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spk04: Earlier today, we issued a press release reporting adaptive financial results for the second quarter. The press release is available at www.adaptivefiotech.com. We are conducting a live broadcast of this call and will be referencing to a slide presentation that has been posted to the investor section in our corporate website. During the call, management will make projections and other forward-looking statements within the meanings of federal security 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 findings with the SEC and listed in this presentation. In addition, non-GAAP financial measures will be discussed during this call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad Robbins, our CEO and co-founder, Julie Rubinstein, our president, and Chad Cohen, our chief financial officer. In addition, Harlan Robbins, adaptive chief scientific officer and co-founder, will be available for Q&A. With that, I'll turn the call over to Chad Robbins. Chad?
spk02: Thanks, Karina. Good afternoon, everybody, and thank you for joining us on our second quarter 2021 earnings call. We had another strong quarter, and momentum continues to build across our business areas. Results reflect our commitment to applying our immune medicine platform to transform disease diagnosis and drug discovery. ADAPT's incredible employees are dedicated to the company and the patients we serve. It's been awesome seeing desks fill up and meeting new hires for the first time in person, but we also realize the pandemic is an evolving situation. We'll continue to monitor our return to office initiatives. We are energized by our progress and the data emerging from our platform. Moving to the slides. Starting on slide three, our second quarter results demonstrate solid performance. Revenue in the quarter was $38.5 million, representing a significant growth of 83% versus prior year. We saw substantial progress across our product and our pipeline. Our COVID efforts continue to gain traction, especially in light of the Delta variant, as more stakeholders act on the relevance of including T-cells to understand the immune response to the virus and vaccines. Recent data to understand the AstraZeneca and J&J vaccine response to variants using ImmunoSeq TMAP COVID were published in the New England Journal of Medicine and in Nature, respectively. Also, we are pleased to announce we signed an agreement with Moderna in which ImmunoSeq TMAP COVID will be used to measure the T cell response to their second-generation COVID vaccine and their Zika vaccine. In addition, we signed a license agreement in our drug discovery business with Vaxabody. This is the first time that our T cell data will be used to inform the design and development of a T cell-based SARS-CoV-2 vaccine. Importantly, adaptive technology may inform the design of an entirely new class of vaccines that elicit a T cell response for many disease states. We are in active discussions with the FDA, NIH, CMS, CDC, and the White House administration to include the T-cell response in funded studies to answer critical questions related to vaccine durability, breakthrough infections, and efficacy in immunocompromised patients. Our view has been that this virus is endemic in the population and that T-cells may answer many of these questions. We are making progress, and we will keep you informed on these discussions. Beyond COVID, our T-Detect franchise continues to advance. Results from our case control data set with Johns Hopkins was just published as a preprint and serves as a basis for clinical validation. In addition, our ImmuneSense study for T-Detect Lyme will complete enrollment in the fall. Together, these studies will support bringing the test online in our CLIA lab around year end. We continue to progress towards T-Detect IBD as a differential diagnostic. with more than half of the 5,000 samples from Crohn's and ulcerative colitis patients already analyzed. We expect to share the data towards the end of this year. We have also made significant progress in other autoimmune disorders, and we are encouraged by an early signal that we have in multiple sclerosis. For those of us who have friends and family suffering from this debilitating disease, We know firsthand that early blood-based diagnosis may alleviate years of uncertainty and more effectively guide the treatment path. Autoimmune disease diagnosis is a critical next step for adaptive, and we are prioritizing our development efforts in this area. In addition, the overall value of our ClonalSeq brand continues to grow. as evidenced by both strong phonetic volumes and the signing of yet another major pharma MRD collaboration. Importantly, our team has been building the case that measuring MRD regularly for patients with blood cancers is best practice. Last week, an international panel of multiple myeloma experts published a call to action in clinical cancer research to guide the use of MRD in the clinic for patients with multiple myeloma. Of note, the publication also builds the case for the use of MRD as a regulatory endpoint for which adaptive has significant associated regulatory milestones. In our drug discovery efforts with Genentech, our collaboration continues to advance in both the shared and private products. We remain on track to deliver the next shared candidate data package to Genentech and extend our proof of concept in the private product from 15 to approximately 60 cancer patients this year. In summary, we are delivering towards our 2021 goals and we are enabling opportunities stemming from our platform. Before passing the call on to Julie on slide four, On slide four, I want to provide some color on how we are using our COVID efforts as a model to unlock multiple commercial opportunities from the same underlying immune receptor data set. By decoding the fundamental biological link between our immune system and the diseases with which they interact, adaptive can create value in many disease categories across research, diagnostics, and drug discoveries. In this case, we applied our immune code data for a research product called Immunoseq T-MAP COVID, which is now being used by vaccine developers, academic institutions, and advocacy groups. Leveraging the same data source, we launched T-Detect COVID, the first indication for our clinical diagnostic T-Detect franchise, and we signed a drug discovery agreement with Vaxabody for the design and development of next-generation T-cell-based vaccine. It's this This concept of one data set stemming through multiple opportunities is an approach that we are pursuing in many of the disease states that we are mapping. So now I'm going to hand the call over to Julie. Julie?
spk06: Thanks, Chad. Moving to slide five with T-Detect. T-Detect COVID trends continue to ramp up, and now over 10,000 customers have ordered the test. We did observe downward pressure in orders in June and early July as the vaccines rolled out. but concerns with the Delta variant has renewed interest. We expect to launch a COVID immune response website later this month to enable customers to gain additional research insights about their T-DETECT test results. To start, it will include a personalized comparison of the strength of an individual's T cell response to that of others with confirmed SARS-CoV-2 infection. Next, we expect to add more information profiling a person's T cell response to vaccines. For T-Detect Lyme, as Chad mentioned, results from our case control data set with Johns Hopkins have been published. These case control data demonstrate that our highly specific T-cell test is three times more sensitive than standard two-tier serology in the first few days post-infection, and nearly two times more sensitive in the first one to two weeks. In addition, the data also supports that the T-cell response precedes the antibody response to the Borrelia bacterium. ImmuneSense Lime is enrolling nicely, which will enable us to complete validation and make the test available in CLIA around year-end. During the first half of 2021, data emerging from our TCR mapping efforts have given us confidence in the ability of T-cells to be used to detect a variety of autoimmune diseases. These are diseases that afflict millions of patients and are challenging to diagnose and treat with highly specific clinical tools. In addition to the exciting data in IBD, we are encouraged by the signal we are seeing in multiple sclerosis because it appears to be strong not only in patients with later stage disease, but also in patients at much earlier stages, which is where MS is particularly challenging to diagnose. We have more samples arriving in the next couple of months and look forward to improving the sensitivity of our MS signal later this year. The early sensitivity we are seeing in Lyme, MS, and other diseases supports the premise that T cells are the first specific defense cells to see disease antigens and should be able to be leveraged for true early and specific detection of many diseases from blood. Switching gears to Clonaseq on slide six. On the left side related to clinical testing, you can see Clonaseq clinical testing volumes of 5,475 tests in the quarter grew 75% versus prior year and 15% versus the prior quarter. During the quarter, orders were placed by approximately 950 unique HCPs spanning 248 accounts for approximately 3,400 unique patients tested, and Clonaseq has now been used to treat more than 18,500 unique patients. Importantly, we observed double-digit growth quarter over quarter in tests delivered in each FDA-approved indication, ALL, multiple myeloma, and CLL, and within community accounts. This growth reflected recovery in the second quarter and was a result of our continuous sales, marketing, and educational initiatives. That said, the spread of the Delta variant poses challenges to the back-half-weighted growth we had anticipated in two main ways. First, rep access to clinicians, and second, reduced clinical visits recommended to our specific blood cancer patient population who are immunocompromised. As such, it is now becoming unlikely that we will double our clonacy volumes by year-end, but continue to expect healthy growth in the second half of the quarter. The recent paper that Chad highlighted is a key indicator of the growing sentiment that MRD does make a difference in the treatment of multiple myeloma patients. These prominent international KOLs and FDA regulators state that quantitative, accurate, standardized, and sensitive MRD testing may provide greater information relevant to tumor biology and likelihood of relapse when performed in a sequential fashion over multiple time points during a continuum of care. They go on to say that complete response provides a false sense of disease control. And at any given stage in the disease evolution, achievement of MRD negativity will predict a better outcome compared to patients at a similar stage who have not achieved the same depth of response with any given therapy. Of note, the paper also aggregates information from almost 40 ongoing Phase III trials, more than half of which utilize Clonaseq, that are evaluating MRD-directed therapy or MRD as an endpoint. Endorsements like this are a very important call to action to change behavior in the clinic. I also want to highlight a recent Clonaseq publication in the Journal of Clinical Oncology focused on DLBCL patients which showed that ctDNA-based surveillance of patients with DLBCL undergoing CAR-T therapy with AxoCell may be a useful adjunct to radiologic assessment of disease status. This is one of many ongoing studies as we pave the path for future Clonaseq testing in NHL. On the right side of the slide, you can see the number of publicly disclosed pharma partnerships where Clonaseq is used in clinical trials, where Clonaseq use in clinical trials continues to grow. This quarter, we signed another PAN portfolio, PAN Indication MRD Partnership with Janssen, which includes both sequencing and potential future development revenue. We also recognized an additional development milestone revenue based on use of MRD data as a clinical endpoint, which brings a total of 8.5 million in recognized revenue from development milestones year to date. Lastly, on slide seven, we are continuing to make good progress on our Genentech collaboration. As you can see in the chart, the shared and private product programs are complementary in many ways. There are significant learnings across T-cell identification, engineering, and manufacturing that we plan to leverage from our shared product to inform our private product approach. In fact, just this week, we had our quarterly JRC, and we are in lockstep on both of our programs, and we look forward to sharing more details at the appropriate time. I also want to highlight the relevance of our new license agreement with Vaxabadi. Vaxabadi is using adaptive identified viral antigenic peptides that are driving T-cell responses to develop a second-generation T-cell-based SARS-CoV-2 vaccine. This vaccine may provide more complete viral protection against known and future variants of concern. A Phase 1-2 trial is expected to start in Q4 of this year and will include testing in unvaccinated and fully vaccinated individuals. to be able to assess the true potential of this vaccine candidate as a universal booster. I'll now pass it over to Chad C for a financial update.
spk13: Thanks, Julie. Turning to our financial results on slide eight, total revenue in the second quarter was $38.5 million, representing an 83% increase from $21 million in the same period last year. Our revenue mix for the second quarter consisted of 48% of our revenues coming from our sequencing category and 52% coming from our development category. Sequencing revenue in the second quarter was 18.6 million and increased 132% from the same period in 2020. Growth in sequencing revenue was driven by both significant ASP and volume increases over prior year in our pharma research business, and also by volume growth in our Clonaseq business. Research sequencing volume increased to 6,900 sequences, up 65% from 4,185 sequences delivered in the second quarter of 2020. Clinical sequencing volume, excluding our T-DETECT COVID volume, increased 75% to 5,475 clinical tests delivered in the second quarter of 2021, up from 3,136 clinical tests delivered during the same period in 2020. Development revenue grew to $20 million in the second quarter, up 53% from the same period last year. The largest driver of our development revenue continues to be the amortization of our Genentech upfront. We also saw a $2.2 million increase over prior year in revenue generated from our MRD development agreements, which includes a $1.5 million regulatory milestone that was recognized in Q2 2021 from one of our biopharma partners. Even as the milestones materialize, we continue to replenish and grow the available milestones that we can participate in from ongoing demand for using MRD as a regulatory endpoint in clinical trials. Shifting now from our revenue to our operating costs, Total operating expenses for the second quarter of 2021 were $88.3 million, representing a 53% increase from $57.9 million in the same quarter last year. Working down our operating expenses, cost of revenue was $10.8 million during the second quarter of 2021, compared to $4.9 million for the second quarter last year, representing a 119% increase. Higher cost of revenue was primarily driven by increases in labor and overhead costs, as well as an increase in revenue sample volume, which drove higher consumption of materials and related items. We also saw growth in allocated facility expenses stemming from our new high-throughput lab and office space under construction, which is quickly approaching completion. Research and development expenses for the second quarter of 2021 were at $37.8 million compared to $26 million in the second quarter of 2020, representing a 45% increase. The growth was largely related to an increase in personnel costs driven by innovation, South San Francisco Cellular Lab, molecular product development, and software engineering teams, and increasing cost of materials and allocated production lab expenses. Sales and marketing expenses for the second quarter of 2021 were $23.2 million compared to $14.3 million in the second quarter of 2020, representing an increase of 62%. The majority of this growth was due to increased personnel costs, particularly related to teams supporting our clinical, diagnostic businesses and medical affairs, as well as large marketing efforts to support our in-line products. General and administrative expenses for the second quarter of 2021 were $16.1 million compared to $12.2 million in the second quarter of 2020, representing an increase of 31%. The increase was primarily driven by growth in headcount and personnel costs. Net loss for the second quarter of 2021 was $49.3 million compared to second quarter 2020 net loss of $33.5 million. Adjusted EBITDA for the second quarter of 2021 was a loss of $35.6 million compared to a loss of $28.5 million in the same period of the prior year. We ended the quarter with approximately $690 million in cash, cash equivalents, and marketable securities, and we had no debt. With respect to our outlook for the year, we are narrowing our full-year revenue guidance range to $148 million to $155 million, up from our prior range of $145 million to $155 million. The increase in the bottom end of our range reflects the additional $1.5 million MRD milestone payment in the second quarter, as well as strong execution year-to-date. We still anticipate sequencing revenues to represent between 50% to 55% of our total revenues for the full year. We are encouraged with our with our first half results and are confident in our ability to achieve our full-year commercial and development goals. We will continue to closely monitor any impact from COVID variants in the second half and look forward to providing you with further updates next quarter. I will now turn the call back over to Chad Robbins for final remarks.
spk02: Hey, thanks, Chad. I'm very encouraged with the progress we are seeing across all business areas and looking forward to executing on the catalyst outline in slide 9. What I'm most excited about is the data emerging from our platform, which we expect to monetize for multiple opportunities in research diagnostics and drug discovery. Before opening up for questions and answers, today we announced an important addition to Adaptive's management team. I want to welcome Nitin Sood as our new Chief Commercial Officer who will oversee our in-line product portfolio. Nitin will lead us through a critical next phase of commercial expansion including multiple anticipated product launches and international growth. With that, I'd like to turn the call back to the operator and open it up for questions.
spk03: Thank you. As a reminder to all participants, to ask a question, please press star 1. And our first question is from Derek DeBruin of Bank of America. Please go ahead, Derek.
spk10: Hi. Good afternoon. Hey, thank you for the update. Can you elaborate a little bit more on the Vax-a-Body agreement and just what you're doing there specifically and just sort of what the terms of that are? And also the Moderna relationship, just some incremental information on that would be helpful.
spk13: Sure. Thanks, Derek. So this is Harlan. To start with, the reason we partnered with Vaxabody is that they have a unique capability to truly target a T cell response, whereas the primary mode for how basically all vaccines that have ever been put on market work have been targeted towards generating an antibody response. And as we're learning, the virus, SARS-CoV-2, is quickly escaping antibody, neutralizing antibody response, and the T cell response is becoming of greater and greater importance. And so in order to generate, you know, a very broad overall protection, we think that a T cell response is vital. And since they have this unique capability and we're to target T cell response, and we were able to determine, you know, kind of best in class what to target, we thought it was kind of a perfect marriage. And beyond that, love the management team there and the scientific team, and we've really well vetted them. We've actually given them some sets of targets already, and they've already generated – a vaccine response in animal models that has been nice and robust. They've been vetted by the Genentech as well. And then in terms of the deal, it's a royalty-based deal where we're sort of in it together and think there's huge long-term potential here. Great. Oh, sorry. What was the next question?
spk10: Yeah, the Moderna relationship, yeah.
spk13: Yeah, we've had a longstanding relationship with Moderna. Obviously, you know, the world has just seen how great a company they are, and we're really excited to really work with them to help understand the T cell response to their vaccine. Just in relation to what I just said a minute ago, they're taking advantage of our T-MAP product, which is our research-based product that that gives considerable more information than are just straight diagnostic products on exactly what the specifics of their vaccine are inducing in terms of what part of the virus they're getting a T cell response to, how broad that response is, et cetera, and really allowing them to understand. And I think it wasn't even well understood. Their vaccine is... you know, proving to be efficacious even in cases with reduced neutralizing antibodies. And we think that it's the T cells that are helping out that they're inducing from their vaccine.
spk10: Great. And then just one more. You know, the comment that you're not going to be able to double ClonoSeq volumes this year, I'm just curious. Are you already seeing drop-offs in demand now, or is this something that you're just anticipating happening because of the variants. I'm just curious in terms of what you're seeing in the markets right now and how that factors in to your debt. Basically, is there still the potential to hit that number, or are you just being cautious right now?
spk02: Yeah, let me, Derek, just chat. I'll put this in context. I mean, we had a good quarter. We continued to expect strong growth in the second half, which was kind of back half-weighted. We are, you know, we're continuing to grow here, and we haven't seen much of a drop-off at all. Actually, it's just in light of the Delta variant and what we're seeing right now with, you know, limited access by kind of the field team. There are certain kind of uncertainties, and uncertainties, especially with kind of the impact on our patient population, which Julie had mentioned kind of in her prepared remarks. So, therefore, we really want to take a measured approach, and we're looking at, you know, taking a modest reduction. You know, if helpful, just kind of what Julie closed with, I will reiterate that I want to kind of put in context that this is just one component of the overall kind of value of ClonoSeq and the MRD kind of brand, which is growing significantly. you know, across clinical, pharma, research, and international. But, yeah, we want to take kind of a measured approach here as we look at it. Got it. Thanks.
spk03: And our next question is from Brian Weinstein of William Blair. Go ahead, sir.
spk08: Hey, guys. Good afternoon. Thanks for taking the question. Um, maybe one, Hey, uh, maybe one just on the guidance here. So it was a good quarter, obviously. Um, and, uh, you, you beat, uh, I think where most people were by like 7 million or something like that. And you raised the bottom end of the guide by, by just 1.5 million. So can you just maybe talk through kind of the thought process there? Was there, was there anything that was pulled forward, uh, in this quarter that was expected later in the year? Um, is the, Is he not raising by the full amount of the upside having to do with this ClonoSeq, more conservative stance? Just any color that you can give on kind of how you thought about the guidance.
spk13: Yeah, maybe I'll start with that one. Hey, Brian, it's Chad Cohen. Yeah, I mean, we made a lot of progress in the second quarter, as you can see by our results. We had strong sort of sequencing numbers. We grew those 132% year over year. really belayed by our ClonoSeq numbers, strong T to 10 COVID even contributed to some of that, our research business, sort of across the platform. We had a really strong quarter and continue to expect really nice growth in our sequencing sort of category through the end of the year. We're just south of 50% of our revenues going to sequencing in the first half, of the year and expect about, you know, close to about 60% in the second half, get into that sort of 50 to 55% range for the full year. So strong growth. I think just, you know, given the emergence of the variants, you know, we at this time are, you know, just passing along really the $1.5 million milestone that dropped in the quarter that was outside of the guide. We have really strong conviction in the numbers that we're presenting as our full year guide, bringing up the bottom end of the range. But, yeah, as Chad said, we're being sort of measured or metered in response to what we're seeing with the variants.
spk08: Got it. Makes a lot of sense. Next question on the new signal that you guys are talking about in MS. So it seems just in general that these signals are starting to come a bit more or are coming a bit more regularly at this point. Can you talk about the expected pace of being able to find these new signals? And then as you're finding those, do you have the proper resources right now to be taking multiple signals to the next phase here? And then if I could just, I know I'm throwing a lot at you on this topic, but you've also talked a lot about infectious disease and now autoimmune. Is there any update on any of the progress on the oncology side? I know that was an area that you guys were clearly looking at before. Haven't heard much on kind of any signals on that side. Sorry for all the questions, but thanks for the answers.
spk02: Yeah, Brian, maybe I'll provide some framing and then pass it to Harlan to take the first part of that, which is kind of the expediting signal generation and how we think about it across categories of infectious disease. Obviously, now we've got progress and accelerating progress in autoimmune and then kind of where we are in the cancer space. But as I think what you're pointing out is signal generation is one component of it, and then kind of at the back end is having a product on market. In between that, you have a significant amount of steps in terms of clinical trial and analytical validation, health economic analysis, market access work with the payers, regulatory, all that goes into defining product market fit and where the clinical utility is for a doctor treating patients. You know, all of those areas, and this is such a kind of massive opportunity, and we're investing and hiring a phenomenal team and putting resources into kind of really defining the buckets to go from signal generation to kind of ultimately, you know, products on market, and then also thinking about, you know, how we leverage kind of what are kind of shared resources versus kind of where we need to hire kind of, specific, discrete kind of medical expertise in disease areas, and we've put a lot of thought behind that. But maybe I'll turn it over to Harlan in respect to kind of how we're thinking about and expediting signal generation.
spk13: Sure. Thanks, Chad. So in terms of the research side and the development side, we're – working hard to get an economy of scale by sort of standardizing our methodology. And so, for example, we're able to now each different disease class requires algorithmic development and chemistry. The chemistry is united among all of our different assays right now. We literally have one One delivery mechanism, which is just the same for T-detect COVID, will be T-detect everything. So same sample type, same chemistry, et cetera. The only thing that potentially can change is the algorithms, and we're uniting at least within disease class those algorithms, which is why we've been able to really expedite on the infectious disease side. We have a few that are COVID on market, Lyme coming soon. We just published a paper on that. and there's multiple other infectious diseases that we have really nice, probably clinical-grade signals in already. Separately in the autoimmune space, we're making progress across multiple different autoimmune spaces. We've talked about IBD. We've talked about MS. We have some others that we're working on, and the same concept, right? We're uniting and trying to get cross-learnings from one where we can then get much faster at the others. So what does this require? This requires us to get a certain amount of samples with patients with those diseases, and we've been collecting those for quite a while now, and we have a either samples sequenced already, as we told you already, in MS as well as in IBD, but we have others coming in other autoimmune diseases and other infectious diseases as we go. So all of those are progressing really nicely, and we're very pleased with the direction they're going. You asked about oncology. Oncology has a much broader set of questions, and we are working in the research setting. Here, you know, the class of drugs is enormous, and the number of companies working on them is huge. And so we're working to help all those companies grow. really understand how to use those drugs, et cetera. But that does feed on and stems from our connecting T cells to antigens at scale. And the issue here is simply that the immune response to cancer is so broad because the potential antigenic space, the things that your immune system can see, is huge. So it's just a harder problem. We are making progress, but it's going to be on a longer timeframe just because of the scale of the project. So, you know... We're moving. It's coming, but it's going to be a little while on that side. We're going to have more near-term successes that you'll see hit in infectious disease and autoimmune space.
spk08: That was awesome. Great. Thank you guys so much. I appreciate it. Thanks.
spk03: And our next question is coming from Doug Shankle of Cowen. Please ask your question.
spk07: Hey, good afternoon, and thanks for taking my questions. My first one is, I guess, a guidance question. One of the key assumptions embedded in full-year guidance is that the commercial expansion that you're in the midst of takes hold and supports a material ramp in second-half diagnostic revenue. I just want to see how you're thinking about that now. Obviously, some nice growth sequentially in that category is Maybe that's evidence enough that things are going well, but I'd love for you to expand a little bit more on what you're seeing and how comfortable you are with this high-level assumption that things will continue to ramp in this category as a result of the commercial build-out over the balance of the year, especially keeping in mind there might be some risk as, I guess, related to the Delta variant in terms of physician office access.
spk02: Julie, you want to take that?
spk06: Sure, thanks. Yeah, I think, you know, the way you just framed the question is exactly right. We're absolutely experiencing, you know, as we mentioned in the remarks, double-digit growth in each of the indications for which we have an FDA label in Clonaseq, and we continue to see really nice growth in the back half of the year, barring some of the comments Chad made related to the Delta variant. But specifically, you're absolutely right. We've invested quite a lot commercially, both in the sales force as well as on our medical team. And so we have a lot more focus on peer-to-peer education. We're seeing the results of patient education. And we're really focused also on making sure that we ID all newly diagnosed patients as regularly as possible in our new accounts. We're growing the... reach of our targeted account population quite a lot. I've talked a lot in the past about Tier 1 and Tier 2, about 250 accounts that were our target universe. We've really expanded that to over 900 accounts now that were in the community with CLL, and we're seeing nice progress and penetration in that broader universe of targeted accounts. So, That's just some of the types of initiatives we have underway that we're doing together with our commercial and our expanded medical team to grow usage of ClonoSeq in the clinic.
spk07: Excellent. And quick follow-up on that one specifically. I won't hold you to generating the same type of sequential growth you just did in that category moving forward because that was pretty impressive in the quarter. But fair to assume that you're expecting continued sequential growth over the balance of the year from diagnostics for all the reasons we just talked about?
spk05: Yes. Absolutely. Yes.
spk07: Okay. And then just a product question on T-Detect, Crohn's, IBD. You know, I think, and maybe I had it wrong, maybe I didn't, but before I was thinking of this as a single disease test. Now it looks like it's designed to distinguish across multiple GI disorders, including UC and Crohn's. Is this now, again, maybe I just had it wrong, but if I didn't, should we be thinking about this as essentially a panel test for that category?
spk13: Yes. Thanks, Doug. So the goal is definitely to create a panel test and include UC and Crohn's. Obviously, it will be dependent on the full signal and timing and everything else, but that is the goal. We're presently analyzing sets of samples in both Crohn's and UC as well as a few other related indications, and the goal is both in the near term to create a differentiated diagnosis and then to continue to add more to the panel as we create additional signals.
spk02: Yeah, I should actually mention, and I'll broaden that too, I mean, that's our goal for Each one of these tests is to have a differential diagnosis, but it starts with getting a beachhead in one disease state and then getting a high sensitivity level, fixing a very high specificity level, and then moving across to other diseases that have shared symptomatology. The very first thing we can do is rule out other diseases. But, you know, then the goal over time is to be able to definitively have, you know, not only the ability to rule out but have sensitivity in each one of the diseases so that we can definitively diagnose, you know, each one of the diseases with a shared set of symptoms.
spk07: Got it. Yeah, actually, as you're describing that and I think about your typical playbook, that makes a ton of sense. All right. Well, thank you for your time on both questions.
spk03: Yeah, sure, Doug.
spk07: Thanks.
spk03: And our next question is from Tejas Sabant of Morgan Stanley. Please ask your question.
spk05: Hi, this is Yuko on the call for Tejas. Thank you for taking our questions. In light of the emergence of the Delta variant questions about durability of vaccine response, could you comment on what you're seeing in terms of T-detect COVID uptake? And what could an upside case look like?
spk13: Yes, that's a great question and obviously super important. We are seeing that the T cell response to the vaccines is long-lasting. You know, now we've seen samples, you know, over a year, and certainly at 11 months we had good statistics to say that we, you know, at least by T-detect standards we could detect as positive, you know, over 90% at 11 months. However, at six months, quantitatively, the number of T cells specific to the specifically induced by the vaccine is waning at six months, so there's some loss there. We're working with certainly a variety of investigators and a set of vaccine makers to hopefully incorporate this as we move. I'll pass it to Chad to talk about the
spk02: The upside case, you know, and again, I just want to make sure we're framing it in the right context because you brought up the term upside case. We'll talk specifically about the three areas which could have potential upside. One is, you know, in the research business, if the government decides to fund large-scale studies to truly understand the cellular immune response or the T cell response to the virus. There's potential upside for us in that. Actually, in the same vein, let's say within research, and we're working on this, if the FDA mandates that the vaccine manufacturers include a measure of T cell response in their clinical trials, that would be upside. Right now, they're opting in to do it as evidenced by the most recent kind of signing with Moderna. So those are the two upside of the research. From a t-detect standpoint, it would be if we could figure out how to get reimbursed for a t-detect COVID test, that would be an upside. And the third is in the drug discovery category. If our partner, VactorBody, shows that their vaccine, you know, which is a DNA-based vaccine that doesn't have kind of the cold chain storage requirements, it proves to be effective, you know, on a standalone or as a universal booster, you know, that would be, you know, a tremendous upside case. But again, just characterize those all as upside and not baked into, you know, in any way in our guidance assumptions for the year.
spk05: Thank you so much. And then a quick follow-up. Would you provide any thoughts on timing of potential milestones over the next 18 months from Genentech and any other collaborations? Thank you.
spk02: I think it's... As we said, we're going to be delivering our data packs to them in the fourth quarter of this year, but we have not yet specified timelines as to when we are going to be expecting milestones to hit. But we should hopefully be able to, as soon as we know, we will be able to provide an update to you guys.
spk13: Yeah, and any additional milestones in the year will be upside to the guide we're getting.
spk05: Great, thank you.
spk03: And our next question is from Tycho Peterson of J.P. Morgan. Please ask your question.
spk09: Hey, guys. Good afternoon. What do you think? You can comment a little more on the Moderna deal, you know, how you're thinking about that opportunity. You know, is that something where you get, you know, back-end economics? If you could just touch on both, you know, the COVID piece and obviously the Zika vaccine you mentioned as well in the press release.
spk02: Yeah, with respect to Moderna, this is one that falls into kind of our research bucket of revenues in TMAP COVID, where we're helping Moderna assess the cellular immune response or the T cell response to a vaccine, kind of what it's inducing outside of the antibody response. So there's no kind of back-end economics on that. associated with that deal like there is with our abacus body deal where we're kind of part of the design and development.
spk09: Okay. And then on T to detect, obviously you mentioned the multiple sclerosis signal. Can you maybe just touch a little bit about how you're thinking about that opportunity and timelines?
spk06: Sure. Hi, Tycho. So, you know, this is early days for us, obviously, and so it's an early signal, and there's more work to be done. But we are beginning to explore that market. We understand the incidence isn't huge. It's about 12,000 to 15,000 patients diagnosed annually in the United States. However, as you probably know, the process of getting there involves a lot. There's a whole variety of clinical scores involved. that need to be met. There's MRIs that need to occur and lumbar punctures and some other relatively invasive and expensive tests that create a diagnostic odyssey that can be challenging. So there's never been, as far as we know, a blood test to really be specific for MS. And that's what we're really most excited about is to be able to do that upon the earliest signs of symptomatology of MS, and that's really where we think there's a room for huge improvement with our potential T-detect MS application.
spk09: And maybe one last one. Julie, on the pharma side, you had another MRD partnership. How are you thinking about kind of the pipeline for the back half of the year for similar partnerships on the pharma side?
spk06: Yeah, I mean, it continues at a pretty regular cadence all the time. Our pharma business, both actually, I should say, on the MRD side and the non-MRD side. So we're seeing a really nice... come back to life of the T-cell pharma work that we do, and we're also broadening beyond oncology quite a lot, as a lot of the data and the places we're going and the KOLs we're beginning to interact with are beyond oncology. So the totality of the pharma business right now for MRD testing as well as non-MRD testing is looking really bright for the back half of the year.
spk02: And, Tango, one thing that Chad said, Cone mentioned his prepared remarks that I just want to kind of call out again is kind of the replenishing you know, of the milestones that are associated with these deals. Even though, you know, we did draw down kind of some of the milestones this year, we've actually kind of more than replenished those milestones. I think maybe next quarter we'll provide an update on what those numbers look like, but we've more than replenished what we've been able to take out, you know, over this year through new deal signings and what I would call a very robust pipeline in the MRD pharma category.
spk03: Okay, thanks. I appreciate it. And our next question is from Mark Massaro of BBIG. Please go ahead, sir.
spk12: Hey, guys. Thanks for the questions. I guess, you know, I believe it was last quarter you talked about having over $300 million of potential future milestones in MRD. Can you just talk about how the agreement with Janssen may have expanded that size? And You know, I think it would be interesting to hear, you know, you pulled down $1.5 million this quarter, $7 million last quarter. You know, it feels like we're going to see a relatively steady cadence of these over the coming quarters. I think Julie just kind of alluded to that, but if there's any way you could provide any more clarity around that, that would be helpful.
spk02: I'm going to start, and then I'll pass over to Chad Cohn to talk more about the numbers. But, again, I want to highlight one – Another call-out from the prepared remarks, which is the really call to action, the multi-myeloma paper that was published in the CCR, clinical cancer research, that really called for the use of MRD as a regulatory endpoint. When that happens, that would be a catalyst that would make a significant portion of those milestones on the balance sheet available to us. So that's kind of a catalyst-driven event that we've been – well, the field has been working on for some time, and I think we're making a significant amount of progress with specifics regarding kind of the quantum of dollars.
spk13: Chad, do you want to? Yeah, I mean, I can just comment that we continue to grow almost quarter over quarter the number of milestones that we can participate in. So we're at a number that was greater than last quarter. I think we'll be thinking about how best to sort of provide you quantitatively with that going forward and at what sort of time points and milestones that we reach. I'll just say that we're happy with the number of deals that we've been able to do. It validates well, our thoughts about the size of the market and how we can be instructive to our biopharma partners around using Milestone and their clinical endpoints. The majority of our Milestones relate to primary endpoints with, you know, the secondary endpoints. And they cut across, you know, about a dozen different partners with, you know, multiple studies sometimes within each of those partners within the U.S. and EMAs. So they're quite varied, and I think they represent some really nice optionality for us that we're proving really delivers on our P&L from time to time, as you've seen for the past few years.
spk12: Okay, thanks. And then congrats on the back-to-body deal. I guess a quick three-part question here. The first, I think I heard you say that this would be used as a universal booster. Would that be obviously a booster for both Moderna and Pfizer, or can you comment on that? And then secondly, I would imagine this is likely a non-exclusive deal. Can you confirm that? And then on the royalty side, should we think of this as like a low single digit, or could it be more lucrative than that?
spk02: Yeah, so I'm going to try to make sure I got those all in, Mark. But the first question is the answer is yes. We do see this as a potential universal booster. And the second point there is, you know, it also could be, you know, because of the lack of cold chain storage requirements, you know, to be able to disseminate to kind of around the world, there's a potential there. is number one, in terms of we're not able to kind of specify the financial arrangements in terms of kind of royalties, but I think you're thinking about it. I think you're thinking about it in the right way. And two, from a T-cell design and development perspective, there's kind of a limited set of exclusivity around what we're specifically doing with them.
spk12: Okay. Thank you.
spk03: And here's our last question from Salveen Richter of Goldman Sachs. Please go ahead.
spk01: Hi, good afternoon, and thank you for taking our questions. This is Elizabeth on for Salveen. I was just wondering if you had any thoughts about how the T cell-based SARS-CoV-2 vaccine differs from Gritstone Bio's approach, where they're also trying to sort of develop a T cell-based vaccine. And then I have a follow-up question around the MS program.
spk13: Sure. This is Harlan. You know, I don't want to speak too much about Gridstone's approach because I'm not, you know, fully familiar with them. I know that, you know, one of the big differences, the reason that the FACTA body wanted to partner with us is that our ability to basically use our – and technology to establish immune response, not through an algorithmic approach, but through a direct assessment of the immune response. So I think we're starting there. But also the one thing that's unique about Vax-a-Body is their ability to target the immune response directly to the antigen-presenting cells of choice. So as far as we know, as far as I'm aware, this is a unique ability. And so it's not to say that other vaccine players aren't attempting to induce a T cell response. Obviously, from the primary, as I'm sure you're well aware, the primary focus of vaccine development throughout history and with all the ones on the market right now were designed to generate antibody response, not a T cell response. But they, of course, would everybody wants one. It's not like you're avoiding a T cell response. So anyways, the point being that this unique ability to target antigen-presenting cells and adaptive proprietary ability to pick out truly the best immunogenic targets is what kind of sets this collaboration apart, I think. But I can't comment directly on the ins and outs of Gridstone's approach.
spk01: Yeah, that's really helpful. Thank you. And then regarding T-detect and MS, just wanted to know if there's anything sort of different about how you're thinking about the development of the program here or maybe a different clinical consideration versus some of the other indications given there's, you know, an association of the viral origin Epstein-Barr virus for MS versus other autoimmune diseases where there's not such a close sort of viral tie.
spk13: So, you know, there's actually pathogenic ties and or confusion in a variety of these different autoimmune conditions, but certainly I think some of the best studied, as you were saying, is in MS where there's, you know, some direct connections, including some papers that we've been part of publications on. You know, we're trying to fill out our diagnostic approach in viruses that are focused around, let's say, around the space of the autoimmune diseases of interest. So, for example, in IBD, we're looking at pathogens that are – implicated and or confused with the disease in the gut. When we get to rheumatoid arthritis, we've actually got ahead of ourselves on the vaccines, on the viral side where we're looking at a set of viruses that can get confused with rheumatoid arthritis conditions and same with MS. So we're trying to package these together where we can either look at causation and or look at a differential diagnosis where the disease itself can be confounded with the symptom, symptomatically. So absolutely we're exploring these in various capacities, and that's, you know, really driven in a lot of ways our developmental efforts on the viral and the rest of the pathogenic side.
spk01: Got it. Thank you.
spk03: And we have our last question from David Westenberg of Guggenheim. Please go ahead.
spk11: Hi. Thank you for taking the question. So I first want to talk about kind of the way you were to think about pricing in T-Detect and what is a fair ASP. I think historically I know T-Detect or Immunoseq, as you used to call it, has not really a major cost advantage versus competitors' competitors. But what do you think is actually a fair price as we bundle kind of certain diagnostics? I mean, what's kind of a bar? And I realize you probably can't give a specific price, but as we think about this test in the future and your ability to panel it or go after single indications, I just kind of want to think about how you might think about fair pricing, and I have one follow-up after that.
spk02: Yeah, hey, David. So as we move from kind of single diseases to differentiated diagnosis to what, you know, I would say kind of the holy grail for us is kind of being part of an immunoscreen or checkup, you know, how we think about price points along each one of those kind of, you know, If you're going to have kind of a regular checkup cost at the end of the day, it's part of an immune screen that has to be, you know, at a lower price point. But as you look at kind of disease diagnostics, a lot of it has to do with kind of the market access landscape, the unmet medical need, the non-invasive nature of your test, et cetera. And that usually, and why I brought up kind of market access in the payer landscape is is payers essentially are willing to pay, at least at this time, different price points for different types of tests. For example, it's well known that they're going to pay more for a cancer-based test or an autoimmune-related test right now than an infectious disease-related test. you know, we continue kind of to work with the payer community, and yet, you know, we've talked preliminary in some of the disease categories that we're looking at or some of the disease indications, I should say, that we're looking at about kind of test points, but we really kind of ultimately want to be able to kind of hit that sweet spot, you know, at the end of the day of, you know, how much we can charge for it, and that'll be kind of reimbursed broadly by the payer community.
spk13: Chad, do you want to? I agree with Chad's comments. I would say that, you know, additionally from a margin perspective, the incremental cost of layering in additional signals within each test is going to be small. And so from that perspective, as we sort of move up the value chain from a market perspective, the gross margins, the potential gross margins of the business are for T-Detect just continue to grow in sort of concert with that. So I think we're really excited about it and that T-Detect COVID was a beachhead and a stepping stone to a much bigger concept.
spk11: Got it. Thank you. And then switching gears to ClonoSeq, just quick thinking in terms of other potential indications. I don't think T cell diseases are as big markets, but is there any other off-label usage or is that any consequential part of overall in ClonoSeq? And I'll stop there.
spk02: Yeah, well, there are, and I wouldn't say off-label because they are brought up under our CLIA lab, under kind of the regulated CLIA environment. There's two of them that I can think of. One is in cutaneous T-cell lymphoma or CTCL, and the second is although most ALLs are B-cell derived, there's about kind of 8% to 10% that are T-cell derived acute lymphoblastic lymphomas. And so both of those populations we do service right now through our CLIA environment.
spk11: Got it. Thank you.
spk03: And that's it for our question and answer session. Now I would like to turn it over back to our presenters.
spk02: That's all we have. Thanks, everyone, for joining today.
spk03: And that concludes our conference for today. Thank you, everyone, for your participation. You may now disconnect.
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