Earnings Call: Q1 2021

May 5, 2021

Thank you, operator. Welcome to First Analysis First Quarter 2021 Earnings Call. Joining me on today's call are John West, President and Chief Executive Officer and Aaron Tachibana, Chief Financial Officer. This call will include forward looking statements, including statements regarding the in which we operate, including potential market sizes trends and expectations for products, services and technology trends and demand for our products Personalis' expected financial performance, expenses and position in the market and the impact of the COVID-nineteen pandemic on our operations and our customers' operations. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. We encourage you to review our most recent filings with the SEC, particularly the risk factors described in our 10 Q for the Q1 of fiscal year 2021 to be filed today and our 10 ks for fiscal year 2020. The forward looking statements we provide during this call, including expectations for future performance, are based on our reasonable beliefs and expectations as of today. Personalis undertakes no obligation to update these statements, except as required by applicable law. Please note that in these prepared remarks, Personalis Management represents a category of customers. It reflects all biopharma and all other customers, excluding the VA MVP, most of whom use personnel services for applications in oncology. And when referring to population sequencing, we are referring to the VA MVP or other potential customers within this market. Our press release with our Q1 2021 results is available on our website, www.personalis.com, under the Investors section and includes additional details about our financial results. Our website also has our latest SEC filings, which we encourage you to review. A recording of today's call will be available on our website by 5 P. M. Pacific Time today. Now I'd like to turn the call over to John for his comments and Q1 business highlights. Thank you, Carolyn. Personalis has continued to grow. We achieved another overall revenue record during Q1 and it was our 19th consecutive quarter of growth. Our oncology business, which has received orders well above revenue levels since Q3 of 2019 has increasingly seen the resulting backlog turn to revenue. In Q1, our revenue from this business grew 74% over the same period of the prior year. In Q1, new orders again significantly exceeded revenue. And so far in Q2, We expect that yet again. The strategy of our oncology business has been to support drug development At the leading edge of cancer biology. That strategy is working. In our population sequencing business, we have now received all of the samples required to complete our current orders, putting us in a great position through Q3. We have also engaged with the VA MVP about options for a further order under our existing contract with them, which expires in August of this year. We are optimistic that our relationship with the VA MVP will not only continue, but broaden in part by leveraging capabilities initially developed for the oncology side of our business. Given all of this progress, We will now resume giving full year guidance, reflecting our improved visibility. Our mission is to help cancer patients live better and longer lives, and we developed our Immuno ID NEXT platform with this objective in mind. The Nxt platform provides our pharmaceutical customers with the capability to better understand cancer patients' genetic profile, which can help with drug development, therapy selection and ongoing monitoring of the tumor to help detect recurrence. We believe that in order to better understand a cancer patient's tumor, both tissue and liquid biopsies together can provide the most comprehensive view, leading to the optimal therapy and treatment decisions being made. Both our tissue and liquid biopsy based offerings have been designed specifically to meet the needs of our pharmaceutical customers and provide data on all of the approximately 20,000 human genes. We expect our oncology revenue to become a larger part of our total mix in the future as we leverage our ability to analyze both tissue and Tissue samples give us access to RNA and to the immune cells, which have infiltrated a patient's tumor. Also, by analyzing liquid biopsy samples, we're able to provide information about a patient's tumor across multiple time points. Used together, we believe our oncology platforms provide our customers with the most comprehensive analysis of Tumor Burden and Biomarker Identification available today. We continue to execute well to our strategy and later this year, we plan to expand our liquid biopsy offering with the launch of Next Personal, our minimal residual disease or MRD offering that will be designed to track changes in a specific patient's tumor. We have begun to process customer provided samples to ensure our product development meets customer requirements and are very encouraged by those initial results. We believe the ability to monitor over 1,000 applications Ex Personal will compare favorably in terms of sensitivity and information with panels from competitors that can identify and track only dozens or hundreds of mutations. We also believe that Next Personal will be applicable to both pharmaceutical research and Clinical Diagnostic Markets in the future. Now I would like to provide 6 recent highlights and accomplishments from Q1. First, we continue to make encouraging progress with our exome scale next liquid biopsy product. As we launched this product in August 2020 and have received orders from several customers. We have now delivered our first customer order and showing the utility of our next liquid biopsy together with our immuno ID next analysis of tissue from the same patients. We also presented posters showcasing the state of the art results using next liquid biopsy at the recent AACR conference. We believe that Next liquid biopsy will also work synergistically with Next Personal when it is released and that liquid biopsy based products will contribute increasingly to revenue as we enter 2022. 2nd, We announced a collaboration with Natera to provide front end tissue sequencing services based on our advanced next exome to help them identify variants they will use to design their Signatera personalized liquid biopsy test. Additionally, Personalis provides expert tumor tissue sequencing services to multiple liquid biopsy companies, leveraging our deep know how in the processing of formal and fixed paraffin embedded or FFPE tissue from many different cancer types. We expect our long term growth to be based on our own products, including our own liquid biopsy products. But these partnerships show how Personalis has come to be respected as a technological leader in our field and they supplement our revenue as we build our business. 3rd, we announced a collaboration with Mapcure LLC, a company jointly owned by BeiGene Limited and SpringWorks Therapeutics Incorporated. We plan to use our next platform for their clinical trials and Companion Diagnostic Development. We believe our work with companies such as MapPure is a strong testament to our technology and capabilities. Who will also allow us to showcase our genomic profiling platform within a clinical setting, which we expect to assist us with future regulatory approvals for our next platform of products and services. 4th, our customer base has broadened substantially over the last year. We have now received orders from a majority of the top 10 oncology focused pharmaceutical companies. Since we introduced the NEX platform in 2019, as of the end of Q1, we have received NEX orders from 50 different customers. In Q1, we added another large global pharmaceutical company as a customer, starting with an order of almost $1,000,000 We believe this growing adoption of NEX further highlights the power of our platform and the comprehensiveness is important to our customers. 5th, over the past few quarters, we highlighted some of our initial plans to establish a lab and commercial operations In the People's Republic of China and to partner with Berry Genomics. Our team continues building our laboratory in Shanghai, and we are hiring additional employees. Customer engagement is very good. For a pharmaceutical company to include personal analysis of biopsy samples from clinical trial patients in China. They need to apply to the China Regulatory Authority, hgRaAC, for permission. We are supporting preparation of a number of these applications and anticipate that HGRAC decisions could be received as early as Q3 this year. In a number of these cases, these are international clinical trials for which Percellus has already received multimillion dollar orders to process samples using our NEXT platform from the portions of the trial outside China. Who are also in discussions with a number of Chinese pharmaceutical companies about their potential use of our next platform in their clinical trials in China. We continue to expect that our operations in China will begin in 2021 with moderate revenues and begin ramping in 2022. While this project will take some time to meaningfully contribute to our top line, we believe this is an important investment. We look forward to updating you on our progress. 6th and finally, in addition to the achievements just mentioned, We also recently announced the addition of Doctor. Woody Myers to our Board of Directors. Doctor. Myers has extensive healthcare industry experience and most recently served as the Chief Medical Officer and Chief Healthcare Strategist at Blue Cross and Blue Shield of Arizona. In addition, he has been active in government, having served as physician health advisor to the United States Senate Committee on Labor and Human Resources, as Health Commissioner for his home state of Indiana and as Commissioner of Health for the City of New York. Doctor. Myers received his MD degree from Harvard and subsequently his MBA from Stanford. Doctor. Myers will be instrumental in helping Channel's Grow and Scale in the Future. I'd now like to update you on the population sequencing part of our business, which is sometimes referred to in the field as population genomics. We continue to build a funnel of commercial opportunities and we are in early discussions with several of these prospects. Initial discussions are going well and are encouraging. We expect that we will have additional customers and revenue from these new commercial opportunities in 2022. Our work with the VA MVP program represents the largest population sequencing effort within the United States. The VA now targets enrollment of 2,000,000 veterans and over 825,000 veterans have enrolled so far. Personalis has been contracted so far to sequence over 146,000 VA MVP samples with approximately 29,000 currently remaining to be sequenced. We have been the sole provider for the VA MVP's Whole Genome Sequencing Project over the last 8 plus years and have been awarded multiple contracts by the VA MVP during this time. Our existing contract with the VA MVP ends in August 2021. However, the VA MVP can place additional orders with personnel under our existing contract, and we are now in active discussions with the VA about that. On our last earnings call, we were cautious due to the ongoing pandemic. But as we've had more discussions with the VA MVP, we have become quite optimistic that we will receive an order between now and the end of summer. We are also encouraged by the long term prospects for VA MVP. In early April, the White House released their fiscal year 2022 top level budget proposal, which we believe is a positive sign relative to continued funding for the VA MVP. The White House noted that their request includes $882,000,000 for VA R and D and referred to it as the largest year over year increase in recent history. It headlined that this proposed budget, Invests in research critical to veterans' health needs. Their proposal represents a 12% increase in funding, specifically for VA Research. In December, we announced we had become the 1st for profit company to sequence more than 100,000 Whole human genomes in the United States, which was an important milestone for us. We expect that total to grow to more than 150,000 Whole Human Genomes by the end of 2021. Some will be for population sequencing and others will be cancer genomes. We expect our unparalleled experience and scale with the VA MVP to position us well for new population sequencing opportunities. Given our clinical experience and work with pharma, we also see future opportunities to help transition population research to Population Health and to an involved pharma in the future. I would now like to expand on the synergy between the population sequencing and oncology parts of our business, in particular, those that go beyond the more obvious operational and cost synergies. Our extensive experience with whole genome sequencing, combined with our deep expertise in cancer, has allowed us to launch whole genome sequencing from cancer samples. We believe that this will be increasingly important in the future, particularly in cancers such as breast and prostate, which have relatively low mutational burdens. Using our cancer whole genome technology can identify up to 20 times more somatic variants to serve as the basis for personalized cancer assays. We believe this will let us achieve high sensitivity even in cancers which have low mutational rates, which have been surgically resected for which shed relatively low amounts of cell free DNA into the blood. We believe this can be a leading technology in some very large market opportunities, and we'll have more to say about this as these product developments progress. In summary, I'm very proud we have continued to show strong growth, particularly in our oncology business. Customer interest and adoption of NEXX has been excellent and our pipeline of compelling new products is rich. We have the capital required to invest in our growth initiatives such as new products like NEX personal, enhancing our clinical and regulatory capabilities, expanding collaborations that further highlight the utility of our NEX platform, expanding our operations in foreign locations and expanding capacity to support our revenue growth. We believe this puts us in a strong position for near and long term growth. With that, I will now hand it over to Aaron for our financial results. Thank you, John, and good afternoon, everyone. We had another great quarter and achieved a new record revenue level once again from our focus and strong execution. During my prepared remarks, I will provide details about our financial results for the Q1 of 2021 and our guidance for the Q2 and the full year. Total revenues For the Q1 of 2021 were $20,900,000 up 3% from $20,200,000 for the prior quarter up 9% from $19,200,000 for the same period of the prior year. The $20,900,000 was a new record high for quarterly revenues and the growth was primarily driven by an increase in genomic testing services provided to biopharma customers. Aside from the VA MVP, BioPharma and all other customers accounted for revenues of $7,700,000 in the 1st quarter, representing a 74% increase over the same period of the prior year. This was our 2nd consecutive quarter with a year over year increase of more than 70%, which highlights a couple of key points. First, customer orders that we have won over the past year and a half are converting to revenue. In the Q1, revenues from our NEX platform exceeded $4,000,000 which is the highest quarterly level achieved thus far. 2nd, New order amounts continued at key revenue reported each quarter, which provides confidence that our biopharma revenue will continue to grow into the future. Our current biopharma revenue is mostly from tissue samples. As we ramp our liquid biopsy offerings in the future, This should help accelerate growth due to the multiple time points or in other words, the number of tests per patient. For the Q1, the VAMVP revenue of $13,200,000 was higher by 5% from last quarter and was 10% lower compared with $14,800,000 for the same period of the prior year. If you recall, we do not have specific testing turnaround times for the VA MVP. Therefore, we have the ability to modulate volume up or down to complement the biopharma sample testing volume, which can have some variability from time to time. The VA MVP unfulfilled orders were $30,300,000 at the end of the Q1 and based upon current estimates, We expect the unfulfilled orders to convert to revenue over approximately the next two quarters. Gross margin was 35.6 percent for the Q1 compared with 30.1% for the prior quarter and 21.1% for the same period of The sequential increase of 5.5 percentage points was primarily due to sample processing efficiencies and a slight reduction in expenses. The year over year increase of 14.5 percentage points was primarily due to customer mix, operating leverage from the 74% increase in biopharma volume and lab efficiency improvement. We typically do not provide gross margin detail by customer type. However, it's important to note that the VA MVP gross margins continue to be solid due to the high volume and a single service offering, which has been automated and has a very efficient sample testing process. Over the next couple of years, there could be some gross margin variability due to headwinds from investments in new capabilities, capacity, expansion for China and others. Longer term, we expect our gross margins to increase as we achieve scale. Operating expenses were $19,900,000 in the Q1 compared with $13,700,000 for the same period of of prior year. R and D expense was $9,500,000 in the Q1 compared to $6,400,000 for the same period last year and SG and A expense was $10,400,000 in the Q1 compared to $7,300,000 for the same period last year. The increase in R and D expense was for new product development and the increase in SG and A was due to commercial expansion, public company costs and continuing to enhance our infrastructure. Net loss for the Q1 was $12,400,000 compared with a net loss of $9,100,000 for the same period of the prior year. The net loss per share for the Q1 was $0.29 and the weighted average basic and diluted share count was 42,300,000 compared with a net loss per share of $0.29 and the weighted average basic and diluted share count of $31,300,000 for the same period of the prior year. Now on to the balance sheet. We exited the Q1 with a strong balance sheet with cash and short term investments of $353,400,000 In the Q1, we used $11,700,000 of cash from operations due to the net loss and working capital needs. Capital equipment expenditures were minimal and we paid $400,000 and as mentioned during our last conference call, we expect our cash usage to increase from the mid-forty million dollars range in 2020 up to a level between $80,000,000 $90,000,000 in 2021 due to investing in the many growth initiatives in front of us. Now I'd like to turn to guidance. Our business has performed really well through the pandemic and customer orders for the next platform have been robust over the last year and a half or so. This gives us more confidence about the outlook for both the Q2 and the rest of 2021. And with this in mind, For the Q2 of 2021, we expect total company revenues to be approximately $21,300,000 and we expect biopharma and all other customer revenues, excluding the VAMBP, to be in the range of 7.3 to $7,700,000 representing a year over year growth rate of 54% to 62%. Net loss is expected to be in the range of $16,000,000 to $17,000,000 and the weighted average basic and diluted share count is expected to be approximately 43,000,000. For the full year of 2021, we expect total company revenues to be approximately $85,000,000 and we expect biopharma and all other customer revenues excluding the VA MVP to be in the range of 30 to $32,000,000 representing an annual growth rate of 33% to 42%. Net loss is expected to be in the range of $70,000,000 to $75,000,000 due to the increase in expenses and the weighted average basic and diluted share count is expected to be approximately 44,000,000. We plan to provide an update to this information during our next earnings Paul. Now I will turn the call back over to the operator to begin the Q and A session. Operator? Your first question comes from the line of Taha Svante from Morgan Stanley. Your line is open. Hello. This is Yuko on for Tejas. Thank you for taking our questions. Hello. How are you thinking about positioning the MRD offering in light of the multiple players coming onto the market? And as a follow-up, what are your views on Tumorinform versus Tumor Agnostic approach for MRD? I'd be happy to answer that. Yes, so Personalis expects to have the highest performance MRD offering available on the market. As I've mentioned, We expect to be in a position to monitor over 1,000 genetic variants, and this gives us enormously Most of the other products on the market look at much, much smaller numbers of genetic variance and that directly limits the sensitivity that they So we expect to be most sensitive and also because of this rich content, we expect to be the most informative not only about quantitative senses of the tumor or detection of the tumor, but also some characterization of how the tumor is changing Overtime. So I think that gives you an idea of the relative positioning of the product. And then In terms of tumor informed versus tumor agnostic, if we look at a tumor agnostic approach, It means that you don't use any information about where the genetic variants are located. So when you sequence the DNA from the plasma, Generally in a tumor, let's say something like breast cancer, you'd only have one mutation out of every 1,000,000 bases across the genome. And since the sequence reads are only a few 100 basis long, it means that something like 99.9% of the sequence reads They don't have any useful information. They don't catch a variant. And so it's an enormously inefficient approach and actually it's not very sensitive. As a result, our approach has been one to wholeheartedly adopt the tumor informed approach. We think it's the only way to achieve The kind of sensitivity that we're targeting and the performance that we've seen on the customer provided samples that we've already been working with is fantastic. So we'll have more to say about that as the product comes out, but I don't think there's any question that the tumor informed approach is the hands Sound performance letter. Got it. That was very helpful color. Thank you. And then, how are you thinking about energy Clinical Market Down the Road. Yes. So this is a next step for Personalis. We anticipate doing that probably in the next few years here. We've been building our business based on pharmaceutical companies to start with, and These are often very advanced customers and there's no issues with reimbursement. So we've been able to achieve strong relative financial performance based on Going forward, our view is that the diagnostics that are available today are not sufficiently informative and that Patients will do better if they can have not only richer information, but just more sensitive information. There's a lot of Information there are tumors where we can tell that the tumor eventually comes back and is eventually detected by a genetic test in the plasma, But sometimes a year or 2 can go by with the cancer not being detected. And since we see that the cancer is the same cancer as was existed before surgery because you can see the genetic fingerprint. The fact that it was not detected at all those intervening time points means that the tests just weren't sensitive enough. And we've been able to look at the data from tests like that, extrapolate Back in time, and we can see the kind of sensitivity that would be required to detect most of those cancers at much, much earlier time points than is currently being done, and that's what we're developing in our next personal products. So the ability to look at A thousand or more genetic variants we think will be transformative and be something that will be mean a lot. Obviously, this more advanced testing generally would be the kind of thing that you might start with at high end cancer medical centers, and so that would be a reasonable starting place for us. We have been working on FDA approval for our next platform. We think that FDA approval is also important for the diagnostic market. So perhaps those are some of the steps and We'll have more to say about that as we make progress towards the clinical market, but it is a major opportunity for us. Thank you. Your next Shen comes from the line of Doug Schenkel from Cowen. Your line is open. Hey, good afternoon, everybody, and thank you for Taking my questions. So, I guess, on next personal, I'm just wondering, just To start there, if you could share, what we should be looking for in terms of upcoming R and D and commercial Stage gates or milestones for that product line. Yes. So as I mentioned, we're now at a point where we're able to start testing customer provided samples. We have a number of customers that we've worked with over the years on a variety of advanced topics. Some of them are very, very interested in And seeing what they can see with, next personal because the kind of performance we're talking about is so differentiated. And so I think what you'll see is that Yes, we'll come to a formal launch of the product. We've said we'll do that in 2021. I would expect by the time we've done that, we'll actually have Run it on a substantial number of samples, both from customers and collaborators, and we'll be off and running with that. We do see, Interestingly, as I mentioned in the prepared remarks, a lot of potential synergy between NEXT Personal and NEXT liquid biopsy because Let's imagine you have a patient that has been their tumor is surgically resected. So we can use our NEXT platform on that tissue to identify The genetic variance, we can then use Next Personal to see if the tumor is coming back. And if it is coming back, it might be at extremely low levels, but we can then watch it if it in fact progresses and grows once it gets up to a certain level, Where in fact you'd be able to detect it with the exome scale test, then you can bring in the exome scale liquid Biopsy and have a much more comprehensive view of what's going on. And in the interim between the time when the tumor was surgically resected And the time that it comes back, you can anticipate that there may have been a lot of new mutations. This may be how it's Advancing or if it's drug treatment, it may be escaping the drug. And so just tracking the mutations that were in the tumor Back at the time of surgical resection, you'll be missing a lot of the variance. But by looking with the next liquid biopsy at the whole exome level, It gives you the ability to see new mutations that have happened wherever they've happened in the exome and to be able to detect those. So We see those three products, our next platform from tissue and our next personal and next liquid biopsy, all working together to provide a comprehensive view of the patient's tumor as it's evolving over John, and kind of using that segue from personal to liquid, it's nice to hear that you delivered your first customer order For this next liquid biopsy. What do you expect the ramp to look like from here? And then are the initial use cases likely on retrospective samples or is there a do you think that there's going to be early use in prospective samples as well. Yes. So it's a good question. The early work, as we've said from the beginning, this is kind of a new category. Nobody else has really had a commercial full exome scale liquid biopsy up to this point. And so people are having to figure out what's the best use for that, how well does it work and so forth. So we In 2021, a lot of that activity will be pilots. We have a bunch of those kinds of orders now, and we're continuing to process samples for customers and people are beginning to look at it. I would say the initial comment from we made from the first customer who got their first results back was already, wow, we want to do more of this. And Some of them, a lot of times they're in situations where people are trying to make decisions fairly quickly. So The fact that we can sometimes turn these things around reasonably quickly is helpful. So I'd say the I would expect that Some of the samples will be prospective and going forward as I kind of described how this might be involved in the treatment of a patient, I would expect that it could be Prospective. On the other hand, a lot of our customers in pharma have been collecting liquid biopsy samples for Extended period of time, and so they have those banked, and so that leads to the retrospective use. And because we have so much of our oncology business In the pharmaceutical space, I would expect that a fair amount of our next liquid biopsy business in the early period of time will be Retrospective with Pharmaceutical Companies. Okay. One last one. At AACR, there was a poster from Personalis, specific to next liquid biopsy and pan cancer shedding patterns for ctDNA for cancers with different genetic backgrounds and tissue of origin. In terms of just digging a little bit deeper on that I'm wondering if you'd be willing to talk a little bit more about what we might expect moving forward. I'm especially interested in Commentary about heterogeneity. As I'm sure you appreciate, this has implications for tumor agnostic versus tumor informed liquid biopsies. And then secondly, I'm interested in the utility of whole exome. In other words, have you seen anything in terms of how many actionable insights Are you identifying that are being missed by predefined panels? Yes, absolutely. One of the collaborators we've worked with. It's a high end medical center. They haven't released their data yet, so we can't described it in too much detail, but they were doing work in a certain kind of cancer. And what we were able to show using next liquid biopsy was that they identified variants that appear to be fairly significant in terms of, the progression of these tumors. And It turned out these were in genes that just aren't in the conventional small panels. Obviously, by having an exome, we have all the genes. But if you look across the Conventional diagnostic tests, they tend to be much more limited sets of genes and they just don't include the genes that are involved in a Tumor Escape. A lot of times people design these panels and they're really designed to capture the genetic variance That may have caused the cancer in the 1st place, but tumor escape from therapy can happen in other genes that aren't necessarily in those categories and therefore aren't on those panels. So So I think this is an example. This is why it's helpful to the sort of future proofing that happens by having all the genes is that we're not presupposing which genes you should look at. We just look at them all. Thanks a lot, John. Good. Okay. Thank you. Your next question comes from the line of Patrick Donnelly from Citi. Your line is open. Great. Thanks. This is Jesse on for Patrick. Thanks for taking the question. Apologies if I missed this, but can you just Remind us on the timing for the new China lab and just what, if any, revenues you've factored in for the guidance in 2021. And then you just you mentioned in your conversations with some of your existing customers that you've been working with clinical trials in other geographies. So Just curious if you have a sense around what proportion of the market this new lab will open up within your existing customer base? Yes. I'll let Aaron start off on that. He's been very involved in our China operation. Yes. So in terms of the China lab, 2021 is going to be the year where we develop it, build it out. We're almost ready to go right now in terms of begin testing. We've got showing up, the facility has been completed. We've hired our first few employees. Unfortunately, we haven't been able to travel back and forth due to the pandemic and restrictions on both sides, but we're going to go through Development training over the next couple of months. And then we expect the lab to be able to process samples this year on a test or pilot basis. And from a revenue standpoint, we don't have much revenue built into the guidance this year from China. This is really going to be a build out year. So the revenue opportunity is really in 2022 and beyond. In terms of percentage of the market that this opens up, It's going to open up an extremely large market, not only in China, but outside of China. We have a lot of our global pharmaceutical partners who actually are thrilled we're setting up in China and we're going to have access To even more samples outside of China because of this capability as they want to run global clinical trials. Yes. I think I said support that. I think one of the comments earlier on was that we have cases where we're working with a large pharmaceutical company, and they're going to the Chinese regulatory authorities to get permission to run a Test like ours on samples inside China. But because we've been supporting them and saying, great, if we get the regulatory position, we'll be We're building up the lab and we'll do those things for you in China. It's already helped us close orders where just a single order can be in the multimillion dollar category For the portion of the clinical trial, which is outside of China. Many large international pharmaceutical companies are running Trials that are recruiting patients in many, many countries around the world simultaneously. And so We can process the samples from patients in all the non China countries out of our California lab and then process the ones from China in our Shanghai lab once we have permission for that. So I think part of what we'll see is The revenue that gets reported eventually as being revenue from China will only be the revenue that's actually where the samples are sequenced in China, but actually we expect a much more significant boost to be coming from all of the non China revenue we have that was sort of the portions of those clinical trials that were being run-in all the other countries. So we see this as a truly international effort and having the China lab Gives us access to those trials and to do the non China parks as well. Okay, great. That's really helpful. And then, just can you provide an update on the PopSeq pipeline outside of the VA MVP? I think you mentioned you expect to start having new relationships in 2022. So just curious what the timeline looks like for when you'll be bidding on those And when we could hear about some actual award decisions. Thanks. Yes. So, Fresnelas has We brought in onboard a lead for the business development side of our activity, I want to say in September of last year, a highly experienced individual and we used to work at Genomics Medicine Ireland with a big population sequencing effort there, Acknowledgmental about population sequencing projects all over the world. We've been leveraging his contacts and others to then engaged with groups. And I'd say that it's been remarkable the interest there. A lot of times these projects have been done prior to this by academic groups inside of the countries and they're not really set up to do production scale sequencing to bring pharma into the mix. And what a lot of these countries want is something where this actually has a clinical component to it as well. So the people who are being sequenced and benefit from the data from their own genomes. And so that's a component that we're bringing to this as well. So I think there's now we do see a fair amount of interest on this. These are large government programs, so the decision process can be fairly lengthy. But I think we said that we would expect to see The first additional orders on that in 2022, with first revenue also in 2022. I think that still looks like that's about On track. It's always hard to know what these things exactly the timing, but we had a review of some of those earlier this week. And There are multiple countries where the pot's beginning. I wouldn't say it's boiling yet, but things are definitely simmering and getting to be pretty interesting. I think we just have to be a little patient to get to a point where there's a contract we announced, but I think we're definitely on a good track here. Okay, that's great. Thank you. Your next Question comes from the line of Mark Massaro from BTIG. Your line is open. Hi, guys. This is Vivien on for Kate on how the Natera partnership is progressing, what milestones we should be looking for there? And if I could just add a follow-up. In the past, you've kind of talked about biopharma becoming a larger portion of revenue mix looking forward. So just wanted to check-in and see if that L'Opinaval Chiu. Yes, great. So this is John. I'd be happy to answer those. So, yes, I'd say the relationship with Natera has been great. They've been Really trying to move forward on this. I think anything that would have implications in terms of their revenue, I think something that they need to disclose. So we won't be disclosing things to do with their revenue. On the other hand, it is a very active program. And This is a clinical program. There is a component where I think they've disclosed they work both with Pharmaceutical companies, but they also see a significant market that they can address quite early and with the lab developed test and on the clinical diagnostic side and We anticipate being able to support both of those and it's a good early entry for us. And their product is very different from what we're doing In a with our next personnel. So we really kind of 2 different positions in the market and I think personnel will benefit from both of those. So I'd say we're pretty there's a lot of effort going on in that area at this point and we're pretty excited about it. I think on the biopharma side, We have the 2 different parts of our business, the population sequencing side and the oncology side. And in the past, they've been viewed as being quite different. They've been as the financial reporting purposes, they've ended up being broken out. I would say we see over time that these will These are both likely to converge and there'll be more and more blurring of the lines between them. As I mentioned, some of the population sequencing groups that we're talking to now. They're pretty interested in the involvement of pharma. We've been talking with a number of pharma companies Who actually are quite interested in being involved in these population sequencing efforts that we're bringing to market. So this is an example of something where there's clearly overlap. Population sequencing in the past was really mostly about whole genome sequencing of people's germline genomes from blood. But as these become more clinically oriented, there's cancers obviously going to be a major component of these. And so the advantage that Personnel Springs is we have probably the largest experience of anyone in the world commercially sequencing 100,000 or more whole human genomes, But then also having processed huge numbers of cancer samples and having The clinical potential there as well. So the fact that we can sort of put that all together for our country and Engaged with pharmaceutical companies who may be interested in both the data, but also helping to finance some of these efforts. I think these are things where we see The two businesses overlapping more and more. So as we at this point, I'd say you can see the kind of growth that we've had recently. The oncology side of our business has been growing more rapidly than the population sequencing side. I I think we think both sides of the business are going to grow over time. If you looked 10 years out and said which is larger, I think the oncology business is likely to be the big business. But population sequencing, meanwhile, will have probably taken on more and more elements of oncology and more and more diagnostic elements. So the two businesses are likely to increasingly overlap as opposed to being kind of separate almost competing businesses. Okay, awesome. Thanks so much. Good. Thanks. So just an unrelated follow-up. Are you able to provide an estimate On the likelihood of renewing the VA contract, some visibility for getting a task order, and if you could touch on like some of the competitive factors that going to that. Sure, Jeff. So this is John. We've been talking with the VA about this. Actually, we have an existing contract with the VA that's been going on for a number of years. The VA has been able to issue additional task orders, which they've done multiple times over the years. And I would say our current indication is that the step of that they're likely to take is an additional task order. We We expect that that would probably happen between now and the end of August at some point. We've been having multiple discussions about exactly what that could contain, but We expect it to be largely a continuation of the kind of work we're doing and perhaps expanding into some new interesting areas. Because this is an extension on existing contract we already have, there is no competitive aspect to it. This will be just expansion and more money being put towards the project. We've been the only whole genome sequencing provider to the 1,000,000 veterans program since 2012. So it's a long term relationship and we've done a lot of things to try to be The best possible partner for the VA, and I think it's just been a great relationship there. We really admire what they're doing, and we've been able to bring some of our skills to help out. Great. Thanks for taking the questions. Great. Thank you. Your next question comes from the line of Mike Matson from Needham and Company. Your line is open. Hi, good afternoon. Thanks for taking my questions. I guess I wanted to start with gross margin. Obviously, volume should help there, but I just wanted to get an update on what you're doing aside from just seeing the volumes grow to improve your gross margins. Yes, good question. Sure, I'll take that, John. In terms of gross margin, so we had a great quarter here in Q1. The gross margins are highly dependent upon volume, right? Volume is important. And so you can see with More than $7,500,000 of biopharma revenue, our margins did scale accordingly. And in terms of The path forward, we've highly automated the BAMBP testing process. We're going to be doing the same thing with biopharma. Today, it's a little more manual. And so We do require more labor per sample process than we do on the BA MVP side. And so that's another lever we're going to be able to play with As we go forward to improve margins. And when you look at scale, our objectives are to get to scale from a top line standpoint. And at that point in time, you're going to see Personalis with margins equivalent to other peers in this industry. Okay, thanks. And then, I just wanted to go back to the Natera partnership. So Are you it sounds like you're planning to continue to offer your services to sequence other companies' Tissue samples to support their liquid biopsies, even after you launch your own. I mean, you don't Sure. I mean, just what are your thoughts on that? Do you not view it as competing with your own product, own tests? Or is it just the market is just so large that it's just not really Kind of, cannibalize your own test at this point. I don't see that as I think it's a very large market and the products that other companies tend to be quite different from ours. There are Company is taking a variety of different strategies. People on this call have talked about tumor informed versus tumor agnostic and things like that. So we work with companies on both sides of that divide. We're interested in supporting the growth of this whole area and we think there's money to be made off of that. Long term, I think the main revenue growth driver for Personalis will be our own products. I think that would be true of any company. Actually, there's a lot of other good companies in the market that are doing other kinds of work that doesn't really duplicate what we're doing. And so we're happy to work with them and it can be part of the overall mix. But to make no mistake, our role is not to be just a Kind of a supporting actor here. We expect Personalis to be one of the largest companies in this space over time, and we think we have the Technology and IP to make that happen. So I think it will be these are definitely, helpful relationships for us along the way. But if you model where we get to 5 to 10 years out, it's almost all going to be based on the products that Personalis has. Okay, thanks. And then just as far as the population sequencing goes, it sounds like you are in discussions with some other potential customers there. But Yes. I was just wondering if you could maybe talk about the types of groups that are interested in population I mean, it seems like it's mostly it would mostly be governmental groups, but I mean, are there other private industry groups or organizations or anything that are looking at doing this? And then is it Limited to the U. S. Or is it really a global thing where you could do work for maybe other governments or things like that? Yes, I'd say the majority of the other programs we're talking with are outside the United States. There are population sequencing initiatives in probably 70 or 80 countries in the world. And we've been talking with quite a few of those folks. So we're talking to people all over the world on that. And That could include some cases, ones where they want to get started by sending samples to California because we're Set up and certainly could do it at scale quickly and efficiently today that way. But we know that a lot of these groups want to have build out of the economic We've taken the experience that we've been getting by setting up our own lab in Shanghai, China, And that certainly opens up ideas that if we needed to have labs in other countries as well, Once you've done one at a distance like that with all the barriers and differences that there are between the U. S. And China, we could certainly do that between the U. S. And many other countries. In terms of your you talked about institution types. So certainly, Some of these are I'd say many of these are initiatives that they were maybe initiated by governmental groups just as the Genome England project was, which was one of the first In this category. On the other hand, we do see, as we've talked with pharmaceutical companies about this, They have a pretty serious interest in this kind of data as well, and it's really synergistic because for a lot of the countries, they would like to have clinical trials run-in their countries sooner rather than later because I mean some of the cancer patients they have, have access potentially to these potentially life saving state of the art drugs. It's also good for them Economically, and if patients from their country are part of the clinical trial, then the genetics They're not ending up with drug that's being approved only based on Caucasian genetics from people of European descent, But you really like to have pharmaceutical developments be attuned to the genetics of people from all over the world and pharma wants that as well. There's a huge market that's outside of the U. S. And Europe and so forth that is people who have a lot of diverse genetics and Those can be real opportunities from a drug development standpoint as well. So I think involving these other countries and involving pharma, I think I imagine a different mix of institutions. In the past, this was really just governmental research. But I think looking forward, It's hard to imagine that the institutional mix doesn't start to include a significant pharma component, and that can be a real win win. Okay, great. Thank you. I have one more comment. By the way, you had an earlier question about gross margins. I think Aaron really covered that anyway. But One of the other elements that's happening here is that sequencing technology continues to improve. And Although in principle, you could say, well, that could benefit everybody who's making these diagnostics, but it's not actually quite true. Personalis has developed Much larger, much more advanced diagnostic testing that we use enormous amounts of sequencing. If you look at some of the cancer panels that are Mainstream on the market today, we read their FDA filings, you'll see that they use maybe a 1,000,000,000 basis at a time Per patient and $1,000,000,000 sounds like a lot, but actually these days it's a pretty small number. We're running tests where we've been sequencing up to a trillion basis per sample, and so hugely more. And so if somebody is only sequencing a 1,000,000,000 basis at a time And Illumina's state of the art sequencers today already can handle 6,000,000,000,000 bases every time you run them. It's hard to leverage more because you just don't have that many samples at one time. Whereas because Personalis has been much more expansive in terms of the Advanced biology, we've been looking at many of our tests involve 100 of billions of bases of sequencing. And so these new platforms Will help us disproportionately. And so when we see Illumina, for example, has talked about the $100 genome or associated with some of their Other activities they've talked about guaranteeing a 43% reduction in prices by the year 2025 and things like that. First Analysis is one of the companies most likely to benefit from that because as the cost of sequencing comes down, we're using so much sequencing That the reduction in the cost of sequencing will help us disproportionately. We estimate that last year About 4% of all DNA sequenced in the world was sequenced by personnel. So we're getting to be one of the larger Laboratories in the world and we absolutely look forward to the $100 genome technologies and we'll be the first to sign up for them as soon as they're available. Okay, great. Thanks for the really thorough answer on that. Your next question comes from the line of Swamyampakula from H. C. Wainwright. Your line is open. Thank you. This is RK from H. C. Wainwright. Good afternoon, John and Aaron. Hi. How are you? Hi, RK. Doing good. Most of my questions have been asked, but I just want to understand a little bit about the MAPpure relationship that you have where you're trying to help out in the not only in the clinical trials, but also for the clinical diagnostic, I mean the companion diagnostic that they're trying to develop. So Is this 1 is this first of the many that you're looking at in the sense for If one thinks about revenue sustenance, Having to work with their companion diagnostic can be really helpful, as long as the life of the drug is in the market. So How do you suppose this relationship would act as an example to invite additional players to do similar collaboration with you. Yes, that's a great question. So we do see companion diagnostic development as an important part of what we're doing. We think that The kinds of technologies that have been used for companion diagnostics up to this point have been very simple. We see a lot of real time PCR and very like Single biomarker kinds of tests. And so the ability to move beyond that to more sophisticated Biomarkers is really what a lot of our next platform has been aimed at. And so the MapCure Effort is one typically a new drug in a clinical trial will have to go through Phase 1 and if that's successful then Phase 2 and then if that's Successful Phase 3 and so forth. So that it can be an extended period of time, but we would expect to work with them on that and they can begin using the platform we have now and then as we're taking our platform through the FDA anyways, this would be something to where There would be need to be a parallel effort with them as they make progress through trials. And obviously, it's gated by whether the trials are successful or not, but Assuming that the drug continues to be successful and they go on to one phase after another, then the scale of that effort can Increase that can help us certainly financially. And yes, we absolutely are talking with other pharmaceutical companies also about This kind of companion diagnostic development, I think people have been interested to see that something that's considered quite sophisticated at a whole Exome and transcriptome being used at a companion diagnostic scale, biopharma. But actually, when we talk with the FDA, I think the people we spoke with, they're very advanced scientifically. They completely understand why that makes sense. And obviously, we have to do our homework to get to an FDA Approval, but I'd say the people involved seem upbeat and optimistic and go team, let's make it happen. So We have an increasingly large team working towards the FDA single site PMA that we're filing for and I think it's going to be an important driver for the future of our business. Thank you, John. I don't have any additional questions at this point, but I'll talk to you soon. Okay, great. Good to hear from you, RK. And there are no further questions over the phone line at this time.