Adaptive Biotechnologies Corporation — Q1 2024 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results; comparisons are with Q1 2023 unless stated otherwise. The company operates in MRD diagnostics and Immune Medicine research and drug discovery.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $41.9 million | $37.6 million |
| Gross profit / gross margin | $23.8 million / 56.9% | $19.0 million / 50.4% |
| Operating loss | $48.8 million | $57.2 million |
| Net loss attributable to Adaptive | $47.5 million; $0.33 per share | $57.7 million; $0.40 per share |
| Adjusted EBITDA (non-GAAP) | $(28.2) million | $(37.1) million |
| Cash used in operating activities | $38.4 million | $59.2 million |
At March 31, cash and cash equivalents were $71.2 million and short-term marketable securities were $237.6 million, totaling $308.9 million. Current assets were $374.0 million versus current liabilities of $83.0 million. Total liabilities were $345.6 million and shareholders’ equity was $274.8 million. The $131.5 million revenue interest liability is accounted for as debt; its effective interest rate was 9.2%. Operating lease liabilities totaled $96.5 million.
Cash, cash equivalents and restricted cash increased by $6.2 million during the quarter, primarily because maturities of marketable securities exceeded purchases. Capital expenditures were $1.5 million. Management said existing cash, cash equivalents and marketable securities should fund operating expenses and capital requirements through at least the next 12 months.
Material changes versus prior year
- Total revenue rose 11% to $41.9 million. MRD revenue increased 52% to $32.6 million, while Immune Medicine revenue fell 43% to $9.2 million.
- MRD service revenue grew 31% to $28.1 million; clonoSEQ test volume rose 41% to 17,040 tests. MRD also included $4.5 million from a customer regulatory milestone.
- Immune Medicine service revenue declined 36% to $4.6 million and collaboration revenue declined 49% to $4.7 million. Management attributed the collaboration decline principally to lower Genentech collaboration expenses.
- Operating expenses decreased 4% to $90.6 million. Research and development fell 7% to $30.2 million; sales and marketing was essentially flat at $22.3 million; general and administrative expense decreased 6% to $19.6 million.
- Net loss narrowed by $10.2 million. Adjusted EBITDA loss improved by $8.9 million; both are still losses. Operating cash use declined by $20.8 million.
Outlook, risks and unusual items
- Management expects MRD revenue to increase over the long term, supported by clonoSEQ adoption, expanded patient populations and payor coverage. It expects Immune Medicine revenue to decline in the short term, primarily due to lower Genentech agreement revenue, with potential longer-term growth as therapies advance.
- Management expects research and development expense to decrease in the short term, sales and marketing and general and administrative expense to remain relatively consistent, and cost of revenue to rise over the long term as testing volume grows. No numerical full-year revenue or earnings guidance was provided.
- The $4.5 million MRD regulatory milestone and $1.5 million of MRD service revenue from Medicare estimates and cancelled contracts contributed to reported revenue. The quarter included $1.0 million of restructuring expense related to organizational realignment.
- Up to $430.5 million in additional MRD milestone payments may be payable in future periods if customers’ therapeutics obtain specified regulatory approvals. Under its Genentech agreement, Adaptive may be eligible for up to $1.8 billion in development, regulatory and commercial milestones, plus tiered royalties; these amounts are contingent and not assured.
- Key risks include sustained operating losses and cash burn, uncertain customer sample volumes and milestone timing, adoption and reimbursement of clonoSEQ, dependence on collaborators and third-party regulatory or development outcomes, and potential dilution or financing constraints. The company says it may seek additional capital or request available installments under its revenue interest purchase agreement if needed.
- The filing reports no material legal proceedings and no material changes to the risk factors disclosed in the 2023 Form 10-K. Disclosure controls were judged effective as of March 31, 2024.
Important facts for investors to verify
- Whether clonoSEQ volume growth and MRD service revenue persist, and how reimbursement and collections compare with recognized revenue.
- Timing and collectability of the $4.5 million milestone, and progress toward future customer regulatory milestones.
- Whether lower Genentech and other Immune Medicine revenue is offset by expense reductions or other business activity.
- Cash burn against management’s stated 12-month liquidity outlook, including the terms and availability of remaining revenue interest purchase agreement installments.
- Potential dilution: 147.4 million common shares were outstanding at March 31, 2024, with 50.4 million shares reserved for future issuance or outstanding awards.