Adaptive Biotechnologies Corporation Q3 FY2025 earnings call

• MRD business achieved major profitability milestones, with adjusted EBITDA $7M, cash flow positive, and revenue up 52% Y/Y due to clinical volume and ASP growth, and NCCN guidelines update.
• Operationally, clonoSEQ on NovaSeq X Plus led to sequencing gross margin 66%, operating expenses stable, cash burn reduced 51% YTD, and cash position $217M.
• EMR integrations continued with 11 completed, 7 academic and 4 community, driving volume growth in integrated accounts and enabling serial testing plans.
• MRD Pharma had revenue up 11% Y/Y with $6.5M milestone, backlog over $200M, multi myeloma as largest contributor, and endpoint qualification efforts in CLL and DLBCL.
• Immune Medicine was working on digital TCR antigen prediction model, partnership with Genentech concluded, and T cell depletion antibody program on track.

The MRD business had adjusted EBITDA of $7 million, with MRD revenue growing 52% year-over-year to $56.8 million, where clinical and pharma contributed 67% and 33% respectively. clonoSEQ clinical revenue grew 83% year-over-year and 18% quarter-over-quarter, with volume over 27,111 tests and U.S. ASP over $1,340. MRD Pharma revenue was up 11% year-over-year including $6.5 million in milestone revenue, with a backlog over $200 million. Immune Medicine revenue was $3.4 million versus $5.5 million a year ago.

• Raised full year MRD revenue guidance to $202M-$207M from $190M-$200M, driven by strong clinical revenue and milestone revenue.
• Tightened total company operating expenses to $335M-$340M from $335M-$345M.
• Narrowed full year cash burn guidance to $45M-$50M from $45M-$55M, driven by higher MRD revenue.
• Expect ~104,000 clonoSEQ tests for the year, exceeding prior growth target, and MRD milestone revenue $18M-$19M vs $14M-$15M.

• Regulatory uncertainty due to surrogate endpoints news views affecting MRD as an endpoint in other lymphoid cancers.
• Seasonality impact on Q4 growth.
• Emerging competition in some indications like DLBCL.

Q: On the strong beat and raise. Just a question maybe to start. It looks like your MRD pharma business is becoming a little more recurring in nature than it was maybe a year ago, and it's actually starting to look linear, increasing about $1 million a quarter. I'm not expecting this to continue in a linear way. But can you just give us a sense of the $200 million you have in the backlog, how should we think about that backlog being released, say, over the next several quarters?

A: Thanks for the question, Mark. Thanks, Chad. Thanks for the question, Mark. So I think first, I'd just say that we are pleased with the performance of the business, and we will reiterate our anticipated revenues for the year. We think that the ODAC, the CHMP decisions in multiple myeloma as well as our strong pipeline in NHL and CNR increased accelerated progress in leukemia this year, all point to a strong potential for 2026 and beyond. We do expect -- we haven't provided guidance next year, but we do expect continuing growth in a similar range to where we've been this year. And I think the backlog, which we will recognize generally over a 5 to 7-year time frame, it is a strong backlog going into the year. And our new bookings have also been quite strong, and we expect that to continue given the role of MRD potentially as an endpoint in additional indications beyond multiple myeloma in the coming years.

Q: So again, in the spirit of just trying to model on clonoSEQ ASPs, can you help us think about next year? I know your long-term target is $1,800. But as we think about next year, it appears clonoSEQ is well on track to hit your target this year. How much should ASPs continue to lift from here?

A: Yes, [ Subu ], I appreciate the question. Look, I won't give a firm number yet on 2026. But what I can say is with the profile of the business and $1,340 in Q3, feel confident about the exit rate that we're going to exit the year at. With the momentum around coverage and not only CLL and what we're seeing in DLBCL as well, I think we're setting our foundation up fairly strong to go into 2026 to have meaningful growth in ASP. And that's where we think we are. And again, I reiterate that $1,700 to $1,800 long-range target, and we'll continue to grow for next year.

Q: Our mature EMR integrations remaining strong, what do those run rates look like? And if still accelerating for the more mature accounts, how long before some of them actually steady off?

A: Sure. I can answer that question, Subu. Thanks for asking. As you've seen, our EMR integrations have continued to progress well and to drive growth across really accounts of all sizes, both academic and community. And I'll just take a moment to mention that we don't just see the benefit of growth acceleration, but also we're protecting existing business from competition, and we're increasingly finding ways to utilize tools built within the EMR to help us increase the consistency and the frequency of testing, which will have long-term value for our growth in those accounts over time. We do see that the more mature integrated accounts do continue to grow more quickly than non-integrated accounts. That can vary to some extent based on the size of the account. As you can imagine, more well-penetrated accounts can't sustain those significant accelerations that we see post integration long term, but we see a variety of benefits in those large accounts even if they go back to sort of more stable growth rates after some time. We see that the integration helps democratize ordering. So more HCPs can place orders that reduces the impact of staff turnover. We see reduced HCP workload, which sort of eases the effort we have to put in to maintain that business, and we see -- we're strengthening our competitive moats. So even in those largest accounts, this has long-term benefits. in general, to give you some statistics, when we look at our integrated account commercial volumes this quarter -- in Q3 versus Q2, we saw 9% quarter-over-quarter growth across the entirety of the group, whether they were mature or newer and non-integrated accounts grew 6%. So a 50% increase in the growth rate just looking across the entire group. That group is getting bigger and the number of mature accounts is getting bigger over time, but it's still relatively small. Most of our integrations are less than a year old. So we'll have more to say as this continues, but we are confident that this is a real trend and that it's something that we can continue to build on with some of those tools I mentioned that the EMR offers us to optimize testing.

Q: Given we recently initiated in most of our checks, we felt the competition was nonexistent almost or there was no close competitor, maybe a distant second. So when you refer to competitive moat, could you shed light on what kind of tests truly compete with clonoSEQ?

A: Sure, of course. So in many of our indications, what we're really competing against is sort of lack of testing or use of traditional methods for disease burden assessments that aren't really MRD. And in those cases, we're focused primarily on educating clinicians on the clinical data, the utility, the use cases and now increasingly the guidelines, which are strongly supportive of MRD adoption. There are technologies like you're aware of, like traditional and next-generation flow that are utilized in academic institutions in-house that we have to compete against in those settings. And our data strongly supports the advantage of clonoSEQ over both traditional and next-gen flow, and you'll see some data at ASH actually that will look at that on top of many existing data sets that will continue to be favorable to clonoSEQ. The one indication where we are seeing emerging competition is, of course, in [ diffuse large B-cell lymphoma. And competitors have entered the market. We anticipate we will continue to enter the market in the coming year. But the great news is that we're very confident in our position. We've established strong credibility. We have robust clinical experience. We've run more than 7,000 DLBCL tests in the past 12 months and had more than 900 HCPs order the test. So we're way ahead from a clinical -- from an established clinical base, and we have a number of other established advantages, commercial footprint, relationships our Medicare coverage and now our expanding commercial payer coverage, which we've just started to see really secure a foothold and the fact that we can offer universal testing for all lymphoid cancers. So even in a space where we may have more emerging competition, we do still believe we are well positioned to maintain our market-leading position.