Adaptive Biotechnologies Corporation (ADPT) Earnings Call Transcript & Summary

Hello, everyone. Good afternoon. Thanks for joining us today on day 2 of our healthcare conference. I'm Tejas Savant, and I cover the life science tools and diagnostics sector here at Morgan Stanley. I'm delighted to have Adaptive Biotechnologies join us today. And representing the company is Chad Robins, CEO. Thanks for joining us, Chad. Before we begin, I just want to read a quick disclaimer. Please note the webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. The webcast is not for members of the press. If you are with the press, please disconnect and reach out separately. For important disclosures, please see morganstanley.com/researchdisclosures. And if you have any questions, please feel free to reach out to your sales rep.

So with that, Chad, I mean, maybe just to kick things off, can you just go over, in your mind, sort of the value of the immune medicine platform? And what's different between your approach and what other folks are doing? What's truly proprietary that enables you to sequence these TCRs and BCRs at much greater scale than other technologies that aim to do the same thing?

Sure. Happy to do so. But first, Tejas, thanks for hosting. And congratulations on the new role. So our value proposition is really based on 2 premises. One is that the Adaptive immune system diagnoses and treats most diseases in exactly the same way. And second is the information about how this does this is it's held within the genetic code of these immune receptors, these T and B cell receptors. So our value proposition has been to build a proprietary immune medicine platform that's able to translate the genetics of the Adaptive immune system, these T and B cell receptors, into clinical products to improve the way in which we diagnose and treat disease. And there are really 3 moats around the business that makes this approach incredibly unique. The first is that we have a set of core intellectual property around kind of this underlying technology and chemistry for sequencing, for mapping and for characterization of the receptors and IP around applications, for example, MRD monitoring. The second moat is around really computational biology and machine learning, of which we developed our own core capabilities. And as you know, we partnered with Microsoft to enhance these capabilities. And the third and perhaps most important is this massive -- right now, we've got the largest immunomics database in the world, with over 47 billion receptors in it today. We're already light years ahead, but this data advantage will continue to grow as we continue to add receptors and annotations of mapping information into the database. And so it's really the combination of all these elements together, which represents, I would say, the largest or one of the largest applications of NGS, and it makes us a truly open-ended growth story because we're not focused on any one singular disease. It's truly focused on a biological system, which allows us to study many diseases all at the same time. And we do acknowledge that there's a variety of good competitors at the product level, but there are no direct competitors for Adaptive, what I'll call, at the platform level of this immune medicine platform to tap at the amount of clinical opportunities that truly derive directly from this platform that we've built.

Got it. So that's actually a great segue to my next question, which was around just a number of use cases that you enable between research, discovery and diagnostics at the company-wide level. How do you go about sort of prioritizing across that immense opportunity set?

Yes, sure. Tejas, that's a really good question. I think as most companies have, we have dedicated commercial teams focused on what I'll call inline or our current products in the marketplace. And we have a shared research and development organization that looks at both kind of pipeline opportunities and product line extensions. But on top of this, we layer a portfolio committee and a program management office that allows us to kind of allocate the shared resources across the programs that's based on a variety of different inputs. So we look at market opportunity, phase of life cycle development, the time and resources it would take to get a product to market. And we put all this together to estimate the expected rate of return from the various investments and capital allocation that we make in order to prioritize the opportunities. One really good example of this is COVID, I mean, no one expected the pandemic to hit in March. We mobilized quickly because we recognize the capabilities of what our platform could do across life science research, clinical diagnostics and drug discovery. And without getting into specific details, as I'm sure we'll do later, we -- let me just kind of give an example of kind of the leverage and why we prioritize that opportunity. We thought that COVID not only could be a great proof-of-concept for the platform, but we could also accelerate the immunoSEQ Dx pipeline, kind of, and leverage the learnings and the workflow that we had to put in place to -- that we're going to launch a COVID test to other indications that are in development from our pipeline. The ability to take advantage of the EUA pathway from the FDA, it will, we believe, allow us to expedite bringing to market immunoSEQ Dx opportunities in other indications. And similarly, in immunoSEQ T-MAP COVID, we brought really the mapping capabilities to the research products, and now we can enhance a research product to other areas of the business. And finally, within a 6-month time frame, we were able to stand up an antibody discovery platform to find great neutralizing antibodies against COVID that we think not only is going to be applicable to this current pandemic, but it's also going to be really important for kind of future disease states and other indications. So this is like a great example to say, look, there's product opportunities from this. There's workflow and essentially learnings that we can leverage to other opportunities and a new platform we could build. So we said let's move quickly, put capital in because it's going to lead to a great return on the business.

Got it. So on that note, Chad, maybe we'll just dig a little bit into sort of your COVID efforts. On the SARS-CoV-2 test, I mean, have you thought about the possibility of developing a syndromic panel for multiple sort of respiratory conditions? There is clear need for that and, obviously, in a sense, that's the power of the immunoSEQ approach.

Sure. So let me bring it up a higher level before kind of I specifically go into that. So first, as a reminder, this is going to be the first T cell-based diagnostic test for COVID-19 period. And we believe that it's critical that we include both the T cell and antibody response. So this is the humoral response and a cellular response [indiscernible] for the receptor response. That's going to enable us to fully understand how our immune systems are seeing and responding to the virus. So let me kind of tell you the pathway to what we're doing. So first, we're submitting EUA under the serology pathway and expect to be able to launch a test this fall. So -- and notably, our first kind of head-to-head in a real-world setting shows greater sensitivity for our test versus the 2 serology, the leading serology tests on the market. We're now at 94%, up again from the time of earnings, versus 90% and 87% for the serology test. We're actually in process, if it's not up already, we're updating our med archived manuscript with the data. So how we see this is like, right now, it's going to be a better test to determine past infection. And notably, and admittedly, this is a -- it's going to be based on the fact that it will be a higher price point, that's going to be a smaller percentage of the -- I think it's a 17 million projected annual serology tests that are done right now are projected to be done. But however, where we see this volume expanding is when we generate data that has kind of -- that shows truly unique and differentiated capabilities of a T cell test in the setting of asymptomatic or mildly symptomatic patients and in the setting of patients that have received a COVID vaccine, once this vaccine comes on the market. So now in terms of developing a panel, we're in contemplation right now and assessing kind of from a research perspective, but I don't have a time line yet on a -- annual panel yet to differentiate between different infections. But that's how we're thinking about kind of bringing the test to market, what the utility is now and what we truly can be in the future. So that's how we're thinking about it.

Got it. Got it. That makes a lot of sense. And then in terms of your Amgen collaboration, are there any updates there in terms of where they are in the thought process? You're going to submit the candidates to them and they were supposed to sort of pick one or multiple ones.

Yes. So first of all, we're extremely enthusiastic and excited. We've actually found some excellent antibodies, which are in the final stage of testing that we'll be presenting soon to Amgen to assess for -- to bring forward into kind of manufacturing and commercialization. So the capabilities, as I mentioned, that we develop, we believe is, again, really excited about what we're seeing and to differentiated antibodies that we're able to derive from the platform and that are just on its final stages of kind of neutralization assays.

Got it. Got it. And then just circling back to the base business, clonoSEQ MRD, can you talk about sort of penetration versus flow today? And following FDA approval for the blood version and your ongoing marketing push there, how should we think about the inflection point in CLL?

Yes. Yes, actually, that's a great place to start with, Tejas, in CLL. So first of all, the approval of CLL, that actually doubles our serviceable, addressable market opportunity. It actually increases the opportunity by 50% of the U.S. patient population. And it's really important, too, to note that this is going to be focused on the community oncology setting. So one of the things that, that does is as you start to pick up clinicians that are using the test in CLL in the community, those doctors, unlike some of the kind of Tier 1 institutions or Tier 2 institutions that are specialized by disease indication, those doctors are kind of an all-comer for these lymphoid malignancies. So once they get used to the data and are seeing how the test works in CLL, then they'll start using the test in other disease areas, such as the approval of ALL multi myeloma and eventually non-Hodgkin's lymphoma. So that's important. And secondly, the second part that's important about CLL, too, is, as you highlighted, this is a blood-based indication. So showing the importance of the data, the convenience of the data for the patient population is clearly a less-invasive test than a bone marrow draw, that will enable essentially the increase of the number of tests per patient. And the final point I want to make, this is kind of really goes to your question on uptake and penetration of when we will see the inflection. We do -- as we launched it, we really -- we are -- I've been told to be tempered, but we're enthusiastic about the numbers that we've been seeing. But we've always talked about kind of the true inflection is the uptake in 2021. But what's happening, there's a lot of parallels to kind of Darzalex and Kyprolis with multi myeloma. When you see VENCLEXTA, you have -- and other therapies that are showing, really, that they're working in patients. And as these therapies are working from a therapeutic standpoint, what that means is you need to be able to determine the disease burden of the patient to see what is the response to the therapy? And how does this -- the disease burden change over time with this new arsenal treatment option? So that kind of works in parallel with the uptake and increase of the test. But we do expect to see continued quarter-over-quarter growth with the inflection, as we've always talked about coming in 2021 from CLL. Now as we kind of tick through the other -- I can give you kind of just a sense of -- in terms of kind of penetration from a number, we've talked about their 250 Tier 1 and Tier 2 institutions that there are active treatment for the lymphoid malignancies, which are -- which we kind of currently address, which is about 70,000 patients. And we're at about 169 kind of ordering institutions right now. And the goal within those ordering institutions is to increase the number of health care providers with -- within each institution and the number of patients so that each health care provider uses it on all their patients and then increases the number of tests per patient. And if you build up that model, that's where we see kind of that, really, penetration and capturing what with this significant total addressable market.

Got it. And then…

I hope I answered all your questions there, Tejas.

Yes, you did. And then in terms of the remaining indications, Chad, I mean, do you expect FDA approval in blood for ALL and multiple myeloma to be a meaningful catalyst, given that you already have Medicare in place there? Or is it more just sort of a nice to have maybe some incremental penetration in the community setting? And then is NHL still after that sort of a 2022 catalyst for you?

Yes. Actually, that's a great thing to point out, right? We do have already got reimbursement in place by Medicare and are going through the private payers to increase penetration. And I think the most important thing in diagnostics is market access being paid for your test. And given the fact that we are able to run all these indications and sample test, sample types, excuse me, in our CLIA lab, and we're already covered on those from a commercial perspective, I would say the FDA approval is less important, some of the original reasons that we got FDA approval related to being incorporated into pharma trials. But as we have become kind of the technology of choice for lymphoid malignancies and hemolytic malignancies in pharma, as we continue to make investments in direct-to-patient marketing campaigns, that increase -- those uptakes aren't as related to FDA approval. So we're going to continue from a commercial perspective to evaluate the pathway, whether it be FDA or CLIA, which makes most economic sense in each indication in order for us to actually accelerate commercialization. So if that means that the CLIA pathway is a faster pathway where we get on market and increase penetration and bring on kind of earlier revenues, we're going to do that as well. But just to tick through, data in blood, you have asked specifically about blood. In ALL, our clinical validation is complete. We are in discussions with the FDA, should that path make the most sense to get us on market quicker. For multi myeloma, there is still data that needs to accrue from the FCI chem 106 study that we're looking. So we're waiting on a best still in that trial. And then, so the final component, NHL, we're already running several investigator-sponsored trials, and we're on several pharma trials that are using clonoSEQ. And the data is continuing to develop. I don't have a specific time line for you yet, but we'd be hopeful of 2022, but it's really going to be a matter of how the data plays out.

Got it. And then just one last one on clonoSEQ. In terms of your kit strategy, I know you were sort of evaluating it versus a tech-transfer approach. Have you sort of made up your mind as to which way you're going to go and pursue that ex-U.S. opportunity?