Adaptive Biotechnologies Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. Amounts are in U.S. dollars. Adaptive develops immune-sequencing and immune-medicine products, including clonoSEQ, immunoSEQ and T-Detect, and collaborates with Genentech on oncology cellular therapies.
Financial performance
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $38.5M | $21.0M | $76.9M | $41.9M |
| Sequencing revenue | $18.6M | $8.0M | $33.7M | $17.5M |
| Development revenue | $20.0M | $13.0M | $43.2M | $24.4M |
| Gross margin, approximate | 72% | 77% | 73% | 76% |
| Operating loss | $49.8M | $36.9M | $91.0M | $71.5M |
| Net loss | $49.3M | $33.5M | $89.9M | $64.9M |
| Net loss per share | $0.35 | $0.26 | $0.64 | $0.51 |
| Adjusted EBITDA loss | $35.6M | $28.5M | $65.7M | $56.5M |
Q2 revenue grew 83% year over year; H1 revenue grew 84%. Research sequencing volume rose 65% in Q2 and 36% in H1, while clinical sequencing volume, excluding T-Detect COVID, increased 75% and 54%, respectively. Gross margin is calculated from reported revenue less cost of revenue. Adjusted EBITDA is a non-GAAP measure.
Cash, liquidity and balance sheet
- At June 30, cash and cash equivalents were $184.2M; short- and long-term marketable securities totaled $505.4M. Combined cash, cash equivalents and marketable securities were $689.5M, down from $806.8M at year-end 2020.
- H1 operating cash use was $95.5M, compared with $62.7M a year earlier. Investing activities provided $135.3M, principally from security maturities, while property and equipment purchases were $37.9M. Financing provided $20.9M, primarily from option exercises.
- Total liabilities were $340.1M, including $108.6M of operating lease liabilities and $203.2M of deferred revenue. The filing reports no borrowings or finance leases; lease liabilities are not characterized here as funded debt.
- Management said available cash and securities should fund operating expenses and capital expenditures for at least the next 12 months. The company had an accumulated deficit of $601.6M.
Material changes and management commentary
- Revenue growth reflected higher sequencing sales and development revenue. Genentech-related revenue was $17.2M in Q2 and $32.8M in H1; Genentech and Roche accounted for 46.0% of Q2 revenue and 44.1% of H1 revenue.
- Development revenue also included customer regulatory milestone payments of $1.5M in Q2 and $8.5M in H1. Changes in sample estimates and certain customer cancellations contributed additional revenue recognition. These items make reported development revenue partly dependent on milestones and estimates.
- Operating expenses rose substantially: Q2 R&D increased 45%, sales and marketing 62%, and G&A 31% year over year. Management cited investment in T-Detect, the TCR-Antigen Map and drug discovery, alongside higher personnel and facility costs.
- Capital spending increased as the company expanded facilities and laboratory capacity. A new 27,000-square-foot Bothell warehouse lease commenced in Q2, with rent obligations beginning in October 2021.
- Management expects revenue to increase over the long term and anticipates a shift toward clinical products and drug discovery. It also expects continued investment in commercialization, R&D and facilities. No specific revenue, earnings or cash-flow guidance was provided.
Outlook, risks and contingencies
- Commercial adoption, reimbursement coverage and utilization of clonoSEQ and T-Detect remain important to the expected revenue mix. T-Detect Lyme validation was still being finalized; other diagnostic and therapeutic opportunities remain developmental.
- Future milestone payments are uncertain: up to $327.0M could be received under MRD development agreements if specified customer-therapy regulatory approvals are achieved. The Genentech collaboration may generate more than $1.8B in future milestone payments plus royalties, subject to development and commercial success.
- Management cited potential near-term revenue variability from COVID-19 effects on customer samples and clinical testing, customer program decisions, milestone timing and estimates of contract progress. Other disclosed exposures include reliance on a limited number of suppliers, customer concentration, regulatory and product-development risk, and potential working-capital needs as receivables and inventory grow.
- The company reported no material legal proceedings and no material changes to the risk factors in its 2020 Form 10-K. Disclosure controls were assessed as effective at June 30, 2021.
Important facts for investors to verify
- Whether sequencing volume and clinical adoption continue to grow, and whether growth translates into improved gross margins and lower cash burn.
- How much revenue and cash generation depend on Genentech, milestone achievements, and contract-estimate changes; confirm the timing and likelihood of potential milestone payments.
- Whether management’s stated liquidity runway remains adequate given H1 operating cash use, facility commitments and planned capital expenditures.
- Progress on clonoSEQ reimbursement and T-Detect commercialization and validation, including the ability to achieve meaningful customer uptake.
- Potential dilution: common shares outstanding were 140.7M at June 30, and the company disclosed substantial outstanding equity awards and shares reserved for future issuance.