Adaptive Biotechnologies Corporation (ADPT) Earnings Call Transcript & Summary

Okay. Good afternoon. We're going to go ahead and get started. I'm Tycho Peterson from the life science team. It's my pleasure to introduce our next company this afternoon, Adaptive Biotechnologies. We'll do a breakout right after in the Olympic Room. And with that, let me turn it over to Chad Robins.

Thanks, Tycho. I appreciate the introduction. I'm Chad Robbins. I'm the CEO and Cofounder of Adaptive Biotechnologies. My brother, Harlan, and I started Adaptive about a decade ago on the premise that if we could read and translate the genetics of the immune system, we could create clinical products to diagnose and treat disease. I remind you of the safe harbor. We believe that the immune system represents the largest clinical applications of genomics. The reason for that is simple. It's because your immune system both detects and treats almost all diseases in the exact same way, whether it be an autoimmune disorder, infectious disease or a cancer. And if we can just learn to decode this universal language of the adaptive immune system, we can transform medicine across multiple disease states. So the immunome -- I just want to give one quick context slide on the science. The immunome is actually orders of magnitude larger than the human genome. It needs to be this way because our bodies have to protect us against a vast array of potential diseases that we may encounter. And actually, to give you a sense of scale, our immune repertoire genes, in any one person, there's over 100 million, where there's only 30,000 genes in the human genomes or the genes that we're born with. But because our immune systems are almost entirely different between people, there needs to be trillions of these immune receptors in the population to be able to seek and destroy these signals of disease, which we call antigens. And our immune system has actually evolved over hundreds of millions of years to be this nearly perfect diagnostic. It's extremely sensitive and it's specific to the disease. It works on this concept of clonal expansion. It's systemic, meaning those signal floats around in the blood. And it's persistent, meaning the signal stays in your long-term memory. So essentially, if we -- if any small perturbation to the body, an affront or attack on the body, that signal winds up becoming amplified in the blood. And that's what we're learning how to read. It's actually very, very difficult to do this. But this is exactly the technology that we pioneered. It's what we do and it's what differentiates Adaptive as a company. So in order to do this, we built an immune medicine platform to harness this inherent biology or these natural properties of the immune system to create high-margin, patient-specific, immune-driven clinical products. Specifically, our immune medicine platform is designed to sequence, map and characterize immune receptors. Our first 2 products, one is in the life sciences research space and the other is a clinical diagnostic in blood cancer, use the ability just to sequence or to specifically quantitate the DNA of each immune receptor in a sample. Our first product is a life science tool for immunosequencing, and immunosequencing is a term that we coined. And this product is being used by biotech and pharma companies and academics to do an immune profiling across multiple diseases. Our first clinical diagnostic product, clonoSEQ, uses the same ability to sequence immune receptors to track a clone or set of clone in certain blood cancers for clinical management of these diseases. Moving now to our pipeline. We partner with Microsoft to be able to read what our immune system is naturally reading and create a map of our immune system -- our T-cell receptors to the disease-specific antigen so that we can then leverage this map for the early and accurate detection of many diseases, potentially all at the same time. The prosecution of our platform into drug discovery, we started by partnering with Genentech in cell therapy in cancer. And we're developing an entire pipeline of cell therapies across 2 different strategies, which I'll share with you in a minute. This represents one of the largest total addressable market opportunities in immune-driven medicine, which is $48 billion overall. It's broken down into $1 billion of life science research, comprised primarily from biotech and pharma companies using our technology. In clinical diagnostics, it's a $16 billion opportunity. That's $4.5 billion is clonoSEQ for minimal residual disease detection monitoring, and the other $12 billion represents our first 2 representative indications for immunoSEQ Dx, which is our partnership with Microsoft. And then our drug discovery efforts in cell therapy represents just over a $31 billion opportunity, which is comprised of both our shared products and our personalized products. So as a recently public company, we have clearly laid out a set of milestones across both our first 2 products and our pipeline in the short term that's going to enable us to achieve our long-term goals. I'm pleased to say, in 2019, we hit each one of these milestones. For immunoSEQ, we completed the development of the upgrade immunoSEQ assay, both in our own lab and is a kitted version for a distributed product to core labs, CROs and other distribution channels. For our clonoSEQ product, we achieved CLEP approval for patients in New York State. We filed our second indication to the FDA is a life cycle expansion to CLL. And importantly, we filed that in the blood. And we've covered one of the largest and fastest ramps in diagnostic history. We were covered by Medicare and 5 of the largest private payers in the country. For immunoSEQ Dx, we generate our first clinical signal, and we established a proof of concept in chronic Lyme -- in acute Lyme disease. For cellular therapy, we delivered a data package for our first selected T-cell receptor candidate for cell therapy. Using this same construct, I'm pleased to outline our key milestones for 2020. In immunoSEQ, the upgraded chemistry, we are launching this quarter as a research-use-only kit. In clonoSEQ, we actually last week announced in a press release that we achieved our first milestone, which we achieved coverage by CMS for CLL. We're planning to launch this indication after we get clearance by the FDA expected around June. We're also going to file another extension, life cycle extension into a new sample type by filing ALL in the blood. For our immunoSEQ Dx product, we're going to -- clinical diagnostic pipeline, we're going to generate a second clinical diagnostic signal. And for our first signal, we're going to file this with the FDA by the end of the year. For our drug discovery efforts with Genentech, we are providing all the supporting data packages to be able to support an IND filing for the shared product by end of 2020. So now that I've walked through our key milestones, I'm going to take a deeper dive into each one of our product areas, then I'm going to give a snapshot of our financial highlights, and then we'll talk about briefly the opportunities for growth of the platform. So starting with immunoSEQ. Life sciences research is the core -- is at the core of everything we do. In 2010, we launched the product as a tool, and it's being used by over 2,000 academic researchers and over 165 pharma companies in over 100 -- 650 clinical trials to empower the discovery of new prognostic and diagnostic biomarkers in cancer and other immune-mediated diseases. And importantly, we are working to analytically validate the improved version of immunoSEQ so that both we and our customers can apply it to clinical trials and then use the data to be able to support the validation of future clinical tests. In fact, we're actually doing this right now with our immunoSEQ Dx platform, where immunoSEQ will be a clinical-grade diagnostic that will be the delivery mechanism for our Microsoft deal, our immunoSEQ Dx. Our strategic goal in immunoSEQ is simply to be the gold standard for immunosequencing. We're focused on achieving this goal by moving into larger later-stage clinical trials, expanding beyond just oncology, launching the new kit that will work on any sample type on any protocol, including FFPE, and we're going to be partnering to expand our reach with new distribution channels and into new geographies. But ultimately, we're a clinical products company, and we're very pleased on the progress that we've been making on our first clinical diagnostic product, clonoSEQ, for minimal residual disease detection in certain blood cancers. So just -- to set up context, there's a whole new class of therapies in these blood cancers that are working better than ever before. They're just showing greater efficacy. And because of this, patients are living longer with these diseases. And because patients are living longer with these diseases, clinicians need a new set of clinical management tools to be able to manage their patients. And also, pharma needs a new set of tools to determine therapeutic efficacy for faster drug approvals. In late 2018, clonoSEQ became the first FDA-cleared test for monitoring MRD in multiple myeloma and ALL from bone marrow samples. In less than 1 year, we've secured an unprecedented number of coverage policies, which I'll discuss in a minute, but the key takeaway now is that we have over 175 million lives under medical policy. The test is actually quite simple. We're using that ability to seek -- we're using the neutral tag of an immune receptor to simply count cancer cells. We're not looking at any derivative of the cancer. We're looking at the cancer of the immune system itself, and we're actually using it as a tag to count cancer cells. So in doing this, I mean, I've been attending ASH for the last 10 years, and it was truly remarkable, if any of you were there, to see the amount of data supporting the benefit of accurately counting cancer cells to predict outcomes for patients. MRD is emerging at a tipping point. The data emerging from this -- from these studies are showing, time and time again, that your prognosis is worse for patients who have a higher disease burden than it is in those who have a lower disease burden and especially if that disease burden goes up over time. And we can simply count, at a very accurate and very sensitive level, that disease burden. But not only can MRD determine the depth of response to a treatment, it can also be used to determine treatment strategies. For example, based on data we're seeing, it's now possible for MRD to decide whether or not to transplant a patient, or whether or not to continue maintenance therapy. A lot of these maintenance therapies have high toxicities and have adverse events associated with them or not. Therefore, if a patient -- if we can no longer see their cancer cells, one of the questions we're answering is: Can we take that patient off of that maintenance therapy? Conversely, if we now see that cancer cells starting to reemerge, can we put them back on those therapy? So to be able to expand the usage for clonoSEQ, we're continually generating data throughout -- with our biomarker -- with our biopharma partner trials, with investigator-sponsored protocols, and we're developing a patient registry to cure a real-world evidence. So if you're with me now that we've established MRD will be an important part of clinical management tool for the clinicians, let me tell you why clonoSEQ, specifically, is poised to capture a disproportionate share of this market. So in addition to having a very strong intellectual property position, clonoSEQ is the only MRD test that has gone through the prior -- gone through the rigor of FDA validation, which supports our sensitivity, reliability and reproducibility of MRD testing with clonoSEQ. So the top thought leaders around the world in investigator-sponsored trials use it as the only FDA-validated test. And it's becoming the test of choice for any trials by pharma in which MRD is a clinical endpoint. As briefly mentioned, we already have significant reimbursement in place, and we have more to come. And we're becoming -- this is really important is that we're becoming integrated into the workflow of different institutions. And this is an incredibly high barrier to entry because not only do you have to assign an account and get integrated as a workflow, to be up and trained winds up becoming a high barrier, not only to get in, but once you're in, it's extremely sticky. So now that I've outlined some of what these barriers are. I'm going to walk you through how we're going to crack these in more detail. So let's start with pharma. So as you can see here, just over the last 3 years, many, many pharma companies who are incorporating MRD as a clinical endpoint are choosing clonoSEQ as the test of choice. But perhaps, most notably, the deal that we announced yesterday with Genentech on CLL for venetoclax, MRD is being used as a primary endpoint in a first-line trial. So really, this is further confirming the growing clinical significance of MRD and really trust in the clonoSEQ brand. These partnerships are also providing kind of a promising revenue stream because as we mentioned on our last quarterly call, we have $130 million worth of milestones that are available to us over time as we hit these different endpoints. So and as previously noted, in just a year, so in January of 2019, we got Medicare coverage for ALL and multiple myeloma in bone marrow. And from that time, we've secured greater than 175 million covered lives under policy, which is, again, the fastest ramp of a diagnostic in terms of coverage in history. So -- and importantly, Medicare, as we just mentioned, is covering us now in CLL. So we look forward to continuing our work with both the payers we have for product line extensions and with the tech assessment bodies of both public and private payers to enable clonoSEQ to be available for any patient who can benefit from knowing what their MRD status is. So integrated -- we touched on this, but taking a deeper dive. So integrating into the workflow of each department, of each account remains a primary focus for the field team in 2020. So we believe that this is the first of several steps that are necessary to drive penetration in clonoSEQ in the U.S. So once an account is up and contracted, then the reps can start working the account. And it goes account, department, health care providers within each of these departments and then each health care provider has a certain number of patients that are associated with that health care provider that they treat. So we put enormous effort into this process. And there is -- for clonoSEQ, now we've penetrated over 130 accounts of the targeted 250 Tier 1 and Tier 2 accounts. And we've tested over 9,500 unique patients to date, which should serve as a competitive barrier to entry kind of moving forward. So to accomplish all this penetration, we are now doubling the size of our commercial team and our sales force. We're also starting to market to the patients who have -- who we believe has the right to know what their MRD status is, what their disease burden is now that we're able to count it. And we're also looking at expanding use cases to be able to drive demand. So in summary, MRD is just at the beginning of our life cycle plan. And its purpose -- we purposely designed this to set up clonoSEQ for continued success as we get indication after indication and sample type after sample type. So about 25% of the market is in ALL and multiple myeloma, and that's where we started. If we add on CLL, that drives us to another -- about half the population, along with ALL in the blood, which we're filing later this year followed closely by multiple myeloma in the blood. And then the other 50% of the market is comprised of this basket of diseases in non-Hodgkin's lymphoma, which we're actively generating data across multiple of these disease states, included -- including diffuse large B-cell lymphoma, follicular and mantle cell. So I want to switch gears now and talk about our first clinical -- our clinical diagnostic pipeline, which is the TCR antigen map, which is our approach to translating the genetics of the adaptive immune system, to understand at scale how it works. And immunoSEQ Dx, that's the name of the pipeline product which is intended to become a blood test for the early and accurate detection of disease. So again, just to provide some context, I'm sure that each one of you or some -- or a friend or someone you love in this room has gone through what I'll call the diagnostic odyssey, where you go from specialist to specialist, doctor to doctor trying to get a battery of tests to settle on a disease diagnosis. They're often inaccurate, and they're often wrong. And for many of these diseases, there actually is no current diagnostic. So to change the game, we partner with Microsoft to help us rapidly identify signals. Specifically, we're going to apply their machine learning capabilities to our data to accelerate the ability to map immune receptor sequences to many diseases and then use this map to build a pipeline of diagnostic for early detection. So in fact, we already have 2 early clinical signals, 1 of which we confirmed in Lyme disease, and we expect to submit our first clinical application to the FDA in 2020. The ultimate goal of this is to be part of primary care, and I'll outline how we get there. But first, let's spend a minute talking about how we build the map. So every disease has its own set of clinical signals that are associated with that disease. Essentially, each disease has its own genome. And we're actually -- we can start by physically, through our chemistry and informatics, building connections between T-cell receptors and clinically relevant antigen for each of these diseases. And then on top of that, Microsoft is providing their machine learning models and algorithms to start filling in the map disease by disease. We have some major advantages to be able to generate data in the sense that, as I mentioned, our assay, our chemistry works on samples that are stored on any protocol, so we can actually use retrospective data to start generating this map. Once that map is built, a patient can walk into a doctor's office. We can use our bread-and-butter immunoSEQ assay that we've talked about, extract the T-cell receptors out of the blood and then we can reference the cloud and use the machine learning algorithms to essentially diagnose disease from that blood test. In this case, we're showing that this patient walked in, and we can diagnose Celiac disease. We're going to start disease by disease, where there's an unmet medical need, where early intervention leads to a better outcome. And we're -- we know something about the science, so the antigenic space and the science. And so we can go disease by disease, and we've outlined that we're starting with Celiac disease and autoimmune disorders, Lyme disease, which I mentioned, and then high-risk population of women with -- for ovarian cancer detect -- early detection. But over time, after we do disease by disease, the intermediate step is to have differential diagnosis, where a patient walks into a doctor's office or a specialist with a set of symptoms. For example, if a patient has GI-related symptoms, they can walk into a doctor's, and we can tell them whether they have Celiac disease, whether they have Crohn's or ulcerative colitis. And then the longer-term vision is to be really part of -- like a CBC, part of a primary care visit where you go in and have your blood extracted, and we're able to reference this map and diagnose many diseases, all at the same time. Think of it as an X-ray for the immune system. So turning now to our drug discovery efforts. Recall that the immune system not only detects disease, but it also treats disease, which is why our immune medicine platform really is so powerful and that we can move into drug discovery. So as most of you are aware, leveraging the immune system to treat disease has become increasingly relevant in clinical medicine today. Specifically, if you think about cell therapy in cancer, a lot of these cell therapies are showing great efficacy, greater than they ever have before. And they're actually curing a small subset of the population. However, the first generation of cell therapies in CAR-T therapies only worked on a small subset of blood cancers. The reason that is, is because the mechanism of that receptor essentially bound to a cell surface markers. Whereas T cells and T-cell-directed therapy has the ability to bind to stuff that gets inside a cell and can potentially work in solid tumors and a much broader set of patient population. So Genentech recognized this over a year ago, and we entered into a collaboration with them to develop TCR-mediated cell therapies in oncology, and they paid us $300 million up-front with a very significant milestones in royalties downstream. So this is just our first foray into drug discovery, and we have search and evaluation efforts underway to prosecute the platform in other ways. So -- and this is what we're doing. In partnership, we're -- it's really comprised of 2 different strategies. We're developing novel neoantigen-directed T-cell therapies for cancer. So we're starting with cell therapy products with what we call our off-the-shelf TCRs against prioritized, shared target antigens. We're also developing personalized cell therapy, where we plan to identify in real time TCRs that are specific to each patient's tumor. And so a little bit on -- each one of these strategies is a shared product, we look at all the TCRs that are responding to a specific known antigen, and then we characterize them as a targeting molecule for therapeutic use. Specifically, when we look at the properties of binding, killing, and we look at the safety profile of these receptors, and then we can have an IND-enabling package that we hand over to Genentech. We've already characterized over 3,000 of these to 600 clinically relevant antigens. And in terms of our personalized strategy, the goal is vein-to-vein to be able to take a look at a patient's mutations and that patient's tumor, look at a patient's blood, see what T-cell receptors are responding, hand over those sequences to Genentech and then have them then delivered back to the patient in 30 days a truly personalized cell therapy. And this is just a quick snapshot and roll-up of our pipeline. The company has been growing year-over-year around 45%. And if you look at third quarter, obviously, we haven't announced our fourth quarter year-end numbers yet, but we're looking -- the third quarter was a 52% growth over the third quarter of 2017 -- sorry, 2018. And we've really put in place all the infrastructure to be able to scale these products and to be able to prosecute these multiple opportunities at the same time. We've got capital improvement projects going on across San Francisco, Seattle and in New York. And this is one of the largest open-ended growth stories in medicine right now. So we've already prosecuted our platform in the life science research space, and we've got life cycle extensions in clonoSEQ. And for Microsoft, we have a whole pipeline of clinical diagnostics for early and accurate detection. We entered into our first therapeutic partnership with Genentech, but there's many other areas that we can take our pipeline. And we put together a search and evaluation team and a program management office to help us just decide where we're going to go next. And so I'm proud to say that our core team has been together for many years, and we continue to add key pieces to the puzzle to attack this massive opportunity. So thank you very much. Appreciate your time today.