Good day, ladies and gentlemen, and welcome to the Personalis Third Quarter 2022 Earnings Conference Call. This call may be recorded. I would now like to hand the conference over to your first speaker today, Caroline Corner, Investor Relations. Please go ahead.

Thank you, operator. Welcome to Personalis’ third quarter 2022 earnings call. Joining me on today’s call are John West, President and Chief Executive Officer; and Aaron Tachibana, Chief Financial Officer. All statements made on this call that do not relate to matters of historical facts 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, revenue expectations and timing, new orders, products, services, technology, the timing of data publications, clinical and regulatory milestones, the outcome and timing of reimbursement decisions, future collaboration activities, cost expectations and our market opportunities, 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 special note regarding forward-looking statements and risk factors described in our 10-Q for the third quarter of 2022 filed today. Personalis undertakes no obligation to update these statements, except as required by applicable law. Our press release for the third quarter 2022 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 p.m. Pacific Time today. Now, I’d like to turn the call over to John for his comments on third quarter business highlights.

Thank you, Caroline. In Q3, all of our revenue came from our oncology business, which was up 73% over the same period from the prior year. Going forward, we expect the centerpiece of our oncology business to be our MRD test, NeXT Personal. Given its importance for our future and the progress we have made since Q2, I will focus today on this revolutionary new platform. I believe that NeXT Personal is the most sensitive and most richly informative cancer MRD test in the world. Although we see a lot of potential for this platform in advanced pharmaceutical clinical trials and that adoption has already begun, this platform is ultimately intended to provide key information for oncologists to use in making decisions for the treatment of individual cancer patients. When we began the development of NeXT Personal, we completely rethought what was needed. While other MRD platforms detect cancer recurrence earlier than radiology, we believe that was not good enough. Patients being monitored with first generation MRD assays often received negative results for a year or more only to have the cancer eventually rise again above the limit of detection. During that initial year, the patient actually has cancer, but the test is not sensitive enough to detect it. We asked ourselves what sensitivity would it take? Using published data from earlier technologies, we extrapolated back to the point just after surgical resection and calculated what level the tumor signal and the blood plasma might have been. In one case after another, we found that sensitivity at a part per million should be able to make the detection. Detecting tumor DNA in blood plasma at a part per million is a daunting challenge, requiring a sensitivity improvement of as much as 100 fold. Sequencing the blood plasma more deeply will not help because there are only a few thousand copies of the genome in a typical plasma sample. To detect the cancer signature at a few parts per million requires at least a few million molecules, each spanning unknown tumor mutational signature. We realized that we would need to combine the signal from over 1000 different positions in the genome and sequence a few thousand unique molecules at each of those to amass the data required from a few million total molecules. It is not easy to find thousands of mutations in a single tumor sample. From our experience, sequencing tens of thousands of cancer exomes, we knew that would not be enough. According to the American Cancer Society, by far the largest number of cancer survivors at risk of cancer recurrence are those who have had breast or prostate cancer. Those two cancer types, in particular, have low rates of tumor mutation. We realized that the only way to consistently identify the thousands of mutations we needed from these cancers was to use whole genome sequencing of the tumors. Personalis first worked on this problem and filed our foundational patents about a decade ago. At that time, deep whole genome sequencing was very expensive, but we believe the cost would come down. Over the years, we also drove down our own cost of whole genome sequencing by the automation and optimization that we implemented sequencing whole human genomes for the VA Million Veterans Program. Personalis has now sequenced over 150,000 whole human genomes, a number that we believe is more than any other for-profit U.S. company. We have leveraged this experience to pioneer whole genome tumor informed MRD testing and achieve our goal of part per million sensitivity. When we planned our MRD test, sensitivity was not the only dimension we re-imagined. While sensitivity is essential for the initial detection of cancer recurrence and an MRD test can be used to monitor the growth of the recurrent cancer, just monitoring on its own is not good enough. Physicians will need information about a recurrent cancer to decide how to fight it. For example, what would be the best first line therapy? Is the patient responding to the first line therapy? Is the tumor developing resistance to the therapy? And if so, what options are there for second line treatment? Is the cancer detected even a recurrence at all or could it be a new cancer with different characteristics from the original? To help physicians fight recurrent cancer, we realized that integrating tumor characterization capabilities into our test could make an MRD result much more actionable. To address the questions just mentioned, in a sensitive MRD assay, we pioneered a method to combine tumor agnostic content, which is the same for every patient, with tumor informed content, which is different for every patient, in a single assay. Our software combines these two data types and we synthesize all of this content together in a custom assay designed for each patient. Presentations about MRD often focus on detection of recurrence after surgical resection and that is a huge need. But metastatic patients can also benefit from a sensitive MRD assay. This may seem counterintuitive since metastatic cancers can be much larger than early stage cancers and shed much more DNA into the blood plasma. What we and others have found though is that the amount of tumor DNA in a patient’s blood plasma can drop dramatically in an initial response to therapy. It can fall by more than a factor of 100 in just a few weeks. In one published study using an earlier technology, patients responding to immunotherapy fell below the limit of MRD detection and stayed there, sometimes almost 2 years before regrowth of the cancer finally brought the MRD signal back above the limit of detection. Just as in the case with surgical resection, the patients had cancer the whole time, but the MRD assay was not sensitive enough to detect it. In the advanced diagnostics field, talented leaders are often drawn to what they perceive to be the next big opportunity. In planning for our diagnostic business, Personalis has recruited new leadership in medical affairs, clinical development, reimbursement, diagnostic sales, marketing, lab operations, and general management. As we have recruited, our advanced MRD platform, NeXT Personal, has been an amazing magnet, drawing some of the best talent from leading companies across our industry. While it is a broad group, I would like to highlight in particular, our recent addition of Chris Hall as Senior Vice President of our Diagnostic business. From 2010 through 2019, Chris progressed from Chief Commercial Officer to COO, and ultimately President at Veracyte. For almost a decade before that, he held leadership roles at Berkeley HeartLab, which was acquired by Celera Diagnostics. This is a great addition to our senior management team. Welcome, Chris. Like top management, key opinion leaders in our field are also attracted to transformational new technologies. Over the last year, we have found KOLs to be increasingly drawn to our NeXT Personal MRD platform. We have signed and are executing on a growing set of collaborations and expect to be testing thousands of plasma time points across many different cancer types and stages. We expect to announce more of these collaborations in the coming months. Quite a few of these collaborations involve sets of longitudinal patient samples collected over many years. We anticipate that data from these collaborations will lead to important publications and conference presentations in 2023. Initial data from our collaborations is beginning to be generated and the results show exactly what we anticipated. We see patients whose entire MRD trajectories fall below the limits of detection of earlier technologies at which we can detect with our part per million sensitivity. In some cases, tumors appear to be beginning the process of escape from immunotherapy at a level that would not normally be detected yet. We also see mutations indicating that if immunotherapy does fail, targeted therapy could be a second line possibility. In addition to academic and non-profit KOLs, we have seen early pilots in pharma now lead to larger scale adoption. Two pharma companies have placed orders over $1 million each. We have seen that interest in our platform is growing among pharmaceutical companies in the United States, Europe, and China. Notably, we see a growing interest in the use of NeXT Personal in clinical trials of personal cancer vaccines and other personalized neoantigen targeted therapies. Personalis has worked with the majority of companies in that field since 2016 and although early clinical results were challenging, more recent results seem to be rekindling interest and investment. Long-term, we expect the largest market for our MRD test to be in clinical diagnostics and plan to launch it as a lab-developed test or LDT in 2023. We have been building a commercial team to support that and now have regional sales leadership all across the United States. We launched the latest LDT version of our NeXT Dx Test in late September and have an initial flow of orders and are beginning to invoice payers. We anticipate a MolDx submission in early Q1 and are optimistic that we will receive initial approval in Q2. Looking to the future, we predict diagnostics as our largest opportunity and our MRD platform, NeXT Personal, as the centerpiece. In it, we are pioneering personalized diagnostics, designed and synthesized individually for each patient at a level we have never seen before. Each test targets over 4,000 genetic loci and over 2000 of those are personalized to the patient being tested. The mutations that cause cancer are personal, and the fight against cancer is also a deeply personal one. Appropriate to our company name, Personalis, we are now creating cancer diagnostic tests, which are highly personal as well. Given the importance of this strategy to our future, we have initiated an evolution of our company brand as we enter into the clinical market. Please join us at the SITC conference in Boston next week for our first preview. Given its strategic importance, I have focused so far today on our MRD assay, NeXT Personal, and the launch of our diagnostic business to support it. Before I hand it over to Aaron for our financial results, I’d like to mention three other areas of progress. First, in Q1, we recognized approximately $1.5 million of revenue from an exome-scale liquid biopsy project for a leading global pharmaceutical company. Interestingly, as we work with KOLs on our MRD test, NeXT Personal, we find they often ask to combine its deep sensitivity with the breadth of our liquid biopsy exome test at select time points and our tissue-based ImmunoID NeXT Platform as a starting point. Second, in September, we were awarded an exclusive 5-year contract and an initial $10 million order from the Veterans Administration Million Veterans Program. Personalis has been the sole provider of whole genome sequencing to the VA MVP for 10 years. The VA MVP has also begun to enroll veterans into the program once again after a break during the pandemic. They are now up to approximately 900,000 enrollees, with a stated goal of enrolling 1 million veterans in 2023. After the contract was awarded, we were notified that the contract is under protest by a competitive bidder. Assuming a favorable outcome, we expect to begin receiving samples within a few months and we expect to recognize revenue from the most recent order in the first half of 2023. Third, I want to briefly comment on the exciting wave of breakthroughs in DNA sequencing technology that have been announced this year and how that can help Personalis drive costs lower in the future as we run very large assays. We have mentioned being an early access customer of Ultima Genomics, which is at the forefront of realizing the $100 genome. In addition, Illumina recently announced their NovaSeq X Plus sequencer that will have twice the throughput of the current NovaSeq platform at an approximately 60% lower cost per base. We have placed one of the first orders for our system so that we can test and evaluate it once it becomes available. This matters because most Personalis products are large scale, using either deep exome or whole genome sequencing. We built our platform expecting that the throughput and cost of sequencing will decrease over time. As that happens and because of the size of our platform, we think we can benefit more than other companies with products that use much less sequencing than ours. New sequencing platforms focused on high throughput at lower costs potentially give us opportunities to reduce the cost of our large assays and they are an important part of our plan to improve our gross margins. In summary, we see our MRD test, NeXT Personal, which takes the personalization of cancer diagnostics to a much more advanced level as patients and oncologists will want to see the best test to actively manage their cancer. We believe that we have the best MRD test for the clinical market and that is why we believe we will win in the marketplace. It will build on the base we have built with our pharma and other customers and is beginning to take off with customers, new company leaders and KOLs. We have a strong balance sheet to support this and look forward to telling you more in the quarters to come. With that, I will now hand it over to Aaron for our financial results.

Thank you, John, and good afternoon, everyone. During my prepared remarks, I will provide detail about our financial results for the third quarter of 2022 and guidance for the full year. Total company revenue for the third quarter of 2022 was $14.9 million and decreased 33% compared with the same period of the prior year, which was expected due to the $13.7 million decline of VA MVP revenue. The entire $14.9 million was from our oncology business, which continued to perform well, with revenue increasing by 73% over the same period of the prior year. The year-over-year increase in oncology revenue was driven mostly by the volume increase from Natera, which accounted for half of our oncology revenue in the quarter. Gross margin was 16.7% for the third quarter compared to 36.2% for the same period of the prior year. The year-over-year decrease of 19.5% was primarily due to the expected under absorbed overhead costs from the decrease in revenue volume from the VA MVP and also an increase in expenses to support our growing oncology revenue volume. Within our production laboratory, we used more direct materials and sequencing equipment capacity for the VA MVP whole genome samples, while our oncology business requires a higher proportion of labor and overhead expenses, such as direct and indirect labor, lab supplies, facility footprint, and other related costs compared with the VA MVP. Over the next couple of years, we expect some gross margin variability due to the fluctuating VA MVP volume, investments in new capabilities, such as dedicated production lines for liquid biopsy offerings, and providing diagnostic tests, while we work to increasingly secure reimbursement and expand in China, adding our new facility and others. However, we expect our gross margins to increase longer term as we achieve scale by growing our oncology revenue. Operating expenses were $29.7 million in the third quarter compared to $25.8 million for the same period of the prior year. R&D expense was $14.9 million in the third quarter compared with $13.6 million for the same period last year, and SG&A expense was $14.8 million for the third quarter compared with $12.2 million for the same period last year. The increase in R&D expense was for product development, building our clinical and medical infrastructure, and sample test expenses for clinical validation work. The increase in SG&A was due to commercial expansion and continuing to enhance our infrastructure. Net loss for the third quarter was $26.5 million compared with a net loss of $17.7 million for the same period of the prior year. The net loss per share for the third quarter was $0.58 and the weighted average basic and diluted share count was $45.9 million compared with a net loss per share of $0.40 and a weighted average basic and diluted share count of $44.5 million for the same period of the prior year. We finished the third quarter with a strong balance sheet with cash and short-term investments of $192.8 million. In the third quarter, we used $40.7 million of cash due to the net loss, working capital needs, construction of our new headquarters facility, and capital equipment purchases. We continue to work on extending our cash runway as far out in time as possible, and as of the end of the third quarter, we have more than 2 years of cash on the balance sheet. Our 2022 full year cash use adjustment is approximately $120 million, which we have reduced from $140 million at the beginning of this year. This amount includes a one-time investment of approximately $38 million for the construction and setup of our new facility, and this amount is net of $13 million for tenant improvements from the landlord. We expect approximately $4 million of building costs to be paid in early 2023, and we expect $2 million of that amount to be reimbursed by the landlord. Although our liquidity is very good, we continue to manage and invest our cash prudently. Now I’d like to turn to guidance. In the first half of this year, our revenue was impacted by slower and reduced patient enrollment for clinical trials due to COVID. Despite these headwinds, we remain on track to achieve oncology revenue results that are within our original guidance range. For the full year of 2022, we expect total company revenue to be in the range of $63 million to $64 million, and we expect oncology revenue from biopharma and other customers to be in the range of $55.5 million to $56.5 million. No additional VA MVP revenue beyond the $7.5 million recognized in the first half of 2022. Net loss is expected to be in the range of $111 million to $114 million. We are planning to provide our 2023 guidance on our fourth quarter and full year 2022 conference call. At that time, we should have more clarity about the VA MVP. Importantly, we expect to have a better sense of recovery trends for biopharma customer clinical trial enrollment and the ensuing sample shipments. We look forward to providing more information at that time. Now, I will turn the call back over to the operator to begin the Q&A session.

Thank you. Our first question comes from Tejas Savant with Morgan Stanley. Please go ahead.

Hi, this is Neil on for Tejas. Recently, you cautioned of tightening budgets among large pharma customers. Would you characterize this as a broad-based dynamic you are seeing among these customers and are you seeing any more pronounced issues amongst smaller or mid-sized biotechs? And amidst the evolving macro backdrop, any high-level color you can share with us on how you are thinking about this trend having a potential impact on growth or sample shipments in ‘23?

Hi, Neil. Thanks for the question. Yes. So in terms of what’s been happening recently with the recessionary concerns and the overall macro backdrop, we have seen a slowdown with biopharma demand primarily because of their budget concerns and them watching their spend. In addition, it’s definitely been a little bit tougher for smaller biotechs who maybe have cash constraints or have to go raise additional money to be able to move forward with trials and projects. So, we have seen that over the last several months here. In terms of when it will start to improve, right now based upon what we see, it is continuing today. It’s our anticipation this could go on into early 2023, but hopefully things start to turn around. Cancer is something that is a global problem, it needs to be solved. Drug discovery is an important aspect of what pharmaceutical companies work on. We believe we have a great tool and platform to help them with it. Hopefully this is a short-term dynamic that we are dealing with.

Understood. And on a related note, some of your peers have noted customer slowdowns in clinical trial as it relates to staffing shortages. Are you seeing any sort of similar dynamic impacting some of these sample shipment delays or any of your own hiring efforts?

Yes. So the sample shipments coming back in from trials, it’s definitely slower as well, primarily because when you look at our backlog to date, two-thirds of our backlog is for prospective clinical trials, meaning patient enrollments and sample collection have to occur before we can do work on these projects. With some of the things that have gone on with staffing shortages starting from the pandemic, it’s been going on now for several months and so that’s another reason for some of the constriction or tightening in terms of sample flow to us.

I would say that I just probably agree with everything that Aaron has said here. I think that pharma has multiple different needs. One of the areas we are seeing a lot of interest in now is pharma focus on clinical trials that affect drugs being used in earlier stage cancers, for example, on an adjuvant basis after surgical resection. As people begin to understand the capability of our NeXT Personal platform, even if next year is a more difficult overall budget environment, I think the strength of our new product will help us there in pharma. We are beginning to see pharma go through pilot studies with NeXT Personal. As you mentioned, we are beginning to see some larger scale uptake. I think, as more pharma get through that pilot stage, that can lead to growth next year even if the overall market area is a bit constricted because of recessionary issues.

Got it. And then one last for me. One of the other new entrants in the MRD space recently saw some pushback with the FDA requesting additional clinical data in order to secure coverage. Do you foresee this response having any implications on your efforts as you proceed with the MRD opportunity?

Yes, this is John. I think that the performance of our test and the richness of its information are quite different from some of the other platforms, so I’ll be careful about that. It’s part of the reason that we have set up such extensive collaborations so that we will have real thorough data. We are looking at thousands and thousands of samples that are going to be processed. The scale of the laboratory we built when we were working with the VA MVP puts us in great shape to handle such large sample volumes. The FDA and also the insurance companies will be looking for extensive published peer-reviewed data. I think with the collaborations that we have set up, we are going to have some fantastic data and some amazing publications. We may be in a different position from some of the other companies in this space.

Great. Appreciate the time.

Thank you. Our next question comes from Max Masucci from Cowen. Please go ahead.

Hey, good afternoon. Thanks for taking the questions. John, one for you to start, I am just curious how you are thinking about the ideal timing or strategy around refreshing or updating your sequencing infrastructure and understanding that it takes time to complete the infrastructure upgrade. If we look say a few years down the road, is there any way that we can sort of ballpark where the per sample gross margin ceiling could improve or just generally how it compares to what you are seeing today?

Yes, that’s a great question. The timing as you know we are working with the Ultima Platform and that’s still not been commercially released. Our understanding is that it may be released on a full-blown basis in the middle of next year. That may help us quite a bit. Just to put it in context, our current sequencing costs on the high-end NovaSeq platforms that we already have would be the equivalent of about a $500 genome. Going from a $500 genome down to a $100 genome would be an 80% reduction in our sequencing cost. The largest single element of our cost of goods sold is sequencing. An 80% reduction could be very substantial. We did order one of the first of the new Illumina NovaSeq X Plus systems back when the original NovaSeq came out; we ordered 10. In this case, we just ordered one to see how it goes and compare it with the Ultima system, which we are hearing may be delivered in February. Our expectation is these new platforms usually take a little while to have the issues shaken out. By this time next year, I would expect Illumina will actually be delivering on the large flow cell that they expect for the X Plus system. So that will probably improve gross margins that might begin in early ‘24.

Great. That’s fantastic. And I know it’s only been about a month since you announced the partnership with Olink. It would be great to hear where you see the proteomics technology like the PA technology addressing any key limitations of the core MRD platform. And then if you look at some of the differentiating factors of NeXT Personal compared to some of the other MRD platforms that are out there, do you see differences in the value of the synergies that can be had as we start to sort of work proteomics into the equation in a more meaningful way for MRD?

That’s right. Yes, I would say, proteomics would be something that would be pretty exploratory for us. I can’t say we have anything to say publicly about that right now, but we will certainly work with that. On the MRD side, the key differences are dramatically higher sensitivity, which means cancer recurrence may be detected a year earlier than with some other platforms, so really substantial difference for patients. Our MRD assay isn’t just an MRD assay; it’s not just measuring whether the cancer has recurred or not; it’s not just quantifying it, but it’s providing deep characterization of the tumor. Many tumors exhibit a lot of dynamics, and there may be certain subclones that are changing relative to others and that may substantially affect treatment success. Resistance to therapy may create opportunities to use different therapies. The richness of data to guide actual decisions of oncologists, beyond just detecting or not detecting, is transformationally different. We are probably the only tumor-informed test that has that capability and tumor-agnostic tests just aren’t sensitive enough. We have the best of both worlds in that regard. About half of the content of NeXT Personal is not aimed at MRD, but at characterizing the tumor and seeing how the tumor is changing dynamically, which we believe will be a winning strategy for us.

Great. And then I will sneak one final one in here. I will acknowledge and have been probably front running this question by at least a year, but be great to hear your opinion. We are starting to see the next phase of development and optimization of MRD monitoring platforms. One obvious anecdote would be rising interest and acceptance that we have seen for MRD approaches that employ upfront whole genome versus whole exome sequencing, but there are rumblings of potential integrations of long read technologies and whatnot. Looking at your IP portfolio, could you share which aspects of the platform you feel are best protected and most defensible?

Sure. I think the two key areas that we are focused on from an IP standpoint have been the use of whole genome sequencing upfront to identify the largest number of variants. We’ve talked a bunch about that. The other is IP around the combination of what we would call fixed and variable content, where the fixed content is tumor agnostic and the variable content is personalized. Those are two real centerpieces. We have additional IP that covers a variety of things. But if you focus on those two pieces, they are the most helpful. In terms of long read sequencing, it probably isn’t useful in the MRD space, because MRD is mostly measured from cell-free DNA, and most cell-free DNA molecules average about 165 bases long. Though long read technologies are admirable, the molecules just aren’t long enough. That’s part of the reason we focus on very high throughput, shorter read platforms like Ultima Genomics because liquid biopsy is crucial going forward, and it’s pretty much all short molecules.

Great. Well, thank you, as always, for the great color. I appreciate it.

Thanks, Max.

Thank you. Our next question comes from Patrick Donnelly with Citi. Please go ahead.

Hi, this is Lizzie on for Patrick. Thanks for taking my question. I was just wondering, I think last quarter you mentioned that you are opening a new Shanghai facility, the beginning of next quarter and you expect to see revenues kind of accelerate through 2023? Is that kind of the same timeline we should think about just given the recent lockdown trend? Thank you.

Yes, so we don’t anticipate any revenue here in 2022. We believe it’s going to accelerate into 2023. In terms of the expectations, we haven’t given formal guidance or an estimate to share, but revenues are going to be moderate in 2023 and then ramp up from there.

I’d say that one of the important aspects of our initiative in China is that it was really driven by pharmaceutical companies. They required a capability to run international clinical trials where they recruit patients worldwide. From anywhere outside of China, they can just ship samples to us, which works fine, but they aren’t allowed to ship samples out of China. They asked us to open a facility in China where we could handle those samples directly and return the data to them in China. This capability enables large international trials, where maybe only 5% of the patients are being enrolled in China, while the other 95% are outside of China. Because we can do that 5% in China, we get the entire deal. We haven’t recognized revenue actually processed in China yet, but we have had millions of dollars worth of orders from pharmaceutical companies, in part because we can manage that small percentage within China. The larger part of our revenue will be driven by our China operation being standardized in California.

Great. Thank you. That’s interesting. And then on the supply chain, I think last quarter you said that this quarter there will be some alleviation. Do you still think of that the same way as we head into Q4 and into 2023?

I am sorry. Can you clarify the question again? We didn’t quite understand.

Yes. Just anything on what you are seeing on supply chain. I think you may have touched a little bit on this when you spoke about labor as well. I was just wondering if you could elaborate on that. Were you able to hear me?

Yes, now we have got it. Thank you very much. I think we had supply chain issues a couple of years ago when COVID first started. It’s probably back to normal at this point. I don’t see that being a restriction for us. Many past supply chain issues we encountered due to reagents for RNA, which caused shortages because primary vaccines were made from RNA, but that’s all in the past. We are generally able to get what we need, and I don’t see supply chains as a limiting factor for us.

Great. Thank you.

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

Hi, guys. This is Vivian on for Mark. Thanks for taking the question. Could you give us a sense for what factors drove the gross margin during the quarter? How should we think about modeling for 2023 and any potential lift, maybe contemplating some VA revenue coming back on? Thanks.

Sure. In terms of the gross margins, Vivian, in terms of the Q3 dynamics compared to a year ago, the 20 point decline or 19.5 point decline was predominantly from volume. Although we had a little bit of expenses going up because of the biopharma business and supporting that, the drop-off in VA MVP volume caused most of the reduction in margin points. In terms of the VA MVP, as John had mentioned in the prepared remarks, one of the competitive bidders filed a protest. Until we hear back from the VA about the outcome, it’s hard for us to know exactly what the sample flow is going to look like. But from our estimation, we expect to fulfill the $10 million order we received in the first half of 2023. We are very pleased about the contract award, primarily because it is a 5-year exclusive contract. We have been the sole provider with the VA MVP for almost a decade, and it’s exciting that they are collecting samples again and enrolling new veterans. In terms of the number of samples they have in their freezer in Boston, it’s still a significant number. We believe the program has many years to run.

This is John. I would just comment that protests like this are not unusual. We had one of these with a VA contract awarded back in 2013. We certainly respect the process the VA will go through. What happened in our previous case was that after thorough re-analysis, we were still awarded the contract. We hope to hear about this in the next month or two.

Got it. Thanks so much for that. You also mentioned initiating outreach with oncologists for next year. Can you refresh us on the timing for the MolDx submission? And could you provide a sense of the demand that’s been building there?

The timing for our MolDx submission is expected to be in the first quarter of next year. We hope to have an approval in the second quarter. We have launched our sales force and rolled out the newest version of our NeXT Dx Test at the end of September. We have begun to receive orders for the test and have started billing payers. Revenue from the diagnostic will likely be modest until reimbursement decisions are finalized, but we are already processing tests and invoicing them today.

Alright. That’s it for me. Thanks for taking the question.

Great. Thank you.

Thanks, Vivian.

Thank you. Our next question comes from Derik de Bruin from Bank of America. Please go ahead.

Hi. Good afternoon. This is John on for Derik. With the cash use being down this year in terms of your thoughts on operations and cash burn for 2023, are you still looking at a range of $80 million to $85 million or has there been any update there?

Hi, John. This is Aaron. In terms of cash on the balance sheet, we have more than 2 years of cash at the end of Q3. For the operating cash burn, we expect it to be below $85 million. This year, 2022, is somewhat unusual because of the investment in our new headquarter facility, which will cost around $38 million this year. However, going forward, our operating burn will definitely be below $85 million.

Alright. Thanks for that. Regarding cash use for the new building, what type of CapEx demand are you looking at? Are you expecting any additional orders for new instruments?

In terms of new capacity CapEx, most of the current expenditure is for the new facility. Regarding any sequencing equipment refresh, none of the potential new technologies are production-ready just yet. We will continue with what we have for the next several quarters and will evaluate suppliers like Alumina and Ultima based on their readiness.

I would add that part of the expenses we have had this year for the new facility includes new equipment, particularly high-end laboratory robots that can cost between $500,000 to $700,000 each. We need to have the new lab up and running while the old lab is still operating. We have added a substantial amount of laboratory robotic equipment this year, which is part of the cash burn as we build out the new facilities. By next year, we believe we will be well-equipped with the robotics. The sequencing side may not see significant changes until newer instruments come out from suppliers.

Got it. Appreciate it. If I could squeeze in just one more question about Natera. Contributions have been steady over the last several quarters, around $7 million to $8 million. Any potential changes in that area? If you could speak to that, that would be great.

We haven’t provided formal guidance or estimates regarding Natera volumes, but it has continued to increase over the last several quarters. We believe we have a strong partnership with Natera. Looking ahead, our business with Natera could continue to grow as we move into the future.

Regarding our MRD product, we are helping Natera with their MRD product, and there is no conflict as their products target different aspects of the market. We actually believe there is room for both products and look forward to growth in the MRD segment.

Thank you.

Thank you. Our next question is from Mike Matson with Needham. Please go ahead.

Hi, guys. This is Joseph on for Mike. I have a question on Natera first. I saw a press release today that they announced an agreement with VA MVP for processing. Can you speak to your involvement, especially the potential for a similar contract with the VA MVP for using Personalis in these efforts? What does Personalis need to accomplish in the coming months to be a viable option for the VA in MRD testing?

Great question. Just to clarify, Natera’s contract with the VA was not from the MVP; it was from the clinical side of the VA. The million veterans program is a research project funded entirely on the research side. Personalis was not in a position to compete for any of that MRD product at this point because we don’t yet have the diagnostic version of our MRD product out. We expect that in 2023, at which time we will pursue opportunities with the VA or other major hospital systems to implement our product.

Okay. Thank you for the clarification. We haven’t received many comments on any future population sequencing contracts. We saw the announcement of a new task order for the VA MVP, which is encouraging. Given the reduced pharma spending going into this recessionary environment, are you seeing increased or decreased interest from governmental bodies for efforts like these, whether in the U.S. or internationally?

Yes, we have looked at off-state opportunities outside the United States, and we found that many countries want that work done in their own countries. It’s about employment and building local sequencing capabilities. That means we typically found those efforts go to local academic labs. A lot of population sequencing efforts slowed down during the pandemic due to the difficulty of recruiting patients while hospitals were full. Those efforts are likely to speed up, but we are focusing our energy on the oncology side of the business where there is significant opportunity. We will continue working with the VA MVP, and we are looking at ways to expand our pharma effort with enhanced MRD products.

Okay. Thank you very much for taking our questions.

Thank you.

Thank you. Our next question comes from Arthur He with H.C. Wainwright. Please go ahead.

Hey. Good afternoon, John and Aaron. This is Arthur He on for RK. I just had a quick one on the VA program. Assuming a favorable outcome for the initial contract, when can we hear the decision from VA for the following 4-year option? What do you think are the main factors that will drive their decision?

Yes. This is John. Assuming that this goes forward, we will be working off of the task order issued back at the end of September. It’s possible there could be additional task orders this year. Generally, the amount of money applied each year towards the contract is decided in September of that year, often near the end of September, as it’s the end of the government fiscal year. In prior experiences, this is when most contract awards were extended. Historically, the VA has simply extended the contract annually based on their spending. Now we don’t know what the size of that will be moving forward, but since we have been doing sequencing for them for over a decade, it’s quite easy for them to extend what has been a successful relationship.

Thanks for taking my question.

Thank you. I am not showing any further questions. Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Have a great day.

Thank you.