Adaptive Biotechnologies Corporation

and thank you for standing by. Welcome to the Adaptive Biotechnologies second quarter 2024 earnings 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 this session, you will need to press star 11 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 first speaker today, Karina Calcidea, Head of Investor Relations. Please go ahead.

Thanks, Anton, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies' second quarter 2024 earnings conference call. Earlier today, we issued a press release reporting adaptive financial results for the second quarter of 24. 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, Manitou will make projections and other forward-looking statements within the meetings of Federal Security Law 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 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 Kyle Piskel, our Chief Financial Officer. Additional members for management will be available for Q&A. With that, I'll turn the call over to Chad Robbins. Chad?

Thanks, Karina. Good afternoon, everyone, and thank you for joining us on our second quarter earnings call. It is Seafair weekend here in Seattle, so if the Blue Angels are flying overhead, we are live, and I may pause for a couple seconds. Let's jump in. Our second quarter results are extremely encouraging. We are laser focused on fueling growth on the top line, reducing spend, and managing our capital. And this is exactly what we achieved this quarter, as you can see on slide three. MRD revenue grew 36% versus prior year, and 8% versus prior quarter, with growth coming from both clinical and pharma. Total operating spend, less one-time costs, had a significant decline of 15% versus prior year and 8% sequentially, with reductions observed across all segments. Sequencing gross margin increased 5 percentage points compared to last quarter. And cash ended at approximately $292 million. This reflects a cash burn reduction of 32% in the first half of this year versus a year ago. As a result of this strong performance, we are updating our full-year guidance. We are raising our MRD revenue range, decreasing our operating spend, and reducing our annual cash burn. Kyle will provide further details in his prepared remarks. Now, let's take a closer look at the MRD business on slide four. ClonoSeq clinical revenue grew 43% versus prior year, driven by both volume and ASP. Tests delivered had another record quarter growing 36% versus prior year and 9% versus prior quarter to over 18,500 tests. We observed double-digit growth sequentially in all marketed indications. Multiple myeloma continues to be the largest contributor, representing 42% of volume. Importantly, non-Hodgkin's lymphoma now contributes 11% of clonaseq tests, with DLBCL growing at 25% quarter over quarter. Blood-based testing continues to be a focal point of our strategy, currently representing 40% of tests, with multiple myeloma in blood at 21% versus 16% a year ago. We expect our planned launch in mantle cell lymphoma, coupled with continued promotion of expanding evidence for utility of blood in other disease states, to be key drivers of clonacy testing in blood during the second half. EMR integration remains an important area of investment for the MRD business, both as a future growth accelerant and as an additional competitive mode for our business. We are now live with six accounts in Epic and have 13 more in progress. we remain confident that we will have completed EPIC integrations with 20 or more accounts by year end. Notably, in the second half of this year, our integration activities will expand beyond EPIC, with a planned Q4 kickoff to our OncoEMR integration work with Flatiron Health. On the reimbursement front, we continue to reduce out-of-policy and non-contracted claims and optimize revenue cycle management to drive ASP growth, which increased 3% in Q2 versus Q1. Results through the first half of the year, coupled with a preliminary gap fill rate set by Medicare, further solidifies our confidence to grow ASP by $200 per test by the end of 2025. Looking at MRD Pharma on slide five, our pharma business had another strong quarter with revenue growth of 28% versus prior year, which included a $3 million milestone from a drug-approval multi-myeloma. This momentum comes on the heels of the ODAC announcement last quarter, which voted in favor of using MRD as a primary endpoint to support accelerated approval of new therapies in multiple myeloma. We are already seeing positive impact post this recommendation. In the past few months, we have booked two new studies and are in advanced discussions for another three new studies where the decision to use MRD as a primary endpoint was made based on the ODAC outcomes. Additionally, two existing studies have converted MRD from a secondary endpoint to a primary endpoint, and we are in talks with partners about another four studies already underway that may also upgrade. Importantly, we are also seeing a positive halo effect for the continued acceptance of MRD in other disease states, as our partners increasingly seek to incorporate MRD as a primary endpoint in CLL and DLBCL. As the only FDA-cleared MRD assay that can consistently deliver the sensitivity and standardization needed to meet the FDA's performance standards, we are confident that ClonoSeq will continue to be the test of choice, not only for multiple myeloma drug developers, but also in other lymphoid malignancies. Now, let's turn to immune medicine on slide six. We're making good progress in R&D toward the discovery and future development of differentiated immune-based therapeutics in cancer and autoimmunity. In oncology, we continue to work closely with Genentech and our cancer cell therapy programs. Both companies are excited and committed to deliver high-impact TCR-based cell therapy products to as many cancer patients as possible, and we will provide an update at the appropriate time. In autoimmunity, we've successfully identified a subset of autoreactive T subreceptors that are likely causing devastating diseases in patients with MS, T1D, and several others. This quarter, we started our target discovery efforts in T1D. As we did in multiple sclerosis, our goal is to identify the protein to which these autoreactive or problem TCRs bind. This helps de-risk our assumptions, and confirm that the disease biology makes sense. Also this quarter, we successfully completed our first antibody mouse immunization campaign, wave one, in our lead autoimmune indications, including multiple sclerosis and type 1 diabetes. By year end, we aim to identify and make a subset of antibodies to start functionally testing these candidates. Now, I'm going to pass it over to Kyle to walk through the financial results and guidance update.

Kyle? Thanks, Chad. Let's start with revenue for the second quarter on slide seven. Total revenue in the second quarter was $43.2 million, with 82% from MRD and 18% from immune medicine. MRD revenue grew to $35.3 million, up 36% from a year ago, with Clonacy Clinical Testing and MRD Pharma Partnerships each driving approximately 66% and 34% of the growth respectively. Excluding the $3 million in regulatory milestones recognized this quarter, MRD revenue grew 25% from a year ago. Immune medicine revenue was $7.9 million, down 66% from a year ago, driven by an anticipated 82% decrease in Genentech upfront amortization and no related milestone in the quarter versus $7.7 million in milestone revenue recognized in Q2 of 2023. This increase was partially offset by a 12% increase in immune medicine pharma services. Moving down the P&L, I want to highlight that sequencing margin, which excludes the MRD milestones and Genentech amortization, was 50% for the quarter, an increase of 7 percentage points versus prior year and 5 percentage points sequentially. The sequencing margin increase was mainly attributed to lower overhead costs from improvements in the production lab driving lower costs per sample. Excluding one-time costs from asset impairments and severance related to restructuring initiatives, post-strategic review, total operating expense inclusive of cost of revenue was $82.6 million, representing a 15% decrease from last year. This decrease was mainly driven by the continued emphasis on driving leverage across functions with R&D being the biggest contributor of such decline, driven by more targeted investments in immune medicine. As you can see from the segment reporting table on the right side of the slide, MRD-adjusted EBITDA was a loss of $11.3 million this quarter, a deficit that was reduced by 35% from the first quarter, driven by both higher revenue and lower operating expense. Immune medicine-adjusted EBITDA loss remained flat sequentially, as reductions in operating expense were offset by lower Genentech revenue. Total company adjusted EBITDA was a loss of $21.4 million in the second quarter compared to a $28.2 million in the first quarter of 2024 and $24.8 million a year. Finally, interest expense from our royalty financing agreement with Orbamed was $2.7 million, which once again was more than offset by interest income. That loss for the quarter was $46.2 million or $38.4 million excluding one-time asset impairment and restructuring charters compared to $47.8 million last year. Now, turning to our updated full-year guidance on slide 8, we are increasing our MRD full-year revenue guidance from our prior range of $135 million to $140 million to now $140 million to $145 million. This increase in guidance reflects the better-than-expected results in the second quarter inclusive of the regulatory milestone rule. With respect to trends throughout the second half, we expect MRD revenue to be about 45 to 55 weighted between the third and fourth quarter respectively. We are also further reducing the total company estimated operating spend, excluding one-time restructuring and asset impairment charges from our previous range of 350 million to 360 to now 340 million to 359. A $10 million reduction as we continue to drive leverage across the business and manage investments Of this total spend, approximately 70% sits within the MRD business and approximately 25% within immune medicine. In addition, we are lowering our expected annual cash burn. We now expect the burn to be approximately $60 million for the second half of the year. This implies an annual cash burn of $115 million versus our previous estimate of $130 million and represents a 24% reduction over full year of 2023. We continue to expect approximately 50% of the cash burned this year to come from the MRD business and approximately 40% from the immune medicine business. The remaining 10% is due to unallocated corporate costs. I look forward to providing you with further financial updates throughout the year as we continue diligent trajectory strengthening our financial profile. With that, I'll hand it back over to Chad.

Thanks, Kyle. I'm encouraged by the team's execution in the first half of the year. We will continue to drive revenue growth in our MRD business and advance our focus programs in immune medicine. We will do this with disciplined spend and targeted investments to enhance long-term value. With that, I'd like to turn the call back over to the operator and open up the call for questions.

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you need to press star 1-1 on your telephone. and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

The first question comes from Mark Massaro from BTIG.

Please go ahead.

Hey, guys. Congrats on a strong beat and raise quarter. I guess my first question is, which I find quite interesting, is the number of new studies that are moving to primary endpoints. You talked about two new studies, I believe, in Q2. You're advanced in three more. I think in the past I've heard you say that the level of economics can be roughly two times greater for a primary versus a secondary endpoint. Can you maybe just clarify that? in terms of just the unit economics?

Yeah, I mean, I think what you're referring to is the milestone revenue that we could realize from those studies. And I think that is, you know, where you see that delta as it relates to the economics. I think, you know, as it relates to these studies and the bookings of these studies, you know, I think we continue to expect that that will be a 2025 tailwind and 2024 we're really focused on executing the bookings and growing the backlog as we exit the year. So I think as it relates to unit economics, I think that primarily estimates the milestones, but it may catalyze the sequencing revenue faster than we anticipated previously.

Okay, that's helpful. And then I found it interesting that there's a group working with the FDA in additional disease states. I think he called up CLL and DLBCL. Do you have any sense for timing there and, you know, give us a sense for, you know, are you involved in this discussion or this group? Maybe just walk us through some of the stakeholders and how you think about this playing out over the coming months.

Yeah. First, Mark, thanks for the question and the compliments on the quarter. I appreciate it. We, a lot of our investigators, our principal investigators that we work with, are involved in those conversations and they're asking us to provide ClonoSeq data to help support them in those discussions, very much like we did in multiple myeloma with the International Myeloma Working Group and others as they presented to the ODAC committee. We honestly, don't have a sense of timing. It did take some time for multiple myeloma to be accepted as a primary endpoint. However, I think once the first domino has fallen, we would at least be hopeful that the next disease states will be faster moving forward. The other thing I will mention, and it's not it's not immediate, although it has, you know, catalyzed new discussions with investigators who were, you know, initially reluctant. There's just a lot more kind of noise and chatter around MRD being used in multiple myeloma now that the ODAC decision has been made in the clinic as well, which is great to see.

Excellent. Maybe last one for me. I don't know if this was in your deck or not, but I think you've talked about approximately 60 clinical studies for multiple myeloma. And if I have it right, you had six as primary. It looks like that number now is eight. Three are in advanced discussions. That could be 11. I think as we think about this longer term, where could that, you know, 10 or 11, where do you think that might go, you know, looking out, say, two to three years from today?

It's hard to put a number on that. Obviously, we believe that number is going to go up and hopefully up significantly, but I'd be hard-pressed to start making those projections. Once we get a little bit farther into this, maybe a year down the road, we could have better visibility into making those projections, Mark.

Okay. That's it for me. Thanks, guys. Thank you.

Thank you, one moment for our next question. Our next question comes from David Westenberg from Piper Sandler, please go ahead.

Hi, thank you for taking the question and congrats on the big cost reduction burn and the MRD beat. So Chad, I hate to ask this question, because we should be celebrating your achievements in reducing the OpEx. Is there any risk here that you maybe went too lean and that this could hurt the top-line growth, particularly on that MRD business? I don't know. Maybe I would ask, in addition to that, Do you actually think you could accelerate the revenue if you did add reps to that business? Anyway, I'll stop there.

Yeah, no, I think the sales and marketing, just so you know, David, we're untouched, relatively untouched, except for where we always manage our performance. We're talking about a lot within the business with kind of G&A, overhead, and just looking at every nook and cranny to be able to reduce our expenses. So the answer is no. And where we are adding is in our market access team. If you look at coverage and collections, these are particular areas of focus to us, which we continue to make investments in, where we believe that we can up the ASP and essentially the cash coming into the the business, but we will continue to kind of monitor reps and add reps as needed and look at territory alignments as we do consistently. So the final point is we're looking across the board at ways that we can continue to first and foremost make sure that we're hitting our numbers and set another way that we're de-risking the numbers. But it's all about operating efficiencies without hurting the top line, and we feel very comfortable that we're making the right investments and the right moves.

Really, really, really appreciate that. Just, you know, I did not want to just talk about some of the potential for both operating leverage and cost reduction in ClonoSeq. I know you've made efforts in the past to kind of get some kind of cog reductions there. You know, where are we at in terms of progress there? And then just in terms of are you getting some of that naturally just via more volume through that product? And, you know, how should we think about gross margins over the kind of a three-year, four-year period or three- to five-year period as this business becomes, you know, a lot more clinical MRD? And I'll stop there. I know there's a lot of analysts that want to ask questions. Thank you.

Yeah, I mean, I think as it relates to our progress, I think as you've seen in the quarter and first half of the year, we're continuing to gain leverage through some of the, you know, efficiency initiatives we've put in place, flattening out the org. And yes, we are getting, you know, some of that naturally through increased volumes and increased revenues. And we'll continue to see that in the back half of the year. You know, I think we're going to gain an additional leverage back half of the year. You know, I think I would say three to five percent improvement on that sequencing margin line. Over the long term, you know, we have some initiatives going on, one of which is the NovaSeq, which, you know, we expect to launch the back half of 2025. And that can drive a lot of efficiencies. And then, again, as the last point, you know, we've got to continue to do some work and continue to execute on the ASP line. And that's going to drive a a large amount of improvement to get us to that 70 target margin range that we see over the you know three to five year outlook and i think the milestones will also continue to drive and support the business at the end of the day you know even even absent the clinical performance along with the pharma business which i think odak only accelerates or or makes that more durable growth over the longer term

Thank you so much, and again, congrats on the big cost reduction curve and reduction and beat. Thanks, Dave.

Thank you.

One moment for our next question.

Our next question comes from Tejas7 from Morgan Stanley. Please go ahead.

Hey guys, good evening. Thanks for the time here. Chad, I want to follow up on Mark's question related to the ODAC guidance and so on. So first of all, when do you expect the idea to finalize that in MM and does that finalization have any sort of impact in terms of accelerating MRD endpoint adoption beyond what you're seeing today in terms of that cadence, you know, in penetrating those potential trials? And then on a related note, I think in the past you've talked about a little bit of a halo effect, if you will, on the clinician side as well in terms of adopting ClonoSeq. So any color on that would be helpful.

Sure. I'll cover the first part and then I'll pass it over to Susan Belosky, the Chief Commercial Officer of the MRD business, to talk about kind of the impact and maybe give you some anecdotes as to what's going on from a clinical perspective. As far as the ODAC vote, remember, the advisory council is a little bit different than it is kind of for a drug approval. And we've gotten some kind of messaging around kind of the format that they're going to kind of cement this decision as to whether it's going to be kind of a formal white paper or come out as a kind of formal decision. There's a little bit There's a little bit of debate as to exactly how the FDA is going to. Obviously, it was a 12 to 0 overwhelmingly positive vote. So we don't have a direct line as to exactly the timing or the format. But I will say this had no impact. Well, it had only a positive impact. Our pharma partners aren't waiting in any way, shape, or form. They know that the FDA, for every drug approval is coming forward, they now have the opportunity to look at it as a primary endpoint based on this decision. The FDA is not waiting, and neither are our pharma partners. So that's why we're already seeing the trajectory that we have. I do want to caution a little bit, and Kyle mentioned this, but it's a great leading indicator, but it doesn't necessarily impact you know, 2024 revenue. It's more we're seeing bookings that essentially, you know, I would say solidify the long-term kind of health of the pharma business going out into the future as those bookings convert into revenue opportunities as those milestones are achieved. And as more trials sign up, we get more sequencing revenue from those additional trials. Susan, can you provide perhaps some anecdotes of how you're seeing that, those discussions in the clinic?

Sure. Thanks, Chad. Since the ODAC vote in April, we've increasingly seen clinicians are aware of that ODAC vote, and they bring it up and view it favorably in the context of clinical conversations we're having with them about MRD. The way that we've been framing it, and I think this seems to resonate, is that by seeing the FDA's vote of confidence behind MRD as a means to assess response to bring a drug into the market, That's really an incredible amount of credibility that it lends to MRD as a marker for your individual patient. We can predict the efficacy of that drug and approve it for marketing, and we can also predict the efficacy of that drug in your individual patient, and we can use that to inform conversations and dialogues with your patient. So I think that's really resonating. Interestingly, another area where we see a lot of interest is in what we call the ID of patients. In other words, the first step of Clonaseq is to evaluate a high disease load sample and to identify the sequences that we will track for that patient's MRD. And most physicians order ID tests when they decide they need their first MRD test. But in the context of pharma increasingly anticipating use of MRD as an endpoint, there's an interesting synergy for our two businesses. The pharma companies would love to see more and more patients being ID'd for colonoscopy testing at the time of diagnosis so that they are eligible for any trial that might come along and there's no delays or hurdles in finding an appropriate specimen to get them ID tested. Calibration rates, the rate of patients for whom we find viable sequences are also higher when we test fresh samples at diagnosis. And so Pharma companies are essentially saying to us, it would be great if more and more accounts can do this ID testing up front at the time of diagnosis. And correspondingly, our accounts, particularly community accounts, where they're very eager to bring new trials on board, are saying to us, hey, do you think that pharma companies would be more interested in working with us if we ID our patients up front? And this is a strategy we've been pushing for a bit of time, and we're starting to see good traction. But I think the ODAC is actually going to provide a tailwind to that strategy to bring more and more patients to be tested for a colonoscopy ID at the time of diagnosis. And essentially that means they're MRD enabled from day one and they can get MRD testing whenever they need it in a trial, in the clinic. So it seems like it's a win-win-win for us, for pharma, for the clinic and the patient. And that's something we've been talking very actively about and again, seeing resonate.

Got it. That's super helpful. And then, guys, a couple more on the clinical side of things. So maybe for Kyle here, you talked about that $200 ASP increase over the next couple of years, and you're confident of getting there. You've also got that preliminary CLFS rate. I think it gets finalized on Jan 1st in 2025. So could you just walk us through any color on the cadence of the ASP increases? I'm sure there's a few moving parts beneath that, including perhaps some help from the biomarker bill, etc., Should it be front-end loaded? Should it be relatively even-keeled between where it is today? And then second, do you think from a commercial or physician education standpoint, you are where you need to be in the community setting today, and it's just a function of time, or are there more investments to come on that front? Thank you.

Yes. Hi, Tejas. I'll take the question on AHP, and then again, I'll pass it off to Susan to give you some color on the clinical side. But from the, our ASP acceleration plan is really comprised of three key pillars, coverage, contracting, and collections. So on the coverage side, we're seeking Medicare coverage for a broader set of indications. We're also exploring novel coverage structures, including recurrence monitoring for selected indications, and that's actually what we've already submitted and are in discussions on for our MCL. We're actively reducing out-of-policy claims and have aligned our business to drive the core indications where we now have that solid coverage in place. And we can further kind of double-click on that to look at how we've modified our Salesforce incentive compensation plan We also have kind of changes in ordering requirements for customers who wish to order the out-of-criteria test. And then the third component of that is really new operational policies that will increase the percentage of tests that we get paid for. And as a result of that, we've seen a really positive shift in our mix towards contracted indications where those have really grown as a percentage of our mix. So that really covers the first pillar of coverage. The second one is contracting. So there's a couple things to talk about on contracting. First, we continue to negotiate agreements with our non-contracted payers. The objective here is obviously to secure pricing at or above the Medicare price. And within that, we've already talked about this, but we expect the publication of that preliminary gap fill rating to provide really meaningful leverage. As we go out and have those conversations with payers, we can go reference that new rate as a benchmark to be set that they have to be at or above that rate. A good example of that is one of the large outstanding payers with Anthem. which we're waiting for that rate to go to Anthem and say, this is what we expect or better. And then the third is in the area of, I'll just call it blocking and tackling with collections. And we're taking a few different steps on collection performance. The first is we continue to place a real focus on Medicare Advantage collections. This has been a problem for the industry, which I think we're starting to see some resolution on. There's these large claims projects that we're going after, and we're directly engaging a CMS at a national level to help us support this claim payment resolution with Medicare Advantage from the private payers. The second component of that is, I mentioned this in a prior question, but we've increased our resourcing allocated to claims management, so we actually have more people going after it. I'll call it smiling and dialing, and there's actually more to it. We actually have some really nice AI projects for the appeals process and claims management. We put in place new initiatives on how we do prior authorizations, et cetera. And the final pillar of that is we've made some significant headway on the implementation of our PLA code, and further progress will, I think, will be supported by the new preliminary Medicare rate that we talked about. With that, Susan, do you want to comment on his question regarding clinical?

Sure. I think you asked about, you know, whether we're where we need to be in the community setting. Do we need to invest additionally? So, you know, over the last several quarters, we've seen somewhere between 20% and 25% of our business kind of coming consistently from that community segment. And we believe that over time that contribution can be much higher. You know, we've actually seen some really nice acceleration in Q2 in our academic segment in concert with continued study growth in the community. So we have a lot of feeling in both segments. And so we can't focus only on one at the expense of the other. We have a lot of untapped potential to capture in both. But that said, you know, winning in the community is going to be a long-term critical success factor for this business to play at. But, you know, given the proportion of patients who are treated either entirely or partially in community settings, our penetration is much lower in the community than it is in academic settings. So there's a couple of things that we've done recently and then a few things that we will be starting to do and we have plans to do in the coming months. So one of the things we've done recently is really reorient our peer-to-peer educational programs and medical education programs and other types of sponsorship dollars that we invest towards physician education to really be focused on connecting thought leaders, both academic and community thought leaders, who have mastered the use of MRD in their own practices to bring their playbooks to the community to show in a how they are using MRD, because that is the number one question we get in the clinic. And the data will continue to develop. We have some very nice data sets on actionability of MRD, but there's a lot more in motion right now that we'll read out over the next couple of years. So while we're waiting on that, let's show what the KOLs have really gotten comfortable with. So that's been a big area of focus and investment, as well as ensuring that we have the right team structure in place. So as you know, back at the beginning of 2022, we hired our first community sales team. And that team has been able to drive tremendous increases in contribution of that business. We were only 5% community when they started. But we've also got a small team, what we call strategic accounts managers. And those folks are really the folks driving C-suite engagement in the oncology community practice networks, which is where the majority of patients in the community are managed. And we recently reorganized our strategic accounts team under a dedicated leader, which had a variety of strategic benefits. The other place where we are going to invest in the coming months, and you've heard about this a little bit, is EMR integration oriented toward the community. So Flatiron is a big partnership we've discussed, but we have a number of ongoing or recently initiated integration projects or integration discussions and negotiations, which will allow us to significantly increase our footprint for inspiration in the community.

Got it. Super helpful. Appreciate all the color guys. Thank you.

Just on the ASP increase, you know, we've talked about the $200 increase over the course of the next two years. I think what we're seeing from these ASP initiatives and what Chad is summarizing is, you know, we've got strong confidence, you know, we'll start to see kind of some of the early evidence from this in the back half of the year. And, the gap fill rate effectively gives us confidence heading into 25 that we can continue to deliver that growth over the next two years.

Thank you, Kyle.

Appreciate it. Thank you. One moment for our next question. Our next question comes from Dan Brennan from TD Cowan. Please go ahead.

Thanks. Thanks for the questions. Congrats on the quarter. Maybe one just on the burn and the margin improvement. Could you just speak a little bit more towards kind of what went better in the quarter? You're obviously taking down the guide or, excuse me, improving the guide. Just kind of what are you thinking about in the back half of the year from some of the line items about what's getting better?

Yeah, Dan. I would say, you know, we've done a number of initiatives here to get the workforce aligned and our spend aligned with where we think the business should be. I think we're going to continue to see leverage in those areas, especially as it relates to the margin profile. You know, we're continuing to expect increased volumes, both in the clinic and increased revenues in the pharma business. So we're going to continue to see that leverage in the back half of the year. And, you know, I think we've got some decent initiatives in place for 2025 that will continue to play out there. As it relates to the burn, I mean, again, I don't want to sound like a broken record, The restructuring initiatives we put in place over the first half of the year have led up to some increased confidence as a result of the reductions in spend, to be confident that we can continue to reduce the burn, and focus our investments in IM, which will yield benefits in the longer term. But as it relates to Q2, we had some significant collections across the business, the milestones being one of them. the pharma business, and in the clinic. So, you know, I think what we're going to see in the course of the year is just a continued march down that path. There is a bit of seasonality in the back half of the year from a spend perspective, so that's why it's just a little bit slightly higher than the first half of the year.

Got it. Okay, that sounds good. What about on the immune medicine side? You know, biotech funding has been healthier. I know that's generally been a drag over the last period of time, kind of a spending environment. Like, what are you guys seeing just for more of like a macro basis on that side of the business?

Are you talking about from an IM Pharma revenue perspective, Dan?

Yeah. Yeah. Yeah, exactly. Sorry, Chad. Yep.

Yeah. Just as a reminder to everyone, we don't report revenue based on that. But there has been some impact. I think it depends on what our technology is being used for. Some of the very early research and development budgets aren't what they used to be. But we now have kind of longstanding relationships where we've been embedded and many different pharma companies are looking at the immunological response to their therapies. And we've been used in a variety of different contexts, which, you know, I think it continues to hold up pretty well.

Okay. And then maybe on DLBCL, I heard you say like 20% quarterly growth, I think, sequentially. It's still, penetration is still fairly nascent. Like what's, How is that progressing versus expectations? Does that kind of keep going linearly, or is there an opportunity for any kind of acceleration there?

Yeah, I'll pass it over to Susan to answer that question, but it was 25% sequential growth. Susan, do you want to give some color on the trajectory?

Sure. Sure, yeah. So, you know, DLBCL is now up to 6% of our total business, clinical business, which is up from 3% a year ago. And it, you know, we've been pleased. We've been hitting our internal projections with the indication level with DLBCL so far. We've been pleased to see significant uptake in the community setting. And also, you know, continued opportunities to report out new data You may have noted that earlier in Q2 in May, we saw a really nice publication on clonaseq and DLBCL in the context of a study for a regimen known as VIPER, the relapsed refractory regimen, and it was published in the New England Journal of Medicine in May. And in that study, we saw really nice performance from the clonaseq assay in terms of the ability to differentiate patients who would have better or worse progression-free survival and overall survival. In that study, 15 patients who achieved complete response at the end of therapy and remained progression-free throughout the study, they all had MRD that was undetectable by clonaseq. And of those that progressed, three out of the four had detectable ctDNA prior to the evidence of relapse. So we saw it as another nice demonstration, albeit in a small patient population, of the performance of the assay in a relapsed refractory setting. We continue to generate data, and that will certainly be a catalyst for ongoing adoption, as well as our ongoing work with regulatory agencies to expand access and to increase the utilization of DLBCLs by pharma companies. So actually last week, we submitted our DLBCL strike offering to New York State CLEP, which will expand the access to DLBCL in New York if approved. and we continue to work on our FDA submissions, which we expect to be useful both in the pharma setting and also have a halo effect on the clinic over time.

Awesome. Thanks a lot, and congrats.

Thanks, Dan.

Thank you. One moment for our next question. Our next question comes from Andrew Brackman from William Blair. Please go ahead.

Hi, guys. Good afternoon. Thanks for taking the question. Maybe just going back to the Epic integrations, it sounds like things are moving nicely there. But can you maybe just sort of talk about, of those accounts who have integrated, just what you're seeing in terms of any utilization uptick? And I guess how should we be thinking about the impact here, not necessarily just over the next couple of quarters, but more so over the next few years? Thank you. Sure, Susan.

Yeah, sure. Yeah. Yeah. So, you know, as Chad mentioned, we now have six sites integrated. Four of those have been integrated for about six months, and then two are brand new and Q2. They have 13 others that are actively progressing towards the completion of the integration, plus a variety of additional sites kind of in the funnel where they've been approved while waiting for the resources to be able to implement them on the account side. But the accounts that we started with were relatively smaller accounts, and so we saw a very nice pickup almost immediately upon integration. you know, double-digit increases in adoption and in test volumes just within a quarter, and also, you know, significant increases in the number of ordering providers, which reflects the ease of use of the integrated test. We also have seen some really nice improvements in operations. For example, the orders that come in through Epic are less likely to have discrepancies that require follow-up from our customer service team or more likely to have complete accurate billing information, which we need to submit successful claims for reimbursement. And so a variety of nice benefits that we've seen in those accounts, but those first four accounts were relatively small accounts intentionally because we were just getting started. The two very recent accounts are accounts that are larger potential, but very early days from chronophic adoption. So in this case, we'll get to evaluate over the next six to 12 months, whether EMR integration can accelerate sort of upticks from a nascent place, and larger potential accounts. We will have some of our largest current accounts going live by the end of 2024. And so I think that's when we're really going to be able to tell you more about what we've learned about the impact on the business. But I will remind you that Epic Integration was the strategy that we've had in mind for some time. And so we did built in to our 2024 guidance for the clinical business some increase in use based on the implementation of Epic in a set of our accounts.

Perfect. And then maybe just on the LIMS overhaul, can you just level set us on where that initiative stands and just how we should be thinking about any impact to cost savings over the next couple of quarters in 2025? Thank you.

Yeah, with regards to LIMS, I'd say we put that on the back burner to focus initiatives around things that we can do to improve our workflows, namely in the reimbursement space as well as in the customer office space. So, you know, right now, you know, coming out of the strategic review and some of the restructuring initiatives, that was one of the projects, you know, we're deprioritizing at this time and reprioritizing other initiatives that we think have a better near-term ROI.

Got it.

Thanks, guys. Thank you. One moment for our next question.

Our next question comes from Rachel Vansdahl from PG Morgan, JP Morgan. Please go ahead.

Perfect. Good afternoon, you guys. Thanks so much for taking the questions. So great to hear about the continued strength on MRD and then the cost savings as well. You previously had kind of talked about a second half of 2025 break even. So is that still the right way to think about it or could we potentially see that timeline get moved up given where you're at from a cost savings perspective?

I'd say that's the right way to think about it right now. I mean, again, we'll continue to monitor performance and, you know, as we get closer to 2025, you know, update you at that point. But right now that's what we're thinking about and that's what we're executing towards.

Great. And then on my follow-up, just on the COG side of things, you mentioned NovaSeq in Dave's earlier question. So can you walk us through the timing for that rollout and how we should think about the potential reduction in COGs How quickly can that really kick in? And then where do you think you could get on a cost per test with NovaSeq in that role out there? Thanks.

You know, we're moving along in the development phase. It's a pretty significant undertaking, so we're going to be fairly cautious about getting this done and getting it right. But, you know, at the end of the day, you know, we're anticipating, hey, back half of 2025, we can get this in, you know, Again, we'll see the initial uptake, but, you know, our anticipation is this could be between five to eight percentage points. And, you know, once we're up and running and once we get in the workflow, we'll have a little bit better data, but, you know, we'll wait and see. But we think it's a meaningful driver. We just need to make sure it's done right.

Yeah, and as volumes continue to grow, that percentage reduction in cost will, of course, finally grow. So that's an initial estimate of kind of back half of 2025 cost deduction, 5% to 8%, but upside from there.

Thank you. One moment for our next question. Our next question comes from Song Ji Nam from Scotiabank.

Please go ahead.

Hi, thanks for taking the questions. Just a couple of clarification questions on MRD Pharma. For the $3 million milestone that you received, was that an accelerated, you know, customer accelerating from secondary to, I'm sorry, converting from secondary to primary endpoint in their study, or was it just an acceleration since the ODAC in terms of implementing the the trial, you know, MRD as primary endpoint or is something different altogether?

No, it wasn't a result of the ODAC decision. This was a study that had been in play and just recently got approval. So it wasn't tied to ODAC.

Where MRD data was used in the submission package, again, not related to ODAC or endpoints.

Okay, got it. And then just on the, again, on the MRD pharma side, are there customers that are currently, you know, that have currently incorporated flow cytometry-based monitoring for MRD that might be interested in switching to Clonacy given the better standardization that you talked about? Is that a potential opportunity and kind of curious if you might be getting any interest from those customers? Yes. hurdles from switching kind of a midway, if you will, in their studies from one technique to another?

Absolutely, there's an opportunity to convert. I mean, some already have, and we've been converting them over the years, but certainly kind of with the ODAC decision, you know, I think it continues to solidify the importance of NGS MRD with the depth of sensitivity, you know, down to one in a million. Whereas flow is one in 10,000 without even the same level of standardization. So we continue to convert over those farmer customers.

Great. That's it for me. Thank you.

Thanks, Andrea.

Thank you. I am showing no further questions at this time. Thank you for participating in today's conference. This does conclude the program. You may now disconnect.