Adaptive Biotechnologies Corporation (NASDAQ:ADPT) Q1 2024 Earnings Call Transcript

Adaptive Biotechnologies Corporation (NASDAQ:ADPT) Q1 2024 Earnings Call Transcript May 7, 2024

Adaptive Biotechnologies Corporation beats earnings expectations. Reported EPS is $-0.32586, expectations were $-0.35. ADPT isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the Adaptive Biotechnologies First Quarter 2024 Earnings Call. Please note, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Karina Calzadilla, Head of Investor Relations. Please go ahead.

Karina Calzadilla: Thank you, Corey, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies first quarter 2024 earnings conference call. Earlier today, we issued a press release reporting Adaptive financial results for the first quarter of 2024. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and we’ll be referencing to a slide presentation that has been posted to the Investors section on our corporate website. During the call, management will be making projections and other forward-looking statements within the meaning of federal securities laws regarding future events and the future financial performance of the Company. These statements reflect management’s current perspective of the business as of today.

Actual results may differ materially from today’s forward-looking statements, depending on a number of factors, which are set forth in our public filings with the SEC and listed in this presentation. In addition, non-GAAP financial measures will be discussed during the call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad Robins, our CEO and Co-founder; and Kyle Piskel, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I will turn the call over to Chad Robins. Chad?

Chad Robins: Thank you for Karina. Good afternoon and thank you for joining us on our first quarter earnings call. As communicated last month and shown on slide three, moving forward, both our MRD and Immune Medicine businesses will remain under the Adaptive umbrella, each with its own dedicated resources and separate segment reporting. This will provide each business with the autonomy to execute on the respective focused strategies which are for MRD, marching towards profitability with a strengthened financial profile and for Immune Medicine, translating science and cancer and auto-immunity into breakthrough therapeutic programs with clear guardrails to guide investment. Importantly, we continue to preserve our strong capital position with approximately $309 million as of March 31st, which enables us to bridge the MRD business to profitability and to support targeted investments in Immune Medicine.

Our position is further strengthened by access to additional non-dilutive capital through our agreement with OncoEMR. Now let’s take a closer look at the MRD business on slide four. The MRD business has an impressive quarter with $32.6 million in revenue representing 52% growth versus prior year driven by both clinical and pharma. On the clinical side, volumes continue to grow quarter-over-quarter with over 17,000 tests delivered in Q1, representing a 41% increase for prior year and a 9% increase sequentially. Growth came from all market indications and multiple myeloma continues to be the largest contributor representing approximately 40% of volume. The few sludge [ph] diesel lymphoma is our fastest growing indication growing approximately 25% quarter-over-quarter and now contributing to 5% of total tests.

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Q&A Session

We also continue to be laser focused on driving ASD growth by reducing auto policy and non-contracting claims and improving revenue cycle management. Importantly, we are encouraged to see the recent preliminary gap bill rate set by Medicare of $1,823 per test and increase from our current implied per test rate under the episode structure. Once finalized, this rate would go into effect beginning of 2025. This rate, which will have implications for both Medicare and commercial payer pricing, give us further confidence in our ability to grow ASP per test by $200 over the next two years. In addition, clonoSEQ key indicator continue to trend positive in Q1. Blood-based testing represented nearly 40% of tests with multiple myeloma in blood, now like 20% following positive data presented in ASH in December.

Chests in the community continue to grow sequentially, contributing about 25% of tests delivered. Ordering HCPs and ordering accounts grew 33% and 25% versus priority or respectively. Additionally, EMR integration remains central to our efforts to further enhance our customer experience and to solidify our market leadership position. We saw post-integration quarter-over-quarter growth of 40% across the first four accounts we integrated at the end of 2023 and we now have nine additional active epic integrations in motion. Looking at MRD, farm on slide 5. Our Pharma business started the year strong with Q1 revenue growth of 71% versus prior year. Sequencing revenue grew 17% and we recognized milestones from two drug approvals. Last month, the FDA’s Oncologic Drug Advisory Committee or ODAC, voted unanimously in favor of the use of MRD as a primary endpoint to support the acceleration or approval of new therapies for patients with most myeloma.

ODAC’s recommendation is accepted by the FDA has potential to accelerate myeloma patient access to novel therapies and to reduce drug development costs. In addition to clonoSEQ, the only FDA-cleared MRD assay for patients with most myeloma, it is also the singular assay that can consistently deliver the sensitivity and standardization needed to meet the FDA performance standards. This further solidifies clonoSEQ as the assay of choice for multi-myeloma drug developers. So, what does this mean for clonoSEQ? On the revenue recognition front, we can potentially accelerate the realization of revenue from existing studies. There is also potential to generate new bookings as companies re-prioritize their multi-myeloma programs to leverage a faster path to commercialization.

On the milestone recognition front, we also have the opportunity to monetize our portfolio primary endpoints from the existing MRD pharma contracts. In addition, this could represent a positive table effect for the continued acceptance of MRD as a standard measure of response in the clinic. Now, let’s turn to immune medicine on slide six. The IM business is focused on developing the differentiated immune-driven therapeutics in cancer and auto immunity. In oncology, we continue to support and work closely with our genetic colleagues in the development of TCR-based cell therapy products targeting tumor neoantigens. We’re jointly working with Genentech on a holistic review of the programs to enable the development and delivery of the highest impact therapy for patients.

Both companies are excited and committed as we move forward with these developments. We’ll provide you with an update at the appropriate time. In auto immunity, we narrow our focus to select indications and multiple sclerosis and type 1 diabetes, where we believe there is still a high unmet need to develop better or targeted therapies with a better side effect profile. Our approach allows us to discover the specific T cells that are attacking cells. Therapeutically, our goal is to eliminate or block the activation of these problem T cells and directly stop them from attacking healthy tissue. In MS and T1D, we successfully identify the subset of auto-reactive T cell receptors that are likely causing these devastating diseases. And in multiple sclerosis, we can confirm the specific self-adagent or target to which these T cell receptors bind.

This quarter, we started our antibody discovery campaigns in MS and T1D. Our goal in 2024 is to discover, make, and test select antibodies to generate preclinical data that informs further investment by year end. We continue to gauge our R&D investments based on expected data readouts throughout the year. In Q1, we aligned our resources to execute on these select 2024 programs and specific goals. As a result of these changes, we expect to reduce our immune medicine operating expenses in 2024 by more than 50% versus prior year. The IM business remains disciplined on its spend and we continue to engage with strategic partners to help offset our cash burn. Now, I’m going to pass it over to Kyle to go through the key financials and provide detail on the second report.

Kyle?

Kyle Piskel: Thanks. Thanks, Chad. Let’s start with revenue for the first quarter on the left of slide 7. Total revenue in the first quarter was $41.99 million, 78% from MRD and 22% from Immune Medicine. MRD revenue grew to $32.6 million, up 52% from a year ago, with clonoSEQ clinical testing and MRD pharma partnerships each driving approximately 48% and 12% of the growth perspective, along with a 4.5 million increase in regulatory milestones. Excluding these milestones, MRD revenue grew 31% from a year ago, and the Immune Medicine revenue was $9.2 million, down 43% from a year ago, driven largely, as expected by lower genetic amortization, which decreased 49%, as well as decreases in IM pharma services due to a shift in focus towards target and direct discovery efforts.

Moving down the P&L, total operating expenses, including costs of revenue, were $90.6 million, representing a 4% decrease from last year. This decrease was mainly driven by the continued emphasis on driving leverage across functions and reductions in research and development expenses as we continue to prioritize our investments in it. Cost of revenue decreased 3%, resulting in gross margins for the quarter of 57%, a 7% point increase versus a year ago. This increase was mainly attributed to MRD milestone recognition, partially offset by lower amortization of Genentech. Finally, interest expense from our royalty financing agreement with ODAC was $3 million, which was more than offset by interest income. Net loss for the quarter was $47.5 million compared to $57.7 million last year, while adjusted EBITDA was a loss of $28.2 million compared to $37.1 million in Q1 of 2023.