Q3 2021 Adaptive Biotechnologies Corp Earnings Call

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Did adaptive Biotechnologies third quarter earnings conference call.

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I would now like to hand, the conference over to your speaker today, Karina cost or do you.

Thank you. Please go ahead.

Thank you Julie and good afternoon, everyone I would like to welcome you to adaptive Biotechnologies third quarter 2021 earnings conference call earlier today, we issued a press release reporting adopted financial results for the third quarter of 2021. The press release is available at Www dot adopted by the fed Dot Com we are.

Conducting a live webcast of this call and we will be referencing a slide presentation that has been posted to the investors section of our corporate website.

During the call management will make projections and other forward looking statements within the meaning of federal security laws regarding future events and the future financial performance of the company. These statements reflect management's current perspective of the business today.

Actual results may differ materially from today forward looking statements depending on a number of factors, which are set forth in our public filings with the SEC and released it in his presentation.

In addition, non-GAAP financial measures will be discussed during the call and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release John.

Joining the call today are Chuck Robbins, our CEO of commander and Chad Cohen, Our Chief Financial Officer. In addition, Harlan Robins adaptive Chief Scientific Officer, Ponder Nathan Chief.

Officer will be available for Q&A.

I'll turn the call over to Chad Robins chat.

Thanks Karina.

Good afternoon, everybody. Thank you for joining us on our third quarter 2021 earnings call.

We had another quarter of strong performance with key progress across our business areas paving the way for our immune medicine platform to transform disease diagnosis and drug discovery.

Thank you to all of our employees for their dedication and commitment to our company and the patients we serve.

This quarter, we had the pleasure of opening our new corporate headquarters in laboratory facility in Seattle.

This building represents a new chapter for adaptive to scale our business as we continue to grow from sample processing data analysis. This is truly an end to end facility designed to be a place that inspires our workforce to deliver innovative solutions for our patients and our community.

Moving to the slides.

Starting on slide three.

Our third quarter results demonstrate continued progress revenue in the quarter was $39 5 million representing significant growth of 50% versus prior year.

Increasingly overall value of our currency brand.

Clinical adoption and pharma MRV collaborations remains a key focus.

We recently launched an enhanced version of the currency assay for CLO patients, which gives patients Iga HB mutation status in the same test, where we measure the trackable MLD sequence.

This was an important step policy will become an even more valuable diagnostic for hematologist to us at the start of patient workouts.

In addition, our pharma partners continued to benefit from using our emerging assay as an endpoint in clinical trials and this quarter recognize another regulatory milestone.

Our COVID-19 efforts continue to gain traction on multiple fronts.

We are delighted to report that we received a positive assessment from <unk> recommending coverage for <unk> Covid for immunocompromised patients.

This is a further validation that T cell testing fills an important gap in understanding the immune response to the virus and is a key reimbursement milestone for the <unk> franchise.

Of note a large subset of immuno compromised population is the same blood cancer patients he target with our KOL currency commercial team.

In addition, there is an increasing number of research collaborators and vaccine manufacturers interested in using immuno. She came out of COVID-19 to assess whether T cells may provide a correlate of protection.

These data would answer key questions and understanding immunity to the virus.

Beyond Covid, our <unk> franchise continues to progress we completed our immune cell line study, which showed our T cell based diagnostic to be nearly two times more sensitive than standard two tier testing and identifying individuals early disease. This is the second technical proof of concept that our T cell based tests.

King has advantages over serology and this diagnosis of infectious diseases.

We continue to advance to detect and auto immune indications for IBD, we already have a signal an illegal crohn's and have approximately 5000 IBD samples in house of which over 80% have been sequenced and the remainder are in process.

Expect to have the totality of the data completed by year end and will share steps in development at that time.

We have also identified a signal in multiple sclerosis and of additional samples in house, which are currently under analysis.

Autoimmune disease diagnosis is a key focus area for adaptive.

Prioritizing our development efforts around our business units.

And our drug discovery efforts, our genetic collaboration is progressing well on the shared product where safety assessing efficacy and safety data with genentech to enable a decision by year end to move our lead product into early development.

The private product we are on track to complete our proof of concept in 60 cancer patients by the end of this year.

In addition, it was great to see back somebody announced the initiation of a phase <unk> study for the to Sars Cov two vaccine candidates under development.

One of which includes T cell based components identified by our immune medicine platform.

This is the first time that our platform is being used to inform the construct of a novel vaccine and we're encouraged by this important advancement.

In summary.

Executing towards our 2021 goals and continue to generate data to enable multiple opportunities stemming from our platform.

I will now provide more detail on some of these highlights and then I'll pass it over to Chad <unk>, who will review the financials.

Starting with <unk> on slide four.

On the left side.

Lucy clinical volumes of 5928 tests in the quarter grew 47% versus prior year and 8% versus the prior quarter.

During the quarter orders were placed by over 1000 unique health care providers spanning 260 accounts.

Approximately 3800 patients tested and closing because now being used to test more than 20000 unique patients.

Tests delivered grew quarter over quarter in each indication, we increased the number of ordering physicians and the number of accounts, including within the community setting.

So far into the fourth quarter, we have seen our daily order volumes increase and expect to achieve sequential growth.

The recent launch of Iga <unk> was an important milestone for closing, which we expect to influence utilization for <unk> patients.

Hi, Ghb testing is recommended in clinical practice guidelines, because it shouldnt be prognostic and CLO. We do believe this added feature will help boost <unk> orders and have already observed a 20% increase in CLO orders in the four weeks since launch.

Although off a small base. We believe this is a great indicator at this very early point in the launch.

We continued to drive expansion of payer coverage policies, reaching over 240 million covered lives in <unk> multiple myeloma and over $150 million in CLO.

Of note CLO covered lives increased 15% this quarter and we had an important payer addition, with centene.

Considers currency as medically necessary for their patients with multiple myeloma and CLO.

On the right side of the slide you can see our MRV pharma partnerships continued to drive value for the <unk> brand.

In addition to sequencing revenues, we have over $330 million in future regulatory milestones this port.

Portfolio are eligible milestones continues to grow and materialize over time and this quarter, we recognized an additional $1 5 million, which brings the total to $10 million year to date.

Turning to cheat attack on slide five.

The interest in TD Tech Covid orders, despite vaccine rollout continued over the quarter, mostly related to concerns with the Delta variant importantly.

Importantly, given the lack of effective test to assess the immune response to COVID-19 effect infection in certain groups of individuals, including immuno compromised patients <unk> allows for reimbursement of key detect COVID-19 at $770 per test.

There are approximately 1 million oncology related immune compromised patients in the United States.

Notably we were planning to leverage our <unk> sales channel and increased our promotional efforts for this population.

This is an exciting advancement for <unk> as this is the first reimbursement that potentially paves a way to accelerate market access for future indications.

For <unk>, our immune check line study was completed and data was presented at the I'd week in October.

The study validated that <unk> volume and patients tested within 30 days of symptom onset is nearly twice as sensitive versus standard two tier serology testing and detecting Lyme disease.

Given the focus of these data in the acute setting we've decided to make TD Tech line available closer to the start of the Lyme season, while focusing our near term efforts on operationalized the T detect COVID-19 reimbursement at launch.

I also want to emphasize the key interplay between our clinical diagnostics and pharma research business.

Just as the overall value of our <unk> brand is driven by a combination of clinical test volumes and the strength of our MLD pharma portfolio. The same applies with T detect.

The right side of the slide shows a variety of ways in which our pharma and research partners are using T map COVID-19.

To assess T cell response to vaccine and potential correlates of protection.

We believe that the role of T cells will continue to gain traction as COVID-19 to become endemic and questions about immunity remain unanswered.

We intend to be a go to platform for the acute and accurate quantification of T cell response for our pharma partners and other research collaborators.

Lastly on slide six our drug discovery efforts continue to advance.

We are on track with our <unk> cell therapy collaborations to advance both the shared and the private products.

Both programs are making good progress as expected and our joint Genentech adaptive teams are working closely together to assess efficacy and safety data of our lead TCR for our shared product to enable a decision by year end to move into early development teams also continued to establish a product.

Private product specifications.

Last quarter, we disclosed the extension of our drug discovery capabilities to inform the design and development of vaccines with back to Bobby.

Baxter body designed its next generation T cell based COVID-19 vaccine candidate by encoding multiple spike and non spike specific T cell epitopes validated by adaptive.

This T cell based vaccine is intended to address Sars cov, two variants of concern and to be used as a potential unit virtual booster to available vaccines.

This morning, <unk> announced the start of its two arm phase one two trial to evaluate the safety <unk> and immunogenicity of its two vaccine candidates.

And <unk> only vaccine and our T cell based vaccine.

Vaccine candidates will be tested and already vaccinated individuals.

Look forward to seeing progress on this new and important program that aims to address variance of concern and will continue to work with Astra body team to share any additional information at the appropriate time.

Vacuum collaboration is yet another validation of our platform in drug discovery.

We're excited to pursue additional opportunities to inform the design and development of next generation T cell based vaccines and other diseases.

I'll now pass it over to Chad Cohen for our third quarter financial update.

Thanks, Chad.

Turning to our financial results on slide seven total revenue in the third quarter was $39 5 million, representing a 50% increase from $26 6 million in the same period last year.

Our revenue mix the third quarter consisted of 56% of our revenues coming from <unk> 16 category and 44% coming from our development category.

Sequencing revenue in the third quarter was $22 1 million and 96% same period of 2020.

Growth in sequencing revenue was driven primarily by a $5 8 million increase in revenue generated from our biopharmaceutical customers and a $5 $4 million increase in revenue generated from our clinical customers.

Research sequencing volume increased two 8710 sequences up 33% from 6540, <unk> delivered a third quarter of 2020.

Clinical sequencing volume, excluding our chief attack Covid volume increased 47%. Despite <unk> thousand 928 clinical tests delivered third quarter 2021.

Up from 4020 preclinical tests delivered during the same period 2020.

Development revenue grew to $17 4 million in the third quarter up 16% from the same period last year.

The largest driver of our development revenue continues to be the amortization of our genentech upfront.

This quarter, we also recognized a $1 $5 million <unk> regulatory milestone from one of our pharma partners.

As of the third quarter of this year, we have over $330 billion in potential Emory pharma milestones available to us representing a net increase of $20 million compared to the same period last year.

Shifting now from our revenue to our operating costs total operating expenses for the third quarter of 2021 were $95 8 million, representing a 51% increase from $63 3 million in the same quarter last year.

Working down our operating expenses cost of revenue was $14 2 million ended the third quarter of 2021 compared to $6 1 million for the third quarter last year, representing a 134% increase.

Our cost of revenue was primarily driven by an increase in materials costs due to sample volume an increase in labor and overhead costs and growth in expenses relate to the sample collection for our key detect COVID-19 product.

Research and development expenses for the third quarter of 2021 for $36 1 million compared to $30 3 million in the third quarter of 2020, representing a 19% increase.

The growth was largely weighted related to an increase in personnel costs, driven mainly by innovation and new product development initiatives.

Sales and marketing expenses for the third quarter of 2021 were $24 9 million compared to $14 5 million in the third quarter of 2020, representing an increase of 72%.

Most of this gross growth was due to increased personnel costs, particularly related to the team supporting our clinical diagnostic businesses in medical affairs as well as larger investments in our <unk> marketing efforts.

General and administrative expenses for the third quarter of 2021 were $20 2 million compared to $12 1 million in the third quarter of 2020, representing an increase of 67%.

This increase was primarily driven by growth in head count and personnel costs as well as expanding our overall facility footprint in higher depreciation expenses.

Net loss for the third quarter of 2021 was $56 million compared to third quarter 2020, net loss of $36 7 million.

Adjusted EBITDA for the third quarter of 2021 was a loss of $41 1 million compared to a loss of $28 4 billion in the same period last year.

We ended the quarter with approximately $632 million in cash cash equivalents in marketable securities we had no debt.

With respect to our outlook, we are reiterating our guidance range for the full year of $148 million to $155 million, representing 54% growth year over year at the midpoint.

For the full year, we estimate a fairly even 50 50 split between our sequencing and development revenues given the realization of milestones already recognized through the third quarter.

I will now turn the call back over to Chad Robbins for his final remarks.

Thanks, Chad.

Proud and encouraged with our achievement year to date across all business areas and looking forward to the additional key milestones we expect to accomplish over the next couple of months as outlined on slide eight.

The data emerging from our platform continued to support the current and future value generated from our clinical diagnostic and drug discovery opportunities.

With that I'd like to turn the call back over to the operator and open up for questions.

Thank you and as a reminder to ask a question you will need to press star one on your telephone.

Draw your question. Please press the pound key.

Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of sight, Joel Peterson of J P. Morgan. Your line is now open.

Hey, good afternoon.

Congrats on the reimbursement coverage for key detect COVID-19 I know Thats a big deal can you maybe just think help us think about the intended use case.

The benefit of using it and how do you size the market opportunity.

Yes.

Sure. Thanks, Tycho and yes. This is we're really really excited about this.

News of coverage.

So maybe I'll.

The first question about who is intended to be the product of <unk> Covenant is intended for.

I'll take that and then I'm going to pass it over to our new Chief Commercial officer Knitting should and if you could handle the question about the benefits and the market opportunity from there.

So just kind of to the first for the first question just kind of let me outline it so.

So Medicare issued a coverage decision or for a certain population the immuno compromised patients.

Who are less capable of mounting an immune response to either the natural infection of Covid <unk> to the vaccination.

But we believe and we've said this from the beginning.

That.

Yes.

Unfortunately, this is going to be.

<unk> in our population and in the subset of patients will they're always going to be at risk even as the virus moves from kind of the pandemic stay tune and demonstrates so the risk will remain high about whether or not they can amount an immune response.

If you look at kind of this estimated population of immunocompromised populations, it's around seven.

Estimates vary but together on the low end, we picked around $7 million in the United States and this will be kind of a population that we believe will benefit from our TD Tech Covid test.

And we think that this kind of T cell testing is.

It really high level, it's going to fill a big gap in the current testing paradigm. So.

Do you want to take.

It will be used in the benefit to this population, yes. Thanks Chad.

So as you all know that your body produces T cells is artifact of immune response to infection and vaccinations and are a key effect COVID-19 cash reliably assesses the presence of T cells or T cell response to COVID-19, indicating recent or prior infections Covid vaccines also produce a T cell.

Response, which may result in a positive <unk> Covid test.

And physicians can use this this to have.

On the managed care and Thats like chat talked about particularly for immunocompromised patients helping make <unk>.

Physicians make decisions related to vaccines or vaccine boosters in patients who are on immune suppressing medications, including deferring or postponing such medications or providing.

Even preventative monoclonal antibody treatments.

As Chad noted earlier.

Part of that immuno compromised population is in the oncology space and that is the population within our target we think out of those 7 million individuals.

$1 million in the oncology segment, and we're going to use.

Total <unk> sales team to target those physicians.

And then.

Gonna do sort of more targeted promotion to transplant centers HIV treatment centers, where we also believe there is an autoimmune sectors, where we believe there is a.

Immune compromised.

Population and simultaneously long term, we're working on generating additional evidence to make the test semi quantitative as well as generate quarters in our protection, which we think is going to be not only beneficial to physicians and even strengthen our value proposition proposition to physicians, but also really strengthened.

Proposition too.

And I think longer term.

I think it's a cinema opens up a whole lot of opportunities for us given the success.

Mrna vaccines I think there is going to be a lot of activity. Thanks, Jim developer and even beyond Covid and I think having a test that measures quantitatively. The T cell response and producers evidenced in our corner of protection will open up a whole bunch of doors.

Beyond Covid as well.

Great that's super helpful and maybe just sticking with the vaccine then on majority you mentioned you've got the samples in house, obviously, you're working on a second generation Covid vaccine, how should we think about timelines there.

It's on the development path.

Sure our Heartland USA Golan.

Sure.

Thanks Tycho.

Sure.

Evaluating the response to the vaccine the cellular immune response to the vaccine.

Sure.

Sure.

The data is going to be owned by <unk>. So it's not going to be at our liberty to discuss the outcomes of that but but.

We're definitely.

Wrapping up soon and returning data.

Okay.

And then on the enhanced.

Policy for CLO, how do you decide.

The opportunity I know you talked about a 20% increase in orders early on but how are you sizing the incremental opportunity there.

Yes, I mean I think.

The benefit there is going to be that.

Yes, it is going to encourage.

<unk>.

Physicians that order CNN to order the test there is sometimes less.

Incentive for them to order the test now theyre going to get actual prognostic information, we're right at diagnosis.

So thats, so I think yes.

And encourage physicians to order the order.

I'd test and really CNN has treated a lot in the community setting and really enhances the value of <unk> in the community setting. So that's how we think about this.

Okay, Great and one last one for Chad Cohen before I hop off just on guidance $3 million beat you're keeping guidance intact <unk> guidance.

The street anything to think about for the fourth quarter why it might be a little bit more cautious.

Yes, I mean, we tend to think about the business and semester as more than more than quarters.

We've historically just talked about it that way front half versus back half. So third quarter, we saw a lot of really strong pharma volumes.

We had really contemplate a little more in the fourth quarter that came in came a little early we're still seeing really strong sequencing business. If you look at the back half.

Growth over last year is looking at about 70% given the numbers that we employ with our with our guide.

Growing really nicely also first half versus second half, but about 20 or so percent. So.

And the business really is performing.

Far far better in the back half from a from a core sort of sequencing perspective, we gave the guide around sort of 50 50 split between sequencing and development.

The first half was sort of more of like a 40 60 split in the back half is more like us.

60 40.

It's sort of get to those numbers so.

Our sequencing volumes in our sequencing revenue in the back half or are really strong.

Relative to the first half the first half also just had.

$8 $5 million of milestones, which makes that first half number look a little better from a from a development perspective.

Okay I appreciate the color, thanks, I'll, let them shop it.

Thanks.

Our next question comes from the line of Derik Debruin of Bank of America.

Your line is now open.

Hey, good afternoon, everyone.

Hey, Derik.

So I guess first question.

And it's sort of tag team on Tyco's.

What was sort of the impact on your clinical sequencing volumes in your Biopharma volumes from the Spike in the Delta variant you and a number of other companies last quarter, we're a bit cautious on sort of your second half views.

Given that so just wondering if you could sort of quantify what's going on or what you sort of saw with it in terms of volumes.

Yes, there is definitely a third quarter impact related to Delta variant.

Clinical sequencing volume for for clothes seek and that was really primarily for two reasons.

First reason is because our reps are really limited access to be able to get into accounts, especially when youre talking about kind of.

New new accounts, and new indications like Cielo, which were growing you really need kind of that in person and a rep access and the second is also related to uncertain of our populations, which.

Interplay with the Covid announcement is this population because they are immune compromised.

We are really being being told to in cases, where we're where they didn't need to come in for imminent treatment, who said, we're really kind of delaying delaying their in person hospital and clinician visits.

So that really kind of the.

The combination of those two factors.

Definitely.

Took a hit in the third quarter.

Like the pre prepared remarks, we are encouraged based on the Iga <unk> launched in CLO and some of the trends that we're starting to see in the fourth quarter, both related to the Iga launching CLO, but also.

With.

I think the delta variant not having the impacting unfortunately for a lot of reasons.

We're starting to see we're starting to see some really positive signs.

So I know, it's a little I know, it's early to start thinking about next year, but I have to ask when you began issue you talked about doubling your total clinical tests volumes and obviously with the uncertainty of Delta that.

This is Ben.

Growing quite nicely and we expect it to we.

It to grow and get get out get on a nice growth trajectory in 2022.

Great. Thank you very much.

Sure.

Our next question comes from the line of Brian Weinstein of William Blair. Your line is now open.

Hey, guys. Good afternoon, Thanks for taking my question.

I was hoping you could maybe help us understand a little bit more on the news from <unk> body today, you know the importance.

It has for adaptive at a high level relative to kind of the technology and then can you just remind us practically what it means to the company and the potential financial opportunity. If at all if this were to play out positively.

Yes sure.

Hi, Brian Thanks, Thanks for the question.

Well first let me I want to put this into context I understand that's kind of battery bodies and isn't hustle.

Household name like Modena, and J&J, but this is really important for adaptive because we do view this as a.

It kind of a true extension of our platform into another area of drug discovery and what I mean by that is you've heard about kind of maduro and J&J deals, where we work really.

Essentially looking at the immune response.

Their vaccines and being able to as Harlan So I'd kind of hand over that data to really help them understand how their vaccines are working this is different in that we're actually using our platform to inform the design and development of the vaccines you kind of more specifically coming from a scientific standpoint pieces.

The pirates of the viral proteome called T cell receptor epitopes.

We can essentially.

By looking at the T cell response to those pieces of virus, we can determine which pieces go into the vaccine construct to specifically elicit a broad and diverse.

T cell immune response and this is this is this is a new type of vaccine a T cell based vaccine of which our technology is perfectly suited to be able to inform that design and development. So we think it's important for for two reasons.

One is we can potentially extend this is proof of concept will allow us to extend to other disease areas. If we can show that show that this is the right way to design and develop T cell based vaccines and potentially with other with other larger players.

<unk> body.

But then secondly, there is a potential based on their delivery mechanism. They have a DNA based vaccine, which doesn't have a cold chain storage requirements. So there is a there is an opportunity here and we'll have some royalties on the vaccine.

If this vaccine could be delivered is.

As another option.

<unk> to certain parts of the World, where you would benefit from.

Not not requiring or not having accessibility to coach Inc. Cold chain storage requirements, that's really where we kind of see see that potential opportunity, but first and foremost Brian. We're really looking at is hey does this work can we use our platform to design a vaccine and then and then Theres really opens up we believe a lot of opportunities for us.

Yeah.

Okay and then.

For your Heartland, just your thoughts in general on current vaccine effectiveness, we listen to.

The webinar that you did back in I think it was October you've been.

A little bit concerned about durability, there and just the need for a T cell based approach.

Like what.

Ken I was just talking about with facts about in how you guys are playing there, but just generally your thoughts on.

What youre seeing on current vaccine effectiveness and the need for T cell based approach in general.

Yeah. So.

Certainly certainly we should be I think very pleased with the efficacy.

The vaccines.

Where we're seeing at six to eight months out that the.

Sure.

Our response is.

Being quite strong and certainly in our cellular immune response.

But it does start to wane after that we can see it depending on the vaccine start dropping at six months or start dropping at eight months, so which is really in.

Corresponding to other measures efficacy measures that show that the rate of breakthrough infection starts going up at that point in time. So I think the booster regimen. That's being suggested is right on schedule and hopefully we can broaden that.

Having that wider population.

I opinion, a very good thing.

The side effects.

Okay great.

Quite agile so.

Okay.

And I think we're moving in a good direction and I am excited for the next generation of vaccines coming out too.

They've been for.

Okay. Thank you for that and then one more for me just you've talked about <unk> kind of looking at.

Can you detect anything on private payers have you guys.

We're reaching out to them and any thoughts on likelihood of obtaining coverage and in some of the larger private payers. There are the same for the same population. Thanks guys.

Nick do you want to comment on progress yeah. So the current Covid testing guidelines provide for commercial payer coverage of FDA EUA.

Covid tests within the context of the public health emergency and Oxygenate Covid test falls within this category. So.

We'll be working with it with private payers over the next.

Several weeks to our client and operational process.

Florida, we're making coverage online.

Yeah.

Thanks, guys.

Thanks.

Our next question comes from the line of Dan Brennan of Cowen. Your line is now open.

Great. Thank you.

Nice to be on the call.

So I wanted to quick question is just on quantity.

Maybe stepping back I know Derek asked the question I'm. Just wondering can you just provide an update on.

On the commercial investments that you've made to kind of drive growth, obviously delta could be having a kind of a temporal impact right now, but just give us an update on.

People that have been put in place what you've seen thus far and if we look out.

<unk> 2002 beyond just what are what are the key kind of milestones in terms of.

Regulatory approval of new enhancements that could be important.

Having growth in the franchise.

Yes, so first off.

Welcome to the call Dan a pleasure to have you covering us.

We're making significant investments in Kona in close seek.

And kind of preparing for 2022, and particularly kind of increasing.

The amount of reps.

On the ground both in terms of our key account managers in a dedicated hematology specialists based on there are some early signs that we've seen in the Iga.

Launch.

But we also believe that kind of training this cohort as a class together, we will have significant benefits as we as we as we look as we look to scale the business.

With that I'll turn it over to Nick to make more specific remarks, yes, I mean I think.

Yes, we've spoken before we are pretty positive on our currency business. You know one of the best in class sensitivity, we have FDA approval, we have widespread payer coverage in fact this quarter alone we increased.

Average for CNN by 15%.

We see other positive trends.

It was and MLD White paper that was published in July that supported the use of EMR need both as a regulatory endpoint in clinical practice offerings included many top Kols Nicole Graham currently of the FDA.

We saw a German cost impact analysis study published in September that there is a favorable.

75000, euro favorable economic impact with the use of <unk> directed therapy. So I think we sales positive trend as a result, we are investing in the channel there strengthening how we market the product.

We are improving and investing in improving customer experience. So we'll repeat ordering is seamless.

And then longer term.

We think we will get some positive feedback from the FDA on and then in blood. We have three major studies going on in multiple myeloma.

We received some positive feedback.

For the AAV studies, we have ongoing for NHL for non Hodgkin's lymphoma.

So overall I think we see all kinds of positive trends and we continue to invest in the business.

Broadly.

Great. Thank you for that and then just on <unk>, obviously sizable.

Milestone opportunity to be recognized there in terms of thinking about the events that will play out to start to realize more significant portion of that is that is it more so by 'twenty three 'twenty four or 'twenty two.

Just given the timeline for the development program I'm, just wondering how we should think about kind of win win when a bigger part of that starts to become a realistic.

Yeah, Hey, Dan Chad Chad Cohen How're, you doing good to hear from you on the call.

As we mentioned we have over $330 million of milestones available to us and that's been growing really nicely, even as we've been taken them down.

It's hard to really sort of bookend the timeframe with respect to our participation in them, but they will happen over the next few years I think just to characterize the milestones they represent.

Probably on the order of a dozen or more different deals with even more compounds and projects within those deals and two I'd say two thirds of the economics and those milestones relate to primary endpoints, which is a much bigger sort of pool of endpoints that we hope to participate in some someday, but we really didn't participate.

And so far or the secondary endpoint milestones, which continue to grow and for which we recognize about $10 million. This year, so really feel it.

Becoming more of a structural component of our P&L than it has in the past and they continue and we continue to grow the available pool of milestones and hope to do more deals, especially as we get into other indications like NHL.

Awesome, great. Thanks, guys I appreciate it.

Our next question comes from the line of Mark Massaro of <unk>. Your line is now open.

Hey, guys. Thanks for taking the questions and congrats on the attractive reimbursement for our key detect COVID-19 I guess.

How should we think about.

I know this question has been asked but theres about $1 million.

Cancer patients that would be eligible 1% of that market's about $8 million of revenue.

I guess, we're trying to get a sense for how quickly do you think you can get.

5% of that opportunity is it two years is it one year.

And I think it would be helpful.

From a modeling perspective.

Yes, let me, let me make a couple comments and again net and feel free to to add on.

First of all I want to make in order to operationalize.

It's going to be.

<unk>, probably 60 to 90 days, there's a lot of things that we need to do to put in place to be able to.

To be able to offer this to.

Through a reimbursed channel, including going out and.

Quick question earlier on.

On private payer reimbursement we need.

A specific code from DMA to be able to ensure coverage by private payers.

But that being said our target is the $1 million.

In terms of our direct.

Coverage.

Is the 1 million immunocompromised patients that we have access to and then secondly, there is another call. It seven six to 7 million patients who are immune compromised that we'll be doing non direct promotional activities too as well, but I think it's fair to say look this is this is.

Not only a new product launch, but this is a new product category.

So we're extremely.

Encourage bullish.

But in terms of how quickly we can get to 5%.

The good news is I think there.

The world has been helping in talking about the adaptive immune response to the virus so that bodes.

In our favor so some of that kind of marketing effort is done but in terms of the specific use case, which was asked earlier exactly how and when you use it what what therapeutic regimens or lifestyle choices will a patient would doctor provide to assist in the management of patients.

This all has to be worked into the.

The current patient.

Erudite with care.

We're going to go as quickly as possible to capture as much of a market as possible and we're working through that right now Nick do you want to add I mean, I just wanted to reemphasize. The fact that we do have a sales channel exactly into those 1 million patients.

It is going to be an effort on our part to agile.

Kate that physician population about the adaptive immune.

Immune system. So I think we're going full steam ahead to make this available and we're going to keep an eye out on it and I think we're going to include.

Updates for you for you all when we provide guidance next tier and then obviously, where we are bullish about it because we're prioritizing it and that was capitalized based on the fact that we.

We were able to get the coverage that we did allows us to step on the gas and go in and pursue this opportunity because we think it's real.

That's great.

So you did acknowledge you were impacted by the Delta variance in Q3.

You made some positive commentary about volumes here in Q4.

You grew eight 8% sequentially for clinical Kronos weak volumes in.

In Q3.

Do you think it's a reasonable based on the positive commentary or dealt with so far.

One third of the way through Q4 that you can kind of have it almost a similar performance on on the clinical side for Qantas seek in Q4.

Yes.

Yeah.

We we.

Certainly anticipate having.

Having having having sequential growth in the fourth quarter.

Okay. That's helpful. And then just my last question.

How should we think about the opportunity for Lyme disease as it relates to reimbursement.

Certainly I wouldn't expect.

Seven or $800 a test but.

Any thoughts you have there and update you have as it relates to discussions with with any payers.

Yes, I mean, I can speak to that I think as we've.

<unk> said in prepared remarks, we're going to be launching.

<unk> task closer to the Lyme season.

We prioritized and refocused ourselves on tier.

<unk> Tec Covid.

And at this point in time, when we're engaging with payers and having conversations and.

And we will provide you an update.

No.

Information is available to us.

But that is a focus for us to figure out the reimbursement for <unk>.

Great that's it for me.

Thank you.

Our next question comes from the line of Sylvan Richter of Goldman Sachs. Your line is now open.

Hey, Good evening. This is Elizabeth on first of all Dan. Thank you for taking our questions. Just wanted to ask about the enhanced version of quanta seek for CLO patients are there any other enhancements recliner seat that you're considering or potentially consider for other indications.

Yes.

I think we're not prepared to disclose anything right now, but certainly NHL non hodgkin's lymphoma as an area that's going to be a lot of focus for us.

<unk>.

Enhancing our capability in the blood based multiple myeloma test is going to be a focus for us and then we're also potentially considering.

Adding an iga <unk> like test and other indications.

Thanks.

Our next question comes from the line of Josh <unk> of Morgan Stanley. Your line is now open.

Hi, This is Hugo on for Dave Ross. Thank you for taking our questions now.

Now having gone through the reimbursement process for key detect COVID-19 wondering could you share some of the learnings from that process and how are you thinking about positioning reimbursement pricing discussion as you rollout. Additionally, indications for EBITDA.

Hey.

Thanks for the question.

So I think the first thing to keep in context is that because we got an EUA from the FDA. It gave us the opportunity to expedite reimbursement discussions with with <unk> and essentially that means is there's a significant.

The amount of education that has to go in to be able to really.

Right.

To understand exactly what this is because this is a new way to diagnose disease using using T cells.

We were able to go in and really really outlined the case.

And so now you've got a baseline set.

Mortgage program and frankly, we were able to do some of this.

National.

Now as we look to kind of future indications, we do believe there is an opportunity to.

Price of test based on the value that test provides to patients and the healthcare system.

Don't get me wrong, we're pretty encouraged by the price point, we were able to kind of receive received from <unk>, but we think that in certain.

High high unmet medical needs in particular in the autoimmune category, there should be potential to really price of test based on the <unk>.

The true value it provides to the through the system.

And to patients.

So I don't know if that totally answers your question, but those are those are some thoughts we have around.

Reimbursement, what we went through with Covid and how it impacts our thinking.

In terms of kind of the longer term thinking for the franchise.

Super helpful. Thank you.

Then also you mentioned you saw the impact from Delta variant this quarter.

Have you seen improved physician office access towards the end of the quarter and into October.

And you previously mentioned that COVID-19 may disproportionately affect the community channel did you see that also play out this quarter.

Yes, we did.

The reality is is that we're still at a restricted access to.

Both the community oncology setting in the academic medical centers or is it really hasnt open to open up yet to the extent that we want so we were able to achieve the growth we did kind of despite having some.

Some of those headwinds.

Out in front of Us we're seeing.

On a regional basis youre seeing some of that but our reps are being being creative in trying to meet where we're allowed to even outside the hospital.

Settings at coffee shops, and parks and doing everything that they can to be able to educate the clinical community.

Okay.

Thank you.

Okay.

Sure. Okay. Next question comes from the line of David Westenburg of Guggenheim Securities. Your line is now open.

Hi, Thank you for taking the question.

So question number one is.

<unk> seen for FERC kind of a number of years researchers doing immune immune mapping using single cell approaches and I think there was just a company a private company recently that race.

A pretty big round on using single cell approach in order to map the immune system. So I just wanted to ask just in terms of your approach differing from others that are using that other kind of approach.

Okay.

Alright.

Yeah. So.

So there are people, who meet a lot of different things by by mapping the immune system.

I think what you're referring to was a company that has a.

An approach to look at a whole bunch of different parameters to get to get some.

Kind of more global picture of what they think.

Going on to me.

Immune response.

We're.

I would say in some ways more focused and.

Focused specifically on the.

Immune receptors, which is the immune system's way of specifically identifying disease. So it's not it's sort of a different approach and probably have very different sets of applications.

For the diagnostic approach I don't think I don't think that.

Those other approaches are really playing in that space. So I think.

The only ones that guests really working on actually setup, but likely the only ones working on on the diagnostic space, but on the target discovery space.

We're more focused on an antigenic targets as well as the T cell receptors used for therapeutic use against those targets, which is very different than may be looking for.

More general.

Immune based targets that some of these other companies might be using.

We're very early on we don't have a ton of data on what they are exactly doing but but certainly.

The immune system is.

We know quite large.

And it's affecting every aspect of medicine right now, including the primary direction people are going for cancer therapies. In addition to obviously working in the vaccine space in autoimmune so I think there as well.

We will see more and more different directions.

B the confusion of using the same terms that mean different things mapping of immune system.

Hopefully we can.

Clarify what we mean by that anyway, so that it's not such a confusion.

No no I appreciate it it's just a question we just got a couple of days ago.

Anyway.

Secondly in terms of key detect COVID-19 are there any other infectious diseases that might have utility in terms of finding T cell versus beef I will immediately differentiate differentiating natural versus.

Vaccine immunity and kind of measuring.

Immune response lengthy period of time, I'm, just trying to contemplate future applications for TD attack.

That you've discovered today that might be of Covid.

Applicable to other infectious diseases that we maybe how did the thought about in the future and I'll stop there after that.

Yes, I mean this is this.

Great question, and the biggest depreciation and learning.

I think the community at large given the scientific community the immunology and virology I don't think everybody really appreciated the role that the cellular immune system with playing in protection.

Whereas.

Part of this is probably just historical that we've had the ability to measure an antibody response and even a neutralizing antibody response for 50 years and we didn't really have a way of measuring the T cell response at scale, but now that we do and also now that we're in this situation where we're we're seeing these.

New variance from Covid that are <unk>.

Really avoiding the neutralizing antibody response from the vaccines.

At high levels, we are seeing the importance of the T cell response to really give us the protection that we need to prevent severe disease.

And so because of that there has been an uptake in interest in looking at the T cell response.

Whats on US we have to we have to prove that.

But the T cell response really correlates with protection. If we can show that directly then then we really have the tool that people can use going forward in a whole variety of different.

Vaccine efforts and different diseases to help them develop the right vaccine, but also prove that theyre vaccines working in and provide the information that the regulatory bodies need as well. So we're pretty excited about about this evolution. The field were obviously a little frustrated was slower than we had hoped for people.

To start appreciating diesel, but but it is happening and there's going to be I don't know if the T cell revolution is coming.

I appreciate it thank you.

There are no further questions at this time and that concludes today's conference call. Thank you for participating you may now disconnect.

Thank you.

Thank you for thank you.

[music].

[music].

Good day and thank you for standing by welcome did adaptive Biotechnologies third quarter earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your speaker today Karina calls the deal yes. Thank you. Please go ahead.

Thank you Julie and good afternoon, everyone I would like to welcome you to adaptive Biotechnologies third quarter 2021 earnings conference call earlier today, we issued a press release reporting adopted financial results of the third quarter of 2021. The press release is available at Www dot adopted by it that dot com we are.

Talking a live webcast of this call and we will be referencing a slide presentation that has been posted to the investors section of our corporate website.

During the call management will make projections and other forward looking statements within the meaning of federal security laws regarding future events and the future financial performance of the company.

These statements reflect management's current perspective of the business today.

Results may differ materially from today forward looking statements depending on a number of factors, which are set forth in our public filings with the SEC and released sitting in his presentation.

In addition, non-GAAP financial measures will be discussed during the call and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release joining.

Joining the call today are Chad Robbins, our silicon ponder and Chad Cohen, our Chief Financial Officer. In addition, Harlan Robins adaptive Chief Scientific Officer, Ponder Nixon Chief commercial officer will be available for Q&A.

I'll turn the call over to Chad Robins Chad.

Thanks Karina.

Good afternoon, everybody. Thank you for joining us on our third quarter 2021 earnings call.

We had another quarter of strong performance with key progress across our business areas.

Paving the way for our immune medicine platform to transform disease diagnosis and drug discovery.

Thank you to all of our employees for their dedication and commitment to our company and the patients we serve.

This quarter, we had the pleasure of opening our new corporate headquarters in laboratory facility in Seattle.

This building represents a new chapter for adaptive to scale our business as we continue to grow from sample processing data analysis. This is truly an end to end facility designed to be a place that inspires our workforce to deliver innovative solutions for our patients and our community.

Moving to the slides.

Starting on slide three.

Our third quarter results demonstrate continued progress revenue in the quarter was $39 $5 million, representing significant growth of 50% versus prior year.

Increasing the overall value of our currency Bren.

Clinical adoption and pharma MRV collaborations remains a key focus.

We recently launched an enhanced version of the currency assay for CLO patients, which gives patients Iga HB mutation status in the same test, where we measure the trackable MRV sequence.

This was an important step as currency will become an even more valuable diagnostic for hematologist to us at the start of patient workouts.

In addition, our pharma partners continued to benefit from using our <unk> assay as an endpoint in clinical trials and this quarter recognize another regulatory milestone.

Our COVID-19 efforts continue to gain traction on multiple fronts.

We are delighted to report that we received a positive assessment from <unk> recommending coverage for <unk> Covid for immunocompromised patients.

This is a further validation that T cell testing fills an important gap in understanding the immune response to the virus and is a key reimbursement milestone for the <unk> franchise.

Of note a large subset of the immuno compromised population is the same blood cancer patients the target with our KOL currency commercial team.

In addition, there is an increasing number of research collaborators and vaccine manufacturers interested in using immunity T map of Covid to assess whether T cells may provide a correlate of protection.

These data would answer key questions and understanding immunity to the virus.

Beyond Covid, our <unk> franchise continues to progress we completed our immune Central line study, which showed our T cell based diagnostic to be nearly two times more sensitive than standard two tier testing and identifying individuals early disease. This is the second technical proof of concept that our T cell based test.

King.

Vintages over serology and the diagnosis of infectious diseases.

We continue to advance to detect an autoimmune indications for IBD, we already have a signal in the <unk> and have approximately 5000 IBD samples in house of which over 80% have been sequenced and the remainder are in process.

We expect to have the totality of the data completed by year end and we will share steps in development at that time.

We have also identified a signal in multiple sclerosis and of additional samples in house, which are currently under analysis.

Autoimmune disease diagnosis is a key focus area for adaptive.

Prioritizing our development efforts around our business units.

And our drug discovery efforts, our genetic collaboration is progressing well on the shared product where safety assessing efficacy and safety data with genentech to enable a decision by year end to move our lead product into early development.

The private product we are on track to complete our proof of concept in 60 cancer patients by the end of this year.

In addition, it was great to see back somebody announced the initiation of a phase <unk> study for the to Sars Cov two vaccine candidates under development.

One of which includes T cell based components identified by our immune medicine platform.

This is the first time that our platform is being used to inform the construct of a novel vaccine and we're encouraged by this important advancement.

In summary, we're executing towards our 2021 goals and continue to generate data to enable multiple opportunities stemming from our platform.

I'll now provide more detail on some of these highlights and then I'll pass it over to Chad Cohen, who will review the financials.

Starting with <unk> on slide four on.

On the left side.

Nancy clinical volumes of 5928 tests in the quarter grew 47% versus prior year and 8% versus the prior quarter.

During the quarter orders were placed by over 1000 unique health care providers spanning 260 accounts.

Approximately 3800 patients tested and closing has now been used to test more than 20000 unique patients.

Tests delivered grew quarter over quarter in each indication, we increased the number of ordering physicians and the number of accounts, including within the community setting.

So far into the fourth quarter, we have seen our daily order volumes increase and expect to achieve sequential growth.

The recent launch of Iga <unk> was an important milestone for <unk>, which we expect will influence utilization for <unk> patients.

<unk> testing is recommended in clinical practice guidelines because it has shown to be prognostic and CLO. We do believe this added feature will help boost <unk> orders and have already observed a 20% increase in CLO orders in the four weeks since launch.

Although off a small base. We believe this is a great indicator at this very early point in the launch.

We continued to drive expansion of payer coverage policies, reaching over 240 million covered lives and <unk> in multiple myeloma and over $150 million in CLO.

Of note CLO covered lives increased 15% this quarter and we had an important payer addition, with Centene, who now considers currency as medically necessary for their patients with multiple myeloma and CLO.

On the right side of the slide you can see our MLD pharma partnerships continued to drive the value for the currency graph.

In addition to sequencing revenues, we have over $330 million in future regulatory milestones this port.

This portfolio of eligible milestones continues to grow and materialize over time and this quarter. We recognized an additional $1 5 million, which brings the total to $10 million year to date.

Turning to <unk> on slide five.

The interest in TD <unk> Covid orders, despite vaccine rollout continued over the quarter, mostly related to concerns with the Delta variant importantly.

Importantly, given the lack of effective test to assess the immune response to COVID-19 effect infections in certain groups of individuals, including immuno compromised patients <unk> allows for reimbursement of Cheetah Tech COVID-19 at $770 per test.

There are approximately $1 million oncology related immune compromised patients in the United States, notably we are planning to leverage our <unk> sales channel and increased our promotional efforts for this population.

This is an exciting advancement for <unk> as this is the first reimbursement that potentially paves a way to accelerate market access for future indications.

For <unk> live our immune <unk> lines study was completed and data was presented at the IBD week in October.

The study validated that you detect lyme and patients tested within 30 days of symptom onset is nearly twice as sensitive versus standard two tiered serology testing and detecting Lyme disease.

Given the focus of these data in the acute setting we've decided to make TD Tech line available closer to the start of the Lyme season, while focusing our near term efforts on operationalized the T detect COVID-19 reimbursement at launch.

I also want to emphasize the key interplay between our clinical diagnostics and pharma research business.

Just as the overall value of our currency brand is driven by a combination of clinical test volumes and the strength of our <unk> pharma portfolio. The same applies with key detect.

The right side of the slide shows a variety of ways in which our pharma and research partners are using key map COVID-19.

To assess T cell response to vaccine and potential correlates of protection.

We believe that the role of T cells will continue to gain traction as COVID-19 to become endemic and questions about immunity remain unanswered.

We intend to be the go to platform for the acute and accurate quantification of T cell response for our pharma partners and other research collaborators.

Lastly on slide six our drug discovery efforts continue to advance.

We are on track with our <unk> cell therapy collaborations to advance both the shared and the private products.

Both programs are making good progress as expected and our joint Genentech adaptive teams are working closely together to assess efficacy and safety data of our lead TCR for our shared product to enable a decision by year end to move into early development teams also continued to establish a product.

Private product specifications.

Last quarter, we disclosed the extension of our drug discovery capabilities to inform the design and development of vaccines with back to Bobby.

<unk> designed its next generation T cell based COVID-19 vaccine candidate by encoding multiple spike and non spike specific T cell epitopes validated by adaptive.

This T cell based vaccine is intended to address Sars COVID-19 two variance of concern and to be used as a potential unit virtual booster to available vaccines.

This morning, <unk> announced the start of its two arm phase one two trial to evaluate the safety <unk> and immunogenicity of its two vaccine candidates.

And <unk> only vaccine and our T cell based vaccine.

<unk> vaccine candidates will be tested and already vaccinated individuals.

We look forward to seeing progress on this new and important program that aims to address variance of concern and will continue to work with vast body team to share any additional information at the appropriate time.

Vacuum party collaboration is yet another validation of our platform in drug discovery.

We're excited to pursue additional opportunities to inform the design and development of next generation T cell based vaccines and other diseases.

I'll now pass it over to Chad Cohen for our third quarter financial update.

Thanks, Chad.

Turning to our financial results on slide seven total revenue in the third quarter was $39 5 million, representing a 50% increase from $26 3 million in the same period last year.

Our revenue mix the third quarter consisted of 56% of our revenues coming from our 16 category and 44% coming from our development category.

Sequencing revenue in the third quarter was $22 1 million and 96% same period of 2020.

Growth in sequencing revenue was driven primarily by a $5 8 million increase in revenue generated from our biopharmaceutical customers and a $5 $4 million increase in revenue generated from our clinical customers.

Research sequencing volume increased two 8710 sequences up 33% from 6541 sequences delivered a third quarter of 2020.

Clinical sequencing volume, excluding our <unk> cobot volume increased 47% to 5928 clinical tests delivered the third quarter of 2021.

Up from 4020 preclinical tests delivered during the same period 2020.

Development revenue grew to $17 4 million in the third quarter up 16% from the same period last year.

The largest driver of our development revenue continues to be the amortization of our genentech upfront.

This quarter, we also recognized a $1 $5 million MLD regulatory milestone from one of our pharma partners.

As of the third quarter of this year, we have over $330 billion in potential MRV farmer milestones available to us representing a net increase of $20 million compared to the same period last year.

Shifting now from our revenue to our operating costs total operating expenses for third quarter of 2021 were $95 8 million, representing a 51% increase from $63 3 million in the same quarter last year.

Working down our operating expenses cost of revenue was $14 $2 million in the third quarter of 2021 compared to $6 1 million for the third quarter last year, representing a 134% increase.

Our cost of revenues, primarily driven by an increase in materials costs due to sample volume an increase in labor and overhead costs and growth in expenses related the sample collection for our T detect COVID-19 product.

Research and development expenses for the third quarter of 2021 for $36 1 million compared to $30 3 million in the third quarter of 2020, representing a 19% increase.

The growth was largely weighted related to an increase in personnel costs, driven mainly by innovation and new product development initiatives.

Sales and marketing expenses for the third quarter of 2021 were $24 9 million compared to $14 5 million in the third quarter of 2020, representing an increase of 72%.

Most of this growth growth was due to increased personnel costs, particularly related to the theme supporting our clinical diagnostic businesses in medical affairs as well as larger investments in our <unk> marketing efforts.

General and administrative expenses for the third quarter of 2021% and $20 2 million compared to $12 1 million in the third quarter of 2020, representing an increase of 67%.

This increase was primarily driven by growth in head count and personnel costs as well as expanding our overall facility footprint in higher depreciation expenses.

Net loss for the third quarter of 2021 was 56 million compared to third quarter 2020, net loss of $36 7 million.

Adjusted EBITDA for the third quarter of 2021 was a loss of $41 1 million compared to a loss of $28 4 billion in the same period last year.

We ended the quarter with approximately $632 million in cash cash equivalents in marketable securities we had no debt.

With respect to our outlook, we are reiterating our guidance range for the full year of $148 million to $155 million, representing 54% growth year over year at the midpoint of the page.

For the full year, we estimate a fairly even 50 50 split between our sequencing and development revenues given the realization of milestones already recognized through the third quarter.

I will now turn the call back over to Chad Robbins for his final remarks.

Thanks, Chad.

Proud and encouraged with our achievement year to date across all business areas and looking forward to the additional key milestones we expect to accomplish over the next couple of months as outlined on slide eight.

The data emerging from our platform continued to support the current and future value generated from our clinical diagnostic and drug discovery opportunities.

With that I'd like to turn the call back over to the operator and open up for questions.

Thank you and as a reminder to ask a question you will need to press star one on your telephone.

Your question. Please press the pound key.

Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of sight Youll Peterson of Jpmorgan. Your line is now open.

Hey, good afternoon.

Congrats on the reimbursement coverage for key detect COVID-19 I know thats been a big deal can you maybe just help us think about the intended use case.

The benefit of using it and then how do you size the market opportunity.

Yes.

Sure. Thanks, Tycho and yes. This is we're really really excited about this.

News of coverage.

So maybe I'll.

The first question about who is intended to be the product of <unk> Covenant is intended for.

I'll take that and then I'm going to pass it over to our new Chief Commercial officer, <unk> <unk> and if you could handle the question about the benefits and the market opportunity from there.

So just kind of to the first for the first question just kind of let me outline it so.

So Medicare issued a coverage decision or for a certain population the immuno compromised patients.

Who are less capable of mounting an immune response to either the natural infection of Covid <unk> to the vaccination.

But we believe and we've said this from the beginning.

That.

Unfortunately, this is going to be.

And <unk> in our population and in the subset of patients will they're always going to be at risk even as the virus moves from kind of the pandemic stage two and demonstrates so the risk will remain high about whether or not they can amount in <unk>.

In response.

You look at kind of this estimated population of immunocompromised populations around kind of seven.

The estimates vary but together on the low end, we figure about $7 million in the United States and this will be kind of a population that we believe will benefit from our <unk> Covid test.

And we think that this kind of T cell testing is.

It really high level it is going to fill a big gap in the current testing paradigm. So.

You want to take how it will be used in the benefit to this population.

Thanks, Chad.

As you all know that your body produces T cells as part of human immune response to infections and vaccinations and are a key effect COVID-19 cash reliably assesses the presence of T cells or T cell response to COVID-19, indicating recent or prior infections Covid vaccines also produce at <unk>.

Bonds, which may result in a positive <unk> Covid test.

Physicians can use this this too.

The managed care and as like Shanghai talked about particularly for immunocompromised patients, helping me think physicians make decisions related to vaccines, our vaccine boosters in patients who are on immune suppressing medications, including deferring or postponing such medications or.

We're providing.

Even preventative monoclonal antibody treatments.

As Chad noted earlier, you know part of that immuno compromised population is in the oncology space and that is the population within our target we think out of those 7 million individuals.

$1 million or in the oncology segment, and we're going to use.

<unk> sales team to target those physicians.

And then we're going to do sort of more targeted promotion to transplant centers HIV treatment centers, where we also believe there is.

R&D in centers, where we believe there is a.

Compromised our pop.

Population and simultaneously long term, we're working on generating additional evidence to make the test semi quantitative as well as generate quarters in our protection, which we think is going to be not only beneficial to physicians and even strengthen our value proposition proposition of positions, but also really strengthened our hand.

New proposition to vaccine.

Developers.

And I think longer term.

I think it's a cynical opens up a whole lot of opportunities for us given the success of <unk>.

Mrna vaccines, I think theres going to be a lot of activity. Thanks, Jean developing even beyond Covid and I think having a test that measures quantitatively. The T cell response and producers evidenced in our corner of protection will open up a whole bunch of doors.

Beyond Covid as well.

Great that's super helpful and maybe just sticking with the vaccine.

On <unk> you mentioned, you've got the samples in house, obviously youre working on the second generation Covid vaccine, how should we think about timelines there any any updates on the development path.

Sure Our Ireland USA Golan.

Sure.

Thanks Tycho.

Bert.

Evaluating the response to the vaccine the cellular immune response to the vaccine.

<unk>.

We're.

The data is going to be owned by <unk>. So it's not going to be at our liberty to discuss the outcomes of that but but.

We're definitely.

Wrapping up soon and returning data.

Okay.

And then on the enhanced.

Our policy for CLO how society.

The opportunity I know you talked about a 20% increase in orders early on but how are you sizing the incremental opportunities there.

Yes, I mean I think.

The benefit there is going to be that.

Yes, it's going to encourage.

Physicians that order CNN to order the test year and there is sometimes less.

Center for them to order the test now theyre going to get actual prognostic information, we're right at diagnosis.

So thats, so I think yes.

It encourages physicians to order the order.

The <unk> test and really CNN has treated a lot in the community setting and really enhances the value of <unk> in the community setting. So that's how we think about this.

Okay, Great and one last one for Chad Cohen before I hop off just on guidance, you know $3 million beat you're keeping guidance intact <unk> guidance.

Although the street anything to think about for the fourth quarter why it might be a little bit more cautious.

Yes, I mean, we tend to think about the business and semester as more than more than quarters than we have historically just talked about it that way front half versus back half. So third quarter, we saw a lot of really strong pharma volumes.

We had really contemplated a little more of a fourth quarter that came in came a little early we are still seeing really strong sequencing business. If you look at the back half.

Growth over last year is looking at about 70% given the numbers that we imply with our with our guide.

Growing really nicely also first half versus second half, but about 20 or so percent. So.

And our business really is performing.

Far far better in the back half from a from a core sort of sequencing perspective, we gave the guide around sort of 50 50 split between sequencing and development.

The first half was sort of more of like a 40 60 split at the back half is more like us.

60 40.

So to get to those numbers so.

Our sequencing volumes in our sequencing revenue in the back half or are really strong.

Relative to the first half the first half also just add.

$8 $5 million of milestones, which makes that first half number look a little better from a from a development perspective.

Okay I appreciate the color, thanks, I'll, let them shop it.

Thanks.

Our next question comes from the line of Derik Debruin of Bank of America.

Your line is now open.

Hey, good afternoon, everyone.

Hey, Derik.

So I guess first question.

And it's sort of tag team on Tyco's.

What was sort of the impact on NIM.

Clinical sequencing volumes in your Biopharma volumes from the Spike in the Delta variant you and a number of other companies last quarter, we're a bit cautious on sort of your second half views.

Given that so just wondering if you could sort of quantify what's going on or what you sort of saw with it in terms of volumes.

Yes, Sir.

Third quarter impact related to a delta variance on the clinical sequencing volume for for clothes seek and that was really primarily for two reasons.

The first reason is because our reps are really limited access to be able to get into accounts.

See when youre talking about kind of the.

New new accounts and new indications like <unk>, which we're growing are you really need kind of that in person and a rep access and the second is also related to uncertain of our populations, which.

Kind of interplay with the Covid announcement is does this population because they are immune compromised.

We're really being told to in cases, where we're where they didn't need to come in for imminent treatment who said.

We're really kind of delaying delaying their in person a hospital and clinician visits so.

<unk> that vertical.

The combination of those two factors.

Definitely.

Took a hit in the third quarter.

Like the pre prepared remarks, we are encouraged based on the Iga <unk> launch and <unk> and some of the trends that we're starting to see in the fourth quarter both related to the Iga launching CLO, but also with with I think the delta variant not having.

The impact of the unfortunately for a lot of reasons.

We're starting to see we're starting to see some really positive signs.

So I know, it's a little I know, it's early to start thinking about next year, but I have to ask when you.

We began this year you talked about doubling your total clinical test volumes and obviously with the uncertainty of Delta that.

I understand it doesn't happen, but how do you have any initial thoughts on how you sort of think about clinical volumes trending for 2023.

Well.

We're not we're not assuming for 2022.

I'm, sorry, 2022 sorry, I am sorry.

On a year past.

Yes I'm on.

Yes.

Yes.

Look there were.

Works on this business and we are encouraging we are encouraged by the trends that we're seeing.

Like you said, although there was an impact from the Delta variant.

Our overall thesis in.

The clothes seek business as it is incredibly positive we're not yet at the point, where we're prepared to release guidance for 2022, yet, but we certainly think it is going to be a strong.

We certainly expect to have strong growth in 2022, and I would say again.

We look at the interplay in that business through a clinical sequencing volume plus the <unk> pharma opportunity overall, it makes up the <unk> brand and overall that business has been growing quite nicely and we expect it to.

We expect it to grow and get get out get on a nice growth trajectory in 2022.

Great. Thank you very much.

Sure.

Our next question comes from the line of Brian Weinstein of William Blair. Your line is now open.

Hey, guys. Good afternoon, thanks for taking the question.

I was hoping you could maybe help us understand a little bit more on the news from vacs abiding today the importance.

It has for adaptive at a high level relative to kind of the technology and then can you just remind us practically what it means for the company and the potential financial opportunity all switch were to play out positively.

Yes sure.

Hi, Brian Thanks, Thanks for the question.

First let me I want to put this into context, I understand thats kind of Baxter bodies and isn't hustle.

Household name like Modena, and J&J, but this is really important for adaptive because we do view this as a.

A true extension of our platform into another area of drug discovery and what I mean by that is you've heard about maduro on J&J deals, where we work really as Ed.

Essentially looking at the immune response.

<unk> vaccines and being able to as Harlan said kind of hand over that data to really help them understand how their vaccines are working this is different in that we're actually using our platform to inform the design and development of the vaccines you kind of more specifically from a scientific standpoint your PC.

A virus with a viral proteome called a T cell receptor epitopes.

We can essentially.

By looking at the T cell response to those pieces of virus weaken determining which pieces go into the vaccine construct to specifically elicit a broad and diverse.

T cell immune response and this is this is this is a new type of vaccine a T cell based vaccine of which our technology is perfectly suited to be able to inform that design and development. So we think it's important for for two reasons.

One is we can potentially extend this is proof of concept will allow us to extend to other disease areas. If we can show that show that this is the right way to design and develop T cell based vaccines and potentially with other with other larger players.

<unk> body.

But then secondly, there is a potential based on their delivery mechanism. They have a DNA based vaccine, which doesn't have cold chain storage requirements. So there is a there is an opportunity here and we'll have some royalties on the vaccine.

If this vaccine could be delivered is.

As another option of a booster to certain parts of the world, where you would benefit from.

Youre, not not requiring or not having accessibility to coach Inc. Cold chain storage requirements, Thats really where we kind of see a potential opportunity, but first and foremost Brian. We're really looking at is hey doses work can we use our platform to design a vaccine and then and then Theres really opens up we believe a lot of opportunities for us.

Yeah.

Okay and then.

For your Heartland, just just your thoughts in general on current vaccine effectiveness, we listened to.

The revenue that you did back in I think it was October <unk>.

Ben.

A little bit concerned about durability, there and just the need for a T cell based approach.

Like what.

Ken I was just talking about with facts about in how you guys are probably in there, but just generally your thoughts on.

What youre seeing on current vaccine effectiveness and the need for T cell based approach in general.

Yes so.

Certainly certainly we should be I think very pleased with the efficacy of these.

The vaccines I mean, we're seeing at six to eight months out that the.

Sure.

Our response is staying quite strong it certainly in the cellular immune response.

But it is it does start to wane after that we can see it depending on the vaccine start dropping at six months or start dropping at eight months, so which is really.

Corresponding to other measures efficacy measures that show that the rate of breakthrough infection starts going up at that point in time. So so I think the booster regimen. That's being suggested is right on schedule and hopefully we can broaden that.

Having a wider population.

Okay, I opinion, a very good thing.

The side effects.

Okay, saying quite manageable so.

And I think we're moving in a good direction and I am excited for the next generation of vaccines coming out too.

They have been for.

Okay. Thank you for that and then one more from me just you have talked about <unk> kind of working at.

Can you detect anything on private payers, if you guys, reaching out to them and any thoughts on the likelihood of gaining coverage and in some of the larger private payers. There for the same for the same population. Thanks guys.

Nick do you want to comment on progress, yes. So the current Covid testing guidelines provide for commercial payer coverage of FDA EUA Covid tests within the context of the public health emergency and are key to net Covid test falls within this category. So.

<unk>.

We'll be working with it with private payers over the next.

Several weeks to outline the operational process.

We're making coverage online.

Yes.

Thanks, guys.

Thanks.

Our next question comes from the line of Dan Brennan of Cowen. Your line is now open.

Great. Thank you.

Nice to be on the call.

So I wanted to first question is just on quantity.

Just maybe stepping back I know Eric asked the question I'm. Just wondering can you just provide an update.

On the commercial investments that you've made to kind of drive growth, obviously delta could be having a kind of a temporal impact right now, but just give us an update on.

And people that have been put in place what you've seen thus far and if we look out.

<unk> 22 and beyond.

What is it what are the key milestones in terms of.

Regulatory approval of the new enhancements that could be important.

Driving growth in the franchise.

Yes so.

First off.

Welcome to the call Dan a pleasure to have you covering us.

We're making significant investments in <unk> and <unk>.

Preparing for 2022, and particularly kind of increasing.

The amount of reps.

On the on the ground both in terms of our key account managers in a dedicated hematology specialists based on there are some early signs that we've seen in the Iga <unk> launch.

But we also believe that kind of training this cohort as a class together, we will have significant benefits as we as we as we look as we look to scale the business.

With that I'll turn it over to Nick to make more specific remarks, yes, I mean I think.

Yes, we've spoken before we are pretty positive on our <unk> business. We are the best in class sensitivity, we have FDA approval, we have widespread payer coverage in fact this quarter alone we increased.

Coverage for CNN by 15%.

We see other positive trends.

There was and MLD White paper that was published in July that supported the use of EMR need both as a regulatory endpoint in clinical practice offerings included many top kols Nicole Gram currently of the FDA.

We saw a German cost impact analysis study published in September that there is a favorable.

75000 euro favorable economic impact of the user <unk> directed therapy. So I think we showed positive trends as a result, we are investing in the channel there strengthening how we market the product we are improving and investing in improving customer experience. So we will repeat ordering is seamless.

And then longer term.

We think we will get some positive feedback from the FDA on and then in blood. We have three major studies going on in multiple myeloma.

We received some positive feedback.

For the AAV studies, we have ongoing for NHL for non Hodgkin's lymphoma.

So overall I think we see all kinds of positive trends and we continue to invest in the business.

<unk>.

Great. Thank you for that and then just on <unk>, obviously sizable.

Milestone opportunity to be recognized in terms of thinking about the events that will play out to start to realize more significant portion of that is that is it more so by 'twenty three 'twenty four or 'twenty two.

Just given the timeline for the development program I'm, just wondering how we should think about kind of when when when the bigger part of that starts to become a realistic.

Yes. This is hey, Dan Chad Chad Cohen How're you doing good to hear from you on the call.

As we mentioned we have over $330 million of milestones available to us and that's been growing really nicely even as we've been taking down it's hard to really sort of bookend that timeframe with respect to our participation in them, but they will happen over the next few years I think just to characterize the milestones they represent.

Probably on the order of a dozen or more different deals with even more compounds and projects within those deals and to let's say two thirds of the economics and those milestones relate to primary endpoint, which is a much bigger sort of pool of endpoints that we hope to participate in some someday, but we really didn't notice.

And so far or the secondary endpoint milestones, which continue to grow and for which we recognized about $10 million. This year. So really feel it's becoming more of a structural component of our P&L than it has in the past and they continue and we continue to grow the available pool of milestones and hope to do more deals, especially as we.

You get into other indications like NHL.

Awesome, great. Thanks, guys I appreciate it.

Okay.

Our next question comes from the line of Mark Massaro of <unk>. Your line is now open.

Hey, guys. Thanks for taking the questions and congrats on the attractive reimbursement for our key detect COVID-19 I guess.

How should we think about.

I know this question has been asked but theres about $1 million.

Cancer patients that would be eligible 1% of that market is about $8 million of revenue. So just.

Yes, we're trying to get a sense for how quickly do you think you can get now.

5% of that opportunity is it two years is it one year.

And I think it would be helpful from a modeling perspective.

Yes, let me, let me make a couple comments and again net and feel free to chat.

To add on.

First off I want to make in order to operationalize.

It's going to be.

<unk>, probably 60 to 90 days, there's a lot of things that we need to do to put in place to be able to.

To be able to offer those too.

Through a reimbursed channel, including going out and.

Good question earlier on.

On private payer reimbursement we need.

A specific code from the MAA to be able to ensure coverage by the private payors.

But that being said our target is the $1 million.

In terms of our direct.

Coverage.

Is the 1 million immunocompromised patients that we have access to and then secondly, there is another call. It seven six to 7 million patients who are immune compromised that we'll be doing non direct promotional activities too as well, but I think it's fair to say look this is this is.

Not only a new product launch, but this is a new product category.

So we're extremely.

Encourage bullish.

But in terms of how quickly we can get to 5%.

The good news is I think there.

The world has been helping in talking about the adaptive immune response to the virus so that bodes.

In our favor so some of that kind of marketing effort is done but in terms of the specific use case, which was asked earlier exactly how and when you use it what what therapeutic regimens or lifestyle choices will a patient with doctor provide to assist in the management of patients.

This all has to be worked into the.

The current patient.

I'm a cure.

Sure.

We are going to go as quickly as possible.

To capture as much of the market as possible and we're working through that right now Nick do you want to.

And I just wanted to reemphasize. The fact that we do have a sales channel exactly into those 1 million patients and it is going to be an effort on our part to edge.

<unk> that physician population about the adaptive immune.

In our system. So I think we're going full steam ahead to make this available and who are going to keep an eye out on it and I think we're going to include.

Updates for you.

When we provide guidance next year and then obviously, we're proud we're bullish about it because we are prioritizing and that was capitalized based on the fact that we.

We were able to get the coverage that we did allows us to step on the gas and go in and pursue this opportunity because we think it's real.

That's great.

You did acknowledge you were impacted by the Delta variance in Q3.

You made some positive commentary about volumes here in Q4.

Grew eight 8%.

Sequentially for clinical Kronos seek volumes.

In Q3.

Do you think it's a reasonable based on the positive commentary or dealt with so far.

One one third of the way through Q4 that you can kind of habit almost a similar performance on the clinical side for <unk> in Q4.

Yes.

We.

We certainly anticipate.

Having having sequential growth in the fourth quarter.

Okay. That's helpful. And then just my last question.

How should we think about the opportunity for Lyme disease as it relates to reimbursement.

Certainly I wouldn't expect.

Seven or $800 a test.

Any thoughts you have there and update you have as it relates to discussions with with any payers.

Yes, I mean, I can speak to that I think as we've.

That in prepared remarks, we're going to be launching.

<unk> task closer to the Lyme season, we've.

Re prioritized and refocused ourselves on.

Can you detect COVID-19.

And at this point in time, we're engaging with payers and having conversations.

And we will provide you an update.

No.

Information is available to us.

But that is a focus for us to figure out the reimbursement for Latam.

Great that's it for me.

Thank you.

Our next question comes from the line of Sylvan Richter of Goldman Sachs. Your line is now open.

Hey, Good evening. This is Elizabeth on for Sylvia and thank you for taking our questions. Just wanted to ask about the enhanced version of Kona seek for CLO patients are there any other enhancements for quantity that you are considering or potentially consider for other indications.

Yes.

I think we are not prepared to disclose anything right now, but certainly NHL non Hodgkin's lymphoma is an area that is going to be a lot of focus for us.

<unk>.

Enhancing our capability in the blood based multiple myeloma test is going to be a focus for us and then we're also potentially considering.

Adding an iga <unk> like test and other indications.

Thanks.

Our next question comes from the line of Josh Levine of Morgan Stanley. Your line is now open.

Hi, This is Hugo on for Dave Ross, Thank you for taking our questions.

Now having gone through the reimbursement process for Keith attack Covid wondering could you share some of the learnings from that process and how are you thinking about positioning reimbursement pricing discussion as you rollout. Additionally, indications repeat attack.

Hey.

Thanks for the question.

So I think the first thing to keep in context is that because we have got an EUA from the FDA. It gave us the opportunity to expedite reimbursement discussions with with <unk> and essentially that means is there is a significant.

The amount of education of the <unk>.

As to go in to be able to really.

To understand exactly what this is because this is a new way to diagnose disease using using T cells.

We were able to go in and really really outlined the case.

And so now you've got a baseline set.

At the mortgage program and frankly, we were able to do some of this CMS.

CMS national.

Now as we look to future indications, we do believe there is an opportunity to.

Price of test based on the value that <unk> provides to patients and the healthcare system.

Don't get me wrong, we're pretty encouraged by the price point, we were able to kind of receive receive from <unk>, but we think that in certain.

<unk> high unmet medical needs in particular in the autoimmune category.

There should be potential to really price with tests based on.

The true value it provides to the through our system and to patients.

So I don't know if that totally answers your question, but those are those are some thoughts we have around.

Reimbursement, what we went through with Covid and how it impacts our thinking.

In terms of kind of the longer term thinking for the franchise.

Super helpful. Thank you.

And also you mentioned the <unk>.

From Delta <unk> this quarter.

Have you seen improved physician office access towards end of the quarter and into October.

You previously mentioned that COVID-19 may disproportionately affect the community channel did you see that also play out this quarter.

Yes, we did I mean, the reality is is that we're still have restricted access to.

Both the community oncology setting in the academic medical centers or is it really hasnt open to open up yet to the extent that we want so we were able to achieve the growth we did kind of despite having some of those headwinds.

Out in front of Us we're seeing.

On a regional basis youre seeing some of that but our reps are being being creative in trying to meet where we're allowed to even outside of the hospital.

Settings at coffee shops, and parks and doing everything that they can to be able to educate the clinical community.

Thank you.

Sure. Okay. Next question comes from the line of David Westenburg of Guggenheim Securities. Your line is now open.

Hi, Thank you for taking the question.

So my question number one is we've seen for FERC kind of a number of years researchers doing immune immune mapping using single cell approaches and I think there was just a company a private company recently that race.

A pretty big round on using single cell approach in order to map the immune system. So I just wanted to add.

Asked just in terms of your approach differing from others that are using that other kind of approach.

Alright.

Yeah.

So there are.

People need a lot of different things by by mapping the immune system.

I think what you are referring to was a company that has a.

An approach to look at a.

A whole bunch of different parameters to get to get some.

Kind of more global picture of what I think.

Going on to me.

Immune response were were.

I would say in some ways more focused and <unk>.

Focused specifically on the <unk>.

Immune receptors, which is the immune system's way of specifically identifying disease. So it's not it's sort of a different approach and probably have very different sets of applications.

For the diagnostic approach I don't think I don't think.

<unk>.

They are those other approaches are really playing in that space. So I think the.

The only ones that guests really working I shouldn't say that but likely the only ones working on on the diagnostic space, but on the target discovery space.

We're more focused on an antigenic targets as well as the T cell receptors used for therapeutic use against those targets, which is very different than may be looking for.

More general.

Immune based targets that some of these other companies might be using.

They are very early on we don't have a ton of data on what they are exactly doing but but certainly.

With the immune system is as we know quite large.

Affecting every aspect of medicine, right now, including the primary direction people are going for cancer therapies. In addition to obviously working in the vaccine space in autoimmune so.

We will see more and more different directions.

The confusion of using the same term to mean different things mapping of immune system.

Hopefully we can.

Clarify what we mean by that any way so that it's not such a confusion.

No no I appreciate it it's just a question we just got a couple of days ago. So.

Anyway.

Secondly in terms of key detect COVID-19 are there any other infectious diseases that might have utility in terms of a finding T cell versus become immunity differentiate differentiating natural versus <unk>.

<unk> seen immunity and kind of measuring.

Immune response link a period of time I'm, just trying to contemplate future applications for teat attack.

That you've discovered today that might be of Covid.

Applicable to other infectious diseases that we maybe haven't thought about in the future and I'll stop there after that.

Yes, I mean this is this is a great question and the biggest depreciation and learning.

I think the community at large given the scientific community the immunologist and virologist I don't think everybody really appreciated the role that the cellular immune system is playing in protection.

Whereas.

Part of this is probably just historical that we've had the ability to measure an antibody response and even a neutralizing antibody response for 50 years and we didn't really have a way of measuring the T cell response at scale, but now that we do and also now that we're in this situation where we're we're seeing these new.

Variance from Covid that are.

Really avoiding the neutralizing antibody response from the vaccines.

At high levels, we're seeing the importance of the T cell response to really give us the protection that we need to prevent severe disease and so because of that there has been an uptake in interest in looking at the T cell response.

Whats on US we have to we have to prove that.

But the T cell response really correlates with protection. If we can show that directly then then we really have the tool that people can use going forward in a whole variety of different.

Vaccine efforts and different diseases to to help them develop the right vaccine, but also prove that theyre vaccines working in and provide the information that the regulatory bodies need as well. So we're pretty excited about about this evolution that field were obviously, a little frustrated was slower than we had hoped for people.

To start depreciating diesels, but but it is happening and there's going to be I don't know if the T cell revolution is coming.

I appreciate it thank you.

There are no further questions at this time and that concludes today's conference call. Thank you for participating you may now disconnect.