Adaptive Biotechnologies Corporation (ADPT) Earnings Call Transcript & Summary

Everybody, my name is Doug Schenkel. I'm one of the analysts with Cowen focused on the life science and diagnostic tools team. It's my pleasure to welcome you as well as Adaptive Bio to the 41st Annual Cowen and Company Health Care Conference. From the company, it's our pleasure to welcome Chad Robins, the company's Co-Founder and Chief Executive Officer. Thanks for being here, Chad. We always appreciate the time.

Thanks, Doug, for having me. I appreciate it.

So for those of you new to the story, Adaptive's immune profiling platform is well-validated and its product pipeline continues to advance with over 380 issued and 60 pending patents. I think that's what we were up to a last count, I'm sure it continues to grow. Chad and his team have successfully demonstrated their regulatory and reimbursement prowess via clonoSEQ and several emerging products. For the next 30 minutes, our plan has been to talk a little bit about the platform, the outlook for 2021 progress across the base business as well as some pipeline developments.

That said, Chad, I think we wanted to kick it off just by talking about an 8-K that came out this morning. I know I took a quick look at it. I haven't spent a ton of time on it or thinking about it just -- with just what's been going on with the conference. I know you're always busy. I know folks on the line are busy as well, but I know this one is going to get some interest just given it relates to your partnership with Genentech. So would you mind just walking through what was announced in the 8-K and how you think about it?

Yes. Thanks, Doug, for the opportunity to address this head on and get started with this. So Genentech announced that it's suspending the first shared program. And I want to -- I just want to make sure it's understood that this has nothing to do with the technology. It has only to do with new information that came to light in the public domain in relation to the target. More specifically, the target had high expression levels in a healthy tissue on an organ. And the differential expression levels between organ and the tumor tissue weren't really differentiated. And so basically, it's going through kind of -- essentially, the next set of shared targets. As you know, we've done a lot of work on many different targets. So we're looking at this as kind of essentially next man up and we're expediting the next target. I can tell you, I was on the phone with Ira Mellman from Genentech last night. The enthusiasm for this collaboration is as high as it's ever been, both on the shared product and on the personalized product. This is just a short set -- slight setback in terms of kind of short-term timing, but there's no read through at all on the collaboration. And I also want to reiterate that we are reiterating kind of our guidance for the year. There's a lot of puts and takes in the business. And we believe that our guidance is within range. But the kind of one impact on the revenue recognition from the IND acceptance will be pushed into next year. That's the news. And we not only is Genentech excited about the collaboration, Adaptive is extremely bullish as well.

So no change in enthusiasm from Genentech or no change in commitment between Adaptive and Genentech to this important partnership?

None whatsoever. We're expediting selection of what was the second shared product to be the first shared product and are going to be moving full speed ahead.

Okay. And I know some of this is kind of making you say things in a slightly different way, Chad. But just to be crystal clear on this, the safety issue has nothing to do with Adaptive's approach or technology. This is all about that target. And consistent with that, that's why there's no change in focus or enthusiasm about this. It's not Adaptive. It's a safety issue with the target.

Correct. This is a safety issue that came up with respect to the target in -- really in the public domain.

Okay. And then time lines slipped a little bit, but it sounds like we're talking about maybe a few quarters, a couple of quarters, not years and years.

Yes. We haven't been specific on time line yet, but I think that's a good proxy for sure.

Okay. And then however we were thinking about the economics, maybe time line shift, but the economic possibilities associated with this partnership are the same?

That's correct. The overall economics of the deal shouldn't change kind of whatsoever other than kind of a shift in the $4 million to $5 million of revenue from this year to next year.

Okay. I think those are kind of the key but important basic things we've been getting from investors. I know we teed you up to just address things as you saw fit. So presumably, we've covered everything that you're hearing in terms of the questions you were getting from folks.

Yes. I think that covers it. And again, appreciate it. We want to be out in front of it and be very transparent. That's -- we're moving full steam ahead.

Okay. Yes, I wouldn't expect anything else from you, Chad. I appreciate it though. And I know it's not what you're -- not the outcome you were hoping for, but in the grand scheme of things, it doesn't sound like the biggest bump on the road. And I guess, in some ways, fortunate that we could just get out there and talk about it right away here. So I appreciate your candor in being so transparent.

You bet, Doug.

So let's take it up a level. A lot of times when I talk with investors they're inherently excited about the Adaptive platform and what you're doing uniquely relative to certainly anybody else in the space on which I focus. But there's always a little bit of debate or at least discussion about kind of what's the most exciting part of the story, where most of the value is really derived. When you think about what you and the team have built, what gets you most excited? When I talk to my tools and diagnostics folks, they're excited about that side. Then the biopharma investors will come in and lecture me that I'm not giving you enough value for the drug pipeline. How do you think investors should think about this? And then I got one more follow-up. I know I'm kind of asking you to pick your favorite child. So sorry to do that right away. But how do you think about Adaptive and where people should assign value?

It's funny you said that. I was just going to use that line, Doug. Can I pick twins?

Sure. Yes, there you go.

I don't know Doug, the beauty of Adaptive is that we're not dependent on any single product or business area. So I mean, of course, all the parts of the company, we think are important, but I'll pick 2. One is -- that we're extremely excited about is T-Detect. And as you know, the launch of T-Detect COVID is a really huge milestone for Adaptive. It's the first stepping stone in what I'll call a franchise of T-Detect products that will come out. And what this did, if you think about it, as it made T cells relevant in a totally new way. I mean, this is the first time that we're using T cells and essentially reading on how -- reading how our bodies naturally detect disease. And it's not just for COVID, but it's for every disease because T cells are the critical component of the immune response. And now we've made this kind of integral part of biology accessible. And what we did, if you think about it, in really the first try is we proved that T cells can detect disease as well or better than any serology test that has been made by dozens of companies over decades. And I think that's important on the first go around. Harlan used a great analogy last week. This is kind of equivalent. This isn't -- the T-Detect COVID isn't going to be kind of our long-term go to product for COVID, it might not be the engine, but it's kind of like the Tesla Roadster. This proof-of-concept that Tesla is better than Ferrari, it's just a great starting point, in really our first go around. So extremely excited about that. And I could stop there. I was going to talk about kind of drug discovery effort.

No let's do that. And I do want to come back and talk about T-Detect, but I don't want your second child to get upset with you. So let's make sure we talk about that.

So -- yes. I mean -- so drug discovery arguably has the biggest total addressable market opportunity. But what we're really most excited about is this concept of a private product or creating a designer or bespoke therapeutic for every cancer patient because every patient's cancer truly is unique and this idea that we can kind of simultaneously look at the mutations in that specific patient's tumor and at the same time, fish out of that patient's blood, the T cell receptors that are responding to that tumor and essentially grow those up and infuse those back into the patient. We believe that this has opportunities to attack tumor types that are currently inaccessible and could really be kind of the future of medicine. So extremely excited about that.

Yes. It's kind of -- I mean, the way I'd sort of dumb it down for myself, and I know this isn't perfect, but it's -- I mean, you're kind of the 1 company where what you're developing on the diagnostics side, that diagnostic effectively can become the bespoke therapeutic, right? So I mean, it's almost like the test eventually becomes the drug as well.

Yes. It's a great point, and it all centers back to the biology of the immune system that you have these immune receptors that detect disease. And once they detect disease, they spring into action, and become essentially targeting molecules and kill disease. So that information and that growing database of connections that we're making, we do believe will have a significant read through to therapeutic targets. And so absolutely, that's a great point, and that is something we're excited about. And frankly, what leads us to how I think about Adaptive is this clinical product development engine, and we're going to be able to essentially leverage these capabilities for drug discovery for many different disease states.

Chad, you touched on some of this, but I mean, just to go through some of the recent product announcements and advancements. You launched immunoSEQ T-MAP COVID for use by biopharma companies developing vaccines against SARS-CoV-2. You partnered with AstraZeneca for use of immunoSEQ T-MAP for, to your point, mapping T cell receptors against something different. In this case, it was cancer antigens, so that speaks to the multi-disease capabilities of your platform. And then you also announced that the T cell-based diagnostic test, T-Detect for SARS-CoV-2 was soft launched late last year and getting going now. So just a few follow-up questions on those announcements. A full launch of T-Detect COVID, I think is planned, or you said is planned for early 2021. Is that still how we should think about it? And how does the FDA play into this?

Yes. So we did do a full launch of t-detect.com is the portal for our T-Detect COVID. I'll talk about EUA in a minute, but the full launch, we now have got a virtual provider who can authorize a prescription online. And that really makes the ordering process a lot more convenient. And also the other component of the full launch is that patients had the option to get their blood drawn now at over 2,000 LabCorp sites. Or by a mobile phlebotomist at their home or whatever the desired location is. And we started -- when I say full launch, it's a managed digital campaign right now. And the difference between that is and the soft launch is we already have about 650 tests sold and signed about 13 concierge medicine practices with absolutely 0 marketing. And just people finding this online looking for T cells and COVID. So that did give us kind of some excitement for the product launch. Also, what I think is important as we look at the launches, we -- we're doing this post-market research that's going to answer a host of different questions in relation to kind of durability of vaccines, booster shots, a whole host of questions that we think that T cells may have an opportunity to answer. And about 60% of people have so far opted into being part of this research and interested in understanding more about immunity, T cell and molecular immunity COVID. Related to your question on our discussions with the FDA, we are in a very active review process with the FDA. They've been very -- the FDA has been very supportive. They absolutely see a need for T cell-based testing to assess kind of the cellular immune response. They've been a great partner to work with. But remember, this -- there's a whole new class of diagnostics, and there's still a set of logistics and administrative steps that need to be completed. For example, there's not even a spot on their website for this class of diagnostics. So they're moving forward at this level of what I'll call administration. Of course, we can't guarantee EUA, but I can say this is definitely -- I said, we strongly believe that this is going to happen and happen relatively soon.

And from a higher level business standpoint, Chad. I mean, you've talked about the fact that this isn't requiring a ton of incremental investment relative to plan. And it's not distracting you from other endeavors. So I want to make sure that I'm characterizing that right. And then as we think about the tests themselves, there's a possibility that they can play a big role on the market. That probably remains to be seen along the lines of what you described. But one way or the other, the work you're doing with the FDA to advance a new class of diagnostic like this. Whether this turns into being -- whether this turns into a huge product for Adaptive or not, that work you're doing now is presumably kind of pulling forward some of the work you would have done down the line and hopefully lays the foundation for future diagnostics where the regulatory environment is in a better place and more informed to advance these programs.

That's absolutely correct. I look at this as foundational work that would have needed to be done anyway that COVID, frankly, provided an opportunity to accelerate. You don't get interactive review. You don't -- we had the opportunity to -- how the FDA works on the CDRH side is there's -- it's really by different indication of disease states, there's different groups. We had the opportunity to pull all those groups together. And as you know, we're working on T-Detect Lyme, and we've got a signal in Crohn's disease and I'm working on many others. We were able to pull essentially groups that work on all those different indications and educate them on the platform technology, educate them on the classifier, how we work with machine learning and Microsoft, it's a software module. All of those kind of key foundational elements to be able to do this. We -- the audience that we've been able to get at the agency has been phenomenal. And then there's just logistical, how do you process an order, the ability essentially just to sign a deal with LabCorp and get access to their patient service centers. That's going to serve us very well down the line, being able to kind of use virtual providers and getting that agreement in with PWN, being able to process like simple things like process credit cards and putting the portal in place, all that stuff is going to serve us very well for the future of what I'll call the T-Detect franchise.

Very quick In terms of the role you might be able to play helping folks develop so-called second-gen vaccines. How are things progressing? And is that a potential source of revenue in 2021?

Yes. So let me set context here, Doug.

Yes, sorry. Sorry to jump right in to it.

I think it's a great question. I just -- before getting to that, because the answer is yes, it is a source of revenue. we're being cautious on it. Because remember, when the vaccine trials -- when our technology was kind of ready for prime time in terms of immunoSEQ T-MAP COVID, the vaccine trials are already I'll call advanced stages. So it's really challenging to integrate from the beginning. And essentially vaccine developers didn't want anything that would kind of waylay an early EUA. However, what's happened since then, as you know, we have new variants that are on the rise and understanding the T cell response across the entire genome of the virus is becoming more necessary than ever. So we -- we were already started sequencing samples from trials sponsored by AstraZeneca and offering the Bill & Melinda Gates Foundation collaboration. We have other large manufacturers that we are partnered with on earlier stage kind of pilots that we're not yet allowed to disclose. In addition, we're getting kind of orders from academic kind of labs who are studying the impact of vaccines on patients, that are receiving kind of other immune-mediated therapies like cancer immunotherapy. So in terms of our outlook, it contemplates small trials at the moment, it's not material, but depending on the data, this is an area of upside to look at in the model for the year. There is one additional point, going back to your question on FDA and EUA. I do believe that the EUA has the opportunity to cannibalize revenue opportunities across a few different segments. And normally, if you're looking at kind of the 151st serology testing kits at EUA. I don't think it's that big a deal. But there are groups such as the NIH and NCI, and there are, I would say, pharma company vaccine manufacturers who are sitting on the sidelines waiting for EUA because they need some stamp of validation because this is the first -- it will be the first and only at least for a time, T cell test validated by the FDA. Sorry, that was longer, probably longer than you were looking for.

No, it was a good segue to come to my last question to end this segment. Yes, you were able to identify potent neutralizing antibodies for SARS-CoV-2 and a couple of times here, you've kind of alluded to it. And then on your most recent earnings call, you mentioned that you see this capability of leveraging true AB discovery approach, really using that and having that translate into potential partnerships with other companies for disease indications. So it's almost like this proof-of-concept with SARS-CoV-2 could actually attract other folks to say, hey, let's use this platform for other purposes. Has this actually triggered active conversations with biopharma beyond SARS-CoV-2 and other indications?

Yes, it has. We're having -- well, first, let me talk about COVID first because I still think we're in the game related to COVID because it really depends on your belief of whether there's going to be a need for therapy in the population and a whole set of tools -- or weapons, I should say, in the arsenal to fight a virus. And our belief is that it's going to be endemic in the population, we think there's still issues with the current antibodies, both in terms of the administration, but also in terms of the emerging variants and what these antibodies are targeting, the parts of the virus that they're targeting. And we've got some differential antibodies that target other parts of the virus that we believe in potentially a cocktail approach will be effective against variants. That being said, we can't guarantee, we would need a partner to do this. We are in active discussions on that. But to your point, how it translates, how the true AB platform kind of translates into other indications, this is definitely part of our drug discovery growth strategy, and we are in discussions to identify kind of additionally kind of naturally occurring full human antibodies against several targets in infectious diseases and in other disease states, particularly where there's a strong unmet medical need. And we certainly hope to be able to -- and again, just to frame this, Doug, in terms of kind of an investment, we were able to kind of stand up this platform based on kind of the knowledge and work that we had done on the T cell receptor side being able to port that over and stand up a platform for, call it, $10 million that now we're looking to kind of leverage into many different opportunities. So there's certainly leverage and scale in the model and the platform.

Chad, there's 3 things, if we have time, I want to talk about, one is commercial efforts for T-Detect. One is just a question on allogeneic T-cell therapy data. And then your strategy to increase penetration of immunoSEQ for research outside of oncology. But before I try to get to those, there is -- I've answered a few questions from the audience already. One that just popped up is competitive landscape. How do you think about competition to your platform and your approach? And specifically, how quickly could there be another T cell-based test along the lines of what you've developed on the market?

Yes. There's a -- it's a great question. There's a couple of different components to that. And what we're really good at. And then there's, I think, many different moats around the business. So you've mentioned a strong intellectual property moat but what we're really, really good at is being very, very accurate at scale. So that's our first thing. Just if you're talking about sequencing the Adaptive immune repertoire or the T cell repertoire we can essentially look at a scale that no one else can and at the same time, be extremely accurate. And we have IP on this as well. And without getting too technical, I'll mention that, meaning we can essentially control the amplification of these immune molecules. We can control the bias and the amplification of a multiplex PCR reaction. All that means is that if we tell you there's a certain amount of T cell receptors in the repertoire, we're right. We've done many different spiking experiments to be able to prove that. The second is we developed kind of an in-house that we kind of don't sell a technology that maps T cell receptors to antigens at extremely high scale and throughput. And this is essentially kind of creating the map. And on top of that, we layer in Microsoft's kind of machine learning capabilities. And remember, in addition to the dollar investment they made in the company, Microsoft also has 30 full-time employees kind of working on this kind of around the clock to develop classifiers. So the data advantage that we have, the intellectual property advantage, the technical advantage and the data advantage all come together and say, it's going to be really hard to catch up because the data advantage is accelerating every year.

I think that covers it. And you combine that platform with the IP and the partnerships with regulatory and even reimbursement prowess that we haven't seen from others. I mean, I think it's not that somebody couldn't do that, but it's not easy, and there's a lot of time catch-up that would have to occur. All right. So let's see. I don't think I'm going to get through my 3. So let me pick 1 or 2 favorites and we'll go lightning round. So immunoSEQ for Research. I mean just to frame this and correct me if I'm messing up any of this, Chad. But the market opportunity we've talked about is about $1 billion with $150 million of that coming from academia, the balance being mostly biopharma. Your platform is used by -- I think it's around 2,400 researchers, over 165 biopharmaceutical partners, and it's been used in over 600 trials. One of our key questions is really, what's the strategy to increase use of immunoSEQ beyond oncology amongst researchers. And what are the levers you intend to pull there? I mean, some of it's commercial, some of it, I'm sure, is scientific. And then my guess is there's an opportunity to partner oUS and with CROs globally. I mean, how should we think about where you are and basically opening up this platform to all indications?

Yes. So Doug, you hit on a few, but let me just hammer them home. I'll break this down into really 3 areas that's part of our strategy to increase penetration of immunoSEQ. And I think you were particularly asking outside of oncology for the research community. So number one is we're implementing a cross-functional prospecting effort by therapeutic area to identify these key pharma and academic partnering opportunities outside of cancer. And in particular, we're focused on autoimmune disorders and infectious diseases. Second, you can mentioned CROS. We're expanding the adoption. As you know, we launched this -- the research use only kit, the updated research use only kit. And that will help us grow the business outside of the oncology. We've got 2 CROs, Q Square and LabCorp on board. We've signed 35 core labs. And we just established an entity outside the United States. And yes, I think that is where I think we'll get some leverage and scale from the CROs in the future as well. And then the third area, which I'm not sure is well appreciated or maybe not well understood yet is the immunoSEQ T-MAP COVID or immunoSEQ T-MAP, it doesn't just apply to COVID. It implies to kind of any other disease. And that -- you had mentioned kind of the AstraZeneca deal. And again, this is in cancer, but the idea is that it applies outside of cancer as well. This is -- again, the data is stemming from our antigen kind of map Microsoft collaboration that we talked about just before. But as we continue to unlock insights in the antigen map and T-Detect development efforts across disease areas such as gastrointestinal infectious disease, multiple sclerosis, cancer. I think it continues to bring this additional research value and interest in using the full capabilities of immunoSEQ in those settings as well. So there's multiple kind of areas to increase the immunoSEQ research business outside of oncology.

Chad, we are out of time. I want to just try to get this in because there's a couple of these that have popped in in the chat in terms of questions from folks listening in. Just going back to where we started on Genentech. Really the 2 questions, and we'll do this in lightening round, if we can, are -- is there a role that Adaptive can play in uncovering issues related to safety on targets earlier on. This -- what role are you playing now? And is there something that you could help Genentech along with in the future? Well, we'll just go with that one. I think that's probably the more important of the couple of questions I have.

Yes. As part of the kind of the battery of tests called True TCR, we do have a whole set of tests related to safety, such as looking at kind of cross reactivity. So we are -- I just want to be clear, we are very actively involved in characterizing safety of the receptor. With respect to the target and domain that's come out in the literature, I think it's I think it's a good question and one to explore that if we can kind of get out ahead and be part of the solution to identify kind of potential safety issues in the target, so we have better selection. But certainly on the receptor side, we are very active in that safety discussion and [indiscernible] .

Okay. That's great, Chad. Thank you for talking so much about the core business and then also addressing some of these questions, which are just kind of flying in on the announcement from this morning. We appreciate your candor. And as always, it's great to have time with you.

Doug, I really appreciate you having me. Thank you.

All right. All right. We'll talk soon.

Okay. Bye-bye.