Adaptive Biotechnologies Corporation (ADPT) Earnings Call Transcript & Summary

Good afternoon or good morning depending on where you are. And welcome to the virtual fireside chat with Adaptive Biotechnologies co-Founder and CEO, and a fellow northern suburbs of Chicago guy, Chad Robins, though his high school wasn't just cool as mine. We'll debate that. My name is Brian Weinstein, and I'm the analyst here at William Blair covering Adaptive and certain areas within diagnostics, life science, tools and medical technology for our firm. Joining me is my associate, the team's COO, if you will, Andrew Brackmann. A reminder, the team Weinstein is hosting some events along with the conference. So we did a Peloton ride this morning, admittedly not my best performance, but will be much, much better tomorrow when we do another group ride at 7:00 a.m. Central. We have one on Thursday at 4:00 p.m. Central, and I believe Chad Robins will be joining for 1 or 2 of these. For instructions on how to access that, take a look at last weekend's backstreet's note or e-mail us. In addition, we are hosting a nightly recap dial-in for investors that we're calling the Lido Lounge named after the Lido Shuffle, the official song of team Weinstein. That takes place tonight at 5:45 p.m. dial-in for that is also in the backstreet's note or you can e-mail us. We know there have been some technical issues with the one-on-ones, and we apologize for that and that should have been solved at this point. If you're still having trouble though, please e-mail me if there's any lingering problems. Finally, before jumping into the call, the best compliance officer in the business and a man who loves jelly beans, Mr. Michael Besenjak, has told to me that I'm required to inform you that for a complete list of research disclosures or conflicts of interest to visit our website at williamblair.com. So with all that out of the way, welcome, Chad. Thanks for doing this. I appreciate it.

Brian, great to be here. Thanks for having me.

Of course. I thought maybe we'd start at a high level. I still spend a lot of time discussing the company and its mission and its technology and what makes you unique. But perhaps you can spend some time reviewing for that -- reviewing that for us as an intro for people who are maybe less familiar with the company.

Yes, sure. Happy to do so. Really, the star of our company is the immune system. Adaptive is built on the premise that our immune system is nature's most finely-tuned diagnostic and therapeutic for almost every disease. And it's because our immune systems have evolved over hundreds of millions of years in response to disease, including the pandemic of coronavirus like we're living with today, that our immune systems have evolved to be able to respond. And to be able to do this, there's this massive diversity in our -- the cells of our immune system that protect us against these different signals of the disease, which we call antigens. And so in order to translate these natural properties or the inherent biology of the immune system into clinical products, we spent a decade building a proprietary immune medicine platform that enables us to characterize these key immune cells with extreme precision and scale, and really to transform the way that we can both detect and treat disease. And so in terms of what makes us unique, our approach has been to be able to mimic or learn how to read and translate this natural language of the immune system to be able to diagnose disease. And separately, to be able to harness these natural properties of the immune system to be able to treat disease for therapeutics. And one, it represents kind of what we think is the largest clinical applications of next-generation sequencing, because we're not focused on any one disease. It's truly kind of this open-ended growth story. And second, it's the size of our database. We have the largest population wide immunomics database in the world that we're able to access. And that the acceleration of those learnings has been really exponential. And then the third component of that is when we're able to find our clinical signals, we can essentially let our immune system tell us what the answer is and that's really key to the power of this product development engine in both diagnostics and in therapeutics.

That's great. And I know we're going to get into some of those applications here in a moment and kind of even talk through maybe some of the -- more detail on how you actually go about doing this. But to kind of narrow the focus just for a second here, because I know everybody is thinking about kind of what's going on right now. I know in March and April, you guys talked about the headwinds related to COVID-19, no surprise there. And you saw some positive trends in order volumes in the first week of May. Any update on trends through May and early June that you guys are prepared to kind of comment on, on either the clinical side or on the pharma sequencing revenue side?

Yes, sure. On the clinical side, I'm a little cautious about projecting for trend lines yet, but I can tell you that on the clinical diagnostics business in clonoSEQ, we are seeing a nice recovery, kind of back to first quarter levels where -- and hoping to be able to, at some point, extend out and project out that growth -- the growth rates that we were kind of modeling and expecting. But we aren't seeing a really nice trend lines, especially because we're still limited by our in-person visits. And so a lot of what's going on is virtual. So just in terms of the diversity of new orders -- Brian, I'm going to turn off this dinging here for you. Okay, that should be better. But in terms of kind of the diversity of new ordering clinicians and new accounts even coming onboard has been great. We're starting to see on the pharma side pick back up, but it's a little bit slower because you actually have to have employees physically present to be able to shift samples, both kind of on the pharma side, the CRO side and the academic laboratories. So as we see people with the economy starting to reopening, people coming back to work, we're starting to see that business pick up as well. But I think too early to project out a trend line.

Okay. Great. Now that's a great update. As we think about COVID-19, can you talk about how you see health care changing post-COVID-19 and how Adaptive plays into this? And I'm sure you'll talk about the assays, but if not -- that you're developing, but if not, we can certainly go into that as well.

Yes. I think there's been some really interesting opportunities and learnings that have been created from COVID-19. One, from the perspective of our opportunities to really validate the platform in a very kind of short amount of time from a standstill to say that we can look at the immune response to an infectious disease and really understand and characterize that at a level of depth and specificity is an opportunity for Adaptive to prove out our platform. But even kind of more broadly, as we look at kind of some of the key learnings and how we think about doing our business, there's certainly kind of a lot of the virtual programming and peer-to-peer education and kind of leveraging our KOL base through virtual programming has been important. The move to really blood-based testing and how we think about trials has been a key -- has been catalyzed. So for example, as we think about how we're going to evaluate our first indication in immunoSEQ Dx in Lyme disease, really the COVID immune rate study and how we've been -- we partnered with LabCorp, Covance to do a mobile phlebotomy. Well, we're now looking at -- we partnered with IQVIA and contracted them to go direct to line patients home to be able to collect samples and how we design that study has been really important. Secondly, the opportunity to educate the FDA and using essentially COVID as an opportunity or a Trojan horse to come in and take advantage of the emergency use authorization pathway through the FDA, to go in and educate on the platform to say, look, we're mapping the immune response to the disease, and then we're using that map as a reference base to then be -- take a sample from a patient and diagnose disease. These are really interesting opportunities for us. And then third, if we look at the clonoSEQ business, moving from marrow, and if you look at kind of the long-term strategy of that business to be able -- enable more frequent blood-based testing to increase time points per patient over the patient care continuum, that will be really enabled by blood-based testing. And so we also partnered with LabCorp to enable specimen collection -- blood specimen collection at their centers. So I think there's been -- you hate to use the word kind of silver lining as coming out of a pandemic, but I would say there's certainly been learnings and opportunities to leverage the situation in terms of how we think about our business going forward.

That's great. You mentioned briefly there a couple of interesting products for COVID-19. But can you talk a little bit more about those opportunities and the products that you're developing there, the differentiation that they may have and any update on those time lines?

Yes. Happy to do it. One is we're -- a lot of this is built. So we're extremely well poised to be able to apply our existing platform to be able to contribute to society to develop both on the diagnostic and therapeutic side, different solutions to COVID-19. So more specifically on the diagnostics side, we're extending the partnership that we contracted with Microsoft in 2018 to decode the immune system's response to COVID-19, to be able to complement the other existing diagnostic efforts that are focused on the -- either the virus itself or antibodies in terms of serology that build up as the infection starts to clear. And this is really, really just -- as awful a disease and a pandemic that COVID-19 is or the coronavirus is, to the immune system, it's just another disease, which you're -- the immune system sees just like it would any other disease. So -- and sometimes it's just prioritizing that disease and slotting that into the infrastructure that's already been built with Microsoft. But then -- and I can go into more detail on both of these in a minute, I'll just give you the high level first, which on the therapeutic side, this is really a little bit different and we're adding truly a new dimension to a multiyear working relationship that we have with Amgen already to leverage our platform to be able to screen the B-cell receptor, the extremely high throughput to identify candidate neutralizing antibodies from the blood of patients, who are either actively fighting or have recently recovered from COVID-19. And so a couple of the points that we're doing with Microsoft, there's still a lot of problems with the current diagnostic paradigm. On the front end of the spectrum, you're seeing a lot of false negatives with PCR-based testing, where you're looking at the virus. And there on the back end, essentially, you're looking -- there's a lot of false positive with serology testing that are looking at the presence of the antibody to the virus. And so we're developing a new way to measure the cellular component of immune response to a current or past COVID-19 infection. And so our approach is based on T-cell receptors or T-cell receptor signature that can see and respond to the virus. And we're able to identify it from thousands of patients around the world that is able to create this really reliable T-cell receptor signature. And in the first entry point or the product market fit is going to be really in a competition to serology, where we believe we're confident that we're going to be able to develop a really high sensitivity and specificity test that can determine whether a patient has had the infection with really no false positives.

Yes. And -- sorry, go ahead, please.

No, go ahead. Sorry, Brian.

Sure. I was going to say on that competition to serology, do we believe that at this point, that having these antibodies does confer long-term immunity? Do we know that answer yet at this point?

Actually, we don't. Whether it be serology or TCR signature in terms of kind of correlated protection and conferring immunity based on that, there's still work to be done that says, "Hey, now that you had antibodies or T-cell receptor signature that you can't get the virus again and you're now immune." But that is a test -- that is the working hypothesis, and that is a test that's being done in terms of one of the major marketers kind of the employer and employee market, obviously, in terms of kind of getting back to work.

Yes. And you talked a little bit about different types of these neutralizing antibodies that are out there on your earnings call. You mentioned the Last Dance in finding the Michael Jordan there. But can you go back through that again and kind of how your approach is maybe different than what other people's approaches are that might get them to the market sooner?

That theirs might get to the market sooner or ours?

No, that there's many others -- there's others that may think they're going to get there sooner.

Yes, yes. And I think that's something to recognize. We know that we're not going to be first to market, but we believe that we have a differentiated approach that our neutralizing antibodies might work on a -- be more effective and work on a wider kind of swathe of the population. And what -- as you mentioned, kind of trying to find the best set of antibodies or Michael Jordan of antibodies. Our platform, what it allows us to do, is look at all of the activated antibodies in many patients at the same time that are currently fighting the virus. And then essentially, just like we do in the Genentech deal, where we funnel T-cell receptors down through a series of assays, that makes -- that allows us to look at properties of those receptors that make them great targeting molecules as the therapeutic. Same thing with antibodies, we essentially funnel them down towards a series of techniques to find the best one. And this also is going to dictate whether we develop a single antibody or monoclonal antibody therapy or a cocktail of antibodies. And at what point during the treatment an antibody therapy would potentially have the greatest impact. So in contrast kind of to the other groups, we can essentially let the immune system tell us what parts of the virus that it sees instead of kind of presupposing a target, which we -- one of the hypotheses, and we are incorporating this as well that the spike protein is a great target. But in addition to that, we can essentially let kind of the immune response from screening these antibodies tell us what the immune system sees to then potentially identify additional targets that we could go after.

And in terms of timing on both the diagnostic and the therapeutic, what would you be thinking about as far as data points that we should be thinking about or measuring you guys against? And when you think that something could be on the market, obviously, with the partnership with Amgen, a lot of that depends on the back end once you give them the information for them to manufacture. But how should we think about at least your milestones or your time frames?

Yes, yes. I mean starting with Amgen, we're on track on our part to be able to deliver our data package to Amgen this fall. And whether it's a monoclonal or a cocktail of antibodies, I think it's going to dictate the time frame for engineering and manufacturing and commercialization of the antibodies. But in terms of diagnostics, we believe that we need to be able to hit the kind of back-to-school market in the fall with a diagnostic on the market that and again, with the kind of initial starting point being to determine who has had the infection. And you should be in the next shorter period of time, we expect to be able to bring data to the market to show the progress -- the significant progress. We're really excited about the data that we're seeing. One of the hypotheses that we've had about the T-cell receptor signature are really coming to fruition, and you'll be seeing that kind of sooner rather than later.

Good. Have you talked at all about the commercialization strategy for the diagnostic? I mean, you talk about the back-to-school market just now. How do you go after that? Do you -- you guys I don't believe have any kind of commercial capabilities, really, kind of in that area or just even back to work. So how do you think about partnering, building up the sales force? What does that look like?

Yes. So we're going to leverage -- I mean, if you recall, our underlying fundamental kind of bread and butter immunoSEQ technology, we've already developed that to be a distributed product. If you recall, we launched at the beginning of this year, obviously, the time lines have been impacted by COVID-19, but we launched a research-use only kit that showed a really beautiful concordance on a lab-to-lab basis. We also tech transferred the technology on a global scale. And as such, we've tech transferred to different countries and you're getting great data. So one of the things we're hoping to do is avail ourselves of the emergency use authorization pathway and essentially partner with groups such as LabCorp to be able to scale and deliver the technology, to be able to truly deliver what's necessary to have a scaled test for the fall. So that's how we're thinking about it, not only in our lab, but also to be able to transfer the technology to the high throughput, high complexity labs to be able to deliver on that for the fall market.

Yes. And that's an interesting market that you talked about, the back-to-school. I know a lot of people are targeting that. You guys are also talking about first responders and frontline workers as well for this test, correct?

Yes. One of the hopes is that there's -- that's more in terms of the therapeutic, in terms of kind of a temporary immunity-based antibody. I want to be practical here, Brian. I think there are certain limitations of our test, right? It's a high -- it's a next-generation sequencing test. It's going to require a blood sample, so you will have to do phlebotomy. I don't think that our -- I think over time, we can get there as we bring down turnaround time, as you bring down cost of goods sold. But in terms of kind of the health care worker going in on a daily basis and getting their temperature and/or a PCR swab, I don't think that's going to be our initial kind of product market fit.

Of course. No, that makes sense. Okay. Pivoting back to kind of more your legacy business for a minute on the clinical side, clonoSEQ has seen good uptake to date. Of course, it was impacted by COVID-19, you gave a nice update on that at the beginning of this webcast. But can you talk a little bit about what makes this product unique and some of the market development efforts and opportunities that you have to accelerate growth here?

Yes. Sure. If you look at growing into the total addressable market opportunity, which we've estimated about $4.5 billion, it's really derived from 4 different areas. One is expanding indications, as we move from ALL, multiple myeloma, the next one is CLL and then moving into the basket of non-Hodgkin's lymphoma. So that's kind of number one is indication expansion. Number two is moving into blood-based testing. And as you know, we submitted CLL in the blood as our first testing. And in advance of that, we've gotten CMS through the MolDX program for -- we've got a coverage decision on blood-based testing and ALL, multiple myeloma and CLL. The third, which I just referenced, but as a broader category is increasing payer coverage both from existing -- expanding indications into the blood-based testing and really more time points in lines of therapy. And then the fourth is more time point for patients. So we have really this land-and-expand strategy, where we get a clinician using for one-time point, getting use to the data and then using it across the patient care continuum on different therapeutic decisions, whether they be in and around transplant, confirmation of the CR by traditional methods and/or maintenance therapy decisions. So those are really the ways in which we see the business growing over time.

And as far as the product itself, can you talk about what makes it unique versus kind of more traditional technologies like flow?

Yes. So this is what we've called kind of the low-hanging fruit, because we're simply counting cancer cells at really high levels of specificity and sensitivity. So what's different -- and I actually want to kind of bring up this point. MRD, in general, has been now a term that's incorporated solid tumors, where you're looking at kind of mutations that have shed from the solid tumor into the blood. And that's what other companies are doing, such as Guardant or Foundation Heme. But what we're doing and one of the differentiation is, we're talking about minimal or measurable residual disease for lymphoproliferative hematologic malignancies. So that means that it's a cancer of the immune system, is actually a cancer where the T-cell or the B-cell is the malignant clone and that one cancer cell winds up kind of metastasizing and growing out of control. And so at diagnosis, we're able to identify that high-flying cancer clone with the goal of therapy then to knock down that cancer clone. And then what we're able to do and where we differentiate is we're able to then go in and use our technology to find the exact number of those cancer cells or those remaining cancer cells or the burden of your cancer posttreatment, and we can find the host cells as a numerator with the denominator being all your other kind of total nucleated cells. So what we're able to do is find that at a sensitivity level and a specificity level that's extremely quantitative, extremely accurate. So we can essentially tell a clinician and a cancer patient, you have this amount of cancer cells left after treatment. And what's really interesting about that is the dynamic nature of that. So we can track the progression of that over time. Is that disease burden going down? Or is it going up? And unfortunately, if it's going up, these are relapsing diseases. So it doesn't start going up and then going back down without a therapeutic intervention. So the goal is to get a patient where it's going down and into remission. And then during that remission period, test that patient and then over time, that when that disease kind of starts to relapse, catch it earlier, and then they go to kind of that next line of therapy the patient does.

Yes. Makes sense. Okay. An area of interest has been the partnerships with pharma companies for clonoSEQ and for immunoSEQ. Can you talk about at a high level, how do these work? How big they are now? I think you had some updated numbers on the last call on that. And what areas are being targeted specifically?

Yes. So let's just first start with our partnership with pharma on MRD, which started looking at one therapy at a time and now have more to at least in a couple of our deals to really pan portfolio deals, where you're looking at, for example, the last one we announced with Amgen to look at any hematologic malignancy drug that kind of fits MRD-based testing, clonoSEQ has now incorporated into their clinical trial design, for which we have -- at least in -- I'm going to use more broadly because we don't talk specifically about milestones for specific deals, but for many of these deals, we have milestones that are available to us. A lot of those are based on MRD as a surrogate and/or primary endpoint, when the FDA essentially says that you can use our data to essentially declare success or stop a trial based on the MRD status of that patient cohort or that patient population, that the drug can be approved based on that status as a primary endpoint. So that's where a series of these milestones have started to accrue, of which I think the updated number is about $270 million based on some recent deals that we've signed, and that's actually updated from the first quarter number. So over time, as you see that both in the United States through the FDA and the EU, you'll start to see those milestones are available to us, we will start to be able to kind of draw down on those. Separately, we've got some translational deals around IO portfolios, where we essentially are able to kind of segment patient populations and stratify based on response, and essentially trial design, if you think about it that way. And some of those also have different milestones associated with those as well. One of the big areas of growth for us, though, or potential areas of growth for us in the immunoSEQ research business, is expanding the use cases and the uptake outside of the oncology area. And so we've got -- we're starting to build that immunoSEQ research team to prospect in infectious disease, the autoimmune category and other immune-mediated disease categories, like even kind of inflammation and certain neurology, et cetera, that -- where your immune system plays a role and understanding the immune response to those diseases would play a role in trial design.

I'd love to get into all that in a lot of detail. We have about 2 minutes left though. So I don't think we're going to -- get into the details on that, but that's super exciting stuff. I know we'll hear more about it from you guys in upcoming presentations and whatnot. I guess just to sort of wrap up here, you guys obviously have a lot going on, right? So is there a way that you can sort of just give us an idea about what we should be thinking about the key catalysts across the business again and sort of summarize that for sort of through the end of the year? What the key milestones are that we should be thinking about from the company?

Yes, sure. Let's go through the speed round and do this product-on-product. We've got 2 products on the market with immunoSEQ and clonoSEQ, and then the product development pipeline with immunoSEQ Dx and then now the drug discovery opportunities with Amgen and Genentech. Starting with immunoSEQ, we launched the RUO kit. It was put on hold -- not put on hold, but it was impacted significantly by COVID. We can look to reaccelerate that. And as I mentioned, you'll see us kind of moving into different disease categories. And I think COVID will help catalyze really, essentially the awareness of looking at the immune response to any disease, and we're looking to leverage that to essentially kind of continue to amplify the underlying research business. In clonoSEQ, we've been talking about this summer, getting an approval to market CLL, an approval by the FDA. And in addition to that, we've talked about filing an ALL by the end of this year. We also are looking to continue to increase the covered lives under payer contracts, and that will continue. And then kind of moving -- continuing to increase our blood-based testing and the adoption -- the clinical adoption. The final point on clonoSEQ is you will see this fall our first kind of really direct-to-patient marketing campaign. We're encouraging patients to have conversations with their doctors about incorporating clonoSEQ into their treatment decisions. Then on kind of moving to Genentech. As we mentioned, we're gearing up with Genentech to file our first IND on our first shared product. In the meantime, we're starting to scope our second shared product. And we've recently -- Genentech Roche had recently moved the program from kind of research to early development, which essentially triggered a significant increase in capital to the projects. And at the same time, we've moved forward with moving to prototype our personalized product to work on that in parallel. And then finally, with Amgen, as I mentioned, we're delivering those packages over in terms of neutralizing antibody candidate therapies in the fall, and that will be kind of a nice proof point that we can at least do our part in terms of the discovery work for antibody therapeutics.

So not much going on. That's great. No, you guys are super busy, and congrats to you on all the success that you've had and look forward to hearing more about all these different programs at some point in the future. Thanks for joining us today. And thanks, everybody, who's online for joining us. Chad, we'll talk to you soon. Thanks for doing this.

Thanks, Brian. I'll see you on the ride.

You got it. Take care. I'll see you there.

Okay.