Personalis(US:PSNL)2020-08-06 20:13PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2020, shows total assets decreased to $145.5 million, primarily due to reduced cash Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $25.0 | $55.0 | | Total current assets | $120.1 | $139.6 | | Total assets | $145.5 | $157.3 | | Total current liabilities | $43.0 | $50.0 | | Total liabilities | $52.4 | $50.6 | | Total stockholders' equity | $93.1 | $106.7 | Condensed Consolidated Statements of Operations Revenues increased in Q2 and H1 2020, but net losses widened to $9.3 million and $18.4 million respectively Statement of Operations Summary (in millions, except per share data) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $19.5 | $15.8 | $38.7 | $29.9 | | Loss from operations | $(9.5) | $(4.1) | $(19.1) | $(9.5) | | Net loss | $(9.3) | $(5.9) | $(18.4) | $(11.6) | | Net loss per share | $(0.29) | $(0.89) | $(0.58) | $(2.38) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $24.0 million in H1 2020, leading to a $30.0 million decrease in cash Cash Flow Summary (in millions) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(24.0) | $(10.8) | | Net cash used in investing activities | $(7.7) | $(2.8) | | Net cash provided by financing activities | $1.6 | $157.2 | | Net change in cash and cash equivalents | $(30.0) | $143.5 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, business operations, significant customer concentration, revenue recognition, and stock-based compensation - The company's primary business is providing sequencing and data analysis services for cancer therapy development and population sequencing initiatives, with the majority of revenues coming from the latter33 Significant Customer Concentration | Customer | % of Revenues (H1 2020) | % of Revenues (H1 2019) | % of A/R (June 30, 2020) | | :--- | :--- | :--- | :--- | | VA MVP | 76% | 56% | 17% | | Pfizer Inc. | * | 20% | 44% | *Less than 10% - As of June 30, 2020, the company had $39.3 million in contracted but not yet recognized revenues, which are expected to be recognized within the next nine months77 - Total stock-based compensation expense for the six months ended June 30, 2020 was $3.1 million, an increase from $2.3 million in the prior-year period120 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting 29% revenue growth driven by VA MVP, rising costs, and COVID-19 impacts Overview Personalis, a cancer genomics company, provides molecular data services, with significant revenue from VA MVP, impacted by COVID-19 - The company's NeXT Platform is designed to provide comprehensive information on all ~20,000 human genes to support biopharmaceutical customers135 - The COVID-19 pandemic and related shelter-in-place orders have negatively impacted productivity, disrupted business operations, and slowed research and development activities. Several customers were delayed in sending samples during the second quarter138 Results of Operations H1 2020 revenues increased 29% to $38.7 million, driven by VA MVP, but rising costs led to a $19.1 million operating loss Revenues by Customer Type (in millions) | Customer Type | H1 2020 | H1 2019 | % Change | | :--- | :--- | :--- | :--- | | VA MVP | $29.5 | $16.9 | 75% | | All other customers | $9.2 | $13.0 | (30)% | | Total revenues | $38.7 | $29.9 | 29% | - Cost of revenues increased by 50% in H1 2020, primarily due to a $7.4 million increase in production materials for higher VA MVP volumes and a $1.1 million increase in personnel-related costs159 - Selling, general and administrative expenses increased by 55% in H1 2020, driven by a $3.3 million increase in personnel costs to expand the commercial team and a $1.9 million increase in professional services related to being a public company163 Liquidity and Capital Resources As of June 30, 2020, the company had $105.2 million in cash and investments, with $24.0 million net cash used in operations - The company held $25.0 million in cash and cash equivalents and $80.2 million in short-term investments as of June 30, 2020168 - Net cash used in operating activities increased to $24.0 million in H1 2020 from $10.8 million in H1 2019168174 - The company paid off its Growth Capital Loan in August 2019 and has had no outstanding debt since172179 Quantitative and Qualitative Disclosures About Market Risk The company is exempt from this disclosure requirement as it qualifies as a smaller reporting company - The company is exempt from this disclosure requirement as it qualifies as a smaller reporting company189 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes - Management concluded that as of June 30, 2020, the company's disclosure controls and procedures were effective190 - There were no changes in internal control over financial reporting during the second quarter of 2020 that have materially affected, or are reasonably likely to materially affect, internal controls191 PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any legal proceedings that would materially affect its business - As of the report date, the company is not involved in any material legal proceedings193 Risk Factors This section outlines significant risks, including net losses, customer concentration, competition, regulatory changes, and supplier reliance Risks Related to Our Business and Strategy The company faces business risks including net losses, high customer concentration with VA MVP, COVID-19 disruptions, and sole supplier reliance - The company has a history of net losses, with a net loss of $18.4 million for the six months ended June 30, 2020, and an accumulated deficit of $159.0 million195 - The company has substantial customer concentration, with the VA MVP accounting for 76% of revenues in the first half of 2020. The loss of this customer would have a material adverse effect209 - The COVID-19 pandemic poses a significant risk, with shelter-in-place orders having already disrupted operations, slowed R&D, and delayed customer sample shipments200202 - The company relies on Illumina as the sole supplier for its sequencers and associated reagents, and any disruption in this supply chain could significantly impact laboratory operations216 Risks Related to Government Regulation The company faces regulatory risks from potential FDA regulation of LDTs as medical devices, and compliance with CLIA and state licensing - The FDA has historically exercised enforcement discretion for LDTs, but it may change this policy, which could require the company to seek premarket clearance or approval for its tests269 - If the FDA were to regulate its tests as medical devices, the company could face a lengthy and costly 510(k) or PMA process, potentially delaying or halting sales272274 - The company must comply with CLIA and various state licensing requirements. Failure to maintain these certifications and licenses could result in the inability to perform tests and lead to significant penalties282283284 Risks Related to Our Intellectual Property The company's success depends on protecting its intellectual property, facing risks from infringement claims, patent law uncertainty, and trade secrets - The company may face intellectual property infringement claims from third parties, which could block its ability to perform tests or result in substantial expenses and diversion of resources301 - Recent court decisions regarding the patentability of natural phenomena and laws of nature create uncertainty and may adversely affect the company's ability to obtain and enforce patents on its genetic diagnostic tests310 - The company relies on trade secrets and confidentiality agreements to protect proprietary information, but these measures may not be adequate to prevent unauthorized disclosure or use by employees, collaborators, or competitors325326 Risks Related to Our Common Stock Risks related to common stock include price volatility, insider control, potential future stock sales, no dividends, and reduced reporting as an EGC - The market price of the company's common stock may be volatile due to factors such as fluctuating operating results, analyst reports, and general market conditions343 - Directors, executive officers, and major shareholders exercise significant influence over corporate matters, which could delay or prevent a change of control348 - The company is an "emerging growth company" under the JOBS Act, allowing it to comply with reduced public company reporting requirements368 - The company has never paid dividends and does not expect to in the foreseeable future, meaning investment returns are dependent on stock price appreciation352 Unregistered Sales of Equity Securities and Use of Proceeds There has been no material change in the planned use of proceeds from the company's Initial Public Offering - There has been no material change in the planned use of proceeds from the company's IPO377 Defaults Upon Senior Securities The company reports no defaults upon senior securities - None378 Mine Safety Disclosures This item is not applicable to the company - None379 Other Information The company reports no other information for this item - None380 Exhibits This section lists exhibits filed with the Form 10-Q, including amendments, plans, and certifications - The report includes several exhibits, such as an amendment to a lease, an amendment to an employment letter, the 2020 Inducement Plan, and required CEO/CFO certifications385