Adaptive Biotechnologies Corporation

Good day and thank you for standing by. Welcome to the Adaptive Biotechnologies Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Karina Calcidelia, Thank you, please go ahead.

Thank you, Evangeline, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies' third quarter 2021 earnings conference call. Earlier today, we issued a press release reporting adaptive financial results for the third quarter of 2021. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing a slide presentation that has been posted to the investor section on our corporate website. During the call, management will make projections and other forward-looking statements within the meaning 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 filings with the SEC and listed in these presentations. 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 Robbins, our CEO at Compounder, and Chad Cohen, our Chief Financial Officer. In addition, Harlan Robbins, Adaptive Chief Scientific Officer at Compounder, and Nathan Soot, Chief Commercial Officer, will be available for Q&A. With that, I'll turn the call over to Chad Robbins. Chad?

Thanks, Karina. Good afternoon, everybody. Thank you for joining us on our third quarter 2021 earnings call. We had another quarter of strong performance with key progress across our business areas, paving the way for our immune medicine platform to transform disease diagnosis and drug discovery. Thank you to all of our employees for their dedication and commitment to our company and the patients we serve. This quarter, we had the pleasure of opening our new corporate headquarters and laboratory facility in Seattle. This building represents a new chapter for Adaptive to scale our business as we continue to grow. From sample processing to data analysis, this is truly an end-to-end facility designed to be a place that inspires our workforce to deliver innovative solutions for our patients and our community. Moving to the slides. Starting on slide three. Our third quarter results demonstrate continued progress. Revenue in the quarter was $39.5 million, representing significant growth of 50% versus prior year. Increasing the overall value of our ClonoSeq brand through both clinical adoption and pharma-MRD collaborations remains a key focus. We recently launched an enhanced version of the ClonoSeq assay for CLL patients, which gives patients IGHB mutation status in the same test where we measure the trackable MRD sequence. This is an important step if Clonoseq will become an even more valuable diagnostic for hematologists to use at the start of patient workouts. In addition, our pharma partners continue to benefit from using our MRD assay as an endpoint in clinical trials, and this quarter recognized another regulatory milestone. our COVID efforts continue to gain traction on multiple fronts. We are delighted to report that we received a positive assessment from Moldex recommending coverage for T-DETECT COVID for immunocompromised patients. This is a further validation that T-cell testing fills an important gap in understanding the immune response to the virus and is a key reimbursement milestone for the T-DETECT franchise. Of note, a large subset of the immunocompromised population is the same blood cancer patients we target with our Clonacy Commercial T. In addition, there is an increasing number of research collaborators and vaccine manufacturers interested in using Immunocytemap COVID to assess whether T cells may provide a correlate of protection. These data would answer key questions in understanding immunity to the virus. Beyond COVID, our T-DETECT franchise continues to progress. We completed our ImmuneSense line study, which showed our T-cell-based diagnostic to be nearly two times more sensitive than standard two-tier testing in identifying individuals with early disease. This is the second technical proof of concept that our T-cell-based testing has advantages over serology in this diagnosis of infectious diseases. We continue to advance T-DETECT and autoimmune indications. For IBD, we already have a signal in ileochrones and have approximately 5,000 IBD samples in-house, of which over 80% have been sequenced, and the remainder are in process. We expect to have the totality of the data completed by year-end, and we'll share steps of development at that time. We have also identified a signal in multiple sclerosis and have additional samples in-house, which are currently under analysis. Autoimmune disease diagnosis is a key focus area for Adaptive. We are prioritizing our development efforts around our business units. In our drug discovery efforts, our Genentech collaboration is progressing well. On the shared product, we are assessing efficacy and safety data with Genentech to enable a decision by year end to move our lead product into early development. For the private product, we are on track to complete our proof of concept in 60 cancer patients by the end of this year. In addition, it was great to see VaccinBody announce the initiation of a Phase 1-2 study for the two SARS-CoV-2 vaccine candidates under development, one of which includes T-cell-based components identified by our immune medicine platform. This is the first time that our platform is being used to inform the construct of a novel vaccine, and we're encouraged by this important advancement. In summary, we're executing towards our 2021 goals and continue to generate data to enable multiple opportunities stemming from our platform. I'll now provide more detail on some of these highlights and then I'll pass it over to Chad Cohn who will review the financials. Starting with Clonaseq on slide four, on the left side, Clonacy clinical volumes of 5,928 tests in the quarter grew 47% versus prior year and 8% versus the prior quarter. During the quarter, orders were placed by over 1,000 unique healthcare providers spanning 260 accounts for approximately 3,800 patients tested, and Clonacy has now been used to test more than 20,000 unique patients. Tests delivered grew quarter over quarter in each indication. we increased the number of ordering physicians and the number of accounts, including within the community setting. So far into the fourth quarter, we have seen our daily order volumes increase and expect to achieve sequential growth. The recent launch of IDHV was an important milestone for ClonoSeq, which we expect to influence utilization for CLL patients. IDHV testing is recommended in clinical practice guidelines because it is shown to be prognostic in CLL. We do believe this added feature will help boost CLL orders and have already observed a 20% increase in CLL orders in the four weeks since launch. Although off a small base, we believe this is a great indicator at this very early point in the launch. We continue to drive expansion of payer coverage policies reaching over 240 million covered lives in ALL and multi-myeloma and over 150 million in CLL. Of note, CLL covered lives increased 15% this quarter, and we had an important payer addition with Centene, who now considers Clonaseq as medically necessary for their patients with ALL, multiple myeloma, and CLL. On the right side of the slide, you can see our MRD-Pharma partnerships continue to drive the value for the Clonaseq brand. In addition to sequencing revenues, we have over $330 million in future regulatory milestones. This portfolio This portfolio of eligible milestones continues to grow and materialize over time. In this quarter, we recognize an additional $1.5 million, which brings the total to $10 million year-to-date. Turning to T-Detect on slide five. The interest in T-Detect COVID orders despite vaccine rollout continued over the quarter, mostly related to concerns with the Delta variant. Importantly, given the lack of effective tests to assess the immune response to COVID-19 infection in certain groups of individuals, including immunocompromised patients, Moldex has allowed for reimbursement of T-Detect COVID at $770 per test. There are approximately 1 million oncology-related immune-compromised patients in the United States. Notably, we are planning to leverage our Clonacy sales channel and increase our promotional efforts to this population. This is an exciting advancement for T-DETECT, as this is the first reimbursement that potentially paves the way to accelerate market access for future indications. For T-DETECT LIME, our Munisense LIME study was completed and data was presented at the ID Week in October. The study validated that T-detect Lyme in patients tested within 30 days of symptom onset is nearly twice as sensitive versus standard two-tiered serology testing in detecting Lyme disease. Given the focus of these data in the acute setting, we've decided to make T-detect Lyme available closer to the start of the Lyme season while focusing our near-term efforts on operationalizing the T-detect COVID reimbursement launch. I also want to emphasize the key interplay between our clinical diagnostic and pharma research business. Just as the overall value of our Clonacy brand is driven by a combination of clinical test volumes and the strength of our MRD pharma portfolio, the same applies with T-Detect. The right side of the slide shows a variety of ways in which our pharma and research partners are using T-MAP COVID to assess T-cell response to vaccines and potential correlates of protection. We believe that the role of T-cells will continue to gain traction as COVID becomes endemic and questions about immunity remain unanswered. We intend to be the go-to platform for the acute and accurate quantification of T-cell response for our pharma partners and other research collaborators. Lastly, on slide six, our drug discovery efforts continue to advance. We are on track with our Genentech cell therapy collaboration to advance both the shared and the private products. Both programs are making good progress as expected, and our joint Genentech adaptive teams are working closely together to assess efficacy and safety data of our lead PCR for our shared product to enable a decision by year end to move into early development. teams also continue to establish private product specifications. Last quarter, we disclosed the extension of our drug discovery capabilities to inform the design and development of vaccines with VaxxerBody. VaxxerBody designed its next-generation T-cell-based COVID-19 vaccine candidate by encoding multiple spike and non-spike-specific T-cell epitopes validated by Adaptive. This T-cell-based vaccine is intended to address SARS-CoV-2 variants of concern and to be used as a potential universal booster to available vaccines. This morning, Vax-a-Body announced the start of its two-arm Phase 1-2 trial to evaluate the safety, reactogenicity, and immunogenicity of its two vaccine candidates, an RBD-only vaccine and our T-cell-based vaccine. Both vaccine candidates will be tested in already vaccinated individuals. Look forward to seeing progress on this new and important program that aims to address variants of concern and will continue to work with the VaccineBody team to share any additional information at the appropriate time. Our VaccineBody collaboration is yet another validation of our platform in drug discovery. We're excited to pursue additional opportunities to inform the design and development of next-generation T-cell-based vaccines and other diseases. I'll now pass it over to Chad Cohn for our third quarter financial update.

Thanks, Chad. Turning to our financial results on slide seven, total revenue in the third quarter was $39.5 million, representing a 50% increase from $26.3 million in the same period last year. Our revenue mix for the third quarter consisted of 56% of our revenues coming from our sequencing category and 44% coming from our development category. Sequencing revenue in the third quarter was $22.1 million and increased 96% in the same period of 2020. Growth in sequencing revenue was driven primarily by a $5.8 million increase in revenue generated from our biopharmaceutical customers and a $5.4 million increase in revenue generated from our clinical customers. Research sequencing volume increased to 8,710 sequences, up 33% from 6,541 sequences delivered the third quarter of 2020. Clinical sequencing volume, excluding our T-DETECT COVID volume, increased 47% to 5,928 clinical tests delivered the third quarter of 2021, up from 4,023 clinical tests delivered during the same period of 2020. Development revenue grew to 17.4 million in the third quarter, up 16% from the same period last year. The largest driver of our development revenue continues to be the amortization of our Genentech upfront. This quarter, we also recognized a $1.5 million MRD regulatory milestone from one of our pharma partners. As of the third quarter of this year, we have over $330 million in potential MRD pharma milestones available to us, representing a net increase of $20 million compared to the same period last year. Shifting now from our revenue to our operating costs, total operating expenses for the third quarter of 2021 were 95.8 million, representing a 51% increase from 63.3 million in the same quarter last year. Working down our operating expenses, cost of revenue was 14.2 million in the third quarter of 2021, compared to 6.1 million for the third quarter last year representing a 134% increase. Our cost of revenue is primarily driven by an increase in materials costs due to sample volume, an increase in labor and overhead costs, and growth in expenses related to sample collection for our T-DETECT COVID product. Research and development expenses for the third quarter of 2021 were $36.1 million compared to $30.3 million in the third quarter of 2020, representing a 19% increase. The growth was largely related to an increase in personnel costs, driven mainly by innovation and new product development initiatives. Sales and marketing expenses for the third quarter of 2021 were $24.9 million compared to $14.5 million in the third quarter of 2020, representing an increase of 72%. Most of this growth was due to increased personnel costs, particularly related to teams supporting our clinical diagnostic businesses and medical affairs, as well as larger investments in our ClonaSeq marketing efforts. General administrative expenses for the third quarter of 2021 were 20.2 million compared to 12.1 million in the third quarter of 2020, representing an increase of 67%. This increase was primarily driven by growth in headcount, personnel costs, as well as expanding our overall facility footprint and higher depreciation expenses. Net loss for the third quarter of 2021 was 56 million compared to third quarter 2020 net loss of 36.7 million. Adjusted EBITDA for the third quarter of 2021 was a loss of $41.1 million compared to a loss of $28.4 million in the same period last year. We ended the quarter with approximately $632 million in cash, cash equivalents, and marketable securities, and we had no debt. With respect to our outlook, we are reiterating our guidance range for the full year of $148 to $155 million, representing 54% growth year-over-year at the midpoint of the range. For the full year, we estimate a fairly even 50-50 split between our sequencing and development revenues, given the realization of milestones already recognized through the third quarter. I will now turn the call back over to Chad Robbins for his final remarks.

Thanks, Chad. I'm proud and encouraged with our achievement year-to-date across all business areas and looking forward to the additional key milestones we expect to accomplish over the next couple of months as outlined on slide eight. The data emerging from our platform continue to support the current and future value generated from our clinical diagnostic and drug discovery opportunities. With that, I'd like to turn the call back over to the operator and open up for questions.

Thank you. And as a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tycho Peterson of JP Morgan. Your line is now open.

Hey, good afternoon. Congrats on the reimbursement coverage for T-Detect COVID. I know that's a big deal. Can you maybe just help us think about the intended use case, the benefit of using it, and how you size the market opportunity?

Yeah, sure. Thanks, Tycho. And yeah, we're really, really excited about this. the news of coverage. So maybe I'll, the first question about who is intended, who the product of T-Detect COVID is intended for, I'll take that and then I'm going to pass it over to our new Chief Commercial Officer, Nitin Sood, and if you could handle the question about the benefits and the market opportunity from there. So to the first, for the first question, just kind of let me outline it. So Medicare issued a coverage decision for a certain population, the immunocompromised patients, who are less capable of mounting an immune response to either the natural infection of COVID and or to the vaccination. But we believe, and we've said this from the beginning, that unfortunately this is going to be endemic in our population. And these subset of patients, they're always going to be at risk, even as the virus moves from kind of the pandemic state to an endemic state. So the risk will remain high about whether or not they can amount an immune response. If you look at kind of this estimated population of immunocompromised populations, it's around kind of seven. The estimates vary, but on the low end, we think it's around 7 million in the United States. And this will be kind of the population that we believe will benefit from our T-DETECT COVID test. And we think that this kind of T-cell testing is you know, at a really high level, it's going to fill a big gap in the current testing paradigm. So, Nitin, do you want to take, you know, how it will be used and the benefit to this population?

Yeah. Thanks, Chad. So, as you all know, you know, your body produces T cells as part of your immune response to infections and vaccinations. And our T-DETECT COVID test reliably assesses the presence of T cells or a T cell response to COVID-19. indicating recent or prior infections. COVID vaccines also produce a T cell response, which may result in a positive T detect COVID test. And, you know, physicians can use this to help than managed care, and as, like, Chad talked about, particularly for immunocompromised patients, helping physicians make decisions related to vaccines or vaccine boosters in patients who are on immune-suppressing medications, including deferring or postponing such medications or providing, you know, even preventative monoclonal antibody treatments. As Chad noted earlier, you know, part of that immunocompromised population is in the oncology space, and that is the population we're going to target. We think out of those 7 million individuals, 1 million are in the oncology segment, and we're going to use the Clonoseq sales team to target those physicians. And then we're going to do sort of more targeted promotion to transplant centers, you know, HIV treatment centers, where we also believe there is an autoimmune centers where we believe there is an immune-compromised population. And simultaneously, long-term, we're working on generating additional evidence to make the test semi-quantitative, as well as generate correlative protection, which we think is going to be not only beneficial to physicians and strengthen our value proposition to physicians, but also really strengthen our value proposition to vaccine developers. And I think longer term, you know, I think it just sort of opens up a whole lot of opportunities for us. Given the success of mRNA vaccines, I think there's going to be a lot of activity in vaccine development even beyond COVID. And I think having a test that measures quantitatively the T cell response and produces evidence around coronavirus protection, we'll open up a whole bunch of doors beyond COVID as well.

Great. That's super helpful. And maybe just sticking with the vaccine theme then, on Moderna, you know, you mentioned you've got the samples in-house. Obviously, you're working on their second-generation COVID vaccine. How should we think about timelines there? Any updates on the development path?

Sure.

Harlan, do you want to take that one? Sure. Thanks, Tycho. We're evaluating the cellular immune response to the vaccine. And, you know, the data is going to be owned by Moderna, so it's not going to be at our liberty to discuss the outcomes of that. But we're definitely wrapping up soon in returning data.

Okay. And then on the enhanced, you know, clonal seek for CLL, how do you size the IGHV opportunity? I know you talked about a 20% increase in orders early on, but how are you sizing, you know, the incremental opportunity there?

You want to say that?

Yeah, I mean, I think, you know, the benefit there is going to be that, you know, it's going to encourage, you know, physicians that order CLL to order the ID test. There is sometimes less incentive for them to order the ID test. Now they're going to get actual prognostic information right at diagnosis. So I think it encourages physicians to order the ID test and really CLL is treated a lot in the community setting and really enhances the value of ClonoSeq in the community setting. So That's how we think about this.

Okay, great. And one last one for Chad Cohen before I hop off. Just on guidance, you know, $3 million beat, you're keeping guidance intact. 4Q guidance is a bit below the street. Anything to think about for the fourth quarter, why you might be a little bit more cautious here?

Yeah, I mean, we tend to think about the business in semesters more than quarters, and we've historically just talked about it that way, you know, front half versus back half. So third quarter, we saw a lot of really strong pharma volumes that we had really contemplated a little more in the fourth quarter. They came a little early. We're still seeing really strong sequencing business. You know, if you look at the back half, you know, growth over last year is looking at about 70%, you know, given the numbers that we imply with our guide. Growing really nicely also first half over second half at about 20 or so percent. So... And the business really is performing far better in the back half from a core sort of sequencing perspective. We gave the guide around sort of 50-50 split between sequencing and development. The first half was sort of more of like a 40-60 split. The back half is more of like a 60-40. It sort of gets those numbers. So our sequencing volumes and our sequencing revenue in the back half are really strong here. relative to the first half. The first half also just had $8.5 million in milestones, which makes that first half number look a little bigger from a development perspective.

Okay. I appreciate the color. Thanks. I'll let others hop in.

Thanks.

Our next question comes from the line of Derek DeBruin of Bank of America. Your line is now open.

Hey. Good afternoon, everyone. Hey, Derek. So, I guess first question, you know, and it's sort of tag teams on Tyco's, you know, what was sort of the impact on your clinical sequencing volumes and your biopharma volumes from the spike in the Delta variant? You and a number of other companies last quarter were a bit cautious on sort of your second half views given that. So just wondering if you could sort of like quantify what's going on or what you sort of saw with it in terms of volumes.

Yeah, there was definitely a third-quarter impact, you know, related to Delta variant on the clinical sequencing volume for ClonoSeq. And that was really primarily for two reasons. You know, the first reason is because, you know, our reps had really limited access to be able to get into accounts, especially when you're talking about kind of new accounts and new indications like CLL, which were growing. you really need kind of that in-person kind of rep access. And the second, also related to sort of our populations, which, you know, kind of interplays with the COVID announcement, is this population, because they're immune compromised, you know, were really being told to, in cases where, you know, where they didn't need to come in for imminent treatment, were really kind of delaying their delaying their in-person hospital and clinician visits. The combination of those two factors definitely took a hit in the third quarter. Like the pre-prepared remarks, We are encouraged based on the IGHV launch in CLL on some of the trends that we're starting to see in the fourth quarter, both related to the IGHV launch in CLL, but also with, you know, I think the Delta variant not having, you know, an impact, you know, fortunately for a lot of reasons, you know, we're starting to see some really positive signs.

So I know it's a little confusing, I know it's early to start thinking about next year, but I have to ask. You know, when you began this year, you talked about doubling your total clinical test volumes, and obviously with, then certainly with Delta, that, you know, understandably doesn't happen, but how, do you have any initial thoughts on how you sort of think about clinical volumes trending for 2023?

Well, we're not, we're not assuming for 2022, but

I'm sorry, 2022. Sorry, I'm already a year past. I'm on the beat. There you go.

Yep. Look, Derek, I mean, we're bullish on this business, and we're encouraged by the trends that we're seeing. And like you said, although there was an impact from the Delta variant, our overall thesis in the ClotoSeq business is, is incredibly positive. We're not yet at the point where we're prepared to release guidance for 2022 yet, but we certainly think it's going to be a strong, we certainly expect to have strong growth and in 2022. And I would say, you know, again, you know, we look at the interplay in that business. The clinical sequencing volume plus the MRD pharma opportunity overall makes up the Clonaseq brand, and overall that business has been growing quite nicely, and we expect it to grow and get on a nice growth trajectory in 2022. Great.

Thank you very much. Sure.

Our next question comes from the line of Brian Weinstein of William Blair. Your line is now open.

Hey, guys. Good afternoon. Thanks for taking the question. I was hoping you could maybe help us understand a little bit more on the news from Vaxabody today, you know, the importance that it has for adaptive at a high level relative to kind of the technology. And then can you just remind us practically, what it means to the company and the potential financial opportunity if all of this were to play out positively.

Yeah, sure. Hi, Brian. Thanks for the question. Well, first, let me – I want to put this into context. I understand that kind of Baxter Body isn't, you know, a household name like Moderna and J&J. But this is really important for adaptive because we do view this as kind of a true extension of a platform into another area of drug discovery. And what I mean by that is, yeah, you've heard about kind of Moderna and J&J deals where we work really from essentially looking at the immune response to their vaccines and being able to, as Harlan said, kind of hand over that data to really help them understand, you know, how their vaccines are working. This is different in that we're actually using our platform to inform the design and development of the vaccines. More specifically, from a scientific standpoint, pieces of virus with a viral proteome called T-cell receptor epitopes, we can essentially, by looking at the T-cell response to those pieces of virus, we can determine which pieces go into the vaccine construct to specifically elicit a broad and diverse T cell immune response. This is a new type of vaccine, a T cell based vaccine of which our technology is perfectly suited to be able to inform that design and development. We think it's important for two reasons. One is we can potentially extend this proof of concept would allow us to extend to other disease areas if we can show that this is the right way to design and develop T-cell-based vaccines and potentially with other larger players and or vaccine body. But then secondly, there's a potential based on their delivery mechanism. They have a DNA-based vaccine, which doesn't have cold chain storage requirements. So there's an opportunity here, and we'll have some royalties on the vaccine here. that if this vaccine could be delivered as another option of a booster to certain parts of the world where you would benefit from, you know, not requiring or not having accessibility to cold chain storage requirements, that's really where we kind of see the potential opportunity. But first and foremost, Brian, we're really looking at this, hey, does this work? can we use our platform to design a vaccine? And then this really opens up, we believe, a lot of opportunities for us.

And then for you, Harlan, just your thoughts in general on current vaccine effectiveness. We listened to the webinar that you did back in, I think it was October, and you've been a little bit concerned about durability there and just the need for a T-cell-based approach, kind of like what Dr. was just talking about with Vaxibody and how you guys are playing there, but just generally your thoughts on, you know, what you're seeing on current vaccine effectiveness and the need for a T cell-based approach in general.

Yeah, so certainly we should be, I think, very pleased with the efficacy of the vaccines. I mean, we're seeing at six, eight months out that the the response is staying quite strong. It's certainly in the cellular immune response. But it does start to wane after that. We can see it, depending on the vaccine, start dropping at six months or start dropping at eight months, which is really corresponding to other measures, the efficacy measures that show that the rate of breakthrough infection starts going up at that point in time. So I think the booster regimen that's being suggested is right on schedule, and hopefully we can broaden that to things having that in a wider population would be, in my opinion, a very good thing. And, you know, the side effects seem to be staying quite manageable. So I think we're moving in a good direction, and I'm excited for the next generation of vaccines coming out, too. So that's a big win for us.

Yeah, okay. Thank you for that. And then one more for me, just You've talked about Moldiacs kind of looking at T-Detect here. Anything on private payers? Have you guys been reaching out to them? And any thoughts on the likelihood of gaining coverage in some of the larger private payers there for the same population? Thanks, guys.

And then you want to comment on private payers?

Yeah. So, you know, the current COVID testing guidelines provide for commercial payer coverage. of FDA EUA COVID tests within the context of the public health emergency. And our key to that COVID test falls within this category. So, you know, we'll be working with private payers over the next, you know, several weeks to outline the operational process for making coverage online.

Thank you. Thanks.

Our next question comes from the line of Dan Brennan of Cohen. Your line is now open.

Great, thank you. Hey, Chad, Chad. Nice to be on the call. So I want to see, first question is just on Klonoseq. Just maybe stepping back, I know Derek asked the question. I'm just wondering, can you just provide an update on the commercial investments that you made to kind of drive growth? Obviously, Delta could be having a kind of temporal impact right now. But just give us an update on people that have been put in place, what you've seen thus far, and if we look out, you know, towards 22 and beyond, just, you know, what are the key kind of milestones in terms of, you know, regulatory approvals, new enhancements that could be important towards, you know, driving growth in the franchise?

Yeah, so first off, welcome to the call, Dan. A pleasure to have you covering us. We're making kind of significant investments in ClonoSeq in kind of preparing for 2022, in particular kind of increasing the amount of reps on the ground, both in terms of our key account managers and dedicated hematology specialists, based on some early signs that we've seen in the IGHB kind of launch. But we also believe that kind of training this cohort as a class together will have kind of significant, you know, benefits as we look to scale the business. With that, I'll turn it over to Nitin to make more specific remarks.

Yeah, I mean, I think, you know, as we've spoken before, we are pretty positive on our ClonoC business. You know, we're the best in class sensitivity. We have FDA approval. We have widespread payer coverage. In fact, you know, this quarter alone, we increased coverage for CLL by 15%. You know, we see other positive trends. You know, there was an MRD white paper that was published in July that supported the use of MRD both as a regulatory endpoint and in clinical practice. Authors included many top KOLs, Nicole Gormley of the FDA. You know, we saw a German cost impact analysis study published in September that there is a favorable you know, 75,000 euro favorable economic impact with the use of Klonosig-directed therapy. So I think we see all positive trends. As a result, we're investing in the channel. We're strengthening how we market the product. We're improving and investing in improving customer experience. So repeat ordering is seamless. And then longer term, you know, we think we'll get some positive feedback from the FDA on ALN and blood and We have three major studies going on in multiple myeloma. We received some positive feedback for the AV studies we have ongoing for NHL for non-Hodgkin's lymphoma. So overall, I think we see all kinds of positive trends and we continue to invest in the business broadly.

Great. Thank you for that. And then just on MRD, obviously sizable milestone opportunity to be recognized there. In terms of thinking about the events that'll play out to start to realize more significant portion of that. Is that more so like 23, 24, or if it's 22, just given the timelines for, you know, the development program, just wondering how we should think about kind of, you know, when a bigger part of that starts to become realistic.

Yeah, this is, hey, Dan, Chad Cohen, how are you doing? Good to hear from you on the call. And As we mentioned, we have over $330 million of milestones available to us, and that's been growing really nicely even as we've been taking these down. It's hard to really sort of bookend the timeframe with respect to our participation in them, but they'll happen over the next few years. I think just to characterize the milestones, they represent probably on the order of a dozen or more different deals with even more compounds and projects within those deals. And, you know, two, I'd say, you know, two-thirds of the economics in those milestones relate to primary endpoints, which is a much bigger sort of pool of endpoints that we hope to participate in someday. What we've really been participating in so far are the secondary endpoint milestones, which, you know, continue to grow and for which we've recognized about $10 million this year. So really feel it's becoming more of a structural component of our P&L than it even has in the past. and we continue to grow the available pool of milestones and hope to do more deals, especially as we get into other indications like NHL.

Awesome. Great. Thanks, guys. Appreciate it.

Our next question comes from the line of Mark Massaro of BTIG. Your line is now open.

Hey, guys. Thanks for taking the questions, and congrats on the attractive reimbursement for T-Detect COVID. I guess Um, how should we think about, uh, I know that this question has been asked, but there's about a million, uh, cancer patients that would be eligible. You know, 1% of that market's about 8 million in revenue. So just, I guess, uh, we're trying to get a sense for, you know, how quickly do you think you can get, you know, 5% of that opportunity? Is it two years? Is it one year? Um, and I think it would be helpful from a, from a modeling perspective.

Let me make a couple comments, and again, feel free to add on. First off, in order to operationalize this, it's going to be probably 60 to 90 days. There's a lot of things that we need to do to put in place to be able to offer this to HCPs through a reimbursed channel, including going out and You did a good question earlier on private payer reimbursement. We need a specific code from the AMA to be able to ensure coverage by the private payers. But that being said, our target is the $1 million in terms of a direct coverage coverage is the million immunocompromised patients that we have access to. And then secondly, there's another, call it, you know, six to seven million patients who are immunocompromised that will be doing non-direct promotional activities, too, as well. But I think it's fair to say, look, this is not only a new product launch, but this is a new product category. So, you know, we're extremely encouraged and bullish. But in terms of kind of how quickly we can get to 5%, the good news is, you know, I think the world has been, you know, helping and talking about the adaptive immune response to the virus. So that bodes in our favor. So some of that kind of marketing effort, has done, but in terms of the specific use case, which was asked earlier, exactly how and when you use it, what therapeutic regimens or lifestyle choices will a patient, will a doctor provide to assist in the management of patients? This all has to be worked into the current patient paradigm of care. you know, we're going to go as quickly as possible to capture as much of the market as possible, and we're working through that right now. Nitin, you want to add on to that?

I mean, I just want to reemphasize the fact that, you know, we do have a sales channel exactly into those 1 million patients, but it is going to be an effort on our part to, you know, educate that physician population about the adaptive immune system immune system so I think we're going full steam ahead to make this available and we're going to keep an eye out on it and I think we're going to include updates for you all when we provide guidance next year.

And obviously we're bullish about it because we're prioritizing it and that was catalyzed based on the fact that we were able to get the coverage that we did allows us to step on the gas and go in and pursue this opportunity because we think it's real.

That's great. So you did acknowledge you were impacted by the DELPA variants in Q3. You know, you made some positive commentary about volumes here in Q4. You know, you grew 8% sequentially for clinical clonoseq volumes in Q3. Do you think it's reasonable, based on the positive commentary for DELPA so far, one-third of the way through Q4, that you can kind of have almost a similar performance on the clinical side for ClonoC and Q4?

Yes. We certainly anticipate having sequential growth in the fourth quarter.

Okay, that's helpful. And then just my last question, how should we think about the opportunity for Lyme disease as it relates to reimbursement? Certainly I wouldn't expect $700 or $800 a test, but And any thoughts you have there and an update you have as it relates to discussions with any payers?

Yeah, I mean, I can speak to that. I think as we've said in prepared remarks, you know, we're going to be launching the Lyme test closer to the Lyme season. We've, you know, reprioritized and refocused ourselves on T-DETECT COVID. And, you know, at this point in time, you know, we're engaging with payers and having conversations, and we'll provide you an update as, you know, real information is available to us. But that is a focus for us to figure out the reimbursement for Lyme, yeah.

Great. That's it for me.

Thank you.

Our next question comes from the line of Salvin Richter of Goldman Sachs. Your line is now open.

Hey, good evening. This is Elizabeth on for Salvine. Thank you for taking our questions. I just wanted to ask about, you know, the enhanced version of Clonoseq for CLL patients. Are there any other enhancements for Clonoseq that you're considering or, you know, would potentially consider for other indications?

Yes. So I think we're not prepared to disclose anything right now, but certainly NHL, non-Hodgkin's lymphoma, is an area that's going to be a lot of focus for us, you know, enhancing our capability in blood-based multiple myeloma test is going to be a focus for us. And then we're also, you know, potentially considering, you know, adding an IGHV-like test in other indications.

Thanks.

Our next question comes from the line of Taha Savant of Morgan Stanley. Your line is now open.

Hi, this is Yuko On for Tejas. Thank you for taking our questions. Now having gone through the reimbursement process for T-DETECT COVID, could you share some of the learnings from that process? And how are you thinking about positioning reimbursement pricing discussion as you roll out additional indications for T-DETECT?

Hey, Yuko. Thanks for the question. So I think the first thing to keep in context is that because we got an EUA from the FDA, it gave us the opportunity to expedite reimbursement discussions with Moldex. And what essentially that means is there's a significant amount of education that has to go in to be able to really facilitate To understand exactly what this is, because this is a new way to diagnose disease using T-cells, we were able to go in and really outline the case. And so now you've got a baseline set at the Moldex program, and frankly, we were able to do some of this at CMS National. As we look to future indications, we do believe there's an opportunity to price a test based on the value that that test provides to patients and the healthcare system. Don't get me wrong, we're pretty encouraged by the price point we were able to receive from Moldex, but we think that in certain high unmet medical needs, in particular in the autoimmune category, there should be potential to really price a test based on the true value it provides to the system and to patients. So I don't know if that totally answers your question, but those are some thoughts we have around reimbursement, what we went through with COVID, and how it impacts our thinking in terms of kind of the longer-term thinking for the franchise. Yeah, that was super helpful. Thank you.

And then also, you mentioned you saw the impact from Delta variant this quarter. Have you seen improved physician office access towards end of the quarter and into October? And then you previously mentioned that COVID-19 may disproportionately affect the community channel. Did you see that also playing out this quarter?

Yeah, we did. I mean, the reality is, is that we're still have restricted access to you know, both the community oncology setting and the academic medical centers. It really hasn't opened up yet to the extent that we want. So we were able to achieve the growth we did kind of despite having, you know, some of those headwinds, you know, out in front of us. We're seeing, you know, on a regional basis, you're seeing some of that. But, you know, our reps are being creative and trying to meet where we're allowed to, even outside the hospital settings at coffee shops and parks. and doing everything that they can to be able to educate the clinical community.

Thank you.

Sure.

The next question comes from the line of David Westenberg of Guggenheim Securities. Your line is now open.

Hi, thank you for taking the question. So question number one is, you know, we've seen for kind of a number of years researchers doing immune mapping using single-cell approaches. And, you know, I think there was just a company, a private company recently that raised a pretty big round on using single-cell approach in order to map the immune system. So I just wanted to ask you, Just in terms of your approach differing from others that are using that other kind of approach.

Yeah, so people mean a lot of different things by mapping the immune system. You know, I think what you're referring to is a company that has an approach to look at a whole bunch of different parameters to get some kind of more global picture of what they think is going on in the immune response. We're, I would say, in some ways more focused and focused specifically on the immune receptors, which is the immune system's way of specifically identifying disease. So it's sort of a different approach and probably has very different sets of applications. For the diagnostic approach, I don't think think that those other approaches are really playing in that space. So I think we're the only ones, I would guess, really working on, I shouldn't say that, but likely the only ones working on the diagnostic space. But on the target discovery space, we're more focused on antigenic targets as well as the T cell receptors used for therapeutic use against those targets, which is very different than maybe looking for more general diagnosis immune-based targets that some of these other companies might be using. You know, they're very early on. We don't have a ton of data on what they're exactly doing, but certainly... The immune system is, as we know, quite large and is affecting every aspect of medicine right now, including the primary direction people are going for cancer therapies, in addition to obviously working in the vaccine space and autoimmune. So I think we'll see more and more different directions. The confusion of using the same term to mean different things, mapping of the immune system, hopefully we can... clarify what we mean by that anyway so that it's not such a confusion.

No, no, I appreciate it. It's just a question we just got a couple days ago. Anyway, secondly, in terms of key to tech COVID, are there any other infectious diseases that might have utility in terms of, A, finding T cell versus B cell immunity, differentiating natural versus vaccine immunity, and kind of measuring immune response length a period of time? I'm just trying to... contemplate futures applications for T-DETECT that you've discovered today that might be applicable to other infectious diseases that we maybe haven't thought about in the future. And I'll stop there after that.

Yeah, I mean, this is a great question, and the biggest appreciation in learning was I think the community at large, even the scientific community, the immunologists and virologists, I don't think everybody really appreciated the role that the cellular immune system was playing in protection, whereas part of this is probably just historical, that we've had the ability to measure an antibody response and even a neutralizing antibody response for, you know, 50 years, and we didn't really have a way of measuring the T cell response at scale. But now that we do, and also now that we're in this situation where where we're seeing these new variants from COVID that are really avoiding the neutralizing antibody response from the vaccines at high levels. We're seeing the importance of the T cell response to really give us the protection that we need to prevent severe disease. And so because of that, there's been an uptake and interest in looking at the T cell response. And, you know, what's on us, we have to prove that the T cell response really correlates with protection. If we can show that directly, then we really have the tool that people can use going forward in a whole variety of different ways. vaccine efforts in different diseases to help them develop the right vaccine but also prove that their vaccine is working and provide the information that the regulatory bodies need as well. So we're pretty excited about this evolution of the field. We're obviously a little frustrated it was slower than we had hoped for people to start appreciating T-cells, but it is happening and there's going to be, I don't know, the T-cell revolution is coming. Appreciate it. Thank you.

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