Personalis, Inc. (PSNL) Earnings Call Transcript
July 20, 2026
Earnings Call Speaker Segments
Ladies and gentlemen, thank you for standing by. My name is Nova, and I will be your conference operator for today. I would like to welcome you to Tempus AI Company Update. [Operator Instructions] Now I'd like to turn the conference over to Elizabeth Krutoholow, VP of Investor Relations. Please go ahead.
Thank you. Good morning. Thank you for joining us to discuss Tempus' agreement to acquire Personalis, which we announced this morning. Joining me today are Eric Lefkofsky, CEO of Tempus; and Jim Rogers, CFO. We issued a press release and posted an investor presentation this morning, both of which are available on our Investor Relations website. As a reminder, during this call, management may make forward-looking statements. Slide 2 of our presentation and the press release issued this morning contain additional information on forward-looking statements and other important information on the proposed transaction. We welcome any questions specific to this transaction. Please be advised that we are currently in a quiet period, which limits our ability to offer further comments. I'll now turn the call over to Eric.
Thanks, Liz. This morning, we announced that Tempus has entered into a definitive agreement to acquire Personalis. For the terms of the agreement, Personalis' shareholders will receive consideration of $16.25 per common share of common stock, representing $1.5 billion net of Tempus' existing ownership interest. MRD represents a $20 billion-plus market and is one of the fastest-growing segments in oncology diagnostics. It is transformative for cancer care, allowing clinicians to detect disease recurrence earlier than traditional imaging, enabling more informed treatment decisions when cancer recurs. We've been the exclusive distributor of Personalis' tumor-informed MRD assay, NeXT Personal since 2023, which we believe is a best-in-class assay given its ultrasensitivity. By combining Personalis' tumor-informed assay with our tumor-naive offering, XM, we're able to offer solutions that meet each oncologist's MRD needs and provide a wide variety of solutions across tumor types. Bringing Personalis' testing portfolio under one roof accelerates commercial adoption of NeXT Personal while strengthening the multimodal data flywheel that differentiates our business with longitudinal patient data providing insights. Our partnership with Personalis has been very successful. NeXT Personal is now reimbursed across multiple use cases in breast, non-small cell lung cancer and IO monitoring. As we've discussed historically, we phased our rollout of the assay based upon reimbursement of various indications, and we're on track with growth rates that have exceeded our expectations, having run about 6,500 tests in Q1 of this year and roughly 9,000 tests in Q2, growing 38% quarter-over-quarter. And that's just the test that we distribute for Personalis. They sell some of their own tests, which makes that even higher. This growth is exceptional when you consider that only 10% of our sales force is currently selling MRD solutions today. So when you think about that kind of 38% quarter-over-quarter growth rate, it puts it into context. Going forward, we believe volumes could be even more material and higher as we equip additional sales reps with our offering and at more indications, secure reimbursement. In addition to strengthening our MRD leadership, the Personalis portfolio enhances our biopharma offering through profiling and IO capabilities. The potential addition of the identified longitudinal MRD data also creates really interesting opportunities to enrich our models to provide differentiated insights for our biopharma clients. Serial measurements reveal disease dynamics, treatment response, resistance and recurrence, which are helpful for biomarker discovery, patient selection and trial optimization with reimbursement in place and more coming Personalis' exiting a period of heavy investment and losses. Given the improving financial profile, we felt now is the right time to pursue a strategic acquisition. Under the agreement, Tempus will acquire all outstanding shares of Personalis not already owned by Tempus AI at a price of $16.25 per share, representing a 6% premium to Friday's closing price and a 28% premium to the unaffected 30-day VWAP. Consideration will be structured as 100% stock with Tempus having the option to elect payment in up to 50% in cash. Personalis' shareholders will receive a floating exchange ratio of Tempus common stock for each share of Personalis common stock at closing, subject to a maximum exchange ratio of 0.3356. Cash consideration can be financed with cash Tempus has on hand and original borrowing we procure between signing and closing. Both parties expect the close of the transaction to be late 2026 or early 2027. We'll provide additional detail on the transaction's financial impact on our outlook during our Q2 earnings call on July 30, which is about a week from now. But as we've highlighted in previous calls, there's a certain amount of discretionary investment that we are able to make each year given that we have increasing gross profit dollars from the growth of our core business across therapy selection volumes increasing, ASP tailwinds, which we've discussed and continued growth and strength in our data business. And we'll utilize some of those investment dollars to drive our MRD offering growth while continuing to demonstrate leverage in the business, both from an adjusted EBITDA and cash flow perspective. Even with this acquisition, we intend to be EBITDA and free cash flow positive in 2027. Thank you for your time this morning and for your continued interest in Tempus and our evolving growth story. Thank you. With that, it's over to you.
Great. We can now open the line for questions.
[Operator Instructions] Your first question comes from the line of Kallum Titchmarsh from Morgan Stanley.
Obviously, still somewhat in the initial innings of the launch, but maybe just talk to some of the feedback you've been hearing on the ground on NeXT Personal that I assume supported this decision. It seems like pretty nice growth out of the gate. So any sense of whether you're seeing competitive shifts here or it's more kind of a market expansion from accounts that weren't utilizing MRD tests beforehand?
Yes. I would say the growth in terms of -- obviously, percentages is pretty extraordinary. Anytime you have a business that's growing almost 40% quarter-over-quarter, those would be exceptional year-over-year growth rates. These are quarter-over-quarter growth rates. So I think it's safe to say that we are quickly gaining market adoption. And I think that is that over the last several quarters has been both a function of the market -- the overall MRD market is growing. It's a very healthy market and one that's growing pretty rapidly, I think, as evidenced not just by our growth rates, but by Natera and others. But I also think that given the really fantastic performance of Personalis' assay in their suite of products, you're going to -- I would expect to see more market shift -- and this really kind of speaks to the -- I think, the Tempus -- when the Tempus real flywheel gets humming, it's a function of a best-in-class diagnostic test and certainly NeXT is that, combined with all the other technology attributes we have from broad connectivity to hospitals all over the country to a whole suite of AI-enabled solutions that make ordering our products easier to a variety of AI insights we're able to deliver through the models we build. And I would suspect all of those will be more tightly embedded into our MRD offering over time. And as they continue to get more and more indications covered, we will dramatically expand the amount of our sales force that can sell it.
Your next question comes from the line of Kyle Mikson from Cannacord Genuity.
Congrats on the deal here. Just first, maybe just talking about like why now? As was discussed in the last question, it's kind of early for this -- for Personalis. I know they have a lot of reimbursement and so forth, but not a lot has improvement. So maybe why is now the best time? And also just talk a little bit about the dilution kind of road map here, the burning $20-plus million a quarter. You have that target to a positive cash flow in '27, but it's a little -- this doesn't help you kind of get there. So just maybe expand upon those factors.
Yes. I think the -- we looked at this -- we looked at Personalis back in 2023 and decided to do a commercial deal in large part because we could see that there were several years of significant investment at the time that they were going to have to make. And in fact, I think you can see from their financials, they've made those investments in '23, '24, '25. So now we're almost at the end of '26. So I think it was kind of the right decision for us to let them make those investments and get the assay to this point. The point that it's at now is it is beginning to get and will continue to get, I would assume, a very broad coverage and the economics of these assays begin to turn pretty dramatically once they are covered more broadly. So you kind of -- unlike other assays where you can get coverage quicker, here, you have to basically demonstrate analytic validity and clinical validity, you have to publish, you have to get MolDx approval. And then all of a sudden, one day, you just turn on reimbursement. So you go from like 0 revenue for some of these tests to significant revenue. And they are now entering that part of the cycle where their financials should improve dramatically. So that's why it was the right time for us to decide to acquire them. And in terms of like it being a proven test in market, I think it is widely considered if not the best, one of the best best in the market today. And so as the financial profile of these assays gets better, I think you'll see pretty dramatic expansion and really strong operating results in terms of revenue.
Yes. And then on the second part of your question, as Eric kind of noted in his prepared remarks, we're fortunate that the core business obviously has good tailwinds, both from like a therapy selection volume growth plus the ASP tailwind that we've highlighted over the last several quarters getting the tumor-only for xT FDA approved and then having xF in front of the -- so we're generating a lot of incremental gross profit dollars. And as we've previously discussed, we've always intended on investing a certain percentage of those kind of back into the business. MRD was a big area of investment, and that allows us to kind of absorb some of this burn given the strength in the core business.
Yes. I should jump in. I think Jim makes kind of the most compelling point just I want to highlight it, which is we have -- we're fortunate that we have this high-growth business that just generates lots of gross profit and lots of gross profit dollars. And we look for what are the best places to invest that. And as Jim mentioned, this, in our opinion, is the best place. So we're kind of thrilled that we're able to kind of lean into growth and position the business for long-term success.
he next question comes from the line of Dan Brennan from TD Cowen.
Maybe just I'll ask one, obviously, but a couple of other. Eric, I think you mentioned at the onset, 10% of the sales force is directed towards, I guess, MRD today or maybe specifically Personalis. So is the implication that, that number goes up and the growth rate accelerates from what we've seen? B, I know you mentioned the ability to integrate their data more. So I'm just wondering if you could share what the relationship was prior to owning the business outright in terms of the ability to use the data within your pharma offering and how that might change now? And then C, like does this impact your own plans on your own MRD assays? And then the final one would just be on the Personalis Pharma business. They have an important pharma business. They've got deals with, I think, Merck, Moderna. There's some outcomes data coming out later this year, early next year. Does this deal impact in any way the relationship with those companies and that offering?
Yes. So I learned a long time ago, I'm not smart enough to remember 4 questions in a row. So I cover some part of that. The pieces I can recall. So yes, we have a limited -- rough -- somewhere around 10% of our sales force selling the MRD product today. We will continue to ungate that and invest in additional salespeople in the field. It's more a function of the balancing act between when they get additional categories reimbursed and so on and so forth. And so I think they've got a really strong R&D portfolio, which they've disclosed in their own investor meetings. So you can get some sense as to when various things are coming to market. And as it's going to line up here likely in '27, somewhere in -- it's hard to know when, early, late whatever. But at some point, you'll get to this tipping point where the revenue generated from these assays is high enough that you can kind of more completely unlock and fully unshackle the sales force. And so we'll just keep people informed as to how that's going. But we expect really strong growth rates. We said this and we said this in our Investor Day a month ago or so, we expect really strong MRD growth rates to continue. And when you have a business growing 40% quarter-over-quarter, like that gets very big very quickly, and we expect that to continue. As it relates to data, yes, the deal was originally structured where we had broad clinical distribution rights, but they had their own biopharma business. They had their own data rights. And so post closing, we will more tightly couple these things together. And I suspect it will be catalytic to both their pharma business and our pharma business. So I think there'll be some really nice data benefits as we don't really fully bring in these MRD time points in a way that they do. And then finally [indiscernible] thing, as it relates to our own tumor-naive product. We have told folks over the last several quarters that we're seeing the market had shifted really pretty dramatically to tumor-informed in terms of volume. And the tumor-informed part of our business represented 95-plus, high 90s of our -- of the orders we were receiving. And I suspect that will continue for some period. We still believe tumor-naive has an important place. We'll continue to invest in tumor-naive. We'll continue to bring it to other indications. We're working on a more sensitive version of our assay now, and that's moving along well. But the market is just really leaning into these ultrasensitive tumor-informed assays that have incredibly low limits of detection. And we're kind of excited to ride that wave for the next several years. But longer term, I would suspect both will do quite well.
And then, Dan, I think on your final question around kind of their biopharma business. Obviously, we also have a large data business with biopharma. We also do some sequencing for biopharma as well. And so again, we can integrate that business with kind of the current offering and think it can be helpful in expanding the overall relationship with biopharma.
Your next question comes from the line of Brad Bowers from Mizuho.
Maybe just a 2-parter on the revenue side. Just wanted to hear about kind of the pathway to reimbursement. Obviously, the opportunity to have significant reimbursement here with the Signatera test at $3,500. So I wanted to hear about the time line for that process. And then on the other side, what does market share kind of look like in the deepest Personalis accounts? What does MRD penetration look like since you're kind of the first, I guess, alongside Personalis, the first payer to kind of come at this market here. So I wanted to hear about the deepest accounts that you're in and what that might imply for future market share.
I'll cover the market share. Jim can take reimbursement. I don't think we're prepared to kind of go too deep in reimbursement largely because they've got a road map, but Jim can cover it in a second. On the penetration side, we have been -- kind of been very judicious with who we let carry the MRD product within our world. We have hundreds of sales reps in the field across hereditary profiling and comprehensive genomic profiling and therapy selection. And so we've been very restrictive in terms of which of our accounts can order MRD and how and so on and so forth. So I would say most things are underpenetrated or not fully penetrated. And it really does come down to the balancing act of reimbursement across enough indications that you're able to generate an ASP high enough that you're not losing money on every test. And what's happened to them is they're just beginning -- that pendulum is starting to turn, and you'll see ASPs of this particular test will rise -- should rise pretty precipitously over the next year, and you'll kind of go from losing money to breaking even to then making money. And it's in that journey that we'll start to penetrate these accounts more fully, but they are kind of highly underpenetrated.
Yes. And then just quickly on reimbursement. NeXT Personal is reimbursed across kind of multiple use cases in breast, non-small cell lung cancer and IO monitoring. They've kind of laid out their road map for kind of additional indications and have a pretty robust kind of plan to bring additional indications to MolDX for approval. And so we think that they're set up, obviously, with what they have in place today, that's allowed us to kind of start ramping as they continue to get more indications, as Eric indicated, that allows us to kind of ungate additional volume and have more reps kind of selling. So they're making really good progress over the last 12 or 18 months from a reimbursement standpoint, and we anticipate that continuing as they submit for additional indications.
Our next question comes from the line of Subbu Nambi from Guggenheim.
This is Ricki on for Subbu. Most of the focus has been on MRD, so maybe something that hasn't been asked about NeXT Dx. Is there anything we should be thinking about in terms of that NeXT Dx clinical therapy selection test? Where does it fit in the portfolio? And is it additive or competitive with xT, xR?
I think I'll just quickly say, I think the portfolio at this point is just kind of holistically complementary. And now I think getting kind of very complete or post the closing of Personalis will be very complete. You have this kind of range of assays from best-in-class, am I at risk of getting cancer to best-in-class? I have cancer, how should I be treated? Whether that's from a tissue biopsy or a liquid biopsy to I'm post treatment and I need to be monitored and across a variety of subtypes of indications, what's the best test to order for that monitoring and for that early detection of recurrence? And so we just have a really incredible portfolio. Obviously, in our world, I think that portfolio is -- with this acquisition is really as good as I guess, the only place that we still have work to do is obviously on the MRD tumor-naive side, where we're just earlier in that game. And so we'll continue to try to make investments there to figure how to get those assays over time up to the same quality as what Personalis has been able to develop on the tumor-informed side. But it feels to us like we have a really strong portfolio across diagnostic, and we're in an interesting position in a world where these kind of tests will be ordered far more often, I think, across all the different categories we're in, both in cancer and then increasingly in noncancer. And so I would be kind of very surprised if a decade from now, we're not sequencing just multiples of the number of patients we sequence today clinically. And so you just -- in a world where we're going to generate an incredible amount of molecular data, it's going to become increasingly important for health and wellness and helping people fight disease. The data is going to become increasingly critical for biopharma to make decisions. You want the best portfolio, you want scale and you want to be in the best position to kind of win in that world, and we think this helps us, and we are. So I couldn't be more excited.
In interest of time, your last question comes from the line of Mark Massaro from BTIG.
Congrats on the deal. If I remember, I think Personalis has talked about scaling to gross margins of about 50% to 60% over time. Can you just share with us whether or not you agree with that margin target or if you think there could be upside to that? Also, would you mind just confirming that some of the reimbursement dollars for Medicare have trickled in? And then just to confirm last question that ImmunoID NeXT will remain part of the portfolio.
So I'm hesitant to kind of go too deep into some of the intricacies of Personalis' business before they provide some of that color. They are collecting dollars on the clinical side that is -- those funds are flowing. So there's certainly no issues there. In terms of long-term margin target, we'll provide more color on our call in a week. But obviously, we wouldn't have made the decision to acquire them if we didn't believe the margin profile was going to be super healthy. We're, I think, financially disciplined in that regard. We try to be conscientious when we're buying assets that we're paying the right price. And we -- as we said historically, we believe a business like ours that is 10-plus years old, should be generating EBITDA and cash flow and run a significant operating income, and we're on that journey. And so we don't intend to go backwards. And so for us, the timing, as we talked about a few minutes ago, was really important. And the reason we didn't do this a year or two ago is we wanted to be at the point in the curve where this was going to quickly turn into a really healthy business from a gross profit perspective and a margin perspective, and they're getting close to that.
That concludes our question-and-answer session. I will now be passing the call back over to Elizabeth Krutoholow, VP Investor Relations for closing remarks.
Thank you. Thanks, everyone, for joining us this morning. We look forward to speaking with you on our Q2 call on July 30.
Thank you, everyone, for attending this call. You may now disconnect.
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