Personalis, Inc. (PSNL) Q1 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Personalis First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Ms. Caroline Corner, Investor Relations. Please go ahead.

Thank you, operator. Welcome to Personalis’ 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 markets 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 COVID-19 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 first quarter of fiscal year 2021 to be filed today and our 10-K 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 will refer to the company's oncology business. This represents the 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 first quarter 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 5:00 P.M. Pacific Time today. Now, I'd like to turn the call over to John for his comments on first quarter business highlights.

Thank you, Caroline. 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 turned to revenue. In Q1, our revenue from this business groups 74% [ph] 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 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've developed our ImmunoID NeXT Platform with this objective in mind. The NeXT Platform provides our pharmaceutical customers with the capability to better understand 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 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 liquid biopsy samples with these platforms. Tissue samples give us access to RNA and 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 for 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 that with the ability to monitor over thousand mutations, NeXT Personal will compare favorably in terms of sensitivity and information contents with panels from competitors that can track -- 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 six recent highlights and accomplishments from Q1. First, we continue to make encouraging progress with our exome scale NeXT Liquid Biopsy product. As you recall, we launched this product in August 2020 and have received orders from several customers. We have now delivered our first customer order and based on that data, the customer is already asking us to process additional samples. We have our first publication authored jointly with one of our customers showing the utility of our NeXT Liquid Biopsy together with our ImmunoID 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 can contribute increasingly to revenue as we enter 2022. Second, we announced a collaboration with the 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 signature Personalis 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 formalin-fixed paraffin-embedded or FFPE tissue for 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. Third, we announced a collaboration with MapKure, LLC, a company jointly owned by BeiGene, Limited and SpringWorks Therapeutics, Inc. We plan to use our NeXT Platform for their clinical trials and companion diagnostic development. We believe our work with companies such as MapKure is a strong testament to our technology and capabilities. It 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. Fourth, 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 NeXT Platform in 2019, as of the end of Q1, we have received NeXT orders from 50 different customers. In Q1, we added another large global pharmaceutical company as a customer, starting with an order of almost $1 million. We believe this growing adoption of NeXT further highlights the power of our platform and the comprehensiveness is important to our customers. Fifth, 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 Personalis cells or biopsy samples from clinical trial patients in China, they need to apply to the Chinese regulatory authority, HGRAC 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 Personalis has already received multimillion dollar orders to process samples using our NeXT platform from the portions of the trial outside of China. We're also in discussions with a number of Chinese pharmaceutical companies of 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 topline, we believe this is an important investment. We look forward to updating you on our progress. Sixth, and finally, in addition to the achievements just mentioned, we also recently announced the addition of Dr. Woody Myers to our Board of Directors. Dr. 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 Labour and Human Resources; as Health Commissioner for his home state of Indiana, and as Commissioner of Health for the City of New York. Dr. Myers received his MD degree from Harvard and subsequently his MBA from Stanford. Dr. Myers will be instrumental in helping Personalis 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 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 million 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 the sequence. We have been the sole provider for the VA MVP's whole genome sequencing project over the last eight plus years and have been awarded multiple contracts by the VA MVP during this time. Our existing contract with a VA MVP ends in August 2021. However, the VA MVP can place additional orders with Personalis 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 the summer. We're 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. White House noted that their request includes $882 million for VA R&D, and referred to it as 'the largest year-over-year increase in recent history' The headline that this proposed budget 'invests in research critical to Veterans Health gates'. Their proposal represents a 12% increase in funding, specifically for VA research. In December, we announced we had become the first 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 involve pharma in the future. I would now like to expand on the synergy between the populations 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 areas to serve as the basis for Personalis cancer assays. We believe this will let us achieve high sensitivity, even in cancers which have low mutational rates, which have been surgically resected, or which shed relatively low amounts of cell-free DNA into the blood. We believe this can be a leading technology and 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 political and regulatory capabilities, expanding co-migrations that further highlight the utility of our NeXT 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 first quarter of 2021 and our guidance for the second quarter and the full year. Total revenues for the first quarter of 2021 were $20.9 million, up 3% from $2.2 million for the prior quarter and up 9% from $19.2 million for the same period of the prior year. The $20.9 million 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 of their customers accounted for revenues of $7.7 million in the first quarter, representing a 74% increase over the same period of the prior year. This was our second 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 the revenue. In the first quarter, revenues from our NeXT Platform exceeded $4 million, which is the highest quarterly level achieved thus far. Second, new order amounts continue to keep 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 first quarter, the VA MVP revenue of $13.2 million was higher by 5% from last quarter and was 10% lower compared with $14.8 million 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 $30.3 million at the end of the first quarter 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% for the first quarter compared to 30.1% for the prior quarter and 21.1% for the same period of the prior year. 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 a 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 $19.9 million in the first quarter compared with $13.7 million for the same period of the prior year. R&D expense was $9.5 million in the first quarter compared with $6.4 million for the same period last year, and SG&A expense was $10.4 million in the first quarter compared with $7.3 million for the same period last year. The increase in R&D expense was through new product development and the increase in SG&A was due to commercial expansion, public company costs, and continuing to enhance our infrastructure. Net loss for the first quarter was $12.4 million compared with net loss of $9.1 million for the same period of the prior year. The net loss per share for the first quarter was $0.29 and the weighted average basic and diluted share count was 42.3 million compared with the net loss per share of $0.29 and the weighted average basic and diluted share count of 31.3 million in the same period of the prior year. Now, onto the balance sheet. We exited the first quarter with a strong balance sheet with cash and short-term investments of $353.4 million. In the first quarter, we used $11.7 million of cash from operations due to the net loss and working capital needs. Capital equipment expenditures were minimal and we paid $0.4 [ph] million. And as mentioned during our last conference call, we expect our cash usage to increase from the mid-$40 million range in 2020, up to a level between $80 million and $90 million 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 second quarter and the rest of 2021. And with this in mind, for the second quarter of 2021, we expect total company revenues to be approximately $21.3 million and we expect biopharma and all of their customer revenues excluding the VA MVP, to be in the range of $7.3 million to $7.7 million, representing a year-over-year growth rate of 54% to 62%. Net loss is expected to be in the range of $16 million to $17 million and the weighted average basic and diluted share count is expected to be approximately 43 million. For the full year of 2021, we expect total company revenues to be approximately $85 million and we expect biopharma and all other customer revenues excluding the VA MVP, to be in the range of $30 million to $32 million, representing an annual growth rate of 33% to 42%. Net loss is expected to be in the range of $70 million to $75 million due to the increase in expenses and the weighted average basic and diluted share count is expected to be approximately 44 million. 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&A session. Operator?

[Operator Instructions] Your first question comes from the line of Tejas Savant from Morgan Stanley. Your line is open.

Hello, this is Yuko on for Tejas Thank you for taking our questions.

Hi.

Hello, how are you thinking about positioning the MRD offering in light of the multiple players on -- coming onto the market? And as a follow-up, what are your views on tumor informed 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 mentioned, we expect to be in a position to monitor over a thousand genetic variants. And this gives us enormously more sensitivity. Most of the other products on the market look at much smaller numbers of genetic variants. And that directly limits the sensitivity that they would have. 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 detection of the tumor, but also some characterization of how the tumor is changing over time. 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 might only have one mutation out of every million bases across the genome. And since the sequence reads are only a few 100 bases long, it means that something like 99.9% of the sequence reads don't have any useful information. They don't patch a variant and so it's an enormously inefficient approach and actually 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 down performance.

Got it. That was very helpful color. Thank you. And then how are you thinking about entering the clinical market down the road.

So, this is an important 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 that. 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 in the plasma. But sometimes a year or two can go by with a cancer not being detected. And since we see that the cancer is a -- 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, then that 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 realized. 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 approvals are 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 question 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&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 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 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 rather than a substantial number of samples, both from customers and collaborators. And we'll be off and running with that. We do see, interestingly, a -- as I mentioned in the prepared remarks that 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 surgically resected. So, we can use our NeXT Platform on that tissue to identify the genetic variants. 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 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 -- as 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 here, you'll be missing a lot of variants. But by looking with the NeXT Liquid Biopsy of the whole exome level, it gives you the ability to see new mutations that have happened wherever they've happened in the in the exome and to be able to detect those. So we will 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 its evolving over time.

Super helpful, John. And kind of using that segue from Personal to liquid, it's nice to hear that you delivered your first customer order to next 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 -- 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 whole 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 expected in 2021, a lot of that activity will be pilots. We have a bunch of those kinds of orders. Now 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 it, how this might be involved in the treatment of a patient. I'd expect that it could be prospective. On the other hand, a lot of our customers in pharma have been collecting liquid biopsy samples for an 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. In HCR, 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 data, 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 as 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. The -- 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 describe 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 turns out, these are 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, particularly tumor escape, a lot of times the people design these panels, and they're really designed to capture the genetic variants that may have caused the cancer in the first 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 I think this is an example. This is why it's helpful to sort of future proofing that happens by having all the genes is that we're not presupposing, which change you should look at when we just look at them all.

Thanks a lot, John.

Good. Okay. Thank you.

Your next question comes from the line. Patrick Donnelly from Citi. Your line is open.

Great. Thanks. This is Jesse [ph] on for Patrick. Thanks for taking the question. Apologies if I have I missed this. But can you just remind us of the timing for the new China lab and just what if any revenues you 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. Hey, I’ll let Aaron start off and 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 it equipment showing up the facilities then 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 to development of 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 the revenue standpoint, you 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.

And I guess I'd support that. I think one of the formats really around was that we have cases where we're working with large pharmaceutical company. And they're going to the Chinese regulatory authorities to get permission to run the test like ours, on samples inside China. But because we've been supporting them and saying, great, if we get the regulatory position will be -- we're building up a 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 multi-million 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, there'll be -- 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, that 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 parts 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 Personalis has -- we brought in on board lead for the business development side of our activity. And we’ve seen him in September of last year, a highly experienced individual and we used to work at Genomics Medicine Ireland with a big population sequencing hampered there, but knowledgeable about population sequencing projects all over the world. We've been leveraging his contacts and others to then engage with groups. And I'd say, 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, 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 you 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's still looks like that's about on track. It's always hard to know these things exactly the timing, but we had a review of some of those earlier this week. And there are multiple countries where the pots beginning, I wouldn't say it's boiling yet, but it's still things are definitely simmering and getting to be pretty interesting. So 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.

Hey, guys. This is Vidyun for Mark.

Oh, hi. Good.

All right. So if you could just provide an update on how the entire 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 still kind of held true?

Yes. Great. So this is John, I'd be happy to answer those. So the relationship with Natera has been great. They have been really trying to move forward on this. I think the -- anything that would have implications in terms of their revenue which is 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 a lab developed test and a clinical diagnostic side. And we anticipate being able to support both of those and it's a good early entry course. And the other product is very different from what we're doing. And they -- with our next Personalis, so we really kind of two different positions in the market and I think Personalis will benefit from both of those. So I'd say we're pretty -- a lot of effort going on in that area at this point. And we're pretty excited about him. I think on the biopharma side, we have the two 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 created as 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 Personalis brings 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 a country and engage with pharmaceutical companies may be interested in both the data, but also helping to finance some of these efforts. I think these are, these are things where we see that the two businesses overlapping more and more. So, as we -- at this point, I'd say, you are going to 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 think we think both sides of the business are going to grow over time. If you look 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 that the two businesses are likely to increasingly overlap as opposed to being kind of separate almost competing businesses.

Okay, awesome. Thanks so much.

Thank you.

So just an unrelated follow-up. Are you able to provide an estimate on the likelihood of renewing the VA contracts in visibility for getting a task order? And if you can touch on, like some of the competitive factors that go into that?

Sure. Yes. So it's 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 scores, which they've done multiple times over the years. And I would say, our current indication is that the step that they're likely to take is an additional task order, 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 in 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 an existing contract we already have, there is no competitive aspect to it, as just expansion and more money being put towards the project. We've been the only whole genome sequencing provider to the million 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.

That's Great. Thanks for taking the question.

Okay. Thank you.

Your next question comes from the line Mike Matson from Needham & Company. Your line is open.

Hi, good afternoon. Thanks for taking my questions. Guess I wanted to start with gross margin. So, obviously volume should help there. But I just wanted to get an update on, on what you're doing aside from just seeing the volumes grow to improve your gross margins?

Sure, I'll take that, John. In terms of gross margins. 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 $7.5 million of biopharma revenue our margins did scale accordingly. And in terms of the path forward, we've highly automated the VA MVP 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 VA MVP side. And so that's another level of 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 the scale from the top line standpoint. And at that point in time, you're going to see, personalities 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…

Sure.

I mean, just what are your thoughts on that it's not viewed 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 cannibalized your own test at this point?

I don't see that as a problem. I think it's a very large market. And the products of other companies tend to be quite different from ours. There are companies taking a variety of different strategies, people on this call have talks about, tumor informed versus tumor agnostic and things like that. So, we work with companies on both sides of that divide, and we're interested in supporting the growth of this whole area, and we think there's money to be made off of that. In the long-term, I think main revenue growth driver for Personalis will be our own products, I think that would be true of any company, that 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'll be -- these are definitely helpful relationships for us along the way. But if you model where we get to five to 10 years out, it's almost all going to be based on the products the Personalis has.

Okay. Thanks. And then just as far as the population sequencing goes, it sounds like you're in discussions with some other potential customers there. But, I was just wondering, if you could maybe talk about the types of groups that are interested in population sequencing? 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 US? Or is it really a global thing where you could you could do work for, maybe other governments or things like that?

Well, yes, I'd say the majority of the other programs we're talking, whether are outside the United States. So there are populations, sequencing initiatives, and 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 sending some cases, ones where they want to get started by sending samples to California, because we were 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 advantage of this locally. And so we've taken the experience 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 US 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 initiative, 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. Now, the other hand, we do see it -- 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, again, some of the cancer patients, they have access, potentially, to these potentially lifesaving -- state-of-the-art drugs. It's also good for them, economically. And if patients from their country are part of the clinical trial that the genetics. They're not, they’re not ending up with drugs being approved only based on occasion genetics from you know, people of European descent. But you'd 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 US and Europe. And certainly, that is, people who have a lot of diverse genetics. And those can be real opportunities from a drug development standpoint as well. So, you know, I think involving these other countries and involving pharma. They 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 billion basis at a time per patient. And you know, a billion 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 bases per sample. And so you know, hugely more. And so if somebody's only sequencing a billion bases at a time and Illumina is state-of-the-art sequencers today, already can handle 6 trillion bases every time you enter to 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 hundreds 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 43% reduction in prices, by the year 2025 and things like that. Personalis 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 sequences in the world was sequenced by Personalis. 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. Q - Okay. Great. Thanks for the really thorough answer on that.

[Operator Instructions] Your next question comes from the line of Swayampakula from H.C. Wainwright. Your line is open.

Thank you. This is RK from H.C. Wainwright. Good afternoon, John and Aaron.

How are you, RK?

Doing good. Most of my questions have been asked. But I just want to understand a little bit about the MapKure relationship that you have, where you're trying to help out in the -- not only in their clinical trials but also for the clinical diagnostic -- I mean, the companion diagnostic that they're trying to develop. So, is this one -- is this first of many that you're looking at in the sense for -- if one thinks about revenue sustenance having a companion -- having to work with their companion diagnostic can be really helpful, as long as the life of that drug is in the market? So how do you -- 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 MapKure effort is one of the typically a new drug in a clinical trial, we have to go through Phase 1. And if that's successful, then Phase 2 and if that 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 that 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 were successful or not. But assuming that they that the drug continues to be successful, and they go on to one phase after another. Then the scale of that effort can increase, it 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 you know -- it's considered quite sophisticated at a whole exome and transcriptome being used at a companion diagnostic scale by Pharma. 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, you know, the people involved same, upbeat and optimistic and, go team, let's make it happen. So we're 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. This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you, all.

Thanks. Bye, bye.