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
We strive to develop the most comprehensive and actionable cancer genomic tests in the world to help patients live better and longer lives. We believe we have one of the most discerning technologies to both characterize and monitor cancer - with the aim of driving a new paradigm for cancer management and guiding care from biopsy through the life of the patient. Our assays combine tumor-and-normal profiling with proprietary algorithms to deliver advanced insights even as cancer evolves over time. Our products are designed to detect recurrence at the earliest timepoints, enable selection of targeted therapies based on ultra-comprehensive genomic profiling, and enhance biomarker strategy for drug development.
Today, our platforms are routinely used by many of the largest oncology-focused
pharmaceutical companies for analysis of patient samples in their clinical
trials and drug development programs. Our advanced genomic sequencing and
analytics also support the development of personalized cancer vaccines and other
next-generation cancer immunotherapies. For example, we are providing genomic
testing to Moderna, Inc. ("Moderna") in its ongoing clinical trials evaluating a
personalized cancer vaccine. In addition, we partner with diagnostics companies
by providing our advanced tumor profiling and analysis capabilities as an input
to their products. More recently, we launched new diagnostic offerings for the
clinical setting and are preparing for future expansion in the clinical
diagnostics market. Finally, we have also pursued non-cancer related business
opportunities, specifically within the population sequencing market, by
providing whole genome sequencing ("WGS") services under contract with the
As part of one of our new strategies for 2023 and beyond, we are working with a
growing number of leading cancer centers and world-class academic research
institutions to build and publish the clinical evidence-base to support our
products and our key indications. Specifically, because of the high sensitivity
of our technology, we aim to focus on three indications in the next 2-3 years:
immunotherapy (IO) monitoring, breast cancer, and lung cancer. We have announced
collaborations with
Our work in oncology is underpinned by our experience and capacity for next-generation sequencing at scale. We have the capacity to sequence and analyze approximately 200 trillion bases of DNA per week in our facility. We believe that our capacity is already larger than most cancer genomics companies, and we continue to build automation and other infrastructure to scale further as demand increases. To date, we have sequenced more than 320,000 human samples, of which more than 160,000 were whole human genomes.
In
First Quarter 2023 Highlights
Total revenue increased 24%, or
We announce new product offerings, business developments, and research collaborations at various times during the year. Significant announcements during the first quarter of 2023 included the following:
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Sharpened our strategic focus to "Win in MRD", for cancer types that are hard to detect such as early-stage breast cancer, early-stage lung cancer, and immunotherapy monitoring. In addition, we expect to establish partnerships with companies that are in need of our ultra-sensitive MRD technology and have a commercial infrastructure to be successful in penetrating the market.
•
Announced a headcount reduction of approximately 30% and the decision to close
operations in
•
Announced a partnership with Moderna to leverage our NeXT Platform for supporting Moderna's personalized cancer vaccine development for clinical trial success, including for their Phase 3 melanoma trial which is evaluating mRNA-4157/V940 in combination with Merck & Co., Inc.'s Keytruda. We provide genomic test results to Moderna, leveraging our proprietary ACE coverage augmentation technology, which is exome-scale.
•
Announced a collaboration with
•
Presented new data to highlight NeXT Personal's ultra-sensitivity in four
posters at the
•
Extended partnership with AstraZeneca to use NeXT Personal to explore ultra-sensitive MRD measurement, including clinically relevant and personalized variant tracking, for clinical research and drug development.
•
Partnered with Criterium and the
•
Appointed
Components of Operating Results
Revenue
We derive our revenue primarily from sales of advanced sequencing and analytics to the following four groups of customers:
•
Pharma tests and services includes sales of testing services and data analytics for clinical trials and research to pharmaceutical companies in support of their drug development programs.
•
Enterprise sales includes sales of tumor profiling and diagnostic tests directly to other businesses as an input to their products. Revenue from our partnership with Natera to provide advanced tumor analysis for use in Natera's MRD test currently makes up substantially all of the revenue in this category.
•
Population sequencing includes sales of genomic sequencing services and data analytics to support large-scale genetic research programs. All of the revenue in this category is from our partnership with the VA MVP.
•
Other includes sales of genomic tests and analytics to universities and non-profits. This category also includes sales of diagnostics tests ordered by healthcare providers for cancer patients, which was insignificant to date in 2023.
Our ability to increase revenue will depend on our ability to further increase sales to these groups of customers and expand our customer base within each group. To do this, we are developing a growing set of state-of-the-art services and products, advancing our operational infrastructure, building our regulatory credentials, focusing our marketing efforts on large pharmaceutical companies, and seeking additional partnerships such as ours with Natera. We sell through a small direct sales force. We also anticipate increasing our revenue in the future through entrance into the clinical diagnostics market and have begun building our regulatory, clinical, and reimbursement capabilities, including hiring a national clinical sales force.
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
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Table of Contents 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. We expect variability in our gross
margins over the medium term due to fluctuating population sequencing revenue,
investments in new capabilities such as automation of laboratory workflows,
processing of diagnostic tests for the clinical market while we work to secure
reimbursement, and costs related to our new
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. The expenses primarily consist of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits); laboratory supplies and consumables; costs of processing samples for research, product development, collaborations, and studies; 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 overall as
we expand collaborations for clinical validation to secure reimbursement and
develop our NeXT Personal test as an LDT for the clinical diagnostics market,
partially offset by cost reductions from our first quarter 2023 reduction in
workforce and anticipated savings from our closure of operations in
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, general and administrative expenses to decrease significantly in the medium term as a result of the 2023 reduction in workforce, partially offset by investments in our diagnostic sales outreach efforts.
Restructuring and Other Charges
Restructuring and other charges consists of restructuring charges in connection
with our 2023 reduction in workforce and charges in connection with the closure
of our
Interest Income and Interest Expense
Interest income consists primarily of interest earned on our cash and cash equivalents and short-term investments. Interest expense 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.
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Table of Contents 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,
2023 2022
Revenue $ 18,860 $ 15,227
Costs and expenses
Cost of revenue 14,130 10,949
Research and development 16,573 17,098
Selling, general and administrative 14,097 15,486
Restructuring and other charges 3,885 -
Total costs and expenses 48,685 43,533
Loss from operations (29,825 ) (28,306 )
Interest income 1,253 144
Interest expense (47 ) (59 )
Other income (expense), net (26 ) 19
Loss before income taxes (28,645 ) (28,202 )
Provision for income taxes 14 7
Net loss $ (28,659 ) $ (28,209 )
Net loss per share, basic and diluted $ (0.61 ) $ (0.63 ) Weighted-average shares outstanding, basic and diluted 46,740,270 44,995,752
March 31, 2023 December 31, 2022
Cash and cash equivalents, and short-term investments $ 148,939 $ 167,658
Working capital 148,629 166,568
Total assets 272,180 292,700
Total debt 2,643 2,596
Long-term obligations 44,405 41,430
Total liabilities 78,548 74,561
Total stockholders' equity 193,632 218,139
Revenue
The following table shows revenue by customer type (in thousands):
Three Months Ended March 31, Change
2023 2022
Pharma tests and services $ 6,333 $ 7,562 (16%)
Enterprise sales 9,458 4,116 130%
Population sequencing 3,005 3,501 (14%)
Other 64 48 33%
Total revenue $ 18,860 $ 15,227 24%
The following table shows customers that made up at least 10% of total revenue
in each period presented:
Three Months Ended March 31,
2023 2022
Natera, Inc. 50% 27%
VA MVP 16% 23%
Pfizer Inc. * 11%
* Less than 10% of revenue
Pharma tests and services
Revenue from pharma tests and services decreased 16%, or
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Table of Contents Enterprise sales
Revenue from enterprise sales increased 130%, or
Population sequencing
Population sequencing revenue is made up entirely of sales to the VA MVP. The
decrease of 14%, or
In
Other
Other revenue increased 33%, or less than
Costs and Expenses
Three Months Ended March 31, Change
2023 2022
(in thousands)
Cost of revenue $ 14,130 $ 10,949 29%
Research and development 16,573 17,098 (3%)
Selling, general and administrative 14,097 15,486 (9%)
Restructuring and other charges 3,885 - 100%
Total costs and expenses $ 48,685 $ 43,533 12%
Cost of revenue
The increase in cost of revenue of 29% or
Specific components of the increase were a
Research and development
The decrease in research and development expenses of 3%, or
Specific components of the decrease were a
Selling, general and administrative
The decrease in selling, general and administrative expenses of 9%, or
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Specific components of the decrease were a
Restructuring and other charges
The
The workforce reduction affected nearly 100 employees and was substantially
completed by the end of the first quarter of 2023. We recognized
During the first quarter of 2023, expenses of
Interest Income, Interest Expense, and Other Income (Expense), Net
Three Months Ended March 31, Change
2023 2022
Interest income $ 1,253 $ 144 770%
Interest expense (47 ) (59 ) (20%)
Other income (expense), net (26 ) 19 NM
Total $ 1,180 $ 104 Interest income and interest expense
The increase in interest income in the first quarter of 2023 was due to increased yields on our investments. Interest expense in both periods presented was the recognition of imputed interest on noninterest bearing loans.
Other income (expense), net
Other income (expense), net during the periods presented consisted mainly of foreign currency remeasurements.
Liquidity and Capital Resources
The following tables present selected financial information and cash flow information (in thousands):
March 31, 2023 December 31, 2022
Cash and cash equivalents, and short-term investments $ 148,939 $ 167,658
Property and equipment, net 61,446 61,935
Contract liabilities 6,263 1,264
Working capital 148,629 166,568
Three Months Ended March 31,
2023 2022
Net cash used in operating activities $ (15,745 ) $ (11,357 )
Net cash provided by (used in) investing activities 13,793 (3,161 )
Net cash provided by financing activities - 515
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
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satisfy our liquidity requirements, including because of lower demand for our
services or other risks described in this Quarterly Report on Form 10-Q, 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 three months ended
During the three months ended
Material Cash Requirements
Our material cash requirements in the short- and long-term consist primarily of
variable costs of revenue, operating expenditures, capital 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
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. We currently expect spending in this area to increase in 2023 relative to 2022 to support expected higher levels of revenue.
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 decrease our spend in these areas as a result of our first quarter 2023 workforce reduction. On a long-term basis, we manage future cash requirements relative to our long-term business plans.
Capital expenditures. Capital expenditures are expected to decrease
significantly from 2022 levels as we have substantially completed the one-time
build-out of our new headquarters and laboratory facility in
Property leases. Our noncancelable operating lease payments were
Other. As of
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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.
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 section titled "Summary of Significant Accounting Policies-Recent Accounting Pronouncements" in Note 2 to our unaudited condensed consolidated financial statements for additional information.
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