Welcome to today’s dive into Personalis, a small company taking oncology and population genomics to the next level.
DISCLAIMER: I am not an Investment Advisor. The information provided in this article is not investment advice and should not be taken as one. Only use for educational purposes. Please do your own DUE DILIGENCE before making any investment decision.
Content
Highlights
Overview of Personalis
Financials
Recent News and Developments
International Expansion
Optionality
Projections and Business Outlook for 2022
Personal Take
Highlights
In 2020, 4% of all DNA sequenced anywhere in the world, was done by Personalis.
Grew its revenues for > 20 quarters in a row, including during the pandemic.
Monitors all 20,000 human genes, 40 times above other players in the liquid biopsy panels market.
Launched all of its NEXT products and sets up well for the future.
1. Overview of Personalis (Ticker Symbol: PSNL)
Personalis (PSNL), is an immunogenomics company focused on precision oncology. It’s core business lines include Oncology (Liquid and Tissue Biopsy) and Population Genomics.
The CEO, John West was involved in the early 2000s in the sequencing of the first human genome. He was also the CEO of Solexa, (now an Illumina company) whose next generation sequencing technology made Illumina into the company it is today.
Personalis recently launched NeXT Liquid Biopsy platform which allows the company to monitor and detect new mutations. The launch completes a quadruple of key products release that address the total addressable market ($40B) of the company’s business, as shown below:
2. Financials
Revenue was $22.3 million in the three months ended September 30, 2021, up 12% from $19.8 million in the same period of the prior year.
Gross margin was 36.2% in the three months ended September 30, 2021, compared with 26.9% in the same period of the prior year.
The company’s oncology business is seeing significant growth and demand from bio-pharma partners as seen below:
Giving the recent launch of its new NEXT Personal products and the low base of present revenues, it is expected that sales should ramp significantly from here (likely starting in 2023- continue to read to understand why 2023).
Cash, Cash Equivalents and Short term investments totaled $305M with no debt, which now represents ~50% of the company’s market cap. This is a high Cash/Market Cap ratio. Cash to Market Cap signals liquidity and financial stability of a business. A high cash to market cap ratio is 10% or more. So, ~50% for $PSNL is really high.
At an average cash burn rate of $23M per quarter, present cash position could sustain operations for the next 13 quarters without raising cash in the public markets. Of course, this assumption is over-simplified. As the company expands its sales team, cash burn can increase substantially over the next few quarters.
3. Recent News and Developments
1: In the 2nd week of December 2021, the company launched its signature Liquid Biopsy Assay for Molecular Residual Disease (MRD) product which is 10X - 100X better than any other competitor product in the market. The Holy Grail of testing products is the degree of their accuracy and sensitivity. This new product delivers sensitivity down to the 1 part per million range, according to the company. This means the product has a ≥99.9% specificity, thereby significantly {(and substantially :), I know} minimizing the rate of false positive results. Shedding more light on the characteristics of the new product:
“NeXT Personal addresses the need for higher sensitivity assays, opening the door for earlier detection and more sensitive monitoring of patient response to therapy across a broader range of cancers and stages. Today’s release is targeted towards biopharma partners and clinical collaborators. In 2022, we plan to release NeXT Personal as a clinical test, which we expect will yield opportunities for earlier intervention and treatment for cancer patients,” said Dr. Richard Chen, Personalis’ Chief Medical Officer and SVP of R&D.
2: In October, Personalis inked a collaboration with Mayo Clinic to expand cancer genomic testing. This collaboration contributes towards the company’s march to clinical applications to improve patient outcomes. Mayo Clinic presently serves ~15,000 cancer patients yearly.
3: Earlier in the year, the company announced a continued expansion of NeXT Liquid Biopsy; which was launched in 8/2020 and has had first customer delivery in 1Q 2021. This liquid biopsy seems to be having a good reception among bio pharma partners. Management in its latest call, indicated that its oncology business is growing 50% over 2020. CEO stated in Q3 2021 Earnings report that:
“I’m proud to say that revenue from our oncology customers grew 50% over the same period of the prior year, and increased sequentially for the eighth consecutive quarter. In addition, our new-orders-to-revenue ratio during the third quarter was more than three-to-one, and gives us confidence in our future growth”
Overall, it can be deduced that the business is transitioning from a Veteran Affairs testing business into its full potential as an Oncology business. Other companies in this space such as Guardant Health ($10.5B) and Natera ($9B) trade at much higher valuations (justified by higher revenues) but with much lower sensitivity of tests and lower number of genes examined, as shown below:
In fact, Natera uses Personalis technology in its Signatera assay.
4: The company also recently recruited for a newly created position of Vice President, Reimbursement, who will drive efforts with Medicare and private payers.
4. International Expansion
Personalis has been targeting a very large market in China through a collaboration with Berry Genomics, while actively recruiting to ramp sales.
5. Optionality - Population Genomics
In today’s investing environment, optionality is what investors like to see. Presently, Personalis’s core businesses are related to its NEXT liquid biopsy products and its contract with Veteran Affairs.
Having an expanding TAM of $2B, population genomics could represent another significant business opportunity for Personalis in the near future. ARK invest had this to say about Personalis pop-gen business:
“While Personalis currently is laser-focused on advanced cancer profiling tools for biopharma customers, population health could be another exciting opportunity to build a foundation based on molecular information and enable biological discoveries and medical interventions during the next five to ten years.”- Ark Invest, 2021
“Furthermore, recently, many nations and health systems have begun sequencing large populations to unlock critical genomic information. Activated by machine learning, population genomic (“pop-gen”) data can provide health care experts and policymakers with information to help prevent the onset of disease, increase the efficiency of health systems, and improve the delivery of new therapies.” - Ark Invest, 2021
Interestingly, Personalis has the largest population capability in the world and is in position to take advantage of the population genomics movement when it takes off.
6. Projections and Business Outlook for 2022
According to analysts projection, as viewed from Yahoo Finance, 2022 Full Year Revenue guidance is $65M, a 23% reduction from 2021 FY revenue projections of $85M. In my view, this is a very pessimistic projection from analysts which does not factor in the following:
New orders that could emerge from the recent launch of NEXT Personal Liquid Biopsy Assay for MRD. Management aim to initially launch this product with bio-pharma companies, which suggests the assay is not going to be cheap. Given the new product is 10-100X better than competitor products, it will be interesting to see uptake. Later in 2022, management stated they will pursue orders for patient diagnostic tests in clinical settings. The strategic outlook for the company is shown below:
The company expects its liquid biopsy and Oncology business to represent a larger portion of revenues in 2022 and in the long term.
The recent order of $10M from the VA MVP is lower than what Personalis usually gets but indicated that the VA has been in the process of evaluating its operations and budget, giving the lack of certainty caused by COVID. A favourable and clearer outlook on COVID could mean more order for Personalis from the VA MVP programme after March 2022. Regardless, 2022 revenues could take a dip from 2021 revenues but investors who follow the company should understand why this might be the case. 2023 could be year where revenues start accelerating year on year into the future.
7. Personal Take
Given the company completed the release of all its core products in 2021, execution becomes critical moving forward. How can they ramp sales in several geographies including US and China? How much cash will they need to raise, potentially diluting existing investors? How quickly will clinical utility and reimbursements be attained?
As at market close on the 23rd of December 2021, $PSNL market cap was $640M, trading at P/S of 7.52 2021 Sales. I believe the risk/reward at this price and valuation has never been better (of course, the stock could even go lower). Similarly, the company could also be a viable acquisition target. If it is not acquired, the unique characteristics of the company and its liquid biopsy platform (which is deemed the best in the industry) should set up the company for long term success.
In my opinion, this company also epitomises how mis-priced companies in the genomic space are. These companies are literally contributing to saving lives and revolutionalising medicine. However, they are priced as if they’re not going to make it. There are several companies in the market that have no products but are so highly priced as if they will rule the world. This mis-pricing could be an opportunity that could benefit long term investors.
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DISCLOSURE: I am long shares of Personalis (1.84% of stocks portfolio allocation)
Sources of Information: Personalis Website and Investor Deck, Simon Barnett Twitter notes (@sbarnettARK) and Terrapharma (@TerraPharma1)