Business Overview

Adaptive Biotechnologies Corporation (ADPT) is a pioneering biotechnology company that has made significant strides in translating the genetic insights of the adaptive immune system into innovative diagnostic and therapeutic solutions. Founded in 2009, Adaptive Biotechnologies has emerged as a leader in the field of immune medicine, leveraging its proprietary technologies to decipher the diverse genetic code of the immune system and develop customized products to diagnose and treat a wide range of diseases.

Adaptive Biotechnologies was founded in 2009 by brothers Harlan and Chad Robins with the goal of advancing the field of immune medicine by harnessing the inherent biology of the adaptive immune system. The founders believed that the adaptive immune system held the key to diagnosing and treating most diseases, but the inability to decode it had prevented the medical community from fully leveraging its capabilities.

In January 2015, Adaptive Biotechnologies acquired Sequenta, a San Francisco-based company that was also developing a next-generation sequencing test for measurable residual disease (MRD). This acquisition allowed Adaptive to expand its capabilities in MRD testing. In 2018, the company's first diagnostic product, clonoSEQ, was granted marketing authorization by the FDA for the detection and monitoring of MRD in bone marrow samples of patients with multiple myeloma and acute lymphoblastic leukemia.

Over the years, Adaptive has faced various challenges in developing and commercializing its products and services. The company has had to navigate the complex regulatory environment for clinical diagnostics and therapeutic products, as well as establish coverage and reimbursement for its tests. Adaptive has also had to scale its operations to meet growing demand for its MRD testing services, requiring significant investments in its laboratory facilities and processes.

Despite these challenges, Adaptive has made significant progress in advancing its immune medicine platform and expanding the applications of its technologies. The company has built a robust intellectual property portfolio, formed important strategic collaborations, and continues to drive innovation in the diagnosis and treatment of various diseases.

Financial Performance

Adaptive Biotechnologies has demonstrated consistent revenue growth over the past three years, with total revenue increasing from $185.31 million in 2022 to $170.28 million in 2023 and $178.96 million in 2024. This growth has been primarily driven by the performance of the company's MRD business, which accounted for $145.53 million, or 81% of total revenue, in 2024.

The MRD business has experienced a 42% year-over-year increase in revenue, with a 35% growth in clonoSEQ test volume. The company has also made progress in expanding the reimbursement coverage for clonoSEQ, securing Medicare coverage for additional indications and increasing the average selling price per test.

While the Immune Medicine segment has seen a decline in revenue, from $98.16 million in 2022 to $67.54 million in 2023 and $33.43 million in 2024, this is primarily due to the recognition of lower amortization from the Genentech collaboration. The company's focus in this segment is on advancing its drug discovery efforts, particularly in the areas of TCR-based cell therapies and antibody-based treatments for autoimmune disorders.

Despite the revenue growth, Adaptive Biotechnologies has continued to report net losses, with a net loss of $159.59 million in 2024, $225.30 million in 2023, and $200.37 million in 2022. The company's operating expenses have remained high, primarily driven by investments in research and development, as well as sales and marketing activities to support the commercialization of its products and services.

In the most recent fiscal year (2024), Adaptive Biotechnologies reported the following financial results:

• Revenue: $179.00 million
• Net income: -$159.60 million
• Operating cash flow: -$95.21 million
• Free cash flow: -$98.88 million

For the most recent quarter (Q4 2024), the company reported:

• Revenue: $47.46 million
• Net income: -$33.69 million
• Year-over-year revenue growth: 4%

The revenue growth was primarily driven by the MRD business, which grew 31% year-over-year, partially offset by a 51% decline in Immune Medicine revenue.

Liquidity

Adaptive Biotechnologies has taken steps to improve its financial performance, including implementing restructuring initiatives that led to a 40% reduction in cash burn from 2023 to 2024. The company ended 2024 with a robust cash position of $256 million, providing it with the resources to continue executing on its strategic priorities.

As of December 31, 2024, Adaptive Biotechnologies reported the following liquidity metrics:

• Cash, cash equivalents, and marketable securities: $256.00 million
• Total debt: $89.39 million
• Stockholders' equity: $202.71 million
• Current ratio: 2.89
• Quick ratio: 2.81

Key Highlights and Developments

In 2024, Adaptive Biotechnologies achieved several significant milestones that are expected to contribute to the long-term growth of the business:

1. MRD Business: - Obtained a new Medicare gap fill rate of $2,007 per clonoSEQ test, a 17% increase from the previous rate. - Secured Medicare coverage for mantle cell lymphoma, the fifth indication for which clonoSEQ is reimbursed. - Expanded the integration of clonoSEQ into the Epic electronic medical record system, reaching 19 customer accounts by the end of 2024. - Announced an exclusive strategic commercial collaboration with NeoGenomics to cross-promote clonoSEQ and its personalized cancer assessment services.

2. Immune Medicine: - Made significant progress in developing a digital TCR-antigen binding prediction model, which could improve the turnaround time and reduce the cost of TCR-based cell therapies in the Genentech collaboration. - Successfully identified a subset of autoreactive T-cell receptors that are likely causing diseases in multiple sclerosis and type 1 diabetes, and nominated a lead indication for the preclinical development of an antibody therapeutic candidate. - Streamlined the Immune Medicine business, targeting a cash burn of $25 million to $30 million in 2025 by gating R&D investments and leveraging revenue from the pharma business.

Outlook and Guidance

For the full year 2025, Adaptive Biotechnologies provided the following guidance:

• MRD revenue is expected to be between $175 million and $185 million, representing growth of 24% at the midpoint and 30% excluding milestones.

• MRD revenue guidance includes $6 million to $7 million in MRD pharma services milestones.
• MRD revenue is expected to be weighted 40-60 between the first and second half of 2025, as growth in clinical volumes and ASP compound.
• The company expects to achieve an average MRD ASP of around $1,300 per test in 2025, driven by initiatives to improve collections, expand coverage, and transition to the new PLA code.
• Total operating expenses, including cost of revenue, are anticipated to be between $340 million and $350 million, with approximately 69% allocated to the MRD business and 23% to Immune Medicine.
• The company expects a total cash burn of $60 million to $70 million for the year, a 28% reduction at the midpoint compared to 2024.

Adaptive Biotechnologies' management is focused on achieving profitability in the MRD business during the second half of 2025, driven by continued growth in test volumes, improvements in average selling prices, and operational efficiencies. The company aims to become adjusted EBITDA positive for the MRD business in the second half of 2025.

Risks and Challenges

While Adaptive Biotechnologies has made significant strides in its business, the company faces several risks and challenges that investors should be aware of:

1. Regulatory Hurdles: The company's products and services are subject to extensive regulatory oversight, including clearance, authorization, and approval processes from the FDA and other regulatory bodies. Delays or failures in obtaining the necessary approvals could adversely impact the company's commercialization efforts.

2. Reimbursement Uncertainty: The availability and extent of reimbursement for Adaptive Biotechnologies' products and services, particularly the clonoSEQ test, are critical to the company's success. Changes in reimbursement policies or levels could have a significant impact on the company's financial performance.

3. Competitive Landscape: Adaptive Biotechnologies operates in highly competitive markets, facing competition from both diagnostic and therapeutic companies developing solutions in the fields of cancer, autoimmune disorders, and infectious diseases. Maintaining a competitive edge will be crucial for the company's long-term success.

4. Reliance on Collaborations: The company's Immune Medicine business is heavily dependent on its collaboration with Genentech. Any disruptions or changes in this partnership could have a material impact on Adaptive Biotechnologies' financial and operational performance.

5. Financial Considerations: Despite the company's focus on becoming profitable in the MRD business, Adaptive Biotechnologies has continued to report significant net losses. Achieving and sustaining profitability will be a key challenge for the company's long-term viability.

Conclusion

Adaptive Biotechnologies has positioned itself as a leader in the emerging field of immune medicine, leveraging its proprietary technologies to develop innovative diagnostic and therapeutic solutions. The company's MRD business, particularly the clonoSEQ test, has demonstrated strong growth and has the potential to drive the company towards profitability in the near term.

However, Adaptive Biotechnologies faces several risks and challenges, including regulatory hurdles, reimbursement uncertainties, competitive pressures, and the ongoing financial requirements of its business model. The company's ability to navigate these obstacles and successfully execute on its strategic initiatives will be crucial in determining its long-term success.

As Adaptive Biotechnologies continues to advance its product pipeline and expand its commercial presence, investors will closely monitor the company's progress in transforming the diagnosis and treatment of disease through the power of the adaptive immune system.