Earnings Call: Q2 2021

Aug 4, 2021

Please note that in these prepared remarks, Personalis management will refer to the company's oncology business. This represents a category of customers that 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 Q2 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 second quarter business highlights. Thank you, Carolyn. Personalis continues to grow. For Q2, we achieved another overall record revenue level and it was our 20th consecutive quarter of growth. Note that this growth is not a recovery from a pandemic induced dip a year ago as many other companies have reported. Although we have seen a variety of delays due to the pandemic, personnel as revenue has grown without interruption all the way through it. This has been driven in particular by our oncology business, which has received orders well above revenue levels since Q3 of 2019. We have increasingly seen the resulting backlog convert to revenue. In Q2, our revenue from this business grew 72% over the same period of the prior year. It has increased sequentially over the last 7 consecutive quarters and Q2 was a new record for us. In Q2, new orders exceeded revenue once again. And so far in Q3, new orders received are already significantly higher than in all of Q2. So far in Q3, over half of our orders are for prospective clinical trials. We see it as a great endorsement of our platform that our pharmaceutical customers are incorporating it in their clinical trial designs right from the start. We also believe that the increasing value of our backlog bodes well for future revenue growth. The strategy of our oncology business Has been to support drug development at the leading edge of cancer biology. We believe our strategy is working. Our mission is to help cancer patients live better and longer lives, and we developed our ImmuTOiD NEXT platform with this objective in mind. The next platform provides our biopharmaceutical customers with the capability to better understand a cancer patient's 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 biopharmaceutical 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 of revenue going forward as we leverage our ability to analyze Both tissue and liquid biopsy samples with these platforms. 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 are able to provide information about a patient's tumor across multiple time points from small blood samples. When 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 our strategy successfully 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 been processing customer provided samples to ensure our product development meets customer requirements, and we're very encouraged by the initial results and by initial feedback from our customers. We believe that with the ability to monitor over 1,000 mutations, Next Personal will compare favorably in terms of sensitivity and information content with smaller panels on the marketplace today 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 some recent highlights and commentary on our growth drivers from Q2 and thus far in Q3. 1st, We continue to make encouraging progress with our exome scale next liquid biopsy product. As you recall, we launched less than a year ago and began with pilot scale customer orders. We have now begun to see additional orders following initial data delivery from those pilot projects. Recently in Q3, we received a multimillion dollar order from a customer for the use of our tissue and liquid biopsy Full exome products together, each at multiple time points. We have also jointly authored a publication with another one of our customers, showing the utility of our next liquid biopsy together with our immuno ID. NEXT analysis of tissue from the same patients. We're very pleased about the customer adoption thus far, and we believe that Next liquid biopsy will also work synergistically with Next Personal when it is released and that our liquid biopsy based products will contribute increasingly to revenue as we enter 2022. 2nd, our customer base has broadened substantially over the last year. We have now received orders from a majority of Top 10 Oncology Focused Pharma Companies. Since we introduced the NEX platform in 2019, We have received next orders from more than 50 different customers. 3rd, earlier this week, we announced publication of an important study we conducted showing the advantage of our platform in predicting patient response Checkpoint inhibitors. Checkpoint inhibitors are a new class of cancer drugs, which do not attack a tumor directly, but which instead enable a patient's immune system to attack it. The most successful of these drugs were first FDA approved in late 2014, and they have now been approved in and are widely used to treat many types of cancer. In 2015, just after these drugs began to be adopted, we recognized that they represent A completely different mechanism of action based on what are called neoantigens. These are proteins created based on mutated DNA sequences and which can trigger an immune response to a tumor. Not all patients respond to checkpoint inhibitors, So there's a need for new biomarkers which can accurately predict that. Tumor mutational burden or TMB Has been proposed for that, but implemented on small traditional cancer panels, it is just an approximation and it has not been as successful as desired. Personalis has been developing and now clinically testing increasingly sophisticated technology to identify and rank neoantigens and associated escape mechanisms since 2015. In our new publication, we show the substantial advantage of our neops Biomarker over TMB for response to checkpoint inhibitor therapy in 2 independent cohorts of late stage melanoma patients. This peer reviewed paper appeared in Clinical Cancer Research, a journal published by the American Association For Cancer Research. This publication provides additional evidence supporting our belief that this biomarker can become an important input to clinical diagnostic decisions in the future. Our ImmuNo ID NEXT and our clinical NEXTDx tests make our advanced capability, including NEOPS, available to pharmaceutical researchers and clinicians for investigational use today. 4th, we continue building our regulatory and clinical capability in order to pursue business in the cancer diagnostics market for therapy selection And monitoring. We believe that the combined market potential of these opportunities is approximately $30,000,000,000 in size in the U. S. We've been hiring employees with clinical and medical experience within a diagnostic setting and we will continue to hire and invest in this area. Recent additions are in medical affairs, clinical development and genetic counseling. We believe that our comprehensive NextDx test, including our proprietary Neops biomarker for immunotherapy and our upcoming next personal test, create a powerful product line for our entry into the clinical This opens up a tremendous opportunity for Personalis and we expect to begin recognizing initial revenue from laboratory diagnostic tests in 2022. 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. We have now hired several employees and have a team to begin qualifying And we expect to begin working with customers before the end of this year. Customer engagement is very good, and they are excited about the services we will offer in China. We have already received multimillion dollar orders From customers to process samples for international clinical trials using our NEXT platform, and the samples related to China are expected to be additive in the future. Also, we're 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 operations in China will begin in the second half of twenty twenty one with revenues beginning 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. I'd now like to update you on the population sequencing part of our business. We have received all the samples required to complete our current orders, putting us in a great position through Q3. We expect to receive a further order Under our existing contract with the VA MVP by the end of September. We anticipate that our work on that order will begin in Q4 and continue into 2022. The VA has recently reopened VA MVP enrollment to veterans, which had been closed during the pandemic. With over 825,000 in MVP already, continued enrollment will advance them to engagement of their first million patients. Her work with the VA MVP represents the largest population sequencing effort within the United States. The VA now targets enrollment of 2,000,000 veterans. At the pre pandemic enrollment rate of about 100,000 veterans per year, this goal could take another 10 to 12 years to achieve. But based on our conversations, we believe that the VA is determined to get there. This belief is also supported by recent news about the VA's budget. In June, more detail about the proposed fiscal year 2022 top level budget plans became available and showed That $902,000,000 was planned for medical and prosthetic research and $84,000,000 for whole health initiatives, which we believe is a positive sign relative to continued funding for the VA MVP as it represents a year over year increase of more than 13%. In June, we announced that we became the first for profit company to sequence more than 125,000 Whole human genomes in the United States, which was an important milestone for us. We remain on track to sequence 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 experience and scale with the VA MVP to position us well for new population sequencing opportunities. Given our clinical experience and our work with pharma, we also see future opportunities to help transition population research to population health and to involve pharma in the future. We continue to build up a funnel of commercial opportunities and we're in early discussions with several of these prospects. We expect that we will have additional customers and revenue from these new commercial opportunities in 2022. I would now like to expand on the synergy between our population sequencing and oncology businesses. The American Cancer Society has estimated that there are over 17,000,000 cancer survivors in the United States today. The largest segments of this population are those who have survived breast and prostate cancer. To detect potential cancer recurrence, We can look in a patient's blood plasma for the mutational signature of their tumor. But these two cancer types have such low mutational burden that they can be difficult to detect. We realized early on that we might overcome this difficulty by leveraging our whole genome sequencing experience. Combined with our deep expertise in cancer, it has allowed us to launch whole genome sequencing from cancer samples. With this technology, we can identify up to 20 times more somatic variants to serve as the basis for personalized cancer assays. We believe that this will let us achieve high sensitivity for recurrence detection even in cancers like breast and prostate, which have low mutation rates, which have been surgically resected and which or 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 NEXT 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 NEXT Personal, enhancing our clinical and regulatory capabilities, Expanding collaborations that further highlight the utility of our Next platform, expanding our operations geographically And expanding capacity to support our revenue growth. We believe this puts us in a strong position for both 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 strong execution. During my prepared remarks, I will provide detail about our financial results for the Q2 of 2021 and our guidance for the Q3 and the full year. Total revenues for the Q2 of 2021 were $21,700,000 up 4% from $20,900,000 for the prior quarter and up 11% from $19,500,000 for the same period of the prior year. The $21,700,000 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 BAMBP, biopharma and all other customers accounted for revenues of $8,200,000 in the 2nd quarter, representing a 6% sequential increase and a 72% increase over the same period of the prior year. This was our 3rd consecutive quarter with a year over year increase of more than 70% And our 7th consecutive quarter of sequential increase, which highlights a couple of key points. 1st, Customer orders that we have won over the past year and a half are converting to revenue. 2nd, the new order amounts continue to revenue reported each quarter and increases our backlog. This provides us with confidence that our biopharma revenue will continue to grow in the future. Also, our current biopharma revenue is mostly from tissue samples. As we ramp our liquid biopsy offerings, we expect this to accelerate due to the multiple time points or in other words, The number of tests per patient. For the Q2, the VA MVP revenue of $13,500,000 It was higher by 2% from last quarter and was 8% lower compared with $14,800,000 for the same period of the prior year. The VA MVP unfulfilled orders were $16,800,000 at the end of the second quarter and based upon current estimates, We expect the unfulfilled orders to convert to revenue through the 1st month of Q4. Gross margin was 37.7 percent for the 2nd quarter compared with 35.6% for the prior quarter and 24% for the same period of the prior year. The sequential increase of 2.1 percentage points was primarily due to operating leverage from the 6% increase in biopharma volume and lab efficiency improvement. The year over year increase of 13.7 percentage points was primarily due to operating leverage from the 72% increase in biopharma volume, Customer mix, lab efficiency improvement and cost reduction. Over the next Couple of years, we do expect some gross margin variability due to the headwinds from investments in new capabilities such as dedicated production lines for FDA approved offerings, Adding more capacity, expanding in China and others. Longer term, we expect our gross margins to increase as we achieve scale And our oncology revenue becomes a larger portion of total revenue. Operating expenses were $23,100,000 in 2nd quarter compared with $14,200,000 for the same period of the prior year. R and D expense was $11,700,000 in the 2nd quarter compared with $6,500,000 for the same period last year and SG and A expense was $11,400,000 in the 2nd quarter compared with $7,700,000 for the same period last year. The increase in R and D expense was for new product development And continuing to build our clinical infrastructure and the increase in SG and A was due to commercial expansion, continuing to enhance our infrastructure and public company costs. Net loss for the 2nd quarter was $15,000,000 compared with the net loss of $9,300,000 for the same period of the prior year. The net loss per share for the Q2 was $0.34 And the weighted average basic and diluted share count was 44,000,000 compared with a net loss per share of $0.29 And a weighted average basic and diluted share count of 31,700,000 for the same period of the prior year. Now on to the balance sheet. We finished the 2nd quarter with a strong balance sheet with cash and short term investments of $328,900,000 In the Q2, we used $24,500,000 of cash due to the net loss, working capital needs and capital equipment purchases. As mentioned during our last earnings call, we expect our cash usage to increase from the mid-forty million dollars range in 2020 up to a level of approximately $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 over the last year and a half due to customers adopting our next platform. And with new orders continuing to grow faster than revenue we report, We are confident about the outlook for the second half of twenty twenty one. For the Q3, we expect total company revenues to be approximately $22,200,000 and we expect biopharma and all other customer revenues excluding the VA MVP to be in the range of $7,500,000 to $8,500,000 representing a year over year growth rate of 40% at the midpoint. Net loss is expected to be in the range of $17,000,000 to $18,000,000 and the weighted average basic and diluted share count is expected to be approximately $44,000,000 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 BAMBP to be in the range of $33,000,000 to $34,000,000 up from last quarter's guidance of $30,000,000 to $32,000,000 representing an annual growth rate of 49% at the midpoint. Net loss is expected to be in the range of $65,000,000 to $70,000,000 Due to the increase in expenses and 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 call. Now, I will turn the call back over to the operator to begin the Q and A session. Operator? Thank Your first question is from Derik De Bruin of Bank of America. Your line is now open. Hi, good afternoon. This is John on for Derek. I wanted to ask about so one, like how is the China expansion going? And 2, On another note, like are there any updates on population sequencing programs beyond the VA? I know you guys alluded to it a little. Thank you. Great. Happy to answer that. So I'd say we're really happy with the ramp up in China from an operational standpoint, we've been able to hire employees. We've been able to begin getting the lab set up. We have equipment going over there, computers going over there. I think the difficulty, of course, is we can't travel over there right now. So that limits what we can do. But I think the key thing is that since we've been Pursuing that and clear about our intentions, the interest from our pharma customers has been terrific. And we think it's helped us win orders that are outside of China as well, because there are a lot of pharmaceutical companies that operate both inside and outside of China, because they need to run Clinical trials for their drugs in China as well to get the drugs approved in China. And so having a partner like Personalis that can provide state of the art Genetic analysis, both outside of China and the same exact analysis inside China is really valuable to them. So I'd say so far we're pretty Excited about it. Revenue is probably mostly next year, but I think we're pretty positive about that. And then you had asked about Population sequencing efforts other than the VA, we are continuing to talk with a number of those groups. There's some pretty interesting leads there. I think We'd probably defer any more commentary until we have something more definitive, but we continue to think that's a pretty interesting area for us. And Again, I think we have capabilities that are unmatched in that area. Great. Thank you. Your next question is from Kevin DeGeeter of Oppenheimer. Your line is now open. Hey, thanks for taking my questions. I guess maybe 2, perhaps 3 for us. Starting off, Can you comment about relative growth rate within the biopharma group for what I think we've traditionally Described as retrospective samples, hardly preclinical in nature versus ongoing clinical trials. Specifically, For the clinical piece, is that generally growing at a rate faster than or roughly in line or perhaps less than The overall biopharma group. This is John. Hi, Kevin. So what we see is that we're continuing to get strong orders in the area of retrospective clinical trials, but the prospective aspect, which takes a certain amount of commitment from the part of the customers to Say they're going to run this all the way through their trial, that's the part that's really been growing a lot. So when you see we've been talking about our orders going up and Q3 has been phenomenal as far as that's concerned. A lot of that increase in orders has been the additional layer of Prospector trials on top of the retrospect. So it's not kind of one instead of the other. It's the prospective building on top of the retrospective. And I think that sets us up for revenue for years to come from those trials as they enroll. And maybe as a follow-up on that, as we think about The levers to drive adoption for liquid biopsy, I guess, sort of the 2 part question is, is it correct To think about those respective studies as being a primary area for early adoption in Yes, liquid biopsy and then just kind of more generally, how should we think about How much visibility do you have into specific customers that really Could help jump start that liquid biopsy demand and kind of pull through from a revenue perspective. Yes, great question. So I'd say that the when we launched the product to start with, we were clear that since we're looking at 20,000 genes, it was pretty Different from the liquid biopsy products that were on the market, actually much more expensive and that would be something that customers would likely run pilot studies in order to see what they could see and understand the value of that. So we've been going through that process this year. We're beginning to see some, I think pretty encouraging feedback from that, including the orders that we talked about. So it is a newer category of liquid biopsy. We think it's potentially a pretty large one. And at this point, to my knowledge, there's really almost no competition in that space. I think we're the only ones who have gone that far out to do whole exome scale, Liquid biopsy, but actually we're finding that it can be remarkably informative. And so I think we're optimistic about it. Again, it will take time to build, but it's a I think that liquid biopsy will be an increasingly large section of our revenue as we go through next year. Thanks for taking my questions. I'll get back in the queue. Great. Thanks. Your next question is from Swayampakula Ramakanth of H. C. Wainwright. Your line is now open. Thank you. John, you always think about what's the next big project and Stop talking about things that you want to do within the oncology space. And it was very interesting to hear from you about And the stuff that you're doing with the survivors of breast and prostate cancer. So can you elaborate a little bit more As to how you plan to link that data into I'm guessing more into prediction, How is that link going to happen and what sort of a product will this be? Again, is this product going to be more for Developers are for more at the preclinical level or at the clinical level? Yes, great question. So this is really connected to our next personal product development. In general, there are a number of Tumor informed assays that have been developed by a variety of companies in this space, many of them look at A dozen or a few dozen, genetic mutations, but we understand you can be a lot more sensitive looking for Recurrence, if you can look at much larger numbers of mutations, there's just much more signal to look for. And so when we looked at the market to do with cancer recurrence, we looked at the segments and we saw of the different types of cancer, Breast and prostate cancer survivors are a really large fraction of the overall cancer recurrence monitoring market And the and yet those are cancers where there's not a lot of mutations. It's not 0, but it's just a much lower mutational burden in those cancers Then something like melanoma or lung cancer. And so there tends to be not as much signal to look at if you only sequenced with a smaller panel upfront. But we realized several years ago that we could actually get around that by using whole genome sequencing from The cancer, there are a number of fairly serious technical challenges in that, but we think we're largely overcoming those now. All of the We have been doing whole genome sequencing with the VA certainly helped us think about that. And so by leveraging whole genome sequencing from the tumor, We would expect to be able to identify typically over 1,000 mutations from even from a breast or prostate cancer. So with that large number of mutations, it gives us a lot of signal to look for in the cell free DNA after surgical resection Or after a patient has had a complete response to drug therapy. And so the next personal product will be Intended to look for that large signature and to be able to identify that signal and to be really sensitive because of that. We also think that in the monitoring space, it's important not just to tell whether a cancer is coming back or not. That's a really important application, But for many of the people being monitored, the cancer is back. There isn't a question of whether it is people know it is and the cancer is being Actively managed. And in that case, you really need to know how the cancer is changing. And so the ability to see new escape mutations or things like that in the tumor, When those begin to happen, that's all part of the monitoring aspect. And so we think NextPerson will be pretty comprehensive across the board with those and it will leverage this capability with whole genome sequencing as the front end. A quick one. Just a corollary to what you're just talking about is, as I would think, Is the paper that you that was recently published with the checkpoint inhibitor treatment. So how is the how can you develop that market? Because obviously there's a lot of people All out there who are trying to understand how to treat some of these patients who cannot respond To checkpoint inhibitors that population keeps increasing. So Is this a segment of the market that you're going to be going after or do you already have certain orders in place from such folks. Yes. So certainly, many of the customers we have in the pharmaceutical world are people who have been developing Checkpoint inhibitors, we work with many of the companies in that space. So and a lot of them adopt our platform because of our ability to look at All the genes, which is what's really required to be able to see new antigens. And now with this new biomarker and our ability to tell Which mutations may be antigenic, that's a really differentiated capability. In theory, other people can Generate an exome scale cancer assay, but they won't be able to tell which of the mutations actually could generate an immune response. And that's something we've worked on since 2015 and this NEOPS paper is a great example of the real clinical testing of that. Thank you, John. Thanks for taking my questions. Thank you. Your next question is from Mark Massaro of BTIG. Your line is now open. Hey guys, thanks for taking my question and apologize I'm hopping on different calls tonight, so I may have missed some of the earlier comments. But Can you give us a thought process on your reimbursement framework? So obviously, As you're starting to sort of transition from a research more into the clinical side of diagnostics, Can you give us a framework for whether or not you plan to sort of effectively crosswalk to existing codes in the market Or any commentary you can make about discussions that you might have had with Palmetto Molbex would be helpful. Yes. So this is John. We're not able to talk about specific conversations like that yet, but I would say The concept is that we've developed our next platform so that it can both look at New state of the art biomarkers like neops, which nobody else has, but it can also be well validated for the known Biomarkers that are already reimbursed. And so we would expect to be able to be reimbursed for use of the NEXT Dx test Based on those conventional biomarkers because NEXT has been designed specifically to be able to see them really well. As you may know, The next platform does not have the same sequencing coverage everywhere. It's over 300x sequencing coverage Across the whole exome, but then in the genes that capture the sort of traditional targeted therapy targets, We boost the sequencing coverage up, it ends up at over a 1000x step. So we're really sensitive in those chains. And so That gives us a clinical utility that aligns with the kind of reimbursement that's already been well established by others. So that gives us a baseline of reimbursement. And then we can leverage the additional broader capabilities we have, both to attract customers who may be interested in the combined research and clinical Aspect and also ultimately who are interested in leveraging novel biomarkers like neops that nobody else may be able to offer. Okay. And then, I'm just curious for any additional clarity on the VA. So, I believe you said earlier that you do expect a further order by the end of September. That hasn't come in yet, Yet you still maintain the guide for the year. So, is it safe to say that your degree of confidence is high, that you expect another order to come in for Q4. And then as we think about beyond Q4 and into 2022, what is your degree of confidence in the VA's desire to continue the program at similar levels. Sure. Let's see. I can say that We've been working with the VA now. I think we've received orders every year since 2012. I think the only time we didn't receive an order in September 1 year, it was actually dated in September. We didn't receive it till October. I think this year, The order would probably come in by the end of August, but again, there could be delays in us, the paperwork going through at us receiving it. So that's why we're confident about September, the VA is always looking at its spending on a variety of different areas. And I think we benefit both from The budget which has been specifically set aside for the 1,000,000 Veterans Program, but actually there's a lot of enthusiasm for the program inside the VA. And so To the extent that there are funds that were set aside for other things that maybe didn't get completely spent, if they're able to repurpose that towards MVP, in the past We've seen that they've done that kind of thing. And so that's part of the reason that the orders tend to come at the end of the government fiscal year. So yes, I would think it would be Completely normal for us to see it in kind of late August or even into September this year. That's sort of that's how it's always worked with them. Yes, I think we're very confident that will happen based on the conversations we've had. And then in terms of the commitment to the program going forward, as I think I'd have mentioned in the remarks, We see this as being a long term commitment at the VA. When we talk with people there, they're talking about their march to the first million And their goal is to have 2,000,000. And so that'll probably take a decade at the current rate of acquiring New veterans being enrolled in the program, but we get a sense they're headed for it. That's the goal. Many of them started working on this. The early planning started back in 2006. So I mean, people have been working on this for 15 years. They're almost to the first million collected. We've sequenced over 100,000 over 125,000 genomes. So I think they're saying it's working. They're the number one Population sequencing project in the U. S. And I think they feel like that's taken a lot of work and they're going to keep at it and do that. So we have every indication that they'll do that. Certainly, the budget process we see happening with the budget authorization for the VA that's going through Congress now for FY 2022, The Biden administration proposed a 13% increase in the research budget at the VA and the White House specifically in their announcement about this Highlighted the fact that this was the largest percentage increase in the VA's research budget in recent memory. And we've looked back Almost 20 years and not seeing anything of that scale. So I think there is a strong support not only for the VA, but for research in the VA because think they see that the VA has a unique ability to do certain kinds of research that you really can't there is no other place you can do that kind of research. That's super helpful. And so I noticed another emerging genetic testing company recently hired 2 or 3 people out of Illumina to fortify, I guess, if you want to call it their population sequencing initiatives. So can you maybe just talk about any changes to the sizing of the market, the number of opportunities Or maybe even just competitive dynamics as maybe more than one company starts bidding on some of these global contracts. Yes. So it's a good question. There have been a number of people competing on these kinds of contracts over the years, and that includes In Europe, there has been some bidding on that kind of thing. It's happened in the Middle East as well. So I think there are opportunities like that. But for some of these large projects, these are very large amounts of money they're going to be spending, and They've spent years collecting these samples, so they often want to be really confident in the quality of the data that it's going to match what's considered The standard in the industry today and to have somebody that has the experience that's actually done it, that isn't just talking about it for the future. And I think Personalis has more experience in that category than anybody in the world. And so from that standpoint, I think we're in a good position to compete for those kinds of things. We We will continue to be cognizant of anybody who could be a competitor, but we've had competitors in the past and at least in the VA business, In spite of the fact that there were other bidders, Personalis won in every single case. So we intend to continue being aggressive in that space, but we think we have a great We've been working on it for enough years and have enough experience now that I think we really are by far the most experienced company in that space. That's really helpful. Thanks very much. Great. Thanks. Your next question I would say maybe one more item on that Is that because these groups are looking for, there's a lot of value in the statistics having very large numbers of patients. You see the VA trying to go for 2,000,000 patients and so forth. The cost of the sequencing matters a lot in that. And so there are other groups that have proposed various things. I think it's important to be able to be not only to have the quality, but it is important to be able to compete on the cost. And so Personalis has worked a lot with Illumina over the years. All of the sequencing we've done for the VA has been using the Illumina platform. And I think that's held us in good stead. So if others are going to enter the space and there have been others that have entered the space using Like the Oxford Nanopore platform, it's not clear that all those other competitors can match in terms of both Quality of sequence and cost. So I think those will be challenges for the future for those companies. Your next question is from Doug Schenkel of Cowen, your line is now open. Good afternoon, guys, and thank you for taking my questions. My first Is actually a question on China. There's been some recent changes in regulations recently in various industries such as technology and food. Yes, as we've talked to others in our industry and more broadly across healthcare, it does seem like There are some concerns that similar types of changes could occur in our field That maybe put Western firms at a bit of a disadvantage. I'm just wondering how you're thinking about these things. And then specifically So the partnership with Berry, do you feel that that puts you in a position where you're better positioned than maybe some others based on that partnership in being able to navigate any regulation changes. Yes. Thanks, Doug. It's definitely an area that we look at carefully. And I think the partnership with Berry definitely helps us in that regard. I'd say another aspect of this is that If we were only going to do clinical diagnostic testing, I'd say there are going to be Chinese There are Chinese companies that provide that kind of next gen sequencing based clinical diagnostic testing inside China. And so the Chinese government could have an incentive to tilt the playing field in favor of the home players. This is a little different case because our business there is really aimed at this point at working with international pharmaceutical companies. And In those cases, the vast majority of the clinical trials that are being run is actually being run outside of China. And what pharma is looking for is somebody who can provide The same technology, both outside China and inside China. And so a laboratory that only operated inside China, for example, in principle, try to compete for the business, but it largely wouldn't be able to have the unless there was a lab like that, that had Capabilities in the U. S. And Europe and so forth as well, it wouldn't really be able to provide that other part. So I do think that Personalis Positioning as a company where we've been focusing on genetic analysis specifically for pharma and that's been the target customer for us In China, it's a major help. And the Chinese government has a real incentive for there to be International pharmaceutical companies having their drugs approved in China. And so I think there's a different incentive that may help us through this kind of potential, they call it regulatoryprotectionist worry that there might be That is different from the situation you might have if this was purely a genetic diagnostic business, We're also if you're a diagnostic business, you could be a diagnostic business only inside China and that could be fine. Yes, there's not as much benefit to also having the business outside China. Thanks for that. And just completely unrelated follow-up. Regarding next personal and next liquid biopsy, product development efforts you've been talking about for a while and They're very, personnelis like, more markers, more content for not a whole lot money, if not a whole lot more money, If anything, at the same price. As you move into clinical, with these products over time, I know you appreciate this, but You're going to need to do more than just include more content, right? You need to demonstrate equal or better performance. The content arguably matters less than how the assays perform in the utility in a clinical context. You guys know that as well as anyone. And then commercially, you're going to need to be as good, if not better than the incumbents, especially as you're playing catch up. So again, nothing controversial there. I'm just curious, Assuming you don't disagree, when do we see more clinical data and how do you envision Differentiating and being better than others when it comes to test performance, in terms of utility, not just breadth. Thank you. Yes. So I guess I'd say that the let me speak to Next Personal in particular, We think that that will be a product that has substantially better performance in a dimension that matters a lot on the clinical side, which is Sensitivity for detection. So we see other groups publishing clinical results and detecting a cancer when it's coming back At 0.10 percent allele frequency or maybe a fraction of that, we're aiming at a part per million kind of level. So this is 100 of times more sensitive than the other products that we see on the market, and it directly impacts how early can you see whether the cancer is coming back Or not. And so we think that's a very differentiating, very clinical feature. So it's in a sense not just About more content in a sense from a research perspective, but it directly ties into a metric that our Clinical customers, we think will care a lot about. You're right that we will need to have the other elements of this from a commercial standpoint, The sales force, the reimbursement, all the other elements and that's absolutely front of mind now. And I think we'll have more to say about that as we go through the year and into next year, but we're very aware of those other challenges, not only the technical performance. Thank you. Great. Thank you. Your next question is from Mike Matson of Needham. Your line is now open. Yes, Good afternoon. Thanks for taking my question. So I had one about this recent data on the neops biomarker. So was PD L1 used to compare against the predictability of the immunotherapy response? And if not, is there plans to study that? I'm not sure I fully understand the question. I understand you're talking about PDL-1, I mean, it has Chemistry is a biomarker, but the, maybe if you could restate the question, that would be helpful. Yes, sure. So I guess you looked at How it compared to TMB, but I was wondering if you also looked at how your biomarker compared to PD L1 in terms of predicting immunotherapy response? Right. So the study that we published was specifically comparing against other direct Genetic biomarkers as opposed to a protein biomarker like PD L1. I think that they're A little bit orthogonal and so they could complement each other. In general, we have cases where customers are interested in PD L1, IHC testing along with our next platform. So we see the 2 working together. And in a way, it's An example of the thing we've been talking about that individual excuse me, individual biomarkers often are not as predictive as a what we would call a composite And so the composite biomarker that we have in neops combines both the neoantigen burden, but also the immune escape Elements of the tumor, but you could see how that could also be further combined with things like The PD L1 staining. We do see that the PD L1 staining, although it's indicative in some cancer types, It's not required for a physician to use the drug. I think it tends to be mildly indicative, It's a bit challenging. There's a different PD L1 marker for almost every checkpoint inhibitor. And so I think that's Considered to be a fairly unsatisfactory biomarker at this point. And it doesn't really reflect the core mechanism of these drugs, which has to do with the neoantigens. And so that's what we've been aiming at all this time. It's been to get at what's the real underlying mechanism of action of these drugs. And so if that if you can see the details of that mechanism of action, it really lets you be more definitive about whether a patient will respond or not. And we also expect that neops will be something that will change over time. As the patient evolves, the tumor evolves, there'll be more mutations, which would be more Neoantigens, but there can also be more loss of HLA, which is a different kind of escape mechanism. So we see this, we're bringing this out to We'll start with on our tissue platform, but you can imagine wanting to look at that from a liquid biopsy standpoint over time too. Okay, thanks. And then as far as neops goes, I mean, is this something that would be used for your pharma customers or would you also offer it Yes. So the answer is yes to both. The it's actually available to our pharmaceutical customers Now they can use it both in their research studies and if appropriate they could use it with us on a companion diagnostic Development, it would be an appropriate biomarker for that kind of thing. There are the low hanging fruit has largely been Taken now in the checkpoint inhibitor space and the challenges now are in, there's a number of cancer types for which Checkpoint inhibitors either have not been approved or they're not first line therapy. And so just biomarker that's a bit discriminatory on the patients Might help advance and let those checkpoint inhibitors get approved in places where they otherwise have not been. So I'd say from a pharma standpoint, That would be the attractive opportunity for them. And then from a clinical standpoint, We report out neops as an investigational biomarker already today on our NextDx test. And as we ramp up The diagnostic volume on that test, I think we'll see more and more people using that. And I think that we'll begin to see interest in it. It's one of the things that will really differentiate the platform because so many patients today are getting checkpoint inhibitor drugs And many who receive those drugs don't benefit from them. So I think physicians are very aware of that problem and are looking for something that might at least give them an indication About which patients really look like they're the best candidates for those therapies. Okay, great. Thanks. Your next question is from Patrick Nulley of Citi. Your line is now open. Thanks for taking the questions guys. I was just hoping to talk a little bit about I know you mentioned a little bit, but on the PopSeq pipeline outside VA, Can you talk about, I guess, how active the pipeline is? And also just timing. I think you've always talked about starting to have some relationships in 2022. But just in terms of some actual award decisions, things like that, just what how we should be thinking about that opportunity and even the magnitude, if you want to talk about that a bit? Yes. So I would say that they in general, the programs we talk to are people looking at many, many thousands of Patients, so they end up being multimillion dollar programs can be larger than that in some cases. A number of the groups are exploring how they're going to go forward. Some groups already have samples that they've collected. Some groups are Just beginning to collect samples, so those different countries are at kind of different stages. I would say that the Advance of COVID has not helped in that regard because as much as COVID is a challenge in the United States, it's even more of a challenge than some of the other countries and some of the countries that have interesting population sequencing projects from our point of view Have also had very serious COVID outbreaks. And so I think those discussions are ongoing, but people are trying to work through it in the midst of A challenging pandemic. And so I think the timing of that, we do see it as a 2022 kind of opportunity. There are programs That are interested in moving forward on this kind of thing that are collecting samples and we'll have to compete for that kind of thing. But I do think it's Something where as we go through 2022, I wouldn't be surprised to be able to see to announce some awards in that area. Some of them will be competitive bids. We'll have to go through that kind of thing, but we've been pretty competitive on that kind of thing in the U. S. In the past. So we would Certainly aim to be competitive internationally as well. That's helpful. And then just circling back on the VA, and I know you've obviously You talked about a lot, but it seems like a majority of the investor focuses on that given the timing here. Can you just kind of talk through the mechanics of Getting a new agreement in place, is it just kind of all wait and see? Any Discussions, I mean, if you could bring us behind the curtain for a minute just to kind of get your conference level and what timing, how we should expect this all to progress over the next A few weeks or a couple of months. And again, I know you talked a bit about it, but the more clarity, the better on this one. Yes, that would be great. I mean we have a relationship with people in the VA who worked on this program and many of the people we work with today are the same people we've been working with since back in 2012 when we started. So it's a pretty long lasting relationship. You get to know the people pretty well. They're only able to save so much until there actually is an award. But in terms of the mechanics, there is no competitive bid this year. This would be A new task order that would be issued on the contract that we already have. There are no milestones they need to clear. We could get an email tomorrow that says, Here's your new order and that would be the whole thing. So we don't think there are any additional steps we need to take on that. We have had discussions with the VA about a variety of ways in which we could advance the service we provide to them that could be That they could leverage on the existing contract. There's quite a bit of interest in some of those. And so I think we'll have to see what they end up deciding they want It's a fun, but I'd say the overwhelming sense is that this has been an effort they've been working on since Collecting samples since 2011, so it's been a decade already collecting samples. They have something like 300 people working on the project. It's sort of the shining star in some elements of the VA research arena. And so we get Every sense that they intend to continue this until they get through the to at least 2,000,000 patients. And I'd say, if anything, there's an interest in Seeing more clinical content to this and eventually transitioning this into something that's used on an ongoing basis with all veterans. So That's perhaps maybe more aspirational than funded at this point, but we do see strong funding support. And when we speak with people on The political side of the world, we also see that there's strong support for this program amongst both Democrats and Republicans. And so It's not a controversial program politically. It's been something that's been was well supported under the Trump administration and is now well supported under the Biden administration. So I think there's a great sense of this is an important national program. It's probably be 20 years in the process of building the whole thing. We're about halfway through that now. And I think everybody has their heads down and intends to continue driving forward. That's really helpful. Is there in terms of timing, is there a certain date where if a date passes, you start to get a little concerned if you don't hear, you'll get that email like you said, just so we can Keep an eye on the timing and all that. Yes. I mean, I'd say our expectation is that the order probably would be Signed in August, it could be in September, I think August, but sometimes there is we have seen What I would describe is sort of a paperwork delay between when things are signed inside by whoever's the appropriate person is inside the VA And when we actually get that news and can share it with the world, so I think it's probably fair to say we're thinking about September. If we got to the end of September and didn't have something, we would Certainly, want to think about that. But we're in touch with people at the VA on a fairly ongoing basis. So if there was some Big change or some kind of a major issue, I would expect that people would pick up the phone and we'd be talking about it. It's not just waiting. I think there's an ongoing We're still delivering thousands and thousands of genomes to the VA and there's all kinds of just the ongoing operational discussion there. So we're in contact with those folks and Every indication we have is everything is sort of continuing at this point and they I think we'll see how it goes with time. It is Obviously, we'd all like to just know what the results are and move forward, but I think in a month or 2 here, we'll have that answer. Very helpful. Thank you. All right. Thanks. I'm not showing any further questions. I would now like to turn the call back to A Ron for any further remarks. We'd like to thank everyone for joining us today and Looking forward to speaking with you again in a few months. Thank you very much. Thank you. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.