Adaptive Biotechnologies Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Comparative figures are for the three months ended March 31, 2021 unless otherwise noted. Amounts are in U.S. dollars; financial statement figures are in millions unless stated.
Business context
Adaptive is a commercial-stage immune medicine company. Its offerings include clonoSEQ minimal residual disease (MRD) testing, immunoSEQ research services, T-Detect diagnostics and drug-discovery work under collaborations including Genentech. Management expects the revenue mix to shift over time toward clinical products and services.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $38.6 | $38.4 |
| Cost of revenue | $13.2 | $10.0 |
| Gross profit / gross margin | $25.4 / 65.8% | $28.5 / 74.0% |
| Operating expenses | $101.7 | $79.7 |
| Operating loss | $(63.1) | $(41.3) |
| Net loss attributable to Adaptive | $(62.7) | $(40.6) |
| Net loss per share, basic and diluted | $(0.44) | $(0.29) |
| Cash used in operating activities | $(64.5) | $(58.2) |
- Revenue was essentially flat year over year, while net loss widened by about $22.1 million. Operating expenses rose 28% to $101.7 million; operating margin was approximately negative 163%, compared with negative 107%.
- Immune Medicine revenue was $20.8 million, up 4%; service revenue rose 76% to $7.1 million, while collaboration revenue fell 15% to $13.7 million. MRD revenue was $17.8 million, down 3%; service revenue rose 31% to $14.8 million, partly offset by regulatory milestone revenue declining to $3.0 million from $7.0 million.
- clonoSEQ test volume was reported as 7,698 tests, up 45% from 5,300 in Q1 2021. The filing defines this measure to include U.S. physician reports and international technology-transfer results, but exclude biopharmaceutical and academic MRD sample results.
- At March 31, cash and cash equivalents were $114.8 million; marketable securities totaled $385.9 million. Cash, cash equivalents and marketable securities were $500.7 million, down from $570.2 million at year-end. Management believes these resources will fund operating expenses and capital expenditures for at least the next 12 months.
- No borrowings or financial debt are reported on the balance sheet. Operating lease liabilities totaled $113.5 million, including $8.5 million current. Deferred revenue was $168.4 million. Accumulated deficit was $781.6 million.
Material changes and unusual items
- Operating expense growth included increases in R&D of $4.1 million, sales and marketing of $5.5 million, and general and administrative expense of $9.2 million. G&A growth included $4.2 million in building, facility and depreciation-related costs.
- In March, the company began a restructuring aligned with its MRD and Immune Medicine strategy, reducing its workforce by approximately 100 employees. It recognized about $2.0 million of restructuring costs; $1.4 million had been paid by quarter-end, with the remaining $0.6 million expected to be paid during 2022.
- Available-for-sale investments had $4.8 million of unrealized losses recorded in other comprehensive loss, attributed to factors such as interest-rate changes rather than credit losses.
- Revenue included $1.4 million from changes in estimates, canceled customer projects and Medicare episodes for which further testing was considered remote. These estimate-sensitive items can affect period-to-period revenue.
Outlook, commentary and risks
- Management expects revenue to grow over the long term, particularly as clinical diagnostics and drug discovery expand, but did not provide quantitative revenue or earnings guidance. Near-term revenue may vary with customer sample delivery, reimbursement, milestone timing, customer development decisions and COVID-related effects.
- Management expects moderate near-term increases in R&D and sales and marketing expenses, and moderate near-term decreases in G&A expense from reduced headcount. It also expects continued investment in laboratory space, equipment and operations.
- The Genentech collaboration generated $12.3 million of Q1 Immune Medicine collaboration revenue, down from $15.6 million. The agreement could provide substantial future milestones and royalties, but regulatory and development milestones were excluded from the transaction price until achievement is sufficiently probable. Up to $330.5 million in additional MRD regulatory milestone payments could be received if customer therapeutics obtain specified approvals.
- Customer concentration is notable: Genentech and the Roche Group represented 33.8% of Q1 revenue, down from 42.1%. One other customer represented 17.9% of Q1 revenue. The company also relies on a limited number of suppliers for certain laboratory instruments and materials.
- Key business risks include adoption and reimbursement of clonoSEQ and T-Detect, success of product development and regulatory pathways, dependence on collaborators and third parties, execution of the restructuring, and the possibility that future financing may be required. Management reported no material legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether clonoSEQ volume growth converts into sustained clinical-service revenue and improved gross margins.
- How recurring service revenue develops relative to collaboration and milestone revenue, including customer concentration and milestone timing.
- Whether the workforce reduction produces durable cost savings without impairing hiring, clinical development or expansion plans.
- Cash-burn trends, capital spending, lease commitments and management’s stated expectation that available liquidity covers at least 12 months.
- The progress and economics of Genentech programs, T-Detect Lyme launch plans, reimbursement expansion and other product-development milestones.