PERSONALIS, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and the related notes and other financial information
included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report
on Form 10-K for the fiscal year ended
Overview
In
Our strategy is to work with world-class medical institutions. To that end, in
the fourth quarter of 2021, we announced a collaboration with the
We have the capacity to sequence and analyze approximately 200 trillion bases of DNA per week in our facility. We believe that capacity is already larger than most cancer genomics companies, and we continue to build automation and other infrastructure to scale further as demand increases and in support of our NeXT Liquid Biopsy, NeXT Dx Test and NeXT Personal offerings. To date, we have sequenced more than 250,000 human samples, of which more than 150,000 were whole human genomes.
In parallel with the development of our platform technology, we have also
pursued business within the population sequencing market, and we have provided
whole genome sequencing services under contract with the
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2022, and the large market opportunity we see in this space for our technology and offerings, we plan to focus primarily on cancer as we go forward.
In
Our operations have been impacted, and may be impacted in the future, by the ongoing COVID-19 pandemic. For example, the previous shelter-in-place order and health orders negatively impacted productivity, disrupted our business, and slowed research and development activities due to limited access to our laboratory space that would otherwise be used by our research and development group, and, to the extent such orders return in similar or more stringent form, they may continue to cause such effects on our operations. The COVID-19 pandemic has also disrupted, and may disrupt in the future, the ability of our suppliers to fulfill our purchase orders in a timely manner or at all. Additionally, we are aware of increased demand in the market for certain consumables used in COVID-19 test kits and vaccines. We use such consumables in our operations, and we have faced, and may face in the future, difficulties in acquiring such consumables if our suppliers prioritize orders related to COVID-19. Several of our customers have been delayed in sending us samples due to the inability to collect or ship samples during the COVID-19 pandemic, and these and additional customers may be disrupted from collecting samples or sending purchase orders and samples to us in the future.
While authorities in many areas have lifted or relaxed pandemic-related
restrictions, in some cases they have subsequently re-imposed various
restrictions after observing an increased rate of COVID-19 cases as the global
COVID-19 pandemic continues to evolve and to present serious health risks. There
is no guarantee when or if all such restrictions and recommendations will be
eliminated, such that we and our customers, manufacturers and suppliers will be
able to safely resume operations consistent with our pre-COVID-19 operations.
The full extent of the impact of the COVID-19 pandemic on our business,
operations and plans remains uncertain and will depend on future developments
that cannot be predicted at this time. Such developments include the continued
spread of the Omicron variant in the
A continued and prolonged public health crisis such as the COVID-19 pandemic could have a material negative impact on our business, financial condition, and operating results.
Components of Operating Results
Revenue
We derive our revenue primarily from sequencing and data analysis services to support the development of next-generation cancer therapies and to support large-scale genetic research programs. We support our customers by providing high-accuracy, validated genomic sequencing tests with advanced analytics. Many of these analytics are related to state-of-the-art biomarkers, including those relevant to immuno-oncology therapeutics such as checkpoint inhibitors.
Our revenue is primarily generated through contracts with companies in the pharmaceutical industry, healthcare organizations, and government entities. Our ability to increase revenue will depend on our ability to further penetrate this market. To do this, we are developing a growing set of state-of-the-art services and products, advancing our operational infrastructure, expanding our international presence, building our regulatory credentials, and expanding our targeted marketing efforts. We sell through a small direct sales force.
Since 2018, we have derived a substantial portion of our revenue from sales of our DNA sequencing and data analysis services to the VA MVP. However, we currently do not anticipate deriving such substantial portions of our revenue from the VA MVP going forward. Our contract with the VA MVP does not include specific testing turnaround times. Therefore, we have the ability to modulate the volume of samples processed for the VA MVP up or down to complement sample volumes from all other customers, which can vary from period to period.
We have one reportable segment from the sale of sequencing and data analysis
services. Most of our revenue to date has been derived from sales in
Costs and Expenses Cost of Revenue
Cost of revenue consists of raw materials costs, personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), laboratory supplies and consumables, depreciation and maintenance on equipment, and allocated facilities and information technology ("IT") costs. We expect cost of revenue to increase as our revenue grows, and in the short term cost of revenue may outpace revenue growth as we invest in expanding our laboratory capacity, including additional costs associated with our future
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laboratory in
Research and Development Expenses
Research and development expenses consist of costs incurred for the research and development of our services and products and costs related to conducting studies and collaborations with partners to validate the clinical utility of our offerings. These expenses consist primarily of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), laboratory supplies and consumables, costs of processing samples for research purposes, depreciation and maintenance on equipment, and allocated facilities and IT costs. We include in research and development expenses the costs to further develop software we use to operate our laboratory, analyze the data it generates, and automate our operations.
We expense our research and development costs in the period in which they are incurred. We expect to increase our research and development expenses as we continue to develop new services and products and expand collaborations for clinical validation to secure reimbursement opportunities.
Selling, General and Administrative Expenses
Selling expenses consist of personnel costs (salaries, commissions, bonuses, stock-based compensation, payroll taxes, and benefits), customer support expenses, direct marketing expenses, and market research. Our general and administrative expenses include costs for our executive, accounting, finance, legal, and human resources functions. These expenses consist of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), corporate insurance, audit and legal expenses, consulting costs, and allocated facilities and IT costs. We expense all selling, general and administrative costs as incurred.
We expect our selling expenses will continue to increase in absolute dollars,
primarily driven by our efforts to expand our commercial capability and to
expand our brand awareness and customer base through targeted marketing
initiatives with an increased presence both within and outside
Interest Income and Interest Expense
Interest income consists primarily of interest earned on our cash and cash equivalents and short-term investments. Interest expense in 2022 is the recognition of imputed interest on noninterest bearing loans.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency exchange gains and losses, and realized gains or losses associated with sales of marketable securities. We expect our foreign currency exchange gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.
Results of Operations
The following sets forth, for the periods presented, our unaudited condensed consolidated statements of operations and selected financial data (in thousands, except share and per share data):
Three Months Ended March 31,
2022 2021
Revenue $ 15,227 $ 20,881
Costs and expenses
Cost of revenue 10,949 13,454
Research and development 17,098 9,496
Selling, general and administrative 15,486 10,421
Total costs and expenses 43,533 33,371
Loss from operations (28,306 ) (12,490 )
Interest income 144 95
Interest expense (59 ) -
Other income (expense), net 19 (12 )
Loss before income taxes (28,202 ) (12,407 )
Provision for (benefit from) income taxes 7 (3 )
Net loss $ (28,209 ) $ (12,404 )
Net loss per share, basic and diluted $ (0.63 ) $ (0.29 ) Weighted-average shares outstanding, basic and diluted 44,995,752 42,265,596
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March 31, December 31,
2022 2021
Cash and cash equivalents, and short-term investments $ 266,540 $ 287,064
Working capital 254,184 286,918
Total assets 380,647 396,528
Total debt 3,552 3,494
Long-term obligations 54,088 54,914
Total liabilities 93,932 86,227
Total stockholders' equity 286,715 310,301
Revenue
The following table shows revenue by customer type (in thousands):
Three Months Ended March 31, Change
2022 2021
VA MVP $ 3,501 $ 13,210 (73%)
All other customers 11,726 7,671 53%
Total revenue $ 15,227 $ 20,881 (27%)
The following table shows concentration of revenue by customer:
Three Months Ended March 31,
2022 2021
Natera, Inc. 27% *
VA MVP 23% 63%
Pfizer Inc. 11% 12%
* Less than 10% of revenue
VA MVP
The decrease of
The recognition of significant revenue from the VA MVP in future periods after
the completion of our current backlog is contingent on receipt of a new contract
with the VA MVP and it may not award us a new contract. Further, the value of
any such potential new contract may be lower than our current contract and
historical contracted orders from the VA MVP, and/or the scope or nature of the
services required under any such new contract may change such that we are unable
to serve the VA MVP in the future. The task order received in
All other customers
The increase of
Based on the relatively large dollar value of orders received from all other customers throughout fiscal 2021 and the first quarter of 2022, we anticipate that revenue from all other customers will make up the majority of our total revenue in fiscal year 2022.
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Costs and Expenses
Three Months Ended March 31, Change
2022 2021
(in thousands)
Cost of revenue $ 10,949 $ 13,454 (19%)
Research and development 17,098 9,496 80%
Selling, general and administrative 15,486 10,421 49%
Total costs and expenses $ 43,533 $ 33,371 30%
Cost of revenue
The
Research and development
The
Selling, general and administrative
The
Interest Income, Interest Expense, and Other Income (Expense), Net
Three Months Ended March 31, Change
2022 2021
Interest income $ 144 $ 95 52%
Interest expense (59 ) - 100%
Other income (expense), net 19 (12 ) NM
Total $ 104 $ 83
Interest income and interest expense
The increase in interest income in the first quarter of 2022 was driven by
increased yields on our investments during this period and higher average cash
and investment balances after our follow-on equity offering in
Other income (expense), net
Other income (expense), net in the first quarter of 2022 consisted mainly of foreign currency remeasurements. Other income (expense), net in the first quarter of 2021 consisted of foreign currency remeasurements and a realized loss on the sale of a marketable debt security, each individually insignificant.
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Liquidity and Capital Resources
The following tables present selected financial information and cash flow information (in thousands):
March 31, December 31,
2022 2021
Cash and cash equivalents, and short-term investments $ 266,540 $ 287,064
Property and equipment, net 30,600 19,650
Contract liabilities 3,461 3,982
Working capital 254,184 286,918
Three Months Ended March 31,
2022 2021
Net cash used in operating activities
(3,161 ) (82,544 )
Net cash provided by financing activities 515 162,849
From our inception through
We have incurred net losses since our inception. We anticipate that our current cash and cash equivalents and short-term investments, together with cash provided by operating activities, are sufficient to fund our near-term capital and operating needs for at least the next 12 months.
We have based these future funding requirements on assumptions that may prove to
be wrong, and we could utilize our available capital resources sooner than we
expect. If our available cash balances and anticipated cash flow from operations
are insufficient to satisfy our liquidity requirements, including because of
lower demand for our services or other risks described in this Quarterly Report
on Form 10-Q, such as the COVID-19 pandemic, we may seek to sell additional
common or preferred equity or convertible debt securities, enter into an
additional credit facility or another form of third-party funding or seek other
debt financing. We filed a prospectus supplement in
Our short-term investments portfolio is primarily invested in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. Our investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.
As of
During the first quarter of 2022, cash used in operating activities of
During the first quarter of 2021, cash used in operating activities of
During the first quarter of 2022, cash used in investing activities was
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During the first quarter of 2021, cash used in investing activities was
Material Cash Requirements
Our material cash requirements in the short- and long-term consist primarily of
capital expenditures, variable costs of revenue, operating expenditures,
property leases, and other. We plan to fund our material cash requirements with
our existing cash and cash equivalents and short-term investments, which
amounted to
Capital expenditures. We expect to increase capital expenditures in future
periods to support our global growth initiatives. Such expenditures are expected
to consist primarily of facility renovations and improvements, laboratory
equipment, and computer equipment. We currently expect capital expenditures to
be between
Variable costs of revenue. From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of raw materials, laboratory supplies and consumables to be used in the sequencing of customer samples. However, we generally do not have binding and enforceable purchase orders beyond the short term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project. Another primary use of cash within variable costs of revenue relates to paying our workforce. We currently expect spend to decrease in 2022 but increase in years thereafter to support revenue growth.
Operating expenditures. Our primary use of cash relates to paying employees, spend on professional services, spend related to research and development projects, and other costs related to our research and development, selling, general and administrative functions. We currently expect to increase our spend in these areas to support our business growth in 2022. On a long-term basis, we manage future cash requirements relative to our long-term business plans.
Property leases. Our noncancelable operating lease payments were
Other. During the second quarter of 2021, we entered into two noninterest
bearing loans to finance the purchase of
Certain of our customers prepay us for a portion of the services that they
expect to order from us before they place purchase orders and we deliver those
services. As of
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We believe that the assumptions and estimates associated with revenue recognition, stock-based compensation, and leases have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
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There have been no material changes to our critical accounting policies and
estimates as compared to the critical accounting policies and estimates
described in our Annual Report on Form 10-K for the fiscal year ended
Recent Accounting Pronouncements
See the sections titled "Summary of Significant Accounting Policies-Recent Accounting Pronouncements" and "-Recent Accounting Pronouncements Not Yet Adopted" in Note 2 to our unaudited condensed consolidated financial statements for additional information.
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