Adaptive Biotechnologies Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts below are in millions of dollars unless otherwise noted. The company develops immune-system sequencing and diagnostic products, including clonoSEQ for minimal residual disease (MRD), immunoSEQ research services, T-Detect, and therapeutic programs with Genentech.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $43.7 | $38.5 | $82.3 | $76.9 |
| Gross profit / gross margin | $30.4 / 69.7% | $27.7 / 72.0% | $55.9 / 67.9% | $56.2 / 73.0% |
| Operating loss | $(52.5) | $(49.8) | $(115.6) | $(91.0) |
| Net loss attributable to Adaptive | $(52.0) | $(49.3) | $(114.8) | $(89.9) |
| Loss per share, basic and diluted | $(0.37) | $(0.35) | $(0.81) | $(0.64) |
| Cash used in operating activities | — | $(111.5) | $(95.5) |
- Q2 revenue grew 13% year over year; first-half revenue grew 7%. MRD revenue rose 38% in Q2 and 16% in the first half, while Immune Medicine revenue was down 3% in Q2 and essentially flat for the first half.
- Q2 clonoSEQ test volume was 8,998, up 53%; first-half volume was 16,471, up 47%.
- Operating expenses increased to $96.2 million in Q2 from $88.3 million and to $197.8 million in the first half from $168.0 million. First-half general and administrative expense increased 46%, and sales and marketing increased 15%.
- Cash, cash equivalents and marketable securities totaled $450.7 million at June 30, 2022, versus $570.2 million at December 31, 2021. Total assets were $806.6 million and shareholders’ equity was $518.3 million.
- The balance sheet reports no borrowings. Operating lease liabilities totaled $111.3 million; deferred revenue was $155.0 million. Cash and marketable securities exceed current liabilities of $111.5 million, but operating losses and cash burn remain substantial.
- First-half investing cash flow was positive $42.4 million, mainly reflecting $136.0 million of securities maturities, partly offset by securities purchases and $8.4 million of capital expenditures. Financing provided $6.7 million, primarily from stock-option exercises.
Changes, outlook and risks
- Revenue drivers: Q2 MRD service revenue increased $6.3 million, including growth in clonoSEQ clinical reports and biopharmaceutical testing. Immune Medicine collaboration revenue declined, principally because of lower Genentech collaboration expenses; service revenue from biopharmaceutical and academic customers increased. First-half MRD growth was partly offset by $4.5 million less regulatory milestone revenue.
- Margins and spending: Gross margin declined year over year in both comparison periods. Management attributed higher cost of revenue to sample mix, labor, overhead and facility costs. Operating losses widened, especially for the first half, as spending and other costs outpaced revenue growth.
- Restructuring and unusual items: A March 2022 restructuring reduced the workforce by about 100 employees. The company recorded and paid $2.0 million of restructuring costs by June 30. A $2.8 million R&D inventory reserve was recorded in Q2. Revenue included $1.4 million in Q2 and $2.8 million in the first half from changes in estimates, cancellations and Medicare-related estimates regarding further testing.
- Management outlook: Management believes available cash, cash equivalents and marketable securities will fund operating expenses and capital expenditures through at least the next 12 months. No specific revenue or earnings guidance is provided. The company expects long-term revenue growth, particularly as the mix shifts toward clinical diagnostics and drug discovery; timing depends on adoption and test utilization. Management expects modest near-term R&D and sales and marketing increases and continued investment in laboratory capacity.
- Key risks: The company remains loss-making and expects continued operating and capital needs; it may seek additional financing, which could dilute shareholders or impose restrictions. Revenue is exposed to customer sample delivery, project decisions, milestone timing, reimbursement and COVID-related variability. Genentech and Roche represented 34.8% of Q2 revenue; Customer B represented 12.3%. Up to $355.5 million of additional MRD regulatory milestone payments may be received only if customer therapeutics obtain specified approvals. Genentech collaboration outcomes, product adoption, regulatory progress and reimbursement remain uncertain.
- Management reported effective disclosure controls as of June 30, 2022, and no material change in internal control over financial reporting during the quarter. The company reported no material legal proceedings and no material changes to the risk factors in its 2021 Form 10-K.
Investor facts to verify
- Whether clonoSEQ volume growth converts into sustained revenue, collections and improved gross margins.
- How operating cash burn and losses develop relative to the stated liquidity runway of at least 12 months.
- The extent to which revenue depends on Genentech and other large customers, and the timing of deferred revenue recognition and milestones.
- Progress on T-Detect, clonoSEQ reimbursement and adoption, and the commercial impact of the workforce reduction and lower investment in certain development activities.
- Potential effects of interest-rate-driven unrealized investment losses, inventory reserves, and changes in revenue estimates.