Adaptive Biotechnologies Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial figures below are in millions unless stated otherwise.
Business context
Adaptive is a commercial-stage immune medicine company. Its offerings include clonoSEQ minimal residual disease (MRD) testing, immunoSEQ research services and T-Detect diagnostics; its Genentech collaboration supports development of T-cell receptor cellular therapies. The filing reports results for its Immune Medicine and MRD market opportunities.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $47.8 | $39.5 | $130.1 | $116.4 |
| Gross margin, calculated | 68.8% | 64.0% | 68.2% | 70.0% |
| Operating loss | $(45.4) | $(56.3) | $(161.0) | $(147.4) |
| Net loss attributable to Adaptive | $(45.3) | $(55.9) | $(160.1) | $(145.8) |
| Adjusted EBITDA, non-GAAP | $(25.9) | $(41.1) | $(102.0) | $(106.8) |
Q3 revenue increased 21% year over year; nine-month revenue increased 12%. Q3 MRD service revenue rose 39% to $20.0 million, while Immune Medicine collaboration revenue was $21.3 million. For the nine months, MRD service revenue increased 39% to $55.0 million; regulatory milestone revenue fell to $4.0 million from $10.0 million. clonoSEQ test volume increased 52% in Q3 to 9,649 and 50% for the nine months to 26,345.
Cash, cash equivalents and marketable securities totaled $527.8 million at September 30, 2022, versus $570.2 million at December 31, 2021. Nine-month operating cash use was $153.9 million, investing activities provided $100.4 million, and financing activities provided $132.3 million. Cash and cash equivalents were $217.6 million; current assets were $564.4 million and current liabilities $104.0 million. Management believes available cash and securities are sufficient to fund operations and capital expenditures for at least the next 12 months.
In September, Adaptive received $125 million gross under a revenue interest purchase agreement with OrbiMed. The balance-sheet revenue interest liability was $124.6 million net at quarter-end; reported interest expense was $0.7 million. There is no conventional borrowing balance separately presented in the supplied filing text. The agreement gives OrbiMed a share of revenue and security interests in core platform assets.
Material changes versus comparable periods
- Q3 net loss narrowed by $10.6 million year over year, while the nine-month net loss increased by $14.2 million.
- Q3 revenue growth reflected higher collaboration and MRD service revenue, partly offset by lower T-Detect COVID revenue and no MRD regulatory milestone revenue in the quarter.
- Nine-month revenue growth was led by clinical clonoSEQ and biopharmaceutical MRD services; lower milestone revenue and T-Detect COVID revenue partially offset gains.
- Nine-month general and administrative expense increased 29% to $66.1 million, including higher building, facility, depreciation and personnel costs. Research and development increased 3% to $110.5 million; sales and marketing increased 5% to $71.9 million.
- Cash from financing included the OrbiMed transaction; operating cash use rose from $138.9 million to $153.9 million.
Outlook, commentary and risks
- Management expects revenue to increase over the long term, but notes near-term variability from sample delivery, customer development decisions, milestone timing and clinical testing conditions. It expects research and development expense to decrease in the short term, sales and marketing expense to increase modestly, and continued laboratory and equipment investment.
- Adaptive reduced its workforce by approximately 100 employees in March 2022 and recorded $2.0 million in restructuring costs, paid by June 30, 2022.
- Genentech and the Roche Group accounted for 45.1% of Q3 revenue and 38.2% of nine-month revenue, creating significant customer concentration. The filing also identifies reliance on collaborators, commercialization and reimbursement uncertainty, and dependence on certain suppliers.
- Under the OrbiMed agreement, quarterly revenue payments are 5% of the revenue base after the first payment, increasing to 8% or 10% if additional installments are drawn. The return cap is generally 165% of invested capital, rising to 175% if unpaid by September 12, 2032. Certain events can trigger a repurchase option; the agreement also includes covenants and collateral rights. These obligations may constrain cash available for operations.
- Adaptive disclosed no material legal proceedings and no material changes to previously reported risks other than the new OrbiMed-related risk. Management stated disclosure controls were effective at September 30, 2022.
Important facts for investors to verify
- Whether clonoSEQ volume growth translates into sustainable recognized revenue and collections, including the effect of Medicare treatment-cycle estimates and reimbursement.
- Future Genentech collaboration revenue, development progress and customer concentration; up to $370.5 million in additional MRD milestone payments is contingent on customer therapeutics obtaining regulatory approvals.
- Actual cost and repayment profile of the OrbiMed agreement, including revenue-based payment percentages, potential additional draws, collateral and put/call provisions.
- Cash burn, capital expenditure needs and management’s stated liquidity horizon as operating losses continue.
- Expense trends, including facility costs, stock-based compensation and the impact of the 2022 restructuring; Adjusted EBITDA is non-GAAP and excludes specified costs.