Adaptive Biotechnologies Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. The company develops immune-sequencing products and services, including clonoSEQ and immunoSEQ, and is advancing T-Detect and therapeutic programs with Genentech.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $38.4 million | $20.9 million |
| Sequencing revenue | $15.2 million | $9.5 million |
| Development revenue | $23.3 million | $11.4 million |
| Gross profit / gross margin | $28.5 million / 74.0% | $15.6 million / 74.4% |
| Operating loss | $41.3 million | $34.6 million |
| Net loss / diluted loss per share | $40.6 million / $0.29 | $31.4 million / $0.25 |
| Adjusted EBITDA (non-GAAP) | Loss of $30.1 million | Loss of $28.0 million |
| Net cash used in operating activities | $58.2 million | $31.6 million |
Revenue rose 84% year over year. Sequencing revenue increased 60%; research sequencing volume rose 17% and clinical tests delivered, excluding T-Detect COVID, rose 35%. Development revenue increased 103%, including $7.0 million from customer therapeutic regulatory milestones and higher Genentech collaboration revenue. Operating expenses grew 44% to $79.7 million, led by R&D, sales and marketing, and general and administrative spending. Operating margin was approximately negative 107%, compared with negative 166% a year earlier.
At March 31, cash and cash equivalents were $173.6 million and marketable securities totaled $571.3 million, or $745.0 million combined. Total current assets were $765.0 million versus current liabilities of $106.8 million. The company reported no borrowings or interest-bearing debt in the presented balance sheet; operating lease liabilities totaled $99.6 million. Total deferred revenue was $222.7 million. Management stated existing cash, cash equivalents and marketable securities should fund operations and capital requirements for at least 12 months.
Investing activities provided $93.8 million, largely from marketable-security maturities, while property and equipment purchases were $15.8 million. Financing activities provided $14.6 million, primarily from stock-option exercises. Cash, cash equivalents and restricted cash increased $50.2 million during the quarter.
Material changes and notable items
- Revenue grew substantially, but net loss widened by $9.2 million and operating cash use increased by $26.6 million year over year.
- Q1 revenue included $7.0 million of MRD-related regulatory milestone revenue recognized when customer milestones were achieved. Up to $306.5 million in additional MRD milestone payments could be earned if specified customer therapeutic regulatory approvals occur; these are contingent, not assured revenue.
- Genentech contributed 42.1% of Q1 revenue. The company recognized $15.6 million under the collaboration, which includes a $300 million upfront payment recognized over an estimated seven-to-eight-year performance period. Genentech may be eligible for additional development, regulatory and commercial milestones and royalties, subject to contract terms and future outcomes.
- Capital expenditures increased, and property and equipment rose to $56.3 million from $39.7 million. The company formed Spin Technologies, Inc. for early-stage sequencing technology development and owns 70% of it.
- Common shares outstanding increased to 139.9 million from 137.6 million at year-end, primarily reflecting option exercises. Share-based compensation was $8.5 million versus $4.7 million a year ago.
Outlook, commentary and risks
Management expects revenue to increase over the long term, particularly as revenue mix shifts toward clinical diagnostics and drug discovery; timing depends on customer adoption and product use. It expects continued increases in R&D spending, sales and marketing spending, and near-term capital expenditures for laboratory and office expansion. No specific revenue, earnings or margin guidance was provided.
Management cited potential near-term revenue variability from customer sample availability, customer development decisions, milestone timing and continuing COVID-19 effects on clinical testing and research activity. It also identified potential supply-chain delays and reagent or material availability risks. Other key uncertainties include regulatory authorization and market acceptance of products, clinical and development outcomes, Genentech program decisions, reimbursement and collections, and dependence on a limited number of suppliers. The company reported no material legal proceedings and no material changes to the risk factors in its 2020 Form 10-K. Disclosure controls were deemed effective as of March 31, 2021.
Investor verification points
- Assess how much revenue growth is repeatable versus the $7.0 million milestone contribution, and track future milestone timing and constraints.
- Monitor Genentech revenue concentration, collaboration progress, and the conditions attached to potential milestones and royalties.
- Track operating cash burn, deferred-revenue movements, receivables and inventory, and capital spending against management’s stated liquidity runway.
- Verify adoption, reimbursement and test volumes for clonoSEQ and T-Detect, including regulatory and commercialization progress for pipeline products.
- Review share-based compensation, option exercises and potential dilution, as well as the company’s commitments for facilities and expansion.