Adaptive Biotechnologies Corporation

Good day and thank you for standing by. Welcome to the Adaptive Biotechnology second quarter 2023 conference call. At this time, all participants are in 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. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Karina Calzadilla, Head of Investor Relations.

Thank you, Jacinda, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnology's second quarter 2023 earnings conference call. Earlier today, we issued a press release reporting adaptive financial results for the second quarter of 2023. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast 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 statement 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 Taika Peterson, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I'll turn the call over to Chad Robin. Chad?

Thanks, Karina. Good afternoon, everybody, and thank you for joining us on our second quarter 2023 earnings call. As always, I want to thank all of our adaptive employees for their continued dedication and execution. We're halfway through the year with solid six-month results and key milestones achieved. As shown in slide three, Revenue for the quarter was $48.9 million, representing 12% growth versus prior year. This growth reflects strong performance from ClonoC clinical testing and the achievement of our first milestone in drug discovery, which more than offset an anticipated reduction in our Genentech amortization. Our R&D programs in oncology and autoimmune disorders continue to progress. Both programs in cancer with Genentech are advancing. We're very pleased to see the IND acceptance for our first candidate in cell therapy. In addition, given our efforts to streamline our organization and improve operating efficiencies, we achieved gross margin improvement of eight percentage points related to sequencing alone versus prior quarter. We are laser focused on achieving operating leverage and ensuring our path to profitability with current cash on hand. Earlier today, we announced that Nitin Sood, head of our MRD business, is leaving Adaptive to take a new position at a multinational public company. Susan Babulski, who has led the clinical business for the past five years, will assume additional responsibilities and report directly to me. I'd like to thank Nitin for his leadership and the important contributions he's made in laying a solid foundation for our MRD business, and we wish him success in his new endeavor. Let's now take a closer look at MRD business on slide four. Total MRD for the quarter, including clinical testing and pharma, grew 22% versus prior year. On the left side of the slide, you can see strong ClonoC clinical volume growth with all metrics trending in the right direction. Tests delivered grew 52% year over year with double digit volume growth in all marketed indications. Multiple myeloma continues to be the largest contributor and the main growth driver. Ordering healthcare providers and ordering accounts grew 44% and 37% versus prior year respectively. Blood-based testing increased in all indications and grew 16% sequentially. Now approximately 37% of all MRD tests are in blood. Community accounts, a key factor to accelerate penetration in blood, continues its growth trajectory quarter over quarter and now contributes 21% of clonacy volume versus 11% a year ago. As shown on the right side of the slide, MRD Pharma grew 14% excluding regulatory milestones. The slight flow down in growth this quarter reflects macro factors impacting the broader biopharma industry as trials are getting extended and portfolios reprioritized. That said, strength in bookings reflect healthy demand for the business going forward. Zooming into Clonacy test volume on slide five, we continue to set record high volumes quarter over quarter. This quarter, volume grew 13% sequentially to over 13,660 tests delivered. Our strategy to drive clonal sick volume is working, and we reaffirm our commitment to end the year with over 50% volume growth versus 2022. ASPs were impacted in the quarter due to growth in out-of-policy indications and higher Medicaid contribution. However, we have a targeted ASP plan focused on closing remaining payer contracts and policy gaps, as well as increasing resources for claim management to improve collections. We are confident these initiatives will enable reacceleration of ASP growth for the next several years. related to ongoing initiatives to expand Clonacy utilization. Epic integration is progressing well, and we are excited to bring our first pilot sites live this month with additional integration sites to follow. This marks a milestone for our partnership with Epic and demonstrates our commitment to investing in the Clonacy customer experience. We also continue to expand meaningful data readouts at the ASH conference, particularly highlighting blood-based testing in multiple myeloma. As shown on slide six, the final analysis of the MASTER study was presented during the EHA conference in June. This study shows that for patients who discontinued therapy after two consecutive negative clonoseq tests, over 85% of them in the standard or high-risk category did not progress after three-year follow-up data. These data have been very well received by physicians and are driving adoption of Clonaseq for making critical therapy decisions for patients. In summary, the setup for MRD is strong in both clinical testing and pharma, and we look forward to continuing to fuel its growth. Switching to our immune medicine business on slide seven, we generated $23 million in revenue this quarter from drug discovery and pharma services. with drug discovery contributing more than 75% of the revenue. Our IM Pharma Services business was impacted this quarter by macro factors affecting the broader biopharma industry, including strategic and or budget reprioritization. In addition, year-over-year comparisons vary as the RUL Pharma business is lumpy throughout the year. This was an important quarter for drug discovery. We recognize the first IND development milestone from our cell therapy partnership with Genentech. This milestone represents a new revenue stream to help offset the decrease in the Genentech amortization this quarter. Let's take a closer look at our cell therapy program with Genentech on slide eight. Genentech secured the FDA IND acceptance for the first neoantigen-directed T-cell therapy product candidate. Importantly, this IND acceptance reaffirms the value of our TCR discovery platform and our ability to identify and characterize clinical grade therapeutic T cell receptors, which is a cornerstone of our drug discovery capabilities. We are thrilled by this acceptance and look forward to supporting Genentech as it gears up for the first in human trial with this potentially life-saving therapy for patients with solid tumors. In addition, the personalized program is also maturing. we are on track to standardize our end-to-end workflows and are making good progress in building the required regulated infrastructure in our dedicated South San Francisco laboratory. Our focus with Genentech is to build the product development requirements this year that lay the foundation for clinical readiness. As you can see in slide 9, In addition to our cancer cell therapy partnership with Genentech, we're executing to deliver on our key R&D proof points in autoimmunity. This includes focusing resources on high-value R&D programs to discover novel targets, starting in multiple sclerosis. We aim to identify at least one novel disease-specific target by year-end. We're excited by the progress we're making, and we look forward to providing an update as we advance these programs during the second half of this year. I'll now pass it over to Tycho. Thanks, Chad.

Turning to our financials on slide 10, total revenue in the second quarter was $48.9 million, with 53% from MRD and 47% from immune medicine, representing a 12% increase from a year ago, which is primarily attributable to growth from the clinical business and the Genentech IND milestones. MRD revenue grew to $25.9 million, up 21% from a year ago, with growth from both clinical testing and pharma partnerships partially offset by a lack of MRD regulatory milestones. Colonocytes test volume, including international, increased 52% to 13,664 tests delivered from 8,998 tests in the same period last year. Immune medicine revenue was $23 million, about 3% from a year ago, driven by recognition of the IND milestone, which more than offset the decline in Genentech amortization and pharma services. Now moving down the P&L on slide 11, total gross margin for the quarter was 63%, representing a 13 percentage point increase versus last quarter and a six point decline versus a year ago. The sequential increase was mainly attributed to the IND milestone, as well as a 4% decrease in cost of revenue. Other OpEx, including R&D, sales and marketing, and G&A, declined 5% in total versus a year ago, mainly due to a 13% decline in R&D. In total, OpEx, including cost of revenues, remained stable year over year and sequentially, while revenue grew 12% and 30% respectively during the same periods. We look forward to continuing to optimize our processes to further enhance margins through a number of efforts, including streamlining the organization, disciplined R&D investments, and completion of the lab move with updated lab information management systems. In addition, we are evaluating switching from NextSeq to NovaSeqX, which we expect to contribute to significant savings going forward. Finally, interest expense from a royalty financing agreement with OrbitMed was $3.6 million, which was offset by interest income. Net loss for the quarter was $47.7 million compared to $52.1 million last year. We ended the quarter with approximately $417 million in cash, equivalents, and marketable securities, which, as Chad noted in his comments, will bridge us to profitability without the need for additional capital. Now, turning to our outlook on slide 11, we are reiterating full-year guidance of $205 to $215 million in revenues. At the midpoint, we continue to expect the contribution from our businesses to be approximately 55% from MRD and 45% from immune medicine. Within our MRD business, we expect over 50% growth in clonal seek test volumes, as well as MRD regulatory milestones in the back half of the year. We expect second half revenues to be more heavily weighted toward the fourth quarter, mainly attributed to drug discovery deals that we expect to close by year end. As we continue to drive operating efficiencies, we are also reiterating our full-year OPEX targets, including cost of revenue, to be below 2022 OPEX of $385 million. Cash preservation remains a priority, and we now expect our burn for the remainder of 2023 to average $35 million per quarter versus the $40 million previously estimated. Q2 financial results were solid, and we remained committed to driving additional operating leverage and achieving positive EBITDA in 2025 and cash break even in 2026. I'll now turn the call back over to Chad.

Thanks, Daiko. As discussed during our call, our MRD and immune medicine businesses are performing well, and we are looking at ways to maximize the potential value of each business to best serve our patients and our shareholders. In our MRD business, We are executing to increase clonacy penetration and solidify our market-leading position. In our immune medicine business, we continue to advance our partner programs with Genentech and our internal R&D efforts in autoimmunity. With that, I'd like to turn the call back over to the operator and open up for questions.

Thank you. We will now conduct the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone. and wait for your name to be announced. To withdraw your question, please press star one, one again. Please stand by while we compile the Q&A roster.

Our first question comes from Rachel Vassendahl of JPMorgan Chase.

Please go ahead.

Hi, good afternoon. Thanks for taking the questions here. So first up, with Nitin's announced departure, can you just walk us through the management transition plan for MRD and if you expect to have any strategic changes in that business going forward? And as a follow-up, you flagged some of the temporary delays around clinical trials and reprioritization of portfolios at Pharma. So could you walk us through how long do you think that those delays and reprioritization could really weigh on the MRD business?

Yes, sure. Thanks for your questions, Rachel. First, with respect to Nitin, I want to thank Nitin, who is on the call. I'll turn it over to him in a minute to make some comments, but I want to thank him for all his contributions to the business. There's going to be a seamless transition that we are more than prepared for. We have an incredibly strong bench. Susan Bubulski is going to lead the clinical business and report directly to me. She's been actually leading the clinical business with direct oversight of the sales team for the last several years and is really a fantastic leader that's been with the company for 10 years. And the business is in really good shape. The strong foundation is there. We're firing on all cylinders. Closing volumes are growing at a very fast pace. We're committed to over 50% volume growth this year. And as mentioned during the call, all metrics are pointing in the right direction, and we're in very good shape and expect a very seamless transition. Nitin, you want to make any comments?

Yeah, thanks, Chad. You know, this decision has been a difficult one. You know, as adaptive, it has been a truly rewarding place for me to work at. And the MRD business is on a solid foundation. Our latest quarterly results demonstrate that. You know, we have a market-leading position in heme cancer MRD with the best-performing products, strong clinical evidence, broad reimbursement, and we are the product of choice in pharma. And Susan is a fantastic leader, has been a key player in building the business from the ground up. We have a dedicated and committed team that's deeply passionate about improving the lives of heme cancer patients. And I'm honored to play my part in such a solid and impactful business, and I'm very confident it'll do extremely well in the future and continue on the growth trajectory that we've demonstrated over the last few quarters. So it was not an easy choice, but again, I'm really delighted that Susan is stepping up and the businesses are on very strong, strong footing. Chad, back to you.

And maybe just a comment there on clinical trials re-prioritization. Ed, do you want me to answer that, or do you want to take that first?

Maybe they dropped. Oh, it looks like they may have dropped. Yeah, you know, we've been closely monitoring the business, and, you know, we don't have sort of a firm timeline. We'll give you guys an update every quarter. You know, a lot of our business in the MRD pharma space comes from multiple myeloma, We're in pretty much every trial in multiple myeloma. So not only there's some reprioritization of the portfolio going in multiple myeloma, but a lot of these trials are competing for the same patient pool. And as a result, there's been, you know, some delays in enrollment. But we keep a close eye on it. And when we hear updates, we'll update you.

Great. Well, best of luck then. Maybe if I could just squeeze in one more on margins. Gross margin came in at 63% during the quarter. Nice improvement sequentially versus 1Q. So could you just walk us through the components of the increase there? And then really, how should we think about gross margins evolving for the rest of the year and even into 2024? And remind us, really, what are those margin drivers?

Thank you.

I think we lost the room that has Tycho, Chad, and Sharon in it. So can we come back to that question? With Harlan, I think I will get in trouble for answering the financial question. So let's wait for Tycho to come back on and we'll return to that question.

Can you hear us, Harlan?

Karina, are you back on?

Yes, we're back on. Hold on, I'm going to call again.

Karina, did you hear the question around gross margin?

Yes, we did. It's right here. Hold on.

Yeah, so as it relates to growth margins versus the prior quarter, milestones within our business, we have in both the MRD and immune medicine business, they come in at 100%. So we saw the lack of milestones have an impact on the first quarter. Conversely, in the second quarter, we obviously had the IND with Genentech. That had a significant positive impact. I did call out in the prepared comments lower cost of revenues, so that drove about an eight-point improvement in sequencing margins. We're continuing to streamline the organization there and drive efficiencies in the lab. We are in the midst of a lab move. On the back of that, we're doing a LIMS implementation. We've talked about evaluating NovaSeq. So we have a number of drivers embedded for continued margin improvement around the sequencing business. As it relates to the year-over-year dynamic, there was a step down in genetic amortization and no MRD milestones, so, you know, that was a bit of a headwind this quarter. And then cost of revenue was higher due to overhead spending in the lab. Again, we're moving our labs into the headquarters right now. We're in the midst of that, so that will lead to lower cost of revenue on the back end, but that did weigh on it a little bit. Importantly, you know, I would just once again flag the 8 percent sequential improvement in sequencing margins and the fact that, you know, we do have a number of additional steps we're evaluating. including a potential shift to Nova Season.

Perfect. Thanks for all the color. Yep. Thank you. Please hold for our next question. Our next question comes from Dan Brannon of TD Cohen.

Thanks for taking the questions, guys and Karina. You talked about ClonaSeq ASPs. Could you just get a little more color there? What was the expectation? You mentioned a couple of the headwinds and actions you're taking to get the ASPs going in the right direction. Just walk us through a little bit the impact this quarter and what we should expect going forward.

Yeah, sure, Dan. The quarter ASP was impacted by three different factors. One is growth in indications that remain out of policy. So looking at DLBCL and MCL as an example. The second was testing for Medicaid patients increased to 12% of our product mix. And then third, prior authorization hurdles with certain payers. And I should just say that we have an ASP acceleration plan in place that's focused on a couple different items. The first is closing the remaining payer contracts and policy gaps. And the second is increasing our resources for claim management and prior authorizations to improve our collections. So as we tackle some of the ASP leakage, we do expect to reverse the trend in the second half versus the first half of this year. And we are committed to an acceleration onward and are confident in reaching the $1,600 ASP kind of price point by 2027 with a kind of solid increase year over year to get there.

Got it. No, thanks, Chad. Thanks for that. And then maybe just one back to Rachel's question on biopharma. So just kind of broadly, I know you don't give a lot of subcomponent details about guidance, but, like, where are we in the evolution of some of the biopharma kind of hopefully more temporary pressures on spending and maybe availability of patients? Like, how do we think about the trajectory? Like, Q3, does growth pick up on your – both on the MRD side and then, you know, the Immunoseq R&D side or – Do you think the type of growth persists for the rest of the year?

Yeah, so we did talk about it being a back-end loaded year, more skewed toward the fourth quarter. Keep in mind last year we had about 55% of revenues in total in the fourth quarter. It'll be a bit higher this year. There's a couple other moving dynamics. I'll answer your pharma question in a minute, but we are expecting MRD to grow in the third quarter at a higher rate than we saw in the first half. And then keep in mind, we had a big quarter of Genentech amortization and immune medicine in Q3 last year. It was 20 million. So there's a little bit of a tough comp issue. And then we've got both, you know, growth in pharma services and new drug discovery deals that are, you know, in discussion that are expected to come in by the fourth quarter. You know, as it relates to pharma services specifically, you know, we've got a very diversified portfolio. We're involved in 120 active trials, 60 companies. It's a mix of SMIDCAP, you know, and large pharma. on different stages of development. So I'm not sure if you heard my comment earlier because I know the line cut in and out, but we are committing to the 20% CAGR for that business over the next five years. So we're very confident in the long-term outlook. It's also coming off a tough comp. That business had significant growth last year. So we are acknowledging that we do see some reprioritization of pipelines, but overall, given the diversified portfolio, we're comfortable that that pharma services business can continue to grow north of 20% over the next five years.

Awesome. All right. Thanks, Tycho. Thank you. I'll get back in the queue.

Thank you. Please hold for our next question.

Our next question comes from David Westenberg of Piper Sander.

Hi. Thank you for taking the question. So I just want to dive in a little bit more in terms of the ASPs here. Because, you know, you did have pretty good momentum going in that business. So it caught me a little bit off guard here. Can you talk about how those uncovered indications tend to grow, you know, faster? I mean, was there a lot of marketing? Was there just kind of an underpenetration and maybe you're more penetrated in kind of the higher growth indications?

Well, first let's take, hi, David, let's take DLBCL. Hi. DLBCL grew 28%, you know, quarter over quarter, you know, albeit from a somewhat lower base. So, it is increases in new indication, but it's a variety of different factors. One is an industry-related factor that Medicare advantage from private payers, you know, has been a challenge for the industry in collections. And we've got a very targeted plan to work on collecting, you know, at the Medicare rate for Medicare Advantage plans is another area. But, you know, it's kind of, as you grow indications and new indications that aren't covered yet, you tend to, that tends to be going to, while a drag on ASPs, it also, you know, bodes well for the future as we close those policy and payer gaps. So, you know, net-net, we've got a very targeted ASP acceleration plan in place. We expect to reverse that. It's actually already starting to reverse, you know, in the third quarter. Expect to reverse it not only second half of the year, but going forward to be able to achieve kind of that top line 1,600 by 2027.

Perfect. Okay. And then is there any headwind from maybe getting tests ran outside of the first four covered indication in Medicare? Are you seeing Medicare patients order that? Can that be a potential headwind in the future? And then just to clarify, I believe most of your private payer coverage, it's just based on a test by taste basis. It's not the same way as that Medicare and So I'm going to squeeze one more in. You do see me implying, like, you know, we should be returning to sequential improvement in ASPs as, you know, we see, you know, maybe quarter-on-quarter sequential improvement or year-on-year sequential improvement. I mean, that is tracking, you know, when we see, I don't know, maybe next year Q1-ish. Sorry, I'm kind of rambling there, so I'll stop.

no it's like rodney dangerfield back to school but i think i think i've got i think i'm tracking you david um um so so a couple things one is uh the our uh test by test basis for private payers the answer is yes that's confirmed it's not on an episode of care basis like it is on medicare uh the third question was do uh with regards to asp acceleration we do have a targeted plan for ASP acceleration, and we do expect ASPs to accelerate in the second half of this year. And then the third, if you look at kind of our different indications, I will just say that, you know, multiple myeloma continues to be the biggest growth driver. It is under, you know, coverage policy, but we are expanding indications for CLL and diffuse virus B cell lymphoma in other indications with private payers as well. So if you combine all those factors, you know, that's what's going to lead to ASP acceleration along with, again, I can't reiterate enough that we're putting additional resources into kind of workflow and collections and getting prior authorizations where necessary.

So I'm squeezing in a third, so you answered pretty quick. Just real quick on the biotech funding. Are you seeing that in immune medicine or MRD or both? And hopefully you can just answer that quickly. Sorry, everybody, for that third question.

We're seeing that a little bit in both as budget reprioritization. However, both have strong pipelines in place and market-leading positions. But we do see some impact for different reasons. In the case of budget reprioritization in both, in the MRD pharma business, some of it also has to do with kind of multi-myeloma competition for patients in clinical trials as well.

Thank you. We will move on to our next question. Please hold. Our next question comes from Mark Massario of BTIG.

Hey, guys. Thanks for taking the questions. It's tough to follow Rodney Dangerfield on a call. And I wanted to say, Nitin, it was good working with you and best of luck going forward. And Susan, I look forward to working with you some more. Thank you. Yeah, great. So we got some investor questions a little more on the ASP side. So, Tycho, I heard you maintain the ClonoSeq volume guidance for 50% plus, which is great to see. I think you guys had previously talked about wanting to grow ClonoSeq ASPs up in the mid-single-digit range, although today you guys called out some of the three pressures that you called out. So I'm just curious if that mid-single-digit growth in ASPs is still on target, or do you think that might drift into 2024 as you kind of make progress on some of those initiatives you called out?

Yeah, I mean, we're definitely expecting an improvement in the back half of the year versus the first half. You know, we had noise in both the first and second quarter here, you know, in particular around Medicare Advantage. Medicaid overall, by the way, is 12% of our test mix, so, you know, they're And then Chad talked about growth and indications out of policy. But, yeah, I'd say stay tuned. I mean, I don't know that we necessarily want to update. We're going to update on the third quarter in terms of how we're thinking about ASPs for the full year. But we do expect the back half certainly to be better than the first half. Again, we've taken a lot of steps over the last few months to tackle the ASP leakage. It's an industry-wide problem, by the way. I mean, Bard and Natera, our competitors, are dealing with a lot of this noise, too. Yeah, I know. And we are still expecting to get to $1,600, you know, over time. So whether it takes a quarter or two to kind of work through the rest of this noise TBD, but, you know, we're very comfortable in the long-term outlook for ASPs overall.

Yeah, and add CarityX to that list as well of labs dealing with these pressures. Okay, so I guess... can you guys call out what the milestone payment was in the quarter? I think it's somewhere in the 4 to 7 million range. Is that the right ballpark?

So there was a Genentech IND acceptance, right? That was 7.8. You know, we, it's a $10 million milestone, but we amortized the rest of it. And yeah, there was nothing from MRD.

Yep. Okay, perfect. And then just last one, just to kind of clarify the, Obviously, I don't think there's any change to reimbursement rate for Klonosy, nothing like that. I think this is largely just a function of higher Medicaid mix, some prior auth, mix of DLBCL. I guess one of the things I think investors would love clarity on is how quickly do you think you guys can make progress on the prior auth side and then you know, do you think Medicaid is transitory or do you think that will remain around 12% of mix? And then like, where are you guys again on DLBCL commercial payer? I know it's super early, but you know, are you guys making any progress there or do you think it's going to be more of a, you know, further out?

Um, yeah. So just to address, um, the difference that, um, In terms of Medicaid, we're looking at converting some of the high ordering accounts that have made a high volume of Medicaid patients to roster billing accounts to close some of that gap. With respect to prior authorizations, we've already started implementing and putting that kind of workflow in place to get prior authorization. So this isn't a several quarters out. This is happening now. And then third, in terms of Medicare advantage and private payers covering at the Medicare rates, we've already started to make progress on that front as well. Your last question with respect to coverage in DLBCL and, frankly, other indications, you know, we've done a good job on CLL. We're now at about 200 million lives. under contract. DLBCL, we have additional data readouts coming in ASH, which we think should be a catalyst for private payer contracts into 2024. The current rate is we have about 75 million covered lives under, and we look to increase that significantly in 2024. Awesome.

That's really helpful. Thanks, guys.

Sure, Mark.

Thank you.

Please hold for our next question. Our next question comes from Salveen Richard of Goldman Sachs.

Hey, everyone. Good evening and thanks for taking our question. This is Elizabeth on for Salveen. I wanted to ask about the impact of the Epic integration on MRD going forward through the end of this year and into next and what you would expect in terms of the cadence of growth impact from that as it seems like it could be a significant driver. And then just on the Genentech collaboration, when we could expect an update on the personalized products. Thank you.

Yeah, sure. Thanks, Elizabeth. First, yeah, we're thrilled that we're starting the first Epic integrations this month with a couple different customers. These first successful Epic launches, I think, demonstrate what is incredibly hard work to integrate into the EPICS site, and so we're ready to go. We have received substantial interest from additional sites that are eager to gain access to clonacy testing and integrate with their EMR system. Rollout is really gated by the availability of the IT resources at each different center. So it is kind of really a hand-to-hand combat with each site. But the reality is there's a ton of interest, and we'll be kind of rolling them on month by month, quarter by quarter, until we have what we deem as full penetration or as much as possible within Epic. Just a couple numbers here for you. I think as of June, there were 161 sites in the U.S. that had adopted Epic's Aura network. which is their precision medicine add-on that's required for ClonoSeq integration. And it's also required for, you know, all the other diagnostic tests that have partnered with Epic, such as FMI Exact, et cetera. It'll take us a few years to get through that number of integrations. In the meantime, the list of sites that kind of adopt ORA will also continue to grow. So we expect that, you know, we expect that this will grow over time. And we also have talked about really the contributions in terms of volume, you know, being really coming in 2024, although we will see kind of some impact in the back half of this year, which we talked about to achieve our over 50% volume growth.

Got it. That's helpful. And then just on the timelines for an update on the personalized products.

Sure, sure. Can you take that one?

Absolutely. Hi, Elizabeth. Thanks for the question. So, of course, on the heels of the first IND FDA clearance, this, of course, validates our ability to identify clinical-grade therapeutic T cell receptors that is for the first product. And obviously, the capabilities built to that end is what we're also leveraging for the fully personalized In terms of timelines, we're not in a position to disclose specific timelines, but certainly in terms of an update, we're continuing to develop the prototype hand-in-hand with Genentech across really multiple parameters. Number one is the number of patients to whom we can identify specific TCRs to each patient's unique tumor mutations, and then really having an understanding to ultimately standardize via the ability to understand the total number of T cell receptors we can identify from each patient. And that allows us to establish really a more reproducible, reliable expectations for the end-to-end process that we're putting in place. Some more to come across the board on that. I will say that in terms of updates, Genentech earlier this year started this sharing some of the data, including a proof-of-concept study design for one lung cancer patient that we also presented earlier this year in a conference in New York. And that was a great example of one patient where end-to-end the process has worked. And so we'll obviously look forward to sharing more information as more data reads out with our partner, Genentech.

Thank you. Please hold for our next question. Our next question comes from Tejas Avant of MS.

Hello, this is Yuko on the call for Tejas. Thank you for taking our questions. Following the recognition of IND acceptance milestone from Genentech this quarter, could you speak to the next events that could trigger a milestone? And would you recognize a similar amount of milestone, approximately 7.8 million, upon IND acceptance of additional candidates that advance into the clinic? Or should we expect the milestone for the IND acceptance of the first candidate to be bigger than the additional candidates that follow?

Thanks for the question. We haven't disclosed the quantum of IND milestones, but, of course, they stack. And the more progress across development of a given candidate, as is typical in these types of licensing deals, the higher the economics. So, we're excited, certainly, by this first IND clearance and, as was mentioned, We do have other TCRs that are being advanced as well as ultimately our fully personalized product program.

Great. Thank you for that. And then regarding the evolving landscape and move towards the use of MRD status as a regulatory endpoint in clinical trials, could you provide an update on where that stands today and how you see the more recent conversion of Blinz CYTO to full approval influence that view?

Yeah. Hey, Yuko.

So, we continue to put pressure along with our pharma partners on the agency for the use of MRD as an endpoint, particularly moving from surrogate to secondary to primary endpoint. You know, we do believe that we are making progress, and the data that continues to be generated points in the direction that this should be converted to an endpoint. in clinical trials soon. It's really hard to be prescriptive about giving a, you know, a timeframe as to when the FDA is going to act on it, but, you know, metrics are pointing in the right direction. So, the second question, again.

Oh, just wondering if the recent approval, full approval of Lin-Syto had an accelerated approval a few years ago. if that influences the view on the primary endpoints, or have you seen any more traction following that?

Yeah, I mean, so GLIN and ALL, you know, I think it does vary by indication. We're primarily not focused on multiple myeloma. I think that's, to us, the biggest catalyst, if you look at where our milestones are. I think that, you know, Clearly, it's helpful to have kind of full approvals that use MRD in their trials across indications. There's a CLL study with Genentech as well that includes MRD. So, yeah, a lot of different pressures from multiple directions and multiple indications are pointing towards the incorporation of MRD as an endpoint by the agency.

Great. Thank you. Great.

And I'll just add, Hugo, you know, you've heard us talk in the past. We've got line of sight to about 400 million ineligible milestones. I'm sorry, line of sight to about 170 million of that. But if FDA does move forward and endorse MRD as a primary endpoint, that's kind of upside relative to what we've previously talked about in terms of the path profitability. So that's not baked into guidance at this point.

Great. That's a helpful color. Thank you.

Thank you.

Please hold for our next question. Our next question comes from Dan Leonard of Credit Suisse.

Hi, good afternoon. You talked about Epic. Hi, I'm wondering if you could update us on your efforts to integrate KonoSeq with community EMRs.

Yeah, so obviously Epic isn't the EMR of choice in the community. We are evaluating the EMR systems to figure out just colloquial we're going to get the biggest bang for our buck as we look to essentially make the test easier to order and integrate into systems. So it's certainly on the radar and under evaluation.

Understood. And then my follow-up, can you speak to your expectation for more drug discovery deals in the fourth quarter and how confident you are given the macro factors and reprioritization that you flagged?

Yeah, sure. I'll start with that and then maybe pass it off to the team for additional color. First, it should be noted that the deals that we have for drug discovery in the fourth quarter are based on the existing data that we've already developed and the platforms that we've developed in TCR discovery and antibody discovery. And the discussions are well underway. They're in progress. They've been advancing. Otherwise, they wouldn't be incorporated into our into our annual numbers here. And then secondly, we have a series of essentially target discovery initiatives underway that are really exciting and I think will lead to future development deals as well. We can either choose to partner on those programs or develop those targets in-house combining with our platform capabilities. Tycho, did you want to add anything on that? Okay. Great.

Perfect. Thank you.

Thank you.

Please hold for our next question. Our next question comes from Derek DeBruyn of Bank of America.

Hey, thanks for fitting me in. Just, you know, impressive that you're going to do 50% volume growth this year. in Colonoseq. Right now, looking at the visible alpha consensus, the street's looking for about 40% growth in 2024, year-over-year growth. Is that a reasonable number to think, just given some of the ERP integrations and some of these are going on? I mean, are you comfortable with growing at that level?

Derek, you know, we haven't put out guidance yet for 2024. However, I can say we are committed to, you know, significant double-digit growth. We think there's a strong trajectory in clinical volumes that will continue well into the future. So, you know, if I had to go off, it's not unreasonable, but we'll get back to you with, you know, more specifics as we come out with our guidance.

Got it. And can you talk a little bit about just, upcoming milestones or catalysts for your autoimmune program? How should we sort of think about that since autoimmunity being a lot more interesting in AI than some of the other stuff?

Absolutely. Hi, it's Sharon. So in our focus in R&D and autoimmunity, as we've indicated, our goal this year is to discover at least one novel target and one indication including our focus specifically is in multiple sclerosis and IDD. And so we're making great progress and are quite excited. Some of the ramifications here is that we're looking at targets that are implicated in a large patient population. And then the data we're generating to accelerate target identification is absolutely leveraging some of our existing machine learning and AI capabilities, including, of course, with our partner, Microsoft, So we're extremely bullish around novel target discovery and really the discovery engine that we're building the foundations of around MS and other autoimmune indications to come.

Thank you.

Thank you. I am showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.