Personalis - Earnings Call - Q2 2025

Executive Summary

• Q2 revenue of $17.2M (-24% YoY) missed Street consensus and management’s Q2 outlook, driven by a $5.6M expected decline from Natera and softer biopharma translational projects; gross margin compressed to 27.6% on unreimbursed clinical test costs.
• Strong clinical momentum: 3,478 clinical tests delivered (+59% QoQ) and ordering physicians now exceed 600; Tempus collaboration expanded to colorectal cancer (CRC), broadening access and exclusivity through 2028/2029.
• Guidance cut: FY25 total revenue lowered to $70–$80M (from $80–$90M); pharma tests/services lowered to $52–$58M (from $62–$64M); reimbursed clinical revenue narrowed to $3–$6M (from $3–$10M); Q3 revenue guided to $12–$14M.
• Management expects Medicare coverage decisions for two indications in Q4 and cites ~12 pts of gross margin headwind from unreimbursed tests (GM would be ~40% ex those costs), providing a path to >50% margins post-coverage.
• Near-term stock narrative likely pivots on reimbursement timing and biopharma project push-outs; management maintains confidence in MRD biopharma growth (300–400% YoY) and two $5M+ MRD biopharma customers, with a stronger Q4 seasonality historically.

What Went Well and What Went Wrong

What Went Well

• “Win-in-MRD” execution: 3,478 clinical tests in Q2 (+59% QoQ), with >600 ordering physicians, reflecting accelerating adoption of NeXT Personal’s ultrasensitive MRD performance.
• Strategic expansion: Tempus exclusivity broadened to CRC and extended through 2028/2029, scaling commercial reach across breast, lung, CRC, and IO monitoring.
• Clinical evidence: ASCO data in breast cancer (PREDICT, SCANDARE) and cervical cancer (CALLA) underscored ultrasensitivity and early detection advantages; management emphasized: “nearly half of all positive detections were found in the ultra-sensitive range”.

What Went Wrong

• Top-line miss and guide-down: Q2 revenue $17.2M missed Street and prior Q2 outlook ($19.5–$20.5M); FY25 revenue cut to $70–$80M on biopharma timing variability and sample receipts.
• Margin pressure: Gross margin fell to 27.6% (from 35.6% YoY) on unreimbursed clinical test costs and customer mix; CFO quantified ~12-pt headwind in Q2.
• Biopharma softness: Translational projects delayed 2–4 quarters amid sector R&D headwinds, tariffs/macro uncertainty; Moderna revenue down YoY as expected, Natera winding down by end of Q3.

Transcript

Speaker 7

Ladies and gentlemen, greetings and welcome to the Personalis second quarter 2025 earnings conference call. At this time, all participants are in the listen-only mode. A brief question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please signal the operator by pressing star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Caroline Corner, Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. Welcome to Personalis's second quarter 2025 earnings call. Joining today's call are Chris Hall, Chief Executive Officer and President, Aaron Tachibana, Chief Financial and Chief Operating Officer, and Rich Chen, Chief Medical Officer and EVP R&D. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements within the meaning of U.S. securities laws. For example, any statements regarding trends and expectations for our financial performance this year and longer term, cash runway and liquidity position, revenue expectations and timing, reimbursement goals, size and booking of orders, products, services, technology, expansion of clinical volume, future publication, the outcome and timing of reimbursement decisions, expectations for our existing and future collaboration activities, cost expectations, market size, and our market opportunity and business outlook.

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, including the risk factors described in our most recent filings. Personalis undertakes no obligation to update these statements except as required by applicable law. Our press release with our second quarter 2025 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 the 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. With that, I would like to turn the call over to Chris.

Speaker 4

Thank you, Caroline. Good afternoon, everyone, and thank you for joining us. Our second quarter was defined by outstanding execution of our winning MRD strategy. The clinical adoption of NeXT Personal is accelerating dramatically, with test volume growing 59% sequentially. We delivered nearly 3,500 clinical results in Q2, and today, our base of ordering physicians has expanded to over 600. Our commercial partnership with Tempus is gaining momentum, with reps now commercializing NeXT Personal across four major indications: breast cancer, lung cancer, and colorectal cancer, as well as immunotherapy monitoring. We believe we're on a path towards securing Medicare coverage for two indications by the end of this year. For those new to our story, Personalis is at the forefront of the minimal residual disease market, or MRD market, which is poised to exceed $20 billion annually. We believe we are transforming cancer care.

Using a simple blood draw, our NeXT Personal test monitors therapy and detects residual cancer with ultra-sensitivity, capable of finding just one fragment of tumor DNA in a million. This allows us to see cancer recurrence months ahead of imaging and positions Personalis to capture a significant share of this transformative market opportunity. Turning to our results, we delivered $17.2 million in revenue for the second quarter. Our performance reflects two distinct stories. First, our core clinical business is exceeding our internal plans and demonstrating momentum. Second, we're actively managing the near-term industry-wide headwinds in biopharma R&D spending. Political changes in the healthcare sector and the uncertainty of tariffs have impacted our customers' translational research projects, resulting in revenue from a few significant contracts shifting out of Q2 and in overall weakness the rest of the year.

In light of these industry dynamics, we're updating our full-year revenue guidance to a range of $70 to $80 million. While this range reflects the current variability in the biopharma project timing, we have a concrete three-point action plan to aggressively pursue the high end of this range and expect to finish the year with maximum momentum. Here are the three key drivers that give us conviction. First, we're converting our deep biopharma pipeline, especially for MRD. While project timelines have shifted and affected translational business, demand for our MRD technology is robust, with growing adoption of NeXT Personal for MRD by our biopharma customers. NeXT Personal gives our customers a tool with ultra-sensitivity to measure therapeutic efficacy, and we remain on plan to grow this segment by 300 to 400% this year, with a meaningful revenue contribution expected in the fourth quarter.

Second, we are capitalizing on our clinical momentum. Our clinical business is a growth engine as we continue to project 30 to 40% quarter-over-quarter growth, fueled by exceptional traction with our partner Tempus and our expanding base of ordering physicians. This is a core pillar of our growth story, and it is accelerating. Third, we are advancing towards a pivotal reimbursement catalyst. Achieving Medicare reimbursement in two indications this year remains a top priority and is on track. This is expected to be a major inflection point for the company, unlocking a significant revenue stream. Let me be direct. We own the Q2 revenue shortfall. Moving forward, we're pushing hard on the levers we can control to finish the year strong instead of passively waiting for market conditions to change. Now let's walk through the pillars of our winning MRD strategy. First is accelerating clinical adoption.

Through our partnership with Tempus, we delivered 3,478 tests this quarter, a 59% increase from the first quarter and over 575% growth from last year. This is a direct testament to how our ultra-sensitive approach is resonating with clinicians. Our growing base of over 600 physicians confirms that NeXT Personal's ultra-sensitive results are a key differentiator, giving them greater confidence in their clinical decisions. This quarter, we expanded our Tempus partnership to include colorectal cancer, a major market where we believe our test ultra-sensitivity can address a significant unmet need. Initial feedback is extremely positive, and we're moving aggressively to capitalize on the opportunity. In light of this, we're also adding to our own Personalis sales force and expect to exit the year with 12 to 15 field professionals on the ground. Second is driving reimbursement through world-class evidence. The clinical data validating our approach is nothing short of outstanding.

At ASCO in June, three studies underscored the power of our technology. The PREDICT and SGINDARI studies demonstrated that NeXT Personal can predict patient outcomes in neoadjuvant breast cancer, with nearly half of all positive detections found in the ultra-sensitive range that our assay unlocks. Furthermore, an important study from AstraZeneca showed our test detecting cervical cancer progression up to 16 months ahead of imaging. We believe this is the caliber of evidence that doesn't just support clinical practice, it transforms it. Behind the strength of our clinical evidence, we continue to target achieving coverage for at least two indications this year. We have recently submitted our IO monitoring dossier for Medicare coverage, and we now have two indications in process for coverage, and the lung cancer dossier is on track.

Some aspects of the coverage process are beyond our control, but we continue to be confident that our data meets the bar for coverage. Third is leading with biopharma partners. Our technology gives partners a powerful tool to accelerate clinical trials. While total biopharma revenue of $11.1 million reflects the project delays I mentioned, the underlying growth in our strategic focus area is exceptional. As I stated, NeXT Personal revenue from biopharma is on track for 300% to 400% year-over-year growth, and the new customers noted in our last call remain on track to generate over $5 million each in revenue this year. We project total biopharma revenue will rebound to between $11 million and $13 million in the third quarter. Our expectations are much higher for the fourth quarter, typically the best quarter of the year.

In summary, Personalis is executing with precision on our strategy to win in MRD. Our team and our partners are deploying our ultra-sensitive technology that we believe can redefine the standard of care for patients with cancer. I'm proud of the progress that our team has made so far in 2025, and I'm thrilled with the commercial momentum and partnership with Tempus. This is a transformative year for our company, and most importantly, for the patients who benefit from our technology. With that, I will now turn it over to Aaron to review our financial results.

Speaker 8

Thank you, Chris. I will discuss our second quarter 2025 results and then cover guidance for the third quarter and the full year. Total company revenue for the second quarter was $17.2 million, representing a 24% decrease compared with $22.6 million for the same period of the prior year. The decrease in revenue was primarily driven by the expected volume decline of $5.6 million from Natera and $1.3 million from Moderna. We continue to expect the Natera business to conclude by the end of the third quarter. Biopharma revenue was $11.1 million in the second quarter, representing a 16% decrease compared with $13.2 million for the same period of the prior year. Most of the biopharma revenue decline was from Moderna, as previously mentioned. In addition, Chris discussed the customer project delay that we had in the second quarter.

If these projects were not delayed, our biopharma revenue for the second quarter would have increased year over year despite the decline from Moderna. For clinical revenue, we recognized $0.5 million of revenue from our NeXT Dx and NeXT Personal molecular test compared with $0.1 million for the same period of the prior year. Gross margin was 27.6% in the second quarter compared with 35.6% for the same period of the prior year. The year-over-year decrease of 8% was primarily due to the lower revenue and unreimbursed clinical test costs. In the second quarter, we saw an impact of approximately 12% to our gross margin from the unreimbursed clinical test costs. Excluding those expenses, gross margin would have been approximately 40%. We continue to expect total company margins to expand beyond 50% once we have obtained reimbursement coverage for more than a few indications and we achieve scale.

Operating expenses were $26.6 million in the second quarter compared with $24.9 million for the same period of the prior year. Most of the year-over-year increase was attributed to selling expenses related to our clinical test volume growth. The second quarter R&D expense was $12.4 million compared with $13 million for the same period of the prior year, and SG&A expense was $14.2 million compared with $11.9 million for the same period of the prior year. Net loss for the second quarter was $20.1 million compared with $12.8 million for the same period of the prior year. The prior year's net loss included a $3 million non-cash gain related to the warrants issued to Tempus and were outstanding as of the second quarter of the prior year. Excluding the non-cash gain, the prior year net loss would have been $15.8 million for comparative purposes. Now onto the balance sheet.

We finished the second quarter with a strong balance sheet with cash and short-term investments of $173.2 million and no debt other than some small equipment loans. The cash usage from operations and capital equipment additions for the second quarter was $13.2 million. We continue to operate cost-effectively, and as mentioned during our last conference call, we expect cash usage for the full year of 2025 of approximately $75 million, an increase of approximately $30 million compared with the amount used in 2024, primarily due to investment in clinical test volumes in advance of reimbursement, expansion of our clinical evidence for NeXT Personal by conducting new studies, and additions to our clinical sales team. We expect these investments to help drive NeXT Personal revenue growth post-reimbursement later this year and into 2026. Now I'd like to turn to guidance.

For the third quarter of 2025, we expect total company revenue in the range of $12 to $14 million, revenue from pharma tests and services and all other customers in the range of $11 to $13 million, and revenue from population sequencing and enterprise customers of approximately $1 million. For the full year of 2025, we revised our guidance and now expect total company revenue in the range of $70 to $80 million, which is reduced from $80 to $90 million, and this lower range encompasses the timing and variability of biopharma projects and sample receipts and Medicare reimbursement coverage for NeXT Personal. Revenue from pharma tests and services and all other customers in the range of $52 to $58 million, which is reduced from $62 to $64 million. Population sequencing plus enterprise customers in the range of $15 to $16 million.

Revenue from clinical tests reimbursed in the range of $3 to $6 million, which is narrowed from $3 to $10 million. Gross margin in the range of 22 to 24%, and our gross margin guidance for the full year is expected to be lower than the 32% for the full year of 2024 due to the impact of investing in clinical test volume ahead of reimbursement. Net loss of approximately $85 million, which includes approximately $20 million of unreimbursed test costs, which is increased from $83 million due to lower revenue, and cash usage of approximately $75 million. We look forward to updating you on our progress during the next conference call in a few months. With that, I will turn the call back over to the operator to begin the Q&A session. Operator?

Speaker 7

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from Daniel Brennan with Cowen. Please go ahead.

Great, thank you. Thanks for the questions. Maybe the first one just on clinical. I know you said Medicare is on track. You did lower the top end of the guide from three to 10, three to six. Can you just walk through a little bit of what was the rationale for that? Are you hearing anything back from Medicare? As we think about the back half of the year for clinical, what's kind of assumed for Q3 and Q4 at this point?

Speaker 8

Dan, in terms of the guide, the prior guide, for our prior guide, we had a pretty wide range of $3 to $10 million on the clinical side, primarily due to the number of months we saw before we got to reimbursement. Now that we're in the month of August, for early August here, we thought it'd be prudent to tighten the range or narrow the range. That's how we come up with the $3 to $6 million estimate. What we've modeled in the prior guide is we had a lot of different models that we ran or scenarios that we ran in terms of when reimbursement could occur. That's how we came up with the wider range. Net-net, you could assume that we did have reimbursement for one indication in the latter part of Q3 and then the second one in Q4.

We're still targeting two cancer types for the full year, but in terms of the guide now, it looks more reasonable that we'll get two cancer types in the full quarter.

Speaker 4

Yeah, so Dan, it's Chris, and we still feel confident about that. We've had good engagement. Palmetto always does a great job evaluating these tests and these technologies, and we've been engaged with them. We feel like, even after all that engagement, that our evidence meets the bar that they've established. We've got the IO submitted, which is new news, and we feel like we have a good line of sight to the Tracer X data being published in lung cancer. It's our expectations we're going to have three shots on goal to get two of them done by the end of the year and have enough time to go through a back and forth. We feel like we're in a good position. It's always tough to nail down the exact final timelines on this stuff, but we feel like we're in a good position.

Okay. Could you speak a little bit to some of the early use cases? You talked about, I know you gave some numbers out in terms of the number of doctors that are using it. Could you speak to how that is going? I know it's early, you don't have coverage yet, but how is the number of doctors using it and kind of where do you find doctors are using it specifically? What types of areas do you think your ultra-sensitive test plays a differentiating role?

Yeah, I mean, we focus our clinical storytelling into breast cancer, lung cancer, and therapy and IO therapy monitoring. We've got some great, I didn't walk through an example on this call of a case study, but we've had doctors using it to find recurrence and found it months ahead, sometimes a metastasis, which really reinforces the value of the technology. We've had doctors using it after neoadjuvant to determine what to do next. We've certainly had doctors using it as a part of therapy and sometimes switching therapy because they haven't been able to get a longitudinal response and then getting the patient on another drug and seeing a response. That's been great. The key value here is that almost 40% of our positive results continue to be in the ultra-sensitive range. When doctors see that, that sells them over time. Our retention has been phenomenally high.

It's probably one of the best products I've ever worked on bringing to market in terms of high early retention, and that ramp has been great. What's happened though recently, and I think this last quarter, we added CRC to the call cycle. That's been a whole new evolving use case, with higher landmark sensitivity. We expanded the Tempus arrangement, and we're starting to see some CRC usage and really positive feedback. Across all four of those indications, we think the ultra-sensitivity is shining. The last piece is it obviously gives more confidence to the negative, which is always a good thing when you're sitting across from a patient and you're telling them that it's a good day for them. They don't have any minimal residual disease in their blood that they can measure and have any confidence in, and that's powerful.

We feel like it's spiraling across all spots of the clinical.

I know there'll be a lot to surface because I know there'll be a bunch of questions on pharma. Just kind of one more on the balance sheet. You have $173 million in cash. I think you burned $13 million. Can you just remind us of the pathway forward? Like how long does that cash last? I know Aaron Tachibana talked about the gross margin expansion you expect, but you also have to deal with Tempus. Just walk us through a little bit of how we might contemplate your kind of cash flow and any kind of cash flow need you have going forward. Thank you.

Speaker 8

Sure, Dan. We ended the quarter with $173 million in cash. We have a strong balance sheet. We believe we have plenty of cash to get us not only to the other side of reimbursement, but to get us to cash flow breakeven. In terms of having to go raise money, we're not in that position like we were in the past. There's no plans contemplated to having to raise money. We still have plenty of cash to be able to invest in studies, invest in growth of volume here in advance of reimbursement and post-reimbursement. Once we get to the other side of reimbursement, we're really ramping our test volume. We can sit back and look at other investments that may be required to grow even faster and further into the future.

Terrific. Thank you.

Speaker 7

Thank you. The next question comes from Mark Massaro from BTIG. Please go ahead.

Hi. This is Vivian on for Mark. Thanks for taking the questions. Just more on biopharma, is it fair to think about the $10 million reduction as a push-out of revenue rather than being canceled outright? Is it fair to think about that being reflected in 2026? Is it correct that the—yeah, go ahead.

Speaker 4

Go ahead. What was the second part of the question?

Yeah. Just to clarify, was that push-out related to the personalized cancer vaccine deal that you have with Moderna? If so, how do you feel like that value prop is resonating more generally?

Yeah. No, great. Let's start with the PCV or the INT, individualized neoantigen therapy programs with Moderna. That is on pace and has been, you know, sort of a bedrock relationship, and we couldn't be happier with how that's progressed. We had expected that revenue to be down this year because they had enrolled a significant number of patients in their melanoma trial last year, which fueled the revenue, and this year's lower. That's what we expected, and we didn't see anything there. What we've seen in Q2 was that some of the projects got pushed into Q3 and Q4, and some of Q3 started to get pushed back, and we started to see some softness. That's been in the translational sector. I think what's happened is these biopharma companies have done layoffs, as they've pulled a little tighter on their purse strings.

We've seen a slowdown and we've seen a general softness, and we thought it was prudent to take the guide down given what we're seeing and what we're starting to see appear inside the sector. It's not surprising to us that it kind of happens in this biopharma segment. We're still on fire with the MRD product. I note in the prepared remarks that we're still seeing 3 to 400% growth. We've talked about that, and we're right at that spot. We don't see any of the MRD projects slipping out of the year. Secondly, we still have the two bigger customers that we've landed this year north of $5 million in revenue, and they're tracking to do that. The MRD product continues to be exactly where we are, and that's been a real shining light in what we're doing.

Some of the projects that we expect to go into Q and into next year, we haven't seen any losses. There's always maybe a clinical trial that doesn't work out, that we're doing some tumor profiling work that might get the plug pulled on that. We haven't seen any significant losses. It's certainly not in any meaningful way. It's always been push-outs and a sort of a slowness that I think we're seeing. I think some of the other companies operating in this space have seen too, and that's where we are. The core asset here with the MRD is performing phenomenally well with that customer, and certainly the clinical customer where we see the nearly 60% quarter-over-quarter growth.

Okay, perfect. That was great color. Thanks so much. Just to follow up on the MRD front, just on the 3,500 NeXT Personal tests, could you guys just discuss if you're seeing maybe an increased number of test time points per patient, or is it more so lift in new physician adds? Just any attachment to call out a NeXT Personal to your NeXTDx CGP test as well. Thanks.

Yeah, yeah. We're seeing growth both in the number of physicians, and I think we talked about we've crossed over 600 now, which is just phenomenal given where we are. We are seeing us go deeper into those accounts, meaning we're getting more samples per physician, and we're starting to pull through the subsequents. That's all been on the bedrock of what's been a phenomenal relationship with Tempus. We work so well with them, and we couldn't be more happy with how that relationship has unfolded. You're starting to see the success of that really deeply starting to power the numbers and the performance. It's happening across all the metrics. On NeXT Dx, the CGP test, I think we had our highest quarterly revenue this quarter. That's been the CGP NeXT Dx. It's appended onto many of the tests that we do without Tempus.

Tempus sells their CGP when it comes through their channel, but when we have our reps, we get this, we'll often get the CGP associated with it, and it's been a nice revenue driver, an extra revenue driver on those samples. The core MRD metrics, it's increasing tests per doctor, increasing number of doctors, phenomenal retention, and then starting to pull through the subsequents. Is that helpful? I think I covered everything.

Yes, perfect. Thank you for taking the questions.

Speaker 7

Thank you. The next question comes from Thomas Flaten with Lake Street Capital. Please go ahead.

Hey, good afternoon. I appreciate you guys taking the questions. Since now that you've run a few thousand samples through the system, I'm curious what you guys have seen in terms of turnaround time for the test, from tissue and blood receipt, and from the patient's first visit to turnaround to results. Have you seen any improvement in that? Has it been helpful to have this early access program to work out kinks, etc.?

Speaker 4

Oh, absolutely. What we've done is we've had a good chunk of our R&D staff really focus this last 18 months on how do we start to scale this. Our lead times now have fallen dramatically. We think we're at a spot where we're providing whatever they can get in the marketplace from any other vendor, both on the subsequent and the baseline. We feel like we're in a really good position. We've invested a lot of money and time and effort in scaling this and starting to do it at scale and haven't missed a beat along the way. It's sort of hard to quantify that, but I will just note that the market physicians really expect a high level of customer service, and the growth that we are seeing quarter over quarter over quarter is a tribute to our ability to execute on the operational front.

If we were messing this up and we were going weeks and weeks and weeks and days and days and days and losing samples along the way, we would not see the retention and we would not see the quarterly growth because you can't solve that problem by growing out of it. We've been rock solid there and have improved as we've gone, and you see that in the numbers.

Got it. Helpful. I'm not sure how many ends you have to use to answer this question, but have you detected what kind of cadence physicians are using with repeat testing with patients that might have been kind of early on in the early access program?

I think we're seeing, you know, I think it's a little early to answer that definitively. We see that the recurrence monitoring is less than the therapy monitoring. The IO therapy, we see more than the recurrence monitoring. That's what we see. I think it's what we expected, but I think it's a little early into the different use cases and where they are in the clinical flow. I think we'll have a lot more as the numbers start to get bigger to delve into there.

One quick final one. As you guys look to expand your sales team here in the second half of the year, can you remind us again how you and Tempus are going to kind of co-manage customers? Is there exclusivity depending on who the rep is? Can you just explain a little bit more how that works?

Yeah. The relationship, I mean, we're depending on Tempus, and they've powered us, and that's awesome. It really depends on what the doctor wants and how they want it. Usually, it's honestly probably best for the physicians to drive through the Tempus infrastructure. They're set up in EMRs, and that's really important to clinicians. The logistics are often worked out within those institutions by Tempus. That allows us to move quicker in a really seamless way and in a way that meets customer needs. It was one of the driving forces internally here at Personalis to do the Tempus arrangement. I think by and large, physicians would, because that infrastructure is in place, be happy to roll it through Tempus, and we do whatever is best for the doctor and for their patients. That's where it sorts out. As we scale the group, we've always said we'll be scaling it.

That group does a couple of things. It supports the relationship where needed, particularly in big academic medical centers with KOLs. One of the things that I think made Personalis unique is that we've worked with many of the top people in the world, and we have access to some of the leading sample biobanks to build data, and that really starts to drive clinical usage. We've put a focus of our sales infrastructure working with those people and those relationships. We're investing and continue to invest there. Secondarily, as strong as Tempus is, they're not the only cancer company. Doctors have other implementations set up. Our reps will try to make sure that we close any market gaps and provide coverage to every physician in the community, even if they're not doing business with Tempus. If it's a Tempus account, it probably will go through the Tempus architecture.

Got it. Appreciate the call. Thank you.

Yeah, we've been really happy with how it's worked, Thomas.

Got it. Thanks again.

Speaker 7

Thank you. The next question comes from Yuko Oku with Morgan Stanley. Please go ahead. Yuko, please go ahead with your question and unmute yourself in case you're on mute.

Hi, this is Evan on for Yuko. Can you guys hear me?

Speaker 4

Yeah. Thanks.

Hey, I just wanted to start up in the biopharma end market. I was wondering if you guys provide an update to what you estimate the impact of all of these policy headwinds are going to be on your biopharma customers. I think you previously pointed to $3 to $5 million impact with your pipeline offsetting that. I was wondering if you have an updated estimate.

Speaker 8

Hi, Edmund. This is Aaron. In terms of your question about the biopharma landscape, what's going on on the government front, in our prepared remarks, we did talk about revising our guidance from biopharma down from $62 million to $64 million down to $52 million to $58 million. In terms of what we're seeing on the translational research side of the business, where ImmunoID NeXT is our offering, we are seeing delays of projects, and we've seen that occurring from Q2 and Q3. Some projects in Q2 and Q3 have shifted to the right. It's our assumption that these projects are not lost, they're just delayed a little bit. It's going to take two to four quarters before those get completed and convert to revenue. What's really strong for us right now is the MRD offering, NeXT Personal with biopharma. Our funnel continues to grow and expand.

As Chris said in the prepared remarks, we have two customers that are $5 million each, and we believe we're going to fulfill those this year.

Gotcha. On the competitive landscape, following the recent announcement of the coverage determination for Saga's Pathlight, could you elaborate on how NeXT Personal is differentiated? How are you thinking about balancing your MRD investments between near-term margin pressures versus immediate top-line benefits upon receiving reimbursement?

Speaker 4

I didn't catch the last part of that.

Just how are you thinking about balancing your MRD investments between suffering from near-term margin pressures versus seeing more of a top-line impact upon reimbursement?

Got it. Yeah, no, we, I mean, firstly, as Saga got reimbursement in breast cancer, I think that's great. I think that's great that another player has gotten it. They were published several months ahead of us, and our assumption has been always that they had submitted well ahead of us. They proceeded on probably a similar timeframe. Their data was good, and we feel like we cleared the bar, and we feel like we're in a good position. When we saw that they had gotten coverage and reimbursement, it just gave us confidence that the data that we have is on the right track. We continue to invest deeply in evidence development, increasingly working with some prospective clinical trials of biopharma, or within the breast cancer space with some of the top thought leaders, and we'll be announcing things along the way.

We've had that prospective B stronger trial in triple negative breast cancer where we've been enrolling patients in a prospective way, but we're working with a lot of other top medical institutions. We didn't really focus on it in this call, but the ASCO data was particularly powerful, with PREDICT and with SGINDARI, and it gives us an opportunity to expand ultimately the coverage there into the neoadjuvant setting. Those data sets were particularly great, and the PREDICT trial was a multi-center trial, and the data was again another oral presentation at ASCO. We continue to invest aggressively there, and we think that that's the right spot to be investing.

I would remind you that the economics of the Tempus arrangement means that we can really get a lot of sales and marketing leverage without having to invest a ton because we're leveraging their channel and then paying them for market value for the services as we go along. It allows us to scale without as much short-term investment in a sales and marketing infrastructure to get to the same spot.

Speaker 8

I think the other question that Edmund, you had was balancing the volume with margins. What we can say there is Chris said in his prepared remarks that our growth targets are 30 to 40%. We've been growing at a rate of 50% plus sequentially every quarter, right? If you look at the run rate from Q2 with 3,500 tests or so, that's basically a $6 million revenue run rate assuming full reimbursement and assuming an average price of, let's say, $7,000 over four tests, including the first time point, which is more expensive. So $1,750 per test or so. We're not saying exactly what our reimbursement price is going to be, but we're just providing an estimate based upon what the incumbent has today, right? If you look at that, that's a $24 million annual revenue run rate in the second quarter.

We're going to continue to grow at a rate of 30 to 40% as we go forward at a minimum. We are balancing the cash burn with this growth trajectory. We're trying to be prudent on the cash side, but we're seeing phenomenal takeup from a volume standpoint. We want to continue to go as fast as we can, primarily because once reimbursement coverage does come in the fourth quarter, it's going to flip to revenue. We want as high a revenue run rate as we can because we believe that that's going to give the greatest value back to our shareholders. That's kind of the way we're thinking about it. Our margin guide of 22 to 24% does contemplate these unreimbursed test costs in advance of reimbursement.

Got it. Thank you for the time and the call, Aaron and Chris.

Thanks, Edmund.

Speaker 7

Thank you. The next question comes from Subhu Nambi from Guggenheim. Please go ahead.

Hey, guys. Thank you for taking my questions. Can you talk through some of your conversations at ASCO? You touched on this a little in the previous question Q&A. How did that reinforce the approach you guys are taking right now, and what are some of the things you've learned to implement in the second half of this year and beyond?

Speaker 4

Yeah. Hi. Thanks for your question. This is Rich. Yeah. We had a really great ASCO, as Chris alluded to. Notably at ASCO, we introduced our first neoadjuvant breast cancer data in triple negative breast cancer with two studies, PREDICT and SGINDARI. What was really terrific about that was that they showed very similar findings, that our test was highly, highly predictive of relapse for patients that have gotten neoadjuvant. Patients that were positive on our test were highly likely to relapse versus those who were negative. It actually compared very favorably with the industry standard approach called PAT-CR. That was really an important step because that's sort of the way people have done it before. What they showed was our test was highly predictive, independent of PAT-CR. What that kind of sets us up to do is really expand our MOLDx coverage approach.

You can expect that we'll be submitting for reimbursement for neoadjuvant breast cancer once these studies get published, much in the same way we've been pursuing the other indications. The way to think about it is that, yeah, this year we go for the breast, the lung, and IO, we're working on that. Next year, we'll be bringing CRC along and expanding breast cancer as those papers get published.

Got it, Chris. I know it's ahead, it's still early, and you guys are still waiting for Medicare reimbursement. Any conversation with pricing at all, or all that will only happen once you have the coverage?

Yeah, it does only happen after we get the coverage. We've told people to put in their models similar to what's being reimbursed now for the 16 variant exome-based testing approach because we think that that's sort of the floor, you know, and we think that Medicare reimburses ultimately based on the resources supplied. The whole genome approach is a more, you know, more cost-intensive approach along with 1,800 variants. We think there are shots on goal that go higher, but we've encouraged people to build the models where that's upside. When we talk about our gross margins being 60% and the Tempus sales and marketing percentages being in the 20% to 25% range, etc., and the ability to have transformational economics around those kinds of numbers, we do that assuming the current reimbursement in the marketplace.

Got it. For the longer reimbursement takes, have you seen any erosion in interest from docs who currently cannot serve due to getting volumes and they choose other competitors who are available, or is it too early for any of these things to be a factor?

No, we haven't seen any of that. We've been expanding out the number of doctors and been able to continue to expand. I think at this point, it's a rate of how fast we push the gas rather than just gating people. We still have some physicians on the waitlist, but we've been growing out pretty significantly and making sure we take care of people that really, really want access. We spend a lot of our time both with ourselves and our partner going deeper into accounts and really reinforcing the power of the ultra-sensitive range because that's what's cementing the relationships and that's what's starting to power the long-term success as you go deeper into accounts because they see the value of our approach.

Makes sense. Thank you so much, Chris.

Absolutely. Thanks for being on the call.

Speaker 7

Thank you. The next question comes from Mike Matson with Needham & Company. Please go ahead.

Yeah, thanks. I just had a question on the Tempus arrangement. Let's say that in the third quarter, you were to get the reimbursement for, say, lung cancer. My understanding is that they've just been selling this or pitching it to doctors to use with any kind of cancer, essentially. Is there a way that you can incentivize them or Tempus can incentivize those reps to focus more on the cancer types where you will initially have coverage, or, in other words, to try to ramp the revenue more quickly and reduce the cash burn while you're working on the other cancer indication coverage?

Speaker 4

Yeah. No, thanks. That's a great way to, you know, great question. They focus in on the lung cancer, the breast cancer, and the immunotherapy monitoring, increasingly CRC. Almost all of our samples hit within those indications, both that we're getting ourselves and that they're getting. They're usually, they're all sort of tied, most of them are tied to those core indications. We don't receive a lot of samples all over the map, to be quite honest. They kind of fit the core, the core thing. I do think there's an opportunity, let's say we got lung cancer or breast cancer first. I do think there's an opportunity to preferentially, you know, focus in on physicians that just treat those types of things.

It's hard to go to physicians and tell them, you know, only send us these types of patients per se because, you know, physicians want to be able to offer the technology in a universal way or a sort of consistent way based on what they think is best for their patients. I don't think we have complete control to pull those levers, but we do have some control to sort of push in the direction of wherever coverage is if there are physicians that have certain spikes. The way we're looking at it.

I understand. You announced that you're going to pursue the colorectal cancer reimbursement eventually. Where do things stand with the data? The press release cited the victory data, but is that sufficient? What are the milestones, I guess? Does it need to be, I assume it needs to be published or something? Do you need any other studies or data there?

No, absolutely. That data was phenomenal. We've got great feedback from it, but it's preliminary. It's a prospective study, which is different than some of the studies that we worked on, which are retrospectively analyzed, prospectively gathered samples. It's a little bit different because you get it all when you do it. This one, it's going forward. The investigator hasn't decided to quit the study yet. At some point, we will do that. The team will, the investigator will publish it, and then we'll submit that for reimbursement. That's still TBD in terms of timing.

Okay. Got it. Thanks.

Speaker 7

Thank you. A reminder to all participants, you may press star and one on your keypad to ask a question. The next question comes from Swayampakula Ramakanth with H.C. Wainwright. Please go ahead.

Thank you. This is RK from H.C. Wainwright. Good afternoon, Chris and Aaron. I got on the call a little bit late, so I apologize if you addressed some of these issues in opening your mouth. Just looking at the pharma tests and services revenue and seeing how they did not perform to the level that you were expecting going into the second quarter. Also thinking about the full year, after completing one half, it looks like you're not going to, at least in your current language, you're not really thinking about much of a growth from here onwards for the second half compared to the first half. What has changed in the pharma business, this side of things that's not progressing as well as you thought you would? Is this their clinical programs, or is this more than that?

If you can just give us a little bit of color. Is this just for this year? Once, hopefully, the market turns around and the funding is better for everybody, should we see that growth?

Speaker 4

No, I think that's great. I think we're seeing, so a couple of snapshots here to think about. We're seeing phenomenal growth on the MRD side inside biopharma customers. That's all on track. Every time we've talked about it, every one of the internal numbers, the 3 to 400% annual growth, the couple of new customers that are generating north of $5 million, that's all on plan. We feel like we're performing really well. That's really where we're investing. The other part of the business, which is the translational research phase, where we'll receive a large group of samples, and we will run it through our tumor profiling engine, and the biopharma company will use that data to potentially find new biomarkers to fuel their drug development. That's more futuristic type of research. That one, we felt the slowness. We expect it to pick up as things settle down.

That's probably driven by a lot of the questions around how drug development processes go, drug pricing in the current system, and certainly tariffs. You're seeing layoffs within some of these companies and just a general slowness relative to some of the earlier stage R&D, and that's what we're feeling. We think that that's temporary, and we think it'll sort itself out. I would say that we're still expecting that product to be flattish to a little bit of growth this year. We're still, it's not that the product's in a tailspin at all. It's just that we had pipelines earlier in the year that showed that product performing much better than how it's ultimately performing. Year over year, I expect it to still be flat, even 8.5% growth. The explosive growth in MRD is on track. That's what we're seeing.

I don't think it's a terribly bit different than what other companies have seen. We thought we would grow through it earlier in the year, but it sort of deepened as the quarter went on, and we felt like it was prudent to adjust the guidance given where we are.

Okay. Thanks for that. The next question is on trying to understand, you know, in terms of the Tempus relationship and also how the reimbursement can provide, you know, a boost to the sales in Q4 if you get at least one, if not two, both of the reimbursements in place. Let's say you get the reimbursement earlier in the quarter, in the fourth quarter. By the end of the quarter, would you be able to recognize the reimbursement amount, or is there some additional paperwork and all that logistics that need to happen that this thing could drag into the first quarter where you can actually really see the benefit of that reimbursement? I'm just trying to understand how the logistics work in terms of really recognizing, you know, the revenue based on the reimbursement.

Speaker 8

Yeah. This is Aaron. In terms of some of the mechanics of it, we won't go into a lot of depth or detail here, but what's the most important fact here is that we do get a favorable coverage decision from Medicare, right? That's what we're after. Assuming we get a favorable coverage from Medicare, right, for two cancer types, our guide is $3 million to $6 million, right? Depending upon the timing, the number of samples, the price, right, there is some variability between the $3 million and $6 million, and that's why we do have a range. The key here is getting the favorable coverage.

Okay. Thank you. Thanks for taking my questions.

Speaker 7

Thank you. Ladies and gentlemen, this concludes the question and answer session and the conference of Personalis. Thank you for your participation. You may now disconnect your lines.

Goodbye.