Adaptive Biotechnologies Corporation (ADPT) Earnings Call Transcript & Summary

Hi, everyone. I'm Brandon Couillard, senior life science tools and diagnostics analyst at Jefferies. It's my pleasure to introduce Chad Robins, CEO and Co-founder of Adaptive biotech, to present at the Jefferies Virtual Healthcare Conference. Chad, I'll turn it over to you.

Hey, thanks so much, Brandon. I'm Chad Robins, I'm the CEO of Adaptive Biotechnologies. I'll remind you briefly of the safe harbor. My brother Harlan and I started Adaptive a decade ago on the premise that if we could learn how to read and translate the genetics of the adaptive immune system, we could create clinical products that could both diagnose and treat disease. We believe that the immune system represents the largest clinical applications of genomics. The reason is because you're immune system both detects and treats almost all diseases in the exact same way, whether they be cancer, infectious diseases or autoimmune disorders. And if we can just learn how to translate this universal genetic language of the adaptive immune system, we can transform medicine across multiple disease states. In fact, the adaptive immune system detects and treats most diseases in the same way using these specialized cells of the adaptive immune system called T cells and B cells that each have these receptors on their surface called T cell receptors or B cell receptors that essentially act as scanners. And each receptor has a unique genetic code that binds to a specific signal of the disease or an antigen. And when you have a match between a receptor and antigen, the immune response begins. It's that same receptor that detects the disease. It actually springs into action, clones itself and becomes a killer and goes and treats the disease. And essentially, this receptor that starts, if you think about it as a natural diagnostic, becomes a natural therapeutic to clear the disease. The immunome is actually orders of magnitude larger than the human genome. To give a sense of scale, there's -- in a healthy adult alone, there's over 100 million immune receptor genes versus only 30,000 genes in the genome that we're born with. But because each person's adaptive immune repertoire is different, there's actually trillions of these immune receptors in the population that are there to be able to seek and destroy these millions of specific -- disease-specific antigens. And in fact, our immune systems have evolved over hundreds of millions of years with these beautiful natural properties to be a nearly perfect, what we'll call, natural diagnostic. They're extremely sensitive. They're specific to a specific disease, for that unique piece or antigen for that disease. Your immune system works on this concept of clonal expansion. So it naturally amplifies a signal. It's systemic, meaning floats around the blood, and it's persistent, meaning it remains in kind of your long-term memory. And so even -- what this means is even if your disease burden is extremely low, that amplified immune response can be detected in the blood. And that's why if we can just learn how to be able to read this immune system in a natural way, we can truly transform medicine. It's really, really tough to do this, but this is exactly what we're set up to do. It's what we pioneered, and it's what differentiates Adaptive. In order to do this, we built an immune medicine platform to harness these natural properties or what I'll call as inherent biology of the adaptive immune system to create these incredibly high-margin, patient-specific, immune-driven clinical products. And specifically, our immune medicine platform has multiple components of sequencing, mapping and then characterizing immune receptors at a -- really an unprecedented scale and precision. And we can actually map our products onto our technology platform. Our first 2 products that are in market, the first is a research product, we coined the term immunosequencing. And that just involves the ability to sequence immune receptors at extremely high-throughput scale and precision, and it's used by biopharma companies and academics no matter what research they're doing on the immune system. Our first clinical product is for monitoring or measuring minimal residual disease in certain blood cancers. And again, that only requires the ability to sequence immune receptors. Moving forward to our clinical pipeline. We partner with Microsoft on the ability to not only sequence receptors but to sequence and map receptors and essentially build a map of the human adaptive immune system and then use that map to be able to diagnose disease. And in fact, we recently extended our partnership with Microsoft to apply our platform to decode the immune response to COVID-19 at the population level. And we're making this data publicly available for researchers around the world, and we're potentially bringing a new approach to diagnostic testing that can fill in the gaps with -- that are present in the current kind of testing paradigm for COVID-19. Moving to kind of our therapeutic pipeline. In addition to being able to sequence and map receptors, we've also figured out how to characterize them as targeting molecules for therapeutic use. And our first therapeutic product is a cell therapy collaboration with Genentech, where we're looking at different properties of T cell receptors that will make them good candidates for cell therapy in cancer. And then just a few weeks ago, we entered into a new partnership with Amgen to leverage the therapeutic discovery capabilities of our platform to identify potential neutralizing antibodies against COVID-19 that Amgen will then manufacture and commercialize. And this actually represents a good example of how our platform can be extended to new areas of drug discovery when it's appropriate to do so. So our estimated $48 billion initial total addressable market opportunities represents one of the largest TAMs in immune-driven medicine. And here's the way that we calculate our potential in each of these 3 product areas. Life science research is about $1 billion opportunity, largely comprised of the opportunity for biopharmaceutical companies to incorporate immunoSEQ into their translational research. The clinical diagnostics addressable market is a $16 billion opportunity, which is comprised of $4.5 billion for clonoSEQ, which is our product for measuring minimum residual disease in blood cancers. And it's another $11 billion, and this $11 billion represents just the first 2 candidate indications that we're pursuing for early detection of our partnership with Microsoft, which we call immunoSEQ Dx. And then our drug discovery opportunity is a little greater than a $30 billion opportunity, which is comprised of 2 types of cellular therapy products that we're developing with Genentech that we'll describe in detail in a few minutes. As we've recently become a public company, we're more focused than ever on executing across each one of these product areas and having very clear priorities that we've laid out as part of our longer-term strategic plan. And so these key milestones that we set out to achieve in 2019, I'm really proud to say that we hit on every single one of them. And specifically, for our research business, we completed the development of our upgrade immunoSEQ RUO kit. For clonoSEQ, we achieved CLEP approval and completed our second FDA filing for clonoSEQ in CLL in blood, we did that on time. We also had a record year in the history of diagnostic companies with respect to payer coverage. And for immunoSEQ Dx, we confirmed our first clinical diagnostic signal in Lyme in the third quarter of last year. And for our Genentech alliance, we delivered the data package necessary for Genentech to move forward with the selection of their first TCR. And moving that forward, following kind of that similar outline that ensures that we'll continue to progress against our long-term strategic plan, we're pleased to kind of reiterate our milestones for 2020. For the life science research business, we'll be focused on successful launch of the immunoSEQ RUO kit, which we did in the first quarter. Obviously, that's been a little bit delayed by the coronavirus. But for clonoSEQ, we're continuing to execute against the life cycle plan, including kind of the filing for CLL, which we expect to have marketing clearance sometime this summer, and we'll file an additional indication of ALL in the blood. And we already achieved from Medicare a reimbursement in the blood for ALL, multiple myeloma and CLL. We continue to push forward with private payers. For immunoSEQ Dx, we're focused on completing the first FDA submission by the end of the fourth quarter in our first clinical application. We've talked about Lyme as well as a second indication which, at this point, will most likely be COVID-19, a diagnostic for immunoSEQ Dx, which we'll go into further detail in a minute. And if we look at our Genentech alliance, we're going to be providing all the data necessary to support Genentech's plan to file the first IND on the shared product against a selected targeted antigen that was -- it was jointly confirmed by the joint development committee in 2019, and we're moving forward with increased investment in that in 2020, and we'll, as I mentioned, file our first IND. So now that I've outlined our key milestones that we're going to hit over the course of this year, I'm going to take you through each one of the product areas in more detail. And then I'll wrap up with financial highlights and then look at the kind of future potential of our immune medicine platform. So life science research, and it's really the core of everything that we do at Adaptive. Our research product, as I mentioned, is called immunoSEQ. It's the key component of our platform that enables us to sequence immune receptors at incredible depth and specificity. It was actually launched as a tool, as I mentioned, in 2010. It's been used now by over 2,000 academic researchers, over 165 pharma companies, and we're now in over 650 clinical trials, which is enabling biopharma companies to empower their discovery of new prognostic and diagnostic biomarkers in -- not only in cancer but also in other immune-mediated diseases. Importantly, too, we're working to analytically validate this -- an improved version of immunoSEQ so that we both -- we at Adaptive and our customers can apply it to clinical trials and then use that data to support the validation of future clinical tests. And in fact, we're actually doing this. It is going to be the core delivery mechanism for immunoSEQ Dx for this pipeline of early detection diagnostics. We've already developed a technology that can extract information from a patient's blood, and that is the underlying immunoSEQ technology that allows you to sequence. But moving on to our first clinical product. Ultimately, we see ourselves as a clinical product company, and we're extremely excited about the progress that we're making with the first clinical diagnostic clonoSEQ for monitoring minimal residual disease in patients with certain blood cancers, what we call the lymphoproliferative blood cancers. The reason that monitoring or measuring minimum residual disease is increasingly important today is that patients are living longer with these diseases. The reason that patients are living longer with these diseases is because you have a whole new class of therapies that are showing greater efficacy than they ever have before. And therefore, clinicians need better set of tools to be able to monitor the disease as patients are living longer with it -- with these diseases. And at the same time, pharma companies need new ways to measure efficacy earlier in clinical trials to be able to make progress for their new drugs in development. And so we estimate, as I mentioned, this to be about a $4.5 billion global market opportunity. And specifically, what clonoSEQ does is it identifies the unique genetics sequence for each patient's unique T or B cell-mediated cancer. So essentially, it counts the number of these cancer cells at regular time points during and after treatment. And so in late 2018, clonoSEQ became the first FDA-cleared test for monitoring minimum residual disease in multiple myeloma and ALL from bone marrow samples. And in about 1.5 years, we've secured an unprecedented number of coverage policies, which we'll discuss in greater detail in a moment. But the key [ takeaway ] now is that we already have over 200 million covered lives in the United States, all in line with our monitoring label. As minimal residual disease increasingly becomes an important clinical management tool, we believe that clonoSEQ is poised to capture a disproportionate share of this market. In addition to our strong intellectual property position, clonoSEQ is the only MRD test that has gone through the rigor of FDA validation, which supports the sensitivity, reliability and reproducibility of MRD testing with clonoSEQ. And we've had many, many top thought leaders around the world that are now using clonoSEQ in their clinical protocols. And as the only FDA-validated test, it's really becoming the test of choice for any trials in which MRD is a clinical end point for any pharma company that's -- any bio or pharma company that's developing a hematology drug to these specific indications. And as briefly I mentioned, we already have significant reimbursement in place and much more to come. We're being integrated into the workflow of more and more accounts across the country, which is extremely high barrier to entry for clinical adoption for any alternative MRD testing. So now I'm going to walk you through a few of these high barriers to entry in more detail. So as you can see, over the past 3 years, many pharma companies who are incorporating MRD as a clinical end point are choosing clonoSEQ as the test of choice. Perhaps, most notably, the most recent deal we've signed with Genentech includes a trial for venetoclax in CLL, where MRD by clonoSEQ is being used as a primary end point. And this further confirms the clinical significance of MRD testing and a trust in clonoSEQ. And the partnerships also provide a very promising revenue streams in the near term for sequencing services. But also over time, there is a set of milestone payments that are associated with these deals that are now in excess of $270 million on the balance sheet. So as previously noted, a little bit more detail on -- kind of on reimbursement. We've now secured coverage for over 200 million lives in the United States. We started with Medicare in January 2019. We're able to sell coverage policies that recognize the importance of repeat testing in our -- MRD to enable the proper monitoring of that disease burden over time. And then throughout 2019 and the first 5 months of 2020, we've signed on another [ 7 ] national payers, several more regional plans. And as I mentioned, we just announced an extension of our Medicare policy to include CLL and also to be -- include blood-based testing. We have an opportunity to continue to work with the tech-assessment bodies and the public and private payers to enable that there's access to clonoSEQ for any patient who can benefit from knowing the status of their disease [ burning ] or knowing their MRD status. Integrating into the workflow of each department [ in ] each targeted account remains a primary focus for our field team in 2020. We believe this is one of the first of several key necessary steps to drive the penetration of clonoSEQ in the United States. Once an account is contracted and the relevant HCPs or a health care provider in each relevant department are trained, then clinical use can begin. And we put a tremendous amount of effort in this process to enable the clinical use of clonoSEQ in 2019 in over 130 accounts for more than 9,500 unique patients to date, which should serve as, again, this competitor barrier because once you're integrated in the workflow, you're integrated into the workflow. And in 2020, obviously, while some of the activities have moved online due to COVID, we've been continuing to focus on contracting with and activating more accounts, training all relevant health care providers across department, with each account, when possible, partnering with our clinical customers to integrate clonoSEQ into their clinical workflow, driving demand for the expanded clinical use of clonoSEQ, starting with education around the importance of getting an initial sample, meaning they need to get the diagnostic sample upfront for every patient so that then they can reference that and be able to monitor it post treatment. And then -- and well, you'll see later on this year that we're starting a campaign to engage patients so that they and their families know the importance of knowing their MRD status for clinical decision making. And so to accomplish all this, we doubled the size of the field force, and we're supplementing the field force with additional operational and marketing resources. And additionally, our medical team has been communicating with the clinical community about blood-based MRD testing via our CLIA service. While clonoSEQ is not an FDA-cleared test yet for blood-based testing in ALL and multiple myeloma, our CLIA service, it actually runs the same exact way, and it's already covered by Medicare and many private payers as well. So we recently announced a partnership with LabCorp to enable remote blood-based collection to make MRD testing more feasible. And so patients will soon be able to visit LabCorp patient service centers, nearly 2,000 across the United States, to access clonoSEQ after it's been ordered by their clinician. We're also negotiating agreements with home blood collection providers to further support patient access to clonoSEQ during this time of COVID. And looking ahead, even after COVID restrictions get lifted, we believe these solutions will continue to be able to benefit patients by enabling really a much more convenient and safe alternative to inpatient visits whenever possible. So in summary, MRD is really just at the beginning of our life cycle plan, and it's purposely designed to set up clonoSEQ for continued success indication by indication. In 2019, we got started with ALL and multiple myeloma and limited to bone marrow; no reimbursement; and a 14-person sales team. In that first commercial year, we garnered incredible coverage already submitted by our first label expansion in CLL, almost through with doubling the field force. But the other half of the market opportunity is really coming in not only in accessing blood but in accessing this basket of diseases in the NHL space and which we'll be accessing through our life cycle plan next. Now I want to switch gears now to our clinical diagnostic pipeline, which we call the TCR-Antigen Map. And it's really our approach to translating the genetics of the adaptive immune system to understand really at scale how it works. And immunoSEQ Dx is the name of our pipeline product which is intended to become a blood test for the early and accurate detection of disease. So if you recall from the immune primer earlier in the presentation, the immune system has natural properties that make it a nearly perfect diagnostic. And so our goal is to be able to translate this natural capability into the clinic. And this is so important because diagnosing disease is -- remains a -- truly challenging. It's a diagnostic odyssey where you go from one specialist to another and wind up settling on a diagnosis of disease. And what we do know also is that earlier intervention is going to improve patient outcomes in many, many cases. And so in order to change this game, we partnered with Microsoft to help us rapidly identify these clinical signals. And specifically, we can apply their machine learning capabilities on top of our chemistry and informatics and the ability to map these receptor sequences to many diseases and then use that map or reference that map to diagnose many diseases and build this pipeline of diagnostics for earlier detection. In fact, we've already confirmed 2 clinical signals: 1 confirmed proof of concept in Lyme disease, and we expect to submit our first clinical application to the FDA this year. In order to build the antigen map at the population level, we're actually mapping trillions of T-cell receptors to millions of clinically relevant antigens. And we're doing this disease by disease. This is actually a huge data problem, but it's tractable, and we're already starting to solve it. So we're using our proprietary technology to be able to map T cell receptors to disease-specific antigen to identify TCR signatures of disease, we then could layer on Microsoft machine learning expertise essentially to extend the number of matches per disease that we can find as our sample set grows. And so this is shown in the illustrative graph on the left, where we're able to plot disease-specific antigens in each row and a single TCR in each column, a [ dot ] here, obviously, not drawn to scale, and it represents a match. And there are typically multiple TCR matches per each disease-specific antigen. And in order to improve the accuracy of our test, we continue to find T cell receptors by running blood samples through healthy donors, collaborating on retrospective studies with control groups in select disease states and leveraging -- importantly, we can leverage our existing database to be able to incorporate additional sequences to include in that T cell receptors -- in those T-cell receptors signature. And our diagnostic development paradigm, it actually scales quite beautifully. So typically, development of molecular diagnostic for early detection requires massively expensive and lengthy prospective studies because the samples have to be collected and stored in a very, very specific way. But our technology can use DNA from samples collected on almost any protocol or stored in any way. In fact, for our first FDA clearance for clonoSEQ, we -- it was based on data generated from samples that were collected over 10 years ago. And so this allows us to kind of more rapidly and cost effectively validate early -- many early detection tests in multiple disease states simultaneously at a very, very kind of low cost. Moving on. Once the map is built, we can then reference the map with our underlying immunoSEQ technology to develop a diagnostic for many diseases, which we're currently calling immunoSEQ Dx, right? And the key to understanding this transformative model here is that this will be the same test. It's a simple blood test for any disease. The only difference really is the software module for each disease or disease panel. So it's actually one test with many test results. It's all by leveraging this growing database in the cloud. So moving on to the next slide here. As I previously mentioned, we recently extended our partnership with Microsoft to decode the immune response to COVID-19. To do so, we opened up a 1,000-patient study called ImmuneRACE to collect blood samples from people who have been exposed, who are actively fighting or have recently recovered from COVID-19. And again, leveraging this mobile phlebotomy service from Covance, LabCorp, we're now looking to enroll the study as fast as possible, and it's enrolling really rapidly. And we're also going to be able to upload all of this data into a public database to support the global research efforts to fight COVID-19. But for ourselves in Adaptive, as a diagnostic, we're hopeful that we can validate and launch a T cell-based test or a cellular immune test diagnostic, kind of the third leg of a stool to kind of PCR-based testing and serology testing. But we believe that our test has the ability to potentially solve many of the current challenges with the current diagnostic paradigm for the coronavirus. Shifting gears and turning to our drug discovery efforts. Recall that the immune system not only detects disease, but it also treats disease, which is another reason why our immune medicine platform is so extremely powerful. As most of you are aware, leveraging the immune system to treat disease is becoming increasingly relevant in clinical medicines today. If you think about cell therapy in cancer, which is where it's most notable, cell therapies are showing greater efficacy, but there's limitations to that. Mostly cell therapies are limited to surface markers only. And it's known that T cell receptors are actually cancer specific, and it's becoming widely understood that our platform can generate these highly potent T cell receptors against cancer antigens. And so Genentech recognized this about 1.5 years ago, and they entered into a collaboration with us to develop T cell receptor-mediated cellular therapies and oncologies. And they paid us a $300 million upfront payment, a very significant milestone to royalties downstream. But this represents really only our first foray into drug discovery, and we have a search and evaluation team underway to selectively access other ways in which our T cell receptors can be leveraged for therapeutic use in other therapeutic areas outside of oncology or in other drug modalities such as vaccines, really could be in many other disease states. But shifting to more specifically what we're doing with Genentech, for -- starting with the shared product. We're using this robust discovery and screening technology, it's called true TCR, to find T cell receptors that map to cancer-related antigens. And then we can bundle -- funnel them down based on properties that make them great in targeting molecules for therapeutic use, such as looking at categories of binding, target killing, and we're also looking at kind of the safety profile of T cell receptors that have minimal off-target effects. And to date, we've characterized over 3,000 TCRs against 600 clinically relevant cancer antigens. And where we remain on track and continue both on the Adaptive side and Genentech Roche side, to continue to increase our investment in this program. We -- as I mentioned, we've already developed -- delivered to Genentech an IND-enabling, GLP-compliant data package for the first lead TCR shared candidate against a shared antigen, and they're progressing on the engineering and development. And as I mentioned, they're preparing to file at the end of this year for the first IND submission. However, the second phase of this deal recognizes that each patient's cancer is truly unique to that person. And so the ultimate goal is to develop a truly personalized cellular therapy. And to do this, we will extract the cancer antigen from a patient's tumor, from that specific patient's tumor, and then use our platform in real time to identify the most potent T cell receptor from that patient to engineer and reinfuse these T cell receptors for treatment. And our goal for the next year is to reduce the screening -- the turnaround time to less than a week, enabling essentially a 1-month vein-to-vein time for this private or personalized product to be viable in these really, really sick cancer patients. And so together with Genentech, we're extremely bullish about this potential to develop a truly kind of patient-specific approach to treating cancer patients in the future. In fact, we just signed a lease to expand our San Francisco facility. This will be operational in 2021. It's going to have a dedicated lab to prototyping this strategy. And for COVID-19, kind of moving forward is what is kind of a true platform extension for us. For COVID-19 on the therapeutic side, we recently partnered with Amgen to use our immune medicine platform to identify and develop therapeutic antibodies from the blood of patients who are actively fighting or have recently recovered from COVID-19. But like others who are already in the clinic, we think that neutralizing antibodies may be efficacious since the virus seems to be a large, slowly mutating RNA virus that makes itself a good candidate for neutralizing antibodies so that the virus can escape out from under the therapy. So I think, as we've seen, there's been some early successes already using convalescent plasma therapy to boost the ability of patients that have these really severe cases of COVID-19 to fight off the infection. And this is great. But unfortunately, this approach is incredibly hard to scale. It's hard to standardize. So what we're doing in collaboration with Amgen is we're using our high-throughput method of screening immune cells to find the best antibody or what we've called kind of the Michael Jordan of antibodies to be able to neutralize the virus. And these could be used to treat patients who are fighting the disease and potentially to prevent disease in those with heightened exposure as a temporary immunity boost, such as health care workers. So here's what it looks like when we roll up our clinical product pipeline organized by the different business areas. I'm not going to spend too much time on this slide, but we talked about the key potential milestones to include an FDA clearance for the first label expansion for clonoSEQ in CLL by mid-2020, an FDA submission for the first indication for immunoSEQ Dx, an IND filing for Genentech and, the addition here, if you notice, of the antibody discovery work that we're doing for COVID-19 with Amgen. So moving on to our financial picture. We delivered $85.1 million in revenue in 2019, representing 53% growth. Revenue for Q1 2020 was $20.9 million, representing 65% growth over Q1 2019. We have a very strong cash position over $650 million in ending cash, cash and equivalents as of March 31, end of the first quarter of 2020. I keep coming back to this, but I want to end on this because our -- it's important to recognize that our platform has the potential to be and is a truly open-ended growth story. And across our product areas, we have development activity underway at various stages in life science research, clinical diagnostics and drug discovery. The products that we've already launched or monetizing in this diagram are shown in the solid-colored boxes. Products in our near-term pipeline such as life cycle extension of the clonoSEQ brand or potential areas for early signals for immunoSEQ Dx are in the lightly colored boxes, whereas the potential future products where we already have preliminary data are in the white boxes. For example, we are considering applying our drug discovery technologies to the vaccine spaces. I think perhaps one of the main -- the key takeaways is how easily our platform has been extended to discover and develop both diagnostic and therapeutic solutions for COVID-19 and so these initiatives dovetail right into our overall product development strategy for our clinical product pipeline. And we intend to continue to apply our platform in many new ways in the future. So thank you very much. Appreciate it, and I'll turn it back to you, Brandon.