Adaptive Biotechnologies Corporation (ADPT) Earnings Call Transcript & Summary

Good afternoon, everyone, and thanks for joining us for the last session of our health care conference. We're pleased to have Adaptive Biotechnologies with us. I'm Salveen Richter, biotechnology analyst at Goldman Sachs, by the way. And with us from Adaptive, we have Chad Robins, CEO of the company.

And with that, Chad, maybe as we start here. Adaptive has 2 commercial products, immunoSEQ and clonoSEQ. Can you briefly remind us of the settings in which they're used and the growth levers for both of these on the [ ford ]?

Sure. Happy to. First, Salveen, thank you for having me. And hopefully, I can do you justice by batting cleanup in the last spot here. In terms of the 2 commercial products, so immunoSEQ is our research product offering that leverages the capability of our immune medicine platform to sequence the DNA of immune receptors quantitatively at extremely high throughput. It's used by academic researchers and by pharma companies as a much more sensitive way to profile the immune response of any disease. Just some quick stats. It's been used by over 2,000 academic researchers and 165 different biotech and pharma companies in over 100 -- sorry, over 650 trials to empower the discovery of both new prognostic and diagnostic biomarkers in cancer and other immune-mediated diseases. It represents a $1 billion total addressable market opportunity. It's largely comprised of the opportunity for pharma to incorporate immunoSEQ into their translational research. In terms of growth levers, it's a dual offering as both in our own service lab and as a research use only kit that can be distributed to other researchers' labs. Also, we're looking to grow market share in therapeutic areas outside of oncology. We're moving into later-stage clinical trials with -- that really come with much larger sample sizes. And fourth is really expanding outside of the United States. Moving on to our first clinical diagnostic product, which is called clonoSEQ, that also leverages the ability to sequence immune receptors. And clonoSEQ is used to monitor minimal or measurable residual disease in certain types of blood cancers, and this represents a $4.5 billion global market opportunity. Just some quick stats on that as well. It's FDA cleared for multiple myeloma and B-cell acute lymphoblastic leukemia. And we're expecting clearance for CLL in the blood later this summer, as we've discussed. ClonoSEQ has been used to guide treatment decisions for over 10,000 patients to date and over 150 institutions in the United States. Growth levers for the clonoSEQ business include continuing to expand into other indications beyond ALL multi myeloma and CLL, moving into the blood, expanding our payer coverage and growing the number of time points per patient, which we can talk about later on in the presentation. All of this we're overlaying a set of investments in patient-centered programs. And I think it's important to note, too, in response to the impact of COVID-19 on clinical care, we also recently partnered with LabCorp to enable remote blood collection at really convenient and safe locations that are an alternative to inpatient visits.

And then to touch upon 2 other verticals that are going to be growth drivers on the [ Ford ]. So you're pursuing diagnostics with immunoSEQ Dx, where you're incorporating machine learning via Microsoft and then you have a drug discovery business, starting with your cell therapy in oncology collaboration with Genentech? And post that, you have your own in-house plans on this vertical. What about the Adaptive story as it relates to these efforts may not be well understood or overlooked by investors?

Yes. Well, first, Salveen, I think the key to understanding the true power of Adaptive is to recognize that our immune medicine platform is the basis of really, what I call, an open-ended clinical product development engine that spans both diagnostic, such as immunoSEQ Dx, which you mentioned, and also therapeutic opportunities like the cell therapy deal that we did with Genentech and oncology. This isn't really typical in our industry where you're either focused on diagnostics or therapeutics. But it is fit-for-purpose for Adaptive because the clinical products that we're developing really mimic the inherent biology or what the immune system does naturally, which is both using these immune receptors to both detect and to treat disease. And so all of our product discoveries emanate from the exact same platform. So there are massive economies of scale both for -- in how we discover new products stemming from the platform and for the expansion of each product into new disease states. And this really gives us this robust pipeline of high margin, immune driven clinical products across multiple disease states. And so once we discover a new product that we feel has a strong product market fit, we can then evaluate the commercial pathway for each product. If you look at kind of to date, we've chosen for our diagnostic product to commercialize that ourselves. And conversely, on the pharma side, we've really been a partner where we deliver therapeutic grade immune receptors that enable the pharma partner to commercialize a product. But in the future, we can evaluate and we will continue to evaluate the best path forward that we think will maximize the commercial opportunity for each product we discover.

So I guess, Chad, in totality, where do you see the company on the -- given all that you have? Where -- what's the position of the company in the next 5 years?

Yes. Continuing on this theme, I think over the next 5 years, we see -- or I see Adaptive being kind of widely recognized as a clinical product development engine that leverages our unique and proprietary immune platform to discover and commercialize a portfolio of products that transform the way in which we both detect and treat disease. And so if you look at kind of that revenue contribution, that means that we will continue to grow both the existing businesses of immunoSEQ and clonoSEQ, but there'll be a much more significant contribution from the immunoSEQ Dx pipeline portfolio and our drug discovery deals, our partnerships with both Genentech and Amgen, and hopefully, others in the future. And so we'll have a new pipeline of clinical products in development and a varied set of channels through which our products are -- can be delivered to our customers. And one important note that I do again, going back to your earlier question about what's been overlooked or maybe not so widely understood, is that 5 years from now, the size and scale of our clinical immunomics database is going to be massive. And it will be light years ahead of where it is today, and will provide this very significant competitive advantage in terms of its robustness. We suspect that we'll have billions of immune receptors that will be mapped to hundreds of thousands of clinically relevant antigens for each disease, and that will make our product offerings even stronger.

Great. And you mentioned Genentech and Amgen, and we've talked about Microsoft here, but you've clearly done a few collaborations. How are you thinking about your business development strategy as you grow?

Sure. So if you look at our business development efforts, which is now run by our newly promoted Chief Business Development Officer, Sharon Benzeno. They really cover 3 distinct areas. One is, we have these bespoke diagnostic deals with pharmaceutical companies. And they've generated a $270 million of potential milestones that are available to us over the next few years. The second component, and this is indicative of our partnerships with Genentech and Amgen is, we have a deal structuring and alliance management function for these large types of partnerships. And then the third area, which we haven't done as much of, but we'll continue kind of looking in the future is having us -- we have a search and evaluation function that explores platform extensions and any vertical integration opportunities. And as I mentioned, I think like our current model for diagnostic products is to develop them ourselves. But I think in the future, looking at different distribution channels for them is going to be an important -- if we think of ourselves as a product development engine, we can take some in-house, and we can choose which ones that we want to kind of wind up partnering with for distribution. And we're extremely diligent when it comes to business development, our partnership. It's really a critical component of our capital allocation strategy. The fact that these world-class partners such as Microsoft, Amgen, Genentech. They've really selected Adaptive as their discovery engine. It's really a testament to the uniqueness of our platform and our ability to collaborate and move science ahead so quickly.

Are there any technologies that you're looking to add to your toolkit?

We look at -- we're looking at different things, for example, around kind of vertical integration, both in cell therapy and how we look at collecting samples. We're continuing to look at sequencing technology. So there are different areas that we think are important in terms of kind of vertical integrations. And one area that's new to us is our capabilities in antibody discovery with Amgen. And I think over time, we're going to look to -- as we think about that space and the learnings that we have, that's, I think, a key area that we would look to potentially expand our capabilities in.

Great. So maybe moving to COVID-19, and you just mentioned the Amgen collaboration here, and you're developing a neutralizing antibody therapy to prevent or treat the virus. Can you discuss the approach here to antibody design for SARS-CoV-2? And just talk about whether you think a single antibody will be able to neutralize the virus or whether you think a cocktail of antibodies is most efficient? And how are you differentiated?

Yes, sure. So first, I think it's important to note that we've had a multiyear relationship with Amgen that's been in place around the clonoSEQ and our ability to work with their hemologic malignancy portfolio around measuring minimal residual disease. So this is just kind of adding a new dimension to our partnership to identify candidate neutralizing antibodies from the blood of patients who are either actively fighting or have recently recovered from COVID-19. And our goal is to find the strongest antibody or cocktail of antibodies to deliver to Amgen, so that then they can use their world-class capabilities to engineer manufacturing and then commercialize these antibodies. I think it's too early to say whether it's going to be a monoclonal or a cocktail. My hypothesis would be that it would be a cocktail. And our approach is based on the premise that our platform allows us to look at all of the activated antibodies in many patients all at the same time, who are currently fighting the virus or recently recovered. And then just like the Genentech deal for T-cell receptors, we can then funnel the antibodies down through a series of assays and techniques to find the best antibody or set of antibodies. And then this will dictate whether it's a single antibody or cocktail of antibodies. And at what point along the treatment continuum we believe that an antibody therapy would potentially have the greatest impact. I've used this analogy before, but we're kind of truly, this ability to kind of scout all the high school -- it's like scouting all the high school basketball players at the same time to find the Michael Jordan of antibodies. And I think the differentiation is that we've got the speed and scale that allows us to assess this broader pool of possible antibodies all at the same time. And where we're differentiated, as opposed to preselecting a target, we can let the immune system tell us what target to go after. And so that's really -- and I think there's some great hypotheses out there about going after the spike protein, which many groups are doing. That's one of the things we're doing as well. But really the differentiation comes when we let the immune system tell us which parts of the virus it sees instead of having to preselect.

And then with regard to the diagnostic test that you're developing for COVID-19 in your collaboration with Microsoft. Can you touch base on the press release this morning that talked about the immuneRACE study? And then discuss where the diagnostic test currently stands in terms of timing here? And where it's going to fit in, I guess, in the treatment paradigm. Is this a serology and PCR test in one?

Yes, sure. I can touch base on that. So Microsoft and Adaptive together launched a study called immuneRACE, which is a virtual clinical study to develop a novel diagnostic based on the immune response to COVID-19. And it's also an open study, which we'll talk about in terms of the release today on ImmuneCODE. But the study seeks 1,000 participants in more than 20 U.S. metropolitan areas who have been affected by COVID-19. To date, we've already been through a couple of hundred of these participates and -- participants, and we're seeing really, really, really encouraging data. The ImmuneCODE database, we did our initial release of that -- we announced that today and this is -- what this does is highlight the specific parts of the virus or antigens that our immune systems recognize and respond to. In addition, we contributed already some of the T-cell receptors that are specific to those parts of the virus. We -- just in terms of a cadence, we expect that we're going to update this database every 2 to 3 weeks as new samples are analyzed. And so over the next several weeks, we'll have analysis based on the immune response from thousands of infected individuals because we'll layer on top of the immuneRACE study. We have another 3,500 samples that we've contracted with for -- really across the globe that are then able to link T-cell responses to antigens and importantly, to patient outcomes. And that we can really also track the strength of the immune response. So -- but moving forward, and the second part of your question about where we fit in the diagnostic paradigm, our initial focus is going to be to introduce a new and more accurate test for past infection or who has had the disease, which is what serology testing is currently being used to measure. We believe that a T-cell receptor-based diagnostic that looks at kind of the cellular response to confirm past infection really will have very little to no false positives, which will help us give reassurance as you look at the society reopening and the back-to-school market. We also are testing at the same time, because it's the exact same test, that this T-cell receptor based signature can be used really across the diagnostic paradigm from exposure even in asymptomatic patients to infection to recovery. We're going to assess whether the dynamics of the T-cell receptors may be also able to help triage newly diagnosed patients and look at the severity of the response, whether you have to -- for example, you can ride it out at home and have corona light symptoms or whether you're in need of hospitalization and have mortality risk.

And what are the time lines associated with this program?

So the next set of milestones is, we're going to avail ourselves of the EUA regulatory pathway by the FDA, which, as you know, allows for emergency use authorization. We anticipate this occurring over the summer with the goal of -- we believe, in order to be effective, we're going to need to hit the kind of essentially back-to-school, back-to-work market around Labor Day.

Great. And so just moving on to your product portfolio here. So with clonoSEQ, I think you reported some impact for COVID-19 on volumes in the first quarter, but you saw some improvement in the first 2 weeks of May. Can you just comment on the current trends? And whether you're seeing a rebound as we approach the end of 2Q? Or how you're thinking about the trajectory here?

Yes. So yes, that's exactly right. We started seeing a recovery in the first 2 weeks of May. And we -- for the most part, most of our reps are still virtual, but there's been a trickle of requests for in-person appointments by some of the clinicians as you start to see cancer centers reopening. And we've -- but in general, though, we've seen new accounts are contributing faster than they were, and they're ordering quicker versus prior years. It's mostly because of the improved efficiency due to the investments we've made in the business. April appears to hopefully have been the bottom. Things are improving nicely in terms of clinical order and test volumes. And we're -- but I think that said, we're continuing to monitor these trends extremely closely. I think it's too early to kind of project out a trend line, and we're going to need to wait on that as well. As a side note, too, our kind of research academic business is, and kind of pharma trials business is starting to recover as well. I think it's -- slowly. It's not the rate of our clinical business. And it's also highly variable month-to-month, but we're going to need to see this mature a little bit more before we kind of start kind of projecting a trend line.

And when you think about current use versus the fact that you're seeing MRD negativity being brought in now for the first time as an endpoint for blood cancer studies. Now how much of a growth aspect is that side of it, the clinical trial side as a primary endpoint?

Well, as I talked about earlier, that large set of milestones that are on the balance sheet and available to us over the next few years. Several of those milestones are associated with the FDA allowing MRD testing to be an endpoint in trials, either as a surrogate or primary endpoint in clinical trials. So we do see that as a large part -- that -- technically, those revenues are associated with kind of the pharma business, not our clinical testing business. But it's interesting to see though -- if you talk about clinical trials, as investigators use the assay in the clinical trials and a drug is approved with them or even if it's not approved as a primary endpoint or circuit endpoint because of MRD-based testing. It's still important that, that clinician, if -- even if it's a label-enabling study, that clinician is going to be using clonoSEQ throughout the trial, and then will use it as a -- for clinical decision-making once the therapy is approved.

And moving on to immunoSEQ Dx. So you're launching a clinical validation study with IQVIA in Lyme disease, which should further support the proof-of-concept data to date. Can you discuss the specifics of data that you're collecting? And what you intend to learn from this clinical validation study?

Yes. And I can also talk about timing for that as well. So if you look at immunoSEQ Dx for Lyme, we've already confirmed the signal. And now we expect that we can start the clinical validation study this summer's Lyme season, in which we, as you mentioned, contracted with IQVIA. There -- just to put it out there. We understand there may be some risks associated with COVID-19 in our ability to kind of recruit. But in order to keep on track with these anticipated time lines. What IQVIA is doing is, we're now leveraging some of the kind of learnings that we had from COVID to enable kind of remote blood collection through mobile phlebotomy from what the immuneRACE study that we just talked about. And then this study is we call, ImmuneSense and also kind of introducing telemedicine alternatives as well, will enable us to hopefully be able to kind of hit this summer's Lyme season and keep on track with our time lines. We're also conducting national and local media outreach to drive patient engagement from this study. And what it is, is we expect to test over 1,000 people from at least 12 states to demonstrate the sensitivity and specificity of immunoSEQ Dx in Lyme, in patients with signs and symptoms of suspected Lyme disease. So initially, we're focused on generating data that supports market entry for the early and accurate diagnosis of Lyme for patients with nondescript symptoms that are suspected could be caused by Lyme. But we'll also be collecting up to 4 longitudinal samples for a year, to be able to answer questions about patients with recurring symptoms even after they've had a normal course of antibiotic treatments that are -- that's associated with Lyme treatment. And then what's interesting is that the data from the study will be relatively quick and will allow us to hopefully be on track to be able to submit a Lyme diagnostic application for immunoSEQ Dx to the FDA by the end of this year. And in terms of the regulatory pathway, we're planning to file through the standard FDA process. That said, I think that the immuneRACE study and our immunoSEQ Dx kind of COVID-19 test is -- should have, we believe, a positive impact on our immunoSEQ Dx Lyme, because we'll have just gone through the FDA. We'll have the opportunity to educate them as to how this works, because it's exactly the same chemistry and it just leverages a different software module.

So then translating that, I guess, over to celiac disease and ovarian cancer. What are the paths and time lines associated with those 2 programs?

Well, actually, let's take a step back, which is our -- how we select the diseases in the first place. And what we did was we initially selected an indication in 3 different disease states cancer, immune -- autoimmune disorders and then infectious diseases. And we select those criteria based on unmet medical need, really our understanding of the science, meaning what's the antigenic space associated with each one of those diseases. And then what do we have in terms of our access to well-characterized sample sets. And then we see -- how we see kind of the product developing is in 3 different phases. Really, Phase 1 is to go disease-by-disease. Phase II, we can really look at a panel of diseases where a patient comes in with a symptom that could be 1 of several diseases, and then we can have a really -- an accurate and differentiated diagnosis based on the platform. And then Phase III is to go after really this concept of being incorporated into primary care, or what we call population immunomics, where we can diagnose many, many diseases all at the same time. We're not -- right now, I would say that for celiac, we've got a study going on. It's still in the research phase and then so is ovarian cancer. So we're not being -- we're not ready yet to provide kind of a commercialization process for those. But we did hire a new SVP of immunoSEQ Dx, and he's building out the team to be able to commercialize immunoSEQ Dx COVID and immunoSEQ Dx Lyme, which really have many of the same characteristics, as they're both infectious diseases. Where serology testing is really the common test right now, but there's a lot of issues with the standard serology testings. And so this COVID -- because we were able to rapidly identify a signal in COVID in just a matter of really a few months. And again, I think the data is looking extremely promising, which is the same thing for Lyme. It's really crystallized our initial focus of immunoSEQ Dx in the infectious disease space.

Okay. And then what would the add be on the infrastructure side, if you look to address all these markets on top of what you currently have?

I'm sorry, Salveen, I missed the question.

Sorry, the add on the infrastructure side, be it sales reps or any other kind of infrastructural add that you need to address all these markets for immunoSEQ Dx?

Yes. I want to go back to this concept just to make sure this is widely understood is, the leverage that we get in terms of the platform. So to develop additional signal, we're now able to look at 7 or 8 signals a year with very little capital -- really little capital allocation to be able to do that to be able to assess each 1 of these signals. So as we then kind of move forward from signal generation to commercialization. How we wind up commercializing, whether we're commercializing certain diagnostics ourself or whether we wind up kind of partnering for that, will then dictate kind of how much capital will need to be deployed against those different opportunities. But what's really important to understand, it's the exact same sample. It's one test that has many test results. So there's 2 different components of this. One is building the map. And to build the map, we need to deploy several aspects of our immune medicine platform. We need to be able to sequence. We need to be able to map T-cell receptors to clinically relevant antigens. And we need to then overlay, on top of that, Microsoft's extensive machine learning capabilities, essentially to fill out that map disease-by-disease. But remember, once we've mapped a disease, it's the exact same sample. So we can take a sample from a patient and then run our bread and butter sequencing assay to look at all the receptors in that sequence. And then essentially map those receptors to that map we've built to be able to diagnose many diseases all at the same time. And all we have to do is ping the cloud as a software module. So there are -- there's very, very little incremental cost for delivery and minimal cost for a digital signal generation to be able to run trials based on this.

Got it. And then moving over to cell therapy here, which will be an interesting new venture for you guys. In 2020, I guess towards year-end, your -- we expect an IND filing for your first shared product with Genentech, could you just remind us on the current status of your program with Genentech? And whether this timeline is intact? And any insight you can give us into the product and the targets itself?

Insight into the product and the target. Let me be a little bit broader, and then we can do that. First of all, it's known that T-cell receptors are actually cancer-specific as opposed to CAR T, which bind to cell surface markers. So it's becoming kind of more widely understood that our platform can generate these highly potent T-cell receptors against cancer antigens and potentially, that can potentially can attack solid tumors. So going back, Genentech partnered with us and recognized these capabilities 1.5 years ago. And we entered into a collaboration to develop TCR mediated cell therapies in cancer in -- really 2 -- in 2 different areas. The first is shared products where we have T-cell receptors against known cancer antigens that are shared between patients. And then the second is in a personalized product where kind of each patient is a closed-loop experiment, where we can essentially develop a designer therapeutic for each patient based on being able to look at the specific cancer mutations in that patient's tumor, and at the same time, cross those with the T-cell receptors in that patient's blood and then be able to deliver those responding or potentially responding T-cell receptors over to Genentech to deliver back to the patient vein-to-vein in 30 days a personalized cellular therapeutic product. Now in terms of timing, we've already -- we've delivered the data -- the GLP compliant data package over to Genentech to be able to support an IND filing for the first shared product by the end of this year, and we've already begun to scope a second shared product. And at the same time, we're parallel tracking the development of the personalized product. We recently, as I mentioned on the last quarterly call, we signed a lease and are building out a prototype lab that we believe is going to be ready first quarter of next year to really prototype this personalized cell therapy concept which I just discussed.

And what do you think the points of differentiation here and the learnings as well for -- from other companies that are developing TCR products?

So going back, I think our approach is to read and translate kind of this natural language of the adaptive immune system. And so what's really differentiated here is our ability to -- it's the scale and throughput which -- with which we work. It's 2 components. It's -- one is we can really screen at massive scale and go way out on the tail to find those unique T-cell receptors, and then we can characterize them. So we've built a platform called true TCR that looks -- lets us look at properties of the immune receptors that make them great targeting molecules for therapeutic use. So on top of the ability to screen massive amounts of T-cell receptors, we can then also apply these assays and techniques to find out which one -- and they really fall into 3 different categories of binding, killing and safety. So we've developed assays that look at, for example, things like off rate and binding and then certain kind of unique cytolytic assays to look at killing and then cross reactivity assays. So now we can really combine these things and get down to the -- get down the funnel to find really those unique, highly potent T-cell receptors that can be then put in a cellular therapeutic product and delivered back to the patient.

Great. And are you solid tumors-focused solely here? Or are you looking at blood targets as well?

I wouldn't -- while we are focused on solid tumors, we're not exclusive to looking at solid tumors.

Great. Sorry. And then, Chad, maybe 1 last question here. You've talked about pursuing cell therapies in-house for autoimmune disease and potentially entering the field of cancer vaccines. Can you talk about your sole initiatives here? And maybe time lines as to when that -- those verticals might come into play?

Yes. I think it's too early to talk about what we're -- as you can tell, we're chewing on a lot here and have multiple initiatives going on. But we have talked about, Adaptive is really this open-ended growth story. And I think that's indicative by -- if you look at what we did with COVID, we were able to extend an existing -- the infrastructure with Microsoft to prioritize COVID-19 as a disease state and generate data very quickly. And at the same time, really, a new platform for us is developing antibody therapeutics, and we were able to essentially pull off the shelf a technology that we developed 5 years ago and quickly point that into kind of using -- leveraging or harnessing the power of antibodies therapeutically. And so -- but in terms of your question, there are a couple of areas which are -- we have a keen interest in. One is if you look at kind of the vaccine space and more specifically the cancer vaccine space. Instead of using kind of bioinformatics and a set of algorithms to pick the antigens and do a vaccine, we can actually go the other way and allowing your immune system to be able to tell you kind of what it's seeing to be able to essentially pick the vaccine -- excuse me, pick the antigen for a vaccine construct. And then secondly, there's been a lot of work more broadly right now in cell therapy. The space is heating up in kind of really autoimmune disorders. There is some differentiation in the type of T cells, CD8 T cells are implicated in cancer versus CD4 in autoimmune disorders. So there would have to be some additional work that goes on, but it's definitely an area of interest for us to look at how the learnings that we're getting from our work with Genentech, to be able to prosecute those in other areas outside of cancer is something that we certainly are looking to in the future.

Great. Well, with that, Chad, really appreciate your time today. Thank you very much.

Thanks, Salveen. And appreciate you hosting me.

Thank you.