NEW YORK – Personalis reported after the close of the market on Thursday that its third quarter revenues rose 16 percent year over year, driven largely by a 9 percent increase in revenues from the analytical services it provided to the US Department of Veterans Affairs Million Veteran Program (VA MVP).
On Friday, Oppenheimer downgraded the company's shares to a rating of Perform from Outperform, citing valuation, an expectation for headwinds from the COVID-19 pandemic on Personalis' pharma business, and a slowdown in growth from VA revenues.
For the three months ended Sept. 30, the cancer genomics company reported revenues of $19.8 million, up from $17.2 million a year earlier, and beating the average Wall Street estimate of $19.1 million.
VA MVP revenues rose to $14.1 million in Q3 2020 from $12.9 million a year earlier, while revenues from biopharmaceutical and other customers rose 36 percent to $5.7 million from $4.2 million in the prior-year quarter. Personalis also said it received a new task order with an approximate value of up to $31 million from VA MVP, increasing the contracted to-date value to about $175 million.
"I'm proud to say that we were able to report record revenues once again this quarter, with our team delivering strong execution across both our population sequencing and biopharma businesses, despite the impact from the COVID-19 pandemic," Personalis CEO John West said in a statement. "We continued to see strong ordering levels from both our existing and new customers, and year-to-date, our biopharma orders were twice the amount compared with last year."
The company said that 39 customers had placed orders for its NeXT immune repertoire characterization platform as of Sept. 30, with seven of those customers placing their first orders in the third quarter.
On a conference call with analysts following the release of the earnings, West said he believes Personalis is in good shape coming out of Q3 and going into Q4. The VA lab has resumed sample shipments, and Personalis now has enough samples in-house to process over the next two to three quarters, he said.
In August, the company launched its exome-scale liquid biopsy product for biopharma customers, which complements its tissue-based product. It recently received its first pilot order from an existing tissue customer, West said. The liquid biopsy test was made to meet the needs of pharma customers and provide data on 20,000 genes, so Personalis continues to expect that the first sales will be to customers of the tissue test. The company also hopes that it can leverage the combination of the two tests to position itself favorably against companies that only offer one or the other.
Personalis also plans to broaden its liquid biopsy line to include personalized tests designed for each patient's specific tumor, West said. That product line is expected to launch in 2021. Based on the NeXT platform, these tests will enhance tumor tracking for each patient because of their sensitivity and ability to track thousands of genes, he added. The company also believes the tests will have applications in the diagnostic market in the future.
The company's biopharma customer base has increased over the last year, West also noted. Although he couldn't disclose customer names, he said Personalis has received orders from a majority of the top 10 oncology-focused pharma companies, and is receiving initial orders of several hundred thousand dollars, up to $1 million, for NeXT.
The company is also building out its operations in China. It has hired its first employee and is in the process of hiring additional employees and understanding how customer and collaborator projects using Personalis' technology will be viewed under Chinese regulations. The company expects to ramp up Chinese operations in 2022, West said.
Personalis also said that it achieved the completion of more than 90,000 whole human genomes sequenced under the VA MVP contract during Q3. According to West, the company is contracted to sequence 146,000 VA MVP samples, with 55,000 remaining to be sequenced under the current contract, and is on pace to reach 100,000 whole genomes sequences by the end of 2020.
The company's net loss for Q3 widened to $9.5 million, or $.27 per share, from $6.9 million, or $.22 per share, a year earlier. Analysts had expected a loss per share of $.28 for Q3.
Personalis' Q3 R&D costs rose 36 percent to $7.2 million from $5.3 million a year earlier, while its SG&A expenses rose 28 percent to $7.8 million from $6.1 million.
The company ended the quarter with cash and cash equivalents of $133.2 million, and short-term investments of $72.8 million. It also completed a follow-on public offering during Q3, selling 6.6 million shares of common stock at $19 per share, receiving net proceeds of $117.1 million after discounts, fees, and expenses.
Due to continued uncertainty surrounding the COVID-19 pandemic, Personalis said it will not provide guidance for fiscal-year 2020 at this time.
In his downgrade note to investors on Friday, Oppenheimer analyst Kevin DeGeeter said that shares of Personalis are up 146 percent in 2020 compared to 7 percent for the S&P 500, and are trading above Oppenheimer's prior price target of $26. While Q3 revenues of $19.8 million beat the investment bank's estimate of $18.6 million, the new $31 million VA MVP order was "more modest than we had expected," and resurgence in COVID-19 may create headwinds for oncology clinical trial enrollment and the company's pharma business, DeGeeter wrote.
Further, while the company didn't provide financial guidance, management commentary suggested that 2021 revenues would be flat to up modestly compared to 2020. "As such, we are reducing 2021 revenue outlook from $92.8 million (+18 percent) to $78.4 million (+2 percent) with 80 percent of reduction related to VA," DeGeeter added.
The firm's shares rose 6 percent to $28.40 in Friday morning trading on the Nasdaq.