Adaptive Biotechnologies(ADPT) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and detailed notes on accounting policies, revenue, investments, and equity Condensed Consolidated Balance Sheets Total assets decreased by $76.3 million due to reduced current assets, with liabilities and shareholders' equity also declining | Metric (in thousands) | June 30, 2024 | December 31, 2023 | Change ($) | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | :--------- | | Total Assets | $584,872 | $661,134 | $(76,262) | (11.5)% | | Total Current Assets | $351,552 | $410,188 | $(58,636) | (14.3)% | | Total Liabilities | $343,442 | $352,856 | $(9,414) | (2.7)% | | Total Shareholders' Equity | $241,430 | $308,278 | $(66,848) | (21.7)% | Condensed Consolidated Statements of Operations Q2 2024 revenue decreased 11.7% with improved net loss; H1 2024 revenue decreased 1.7% and net loss improved 11.2% | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Change ($) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Revenue | $43,190 | $48,926 | $(5,736) | (11.7)% | | Total Operating Expenses | $90,508 | $96,744 | $(6,236) | (6.4)% | | Net Loss Attributable to Adaptive Biotechnologies Corporation | $(46,222) | $(47,810) | $1,588 | 3.3% | | Net Loss Per Share (Basic & Diluted) | $(0.31) | $(0.33) | $0.02 | 6.1% | | Metric (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Change ($) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Revenue | $85,063 | $86,573 | $(1,510) | (1.7)% | | Total Operating Expenses | $181,143 | $191,584 | $(10,441) | (5.4)% | | Net Loss Attributable to Adaptive Biotechnologies Corporation | $(93,729) | $(105,509) | $11,780 | 11.2% | | Net Loss Per Share (Basic & Diluted) | $(0.64) | $(0.73) | $0.09 | 12.3% | Condensed Consolidated Statements of Comprehensive Loss The company reported a comprehensive loss of $46.3 million for Q2 2024 and $94.2 million for H1 2024, driven by net losses and investment changes | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Change ($) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | Net Loss | $(46,248) | $(47,811) | $1,563 | | Change in Unrealized Gains and Losses on Investments | $(76) | $1,012 | $(1,088) | | Comprehensive Loss Attributable to Adaptive Biotechnologies Corporation | $(46,298) | $(46,798) | $500 | | Metric (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Change ($) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | | Net Loss | $(93,781) | $(105,511) | $11,730 | | Change in Unrealized Gains and Losses on Investments | $(397) | $3,223 | $(3,620) | | Comprehensive Loss Attributable to Adaptive Biotechnologies Corporation | $(94,126) | $(102,286) | $8,160 | Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity decreased from $308.3 million to $241.4 million due to accumulated deficit, partially offset by share-based compensation | Metric (in thousands) | June 30, 2024 | December 31, 2023 | Change ($) | | :-------------------- | :------------ | :---------------- | :--------- | | Common Stock | $14 | $14 | $0 | | Additional Paid-In Capital | $1,479,832 | $1,452,502 | $27,330 | | Accumulated Other Comprehensive (Loss) Gain | $(182) | $215 | $(397) | | Accumulated Deficit | $(1,238,061) | $(1,144,332) | $(93,729) | | Total Shareholders' Equity | $241,430 | $308,278 | $(66,848) | - Share-based compensation expense contributed $27.3 million to additional paid-in capital during the six months ended June 30, 2024[16][190] Condensed Consolidated Statements of Cash Flows H1 2024 cash used in operating activities decreased significantly, while cash provided by investing activities also saw a substantial reduction | Metric (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Change ($) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net Cash Used in Operating Activities | $(55,656) | $(82,708) | $27,052 | (32.7)% | | Net Cash Provided by Investing Activities | $50,386 | $100,302 | $(49,916) | (49.8)% | | Net Cash Provided by Financing Activities | $74 | $2,141 | $(2,067) | (96.5)% | Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations for the financial statements, covering business, accounting policies, revenue, investments, leases, equity, and segment performance 1. Organization and Description of Business Adaptive Biotechnologies focuses on immune medicine, leveraging its platform to decode the adaptive immune system for disease diagnosis and treatment - The company's core business is advancing immune medicine through its proprietary platform to diagnose and treat diseases like cancer and autoimmune disorders[20][194] - The business is structured around two key areas: Minimal Residual Disease (MRD) and Immune Medicine, developing clinical products and services tailored to individual patients[20][194] 2. Significant Accounting Policies Financial statements are prepared under GAAP, requiring significant estimates, and the company is evaluating new accounting pronouncements - The condensed consolidated financial statements are prepared in accordance with GAAP, involving estimates and judgments in areas like revenue recognition, share-based compensation, and asset impairment[22][196] - The company is evaluating the impact of new FASB ASUs: ASU No. 2023-07 (Segment Reporting) effective for fiscal years beginning after December 15, 2024, and ASU No. 2023-09 (Income Taxes) effective for annual periods beginning after December 15, 2024[33][34][207][208] 3. Revenue Q2 2024 total revenue decreased 11.7% to $43.2 million due to lower Immune Medicine collaboration revenue, while MRD revenue grew strongly | Revenue Segment (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Change ($) | Change (%) | | :----------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | MRD Revenue | $35,284 | $25,882 | $9,402 | 36.3% | | Immune Medicine Revenue | $7,906 | $23,044 | $(15,138) | (65.7)% | | Total Revenue | $43,190 | $48,926 | $(5,736) | (11.7)% | | Revenue Segment (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Change ($) | Change (%) | | :----------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | MRD Revenue | $67,910 | $47,309 | $20,601 | 43.5% | | Immune Medicine Revenue | $17,153 | $39,264 | $(22,111) | (56.3)% | | Total Revenue | $85,063 | $86,573 | $(1,510) | (1.7)% | - As of June 30, 2024, the company could receive up to an additional $427.5 million in future milestone payments from regulatory approvals related to MRD data[36][210] - The Genentech collaboration agreement, entered in December 2018, has potential future payments of up to $1.8 billion, including regulatory, development, and commercial milestones, plus tiered royalties[37][211] 4. Deferred Revenue Deferred revenue, primarily from the Genentech Agreement, slightly decreased from $93.4 million to $91.1 million, reflecting revenue recognition | Metric (in thousands) | Amount | | :-------------------- | :----- | | Deferred revenue balance at December 31, 2023 | $93,423 | | Additions to deferred revenue during the period | $26,170 | | Revenue recognized during the period | $(28,524) | | Deferred revenue balance at June 30, 2024 | $91,069 | - Deferred revenue from the Genentech Agreement accounts for $11.8 million (current) and $36.5 million (non-current) as of June 30, 2024[215] - The majority of non-current deferred revenue is expected to be recognized over approximately four years from June 30, 2024[215] 5. Fair Value Measurements Financial assets measured at fair value totaled $273.3 million, primarily in Level 1 money market funds and Level 2 U.S. government treasury securities | Financial Assets (in thousands) | June 30, 2024 (Total) | December 31, 2023 (Total) | | :------------------------------ | :-------------------- | :------------------------ | | Money market funds | $32,308 | $45,123 | | Commercial paper | $10,922 | $10,630 | | U.S. government treasury securities | $220,947 | $264,426 | | Corporate bonds | $9,141 | $6,281 | | Total Financial Assets | $273,318 | $326,460 | - Level 1 securities are highly liquid money market funds, while Level 2 securities include U.S. government treasury and agency securities, commercial paper, and corporate bonds, valued based on observable market data[46][220] 6. Investments Short-term marketable securities, classified as available-for-sale, totaled $232.1 million with gross unrealized losses of $184 thousand | Short-term Marketable Securities (in thousands) | June 30, 2024 (Estimated Fair Value) | December 31, 2023 (Estimated Fair Value) | | :---------------------------------------------- | :----------------------------------- | :--------------------------------------- | | Commercial paper | $10,922 | $10,630 | | U.S. government treasury securities | $211,993 | $264,426 | | Corporate bonds | $9,141 | $6,281 | | Total | $232,056 | $281,337 | | Unrealized Losses (in thousands) | June 30, 2024 (Unrealized Loss) | | :------------------------------- | :------------------------------ | | Commercial paper | $(2) | | U.S. government treasury securities | $(179) | | Corporate bonds | $(3) | | Total | $(184) | - All impairment as of June 30, 2024, was attributed to factors other than credit loss, such as changes in interest rates[50][224] 7. Leases The company holds operating lease agreements with total undiscounted lease payments of $114.5 million as of June 30, 2024 | Lease Payments (in thousands) | Amount | | :---------------------------- | :----- | | Total Undiscounted Lease Payments | $114,505 | | Less: Imputed Interest Rate | $(20,329) | | Total Operating Lease Liabilities | $94,176 | | Less: Current Portion | $(9,806) | | Operating Lease Liabilities, less current portion | $84,370 | - Cash paid for lease liabilities was $7.0 million for the six months ended June 30, 2024, a slight increase from $6.9 million in the prior year[53][227] 8. Revenue Interest Purchase Agreement The Revenue Interest Purchase Agreement with OrbiMed is treated as debt, with a net liability of $132.1 million and an effective interest rate of 8.2% - The Revenue Interest Purchase Agreement is accounted for as debt at amortized cost using the effective interest rate method[55][229] - The effective interest rate as of June 30, 2024, was 8.2%[56][230] | Metric (in thousands) | Amount | | :-------------------- | :----- | | Revenue interest liability, net at December 31, 2023 | $130,660 | | Interest expense | $5,689 | | Revenue interest payable | $(4,267) | | Revenue interest liability, net at June 30, 2024 | $132,082 | 9. Commitments and Contingencies The company is subject to ordinary legal claims but has no material legal proceedings or incurred costs from indemnification agreements - No material legal proceedings were pending as of June 30, 2024[59][233] - Indemnification agreements with directors and executive officers may require unlimited future payments, but no material costs have been incurred[60][234] 10. Shareholders' Equity As of June 30, 2024, the company had 147,462,201 shares of common stock outstanding, with increased reserves for equity incentive plans - As of July 29, 2024, 147,472,201 shares of common stock were outstanding[2][176] - The 2019 Equity Incentive Plan and Employee Stock Purchase Plan reserves increased by 7,254,113 shares and 1,450,822 shares, respectively, on January 1, 2024[61][235] 11. Equity Incentive Plans Stock options outstanding decreased slightly, nonvested restricted stock units increased, and total share-based compensation expense was $27.3 million for H1 2024 | Stock Option Activity (Six Months Ended June 30, 2024) | Shares Subject to Outstanding Stock Options | | :----------------------------------------------------- | :------------------------------------------ | | Outstanding at December 31, 2023 | 12,875,045 | | Granted | 1,008,364 | | Forfeited | (696,147) | | Expired | (319,633) | | Exercised | (45,900) | | Outstanding at June 30, 2024 | 12,821,729 | | Restricted Stock Unit Activity (Six Months Ended June 30, 2024) | Restricted Stock Units Outstanding | | :-------------------------------------------------------------- | :--------------------------------- | | Nonvested outstanding at December 31, 2023 | 9,669,460 | | Granted | 5,406,574 | | Forfeited | (2,019,499) | | Vested | (2,334,037) | | Nonvested outstanding at June 30, 2024 | 10,722,498 | | Share-Based Compensation Expense (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------------------- | :----------------------------- | :----------------------------- | | Total Share-Based Compensation Expense | $27,256 | $32,016 | 12. Restructurings The company incurred $8.9 million in restructuring costs in H1 2024, including $7.2 million in impairment charges, to align operations and consolidate workflows - Total restructuring costs for the six months ended June 30, 2024, were $8.9 million[84][258] - Impairment charges of $7.2 million were recognized, with $1.1 million related to right-of-use assets, $3.3 million to laboratory equipment and leasehold improvements, and $2.8 million to halted software enhancements[84][258] 13. Net Loss Per Share Attributable to Adaptive Biotechnologies Corporation Common Shareholders Basic and diluted net loss per share was $(0.31) for Q2 and $(0.64) for H1 2024, with all potential common stock equivalents being anti-dilutive | Metric | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :----------------------------- | | Net Loss Per Share (Basic & Diluted) | $(0.31) | $(0.64) | | Anti-Dilutive Common Stock Equivalents | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :------------------------------------- | :------------------------------- | :----------------------------- | | Stock options outstanding | 13,055,050 | 13,070,461 | | Nonvested restricted stock units outstanding | 11,174,598 | 10,757,897 | | Maximum nonvested market-based restricted stock units outstanding eligible to be earned | 3,771,579 | 3,159,668 | | Total | 28,001,227 | 26,988,026 | 14. Segment Information In 2024, the company realigned into MRD and Immune Medicine segments, with MRD's Adjusted EBITDA deficit significantly reduced and Immune Medicine's deficit increasing - The company operates in two segments: MRD (commercial diagnostics) and Immune Medicine (drug discovery)[265] | Segment (in thousands) | Three Months Ended June 30, 2024 (Adjusted EBITDA) | Three Months Ended June 30, 2023 (Adjusted EBITDA) | Change ($) | Change (%) | | :--------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------- | :--------- | | MRD Adjusted EBITDA | $(11,289) | $(23,079) | $11,790 | (51)% | | Immune Medicine Adjusted EBITDA | $(7,033) | $1,264 | $(8,297) | (656)% | | Segment (in thousands) | Six Months Ended June 30, 2024 (Adjusted EBITDA) | Six Months Ended June 30, 2023 (Adjusted EBITDA) | Change ($) | Change (%) | | :--------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------- | :--------- | | MRD Adjusted EBITDA | $(28,548) | $(49,465) | $20,917 | (42)% | | Immune Medicine Adjusted EBITDA | $(13,960) | $(6,163) | $(7,797) | 127% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, condition, and outlook, detailing revenue drivers, expense trends, restructuring impacts, and liquidity Overview Adaptive Biotechnologies, an immune medicine company, reported a slight revenue decrease and improved net loss for H1 2024, maintaining a strong cash position - The company's immune medicine platform leverages proprietary technologies to decode the adaptive immune system for disease diagnosis and treatment, with commercial products in MRD (clonoSEQ) and Immune Medicine (Adaptive Immunosequencing, Genentech collaboration)[101][275] | Metric (in thousands) | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :----------------------------- | | Revenue | $43,200 | $85,100 | | Net Loss Attributable to Adaptive Biotechnologies Corporation | $(46,200) | $(93,700) | | Cash, Cash Equivalents and Marketable Securities (as of June 30, 2024) | $291,900 | N/A | Restructurings Restructuring plans in H1 2024 resulted in $8.9 million in costs, including $7.2 million in impairment charges for long-lived assets and leased space - Restructuring plans in H1 2024 led to workforce reductions, asset impairments, and consolidation of R&D workflows[102][276] | Metric (in thousands) | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :----------------------------- | | Restructuring Costs | $7,900 | $8,900 | | Impairment Charges | $7,200 | $7,200 | Segment Information In 2024, the company reorganized into MRD and Immune Medicine segments, with performance evaluated by the CEO based on revenue and Adjusted EBITDA - The company's business is now organized into two reporting segments: MRD and Immune Medicine, based on market opportunity in commercial diagnostics and drug discovery, respectively[103][277] - The CEO, as the chief operating decision maker, reviews operating results and financial information at the segment level to make resource allocation decisions[25][199] Components of Results of Operations This section outlines the various components of the company's results of operations, including revenue, cost of revenue, and operating expenses Revenue Revenue is derived from MRD diagnostic and research services and Immune Medicine services, with MRD revenue expected to increase long-term - MRD revenue sources include clonoSEQ reports for clinical customers, MRD sample testing for biopharmaceutical/academic institutions, and international technology transfers[104][278] - Immune Medicine revenue sources include Adaptive Immunosequencing services for biopharmaceutical/academic customers and collaboration agreements, notably with Genentech[104][278] - MRD revenue is expected to increase long-term, while Immune Medicine revenue is expected to decrease short-term due to the Genentech Agreement[104][105][278][279] Cost of Revenue Cost of revenue includes materials, personnel, and facility costs, expected to increase in absolute dollars long-term but decrease per sample - Cost of revenue components include materials, personnel, shipping, equipment, and allocated facility costs[106][280] - Long-term, cost of revenue is expected to increase in absolute dollars but decrease per sample due to improved laboratory utilization, automation, and value engineering[106][280] Research and Development Expenses R&D expenses cover laboratory materials, personnel, and contract services, expected to decrease in the short term and as a percentage of revenue long term - R&D expenses include laboratory materials, personnel, equipment, allocated facility/IT costs, and contract services, supporting existing assays, new technologies, and the immune medicine platform[107][281] - Costs related to the Genentech Agreement and clinical/analytical validations for future products are included in R&D[107][281] - R&D expenses are expected to decrease in the short term and as a percentage of revenue in the long term[107][281] Sales and Marketing Expenses Sales and marketing expenses cover personnel, advertising, and customer education, expected to moderately increase short-term but decrease as a percentage of revenue long-term - Sales and marketing expenses cover personnel (sales, product management, marketing, reimbursement), advertising, customer education, and market analysis[108][282] - Short-term, these expenses are expected to moderately increase in absolute dollars, but long-term, they are projected to decrease as a percentage of revenue[108][282] General and Administrative Expenses General and administrative expenses include personnel, insurance, and legal fees, expected to moderately increase short-term but decrease as a percentage of revenue long-term - G&A expenses include personnel for executive, legal, finance, HR, and administrative functions, as well as insurance, external legal, accounting, and consulting fees[109][283] - G&A expenses are expected to moderately increase in the short term but decrease as a percentage of revenue in the long term[109][283] Interest Expense Interest expense is primarily associated with the revenue interest liability from the Purchase Agreement, with fluctuations in forecasted revenue prospectively impacting this expense - Interest expense includes costs from the revenue interest liability related to the Purchase Agreement and noncash interest from amortizing deferred issuance costs[110][284] - The effective interest rate method is used to amortize the obligation, and changes in forecasted revenue will impact future interest expense[110][284] Statements of Operations Data and Other Financial and Operating Data This section summarizes the company's statements of operations data and other key financial metrics for Q2 and H1 2024 and 2023 | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $43,190 | $48,926 | $85,063 | $86,573 | | Total Operating Expenses | $90,508 | $96,744 | $181,143 | $191,584 | | Loss from Operations | $(47,318) | $(47,818) | $(96,080) | $(105,011) | | Net Loss Attributable to Adaptive Biotechnologies Corporation | $(46,222) | $(47,810) | $(93,729) | $(105,509) | | Net Loss Per Share | $(0.31) | $(0.33) | $(0.64) | $(0.73) | | Adjusted EBITDA | $(21,446) | $(24,819) | $(49,626) | $(61,917) | Comparison of the Three Months Ended June 30, 2024 and 2023 Q2 2024 total revenue decreased 12% due to lower Immune Medicine collaboration revenue, while MRD revenue increased 36% and operating expenses decreased Revenue Total revenue decreased by $5.7 million (12%) to $43.2 million, with MRD revenue increasing 36% and Immune Medicine revenue decreasing 66% | Revenue (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :--------------------- | :---------- | :---------- | :---------- | :--------- | | Total MRD Revenue | $35,284 | $25,882 | $9,402 | 36% | | Total Immune Medicine Revenue | $7,906 | $23,044 | $(15,138) | (66)% | | Total Revenue | $43,190 | $48,926 | $(5,736) | (12)% | - clonoSEQ test volume increased by 36% to 18,520 tests in Q2 2024 from 13,665 tests in Q2 2023[115][289] Cost of Revenue Cost of revenue increased by $1.4 million (8%) to $19.3 million, driven by higher material and shipping costs, partially offset by reduced overhead | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Cost of Revenue | $19,317 | $17,910 | $1,407 | 8% | - Increase driven by $2.4 million in cost of materials ($1.4 million from inventory reserve, $1.0 million from increased sample volume) and $0.5 million in shipping[116][290] - Partially offset by a $2.7 million decrease in overhead costs due to reduced headcount and laboratory consolidation[116][290] Research and Development Research and development expenses decreased by $6.9 million (21%) to $25.4 million, mainly due to lower personnel costs and reduced drug discovery investments | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Research and Development | $25,353 | $32,237 | $(6,884) | (21)% | - Decrease primarily from a $3.9 million reduction in personnel costs and a $2.5 million decrease in materials and allocated production laboratory expenses[121][295] - Reduced investments in drug discovery (including Genentech collaboration) and TCR-Antigen Map development activities contributed to the decline[121][295] Sales and Marketing Sales and marketing expenses decreased by $3.6 million (15%) to $20.3 million, driven by reduced headcount and lower clonoSEQ marketing activities | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Sales and Marketing | $20,314 | $23,872 | $(3,558) | (15)% | - Decrease primarily due to a $3.0 million reduction in personnel costs and a $0.9 million decrease in marketing expenses[122][296] General and Administrative General and administrative expenses decreased by $4.4 million (20%) to $17.9 million, mainly due to reduced personnel, facility, and consulting costs | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | General and Administrative | $17,895 | $22,302 | $(4,407) | (20)% | - Decrease primarily from a $2.8 million reduction in personnel costs and a $0.7 million decrease in building, facility, and depreciation expenses[123][297] Impairment of Long-Lived Assets The company recognized $7.2 million in impairment charges for long-lived assets during Q2 2024 due to restructuring activities | Metric (in thousands) | 2024 | 2023 | Change ($) | | :-------------------- | :---------- | :---------- | :---------- | | Impairment of Long-Lived Assets | $7,205 | $0 | $7,205 | - The impairment was a direct result of various restructuring activities in 2024[124][298] Interest and Other Income, Net Interest and other income, net, increased by $0.2 million (4%) to $3.8 million, driven by higher net interest income and investment amortization | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Interest and Other Income, Net | $3,766 | $3,612 | $154 | 4% | - Increase attributed to higher interest rates and related yields on invested cash, cash equivalents, and marketable securities[125][299] Interest Expense Interest expense decreased by $0.9 million (25%) to $2.7 million, primarily due to a change in assumptions regarding the Purchase Agreement repayment timeframe | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Interest Expense | $(2,696) | $(3,605) | $909 | (25)% | - The decrease was attributable to a change in assumptions regarding the timeframe for full repayment of the Purchase Agreement[126][300] Segment Adjusted EBITDA Q2 2024 MRD Adjusted EBITDA deficit reduced by $11.8 million (51%), while Immune Medicine's deficit increased by $8.3 million (656%) due to reduced revenue | Segment (in thousands) | 2024 (Adjusted EBITDA) | 2023 (Adjusted EBITDA) | Change ($) | Change (%) | | :--------------------- | :--------------------- | :--------------------- | :---------- | :--------- | | MRD Adjusted EBITDA | $(11,289) | $(23,079) | $11,790 | (51)% | | Immune Medicine Adjusted EBITDA | $(7,033) | $1,264 | $(8,297) | (656)% | - MRD Adjusted EBITDA deficit reduction was driven by a $9.4 million increase in MRD revenue and operating expense reductions[127][301] - Immune Medicine Adjusted EBITDA deficit increase was primarily due to a $15.1 million reduction in Immune Medicine revenue, partially offset by operating expense reductions[127][301] Comparison of the Six Months Ended June 30, 2024 and 2023 H1 2024 total revenue decreased 2%, with MRD revenue up 44% and Immune Medicine revenue down 56%, while operating expenses decreased Revenue Total revenue decreased by $1.5 million (2%) to $85.1 million, with MRD revenue increasing 44% and Immune Medicine revenue decreasing 56% | Revenue (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :--------------------- | :---------- | :---------- | :---------- | :--------- | | Total MRD Revenue | $67,910 | $47,309 | $20,601 | 44% | | Total Immune Medicine Revenue | $17,153 | $39,264 | $(22,111) | (56)% | | Total Revenue | $85,063 | $86,573 | $(1,510) | (2)% | - clonoSEQ test volume increased by 38% to 35,560 tests in H1 2024 from 25,744 tests in H1 2023[128][302] Cost of Revenue Cost of revenue increased by $0.8 million (2%) to $37.4 million, driven by higher material and shipping costs, partially offset by reduced overhead | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Cost of Revenue | $37,368 | $36,591 | $777 | 2% | - Increase primarily from a $2.4 million increase in cost of materials ($1.7 million from increased sample volume, $0.7 million from inventory reserve) and $0.6 million in shipping[129][303] - Partially offset by a $4.0 million decrease in overhead costs due to reduced headcount and laboratory consolidation[130][304] Research and Development Research and development expenses decreased by $9.2 million (14%) to $55.6 million, mainly due to lower personnel costs and reduced drug discovery investments | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Research and Development | $55,598 | $64,838 | $(9,240) | (14)% | - Decrease primarily from a $4.1 million reduction in personnel costs and a $3.7 million decrease in materials and allocated production laboratory expenses[133][307] - Reduced investments in drug discovery (including Genentech collaboration) and TCR-Antigen Map development activities contributed to the decline[133][307] Sales and Marketing Sales and marketing expenses decreased by $3.5 million (8%) to $42.6 million, driven by reduced headcount, lower marketing activities, and decreased facility costs | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Sales and Marketing | $42,633 | $46,180 | $(3,547) | (8)% | - Decrease primarily due to a $3.3 million reduction in personnel costs and a $0.8 million decrease in marketing expenses[134][308] General and Administrative General and administrative expenses decreased by $5.6 million (13%) to $37.5 million, mainly due to reduced personnel, facility, insurance, and consulting fees | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | General and Administrative | $37,492 | $43,133 | $(5,641) | (13)% | - Decrease primarily from a $3.0 million reduction in personnel costs and a $2.0 million decrease in building, facility, and depreciation expenses[135][309] Impairment of Long-Lived Assets The company recognized $7.2 million in impairment charges for long-lived assets during H1 2024 due to restructuring activities | Metric (in thousands) | 2024 | 2023 | Change ($) | | :-------------------- | :---------- | :---------- | :---------- | | Impairment of Long-Lived Assets | $7,205 | $0 | $7,205 | - The impairment was a direct result of various restructuring activities in 2024[138][312] Interest and Other Income, Net Interest and other income, net, increased by $1.4 million (20%) to $8.0 million, driven by higher net interest income and investment amortization | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Interest and Other Income, Net | $7,988 | $6,636 | $1,352 | 20% | - Increase attributed to higher interest rates and related yields on invested cash, cash equivalents, and marketable securities[139][313] Interest Expense Interest expense decreased by $1.4 million (20%) to $5.7 million, primarily due to a change in assumptions regarding the Purchase Agreement repayment timeframe | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Interest Expense | $(5,689) | $(7,136) | $1,447 | (20)% | - The decrease was attributable to a change in assumptions regarding the timeframe for full repayment of the Purchase Agreement[140][314] Segment Adjusted EBITDA H1 2024 MRD Adjusted EBITDA deficit reduced by $20.9 million (42%), while Immune Medicine's deficit increased by $7.8 million (127%) due to reduced revenue | Segment (in thousands) | 2024 (Adjusted EBITDA) | 2023 (Adjusted EBITDA) | Change ($) | Change (%) | | :--------------------- | :--------------------- | :--------------------- | :---------- | :--------- | | MRD Adjusted EBITDA | $(28,548) | $(49,465) | $20,917 | (42)% | | Immune Medicine Adjusted EBITDA | $(13,960) | $(6,163) | $(7,797) | 127% | - MRD Adjusted EBITDA deficit reduction was primarily attributable to a $20.6 million increase in MRD revenue[141][315] - Immune Medicine Adjusted EBITDA deficit increase was primarily due to a $22.1 million reduction in Immune Medicine revenue, partially offset by operating expense reductions[141][315] Adjusted EBITDA Adjusted EBITDA, a non-GAAP measure, improved to $(49.6) million for H1 2024, used by management to evaluate business performance - Adjusted EBITDA is a non-GAAP measure that adjusts net loss for interest and other income, interest expense, income tax, depreciation and amortization, impairment costs, restructuring expense, and share-based compensation[142][316] | Metric (in thousands) | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :----------------------------- | | Net Loss Attributable to Adaptive Biotechnologies Corporation | $(46,222) | $(93,729) | | Adjusted EBITDA | $(21,446) | $(49,626) | - Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation from GAAP results[142][316] Liquidity and Capital Resources The company has an accumulated deficit of $1.2 billion but $291.9 million in cash, cash equivalents, and marketable securities, sufficient for the next 12 months - The company has an accumulated deficit of $1.2 billion as of June 30, 2024, and has historically incurred losses and negative cash flows from operations[146][320] - As of June 30, 2024, cash, cash equivalents, and marketable securities totaled $291.9 million, expected to fund operations for at least the next 12 months[146][320] - Future funding may include additional installments under the Purchase Agreement, equity or convertible debt sales, credit facilities, or other debt financing[146][320] Contractual Obligations No material changes to contractual obligations since December 31, 2023, with details on leases and the Revenue Interest Purchase Agreement provided in notes - No material changes to contractual obligations and commitments outside the ordinary course of business since December 31, 2023[148][322] - Information on lease agreements and the Revenue Interest Purchase Agreement is detailed in Note 7 and Note 8, respectively[148][322] Cash Flows H1 2024 net cash used in operating activities decreased to $55.7 million, while net cash provided by investing activities decreased to $50.4 million | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Used in Operating Activities | $(55,656) | $(82,708) | | Net Cash Provided by Investing Activities | $50,386 | $100,302 | | Net Cash Provided by Financing Activities | $74 | $2,141 | Operating Activities Cash used in operating activities decreased to $55.7 million for H1 2024, primarily due to a lower net loss and favorable changes in operating assets and liabilities - Cash used in operating activities was $55.7 million, a decrease from $82.7 million in the prior year[151][325] - Key drivers included a net loss of $93.8 million, offset by noncash adjustments like share-based compensation ($27.3 million) and impairment of long-lived assets ($7.2 million)[151][325] - Changes in operating assets and liabilities included a $4.8 million decrease in operating lease right-of-use assets and liabilities and a $3.5 million reduction in accounts payable[151][325] Investing Activities Cash provided by investing activities decreased to $50.4 million for H1 2024, mainly due to lower proceeds from maturities and reduced purchases of marketable securities - Cash provided by investing activities was $50.4 million, down from $100.3 million in the prior year[152][326] - This was primarily driven by $189.8 million in proceeds from marketable securities maturities, offset by $136.2 million in purchases of marketable securities[152][326] Financing Activities Cash provided by financing activities was $0.1 million for H1 2024, solely from proceeds from the exercise of stock options - Cash provided by financing activities was $0.1 million, a substantial decrease from $2.1 million in the prior year[153][327] - The entire amount was attributable to proceeds from the exercise of stock options[153][327] Net Operating Loss Carryforwards Utilization of NOL carryforwards may be limited by Section 382 rules, though no permanent federal limitations are expected, and a full valuation allowance was applied - Utilization of NOL carryforwards and credits is subject to Section 382 ownership change limitations[154][328] - No permanent limitations on federal NOLs are expected based on analysis through December 31, 2023[154][328] - A full valuation allowance was applied against net deferred tax assets as of December 31, 2023, as realizability was not more likely than not[154][328] Critical Accounting Policies and Estimates Financial statement preparation requires significant estimates in revenue recognition, interest imputation, goodwill, and asset impairment, with no material changes reported - Critical accounting policies and estimates include revenue recognition, imputing interest for the Purchase Agreement, goodwill, and recoverability/impairment of long-lived assets[155][329] - These estimates involve complex issues, historical analysis, future trend predictions, and are subject to change[155][329](index=329&type=chunk] - There have been no material changes to these critical accounting policies and estimates since the Annual Report on Form 10-K for the year ended December 31, 2023[155][329](index=329&type=chunk] Recent Accounting Pronouncements The company is evaluating the impact of new accounting pronouncements, ASU No. 2023-07 (Segment Reporting) and ASU No. 2023-09 (Income Taxes) - The company is evaluating the impact of ASU No. 2023-07 (Segment Reporting) and ASU No. 2023-09 (Income Taxes) on its consolidated financial statements[33][34][156][207][208][330] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on cash and marketable securities, with no material changes or derivative use reported - The primary market risk exposure is interest rate risk, affecting cash, cash equivalents, and marketable securities[157][331] - No material changes to market risks were reported as of June 30, 2024, compared to the Annual Report on Form 10-K for 2023[157][331] - The company does not use derivative financial instruments for trading or managing interest rate risk[157][331] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting - Disclosure controls and procedures were effective as of June 30, 2024[158][332] - No material changes to internal control over financial reporting occurred during the three months ended June 30, 2024[158][332] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any material legal proceedings as of June 30, 2024, though routine claims are subject to ordinary course - The company is not a party to or aware of any material legal proceedings as of June 30, 2024[159][333] - Litigation, regardless of outcome, can negatively impact the company due to defense costs and diversion of management resources[159][333] Item 1A. Risk Factors Investing in the company's common stock involves a high degree of risk, with no material changes to previously disclosed risk factors reported - Investing in the common stock involves a high degree of risk due to a rapidly changing environment[160][334] - No material changes to the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2023, were reported[160][334] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable - Not applicable[161][335] Item 3. Defaults Upon Senior Securities This item is not applicable - Not applicable[161][335] Item 4. Mine Safety Disclosures This item is not applicable - Not applicable[161][335] Item 5. Other Information Stacy Taylor adopted a Rule 10b5-1 trading plan on May 23, 2024, for the sale of up to 26,922 shares of common stock - Stacy Taylor, SVP, General Counsel, and Corporate Secretary, adopted a Rule 10b5-1 trading plan on May 23, 2024[162][336] - The plan allows for the sale of up to 26,922 shares of common stock until December 31, 2024[162][336] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, officer certifications, and XBRL documents - Exhibits include Amended and Restated Articles of Incorporation and Bylaws[163][337] - Certifications from the Principal Executive Officer and Principal Financial Officer are included pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350[165][166][167][168][339][340][341][342] - Inline XBRL Instance Document and Taxonomy Extension Schema are also filed[169][170][171][343][344][345] Signatures The report is duly signed on August 1, 2024, by Chad Robins, CEO, and Kyle Piskel, CFO, confirming their authorization - The report was signed on August 1, 2024[174][348] - Signatories include Chad Robins, Chief Executive Officer and Director, and Kyle Piskel, Chief Financial Officer[174][348]