Adaptive Biotechnologies Corporation (NASDAQ:ADPT) Q3 2022 Earnings Conference Call November 3, 2022 4:30 PM ET Company Participants Karina Calzadilla - Head, IR Chad Robins - Co-Founder, CEO Tycho Peterson - CFO Harlan Robins - Chief Scientific Officer Nitin Sood - Head of MRD Sharon Benzeno - Head, Immune Medicine Conference Call Participants David Westenberg - Piper Sandler Operator Good day, and thank you for standing by. Welcome to the Adaptive Biotechnologies Third Quarter Financial Results Conference ...

Financial Performance - Revenue for the three months ended September 30, 2022, was $47.83 million, representing a 21.5% increase from $39.47 million in the same period of 2021[10] - The company reported a net loss per share of $0.32 for the three months ended September 30, 2022, compared to a loss of $0.40 per share in the same period of 2021[10] - The net loss attributable to Adaptive Biotechnologies Corporation for the three months ended September 30, 2022, was $45.28 million, compared to a net loss of $55.90 million in the same period of 2021, reflecting a 19% improvement[10] - For the nine months ended September 30, 2022, the net loss was $160,199,000, compared to a net loss of $145,941,000 for the same period in 2021[20] - The net loss attributable to Adaptive Biotechnologies Corporation for the nine months ended September 30, 2022, was $160.1 million, compared to a net loss of $145.8 million for the same period in 2021[135] Revenue Breakdown - Immune Medicine revenue for the three months ended September 30, 2022, was $27.88 million, up from $23.62 million in the same period of 2021, representing a growth of 18.8%[36] - MRD service revenue for the three months ended September 30, 2022, was $19.95 million, compared to $14.35 million in the same period of 2021, reflecting a growth of 39.4%[36] - The company’s total revenue for the nine months ended September 30, 2022, was $130.11 million, an increase of 11.7% from $116.41 million for the same period in 2021[36] - Immune Medicine revenue increased by $4.3 million to $71.1 million, driven by an $8.5 million rise in revenue from biopharmaceutical and academic customers[125] - MRD revenue increased by $9.4 million to $59.0 million, primarily due to a $10.7 million increase in revenue from clonoSEQ reports[125] Expenses and Costs - Total operating expenses for the three months ended September 30, 2022, were $93.26 million, a decrease of 2.6% compared to $95.79 million in the same period of 2021[10] - Research and development expenses for the nine months ended September 30, 2022, were $110.53 million, slightly higher than $107.64 million for the same period in 2021[10] - Cost of revenue for the three months ended September 30, 2022, was $14.91 million, compared to $14.19 million in the same period of 2021[112] - General and administrative expenses increased by $14.9 million to $66.1 million, primarily due to an $8.3 million rise in building and facility-related expenses and a $4.5 million increase in personnel costs[131] Cash and Liquidity - Cash and cash equivalents increased to $217.55 million as of September 30, 2022, up from $139.07 million at December 31, 2021[8] - Total current assets rose to $564.38 million as of September 30, 2022, compared to $402.75 million at December 31, 2021, indicating a significant liquidity improvement[8] - Cash, cash equivalents, and marketable securities as of September 30, 2022, totaled $527.8 million, down from $570.2 million at the end of 2021[97] - Cash used in operating activities was $153.9 million for the nine months ended September 30, 2022, primarily due to a net loss and changes in operating assets and liabilities[142] Shareholder Equity and Stock Options - As of September 30, 2022, the total shareholders' equity was $487,814,000, with a net loss of $45,319,000 for the quarter[16] - The company had reserved a total of 37,501,134 shares of common stock for future issuance, including stock options and restricted stock units[70] - Stock options outstanding increased to 13,789,307 as of September 30, 2022, from 12,778,984 at December 31, 2021, representing an increase of about 7.9%[76] - The weighted-average exercise price of stock options outstanding as of September 30, 2022, was $17.05, with an aggregate intrinsic value of $4,183,000[76] Agreements and Collaborations - The collaboration agreement with Genentech includes a non-refundable upfront payment of $300 million and potential total payments exceeding $1.8 billion based on regulatory, development, and commercial milestones[38] - The company is focused on leveraging its immune medicine platform to develop and commercialize products, particularly in the Minimal Residual Disease market[5] - The company is leveraging its collaboration with Microsoft to develop the TCR-Antigen Map and related diagnostic products, enhancing its research capabilities[95] Future Outlook - The company expects revenue to increase over the long term, although fluctuations may occur due to various uncertainties, including the impact of the COVID-19 pandemic[104] - As of September 30, 2022, the company could receive up to an additional $370.5 million in milestone payments if certain regulatory approvals are obtained by customers' therapeutics[36] - The company plans to utilize existing cash primarily for research and development initiatives and capital expenditures related to laboratory space and equipment[136]

Financial Data and Key Metrics Changes - Total revenue for Q2 2022 was $43.7 million, a 13% increase from $38.5 million in the same period last year [19] - MRD revenue, which includes clonoSEQ clinical testing and MRD pharma partnerships, was $21.3 million, up 38% year-over-year [19] - Immune Medicine revenue was $22.4 million, down 3% from the previous year [20] - Net loss for Q2 2022 was $52.1 million compared to $49.3 million in the prior year [22] - Full year revenue guidance is reiterated at $185 million to $195 million, with expectations of a 50-50 contribution from MRD and Immune Medicine [23] Business Line Data and Key Metrics Changes - MRD business saw clinical volumes grow by 53% year-over-year, with nearly 9,000 tests delivered [8] - clonoSEQ clinical testing volumes increased by 53% to 8,998 tests delivered [20] - Immune Medicine business experienced significant growth of 123% from pharma research partners [8] - Revenue from MRD partnerships recognized a $1 million regulatory milestone [20] Market Data and Key Metrics Changes - The company secured positive Medicare coverage for clonoSEQ in Diffuse Large B-Cell Lymphoma (DLBCL), which is expected to enhance market penetration [8][12] - 72% of the volume growth in MRD testing came from established institutional accounts [11] - The company plans to expand into DLBCL following the positive Medicare coverage decision, which is expected to contribute to growth in 2023 and beyond [12] Company Strategy and Development Direction - The company is focusing on pharma partnerships and drug discovery collaborations to drive growth in the Immune Medicine business [15] - A decision was made to defer the commercialization of T-Detect until multiple signals with strong data are available [9] - The strategy includes solidifying leadership in MRD testing and increasing penetration in existing accounts [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 2022 goals in both MRD and Immune Medicine businesses [7] - The company is exploring non-dilutive financing opportunities to extend its cash runway while managing expenses prudently [9][24] - Management expects to provide more details on the path to profitability in the back half of the year [33] Other Important Information - The company ended the quarter with approximately $450 million in cash and equivalents, providing around two years of runway [24] - The company is focused on improving operational efficiencies and managing investments [23] Q&A Session Questions and Answers Question: What led to the sharpening of focus on Immune Medicine? - Management acknowledged that the near-term path of commercializing T-Detect disease by disease is challenging and costly, leading to a focus on pharma partnerships [28] Question: When can we expect updates on high-value drug discovery opportunities? - Management indicated that updates will be provided as warranted, with a combination of press releases and disclosures as appropriate [30] Question: How quickly can DLBCL penetration be driven? - Management expects DLBCL to contribute to growth in the second half of 2023, emphasizing the need for physician education and guideline inclusion [37] Question: What is the status of non-dilutive financing discussions? - Management is exploring potential royalty-type deals and is not specifically tied to the T-MAP program [40] Question: What is the outlook for T-Detect and its commercial impact? - Management indicated that T-Detect is expected to contribute to the top line in a couple of years, focusing on leveraging data with pharma partners [50]

Financial Data and Key Metrics Changes - Total revenue for Q1 2022 was $38.6 million, a slight increase from $38.4 million in the same period last year [23][24] - Immune medicine revenue was $20.8 million, a 4% increase from the same period in 2021, while MRD revenue was $17.8 million, down 3% from the same period last year [24][25] - Net loss for Q1 2022 was $62.8 million, compared to a net loss of $40.6 million in Q1 2021 [27] Business Line Data and Key Metrics Changes - In the MRD business, clonoSEQ test volume grew by 45% year-over-year, with test deliveries increasing by 12% to 7,698 tests [9][11] - The immune medicine business generated approximately $21 million this quarter, with revenue from pharma partners using immunoSEQ and data from the TCR antigen map growing by 100% year-over-year [10][24] - The MRD business saw significant growth in ordering healthcare providers (53%) and unique patients tested (59%) compared to the prior year [11] Market Data and Key Metrics Changes - The community setting for MRD testing experienced growth of over 60% during the quarter [12] - The immune medicine business is expected to expand into multiple therapeutic areas beyond COVID, with new collaborations such as mapping T-cell responses to RSV for Johnson & Johnson's vaccine program [10][18] Company Strategy and Development Direction - The company has restructured its business to focus on two main areas: MRD and immune medicine, aiming for a more streamlined organization to fuel growth [7][8] - The strategy includes expanding into non-Hodgkin's lymphoma using ctDNA and enhancing customer experience through integration of clonoSEQ into ordering systems [12][19] - The company aims to launch at least one autoimmune indication by the end of 2023, focusing on high unmet needs in diseases like MS and Crohn's [22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the importance of achieving cash flow neutrality and is taking proactive steps to manage expenses while exploring non-dilutive cash flow opportunities [38][39] - The company is confident in achieving its full-year revenue guidance of $185 million to $195 million, with both MRD and immune medicine businesses contributing approximately equally [27][29] Other Important Information - Total operating expenses for Q1 2022 were $101.7 million, a 28% increase from the same quarter last year, driven by higher personnel costs and restructuring activities [25][26] - The company is on track to manage operating expenses to grow at lower rates than revenue due to restructuring efforts [28] Q&A Session Summary Question: Growth rate and factors affecting it - Management explained that the flat growth was impacted by lower MRD milestones and changes in Genentech amortization, which compressed growth figures [33] Question: Path to profitability - Management emphasized the importance of cash flow neutrality and proactive steps taken to manage expenses, with a clearer long-term plan expected later in the year [38] Question: Genentech private product specifications - Management detailed ongoing work to define specifications through successful proof-of-concept screens and additional patient studies [41] Question: Visibility in the field and access for sales reps - Management noted that in-person meetings are improving, with a current trend of 60% virtual visits [45] Question: Prioritization of autoimmune disease portfolio - Management clarified that MS and Crohn's are prioritized due to advanced signals and high unmet needs, while RA is further behind in sample collection [47] Question: ASP for clonoSEQ - Management indicated steady ASP growth for clonoSEQ, expecting it to reach $1,200 to $1,300 in the next two to three years [55] Question: Cash burn and future expectations - Management acknowledged higher cash burn in Q1 due to restructuring timing and seasonal factors, with expectations of reduced cash burn in the following quarters [57] Question: NHL assay commercialization timeline - Management confirmed plans to launch the NHL assay later this year, with ongoing validation and a clinical experience program already underway [59][60]

Revenue Performance - Revenue for the three months ended March 31, 2022, was $38.62 million, a slight increase from $38.44 million for the same period in 2021, representing a growth of 0.5%[13] - Total revenue for the three months ended March 31, 2022, was $38,620 thousand, a slight increase of $178 thousand or 0.5% compared to $38,442 thousand for the same period in 2021[113] - Immune Medicine revenue for the three months ended March 31, 2022, was $20.82 million, compared to $20.10 million in the same period of 2021, representing a growth of 3.5%[40] - MRD revenue for the three months ended March 31, 2022, totaled $17.80 million, a decrease of 2.9% from $18.34 million in the same period of 2021[40] - The company recognized $12.3 million in Immune Medicine collaboration revenue related to the Genentech Agreement during the three months ended March 31, 2022[43] - The company expects to recognize the current deferred revenue within 12 months and the non-current amounts over approximately four to five years[46] Operating Expenses - Total operating expenses for the three months ended March 31, 2022, were $101.69 million, up from $79.72 million in the same period of 2021, indicating an increase of 27.5%[13] - Research and development expenses for the three months ended March 31, 2022, were $37.84 million, compared to $33.77 million for the same period in 2021, an increase of 12.3%[13] - Sales and marketing expenses increased to $26.09 million for the three months ended March 31, 2022, from $20.60 million in the same period of 2021, representing a growth of 26.6%[13] - General and administrative expenses rose to $24.14 million for the three months ended March 31, 2022, compared to $14.94 million for the same period in 2021, an increase of 61.5%[13] - General and administrative expenses increased by $9.2 million to $24.1 million, primarily due to a $4.2 million rise in building and facility-related expenses and a $2.7 million increase in personnel costs, representing a 62% increase year-over-year[121] Net Loss and Financial Position - The net loss attributable to Adaptive Biotechnologies Corporation for the three months ended March 31, 2022, was $62.74 million, compared to a net loss of $40.64 million for the same period in 2021, reflecting an increase of 54.3%[13] - The company reported a comprehensive loss of $66.38 million for the three months ended March 31, 2022, compared to a comprehensive loss of $40.90 million for the same period in 2021, an increase of 62.5%[16] - The accumulated deficit as of March 31, 2022, was $781.63 million, up from $718.89 million at the end of 2021, indicating a rise of 8.7%[9] - The total shareholders' equity as of March 31, 2022, was $553.26 million, down from $604.10 million at the end of 2021, a decrease of 8.4%[9] - Cash used in operating activities increased to $64,453 thousand in Q1 2022 from $58,245 thousand in Q1 2021[21] - Cash, cash equivalents, and marketable securities as of March 31, 2022, were $500.7 million, down from $570.2 million as of December 31, 2021[97] Cash Flow and Investments - Cash provided by investing activities was $37.7 million, mainly from maturities of marketable securities totaling $101.0 million, offset by $60.2 million in purchases of marketable securities[128] - Cash provided by financing activities was $2.7 million, primarily from stock option exercises, a decrease from $14.6 million in the same period of 2021[129] - The company plans to utilize existing cash for commercial activities, R&D initiatives, and capital expenditures related to laboratory space and equipment[123] Workforce and Restructuring - The company incurred approximately $2.0 million in restructuring costs in March 2022, primarily related to workforce reduction of about 100 employees[87] - The company reduced its workforce by approximately 100 employees as part of a restructuring plan aimed at reducing operating costs and aligning with strategic market opportunities[98] Future Outlook and Strategic Plans - The company has plans to expand its T-Detect product line with the goal of developing a multi-disease universal diagnostic test[5] - The company expects to launch T-Detect Lyme during the Lyme season of 2022, expanding its diagnostic product offerings[95] - The company anticipates revenue growth in the long term, particularly as the mix shifts towards clinical diagnostics and drug discovery[105] - The company expects research and development expenses to decrease as a percentage of revenue in the long term, although fluctuations may occur[108] Market and Customer Insights - Revenue from significant customers included 33.8% from Genentech and Roche Group in Q1 2022, down from 42.1% in Q1 2021[32] - The company has successfully expanded coverage for the clonoSEQ diagnostic test through agreements with Medicare and several major private health insurers in the U.S.[97] - clonoSEQ test volume reached 6,850 reports for the three months ended December 31, 2021, up from 5,300 reports for the same period in 2020, representing a year-over-year increase of 29.2%[103] - clonoSEQ test volume increased by 45% to 7,698 tests delivered in the three months ended March 31, 2022, compared to 5,300 tests in the same period in 2021[114]

Financial Data and Key Metrics Changes - Total revenue for 2021 was $154.3 million, a 57% increase from $98.4 million in 2020 [25] - Fourth quarter revenue was $37.9 million, representing a 26% increase from $30.2 million in the same period last year [21] - Net loss for Q4 2021 was $61.4 million compared to a net loss of $44.6 million in Q4 2020 [24] - Adjusted EBITDA for Q4 2021 was a loss of $44.9 million compared to a loss of $34.6 million in the same period last year [24] Business Line Data and Key Metrics Changes - The MRD business saw a 48% increase in tests delivered, totaling 22,516 tests in 2021 [13] - Sequencing revenue in 2021 was $78.9 million, a 90% increase from 2020 [25] - Development revenue for 2021 grew to $75.4 million, up 32% from the previous year [25] Market Data and Key Metrics Changes - The company reported that 28% of all tests were done in blood, indicating a significant market penetration [13] - The clonoSEQ assay is currently being used in 155 active trials by more than 60 pharma companies [15] Company Strategy and Development Direction - The company plans to report revenues based on two key business areas: MRD and immune medicine [8] - There is a focus on expanding the sales team to deepen penetration in academic centers and increase reach into the community [14] - The company aims to improve autoimmune signals and increase sensitivity while maintaining high specificity in diagnostics [19] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in overcoming last year's headwinds and accelerating growth in 2022 [14] - The company expects full-year revenue for 2022 to be in the range of $185 million to $195 million, with a mid-40% growth in sequencing revenues [27] - Q1 2022 is expected to be the low watermark due to seasonality and Omicron impacts, with growth anticipated in the latter half of the year [28] Other Important Information - The company ended 2021 with approximately $570 million in cash and no debt [26] - The T-Detect COVID test received emergency use authorization from the FDA, marking a significant milestone [11] Q&A Session Summary Question: 2022 revenue guidance and its basis - Management indicated that the guidance reflects variability in revenues associated with milestones and the changing dynamics of the pandemic [32] Question: Demand for T-Detect COVID and its significance - Management acknowledged the importance of the T-Detect COVID test but noted it would not significantly impact the revenue profile for 2022 [34] Question: Internal structure changes regarding MRD and immune medicine - The company is aligning its organizational structure to better focus on MRD and immune medicine opportunities [39] Question: Clinical testing volumes and expectations - Management expects strong growth in clinical testing volumes in 2022, supported by an expanded sales team [44] Question: Progress on T-Detect for Crohn's and celiac diseases - The company is planning to launch a test for IBD next year, with a focus on high specificity and increasing sensitivity [62]