Adaptive Biotechnologies Corporation (ADPT) Earnings Call Transcript & Summary

Good morning. Welcome, everyone. My name is Brian Weinstein, and I'm the Group Head of Life Sciences here at William Blair, and I'm responsible for coverage of Adaptive Biotechnologies. First off, I am required to inform you that for a complete list of research disclosures or potential conflicts that you should visit our website at williamblair.com. Logistically here, the format is a fireside chat between me and the management team that will last for about 30 minutes. We have a set of questions prepared, which we will get through. [Operator Instructions] So with that as brief intro, let's jump in. We're really fortunate to have fellow Bears fan, Chairman, CEO and Co-Founder, Chad Robins, with us. Thanks for taking time to join us, Chad. Really appreciate it.

Thanks for having me, Brian.

Of course. Of course. I would like to ask about Justin Fields, but probably not enough time to talk about the Bears quarterback situation. So -- but as this is a growth stock conference and really not a health care specialist conference, I thought we could start with having you give an overview of the business and your vision as well as sort of a brief description of the technology. I know investors at times can get a little bit lost in everything that you have going on because there's so much and how it all works. So maybe a 5-, 10-minute overview will help our audience better understand what Adaptive is all about. So..

Yes, sure. Happy to do so, Brian, and I'm going to try to do so in kind of nontechnical terms, but I do want to start with our bodies or our immune systems. And it's our body's job to diagnose and then treat almost all diseases in the exact same way through the specialized cells in our adaptive immune system -- immune system called T cells and B cells. And once essentially these cells wind up going in finding the disease or diagnosing disease, they spring into action and go in and kill the disease. And the whole premise of adaptive immune system is that we can apply this very powerful next-generation sequencing technology to look at the DNA of the adaptive immune system cells, which we consider our source code of our platform, and then we can translate that data into products to enable the clinical diagnostic, therapeutic and research products. So if you think about that, let's take them line by line for the business. We started the business out saying, "Hey, because we can take such a deeper look at the adaptive immune system, we can now develop a tool or a research product that if you're a pharmaceutical company or if you're a principal investigator in the academia, now you just have a much deeper, more sensitive, accurate tool to essentially do your research." And that initial product was called immunoSEQ. Then our first clinical product was in the cancer space. And that was a product called clonoSEQ, and it's for monitoring minimal residual disease in certain blood cancers. What that means in layman's terms is that we can essentially count cancer cells after treatment to determine a best treatment path for the patients by simply counting cancer cells using this adaptive immune system kind of cell as a tag to be able to tag the cancer. But our 2 largest opportunities are what I'll call pipeline opportunities. The first is a partnership that we have with Microsoft. And essentially, we're building a map of how our body and the T cells in our bodies react, essentially map to disease-specific antigens. So every disease has specific signals of disease, which are called antigens. And what we're doing is we're building a map between the T cells in the human body and the antigens. But this map is about the size of multiple times over -- of kind of the World Wide Web, the entire Internet. So it's really, really large. But once you have that map in place for a disease, through a single blood sample you can take from a patient, you can essentially sequence all of their specific T cells and then essentially use the map as this huge VLOOKUP table, so that if you have the T cells, you know the antigens. You know the signals of disease that they're binding to, then you can essentially diagnose not only that disease but any disease that you've mapped all from a single sample. And that is really going to change how diseases are diagnosed in health care. And then as I also mentioned, immune receptors are used -- or the specialized type of cells are also used to go in and treat disease. And so there's a lot of optionality in our platform in the drug discovery space. So I'll start with -- in the cancer space, we have a very large partnership with Genentech in cell therapy in cancer. And the idea here is that we're -- instead of kind of going after the old type of cell therapy that only worked on a certain subset of blood cancers, that T cells actually can see inside of cells. So we're trying to develop T cell cellular therapy, and we're developing it on a personalized basis, meaning that each patient's cancer is unique to them. And so we're essentially finding that patient's immune system cells, their immune receptors that are reacting to their specific tumor and made -- growing those up and putting them back in the body. But we also have many opportunities in the future in drug discovery because if you think about the map that I just -- the aforementioned map that I talked about that we're building with Microsoft, that also leads to kind of target discovery because if you know your -- what cells in your bodies are essentially expanding in reaction to certain antigens or signals of disease, those signals of the disease ultimately become targets. And so that's where kind of as you think of the future, as we become more and more knowledgeable and add to what is now by far the largest database in the world with respect to adaptive immune receptors, that knowledge will continue to accelerate. So those are kind of the in-line products with the research product and the minimal residual disease product and the pipeline products with T-Detect and cell therapy and cancer and a future look at kind of some of the opportunities in drug discovery and beyond.

That's great. And we're definitely going to want to dig into a bunch of those here in a moment. Before doing that, though, we are asking each company attending a bunch of kind of one-off questions. And just jumping into some of those, if we can for a second here, starting with recent trends, as we sit here kind of in early June -- believe it or not, we're already in June, right -- can you provide any kind of update on how things are recovering across your business? And give some thoughts on expectations for how you think things might trend throughout the year.

Yes, sure. Happy to -- and why don't we just follow that same line of thinking. We'll start with the research business, which again is comprised of both academia and biopharmaceutical companies that use our product for research. We had a really strong growth in the first quarter. It was driven mostly by pharma in minimal residual disease and in kind of some of the non-MRD and new pharma. And bookings are growing at a pretty significant pace, which is -- we think about that as an indicator of future growth potential. And post Q1, we continue to see strong performance in pharma research. But also, what we're seeing is academic researchers picking up because people are back -- starting to come back in the lab and kind of back to normal, that are doing -- starting to do non-COVID-related projects. Academia or principal investigators were really focused on COVID-related projects for the past year and now they're coming back. Also, we -- not only do we sequence samples in-house in our laboratory. We also, as you know, last year, launched a research use only kit. And we're seeing some -- starting to pick up a little bit in the second quarter, the RUO kits. But I think it will be a more meaningful contributor to the business in the second half of the year and beyond. During the pandemic, we launched an extension of our immunoSEQ research product called immunoSEQ T-MAP COVID, which really kind of mapped -- like I was talking about mapping T cell receptors to signals of disease or antigens. We did that for -- specifically for the SARS-CoV-2 virus. And although initially, it wasn't -- it hasn't been a big contributor to revenues, it's generating a really kind of strong amount of interest from pharma as we kind of -- especially in -- as you look at the kind of the vaccine manufacturers starting out. But now as we're kind of moving that T-MAP product beyond COVID, we're seeing a pretty significant amount of interest. And we also, I should mention, expect to kind of publish data on that additional publication in the marquee journals coming out shortly. But transitioning now from the immunoSEQ research business into clonoSEQ, beginning of the quarter, as we anticipated, we talked about, it was slow coming out of the pandemic, but March was the highest month in the first quarter. And April was also strong, and we've seen some of those trends continue into May. If you look at kind of what's going on across the business, most of our sales force is now completely trained. And May was the first month when they actually started to get traction, and they're starting -- just starting to get in-person meetings. Remember, these cancer centers were kind of largely shut down. And depending on the indication or the type of blood cancer they had, like, for example, in CLL, they were just saying -- telling patients not to come in because they could live with the disease unless it was critical. And so these have been kind of -- it's really kind of on a regional basis. In terms of the trends by indication, if you look at kind of the numbers, we're seeing faster uptake in blood. And remember, it's important in certain of these indications that we can move from the bone marrow into the peripheral blood. So 25% of ALL orders are now in the blood. We're seeing strong growth in multi myeloma. And we're seeing a slightly slower-than-expected uptake in CLL, which I mentioned is kind of really related to that COVID impact. And we continue to expect kind of overall volume to double by year-end with most of the growth, as we've always talked about, is going to be coming in the second half as folks are now able to be back in accounts, and we have the sales force up and trained. So related to kind of our marketing efforts, we're continuing to kind of work on extending our peer-to-peer. We -- in fact, we just kind of ran a speaker training with 7 of the top key opinion leaders in ALL, multiple myeloma, CLL and non-Hodgkin's lymphoma training. What they do then is go out and train their peers on how to deliver clonoSEQ and what it's used for at different time points and clinical utility for patients. So that covers our kind of in-line products. Now moving to our pipeline products, starting with T-Detect. Again, this is our major mapping effort with Microsoft, where we can diagnose disease from a blood sample for the diseases that we've mapped. So COVID or T-Detect COVID, which was the kind of first and only T cell based test to receive an emergency use authorization from the FDA to confirm past infection of COVID-19, this one, achieving a ton of different goals for us. We were able to not only educate the FDA for future tests, we improved our algorithm development. And we also -- we activated LabCore for blood draws and for kind of additional capacity. And really, this allowed us also to start to build kind of brand awareness for the T-Detect franchise. And although we haven't seen this as a significant revenue play for T-Detect COVID, obviously, for the future products, this is where we see a really strong, strong future of our business. We actually have seen quite a bit of interest in the product. When we disclosed at earnings, since the emergency use authorization, there's greater than 3,000 patients who have ordered the test, greater than 50 concierge medicine practices are offering the test with a 75% opt-in rate. And we -- I think we will -- with the expected continued vaccine roll-up, we'll probably likely diminish the market to confirm prior natural infection. However, we continue to see orders increase. And we've also -- there's also consideration of kind of updating the algorithm to be able to distinguish between a vaccine response or a natural infection. But a lot of that's going to depend on kind of the reimbursement paradigm for the test. So -- but moving from T-Detect COVID, we made really great progress in T-Detect, specifically in gastrointestinal disorders, specifically for patients that have irritable bowel disease. And as we reported our earnings, we confirmed our Crohn's signal, which already has greater than 70% sensitivity at a 99% specificity. So this could be really a game changer in IBD. And what was really important in terms of kind of that sensitivity measure is that signal, it doesn't overlap at all with the T cell receptors that we're seeing for colitis, celiac or COVID, meaning that your T cells are specific for the disease. We've been saying this, and now we've proved this through a significant data set. We have an additional 5,000 samples in the lab, which we're sorting through right now. So really, so far, so good. And we -- obviously, I just want to mention, there's a lot of work to be done to get from here to a reimbursed product in GI. But right now, the science is working as we expect it to work. And so we're pretty excited about that. And then kind of finally, in our Genentech partnership in cell therapy in cancer, we are actively working on delivering a data package for the shared product, which should be selected -- hopefully selected in the back half of this year. So -- and the final point in terms of catalysts and updates, we continue to look for ways to kind of extend our platform into the drug discovery space.

Obviously, a lot going on, as always, with you guys. So you talked about some of the important catalysts here. Can you talk -- is there anything more specific in terms of specific events that we should be looking for? You talked about the Genentech and the data for the second shared product in the second half. Is there any kind of an update on other products and other things as far as things we should be thinking about in the back half of the year? Or we had a question that also came in kind of along these lines about when you're expecting ALL FDA clearance in blood? And do you expect the product market fit equivalent with clonoSEQ for clinicians to perform better in ALL blood or CLL blood and why? So kind of a specific question, so...

Yes. Okay. So yes, well, let's start there, Brian, with clonoSEQ. So you asked about ALL in blood. So we -- as you know, we submitted our 510(k) with the FDA and we're waiting for our approval. But the entire CDRH, the diagnostic industry is being hit extremely hard right now because the FDA has been so busy on COVID-relating tests, so the timing is unclear. But that was submitted, frankly, in January, and we're just kind of -- we're just waiting for the FDA to clear their decks and the data is extremely strong. So knock on wood, but we're confident. And then your question was product market fit. I can just -- let me -- I'll just kind of finish the catalyst in clonoSEQ and we'll talk about -- I'll make sure I answer your question. For multiple myeloma in blood, we're awaiting some events from a trial that we're working on with Dana-Farber. And the trial is still ongoing. It's not under our control, but we're also looking at other retrospective sample sets with our collaborators. And we do remain optimistic that there is a really good kind of product market fit in the blood. And then for non-Hodgkin's lymphoma, we're validating in blood this year in conjunction with one of our pharmaceutical partners who's running a trial. And we'll continue to evaluate whether the FDA is the right pathway or a clear pathway or both. And the timing to that is -- we'll be forthcoming as we learn more. In terms of product market fit, it's an interesting question. But right now, ALL is kind of more of a conversion strategy where clinicians are used to doing MRD in patients with ALL. They're used to doing it with a technology called flow cytometry, and we're just giving kind of a more accurate and sensitive way to do it with next-generation sequencing technology. And what we've shown is that the concordance data in ALL is really, really good. So we're actually on this KOL tour. It's a multiproduct strategy to convert from the bone marrow to the peripheral blood. So that's a little bit different conversion strategy, whereas CLL is really a new paradigm for clinicians who haven't been doing CLL. The reason to monitor residual disease is you've got new therapies, in particular VENCLEXTA and others, Kyprolis was just -- sorry, that's for multiple myeloma. But you have others that have just come up that are showing really strong efficacy. So there's even more of a reason to monitor. But you have to go in, and the CLL data is also really, really -- it's beautiful data in terms of the sensitivity that you can pick up one in a million cells in CLL. So -- and right now, they have use cases across kind of the patient paradigm, but it's a matter of really that clinician education as to why to use it. And the other thing is it's really been done primarily in the community setting. So you're -- you have to essentially educate the community oncology as opposed to kind of the KOL and academia.

Got it. Just kind of checking off some other boxes here. It seems like every week, we hear some issues somewhere with the global economic supply chain, whether it's chlorine tablets or other stuff. I'm just checking with you guys to see if you've seen any issue with anything within your supply chain that has emerged or anything that you're keeping your eye on. And along those same lines, have you seen any kind of inflationary pressure on your business? And if so, any thoughts about how the business would perform or how we should be thinking about things in an inflationary environment?