There should be a place of honor in history for statesmen whose ideas have been proven right. -Walter Isaacson
Today we put Personalis, Inc. (NASDAQ: PSNL) in the spotlight here at the Biotech Forum for the first time. The stock of this small cancer genomics company has plummeted over the past year. The company is posting significant losses, but the stock’s market capitalization is currently significantly lower than the net cash on its balance sheet. Oversold or value trap? An analysis follows below.
Personalis is headquartered just outside of San Francisco. The company is focused on delivering the next generation of precision cancer therapies and diagnostics. Its Personalis NeXT® platform is designed to adapt to the complex and evolving understanding of cancer, providing its biopharmaceutical customers and clinicians with information on all of the approximately 20,000 human genes, as well as the immune system, from from a single sample. The company was founded by industry heavyweight executives Illumina (ILMN). The stock currently trades at just under $3.50 per share and has an approximate market capitalization of $180 million.
The company has several approved tests in the market. Personalis has earned much of its revenue since its IPO through a contract with the US Million Veterans Affairs (VA MVP) program. This revenue stream is shrinking and less significant as the company focuses on growing its oncology testing business through its NeXT platform.
First quarter results
On May 4, the company released its first quarter results. Personalis posted a GAAP net loss of 63 cents per share, slightly below expectations. Revenue fell about 27% year-over-year to just over $15 million, slightly above analyst consensus.
VA MVP revenue for the quarter was $3.5 million. This figure was expected, but was 73% lower than in 1Q2021, compared to $13.2 million for the same period a year earlier. Management said the unfilled orders for this contract were $4.1 million at the end of the first quarter and that they expect the unfilled orders to convert to revenue in the second. trimester.
The company’s focus on oncology is resulting in good growth, albeit from a fairly low base. Biopharma and all other customers generated revenue of $11.7 million in the first quarter, up more than 50% from the same period a year ago. This was due to the continued adoption of the company’s NeXT platform, which accounted for nearly two-thirds of that revenue in the quarter.
For the full year, management expects overall revenue of $62 million to $67 million. Of which, oncology revenue from biopharma and other customers will be between $55 million and $60 million.
Management also mentioned that its business continues to be affected by the lingering effects of the pandemic. One of the company’s key long-term growth drivers is partnering with oncology companies during trials. In fact, half of Personalis’ biopharmaceutical work is now devoted to these prospective clinical trial projects. Covid-19 continues to delay and reduce patient enrollment in these studies. The company’s efforts to expand its footprint in China have also suffered from shutdowns in Shanghai, where its lab is also located.
Analyst Commentary and Review
Since the release of Q1 numbers, Morgan Stanley ($13 price target) and Needham have reiterated Hold ratings on the stock. BTIG ($15 price target) and HC Wainwright ($30 price target) reissued buy quotes. Citigroup did the same but lowered its price target to $14 from $18 per share previously.
Approximately five percent of outstanding shares are currently sold short. A beneficial owner added just over $3 million to his holdings in early March. Since then, four insiders have made very small sales. The company ended the fourth quarter with just over $265 million in cash and marketable securities on its balance sheet after posting a net loss of $28.2 million in the quarter. The company has negligible long-term debt, but has access to credit facilities if needed. The company used just over $20 million in cash during the first quarter. Leadership projects will cost approximately $140 million for all of fiscal 2022. This includes a one-time investment of approximately $45 million for the construction and fit-up of a new company facility, which will is one of the main initiatives of the company.
Current analyst consensus is that the company loses $2.50 per share in fiscal 2022, revenue drops about 25% to $64 million. Revenue is expected to stabilize near FY2020 levels of $85 million, analysts said for FY2023, although losses are expected to be around this fiscal year’s levels.
There is no doubt that Personalis targets very important potential markets. 2022 will be a year of transition as the company’s VA MVP business continues to decline and its oncology business expands while building capacity at a new facility. Growth will return in fiscal 2023 and beyond, and the company appears to have enough cash to support this transition.
The market has been absolutely brutal on small cap not-for-profits in 2022, knocking many of them, including Personalis, to well below their net cash value. It gives no value to the underlying assets of the business and Personalis could easily be a ‘boltacquisition for a larger player at current trading levels. However, this is likely the only way for stocks to rebound strongly until investment sentiment improves in the market.
We all have problems. Or rather, everyone has at least one thing they see as a problem.. ”― Mokokoma Mokhonoana