Adaptive Biotechnologies Corporation

Good day, and thank you for standing by. Welcome to the Adaptive Biotechnology's third quarter financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would like to now hand the conference over to your speaker today, Karina Calzadilla, Vice President, Investor Relations. Please go ahead.

Thank you, Talisha, and good afternoon, everyone. I would like to welcome you to Adaptive Oil Technologies' third quarter 2022 earnings conference call. Earlier today, we issued a press release reporting adaptive financial reports for the third quarter of 2022. The press release is available at www.adaptivebiotech.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 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 findings with the SEC and listed in this presentation. In addition, non-GAAP financial measures will be discussed during the call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad Robbins, our CEO and co-founder, and Tycho Peterson, our Chief Financial Officer. In addition, Arlen Robbins, adaptive chief scientific officer and co-founder, Nathan Sood, head of MRG business, and Sharon Benzino, head of immune medicine business, will be available for Q&A. With that, I'll turn it over to Chad.

Thanks, Karina. Good afternoon, everybody, and thank you for joining us on our third quarter 2022 earnings call. As always, a big thank you to all our adaptive employees for their dedication and for delivering another solid quarter. As we approach year end, we are well positioned to finish strong in both MRD and immune medicine. This quarter, as outlined in slide three, we achieved important milestones and results, starting with key corporate achievements. As planned, we strengthened our cash position to $528 million with an attractive non-dilutive royalty financing agreement with OrbaMed. This agreement extends our cash runway to over three years while providing the flexibility to make strategic investments. We also finalized our long-range plan update, which will enable us to achieve sustainable revenue growth while reaching adjusted EBITDA profitability in 2025 and cash flow breakeven in 2026. Taika is going to go further in detail during his remarks. Revenue for the third quarter was $47.8 million, representing strong growth of 21% versus prior year. In our MRD business, both our Clonacy Clinical Testing and MRD Pharma Partnerships delivered solid performance. Clinical volumes grew 52% versus prior year. And our MRD Pharma Partnerships also had significant growth of 33%, excluding milestones. Our immune medicine business continues to execute on pharma services and drug discovery opportunities. Pharma services drove 23% growth versus prior year as we increased penetration into larger trials. And our Genentech partnership in drug discovery is on track with both our shared and private cell therapy programs. Moving to our MRD business on slide four. As shown in the graph, Clonacy clinical testing volumes continue to grow quarter over quarter. This quarter, test delivered grew 7% sequentially to 9,650 tests. In the United States, our market of focus, test delivered grew 11% with volume growth observed across all three marketed indications. Multiple myeloma was the biggest growth driver and the largest contributor to our business. Ordering healthcare providers and ordering accounts experienced significant growth of 56% and 53% versus prior year respectively, and unique patients tested grew 62% in the quarter. ASP is now over $1,000 per test, and we expect it to grow annually in the mid-single digits as we finalize pricing agreements with non-contracted payers and improve our collection performance. Our strategy to maintain our leadership in MRD testing in lymphoid cancers continues to progress as shown on slide five. First, our expanded sales force is structured into two distinct groups. Key account managers and diagnostic hematology specialists. These groups serve two different customer segments with distinct sales strategies. Key account managers focus on penetrating deeper into our existing established institution. This quarter, 85% of the growth came from existing institutional accounts, including Mount Sinai MD Anderson, Dana-Farber, Stanford, among others. Our current diagnostic hematology specialist team targets driving adoption and community practice accounts, currently representing 12%. Another key driver of growth is blood-based testing, which now accounts for 30% of all clonal-seq MRD tests. In multiple myeloma, growth in blood was over 100% year-over-year. Blood-based testing is key, and it has the potential to both increase penetration of ClonoSeq among clinicians and the number of tests run per patient. In addition, we are launching a CLIO-validated strep tube-based diffuse large B-cell lymphoma product at ASH. In line with previous expectations, we anticipate DLBCL to contribute to ClonoSeq growth in the second half of 2023 and beyond. As a reminder, last quarter, we obtained Medicare coverage for all DLBCL patients, 75% of which are Medicare-aged, regardless of line of therapy, treatment regimen, or testing time point. Lastly, we are focused on enhancing the overall customer experience, including more seamless integration of ClonoSeq into clinical workflow. As such, we signed an agreement with Epic to expand access and increase ease of use for Clonaseq. Shifting to our MRD Pharma portfolio on slide six, our Clonaseq assay is currently being used by over 60 biopharma partners and in over 20% of active industry-sponsored clinical trials in lymphoid cancers. Almost every major pharma company developing a blood cancer drug is using ClonoSeq in their trials as a secondary or primary clinical endpoint. From these partnerships, besides sequencing revenue, we are also eligible to receive milestones in excess of $370 million based on potential drug approvals from ongoing and future studies. We have line of sight to approximately half of the $370 million in milestones from 74 active trials today. which we anticipate recognizing over the next five to seven years. We believe there is a significant growth opportunity for our MRD pharma business. Clonoseq is the gold standard in multiple myeloma trials, and we aim to replicate this success in other indications, especially in non-Hodgkin's lymphoma, where there's significant ongoing drug development activity. Now, turning to our immune medicine business on slide seven. Our immune medicine business leverages our ability to sequence and characterize T-cell and B-cell receptors at scale to drive opportunities in various indications. We categorize our immune medicine business into two main growth areas, pharma services and drug discovery. Zooming in to pharma services on slide eight. This quarter, pharma services grew 23% year over year. This growth is driven by our team executing to incorporate T cell or B cell receptor sequencing in more and more clinical trials with existing and new biopharma customers. Our portfolio today consists of more than 140 active studies with more than 85 companies. We expect this double-digit growth to continue in the coming years. Our unique ability to detect and monitor T-cell and B-cell responses delivers rich data back to our customers that informs biomarkers of drug response with the ability to accelerate our pharma customers' clinical development programs. As indicated on this slide, we have a diversified portfolio that supports customers in multiple indications. This includes pharma clinical trials in more than four major therapeutic areas. Approximately 50% of our current portfolio includes phase one and phase two trials. Our growth strategy is to continue to grow in these phases and expand into phase three programs while bringing on new accounts. Slide nine shows an overview of our drug discovery business. Drug discovery leverages our end-to-end TCR and VCR discovery capabilities to develop therapeutic assets, either in partnership or potentially on our own. Our partnered pipeline today focuses on our shared and private programs with Genentech to advance cellular therapies in oncology. We are also building an early stage adaptive pipeline by investing in our core drug discovery competencies that we built during the last several years. Specifically, the value of our true TCR discovery and our true AB antibody discovery approaches gives us a unique ability to identify and characterize therapeutic-grade TCRs and antibodies at unprecedented scale. This quarter, drug discovery grew 36% versus prior year due to accelerated amortization of our Genentech upfront. This is due to increased R&D investments and reflects progress on both our shared and private product . You're on live, Jeff. Okay. I'm going to pick up at drug discovery. I'm not sure where the phone dropped. This quarter, drug discovery grew 36% versus prior year due to accelerated amortization of our Genentech upfront. This is due to increased R&D investments and reflects progress on both our shared and private product programs with Genentech. In addition to the first neoantigen-specific T cell receptor candidate that Genentech selected this year, we are on track by year end to complete and deliver to Genentech two additional TCR data packages. These three TCR assets are the result of our established end-to-end true TCR discovery process that allows us to identify therapeutic-grade T cell receptors that are fully characterized and de-risked for safety. We are also making excellent progress on our private product program. We have completed initial proof of concept to identify patient-specific T cell receptors for each patient's unique tumor mutations. We are working on product specifications towards early product development with Genentech. The next phase of our personalized prototype is to transition from the research team to the product development team in the coming months while implementing the necessary regulated workflows in our dedicated state-of-the-art South San Francisco lab. We will provide further updates as appropriate. We are excited by our immune medicine opportunities from Genentech and future drug discovery programs on the way. I'll now pass it over to Tycho for our financial update.