Q4 2019 Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to adaptive Biotechnologies fourth quarter financial results call.
At this time, all participants are in listen only mode.
Later, we'll conduct a question and answer session and instructions will be given at that site.
I would like to turn the call over to Carrie Mendivil ma'am the floor is yours.
Thank you earlier today adapted Biotechnologies released financial results for the fourth quarter and full year ended December 31st 2019. If you have not received this news release or if you like to be added to the company's distribution list. Please send an email to investors at adaptive biotech dotcom.
Before I begin I'd like to remind you that management will make statements. During this call that are forward looking statements within the meaning of federal securities laws.
These statements involve material risks and into certainties that could cause actual risks or events results or events to materially differ from those anticipated.
Additional information regarding these risks and uncertainties appears in the section titled forward looking statements in the press release adapted issued today.
For more complete list and description. Please see the risk factor section of the company's prospectus filed in connection with his recent secondary offering on January 24 in 2020 and other filings. The company makes from time to time Securities and Exchange Commission, including when filed companies annual report on form 10-K.
Adapted disclaims any intention or obligation to update or revise any financial projections or forward looking statements or because of new information future events or otherwise except as required by law.
In addition, non-GAAP financial measures will be discussed during this call. Please visit the aforementioned press release for a reconciliation to the most directly comparable GAAP measure. This conference call contains time sensitive information and is accurate only as of the live broadcast February 26, 2020, but that I'd like to turn the call over to Chad Robbins stack of co founder and.
Chief Executive Officer chat.
Thanks Kerry.
Thank you everyone for joining us for new.
I'm very pleased to welcome you to death this earnings call to review our results for the fourth quarter and full year of 29 team.
Joining me today is truly rubinstein or president and Chuck Jones, our Chief Financial Officer.
In addition, Harlan Robbins adaptive Chief Scientific officer, and co founder will be available for questions.
At adaptive our mission is to translate the genetics would be adaptive immune system into critical products to transform how diseases are diagnosed and treated.
To achieve this goal we have developed in immune medicine platform that read and translates the genetics with the adaptive immune system, enabling product applications across large size research clinical diagnostics and drug discovery.
Our approach represents one of the largest clinical applications of genomics and where largest global addressable markets in health care.
Because the adaptive immune system, both detects and treat most diseases and exactly the same way.
During 29 team, we experienced incredible growth and ended the year with just over $85 million in revenue of 53% over 2018.
Even more important than our current revenue growth is a critical progress we made in the development and commercialization of our clinical products.
Starting with clinical diagnostics.
We made foundational investments throughout the year to ensure that has many patients as possible can benefit from close to seek.
In the field I am seeing first hand, how the conversation around I'm R&D is progressing.
Doctors are no longer talking about if but rather how they're going to use am or do you to manage their patients.
As this interest continues to grow we're confident that close to seek will become the standard measure <unk> measurement of M. R&D for the clinical management of patients with certain blood cancers.
Todays.
Close he has been used to monitor emerging for more than 10000 unique patients across more than 150 institutions and we believe this is just the beginning.
We are increasingly hearing from physicians about the real time impact Klocek is already having on their patients.
For example, Dr. Jeffrey Wolf from USIO stuff, we should we detailed klocek usage on a patient with multiple myeloma.
This patient went through standard induction therapy, followed by transplant and was ultimately placed on maintenance therapy from which like many patients you experienced life altering side effects.
Even at a decrease dose the side effects persisted and eventually this patient requested to come off of maintenance therapy.
Dr Wolf use clone, who seek to evaluate the patients disease burden, which indicated that he was MRT negative meaning he did not have detectable disease.
Based on this result, Dr. Wolf is confident discontinue maintenance therapy for this patient with since remained MRT negative for several years as measured by annual testing.
We believe that many patients with blood cancers face similar issues everyday and they along with their physicians need to make crucial decisions about their treatment alternatives.
Having confidence in a patients M. R. D. Stat is can better informed treatment decisions to outpatient treatment continuum and May result in better quality of life for that patient.
In 2019.
What does he test volumes grew 48% to 10168 test.
This growth was driven by the efforts of our growing field based in medical teams the increasing body of evidence around close to see an important progress on both the reimbursement and regulatory fronts.
In January of 2019, we receive CMS coverage for longitude all moderating in multiple myeloma nail though.
Following Medicare coverage private insurance coverage rapidly increased over the course or 2019, we ended the year with secure contractual agreements or positive medical policies from five of the largest national private health insurance insurers. In addition to significant regional coverage.
Bringing the total covered lives the United States, some more than 175 million.
During 2019, we also achieved clip approval for patients in New York State and filed our first label expansion to the FDA for closely to be used to monitor patients with CLL from blood samples.
In early January of this year, we announced that we receive coverage by CMS for CLL.
Completing our first milestone for 2020.
Looking ahead, we are planning to launch quota seek for monitoring MRT instead CLL following clearance from the FDA, which we anticipate in the first half of this year.
And the second half of 2020, we expect to file our second label expansion to the FDA for monitoring AOL from blood at our finalizing our timeline for multiple myeloma and blood as well.
Additionally, we are assessing the timelines for our expansion into the basket of NHL diseases.
Shifting to our diagnostic product development pipeline immuno CTX.
We confirmed our first clinical signal for Lyme disease, and the third quarter 2019.
Data was presented at the precision Medicine World Conference in January proving that we can read and translate how the adaptive immune system diagnosis disease from a blood sample.
We have already submitted a suggested clinical protocol to the FDA to validate our findings during this summer's Lyme season.
We expect to submit the results to the FDA by the end of 2020.
Marking an important step towards commercializing immuno CTX.
Now that we have successfully identified a T cell receptor signature in our first disease. We are systematizing our process for the discovery of TCR signatures in multiple disease states.
We have implemented phase gate from this disease discovery through clinical validation and are confident that we can study at least five diseases in parallel in 2020 with the goal of confirming one additional signal by year end.
We continue to build the infrastructure to support immuno Cts and importantly, we will soon be announcing key hires for this team.
Turning to drug discovery.
In the fourth quarter 2019, we delivered a data package to genetic for our first selected T cell receptor candidate that targets a shared cancer antigen expressed in multiple solid tumors.
The next step is to provide genetic with a GLP compliant data package to support their first shared product I envy submission to the FDA targeting year end.
In 2020, we will also continue to deliver data packages for the possible selection of additional shared products for development into cellular therapies.
In parallel we are continuing to work with genentech to develop a personalized cellular therapy for each patient, where we plan to identify in real time that GC ours that are specific to that patients tumor.
Finally in our life Sciences research business, we completed the development of our upgraded a music asset which is now available for use in our own lab and as a kid version for a distributed product to core lab's Ciros and other distribution channels.
Overall, we made outstanding progress in 29 team and we will continue to execute across our platform current products.
And clinical pipeline in 2020.
As we look to the year ahead, we expect revenue to be in the range of 114 to 119 million and we are aggressively scaling our organization to capture the massive market opportunity in front of us.
I will now I'll turn it over to Julie who will walk you through more information on our clinical diagnostics portfolio after which Chad see will provide greater details on our financials Julie.
Thanks, Chad.
Starting with close to seek with the growing interest in MRT assessment across diseases close to seek is gaining traction and is well positioned to continue capturing market share in 2020 and beyond.
Clinical test volumes for close to seek during the fourth quarter increased 66% to over 3200 tests compared to the fourth quarter of 2018.
The focused on the focus on MRT at the annual meeting of the American Society of Hematology. This past December was truly remarkable and extraordinary amount of NRG data was presented demonstrating its establish significance as an important tool for the clinical management of patience and as a validated clinical trial endpoint in men.
He pharma trial.
Along with our collaborators we presented data in more than 25 abstracts for corn to seek and there were many more abstract highlighting the growing clinical use of MRT.
The data emerging from these studies are showing time and time again that prognosis is worst for patients who have a higher disease burden than it is for those who have a lower disease burden, especially if that disease burden goes up overtime.
To expand the use cases for close to seek we are continually generating data through investigator sponsored protocols and bio pharma partner trials to date Kona seek has been incorporated into more than 40 prospective investigator sponsored trials and included in more than 65 peer reviewed publications.
Additionally, clonal seek has been selected as the test of choice for more than 190 pharma trials and many of these companies are incorporating corner seek into clinical trials that include MRT as a clinical endpoint.
In fact, we recently announced two additional pharma partnerships that use kona seek to assess MRT status in support of the clinical development of genetic lacks the first isn't agreement with abbvie to use corner seek to assess MRT status in response to Veneta KLAX across clinical trials in multiple myeloma.
The second is with Genentech to use quanta seek to assess MRT status in response to Venetoclax as a primary endpoint in the Registrational phase three Kristalose study for the treatment of newly diagnosed patients with CLL as well as additional future genetic lack studies in CLL.
This trial represents the first time MRG has been used as a primary endpoint in a registrational trial and is evidence of its growing acceptance as a marker of response by the FDA.
With significant reimbursement in place we are more than doubling our field team to support the growing demand for close to seek across the U.S., we expect to roughly double our clinical volumes for close to seek in 2020 and have a multi pronged approach to increasing market share first by activating and training more accounts second.
By expanding use cases into new diseases, and enabling noninvasive testing in the blood in multiple indications.
Third by creating an publicizing a real world evidence registry with clinicians who are using the test in everyday clinical practice and finally by educating patients about the importance of knowing their MRT status.
Moving onto immuno CTX as Chad shared our first dataset demonstrates that our approach to detecting lyme disease from expanded lined specific T cells is very promising.
In a well defined cohort of 234 participants immuno CTX is approximately two times more sensitive than standard serology testing for Lyme disease with a lower false positive rate.
The TCR signature has been confirmed in an independent cohort of over 500 patients from multiple U.S. regions.
One of the key issues with standard Surajit testing, which measures the presence of lines specific antibodies is that it can take several weeks for the antibodies to appear and so there are often quite a lot of false negatives in the acute setting.
Conversely, these antibody levels do not tend to significantly decrease over time, even after an active infection has been cleared and so there are also quite a lot of false positives in patients overtime.
Measuring infection based on disease specific T cell clones that expand in response to pathogenic exposure allows for accurate detection almost immediately after the tick bite or first sign of symptoms and accurate detection in leader weeks when the disease has presumably been treated and the presence of expanded lines.
Pacific T cell clones should diminish.
Importantly, it has estimated that approximately 20% of the 300000 treated cases of Lyme disease, each year do not respond to the standard three week course of antibiotics.
While we are initially focused on diagnosis in the acute setting in the future we intend to assess our test in this population of patients who are still experiencing symptoms to confirm whether or not there was still in active infection.
In short, we believe that detecting lyme disease by looking at expanded T cell plans will significantly enhance the accuracy of diagnosis in the acute setting and for the proportion of patients who continue to experience long term symptoms, even after standard antibiotic treatment.
As Chad mentioned, what we're most excited about is the confidence we had in the overlap aligned specific T cell receptors, we are finding across patients from different regions in the U.S.
We are exponentially increasing the throughput of TCR to antigen connections being made in our antigen map production lab. So that we can replicate this result in multiple disease states.
Each one of these TCR antigen connections is fed into Microsoft's machine learning algorithms to continuously add more clones to the TCR signatures, we are finding for each disease state.
Ultimately, enabling immuno CTX to become a self learning diagnostic with increasing sensitivity overtime.
We're in active discussions with the FDA about this both conceptually and in regard to specific initial indications such as Lyme disease, and we look forward to continuing our work with the FDA to advance this novel approach to diagnosing disease.
With that I will now turn the call over to Chad see for more detail on our financials Chad. Thanks Julie.
Turning to our fourth quarter 2019 financial results total revenue in the fourth quarter was 24.2 million, representing an increase of 41% from 17.2 million in the same period last year.
Our revenue mix for the fourth quarter consisted of 57% of our revenues coming from our sequencing category and 43% coming from our defaulting category.
Sequencing revenue in the fourth quarter was 13.9 million and grew 33% in the same period in 2018.
This increase was primarily driven by growth in revenue generated from our biopharma customers as well as revenue generated.
Offers through increased adoption and utilization of policy.
Research sequencing volume for the fourth quarter, which includes sequences reported to both our biopharma and academic customers increased to 10800 ninetys sequences.
Clinical volume increased to 3218 clinical path of 66% from the fourth quarter 2018.
Development revenue grew to $10.3 million in the fourth quarter of 53% from the same period last year.
The increase was primarily due to our Genentech partnership which comprised approximately 9 million of the development revenues in the quarter.
Shifting now from our revenue to our operating costs total operating expenses for the fourth quarter 2019 were 48.4 million, representing 54 with an increase from $31.3 million in same quarter last year.
Working down our operating expenses cost of revenue was 6 million during the fourth quarter 2019, compared to 5.3 billion for the fourth quarter last year, representing a 13% increase due primarily to higher sequencing volume.
Research and development expenses for the fourth quarter, 2019, or 21.2 million compared to 11.1 billion in the fourth quarter 2018, representing an increase of 91%.
The increase reflects growth in headcount and consumption materials to support our aggressive investments and the clinical development of quantity and new indications and sample types.
Scaling of our munis CPX lab as it came online in the second half of 2019.
Holes ramping our teaser drug discovery efforts with Genentech.
Sales and marketing expenses for the fourth quarter 2019 were 12.6 million compared to 8.1 million in the fourth quarter 2018, representing an increase of 57%.
The increase was primarily due to investing in direct sales and self support to scale or commercial quantities team as well as related marketing expenses to broaden our exposure customer events.
General administrative expenses for the fourth quarter 2019 were 8.2 million as compared to 6.5 billion in the fourth quarter 2018, representing an increase of 26%.
The increase was driven primarily by head count and costs associated with being a public company.
Net loss for the fourth quarter 2019 was 20.6 million compared to fourth quarter 2018, net loss of 13.3 million.
Net loss attributable to common shareholders for the period was 20.6 million or 17 cents per basic and diluted share compared to 13.2 million or one dollar three cents per basic and little chair in the fourth quarter 2018.
Our earnings per share or based on approximately 124.4 million and 12.8 million weighted average shares outstanding for the fourth quarter of 2019 in 2018, respectively.
Adjusted EBITDA for the fourth quarter 2019 was a loss of 18.7 million compared to a loss of 9.5 million in the same period of the prior year.
Turning briefly to our 2019 annual financial results total revenue for the year was 85.1 million, representing an increase of 53% from 55.7 million in 2018.
Our revenue mix for the year consisted of 51% of our revenues coming from our sequencing category and 49% coming from our development category.
Sequencing revenue in 2019 was 43.5 million and grew 32% from 2018.
Research and sequencing volume for the year increased 35491 sequences.
For volume increased to 10168 clinical tests, representing a 48% increase from the prior year.
Development revenue grew to 41.6 million in 2019 up 83% from last year. The increase was primarily due to amortization of the 300 million dollar upfront received in February 2019 from Genentech.
Total operating expenses for 2019 were 163.5 million of 55% from 105.4 million last year.
Cost of revenue was 22.3 million during 2019 compared to 19.7 million last year, representing 13% increase.
Research and development expenses for the year were 70.7 million compared to 39.2 million in 2018, representing an increase of 81%.
Sales and marketing expenses for 2019 was 30.5 million compared to 24.5 million in 2018, representing an increase of 57%.
Lastly, general and administrative expenses for 2019 were 33 30.3 million as compared to 20.4 million in 2018 represent an increase of 49%.
2019, net loss was 60.6 million compared to net loss of 46.4 million in 2018.
Net loss attributable to common shareholders for 2019 69.6 million or one dollar one cent per basic and diluted share compared to a net loss attributable to common shareholders of 46.3 million or $3.67 per basic and diluted share in 2018.
Our full year earnings per share were based on approximately 69.2 million at 12.6 million weighted average shares outstanding for 2019 and 2018, respectively.
Adjusted EBITDA for 2019 was a loss of 57.5 million compared to a loss of 32.6 million in the prior year.
We ended 2019 with 682.3 million in cash cash equivalents and marketable securities we had no debt.
Additionally in January 2020, we completed a follow on offering comprised of all secondary shares.
Moving onto our outlook for 2020, alongside our expectations to roughly double or close to seek test volumes. We expect full year revenue to be in the range of 114 to 119 million representing growth at 37% at the midpoint.
This range incorporates our best view of the business today includes our assessment of all the risks and opportunities available to us throughout the year.
Consistent with prior years, we expect revenue to be more heavily weighted to the back half of 2020 with a slower first quarter driven primarily by the by both the trends we have seen historically in the deployment of bio pharma customer budgets as well as increasing market penetration of our classic product.
We will likely also continue to see variability quarter to quarter Biopharma business, resulting primarily from the timing of research projects commencing in the corresponding receipt and running of customer samples.
Additionally, as we make aggressive investments in our commercial teams to drive further adoption and utilization of our research and clinical products. We expect sequencing revenues to become a larger portion of our revenue mix over time.
From a mix perspective, we expect sequencing and development revenues to be roughly even at the started 2020 and ramped toward 60 40 split between sequencing and development revenues for the full year.
2020 will be a year of significant investment.
And on a percentage basis, we expect operating expenses to outpace our 2019 operating expense growth.
The acceleration in our operating expenses will be critical to drive large scale investments into R&D for the clinical development and validation of new indications for close to seek new product developments, Bermuda, CTX and drug discovery, which will broaden our competitive advantage and create even larger moats around our core technologies.
Additionally, our accelerating commercial head count growth and prudent marketing investments for our commercial products will provide a foundation for current and future revenues as we penetrate into our massive market opportunity.
As we enter 2020, we're incredibly excited about the future for adaptive.
And with that I will turn it back to the operator to open the call for questions operator.
Ladies and gentlemen, if you have any questions at this time. Please press Star then one on your touched on telephone if your question.
Good.
Please go ahead.
Yes first question comes from the line of Brian Weinstein from William Blair. Your line is open.
Hi, guys. Thanks for taking the question just on quickly trying to type everything Chad that you were just thrown out there I just want to make sure I heard this right.
On the.
Volume for the year I'm, sorry on the revenue split for the year did you say it would be 60 40 for the full year or by the end of the year would be at 60 40 split.
For full year were contemplated about a 60 40 split.
Growing off of a more of a 50 50 split starting in Q1.
Okay got you okay. Thanks for the clarification there.
And then.
So something you guys did not really talk about that I've been kind of curious a little bit about.
Obviously, the update on everything else in the business seems to be kind of in line with which we were thinking as far as the progress you're making across all the different projects, but one project.
You haven't really talked about and I was curious to learn a little bit more about was the paper in nature and the opportunity with melanoma can you talk about this a little bit and the implications for the platform Holistically in kind of what next steps can be for you on that side.
Sure Hi, Brian This Harlan.
So we had a publication in nature medicine, with Dr. Koppers group at Brigham and women's.
Who is one of the world experts and melanoma.
And the collaboration was to explore T cell fraction, we use our assay that basically count T cells molecular leap in primary melanomas non metastatic the primary melanomas to predict the likelihood of recurrence within five years.
And what we've basically how do you stage Melanomas and basically what we found is that patients with less than 20% T cell fraction were two and a half times more likely to occur within five years.
The standard method that people have been using for quite awhile now many decades, it's called breslow thickness effectively it's a it's a literally a measure of how sick. The melanoma is and that's how they do staging and Fortunately the amount of T cells Emplal trading the tumor is orthogonal to two breslow thickness. So.
Both of them are independent of each other so can be used together to make a really nice separation between who will in won't.
Go onto metastasize.
We are presently also working on a a very similar study and other tumor types, which hopefully we'll get back to it.
And when that studies those days are complete.
And the feedback from the clinical community was actually quite positive.
So we're working on we're exploring.
Certainly exploring methods to commercialize and take next steps on this product.
Great and then last one for me as you've talked about obviously doubling the volumes at Cornell seeking 2020.
The jewelry I think you talked about a couple other things that you guys are focused on there, but can you give us a little bit more detail about some of the efforts that you're making in order to do that I mean, obviously the market is moving in that in the direction you want it to be but the specific steps that you can take to kind of accelerate.
Kind of kind of the overall penetration where you are on salesforce today or additional hires being contemplated just other things that you specifically can do to to make sure that that doubling our two takes place in potentially can be even faster than that thanks.
Sure. Thanks, Brian So and as we've discussed before it at a high level, what we're focused on signing on new accounts and incorporating into the workflow driving usage across departments in existing accounts and expanding clinical use cases, among more patients within each account and ultimately increasing the number of tests per patient.
Over time, which we expect to be enabled even more by noninvasive testing in the blood. So I'll take you through a little bit of detail in each of those components first of all in terms of how we think about our targeted universe of accounts, we've shared in the past that on to date and for the foreseeable future. We remain very focused on about 250.
Tier one in tier two institutions in the U.S. were about 50% of the relevant paper patient population is treated to date over 150 of these have ordered clone or seek and over 130 of them ordered in 2019.
We're looking to have approximately 80% of these accounts ordering in 2020 to really expand that that first step. That's the first entry point and interestingly, we're starting to see now that the new accounts that were signed in 2019 are really starting to drive more of our volume now.
In terms of some more detail and then the patient population within these accounts, we estimate that approximately 75000 patients are in active treatment at any given time in these tier one in tier two institutions as Chad mentioned on the test has been used in over 10000 unique patients to date with over five.
Thousand of those monitored with corner seek in 2019, so that gives you a little bit of sense of where we where we think we are aware we're focused in terms of the patient population within these accounts.
And then the final step is the number of tests per patient and we're beginning to really get a little more clarity on that information and we're we're beginning to see approximately four tests per patient over an 18 to 24 month period of time.
Hopefully that helps give a little more detail I guess, you also asked about field team.
As we mentioned in the past we've we're in the process an almost completed doubling the number of key account managers, we have in the field and we're adding additionally throughout the year some more reps into demand generation area, perhaps some some more.
Territories specialists.
In other folks who are focused on integrated delivery networks, but overall, we're we're on track to where we believe we need to be to continue penetrating in these various areas I just discussed.
Great. Thank you guys.
Your next question comes from the line.
Go from Cowen Your line is open.
Hi. This is to will then be on for Doug Schenkel. Thanks for taking my question.
We just want to make sure that continued on those CNN timelines.
Imbursement is in place immediately when it was announced in January but it seems like you want launching until you get a de Abreu, we to possibly expect in June is that right is it an opportunity to launch earlier.
That's correct, we're being very careful on pretty promotional activities given that we have incurred filing in with the FDA of course, you know that in general you don't need FDA approval to launch diagnostic test, but in the case that weve chosen self selected to go through the FDA.
Approval process.
We we have kind of pulled back on any any any true true launch of the product until we have approval given that also the timelines only.
A few months and we in your you are correct in that we expect to have approval by June.
Got it and for expansion of going to seek for the different non Hodgkin lymphoma do you have to generated an additional data foot of deep pool.
And Additionally would it be blood based to a bone marrow based.
Sure. So yes, we do have to generate additional data and that's what we're in the process of doing so maybe I can just outlined for you our lifecycle plan at a high level as you know, we started with multiple myeloma and AOL and bone marrow. The filing that we recently completed for CLL is actually in blood.
We will be filing this year for AOL in blood.
And we're going to be confirming soon based on the additional data that were.
Finalizing the timeline for our filing for multiple myeloma in blood.
And we are also on completing and.
The generation of data and the analysis of these data for the various NHL diseases, which will be in various sample types and the timing for that will be determined over the coming months and we'll be sharing that as we confirm it.
Got it and lastly.
You had a nice step up in volume clinical volume growth from Q2 Q4 was it anything specific that dual does like specific owned add definitely the positive reimbursement and regulatory progress that you guys have me.
We think it's it's really the newer cohort of accounts that we signed on in 2019 began to really be start ordering in the back half of the year and that's what we believe we saw on Q4.
Got it thank you.
Thank you.
Your next question comes from the line of Derik Debruin from Bank of America. Your line is open soon.
Hi, This is ideal for Dan today. Thank you for taking my question.
I appreciate the color so far on.
Okay shifted more specifics on the call mistake revenue quarter is this still around 10% total revenue.
Yes so.
It it has been hovering around 10% just less than 10%.
As you heard Julie mentioned our goal this year is to effectively double our clinical test volume for the year.
And alongside.
Growth in ASP is obviously, we're expecting that revenue to continue to grow as a bigger component and mix of our total revenues so to be north of 10%.
Great. That's helpful. And then just regarding the 60 40 guide.
Can you talk more about how should we think about the van.
That.
Thanks.
Given all the commercialization.
Thanks.
Earning like what's the broadly.
Pacing.
Where we see meaningful pop.
And your thoughts here.
Sure. So I think the first thing to sort of think about as to sort of how to model our development revenues to sort of take that off of the side and what I would do is start with our fourth quarter development revenue.
And sort of.
Grow that sort of modestly throughout the year effectively and then when you.
Really come from back that out we'll start to see Burke and accelerating I always do.
What's the revenue throughout the year, we grew sequencing revenue up 30 plus percent from 2019 to 2018 and what that implies when you sort of back out our development revenues is effectively a doubling of that growth rate.
As you look at the year. So obviously the clinical test volume growth will continue to come much of that will come though towards the through the sort of back half of the year, which will drive is higher and I'm sorry.
Yes, yes, yes.
Yes.
Thank you for the color and then one last question maybe more for Harlan.
Dxi.
Okay elaborate on what needs to be Don to come from signals for.
Meaning.
When do you really know you'll have.
Speaking of course.
Jason.
And what have you learned so far by looking across different.
Patients.
Across.
Disease Orleanians cancer.
Why is proving to be easier or harder than the other to date.
Again, better understanding that hopefully.
Sure. So so our internal standard for.
Validation comes in in two parts first its disease dependent in the sense.
We have to understand what the what the present diagnostic.
Best case diagnostic is as well as what would be.
Useful clinically and so we have to set an internal mark of how good we have to be before before we have a relevant diagnostics signal and then we need to make sure that that signal is confirmed in independent cohort so that were.
Just to make sure that there was no over fitting or something like that that we weren't aware that we will.
You could full yourself at times. So so those are two standards for moving forward.
And certainly if you're asking about.
What we've seen so far in applying a single across different disease states.
So.
Infectious disease at this point has proved to be relatively straight forward I think for the auto immune space, We're certainly seeing signals and feeling good about this but that we haven't put the same.
Dedication to it yet that we have to.
Through our lime.
Results, mostly because theres a lot of.
It's not just signal finding but theres a lot of development that we need to do.
As our first kind of sort of test run or Guinea pig to make sure that we get everything in line. So that we can start scaling this with other diagnostics and it's a little too early for me to answer on cancer, but but we have collected a significant number of cohorts now so we're able to.
Start attacking the question, but we haven't done so yet.
Great. That's helpful. Thank you.
Thanks.
If you.
Your next question comes from the line Amanda Murphy from.
Your line is open.
Hi, This is Max on per Amanda Thanks for taking my questions. Just a follow up question to your response, there about corner seek sequencing revenue and I appreciate that it's not an exact calculation, but your comment around that representing 10% of revenue just kind of doing some quick back of the math or backing down what Matt I think.
That's the case based on the volume number that you disclosed today, a previously I think I'm coming up with an ASP the around $750 per test. So just want to make sure I was thinking about that dynamic right and maybe just get some commentary around what you're seeing in terms of ASP for classic.
Towards the back out between 90, and then how should we think about that moving into 2020.
You are in the right Zip code [laughter].
So yeah, I would I would I think now that you sort of have.
So to honed into sort of where we sort of our brought more broadly I would just look at sort of growing those asps in the low double digit percentage through the rest of the year I think as we continue to contract with existing policies.
And continue to penetrate into those covered disease states, you're going to continue to see an uptick in our Sps throughout the year. So I would continue to just model that up.
In the sort of low double digit range, we're contracting mostly at a discount to our list price, which is 1950 and contracting slightly lower than that and the 16 to 1700 range and then given that just north of about.
50, plus percent of our tests are paid at this point I would just take that into consideration and potentially grow that a little bit as well.
Got it that's helpful and then a few questions that.
Quick one just around some of the call that we've had over the last couple of months with some large centers around.
Their efforts.
To implement sequencing in house is this something that you've noticed in terms of.
The general uptick in competition or how are you thinking about that that moving forward in terms of other.
Centers trying to replicate what you guys are currently doing.
Sure. This is Julie are you referring to.
Clinical diagnostics like classic.
Yes, exactly sure yes, so yes at a high level on our focus is is really making quanta seek available to as many patients as possible and we're definitely aware that some institutions in some markets, particularly outside the United States prefer the ability to run tests locally on as you probably seen we do have that option.
Available to us with Illumina and we are currently evaluating the regulatory and reimbursement landscape, particularly outside the United States to determine our our path forward, but it's absolutely something where we're aware of and I will say that.
So far we're having really great.
Experience with most institutions, sending samples to us at this present time.
Great. Thanks, again for taking my questions.
Thanks, Thank you.
Your next question comes from the line of Michael Peterson from JP Morgan Your line is open.
Hi, This is a lady on for Tyco, Thanks for taking your questions.
Firstly I was wondering last quarter, you called out a temporary decrease can be academic desmith investigators waited for our new Bernstein of the immuno see gasoline I'm just wondering whether you continued to see this headwind for part of for Q or whether you were able to recapture some of the business you may have lost in Threeq you.
Sure absolutely on yes that was all resolved in the fourth quarter of 2019, and the new assay is up and running in our lab today.
Okay.
Okay. That's helpful. And then in terms of Apax appreciate your comments on plenty plenty being another heavy investment year, but just in terms of how we should be modeling yet.
What 200 million run rate for Opex as you exit plenty plenty being the right ballpark.
But sort of a linear quarterly progression, implying sort of 560 million increases each quarter.
The only thing I would comment on that is I think really at the step up your first quarter numbers from a modeling perspective, where you're looking at a full quarter impact of some of the.
Big increases.
Estimates that we had in headcount and deployment of investments around.
Projects like immuno CTX and drug discovery, and so your growth rates year over year for sort of the first quarter 2020, or it's going to be more of that sort of much higher double digit range and then sort of trail off as you move to the fourth quarter and sort of towards them sort of mid double digit range. So I think thats the best way to sort of think about the progression of.
Our opex throughout the year.
That's super helpful. And then in terms of and you don't see the App you previously talked about being wary of being pigeonholed by the FDA had one did seeds category. So wondering how the information sections are going with this in mind.
Yes.
That is been vinas.
Quite quite helpful and there were really working together we've had multiple over the last month, we've had multiple.
Our at a half plus information sessions, where we've gone too.
Gone to the FDA to explain our basic technology in the strategy that we have going forward and so they could help us work together with them to to have a create a plan.
Basically a validation plan that would allow us to really scale with multiple multiple different tasks being put onto the same chemistry.
So yeah, so all positive so far but but we have obviously is a lot of work to do here, but we're we're excited about this and the FDA seems to be excited as well.
Great and then just one last one I wanted to follow up on your criteria for new drug discovery pharma partnership and how you're thinking about sort of balancing new opportunities that present themselves. So to those leveraging TCR based and began applications across in your first.
Trial to them, RDM, including south therapies, and vaccines and sort of if you could talk about the areas and the deal tides. You are most focused on and drug discovery as these new partnership.
Yes, so we're looking at a couple of different areas. One is within the selzer therapy space.
Additional.
Technologies or platforms that can be complimentary to what we've kind of already engaged in partnership with genentech with to support to support the deal and separately outside of that we're looking at your basically prosecuting our immune medicine platform to other kind of drug modality, both within and outside of cancer.
So couple examples that I could give you and I would just take these as mere examples.
There's there's a there's a growing body of.
Work being done from other companies in cell therapy in the auto immune space and so thats, obviously, one area that.
That's of interest at worst that we're looking at and and the other application of our technology to.
To the cancer vaccines space is another area that's interesting to us at this point, but we are not yet going to in a position to to to say anything more than that at this time.
Great. Thank you.
Okay.
Again, if he would like to ask the question side than the number one I guess all this on design.
Tim comes from the line of Baby the Westenberg from Guggenheim Securities. Your line is open hi, Thanks for taking the question that congrats on a quarter. So first one for Chad Cohen.
The.
When we look at the 2020 guidance on I'm, not asking free to break it down line by line, but I did what it concentrate a little bit on that on the payment from our payments from Genentech and the assumption there.
And sorry, if I missed this did the guidance include and Ed and I, Andy filing front from Genentech and if so can you kind of gave us the magnitude of how much that would be in guidance.
So weird.
When we are expecting to file the R&D at the end of this year, but the milestone based on acceptance and so when we do see that it's not going to be in 2020, and so therefore, we have not model that in the guidance and the modeling that I discussed earlier with respect to development revenues is purely just in relation to how we amortize the upfront.
We received earlier in 2019 got it and then you just the second one on I'd, just because I do want to make sure I get this right given the fact that there. There's a lot of these are payments and now when you gave the 60 40 color on that was.
Including the 36 or so million on the year from from Genentech and Thats still the 60 40 or not.
I just wanted makes your modeling is correctly yeah sure. So so that's still the 36 million from Genentech that we amortize in 2019 that comp is included in the 40% mix of our 2020 numbers.
Hi, guys. Thank you that's pretty good sequencing revenue over the next year.
Yes.
Alright, so they've been moving onto two immuno seek I appreciate the color and in terms of on the disease indications that you're going out and you know with with respect to the fact, they last year Lyme disease came really quickly is there is there maybe thoughts to maybe going after the be infectious disease market.
Maybe more aggressively and just taking a step back here.
When you're talking about the roadmap to the different different tests are being are we still get any kind of looking out of it the same ways before it's lime and then maybe at it.
A little bit later its.
I'd, let me end.
Phil Yak or just kind of maybe help us think about the would the wave a test and I understand there are some some strategic quietness you have to get here.
Yes, so we're trying to mix to two different things. One is is to really learn which has to say and that's that's the strategy of of going after both.
The different categories, a spaces, where we think we'll be able to learn in infectious disease autoimmune a cancer and then separate from that were parallel tracking expanding.
Across the you know for example, as you were saying because the success in lime came pretty quickly. We're we're absolutely ramping up.
Efforts across the board in signal, finding and infectious disease.
I'm not sure. If obviously if there is a a straightforward signal in cancer ramping that up quickly as well as probably.
Vastly important so.
Does that help yes, that's but thats why and then I know that close to seek ramp is kind of getting beat Nick that but I should just maybe what would I looked at the sequential growth I mean, I think I see 26% growth and sequential volumes and if thats pretty exciting here, but then I would thank you.
We also have.
Certain tests coming out the back after or approvals coming out the back half of year. So that I would think the cadence would be fairly lower in the first half and maybe a jump as you get these or am I thinking about that wrong, maybe maybe you need to advertise. This I'm just kind of think I'm trying to think about that but 2020 cadence and I realize that a couple of people have already.
I asked that but I, just a little more clarity there on how the new test would impact the steps there.
Sure, it's Julie and so I think we're really expecting the inflection point for Kona seek to be in 2021 as as we know it takes it takes a while to change clinical practice and.
We're really thrilled about the on expected <unk> approval of cone as he can CLL, but it'll take some months for that to really kick in in terms of volumes and so so as we shared in the past we do believe that the inflection point for Kona seek will be in 2021 and to remind you that that really is also because.
Our current.
Indications are AOL multiple myeloma, which is 25% of the total patient population the approval in CLL will bring us our serviceable patient population to 50% of the total patients in the U.S. with lymphoid malignancies, and then when you add on top of that enabling testing in the blood as well as the investments were made.
During the whole time in real world evidence and peer to peer education and direct patient engagement. All of that combined is is what's kind of happening throughout 2020 to get us to the real value inflection in 2021.
Yes. Thank you very much for all the color.
Welcome to.
That doesn't look you any session I will now turn the call over back to Chad Robby CEO for closing remarks.
Thank you everyone for joining us today, we look forward to agree a year.
This concludes today's conference call. Thank everyone for joining you may now disconnect have a great.
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