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.