Adaptive Biotechnologies Corporation (ADPT) Earnings Call Transcript & Summary

Thank you, operator. Good morning, everyone. This is Derik De Bruin, the senior analyst in the Life Sciences and Diagnostics Tools Group. Welcome to the 2021 virtual Viva, Las Vegas, Bank of America Healthcare Conference. With me today from Bank of America is Ivy Ma, who focuses on diagnostics on our team. And joining us today for our next presentation is Chad Robins, Co-Founder and CEO of Adaptive Biotechnologies. Good morning, Chad.

Good morning, Derik. Good morning, Ivy. Thank you so much for having me.

Great. So Chad, I think we've got a lot of questions to go through. It's been a really exciting time in Adaptive over the last year. COVID has certainly presented a really interesting opportunity for the company to sort of like demonstrate its platform. But I guess any opening comments to make or I can jump right in?

Sure. I'll make a few opening comments. Look, no doubt, the sector is under pressure right now. But at Adaptive, our vision and goals remain entirely intact, and we actually had a really, really strong quarter. So we're making progress across all aspects of the business and are extremely bullish on our capabilities to become a clinical product development engine. And as you know, the entire premise of Adaptive is that we're using the Adaptive immune system as the source code of our platform, which we then can translate into data. And that data enables the development of both diagnostics and therapeutic products across an entirely highly value diversified set of opportunities. And that the key is, is that all of the opportunities are derived from the exact same platform and a similar set of data. And so what's important to keep in mind is that each of these opportunities have different time horizons that can hit in the short and long term and that we're executing towards the value creation and monetization of each of them. So thanks for the opportunity to open with that, Derik.

Great. Well, that actually -- I mean that's actually one of the interesting things about Adaptive, it's like it's an open-ended growth story because you basically leverage this one technology across many, many aspects of it. I guess the question I always get from the technology platform standpoint is, particularly when you look at the diagnostic side, it's like how do you validate the signals? What's the most difficult part of finding things and validating signals and making sure that you've got something strong enough to go forward with [ stuff like that ]?

I guess -- I'm getting a little bit of feedback, Derik. I want to make sure that...

I'm getting some feedback as well.

Other people are talking on the line.

Operator, can we -- somebody...

I'm supposed to moderate right now, just so you know. It's Leane. [ It's always like that. ]

Yes, yes.

[indiscernible]

Sorry. Here we go.

Okay. We're good.

Sorry about that.

I think -- Derik, let me just kind of repeat the question. I think you were asking about what the -- what's hard about -- or what's unique about Adaptive approach to volume...

Yes. So basically, you have a unique approach for doing this. And the question I always get with is like how do you validate signals? How do you know you get a signal that's strong enough to go forward, which is...

Sure. Yes. Sure, sure. So first, let me answer that part about the approach because our approach is definitely unique. And it's unique really for 2 reasons. One has to do with kind of the biology of T cells. And T cells, they're agnostic to any disease. So once we learn how to read the T cell receptor to diagnose warm disease, we can replicate that over and over and over again all from a single blood sample to diagnose many diseases at the same time. The second thing to keep in mind, which gives us kind of a speed advantage is that our assay runs on genomic DNA. So we can actually use retrospective samples to expedite signal finding, and we actually can even use that in our validation efforts. We actually filed, for example, in [indiscernible] on a retrospective data set using DNA from samples from 10 years ago. So in other words, we don't necessarily have to run these massive prospective trials, disease by disease for validations. And then in terms of your question on signal validation, there's really, I would say, 3 major considerations. One is technological, which has to do with our assay. The second is biological, which has to do with kind of how many antigenic space disease by disease. And then the third is clinical, which is what we've just -- kind of talked about what we'll bring to, which is a validation of signal. So if we -- let's take those one by one. On the technological side, with the launch of T-Detect COVID, we were able -- that wasn't really a proof point that shows that our model for detecting disease works exclusive in the real world, that with a really high degree of specificity that we can hold over 99%, that we could actually use T cell receptors to detect disease and also a high degree of sensitivity in the upper 9s, right? So that was going to -- a great proof point that we can move to disease by disease. From a biological perspective, we heard a ton about the importance of the complexity of the antigenic space. It's -- antigens are specific for each disease. And so we've nailed now the finding of -- for infectious diseases. And we've also now made incredibly these huge strides in autoimmune diseases. So the learning is progressing. And we're also making good progress on cancer, but we have to recognize that it's going to take longer in cancer because there's a complexity of hundreds of neo antigens in cancers. So the modeling is more complex. And then from a clinical validation perspective, one of the key hurdles is gaining access to the smaller prospective studies in order to validate signals on clinical validation. And disease by disease can be really expensive. So we're actually looking at ways that we can validate using retrospective cohorts, which I just talked about. But we're also exploring these partnership models that are going to generate kind of these pan disease prospective trials that we can parallel process at the same time. And so what we're really hoping to achieve over time is that the T cells that were -- in our assay can become ground truth that it may not currently exist in other disease states. It makes comparative studies hard today because as -- when as T-Detect becomes more established, T-Detect will become the gold standard that others have to compare to as [ ground sheet ]. So I talked a little longer, it's -- asked of that, but it's a really good question.

Yes. No, as I said, I still get a lot of questions about how the platform is differentiated and like that. So I think I appreciate the specifics. Let's talk into -- dive into some of the business aspects more concrete. Can we talk a little bit about clonoSEQ?

Sure.

I think clonoSEQ, it's really -- look, it's the first FDA-approved product in this area for MRD, in blood cancers. You've got good reimbursement. There's clearly a lot of growing interest. I think investors have been a little bit disappointed that it's taken longer to sort of like gain traction, I think they would have thought from this. So can you talk a little bit about sort of trends that you're seeing? And what it takes to sort of -- what do you think it takes to sort of get to ramp up faster in clonoSEQ? What sort of -- what's the catalyst to go?

Yes, yes. So first, I think it's worth acknowledging it's -- there has been a COVID impact. I'll talk about that in a minute. And it was -- while it was a slow start to the year, March is a very high month, and April finished strong as well. We're starting to see a faster uptake in blood and ALL, strong growth in multi myeloma. And I think some of the challenge for us has been it's been slower-than-expected uptake in CLL. And that is, we believe, related to COVID because our -- remember, our new team has just been up and trained. They haven't even been able to get into CLL accounts because the CLL is an indolent disease, the patients are immunocompromised. And so they actually need guidelines, they were just told to stay at home and delayed treatment until COVID subsided. So we really weren't able to yet truly take advantage of the CLL launch. In terms of your question about kind of what needs to happen to start kind of hitting this asymtotic ramp, and is it really hit an inflection point for clonoSEQ penetration, I think things -- there are certain things that need to happen externally as well as internally. And I'm really confident that we're going to be able to reach these. Remember, we talked about the doubling of clonoSEQ to be back-half weighted. So let's just take those, Derik. So externally, we need -- we're all hopeful for a lot of different reasons that these COVID restrictions are going to lift, and we're going to get patients back into the clinic regularly, and we can get a rep in front of clinicians. Also, I think we need MRD to be -- and we're -- obviously, we're driving this. A lot of solid tumors are driving this now with kind of their MRD assays, but it needs to be increasingly accepted as part of routine care. And we're now kind of just starting to see this happen. But let's talk about like what we can do internally. And so first, we need -- we have a newly trained salesforce that's out there. We need to be selling in person. Remember, these guys are largely hired and trained during COVID. We just completed our national sales meeting last week. Almost over 40 reps have been -- we've been talking about for quite some time now to you guys. Now they're up and training and ready to roll, and they haven't been able to get any [ good ] accounts yet. Second, we need to reach more patients. We've done some piloting over the last 12 months. It's clear that when patients go and ask our doctor to incorporate a MRD test, they've been really successful in -- the ability to get their doctor to use clonoSEQ. And really, the third point is we need to be able to replicate the success that we're seeing in certain accounts where clonoSEQ is being used on a programmatic basis. For example, some of the accounts are using it for patients with ALL that are intentionally collecting ID samples on all newly diagnosed patients, and that's what we need, is this program where it's every patient comes in, you get an ID sample and you collect it. And then there's other where they're choosing any time point in multiple myeloma and expanding from there. So we just really got to get that programmatic aspect in place, and it's starting to happen. And then over time, there are several critical success factors to becoming -- really hitting that kind of inflection point, but we need to penetrate community accounts. You need to drive the use of blood and to expand in non-Hodgkin lymphoma. Those are kind of the 3 big categories that we're kind of focused on.

Got it. Got it. And you mentioned it. There's obviously a big push in the solid tumor space. So some of these solid tumor players are also starting to talk about data on the liquid side. Can you talk about the -- what you know about some of these other approaches versus what you're doing? I mean it looks like just the nature of how you do your assay with clonoSEQ that you show much higher sensitivity to these other ones that are out there. But what do you know about some of the competing approaches that for some solid super companies that are talking about maybe moving into the liquid space?

Yes. We -- there's certainly some of the solid tumor players. Remember, what we're doing is we're counting the -- we're directly counting cancer cells. So in these literal proliferative disorders, it's a cancer of the tier B cell itself. And at diagnosis, we can actually write down what that clone is. And then we're able to track that specific clone. Whereas some of these players are looking at circulating tumor DNA. By the way, this is something that Adaptive can do as well. I think -- remember -- I mean we -- obviously, we've heard about Natera's plans in multiple myeloma. We haven't seen any data yet. It's probably too early to discuss kind of the exact impact of data, not having seen it. But there are some key things to keep in mind. FDA clearance and CMS coverage takes time. And coverage is extremely important in the clinical community. And it's -- getting coverage, both by kind of Medicare and then private payers is kind of a hand-to-hand comment. And then when I was talking about technically with respect to actually measuring the cancer itself, I think it's too early to comment on this comparative sensitivity until we see it. But we can certainly say, just with respect to clonoSEQ, that our assay has proven extremely deep sensitivity now in over 90 peer review publications. And I think it's important, too, to notice that it's the same test, they're all just different disorders. So it's going to offer this universal solution to community hemog for all of the lymphoid malignancy patients. And remember, even in the community, less on the community and academic medical centers, but heme is separated out from solid tumors. So you're going to have to really cross over. We are gaining that kind of foothold. And then the final point I'll make is that pharma is incredibly important here. And clonoSEQ is the test of choice for pharma. We're seeing that over and over and over again. And that lead continues to grow. As quarter-by-quarter, you see that we continue to announce [indiscernible]. We do feel that we're being incorporated into pharma trials with label enabling. And hopefully, as an endpoint, that catalyst will happen or enable us to kind of take down a lot of those milestones that are out there on the balance sheet.

Well, that's great. And that's actually a segue to 2 questions. You did have -- you did recognize a couple of milestones this quarter. Would love to sort of hear about any incremental color you can share on timing on that one. And also, I mean, you are doing -- your approach lends itself to a kit-based method for doing this. I mean that's part of the business plan is to sort of due kit-based clonoSEQ at some point. Where are we sort of in that? Because obviously, if you're thinking about Companion Diagnostics, kit-based approach has some advantages in the market like that. So those 2 things. A little bit more elaboration on milestones and when could be timing on those and then just on sort of a kit-based approach?

Sure. Yes, we can start with milestones and just to reorient the -- as I just mentioned, we -- I think -- just to provide color, the $7 million of milestones this quarter, I think, it was important for a couple of reasons. One, it's a nice revenue profile. But really more importantly, I think that showed that these milestones are the real money. They're not in some dollars sitting out in the ether. And this $300 million right now, it's comprised of what I'll call regulatory milestones that are either in the United States from the FDA or for the EMEA for the use of MRD as a secondary and/or primary endpoint in registrational trials and/or label-enabling kind of depending on the different deal with different pharma companies. But it's important to note that this is across many, many different pharma partners, across many different drugs in our pipeline in development. So it's really a portfolio approach. About 4 years ago, we started putting these deals in place. We're starting to see some of the earlier -- the secondary endpoint milestones hit, and we anticipate more to come every single year. But the timing depends on the trial time lines exclusively. It's how quickly they move through the FDA, and it also depends on the FDA making certain decisions. And then the payout -- as I mentioned, there's different aspects of how we're incorporating. It really depends on how the MRD data is used and how it's kind of -- and put in a label. So for example, a primary endpoint is going to be significantly larger milestone than a secondary endpoint. So -- and as we talked about on the $7 million, it came earlier than expected, it was in our guidance. But again, I think it's nice to see that these are kind of in place are materializing and, in many cases, we're accelerating.

Great. And the kit -- and sort of like kit...

Yes. Sorry. So you mentioned that -- and it is true that our technology lends itself extremely well to a kit. There's a couple of reasons that we're not actively at this time kind of pursuing a kit. One is we want just to really establish a reimbursement price. And that's important that we're kind of controlling for that all in-house at the moment. The second is we want to be able to control quality. The initial experience, we really have to be able to kind of run this test and know what to do to kind of get that report out. But we want to make sure that we have got full quality control as we get kind of full reimbursement. And then the third aspect is, and this is a practical aspect, is sequencer companies kind of share of -- the economics right now don't make it tolerable to develop on a kit.

Got it. Got it. Let's talk about some of your other programs. You've got the T-Detect Lyme disease coming out by year-end. Sort of your thoughts on the competitive landscape of that product given some push for some of the other companies recently in that space.

Yes, yes. Sure. Yes, we could talk about Lyme and the competitive landscape. Are you specifically kind of focused on the QuantiFERON Lyme test?

QuantiFERON. Yes, yes.

Yes, yes. Let me talk about that and give you some thoughts. I mean the focus on this combination of QIAGEN and DiaSorin on Lyme disease is actually, in my mind, further validates the rationale for why we're entering Lyme, which is the current diagnostics are just terrible. The long-term effects of patients who are misdiagnosed, underdiagnosed or untreated with Lyme disease, it's awful for the patients, but it's also extremely costly for the health care system. So we've got kind of benefit. That's why we're entering it. So -- and QuantiFERON Lyme, it's an interesting test in that it's combining a serology-based test from DiaSorin, along with a cellular immunity test from QIAGEN. But let's talk about that in the competitive landscape. It's currently -- it's only accepting a CE mark, and it requires an installed base of these liaison machines. And it's very limited in the United States in terms of the installed base. But also, there's a complexity with regards to logistics, handling storage, shipping, for sample handling. But also the data, it's not comparable because each kind of species of Lyme, if it's in a different country, it kind of truly has a different set of kind of antigens. It's a whole different species of that tick-borne illness, and it's a different kind of standard of care testing. So I -- we're incredibly bullish about our ability to kind of double the sensitivity of standard of care in the United States and potentially provide a new testing alternative of patients with ongoing symptoms of Lyme, even after a standard of care antibiotics as we kind of continue working through the different use cases in the Lyme disease.

Yes. And can we talk a little bit about the Crohn's disease? And you've got this -- you're talking about the GI differential diagnostic approach going on, be able to tell between Crohn's and colitis. Can you sort of talk a little bit about that and sort of like the market opportunity?

Yes. Sure. Happy to. So I think it's first -- Derik, it's first worth noting that this autoimmune area is an extremely high area of focus for Adaptive. And there's a reason for that, which is that autoimmune disorder are incredibly difficult diseases to diagnose early and accurately. If you look at kind of this patient journey or this odyssey of getting diagnose is, often what happens is a patient will come in and have a shared set of symptoms that are hard to differentiate between one disease or another. And there's very few highly specific blood tests that are available for this purpose. So -- and the reason that we actually got started in gastrointestinal is because we had an early signal in Crohn's. We talked about that a couple of quarters ago, which we validated. And at the same time, we were able to now further validate that signal and then distinguish that signal from colitis samples. So that's kind of really an important next step. And in-house right now, we have another 5,000 samples that are extremely well-characterized and that are going to help us kind of continue to flesh out that clinical development plan. And so if you kind of look at what the steps are to get there, the first step is to be able to flow through and run and analyze that sample set, and then we're going to finalize that product profile. But the current thinking is a ruling for Crohn's and colitis and a rule out for Celiac with -- and there's many more diseases with shared GI symptoms that we're going to be able to add that into over time. And then we've got to design -- you got to go through the process that designed the CV studies. And at the same time, we've already begun discussions with market access with the payer community. And what we found is that early -- our early discussions, again, it's early, but they're supporting a price point that has a specific value proposition in GI and that won't lean on our Lyme pricing. And so as an example, what we want to make sure is that if we're going to crosswalk, we're going to crosswalk through a higher price point. And we're -- and the data that -- the readout we're getting on GI is favorable in terms of supporting a really nice margin profile with that.

Any sense of timing on that, on the GI product?

I think we've got to get through the samples we're running now and crystallize kind of the product market fit. And we'll get back to you over time as we [indiscernible] but just to say it's progressing well, and we will get back to you on the timing.

And so just a follow-up from a client, just sort of asking, how do you see sort of pricing for Lyme and pricing for the GI test? I mean what do you think are sort of like -- what would the sort of be the ballpark?

Again, I think for Lyme, we've discussed that we're in deep payer conversations right now. And I think it's probably -- just because we're crystallizing and finalizing that price point, but we are -- we're confident that we're going to be able to deliver a test that has a nice margin profile. And in GI, we're confident that we're going to be able to deliver a test that has a very strong margin profile. We're looking kind of in the -- we're still in the middle of payer research right now, and there's a couple of different [ runs ]. So we'll get back to you on pricing.

I want to just turn a little bit to drug discovery. I think the Street was a little bit disappointed to see your partner Genentech pull its first IND submission for reasons that were not related to anything with the Adaptive product. Also, I mean some of the payers would argue that last year, Amgen didn't move forward on the COVID monoclonal antibody. Can you give us some additional color on what happened with these cases? And I guess just your updates on your current time lines for submission with Genentech on the next IND round.

Yes, yes. Sure, Derik. So let me first acknowledge, these are completely separate situations. And let me start with Amgen. Let's put this in context. We started from a standstill kind of last March, April, saying, hey, we've got this unique set of capabilities. We believe that we can find differentiated antibodies of COVID, and we did. We found exceptional antibodies to COVID. What -- Amgen's decision is not to move forward actually has nothing to do with our antibody. The rationale for not pursuing it related to the evolving circumstances with the coronavirus. One, remember, vaccines were coming out the week that we delivered data. We thought there'd be a panacea. Variants had yet to emerge in the population. And their stance was, hey, we don't want to be kind of fourth, fifth or sixth kind of antibody company to market. So we don't really -- we're not going to kind of move to be a public company. We're already doing some manufacturing. We're just deciding not to pursue this. But they did come back and say, these are -- and I talked to Amgen, they said we had developed some exceptional and differentiated antibodies. And I can tell you -- and again, I totally get it, Derik, and I get it from investor community, this is going to wait and see. It's not going to be a tell me. It's going to be a show me, and we are working on it. There are several different threads that we think could unlock value, not just with respect to COVID. But just remember, this is a platform, an antibody discovery platform will find exceptional antibodies. We're also looking at potential partners, so it's [ right ] or monetizing this really valuable asset that we've built. So we're excited about it. That being said, like I said, we understand. We understand that it's a wait and see from you guys. So moving out -- with respect to Genentech, let's just talk about kind of what happened. The reason for the first shared product suspension was due to the target that we selected and the expression levels of -- on healthy tissues and those expression levels being nondifferentiated from expression levels on the tumor. So they had not -- they had no relation to Adaptive T cell receptors. You could argue that it was maybe a -- not the best first choice to make and the type of antigens that we went after, but we really didn't know. Public data came to life via kind of the human genome outlets where many different leases around the world are working on essentially kind of profiling the expansion levels. And very late in the game, it showed these expression levels on the healthy tissue of a vital organ. [indiscernible] Adaptive T cell receptors are extremely potent. They're doing exactly what they were supposed to do. And so we collectively determine that the kind of risk/reward analysis for moving forward on the first shared product, which could potentially lead to a safety issue. Remember, there was no safety issue. We're just making a determination to say, let's -- because we have T cell receptors against several different antigens, we decided kind of to move forward and let's kind of like -- let's man up. Our next T cell receptor up against the next target. And I -- look, there's a little bit of -- I mean it was a setback. I mean -- but I do want to acknowledge that there is no read-through on the overall strength of collaboration. We are actively involved with Genentech on a daily basis, and we're trying to attack cancer in an entirely new way, and we're both making massive investments on there. And we -- we're on track to deliver the data package on the next shared product candidate this year. And at the same time, we're advancing on the private product. We talked about it in the earnings call, but we've already demonstrated kind of proof-of-concept on 15 cancer patients this quarter, and we're -- actually have done many more since then. So this program is going really well, but acknowledging that kind of there's a little bit of a gut punch that we had to take a little over timing for it. So...

Great. Final question as we wrap it up. What do you think is underappreciated about Adaptive?

Yes. I think -- underappreciated, I think it was for perhaps many things. And one of the things is our learnings on the Adaptive immune system and the link between our data, diagnostics and target discovery is truly accelerating right now. We have a incredible conviction on our vision, and we're building this massive database that has incredibly strong intellectual property around it. And with the increase in our learnings, it's just going to be a matter of time. I mean, obviously, biology takes time. These learnings take time, but it's happening, and we can feel that happening. And we see all this connective tissue and the different points that we're working on, we see that coming together. And that kind of acceleration in learnings -- and it's going to lead to these massively diverse and high-value growth opportunities that, again, are all stemming kind of from this same core data set and same core platform that -- while clearly, they're on different horizons, they're going to be hitting over time in different proof points, but they're going to -- the value is -- we're so early in this space. I think we're just in the first innings, but we're -- we can see kind of the playing field. We're seeing kind of how this is going to play out in the future. And it's underappreciated, of course, because improvement is going to be in the pudding. It's going to be a show me, not tell me. And -- but you will see that we're going to be doing that over time. So I think that's underappreciated, but it's coming together, Derik, I can tell you that.

Great. Chad, with that, we're out of time. Investors, thank you for listening. It's coming up both early, both often. We appreciate it. Chad, Ivy, investors, thank you, everybody. Have a great day. Be safe.

Thanks, Derik. Thanks, Ivy. Appreciate it.