Personalis, Inc. Q2 FY2020 Earnings Call

Good afternoon. My name is Jerome, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Personalis Q2 2020 Earnings Conference Call. Operator Instructions. Thank you. I would now like to turn the call over to Ms. Caroline Corner. Please go ahead.

Thank you, operator. Welcome to Personalis' second quarter 2020 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 the 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-K filing for fiscal year 2019 and in our 10-Q filing for our second quarter ended June 30, 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. Our press release with our second quarter 2020 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 second quarter 2020 business highlights.

Thank you, Caroline. Personalis began responding to COVID-19 in Q1 before the government's shelter orders. That early response helped us have a record quarter in Q1. Our continued response and execution has now led us to another record in Q2. In April, we coordinated with the VA MVP program to take the largest shipment of samples from them that we have ever had just before their lab in Massachusetts was closed due to the pandemic. The automation that we've put in place over the last three years allowed us to efficiently maintain our whole genome sequencing work, even with a reduced workforce in our lab due to operational changes we implemented to comply with state and local orders related to COVID-19 and protect the health and safety of our employees. As a result, in Q2, we were again able to sequence about 14,000 whole human genomes, up 70% from Q2 last year and matching the Personalis population sequencing revenue record we had set in Q1. On the oncology side of our business, we also had to adapt rapidly. Some prospective clinical trials that our biotech customers are involved with were either slowed or stopped due to the pandemic. Revenue from our leading biobank customer fell 98% from Q1. We were able to overcome these challenges by beginning to ramp revenue from our next platform. This allowed us to achieve a sequential revenue increase for biopharma and all other customers. Most of our biopharma business is for retrospective projects, which have been resilient during this pandemic. Over the last four quarters, biopharma customer orders have significantly exceeded revenue, driven by adoption of our NeXT platform and predominantly by large pharmaceutical customers. As we saw in Q2, these orders are now beginning to convert to revenue. Another challenge we faced during the quarter was the timing of biopharma sample receipts. Many were delivered to us later in the quarter than expected so we were not able to process all of them for revenue. This does, however, put us in a good position heading into Q3. Our laboratory operations team executed well during Q2 and carefully arranged the sample processing schedules to focus on VA MVP samples early within the quarter when labor capacity was lower due to shelter-in-place guidelines. That allowed us to utilize more capacity later in the quarter for biopharma sample processing. Consequently, our revenue from pharmaceutical customers increased by more than 20% sequentially. This more than offset the dip in revenue from biobank and biotech customers and helped us achieve quarter-on-quarter growth in our oncology-focused business. Driven by this growth of NeXT, our overall revenue increased for a 16th consecutive quarter to $19.5 million, up 23% from Q2 last year. All of this was accomplished while more than 80% of our employees were working from home. Shifting focus to our progress this quarter, several factors give us confidence in the long-term growth of our business. In June, we brought our liquid biopsy development team members back into the lab. You may have seen our recent press release launching NeXT Liquid Biopsy, which is now available for customer orders. Both our tissue and liquid biopsy-based products are designed to meet the needs of our pharmaceutical customers and provide data on all 20,000 human genes. With our liquid biopsy product, we expect to enable comprehensive monitoring of patients across 20,000 genes at multiple time points. Many new cancer drugs extend patients' lives but do not eradicate the disease. Therefore, a growing segment of the cancer survivor population consists of patients still undergoing active disease management. Our first liquid biopsy product tracks the evolution of what can be hundreds or even thousands of cancer mutations in a single tumor. Importantly, we can also detect new mutations as they emerge under therapeutic pressure. Note that some cancer patients develop a second genetically independent cancer while being treated for the first. Our liquid biopsy product's ability to see new mutations may also provide early detection of some so-called second cancers. I'm extremely proud of our team. We pulled together during this challenging time to get this exciting product into the marketplace. We expect to receive first orders in the coming months. While we anticipate liquid biopsy revenues will be modest initially, we believe this new product puts us in an even stronger competitive position as we move forward. Our liquid biopsy product is designed to be used together with our tissue biopsy product, not instead of it. We expect initial sales to be to customers using our tissue-based testing, who are also seeking liquid biopsy capabilities to monitor the same patients over time. We believe that our capability to offer both tissue and liquid biopsy-based products and leverage the synergy between them positions us favorably relative to companies that only offer one or the other. In the future, we will expand our liquid biopsy product line to include personalized tests designed for specific patients' tumors. The team is hard at work here, and barring any COVID-19-related interruptions or other unexpected delays, we expect to launch this additional offering in 2021. We have continued to gain traction with biopharma customers, realizing strong order levels once again in Q2. To frame the pace of customer orders differently, in the first half of 2020, we received about the same dollar value of biopharma orders as we received for the full year of 2019. As we've explained before, it takes time for orders to convert to revenue, and the actual revenue recognized from an order may be less than expected due to individual customer samples failing to meet our sample quality requirements and other factors. But this growth in orders gives us confidence in our future revenue stream. We are winning business based on the value proposition of our NeXT platform. Our NeXT platform can identify biomarkers, including neoantigens across all types of cancer, providing comprehensive data across all 20,000 human genes, all from a small tissue sample. Our customer base has also grown substantially over the last year. While we can't disclose all of our customer names, I can tell you that we have now received orders from a majority of the top 10 oncology-focused pharma companies. As of the end of Q2, we had 32 different customers who have placed orders for NeXT, up from 26 at the end of Q1. Additionally, you may recall that new customers typically evaluate or run small pilots before growing into larger contracts. Up until the last few quarters, a pilot order could be around $50,000. But with our recent progress, we are now receiving initial orders that can be several hundred thousand dollars, and in a few cases, approaching $1 million. We believe that this growing adoption of NeXT further highlights the power of our platform and that its comprehensiveness is important to our customers. In June, we announced a research collaboration with Sarepta Therapeutics, a leader in precision genetic medicine for rare disease. As part of the collaboration, Sarepta is working with us to characterize immune response precision genetic therapeutics, utilizing our advanced proprietary neoantigen analytics. We are excited that the value of our platform is now being recognized in areas beyond cancer. We also announced in June that we are establishing a lab and commercial operations in the People's Republic of China. Several global pharmaceutical companies have asked us about China, underscoring our belief that it's a good time to expand there. Additionally, we recently announced a partnership with Berry Genomics, a Chinese company focused on developing and commercializing genetic test technologies in clinical applications with approximately 1,500 employees and seven different clinical laboratories. We believe our partnership with Berry Genomics will be complementary since our customer focus is pharma and theirs is clinics and hospitals. We have continued to expand our commercial team in both the U.S. and Europe. In particular, we have added business development staff with extensive commercial experience in companion diagnostic development. As a result, we are now engaging with an increasing number of biopharma companies for potential companion diagnostic development programs. We've also expanded our quality and regulatory team to support these efforts. In June, we had our first FDA pre-submission meeting for a single-site PMA for NeXT, which went well. 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. Our population sequencing business reached a significant milestone with the 75,000 full human genome sample sequenced, and we are on track to reach 100,000 by the end of this calendar year. This could make Personalis the first for-profit company ever to sequence 100,000 whole human genomes in the United States, and we are looking forward to achieving this milestone. Our work with the VA MVP represents the largest population sequencing effort in the United States. The VA now targets the enrollment of 2 million veterans, and over 825,000 veterans have enrolled so far. Personalis has been contracted to sequence over 116,000 VA MVP samples, with approximately 41,000 remaining to be sequenced. Having already received population sequencing orders totaling over $145 million from the VA MVP, we are expanding our commercial team to extend our reach into what is projected to be a multibillion-dollar population health market. We expect our unparalleled experience with the VA MVP program to position us well for new opportunities in population sequencing. Given our clinical experience and work with pharma, we also see an opportunity to help transition population research to population health and involve pharma in the future. Our population sequencing and biopharma businesses share a unifying theme in the comprehensive and large-scale genomic characterization of human samples. Both our whole genome sequencing and our NeXT platform cover all 20,000 human genes. Due to their shared underlying technologies and operational implementation, we achieved considerable synergy between the two businesses. I would now like to expand on the synergy between the population sequencing and oncology parts of our business, in particular, synergies that go beyond the operational and cost synergies already achieved. 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 like breast and prostate, which have relatively low mutational burdens. Using our cancer whole genome technology will identify up to 20 times more somatic variants to serve as the basis for personalized cancer assays. We believe this will let us achieve high sensitivity, even in cancers with low mutation rates, which have been surgically resected or have relatively low amounts of cell-free DNA in the blood. We believe this can be a leading technology in some very large market opportunities, and we will have more to say about this as these product developments progress. Before I wrap up, I'd like to give you an update on another pipeline product. As many of you know, we have been working for over three years on a combined laboratory and informatics project to advance our neoantigen characterization capabilities. We believe neoantigens are the crucial centerpiece of a new generation of companion diagnostic biomarkers. We expect our biopharma customers will apply this capability to mainstream cancer drugs such as checkpoint inhibitors and also to experimental personalized cancer therapies that target neoantigens explicitly. This Personalis R&D project has required multiple proprietary technologies, including genetic engineering of proprietary human cell lines, mass spectrometry to identify and quantify peptides binding to HLA, and training novel machine learning algorithms. Our data shows that this project has achieved a leapfrog advance in this field. We expect to launch this capability as part of our NeXT platform in the fourth quarter of this year. In summary, I'm very proud that our combined business has shown strong resilience throughout the pandemic. Customer adoption for NeXT has been excellent, and our pipeline of compelling new products is rich. We believe these factors, among others, put us in a strong position for long-term growth. With that, I will now hand it over to Aaron for our financial results.

Thank you, John, and good afternoon, everyone. Revenues for the second quarter of 2020 were $19.5 million, up 2% from $19.2 million for the prior quarter and up 23% from $15.8 million for the same period of the prior year. The $19.5 million was a new record high for quarterly revenues. The quarter-on-quarter revenue growth was driven by an increase in volume for genomic testing services provided to biopharma customers. Biopharma and all other customers accounted for revenues of $4.7 million for the second quarter, an increase of 8% from the last quarter. In the second quarter, revenues from our NeXT platform began to ramp and exceeded $2 million. Also to note, the revenue increase from NeXT more than offset the sequential decline of over $1 million from both our biobank customer that had sample collection and shipment delays due to the pandemic and also biotech customers impacted by the slowdown of clinical trials. For the second quarter, the VA MVP revenue of $14.8 million was flat from the last quarter and was 73% higher compared with $8.5 million for the same period of the prior year. The VA MVP unfulfilled orders at the end of the second quarter were $39.3 million, and based on current estimates, we expect the unfulfilled orders to convert to revenue over approximately the next two to three quarters. The balance of the unfulfilled orders will decline from the fourth quarter of the prior year through the second quarter of the current year since the annual new order is typically received late in the third quarter. Gross margin was 24% for the second quarter compared with 21.1% for the prior quarter. The VA MVP gross margins continued to be solid and once again were higher than the corporate gross margin reported for the second quarter. The VA MVP being higher volume and a single-service offering has been automated and does not require much labor, using a very efficient sample testing process. In the second quarter, the negative impact to gross margin from COVID-19 was approximately 80 basis points from higher labor costs related to overtime pay. Also, we had a 100 basis point impact from higher facility costs related to increased lease rates. As a reminder, we may see gross margin variability in the future, as there are a few moving parts, such as sample receipt linearity from customers, the mix of customer projects, and capacity utilization of labor and equipment. During our last conference call, we mentioned our initiative to build out lab operations in China this year, which will add start-up expenses beginning in 2020, most of these expenses classified as SG&A this year. We expect revenue from China to begin ramping throughout 2021. During this ramp-up period, we expect to have gross margin headwinds from the under-absorbed labor and overhead. Operating expenses were $14.2 million in the second quarter compared with $10 million for the same period of the prior year. R&D expense was $6.5 million for the second quarter compared with $4.5 million for the same period last year, and SG&A expense was $7.7 million in the second quarter compared with $5.5 million for the same period last year. Net loss for the second quarter was $9.3 million compared with a net loss of $5.9 million for the same period of the prior year. The net loss per share for the second quarter was $0.29, and the weighted average basic and diluted share count was 31.7 million compared with a net loss per share of $0.89 and a weighted average basic and diluted share count of 6.6 million for the same period of the prior year. Now on to the balance sheet. We exited the second quarter with a strong balance sheet with cash and short-term investments of $105.2 million. Second quarter cash flow from operations was a usage of approximately $15 million, primarily due to the net loss and working capital needs. During the quarter, we maintained our buffer inventory level of approximately $1.5 million to help mitigate potential supply chain disruption. Now for discussion about our guidance. During our May conference call, we did not provide any 2020 revenue guidance due to the uncertainty from the pandemic. And although we had a solid second quarter, too much uncertainty remains about whether or not work conditions for us, our customers, and suppliers will remain the same as today or change in the near future. Potential changes could adversely affect our financial results. Therefore, we are not providing revenue guidance for fiscal 2020 at this time. We plan to provide an update during our next earnings call.

Thank you. Operator Instructions. Your first question comes from the line of Doug Schenkel from Cowen. Your line is now open.

Hey guys, this is Subbu on for Doug Schenkel. You posted a great update intra-quarter on the VA update. Given that you're on track to complete the project, how long – so most of the database, given that you're on track to finish 100 case sequences, most often, we notice that databases integrated with electronic health record data have more value. Do you envision that happening with the VA MVP project?

Yes. This is John West. I'm happy to answer that. A key part of the advantage that the Million Veterans Program has is that veterans have been on the same electronic medical record system for years. They already have that in electronic format. Unlike other population sequencing efforts, they don't have to try to harmonize results from many different electronic medical record systems. All the patients handled by the VA MVP are patients who have been on the same electronic medical record system during their time with the VA. It's a major advantage they have. I would also say that we're approaching the 100,000 patients. That's nowhere near finishing the project. The project is to enroll 2 million patients. There are 825,000 samples that have already been collected. We've been contracted to sequence 116,000, and we anticipate that there can be an additional order still this year that will extend the program even further.

So if I heard it right, you're already doing that. You already have data with the electronic health record data of all these individuals? Or do you plan to do that in the future?

Our customer already has that information in the VA. They're the ones sharing it. It will be their database. They're the ones paying for it. But they do have all that health record data.

Got it. And you recently partnered with Berry Genomics, and you also said that will serve as your local subsidiary opportunity. How do you plan to strategize that, given that NGS testing has just begun gaining traction there, and there are already a few high-profile local players? So what would be the key advantage? Would you call it your core technology? Or is there some other strategy you are working on?

Yes. Thank you for the question. The key reason we are expanding to China is that there are international pharmaceutical companies we work with in the U.S. and Europe who are conducting international clinical trials. They have patients who are enrolled in those clinical trials from China now in addition to other countries. We've already been sequencing samples from patients from countries outside of China, but our pharmaceutical customers came to us and said they cannot export samples of patients from China. Those samples need to be sequenced inside China due to the regulations. They have asked us to set up this additional capability using our proprietary technology, our NeXT platform, to be able to run that inside China.

Got it. Thank you, guys.

Your next question comes from the line of Kevin DeGeeter from Oppenheimer. Your line is now open.

Hey, guys. Congrats on a really nice quarter. Thanks for taking my question. Can you just talk a little bit about the recently launched liquid biopsy program? Specifically, in addition to the breadth of coverage, how else do you envision differentiating the product in the market, at least initially? And then in terms of what I'll call incremental or second-generation product that would provide additional functionality for really kind of personalized precision oncology programs, just walk us through the development steps that may be necessary to have that functionality?

Sure. This is John. Our liquid biopsy, first of all, is paired together with tissue biopsy. Both have advantages. It's relatively unusual to offer both. Many companies that offer liquid biopsy products do not have a tissue biopsy product. But tissue is the only way to see RNA in addition to DNA, and it's the only way to see the immune cells that have infiltrated the tumor. Additionally, we designed our product to cover the entire exome to see the mutations that people might expect because it's intended for pharmaceutical research. Many pharmaceutical companies are interested in understanding when a patient responds to a drug but eventually stops responding. They want to know what changed about the tumor, what were the mechanisms by which the tumor began to escape the drug effects? Being able to see the new mutations that occur, wherever they are in the genome, is really important to them. Most other liquid biopsy products only look at targeted therapy genes.

Okay. Great. Then maybe as a follow-up question, can you just comment on the potential impact on average contract size from the addition of liquid biopsy more explicitly? Should we think about the customer that wants both tissue and liquid biopsy functionalities, essentially doubling the potential economics of Personalis? Or do you anticipate more of a bundled economic model where the increase in functionality isn't necessarily going to translate into a linear increase in economics?

Yes. Our expectation is that this will lead to a significant increase in the economics and the biological value of the data we deliver. We have a few customers now where we're providing data at multiple time points from tissue. In those cases, we have had instances where customers have paid up to $16,000 per patient because they are getting data from multiple time points via tissue. We think that can expand significantly as we have more customers using those time points. We often see clinical trial protocols involving 20 or 30 different time points when a patient is dosed. We believe this can fit well with the way trials are already conducted and will provide dramatically more insightful information on the trajectory of each patient.

Great. Thanks for taking my questions.

Great. Thank you.

Your next question comes from the line of Derik De Bruin from Bank of America. Your line is now open.

This is Dionne for Derik. I'm just wondering on NeXT, what is the average order size that you're seeing? What is each order encompassing? Is it just DNA sequencing? Or are they ordering more?

Yes. This is John. Our NeXT platform includes both DNA and RNA sequencing. From that combination, we also capture the complete T cell and B cell repertoire. So it's quite comprehensive. For each tissue sample, we have that. The orders we receive will cover all samples that the pharmaceutical company has collected during the clinical trial. That can be hundreds of samples, sometimes 1,000 or more. Many of the orders we receive are retrospective, where the pharmaceutical company understands the clinical outcomes and wants to explore molecular differences about the tumors.

Great. Thanks.

Your next question comes from the line of Tejas Savant from Morgan Stanley. Your line is now open.

Hey guys, this is Edmund on for Tejas. Thanks for taking the question.

Hi.

Hi. Just in terms of your NeXT Liquid Biopsy, I know you guys talked about the economics a little bit earlier, but you mentioned that solid tumor serial testing is about $16,000 per sample. So in terms of the liquid biopsy product, would the ASP be somewhere within that range or even higher maybe? And in terms of your customers that are still on the old platform, can you remind us what percentage of that is remaining today?

Yes. The NeXT Liquid Biopsy pricing is likely to be 15% to 20% more than our current pricing of tissue with NeXT, which ranges between $3,200 and $3,500 per patient. The average dollar per patient could be 5, 6, or 7 times what we're getting for tissue when considering multiple time points. Regarding the customers on the old platform, I mentioned that NeXT revenue exceeded $2 million in Q2, making it a little more than half of our total biopharma revenue of $4.7 million. We're beginning to see convergence towards NeXT at this point in time.

Got it. And in terms of the MVP side, I want some help understanding the increased enrollment to 2 million participants. They haven't provided a specific timeframe for that, and I'm just trying to understand how that impacts everything on your end. Does that mean more samples received per batch? More frequent sample receipts? Or maybe a bigger task order expected in the next quarter?

Yes. This is Aaron. Go ahead, John.

Yes. The MVP's increase in target enrollment up to 2 million will likely take another 10 years. They began enrolling patients in 2011. They have been able to enroll about 100,000 per year, and by early this year, they were up to about 825,000. They have contracts for over 116,000 samples but have the capability to sequence many more. We continue to see bipartisan support for veterans, so we anticipate that the budget for this will continue to grow, and this program has many years to run.

Got it. Thank you. That’s very helpful. Thanks, guys.

Okay. Thank you.

Your next question comes from the line of Mark Massaro from BTIG. Your line is now open.

Hi, Mark.

Hey, guys. Thanks for taking the questions. My first one is just elaborating on the last question about POPSEQ. Over the last several years, we've had, clearly, Genomics England, all of us. As you just alluded to, there are approximately 60 countries in the world with population sequencing initiatives. You talked about potentially expanding into new POPSEQ opportunities. Can you give us a sense for whether your initial focus will be more on global governments, or could there also be some with health systems? Could you just give us a sense of how large of an opportunity you think this is? And where you think some of the low to intermediate hanging fruit is?

Sure. Yes, we see many projects. Our sense is that there are a few countries that already have a well-established sequencing infrastructure, typically in academic settings. However, many countries aspiring to have this kind of program want it in their country to build their high-tech economy. They have funding for this but lack the experience needed to implement such programs at scale. We have already done many genomes and one of the few companies ready to do that. There are health systems as well, but we're also interested in pharma's role. Often these programs are not just about patient benefits but also pharmaceutical understanding, and having their involvement can help prioritize goals and fund the program effectively.

Great. That's helpful. And congrats on rolling out the liquid biopsy product. Can you give us a sense of how impactful you think this product will be? It seems that many of your top 10 pharma companies will have interest. To what extent have you talked to these pharma companies about the incremental utility of looking at 20,000 genes over some of the existing products?

Yes, we have. We've been under CDA, talking with a number of our pharma partners about this product. There's a lot of enthusiasm for it because it's a different kind of product. They understand that it will take time to figure out the best uses. One nice phrasing from one of these pharma companies was, 'We need to not look just under the lamppost where we've been for 30 years, but see the new biology we haven't before.' This capability opens new opportunities for them.

Okay. And then on the biopharma side with liquid biopsy, I recognize the potential market is significant, particularly for global clinical trials. But there are also obvious use cases for monitoring in the clinic. What are your intentions on generating clinical utility data and potentially taking this through a clinical pathway?

Yes, great question. We are taking our tissue-based NeXT through the FDA, building a corporate capability at the 20,000 gene level. This engagement has been encouraging. When we explore clinical opportunities, we want the appropriate regulatory credentials. Monitoring patients post-surgery or during treatment are areas we're investigating. We anticipate producing two product types—one fixed and the other more personalized. The fixed will be our exome-scale product, while the personalized may capture a smaller variant number. Our population sequencing and cancer work can marry to further identify variants and design personalized assays.

That's great. And I guess, maybe a question on the gross margins. There's likely a lot of room for upside over the next several years. Given your deep sequencing of the genome and the exome, how should we think about gross margin expansion over time? Can you get to 60%, 70% gross margin over the next three to five years?

I'll let Aaron speak to specifics, but my broad picture is scale mix. An enormous difference occurs as a company gets larger—we amortize fixed costs efficiently. The cost of sequencing has continued to decrease, so we are optimistic that technological headroom will help keep costs down. In our work, we design assays for future technology, allowing us to manage expenses over time. When we launched our products today, it may seem expensive, but the future cost of sequencing will decrease significantly. We see ourselves achieving 50% gross margins at $200 million in revenue and possibly exceeding 60% gross margins at $300 million.

In terms of gross margin, looking back to 2019, we had margins in the mid-30% range. Today, we're in the mid-20s, primarily due to underutilization of labor and overhead. Gross margins from the VA business are higher and automated, while biopharma margins are fixed. If we add incremental $1 million of biopharma revenue, it adds 120-150 basis points. Adding $4-$5 million can bring us back into the 30% range fairly quickly. We see ourselves getting to 50% gross margins at $200 million, exceeding 60% at $300 million.

Excellent. Thanks for those responses and congrats on a good quarter.

Thank you, Mark.

Thank you.

Your next question comes from the line of Sandy Draper from Truist. Your line is now open.

Thanks very much for taking my question. A lot of my questions have been asked and answered. Maybe just a couple of quick ones. First, on the biobank business, you said it was down 98%. Obviously, didn't stop the sequential revenue increase, but just maybe a little more context on the magnitude there? And then has that business started coming back? Or what are the mitigating factors? When would you expect it to get back up to speed?

Yes. This is John. A leading customer collects samples from patients undergoing surgical resection of tumors, and that supplementary activity was just paused in hospitals worldwide during the last six months. We see progress starting to happen in different countries, and we expect this business to recover 100% in time. They likely will want to catch up unless they can process samples soon.

Great. That's really helpful. As a follow-up, when I think about big cancer clinical trials, I'm thinking 3,000, 5,000 global patients. Is there a subsegment of those patients that NeXT is applicable for, or are they only going to do a portion? I'm just trying to match up the numbers you said when considering a big cancer clinical trial.

Yes. There can be trials of many sizes. We work with some that involve a dozen patients in Phase I and some that are larger. I can recall handling trials over 1,000. We've sequenced 75,000 human genomes for the VA, so if a clinical trial needs 5,000 tumor samples, that's manageable. It ultimately depends on how the pharmaceutical company is handling it.

Got it. Okay. Very helpful. Thanks for taking the questions.

Okay. Thank you.

Your next question comes from the line of Swayampakula Ramakanth from H.C. Wainwright. Your line is open.

Great. Thank you. Good evening, John and Aaron. This is RK from H.C. Wainwright. Most of my questions have been asked, but just a couple remain. You were talking in terms of future products, how you're coming up with a platform to combine lab data and some informatics data within an AI piece and plan to launch that in Q4 of this year. Outside of such a launch, what milestones can we expect in the next six to 12 months?

Yes. You might be referring to our neoantigen ranking capability. This project has used mass spectrometry and genetically engineered cell lines to produce valuable data for training neural networks. We focus on proprietary developments with human cell lines; this has been a significant content strategy. While we don’t have specific announcements planned yet, if we see success, we would explore more opportunities.

Okay. Thank you. Lastly, how do you see your discovery relationship with Sarepta evolving over the next couple of years? Do you plan on forming similar relationships with additional companies?

Yes, I think Sarepta is an example of opportunities outside cancer. Many are beginning to observe that neoantigens, which we’ve been working with, play an important role in various therapeutic contexts. There will likely be more opportunities outside of cancer as potential applications become evident. Thank you, operator. I would like to thank our customers for their business and partnership. I also want to thank our employees for their hard work, particularly during this COVID period and for putting us in an excellent position for long-term growth. This concludes our call for today. We look forward to talking with you again in another three months. Thank you.

This concludes today's conference call. You may now disconnect.