00:03 Ladies and gentlemen, thank you for standing by. And welcome to the Adaptive Biotechnologies First Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. 00:30 I would now like to hand the conference over to your speaker today Karina Calzadilla, Head of Investor Relations. Please go ahead ma'am.

00:40 Thank you, Alexandra, and good afternoon everyone. I would like to welcome you to Adaptive Biotechnologies first quarter 2022 earnings conference call. Earlier today, we issued a press release reporting Adaptive financial results for the first quarter of 2022. 00:54 The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing to a slide presentation that has been posted to the Investors section in our corporate website. 01:07 During the call, management will make projections and other forward-looking statements within the meaning of federal securities laws regarding future events and the future financial performance of the company. These statements reflect management's current perspective of the business as of today. Actual results may differ materially from today's forward-looking statements, depending on a number of factors, which are set forth in our public filings with the SEC and listed in this presentation. 01:33 Joining the call today are Chad Robins, our CEO and Co-Founder; and Kyle Piskel, our Interim Chief Financial Officer. In addition, Harlan Robins, Adaptive's Chief Scientific Officer and Co-Founder; Nitin Sood, our Head of our MRD business, and Sharon Benzeno, Head of the Immune Medicine business will be available for Q&A. 01:52 With that, I will turn the call over to Chad Robins. Chad?

01:55 Thanks, Karina. Good afternoon, everybody, and thank you for joining us on our first quarter 2022 earnings call. As always, I want to thank all of our Adaptive employees for their dedication and for their solid execution during a quarter in which we completed a reorganization of our business. 02:14 This strategic restructuring focuses Adaptive in two business areas: MRD and immune medicine. Along with our recent headcount reduction these changes will result in a more streamlined organization to fuel growth as we navigate this turbulent market. We continue to hire talent strategically in key growth areas, such as our clonoSEQ sales team and our Cell Therapy Group in South San Francisco. We also look forward to formally welcoming our new CFO, Tycho Peterson and leveraging his extensive expertise. Tycho will officially start on June 1st, following completion of his garden leave. 02:54 Reprioritized the product development efforts for each business area and the teams are in place to execute towards our 2022 goals. Slide three shows the respective key drivers of our MRD and immune medicine businesses. The value of our MRD business is a combination of the clonoSEQ test offer to clinicians and the clonoSEQ MRD assay offer to pharma partners, who integrate MRD status and they are hem malignancy trials. Aligning these synergistic components of the MRD business under the same leadership at Adaptive will drive execution and enhanced visibility. 03:35 The immune medicine business is comprised of pharma, clinical testing and drug discovery, all of which are driven or informed by our T-cell receptor antigen map. As with our MRD business within immune medicine there is a synergistic value between the utility of the information for clinical diagnostics and to pharma partners in research and drug development. 04:00 As shown on Slide four, our first…

14:01 Thanks, Chad. Turning to our financial results on Slide 11. Total revenue in the first quarter was $38.6 million, representing a slight increase from $38.4 million in the same period last year. In prior periods, we've disaggregated revenue in the sequencing and development category as you can see on the left side of the slide. This quarter our revenue reporting is now disaggregated to reflect the reorganization of our business around our MRD and immune medicine market opportunities. 14:31 Immune medicine consist of revenue generated from immunoSEQ and immunoSEQ T-MAP to pharma and research customers. Our T-Detect COVID test clinical customers and our collaboration agreements in drug discovery. MRD consist of revenue generated from clonoSEQ to clinical customers and our MRD services to pharma and research partners. We have included a revenue bridge for the last eight quarters in our earnings release and 10-Q to reflect the revised revenue disaggregation. 14:58 Our revenue mix for the first quarter consisted of 54% for immune medicines, 46% from MRD. Immune medicine revenue in the first quarter was $20.8 million, a 4% increase from the same period in 2021. Growth in immune medicine was primarily driven by $3.4 million increase in revenue from our pharma and research partners, partially offset by a $3.3 million reduction in the amortization of our Genentech upfront payment. 15:25 As a reminder, these revenue amortization amounts may vary quarter-over-quarter. MRD revenue was $17.8 million in the first quarter, down 3% from the same period last year. This change was primarily due to recognizing $7 million in regulatory milestones in Q1 of 2021 versus $3 million this quarter. This reduction was partially offset by $3.6 million increase in revenue from clonoSEQ clinical testing. clonoSEQ test funds also increased by 45% versus prior year. 15:59 Shifting now to our…

18:52 Thanks, Kyle. As outlined on the call and listed on Slide 13, we execute on key strategic decisions around the restructuring of our business and are on track to achieve important milestones during the rest of the year in both MRD and immune medicine. Our capital position is strong and we continue to manage our investments to fuel growth across the businesses. We're looking forward to a great 2022. 19:20 So with that, I'd like to turn the call back over to the operator and open it up for questions.

19:25 Thank you, sir. And we your first question from Brian Weinstein with William Blair. Your line is open.

19:42 Hey guys, good afternoon. Thanks for taking the question.

19:46 Sure, Brian. Thank you.

19:47 Hey, I just wanted to go through the growth rate here a little bit, because I know there is some moving parts here, it seems like in the quarter, because you posted basically flattish growth, but Kyle or Chad, can you guys just go through some of the factors that kind of drove that flattish growth, I heard some Genentech stuff that was in there? And in some other things that might have sort of impacted that growth rate on a one-time basis. I just want to make sure that we understand what those things were?

20:17 Sure, I'll take that, Brian. I’d, kind of, first like to start with the two main components that drive a bit of quarter-to-quarter comparative challenges. The first thing the MRD milestones and just as a reminder, in Q1 of last year, we had approximately $7 million of milestones from our MRD business and this quarter we have $3 million, so we’re seeing $4 million in compression there from a comp perspective. 20:43 The second component is the Genentech amortization and comparing that to last quarter -- last year we had about $16 million versus this quarter where we're about $12 million. So those two things kind of really compress the growth. And if you back those out you’d see about 47% year-over-year growth. So that's kind of driving some of that uptick.

21:05 And when we think about the Genentech amortization, it’s always somewhat of a black box for us I think how we should we be thinking about that going forward, I mean just so that we're level set here so that we can turn it back that stuff out in -- with a little bit more visibility. It's always our somewhat confusing for us?

21:25 Yes, I'd say for the -- it's tied to our expense investment in the Genentech collaboration, I'd say for the remainder of the full-year, we're still on track to be about the same total revenues last year, maybe a little bit of a bell curve this year for Q2 and Q3 and that come back down a little bit to Q4. But overall, I'd say it will be fairly consistent to last year.

21:49 Got it and then Chad for you, obviously the markets are very focused on pushes towards profitability, cash flow breakeven. I don't think you guys will give you kind of formal talks about that, but I'd love to kind of have some sort of past that you guys are thinking about towards profitability, the steps that you guys think that you'll need to take and any thoughts on timing there?

22:15 Yes, so first I'll just acknowledge that the path to profitability and at least cash flow neutrality is incredibly important for us for Adaptive and we -- I think we got out ahead of it earlier -- early this year and took proactive steps with doing the restructuring and the reduction in force. We continue to look at ways to manage expenses and at the same time, look, we're looking at opportunities to bring in what I'll call non-dilutive cash flow through different partnership and financing mechanisms, look, let's face it, the cost of capital is high right now and we are -- on a past to do what we can. So we don't have to take in capital that will be dilutive to the company in this economic environment. 23:03 That's a two, where Tycho coming on board, we were really sharpening that long-range plan and should have better visibility into that time horizon to get you, kind of, cash flow profitability and should be providing that for you within the back half of the year.

23:23 Okay, thanks guys.

23:25 Sure. Thanks, Brent.

23:28 We have your next question from Salveen Richter with Goldman Sachs. Your line is open.

23:33 Hey guys, this is Elizabeth on for Salveen, thanks for taking my question. Just on the Genentech, maybe if you could kind of walk us through what might be needed for the private product specification? And what you kind of aim to deliver this year, and just maybe remind us what goes into those data packages? Thank you.

23:57 Sure, I'm going to have Sharon Benzeno, who is Head of our Immune Medicine business, take the call the Sharon.

24:01 Yes, thanks, Elizabeth. So, as we previously stated, and on the heels of our successful proof-of-concept screens using a blood from 60 cancer patients last year that was the first pass defining certain specifications that we're carrying through this year and expanding that in an additional set of 30 or more cancer patients as well. And so the goal there is, importantly running the end-to-end workflow on our end in our dedicated South San Francisco lab end-to-end. And in parallel, in conjunction with the pieces of the puzzle that Genentech is putting together, the process being the product. So that’s what we're aiming this year building off of the success from last year.

24:54 Got it. I thank you, that's helpful.

25:00 We have your next question is from Mark Massaro with BTIG. Your line is open.

25:07 Hey guys, thanks for the questions. If I can, I'll ask to all at once, I guess first nice growth from clonoSEQ this quarter. Can you just comment on your visibility of what you're seeing in the field? Are you guys fully open nearly to pre-pandemic levels? And maybe just comment about what kind of access you have reps in the field versus virtual? And then the second question is on Slide 17, you show, you've got Crohn's and MS and Celiac kind of in the lead for your autoimmune diseases, should we think of those as like the lead candidates, I guess what my question really boils down to is to what extent are you committed to advancing and investing in RA, obviously Crohn's and Colitis are linked, so can you just help us think about the priorities of the autoimmune disease portfolio?

26:04 Sure. Hi, Mark. I'm going to have Nitin Sood, who is Head of our MRD business, take the first question. And then with regards to prioritization, Harlan will take that, so Nitin.

26:15 Hey, Mark. Yes, so we're seeing an improvement in in-person meetings it's trending in a positive direction. But I would say today is still about 60% of our visits are virtual, but on our day-to-day basis basis, we see a positive trend, and I expect us to be sort of 50% very shortly in terms of in- person visits.

26:48 Okay and then just on the priority of the autoimmune disease portfolio?

26:54 Sure, thanks. This is Harlan, so we're focusing our resources where our signals are most advanced and we have the highest quality samples for early diagnosis of disease. And of course having a high unmet need, we prioritized MS and Crohn's higher than RA simply, because we have -- we're a little bit farther behind in collecting RA samples, not for any other particular reason. And the key -- the real key that we're focusing on is our -- as our differentiator is specificity here. So just as reference we're aiming to really reduce the number of false positives. So that we can hit an earlier diagnostic market and so that's really been the focus, and that's where we've had the biggest increase in our signals as we go. And we're going to take the learnings from this and apply it into other diseases as we create panels. And in particular for IBD as we’re going to initiate sample collection for clinical validation study into the coming months.

28:13 Great, thank you.

28:16 We have your next question from the Derik de Bruin with Bank of America. Your line is open. Excuse me, Derik your line is open, you may ask your question.

28:44 Let's go onto the next question.

28:47 We have your next question from Tejas Savant with Morgan Stanley, your line is open.

28:53 Hello, this is from -- on the call for Tejas. Thank you for taking our questions. Would you elaborate on the plans to reduce the work for us, or the reduction mostly and administrative overhead R&D or commercial, what projects do you deprioritize and should we anticipate any delays in key timelines as it relates to clonoSEQ inflection, expansion into DLBCL, any color around that would be great.

29:27 Yes, sure. Hey I'll take that. So first, we -- there was many areas affected across the business, but it wasn't uniformly distributed, for example, there were very, very few cuts in the MRD business. So to your questions about kind of DLBCL, or any of that kind of project development pipeline is, is all on track. In addition, the -- that's kind of the cell therapy group in San Francisco had very little cut, so there were cuts across going to general and administration, project management and frankly some it's duplicate of our stack hiring as well that we had an opportunity, frankly where we thought we could gain some efficiencies and leverage in the existing business. So we are moving forward and as Harlan said we're being very, very, very clinical if you will to -- these upon here on how we're prioritizing the T-Detect program and we're also being very opportunistic about continued investments for example in COVID given that's taking more of an endemic state and we've seen some of the T-Detect orders, kind of, wane as COVID kind of becomes more normalized in the population. So hopefully that's helpful color to you in terms of kind of how we looked at the reduction in force and prioritization.

31:05 Got it. No, that's super helpful. And then on the product development expansion efforts into NHL, could you walk us through the rationale for using cell-free DNA. Is there a specific advantage using cell-free DNA in NHL versus some of the other indications? And could this be a strategy that you would like to deploy on a go-forward basis?

31:28 Yes, so I'll ask answer that question, this is Nitin. Specifically for DLBCL there have been studies that have been published that demonstrate that cell-free DNA is a better handle light, but for other diseases, namely CLL, ALL and multiple myeloma, our cellular assay, does really well. So on an ongoing basis, I don't expect any changes on those three indications. But for not much as lymphoma and more specifically for DLBCL, we're going with the analytes know has the best performance. 32:10 And longer-term on -- we will also look at potentially combining both the analytes namely the cell-free DNA analyte and the cellular assay. Obviously, we're the one company that can do both. So, we potentially look at combining both at the analytes.

32:30 Great, thank you so much for that color.

32:34 We have your next question from Derik de Bruin with Bank of America. Your line is open.

32:40 Hi, sorry about that my phone dropped earlier. Hey, can you give us some color on the ASPs for clonoSEQ. I mean, you didn't break out the clinical sequencing revenues, I'd like historically. So can you give us some idea on coverage on just the ASP and just give us, bit more clarity?

33:00 Yes. So I think this is Nitin again, we've seen steady ASP growth for clonoSEQ or the past couple of years and we're anticipating that the growth will continue in the mid single-digit range over the next two to three years. We're very close to about $1,000 in ASP today and our expectation is in two to three years, we're in the $1,200 to $1,300 range for ASP.

33:26 Got it. And I know this was asked earlier, but just want to go back and revisit it. I mean, do you expect, I mean, the cash burn was quite a bit higher in the first quarter, do you expect that to ramp down throughout the rest of the year? Basically, as the question on, do you have enough cash this year?

33:42 Yes, this is Kyle. Yes, so a couple of things in Q1, obviously you don't have the full effect of our restructuring efforts in the cash burn, because of the timing of when we initiated that was late March. The second thing as it relates to Q1 is a bit of seasonality, we have our corporate bonus payouts in Q1. So from a cash perspective, I'm generally thinking of the rest of the three quarters was between $50 million and $60 million is cash flow.

34:10 Great, thank you. That's helpful. And I guess any -- and I'm sorry and did you talk about when you expect to see the NHL assay to be commercialized. I know you're in validation and clear validation now?

34:27 Yes, with respect to NHL, we're going to launch that later this year in our CLIA environment, we have submitted our tech assessment to MolDX and are waiting to hear back on reimbursement, but as with many of our diagnostics and assays will launch ahead of reimbursement towards, kind of, the back half of the year. I mean it is currently available in our CLIA environment and with the cellular assay, but we've got as mentioned earlier, we've got product development efforts ongoing to convert that to incorporate ctDNA into the assay, as well for -- to enhance the product.

35:10 Great, thank you.

35:11 I’d would just add one more item to that, as you know before ahead of that launch will be doing what we call a Clinical Experience Program with 30 physicians, so that's already underway and we're pretty confident, that by October, November of this year, we'll have a full commercial launch with strict use and ctDNA assay by October of this year.

35:39 Thanks.

35:42 I'm showing no further questions at this time. Ladies and gentlemen, this concludes today's conference. Thank you for your participation, you may now disconnect.

35:54 Thank you.