as prepaid services were delivered.
Guidance, outlook, risks and unusual items
Management expects continued operating losses and increased investment in research and development, sales and marketing, laboratory capacity, automation and infrastructure. The filing does not provide formal revenue or earnings guidance. Management stated that existing cash, cash equivalents and short-term investments were expected to fund anticipated needs for at least the next 12 months, subject to assumptions about demand, cash burn and other risks.
- VA MVP concentration: The VA MVP accounted for 71% of 2020 revenue. The current contract and task order extend through August 2021, with no remaining renewal options under the existing agreement. The VA may terminate for convenience, reduce funding or conduct a competitive bidding process.
- Contracted revenue: Contracted but unrecognized revenue was $43.5 million at year-end, expected to be recognized within approximately three quarters, subject to performance and sample receipt.
- COVID-19: The pandemic delayed customer sample collection and shipments, restricted facility access, slowed research and development and created potential supplier and staffing disruptions.
- Regulatory exposure: The company markets its diagnostic services as laboratory-developed tests and relies on the FDA’s enforcement discretion. Future FDA, CLIA, state, European or other regulatory requirements could increase costs or restrict commercialization.
- Supplier concentration: Illumina is the sole supplier of key sequencing instruments and associated reagents and provides related maintenance services.
- Customer deposits: Approximately $21.0 million of deposits were outstanding at year-end, including $18.4 million from one customer. Certain cancellations or reductions could require repayment.
- Subsequent financing: In January 2021, Personalis raised total net proceeds of approximately $162.3 million through a follow-on offering and exercise of the underwriters’ option, before estimated offering expenses.
- Other unusual items: The company reported no material legal proceedings and no loss on debt extinguishment in 2020. It continues to report accumulated losses, with an accumulated deficit of $181.9 million.
Important facts for investors to verify
- Progress toward reducing reliance on the VA MVP and expanding recurring revenue from biopharmaceutical and NeXT Platform customers.
- Renewal, replacement or competitive rebidding of the VA MVP agreement after August 2021.
- NeXT Liquid Biopsy order volume, deliveries and commercial revenue beginning in 2021.
- Gross-margin trends as laboratory volume increases and automation investments mature.
- Operating cash burn, capital expenditures and the duration of the company’s cash runway after the January 2021 financing.
- Regulatory developments affecting laboratory-developed tests, companion diagnostics and international operations.
- Customer-deposit concentration and potential refund obligations.
- Dependence on Illumina and the availability of alternative sequencing equipment and reagents.
- Dilution from the January 2021 equity offering, outstanding options and restricted stock units.