Personalis, Inc. Q2 FY2025 Earnings Call

Ladies and gentlemen, greetings, and welcome to the Personalis Second Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Caroline Corner, Investor Relations. Please go ahead.

Thank you, operator. Welcome to Personalis' Second Quarter 2025 Earnings Call. Joining today's call are Chris Hall, Chief Executive Officer and President; Aaron Tachibana, Chief Financial and Chief Operating Officer; and Rich Chen, Chief Medical Officer and EVP, R&D. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements within the meaning of U.S. securities laws. For example, any statements regarding trends and expectations for our financial performance this year and longer-term, cash runway and liquidity position, revenue expectations and timing, reimbursement goals, size and booking of orders, products, services, technology, expansion of clinical volume, future publication, the outcome and timing of reimbursement decisions, expectations for our existing and future collaboration activities, cost expectations, market size and our market opportunity and business outlook. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. We encourage you to review our most recent filings with the SEC, including the risk factors described in our most recent filings. Personalis undertakes no obligation to update these statements, except as required by applicable law. Our press release with our second quarter 2025 results is available on our website, www.personalis.com, under the Investors section, which includes additional details about our financial results. Our website also has the latest SEC filings, which we encourage you to review. A recording of today's call will be available on our website by 5:00 p.m. Pacific Time today. With that, I would like to turn the call over to Chris.

Thank you, Caroline. Good afternoon, everyone, and thank you for joining us. Our second quarter was defined by outstanding execution of our win in MRD strategy. The clinical adoption of NeXT Personal is accelerating dramatically with test volume growing 59% sequentially. We delivered nearly 3,500 clinical results in Q2. And today, our base of ordering physicians has expanded to over 600. Our commercial partnership with Tempus is gaining momentum with reps now commercializing NeXT Personal across four major indications: breast cancer, lung cancer, colorectal cancer, as well as immunotherapy monitoring. We believe we're on a path towards securing Medicare coverage for two indications by the end of this year. For those new to our story, Personalis is at the forefront of the minimal residual disease market or MRD market, which is poised to exceed $20 billion annually. We believe we are transforming cancer care. Using a simple blood draw, our NeXT Personal test monitors therapy and detects residual cancer with ultrasensitivity, capable of finding just one fragment of tumor DNA in a million. This allows us to see cancer recurrence months ahead of imaging and positions Personalis to capture a significant share of this transformative market opportunity. Turning to our results. We delivered $17.2 million in revenue for the second quarter. Our performance reflects two distinct stories. First, our core clinical business is exceeding our internal plans and demonstrating momentum. Second, we're actively managing the near-term industry-wide headwinds in biopharma R&D spending. Political changes in the health care sector and the uncertainty of tariffs have impacted our customers' translational research projects, resulting in revenue from a few significant contracts shifting out of Q2 and an overall weakness the rest of the year. In light of these industry dynamics, we're updating our full year revenue guidance to a range of $70 million to $80 million. While this range reflects the current variability in biopharma project timing, we have a concrete three-point action plan to aggressively pursue the high end of this range and expect to finish the year with maximum momentum. Here are the three key drivers that give us conviction. First, we're converting our deep biopharma pipeline, especially for MRD. While project timelines have shifted and affected translational business, demand for our MRD technology is robust with growing adoption of NeXT Personal for MRD by our biopharma customers. NeXT Personal gives our customers a tool with ultrasensitivity to measure therapeutic efficacy, and we remain on plan to grow this segment by 300% to 400% this year with a meaningful revenue contribution expected in the fourth quarter. Second, we are capitalizing on our clinical momentum. Our clinical business is a growth engine as we continue to project 30% to 40% quarter-over-quarter growth, fueled by exceptional traction with our partner, Tempus, and our expanding base of ordering physicians. This is a core pillar of our growth story, and it is accelerating. Third, we are advancing towards a pivotal reimbursement catalyst. Achieving Medicare reimbursement in two indications this year remains a top priority and is on track. This is expected to be a major inflection point for the company, unlocking a significant revenue stream. So let me be direct. We own the Q2 revenue shortfall. Moving forward, we're pushing hard on the levers we can control to finish the year strong instead of passively waiting for market conditions to change. Now let's walk through the pillars of our win in MRD strategy. First is accelerating clinical adoption. Through our partnership with Tempus, we delivered 3,478 tests this quarter, a 59% increase from the first quarter and over 575% growth from last year. This is a direct testament to how our ultrasensitive approach is resonating with clinicians. Our growing base of over 600 physicians confirms that NeXT Personal's ultrasensitive results are a key differentiator, giving them greater confidence in their clinical decisions. This quarter, we expanded our Tempus partnership to include colorectal cancer, a major market where we believe our test ultrasensitivity can address a significant unmet need. Initial feedback is extremely positive, and we're moving aggressively to capitalize on the opportunity. In light of this, we are also adding to our own personal sales force and expect to exit the year with 12 to 15 field professionals on the ground. Second is driving reimbursement through world-class evidence. The clinical data validating our approach is nothing short of outstanding. At ASCO in June, three studies underscore the power of our technology. The PREDICT and SCANDARE studies demonstrated that NeXT Personal can predict patient outcomes in neoadjuvant breast cancer with nearly half of all positive detections found in the ultrasensitive range that our assay unlocks. Furthermore, an important study from AstraZeneca showed our test detecting cervical cancer progression up to 16 months ahead of imaging. We believe this is the caliber of evidence that doesn't just support clinical practice, it transforms it. Behind the strength of our clinical evidence, we continue to target achieving coverage for at least two indications this year. We have recently submitted our IO monitoring dossier for Medicare coverage. And so, we now have two indications in process for coverage and the lung cancer dossier is on track. Some aspects of the coverage process are beyond our control, but we continue to be confident that our data meets the bar for coverage. Third is leading with biopharma partners. Our technology gives partners a powerful tool to accelerate clinical trials. While total biopharma revenue of $11.1 million reflects the project delays I mentioned, the underlying growth in our strategic focus area is exceptional. As I stated, NeXT Personal revenue from biopharma is on track for 300% to 400% year-over-year growth, and the new customers noted on our last call remain on track to generate over $5 million each in revenue this year. We project total biopharma revenue will rebound to between $11 million and $13 million in the third quarter. Our expectations are much higher for the fourth quarter, typically the best quarter of the year. In summary, Personalis is executing with precision on our strategy to win in MRD. Our team and our partners are deploying our ultrasensitive technology that we believe can redefine the standard of care for patients with cancer. I'm proud of the progress that our team has made so far in 2025, and I'm thrilled with the commercial momentum and partnership with Tempus. This is a transformative year for our company and most importantly, for the patients who benefit from our technology. With that, I will now turn it over to Aaron to review our financial results.

Thank you, Chris. I will discuss our second quarter 2025 results and then cover guidance for the third quarter and the full year. Total company revenue for the second quarter was $17.2 million, representing a 24% decrease compared with $22.6 million for the same period of the prior year. The decrease in revenue was primarily driven by the expected volume decline of $5.6 million from Natera and $1.3 million from Moderna. We continue to expect the Natera business to conclude by the end of the third quarter. Biopharma revenue was $11.1 million in the second quarter, representing a 16% decrease compared with $13.2 million for the same period of the prior year. Most of the biopharma revenue decline was from Moderna, as previously mentioned. In addition, Chris discussed the customer project delays that we had in the second quarter. If these projects were not delayed, our biopharma revenue for the second quarter would have increased year-over-year despite the decline from Moderna. For clinical revenue, we recognized $0.5 million of revenue from our NeXT Dx and NeXT Personal molecular tests compared with $0.1 million for the same period of the prior year. Gross margin was 27.6% in the second quarter compared with 35.6% for the same period of the prior year. The year-over-year decrease of 8% was primarily due to the lower revenue and unreimbursed clinical test costs. In the second quarter, we saw an impact of approximately 12% to our gross margin from the unreimbursed clinical test costs. Excluding those expenses, gross margin would have been approximately 40%. We continue to expect total company margins to expand beyond 50% once we have obtained reimbursement coverage for more than a few indications and we achieve scale. Operating expenses were $26.6 million in the second quarter compared with $24.9 million for the same period of the prior year. Most of the year-over-year increase was attributed to selling expenses related to our clinical test volume growth. The second quarter R&D expense was $12.4 million compared with $13 million for the same period of the prior year, and SG&A expense was $14.2 million compared with $11.9 million for the same period of the prior year. Net loss for the second quarter was $20.1 million compared with $12.8 million for the same period of the prior year. The prior year's net loss included a $3 million noncash gain related to the warrants issued to Tempus and were outstanding as of the second quarter of the prior year. Excluding the noncash gain, the prior year net loss would have been $15.8 million for comparative purposes. Now on to the balance sheet. We finished the second quarter with a strong balance sheet with cash and short-term investments of $173.2 million and no debt other than some small equipment loans. The cash usage from operations and capital equipment additions for the second quarter was $13.2 million. We continue to operate cost-effectively. And as mentioned during our last conference call, we expect cash usage for the full year of 2025 of approximately $75 million, an increase of approximately $30 million compared with the amount used in 2024, primarily due to investment in clinical test volumes in advance of reimbursement, expansion of our clinical evidence for NeXT Personal by conducting new studies, and additions to our clinical sales team. We expect these investments to help drive NeXT Personal revenue growth post-reimbursement later this year and into 2026. Now I'd like to turn to guidance. For the third quarter of 2025, we expect total company revenue in the range of $12 million to $14 million, revenue from pharma test and services and all other customers in the range of $11 million to $13 million, and revenue from population sequencing and enterprise customers of approximately $1 million. And for the full year of 2025, we revised our guidance and now expect total company revenue in the range of $70 million to $80 million, which is reduced from $80 million to $90 million. This lower range encompasses the timing and variability of biopharma projects and sample receipt and Medicare reimbursement coverage for NeXT Personal. Revenue from pharma test and services and all other customers in the range of $52 million to $58 million, which is reduced from $62 million to $64 million; population sequencing plus enterprise customers in the range of $15 million to $16 million; revenue from clinical tests reimbursed in the range of $3 million to $6 million, which has narrowed from $3 million to $10 million. Gross margin in the range of 22% to 24%, and our gross margin guidance for the full year is expected to be lower than the 32% for the full year of 2024 due to the impact of investing in clinical test volume ahead of reimbursement. Net loss of approximately $85 million, which includes approximately $20 million of unreimbursed test costs, which has increased from $83 million due to lower revenue, and cash usage of approximately $75 million. We look forward to updating you on our progress during the next conference call in a few months. And with that, I will turn the call back over to the operator to begin the Q&A session.

The first question comes from Dan Brennan with TD Cowen.

Maybe the first one just on clinical. So, I know you said Medicare is on track. You did lower the top end of the guide from $3 million to $10 million, $3 million to $6 million. So maybe can you just walk through a little bit of like what was the rationale for that? Are you hearing anything back from Medicare? And then b, as we think about the back half of the year for clinical, like what's kind of assumed for Q3 and Q4 at this point?

So, Dan, in terms of the guide, the prior guide, for our prior guide, we had a pretty wide range of $3 million to $10 million on the clinical side, primarily due to the number of months we saw before we got to reimbursement. Now that we're in the month of August or early August here, we thought it'd be prudent to tighten the range or narrow the range. And that's how we come up with the $3 million to $6 million estimate. And what we've modeled in the prior guide is we had a lot of different models that we ran or scenarios that we ran in terms of when reimbursement could occur, right? And so that's how we came up with a wider range. And net-net, you could assume that we did have reimbursement for one indication in the latter part of Q3 and then the second one in Q4. We're still targeting two cancer types for the full year. But in terms of the guide now, it looks more reasonable that we'll get two cancer types in the fourth quarter.

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

Could you share some insights on the early use cases? You've mentioned the number of doctors using it. How is that progressing? I understand it's early and there isn't full coverage yet, but what is the current number of doctors using it? Additionally, what specific areas do you see your ultrasensitive test making a unique impact?

Yes. We are concentrating our clinical storytelling on breast cancer, lung cancer, and therapy and immunotherapy monitoring. While I didn’t provide a case study during this call, we have seen doctors use our technology to detect recurrences months earlier and sometimes even find metastasis, which underscores the worth of the technology. Physicians have also utilized it after neoadjuvant therapy to make decisions about subsequent steps. Many have employed it as part of treatment, occasionally switching therapies when they haven't achieved a consistent response, which has led to positive outcomes with different medications. The significant point is that nearly 40% of our positive results remain in the ultrasensitive range, which tends to convince doctors over time. Our retention rates have been exceptionally high, likely one of the strongest products I have ever worked to launch in terms of early retention, and we’ve seen a solid ramp-up. Recently, in the last quarter, we incorporated colorectal cancer into the call cycle, providing a new evolving use case with improved landmark sensitivity, and we have expanded our arrangement with Tempus, leading to some colorectal cancer usage and encouraging feedback. Overall, we believe the ultrasensitivity is proving beneficial across all four indications. Additionally, this aspect enhances confidence in negative results, which is important when discussing good news with patients about not having measurable minimal residual disease in their blood. This clarity is powerful, and we believe our approach is effective throughout the entire clinical flow.

I know there will be a lot of questions regarding pharma. Regarding the balance sheet, you have $173 million in cash and you've burned $13 million. Can you remind us of the pathway forward? How long will that cash last? I understand Aaron discussed the gross margin expansion you anticipate, but considering the deal with Tempus, could you walk us through your projected cash flow and any potential cash flow needs moving forward?

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

The next question comes from Mark Massaro from BTIG.

This is Vivian speaking on behalf of Mark. Regarding biopharma, can we interpret the $10 million reduction as a delay in revenue instead of a complete cancellation? Should we expect this to be reflected in 2026? Would it be correct to proceed with that understanding?

Go ahead. And what was the second part of the question?

Yes. And then just to clarify, was that pushout related to the personalized cancer vaccine deal that you have with Moderna? And if so, just how do you feel like that value prop is resonating more generally?

Let's begin with the PCV or the INT individualized neoantigen therapy programs with Moderna. This relationship is strong, and we've been pleased with its progress. We anticipated a revenue decline this year since they enrolled many patients in their melanoma trial last year, which drove the revenue, so this year's lower figures were expected. In Q2, we observed some project delays pushing into Q3 and Q4, as well as some Q3 timelines being extended, leading to a noticeable slowdown particularly in the translational sector. Layoffs in biopharma companies as they manage budgets have contributed to this softness. Given these observations, we deemed it wise to adjust our guidance downward. While not unexpected in the biopharma segment, we continue to excel with the MRD product, enjoying significant growth of 300% to 400%. We have two major customers from this year generating over $5 million in revenue each, and they are on track. The MRD product remains a bright spot for us, with no major project losses foreseen, just delays and a general slowdown. Other companies in the sector are experiencing similar challenges. Nevertheless, our core MRD assets are performing exceptionally well, particularly with one customer showing nearly 60% growth quarter-over-quarter.

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

Yes, we are experiencing growth in the number of physicians, having surpassed 600 who are ordering, which is remarkable considering our current position. We are delving deeper into these accounts, meaning we're obtaining more samples per physician and beginning to see the subsequent pull-through. This success is built on an excellent relationship with Tempus, which has been incredibly positive, and we are thrilled with how this partnership has developed. The impact of this collaboration is clearly reflected in our numbers and overall performance, showing improvement across all metrics. For NeXT Dx, our CGP test achieved its highest quarterly revenue this quarter. This CGP test complements many others we conduct alongside Tempus. While Tempus markets their CGP through their channel, we often associate it with our own reps, which has been a significant additional revenue source. The core MRD metrics show an increase in tests per doctor, a growing number of doctors, outstanding retention, and a solid pull-through of subsequent tests. Is that helpful? I believe I've addressed everything.

The next question comes from Thomas Flaten with Lake Street Capital.

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

Absolutely. Over the past 18 months, we've had a significant portion of our R&D team focused on scaling our operations. Our lead times have decreased dramatically. We believe we are now offering competitive services comparable to any other vendor in the market, both for our ongoing projects and the new ones. We feel confident in our position, having invested substantial resources into scaling our efforts without missing a step. While it's difficult to quantify this progress, it's clear that physicians have high expectations for customer service. The quarterly growth we are experiencing is a testament to our operational effectiveness. If we were encountering issues, such as delays or losing samples, we wouldn't achieve the retention and growth we are seeing. We've maintained a strong performance and have even improved over time, reflected in our numbers.

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

I think it's still a bit early to provide a definitive answer. We notice that recurrence monitoring is occurring less frequently than therapy monitoring, particularly in IO therapy where we observe higher rates than in recurrence monitoring. This aligns with our expectations, but since we're still exploring different use cases and their positions in the clinical flow, we anticipate gathering more insights as the data volume increases.

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

Yes, we rely on Tempus, and they have been instrumental in our operations. The process really depends on the preferences of the physicians, and it's generally best for them to utilize the Tempus infrastructure. Tempus is integrated with electronic medical records, which is crucial for clinicians. They also manage logistics within those institutions, enabling us to operate more efficiently and effectively meet customer needs. This collaboration was a key factor in our decision to partner with Tempus. Overall, physicians are likely to prefer processing through Tempus since that infrastructure exists, and we aim to support both the doctors and their patients. As we grow the group, we’ve always stated our intention to scale it. This group plays a vital role in supporting relationships, particularly in major academic medical centers with key opinion leaders. One aspect that sets Personalis apart is our collaboration with many leading experts globally, giving us access to prominent biobanks to generate data, which drives clinical usage. Our sales strategy has been focused on nurturing these relationships, and we will continue to invest in this area. Additionally, while Tempus is strong, they are not the only player in the cancer space. Doctors may have other systems in place, and our representatives will ensure we address any market gaps and reach out to all physicians, even those not affiliated with Tempus. However, for Tempus accounts, the workflow will likely follow their established architecture. Overall, we are very pleased with how our partnership has progressed.

The next question comes from Yuko Oku with Morgan Stanley.

This is Edmund on for Yuko. Can you guys hear me?

Yes.

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

Ed, this is Aaron. So, in terms of your question about the biopharma landscape and what's going on in the government front. So, in our prepared remarks, we did talk about revising our guidance from biopharma down from $62 million to $64 million down to $52 million to $58 million. In terms of what we're seeing is on the translational research side of the business, where ImmunoID NeXT is our offering. We are seeing delays of projects, and we've seen that occurring from Q2 and Q3. So, projects in Q2 and Q3 have shifted to the right. It's our assumption that these projects are not lost; they're just delayed a little bit. So, it's going to take two to four quarters before those get completed and converted to revenue. What's really strong for us right now is the MRD offering, NeXT Personal with biopharma. Our funnel continues to grow and expand. And as Chris said in the prepared remarks, we have two customers that are $5 million each, and we believe we're going to fulfill those this year.

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

I didn't catch the last part of that. Sorry.

How are you managing your MRD investments considering the near-term margin pressures compared to the immediate impact on revenue from reimbursement?

Got it. Yes. First of all, I think it's great that Saga received reimbursement for breast cancer. They published their data several months before us, so we assumed they submitted their information ahead of our timeline. Their data was strong, and we believe we meet the necessary standards as well. When we learned that they secured coverage and reimbursement, it boosted our confidence that our data is on the right path. We are committed to investing significantly in evidence development and working on prospective clinical trials in the breast cancer area with leading experts, and we will have announcements coming up. We've actively enrolled patients in the prospective Be Stronger trial for triple-negative breast cancer and collaborated with numerous top medical institutions. Although we didn't emphasize it in this call, the ASCO data was particularly compelling, especially with PREDICT and SCANDARE, and it opens the door for expanding coverage into the neoadjuvant setting. The data from those trials was exceptional, and PREDICT was a multicenter trial with its data also presented at ASCO. We continue to invest heavily in this area, believing it is the right focus. Additionally, the economics of our arrangement with Tempus allows us to achieve significant sales and marketing leverage without substantial upfront investments, as we utilize their channels and compensate them at market rates for their services, enabling us to scale efficiently without immediate heavy investments in sales and marketing infrastructure.

I think you were asking about balancing volume with margins. Chris mentioned in his prepared remarks that our growth targets are between 30% and 40%. We've been growing at a rate of over 50% each quarter. If you consider the run rate from Q2, it amounts to roughly €3,500 tests, which translates to a $6 million revenue run rate, assuming full reimbursement and an average price of about $7,000 for four tests, including the more expensive initial test at around $1,750 per test. We are not specifying our reimbursed price, but we are providing an estimate based on the current market rates. Based on that, we are looking at a $24 million annual revenue run rate for the second quarter. We will continue to grow at a minimum rate of 30% to 40%. We are carefully managing our cash burn alongside this growth. We are experiencing great demand for volume, and we want to accelerate as much as possible because once reimbursement coverage starts in the fourth quarter, it will translate into revenue. The higher our revenue run rate, the greater the value we can return to our shareholders. Our margin guidance of 22% to 24% takes into account the unreimbursed test costs prior to receiving reimbursement.

The next question comes from Subbu Nambi from Guggenheim.

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

Yes, thanks for the question. This is Rich. We had a really great ASCO, as Chris mentioned. Notably, we introduced our first neoadjuvant breast cancer data in triple-negative breast cancer with two studies, PREDICT and SCANDARE. What was really impressive was that they demonstrated very similar findings showing that our test was highly predictive of relapse for patients who received neoadjuvant treatment. Patients who were positive on our test had a much higher likelihood of relapse compared to those who were negative. Our results compared favorably to the industry standard approach. This was an important milestone, as it aligns with the traditional methods. Our test proved to be highly predictive regardless of the standard approach. Looking ahead, this positions us to expand our MolDx coverage, and we plan to submit for reimbursement for neoadjuvant breast cancer once these studies are published, similar to how we have been pursuing other indications.

So, the way to think about it is this year, we go the breast, lung and IO, we're working on that. Next year, we'll be bringing CRC along and expanding breast cancer as those papers get published.

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

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

Got it. And then more of a high-level question. But the longer reimbursement takes, have you seen any erosion in interest from docs who currently cannot serve due to gating volumes, and they choose other competitors who are available? Or is it too early for any of these things to be a factor?

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

The next question comes from Mike Matson with Needham & Company.

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

Yes, that's a great question. They focus on lung cancer, breast cancer, immunotherapy monitoring, and increasingly colorectal cancer. Almost all of our samples fall within those indications, both those we collect and those they receive. Most of them are tied to these core indications. I believe there’s an opportunity to concentrate on physicians who specialize in treating those specific types of cancer. However, it is challenging to instruct physicians to only refer certain types of patients since they prefer to provide technology in a comprehensive and consistent manner based on their patients’ needs. Therefore, we don't have complete control over this process, but we can influence it to some extent based on coverage and the physicians who show increased interest. That is our perspective.

I understand. You announced that you will eventually pursue reimbursement for colorectal cancer. What is the current status of the data mentioned in the press release regarding the Victory data? Is that sufficient? What milestones are necessary? I assume it needs to be published or something similar, and do you require any other studies or data?

No, absolutely. The data was phenomenal, and we've received great feedback, but it's still preliminary. This is a prospective study, which differs from some of our past studies that were analyzed retrospectively. In this case, we are gathering samples in real-time. The investigator has not yet made a decision regarding the study, but at some point, that will happen, and then the investigator will publish the findings. After that, we will submit it for reimbursement, but the timing is still to be determined.

The next question comes from Swayampakula with H.C. Wainwright.

This is RK from H.C. Wainwright. I joined the call a bit late, so I apologize if these issues were addressed earlier. I'm looking at the pharma test and services revenue and noticing that it didn't meet your expectations as we moved into the second quarter. Considering we've completed the first half of the year, it appears that you're not anticipating much growth for the second half compared to the first half. What has changed in the pharma business that is affecting progress more than you anticipated? Is it related to the clinical programs, or are there other factors involved? If you could provide some insight on this, and whether this trend is only for this year, should we expect growth once the market improves and funding gets better for everyone?

No, I think that's great. We're experiencing impressive growth with our biopharma customers in the MRD segment, and everything is on track. Each time we've reported, the internal metrics, such as the 300% to 400% annual growth and new customers generating over $5 million, align with our plan, and we believe we're performing exceptionally well. This is where we are focusing our investments. On the other hand, the translational research segment involves receiving a significant number of samples that we will analyze through our tumor profiling engine. The biopharma companies will use that data to potentially identify new biomarkers to support their drug development, which is more future-oriented research. We've felt a slowdown in this area, but we anticipate it will pick up as the situation stabilizes. This slowdown is likely influenced by various factors including uncertainty around drug development processes, drug pricing issues, and tariffs. Additionally, layoffs in some companies and a general slowdown in early-stage R&D are factors we're observing. We believe this trend is temporary and will resolve itself, but we still expect that this product line will remain flat or experience slight growth this year. It's not that the product is failing; rather, we initially had expectations for its performance earlier in the year that were more optimistic than what's materialized. Year-over-year, I still anticipate flat performance or some growth. Meanwhile, the explosive growth in MRD is proceeding as planned. This aligns with trends seen across the industry. We had hoped for better growth earlier in the year, but the situation has become more challenging as the quarter progressed, leading us to prudently adjust our guidance based on our current circumstances.