Q4 2022 Adaptive Biotechnologies Corp Earnings Call

February 14, 2023

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

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Good day, and thank you for standing by and welcome to the fourth quarter and full year 2022 conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star.

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Please be advised that today's conference is being recorded.

I'd now like to hand, the conference over to your speaker today Karina Carpathia Jello you May go ahead.

Thank you Justin and good afternoon, everyone I would like to welcome you to adaptive Biotechnologies fourth quarter and full year 2022 earnings conference call earlier today, we issued a press release reporting adopted financial results for the fourth quarter and full year of 2000 and to the press release is available at Www Dot adopted.

<unk> Dot com.

We are conducting a live webcast of this call and we will be referencing 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, we think the meaningful federal security laws regarding future events and the future financial performance of the company.

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

<unk> results may differ materially from todays forward looking statements depending on a number of factors.

As set forth in our public filings with the SEC and listed in this presentation. In addition, non-GAAP financial measures will be discussed during this call and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release.

Joining the call today are Chuck Robbins, our CEO and cofounder I'm Tycho Peterson, our Chief Financial Officer. In addition.

Robbins adaptive Chief Scientific officer, and cofounder Nathan.

The emerging business and Sherman <unk> head of the immune medicine business. It will be available for Q&A with that I'll turn the call over to Chad Robbins chat.

Thanks, Karina good afternoon, everybody and thank you for joining us on our 2022 fourth quarter and full year earnings call.

As always I want to thank all of our adaptive employees for their dedication and strong execution throughout the year.

As you can see on slide three 2022 was a year of key decisions and achievements for adaptive.

We started with the reorganization of the company around two business areas MRV and immune medicine.

Established established clear strategic goals for each of these two business areas and executed against these goals by hitting key deliverables throughout the year.

Following the restructuring we shared our long range financial plan to achieve sustainable revenue growth, while reaching adjusted EBITDA profitability in 2025.

We also strengthened our cash position with a non dilutive royalty financing agreement.

Accordingly, given our 2022 ending cash position of $498 million, we do not anticipate the need to raise additional capital to achieve our profitability targets.

Both of our business areas achieved significant progress and finished the year strong.

In MRV Carosi clinical volumes grew 51% versus fiscal year 2021 supported by our fully trained sales team, which we nearly doubled during the year.

In addition, we launched policy can deal Bcl and signed an agreement with epic for EMR integration.

Both are key milestones that are fundamental to the growth of our <unk> business.

Intermune medicine, we made the strategic decision to focus our commercial and development efforts around pharma services and drug discovery.

Pharma services had substantial growth of 67% versus 2021.

In drug discovery, our partnership with Genentech and significant progress in both of our cell therapy programs.

We are optimistic about the potential of genentech advancing the first candidate into the clinic.

In addition to Genentech, we are focused on leveraging our capabilities to develop our internal programs and autoimmune disorders.

We finished the year with a strong fourth quarter, a $55 2 million in total revenue, representing a significant growth of 46% versus prior year.

Fiscal year 2022 revenue of $185 3 million reflects a 20% growth versus 2021.

We're off to a great start in 2023.

Momentum is building, we are growing revenue advancing our pipeline and we're managing our operating expenses and.

And importantly, we have the capital to fuel sustainable growth and execute on our long range plan.

I'm going to start with <unk> on slide four.

<unk> is the gold standard for MLD and blood cancers.

Over the last decade, we have built strong moats around kronos seat that provide significant competitive advantages, including best in class sensitivity broad coverage clinical evidence guideline inclusion and farmer uses a surrogate endpoint in clinical trials.

Now, having nearly doubled our sales force expanded into <unk> and with the forthcoming epic integration it is about execution and driving penetration.

As shown on the graph currency test volumes are growing consistently.

Fourth quarter volume grew 9% from third quarter to 10526 tests delivered.

Ordering health care providers, and ordering accounts experienced significant growth of 56% and 47% respectively versus prior year and unique patients tested grew 63%.

ASP is nearly $1100 per test and we expect it to continue to grow annually in the mid single digits as we finalized pricing agreements with non contracted payers and improved collection performance.

Our revenue from <unk> pharma partnerships, which is a key component of our MRM business is also growing.

Quarterly revenue, excluding regulatory milestones from these partnerships grew 52% versus prior year and 41% versus prior quarter.

This quarter, we recognized a $2 million milestones from the approval of another multiple myeloma therapy, which use our <unk> assay as a secondary endpoint.

We are off to a great start this year with clinical Klocek orders at a record high for us in the past month.

To further increase policy penetration, we are focused on a three pronged strategy shown on slide five.

First.

Increased blood based testing.

Blood based testing will be a catalyst to drive penetration in the community and increase frequency of testing for patients.

<unk> has validated and reimbursed in blood in multiple myeloma.

In diffuse large b cell lymphoma, and overall usage of blood in the fourth quarter currently accounts for approximately one third of all Kronos seek MRV tests.

In addition, as we increase penetration in CLO and <unk>, which are primarily blood based the overall usage in blood will continue to increase and will catalyze penetration in the community, which now represents 15% of volume versus 12% just.

Last quarter.

Second drive growth in <unk> Bcl.

We launched <unk> and DSL PCL during the Ash conference in December .

<unk> represents 30% of patients with non Hodgkin's lymphoma, and is an aggressive disease with a high high relapse rate.

We anticipate <unk> to be a meaningful contributed contributor in the second half of 2023.

Expanding access to <unk> allows us allows physicians to detect relapsed sooner and create a more precise treatment plan for each patient.

We expect to generate additional data and DLP ECL and file with the FDA to support clinical adoption and increased farmer usage.

Third expand clinical use cases by further demonstrating clinical utility at multiple points, along the patient care continuum.

You can see on slide six a snapshot of the relevance of <unk> testing in patients with blood cancers recently featured at Ash.

More than 30, Kronos seek related abstracts, and multiple presentations reinforce <unk> ability to provide valuable insights for treatment surveillance clinical decision, making and continued demonstration of the value of that currency offers to drug developers.

A rich set of evidence has driven specific use cases that clinicians are incorporating into clinical practice today, particularly the master trial demonstrates that 90% of standard risk multi myeloma patients who have two consecutive MRV negative results with <unk> can stop treatment.

And remained cancer free after two years. This is an outstanding outcome for patients who can find relief from treatment side effects and also enabled substantial savings for the health care system.

As more studies readout, there will be greater adoption of mrna in the clinic results, resulting in more patients benefiting from Columbus <unk> at multiple time points along their treatment journey.

Set up for our <unk> business is strong and we are confident that we will achieve significant growth this year.

Now turning to immune medicine business on slide seven.

Our immune medicine business Leverages, our platform's proprietary ability ability to sequence map and characterize T cell and T cell receptors at scale to drive opportunities in major indications.

Growth in immune medicine is driven by two main areas pharma services and drug discovery.

Through pharma services, we deliver rich and valuable immune receptor data to our biopharma customers that informs biomarkers of response and accelerates their drug development programs.

In drug discovery, we are focused on cancer and autoimmune disorders with the goal to advance therapeutics, either on our own or with potential partners.

As shown on slide eight our strategy in drug discovery is to use our proprietary and differentiated capabilities to discover new drug targets, and then develop T cell receptor or antibody therapeutic candidates against those targets.

We are already doing this in oncology with our partner Genentech and cell therapy.

On slide nine we're making good progress with genentech on to cell therapy programs.

For both cell therapy products in development under this collaboration adaptive validate specific cancer, new antigen targets, and then identifies and characterizes potent therapeutic grade TCR to those targets.

For the first shared TCR candidate selected by Genentech, we are focused on speed to the clinic. In addition, we delivered two additional share TCR data packages for <unk> consideration.

On a fully personalized program, having established our prototype with more than 60 patients. We successfully identified and characterized T cell receptors to patient specific tumor mutations.

We also completed end to end process runs to start to define early product development.

This year, we are focused on standardizing and optimizing our process towards future clinical readiness.

In addition to our partnered programs with Genentech in cancer Slide 10 highlights our internal efforts and autoimmune disorders.

In this therapeutic area disease specific antigens are not well known.

We are leveraging our unique capabilities to identify drug targets in multiple sclerosis, and IBD among others.

Next steps are to generate data that validate those targets. So we can make progress towards developing therapeutic assets using our TCR and antibody discovery capabilities.

We believe drug discovery is a another major value driver and adapted and we are excited by the strides were making with genentech and our internal programs.

I'll now pass it over to Tyco for a financial update.

Thanks, Jeff starting on slide 11 with revenue for the fourth quarter and full year.

Total revenue in the fourth quarter was $55 2 million with 51% from MLD and 49% from immune medicine, representing a 46% increase from the same period last year.

<unk> revenue of $28 1 million grew 70% from a year ago with clinical testing and emerging pharma partnerships each driving approximately 41% of the growth along with a $2 million increase in MRV regulatory milestones.

<unk> test volume, including international increased by 54% to 10526 tests delivered from 6850 tests in the same period last year.

Immune medicine revenue was $27 1 million up 27% from a year ago.

This change was driven by a $5 $2 million increased from pharma and academic customers as well as the $2 $1 million increase in genetic amortization, partially offset by a $1 $6 million decrease from TD <unk> COVID-19.

Total 2022 full year revenue was $185 3 million, representing a 20% year over year increase.

Looking closer at the full year <unk> revenue was $87 1 million up 32% from a year ago, driven by a $15 $8 million increase in <unk> clinical testing and $10 million increase in MLD pharma, partially offset by a $4 million decrease in emerging regulatory milestones.

Immune medicine revenue grew to $98 2 million up 11% versus the prior year, driven by $13 $6 million increase from pharma services, partially offset by a $4 $4 million decrease from PT Tech Kobe.

Now moving on to operating expenses on Slide 12, we can continue to put a strong emphasis on leveraging our opex.

Total operating expenses for the fourth quarter were $94 4 million, representing a 5% decrease from $99 5 million in the same period last year.

Cost of revenue was $60 6 million compared to $14 4 million last year, representing a 16% increase.

R&D expenses were $31 2 million compared to $34 7 million last year, representing a 10% decrease.

Sales and marketing expenses were $23 7 million compared to $26 7 million last year, representing an 11% decrease largely due to reduced policy and key detect marketing activities.

General and administrative expenses for the quarter were $22 4 million compared to $23 3 million a year ago, representing a 4% decrease.

Lastly, interest expense from our royalty financing agreement with <unk> was $3 6 million.

Net loss for the quarter was $40 2 million compared to $61 4 million last year.

For the full year total operating expenses were $385 5 million compared to 363 3 million in 2021, with a 6% increase primarily driven by higher G&A and cost of revenue and.

Importantly, the 6% increase represents a significant reduction in our opex growth of 45% from the prior year, while still achieving meaningful revenue growth from our core revenue segments.

Full year 2022, net loss was $200 4 million compared to $207 $3 million in 2021, while adjusted EBITDA was a loss of $121 6 million compared to a loss of $151 7 million in 2021.

We ended the year with approximately $498 million in cash equivalents and marketable securities, giving us over three years of cushion on the balance sheet.

As Chad noted before we expect this will carry us through to profitability without having to raise additional capital.

Now turning to our outlook for 2023 on slide 13.

We expect full year revenue to be in the range of $205 million to $215 million.

At the midpoint, we anticipate the contribution from our businesses to be approximately 55% from MRV and 45% from immune medicine with a lower contribution from the new immune medicine, mainly driven by significantly lower amortization from the genentech upfront versus prior years.

Our MTBE business estimates include over 50% growth in policy test volumes and a continued ASP increase in the mid single digit range.

In addition, we anticipate MLD milestones in the mid to high single digit millions.

With respect to trends over the year, we expect revenue to be back half weighted in Q1 to be the lowest of the year.

This is due to several factors, including normal seasonality reflected in our low first quarter and high fourth quarter.

<unk> taken <unk> from the <unk> launch and epic integration were expected and which are expected in the back half of the year and milestones in both immune medicine, and <unk>, which are expected by year end.

Regarding operating expenses, we expect 2023, opex, including cost of revenue to be slightly below our 2022 opex of $385 5 million yes.

This reflects our ongoing efforts to drive operating efficiencies, while investing behind the projects to support our growth profile with higher returns.

We're continuing to be thoughtful about our cash deployment and expect our burn to be an average of $40 million per quarter.

We had solid performance in 2022, we're growing revenues managing our operating expenses and we have a strong capital position to fuel growth and execute on our goals.

I'll hand, it back over to Chad.

Thanks, Tycho as highlighted during the call and shown on slide 14, we have several key milestones for 2023.

We're off to a running start and I am confident in our ability to accelerate <unk> penetration in our <unk> business and to demonstrate our drug discovery capabilities and immune medicine.

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

And thank you.

To ask a question during the session you will need to press star one one on your telephone.

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

One moment, Bob first question.

And our first question comes from Derik de Bruin from Bank of America. Your line is now open.

Hi, good afternoon.

Hey, Derik.

So.

Can you talk a little bit about revenue pacing.

Obviously, you've got to do.

DC DCP ECL coming in the back half how should we sort of think about to ramp I realize Q1 is gonna be your lowest has reduced seasonality other things, but just some quarter to quarter progression, if you've got on revenues and volumes it would be helpful.

Yes, yes, I mean as you noted the first quarter will be the low the <unk> launch and the epic integration our back half drivers for share and then if you kind of look at the range. We laid out there are some variables in there, which maybe I'll spend a minute on.

While the <unk> side.

We guided conservatively on milestones so that could be a swing factor is as we go through the year.

Drive things to the high or low end of the range, depending on the magnitude of the milestones.

<unk> got roughly $370 million future milestones as we've talked about in the past line of sight to about half of those.

And we risk adjust those in our guidance style with about a 30% 50% probability of success. So that's one of the swing factors.

IND acceptance for immune medicine, obviously, a big swing factor towards the end of the year.

That's the biggest swing factor in the fourth quarter.

And as a reminder, on genetic we recognized $7 million of the $10 million upfront on the acceptance of that milestone. So that gives you were not going to give quarterly guidance, but that gives you some flavor as to the drivers in the back half of the year.

That are going to lead to accelerated growth as we progress through the year.

Great that's helpful and on the greater than 50% volume growth in condensate a little bit below what we were looking for just sort of like.

Some commentary on on.

<unk> trends and basically any residual sort of like headwinds the market patient access.

So I pay taxes Doc access just any sort of my commentary.

Trends volume trends.

Actually Derrick as I had mentioned that we're seeing.

<unk> had a record volumes to start the year.

So we want to be conservative in putting that out greater than 50% leaves a lot of room.

On the upside too so we're putting that out there was a watermark to hit we feel very confident that we're going to be able to achieve that number and believes that another swing factor that there could be some upside there.

Okay, great. Thank you very much.

Yep.

Thank you.

And one moment our next question.

And our next question comes from David Westenburg from Piper Sandler Your line is now open.

Hi, thank.

For your testing, taking the question I am actually the other side of of.

Derrick here.

Wonder Battlegrounds, we get is in that 50%.

Volume here can you maybe talk about the same kind of concept can you talk about you are now on.

Mid fifties.

Comp here in terms of growth rate. So you do have a tough comp on the.

On the volume growth coming in in 2023, I think epic and <unk> are kind of in happening in the back half could you give us maybe a little bit more conceptualization of.

Beating that tough comp and really I mean, what does epic and DVA ICL kind of contribute from from an incremental standpoint, because I do think it means.

They do help you overcome that comp.

Sure Hey, David I'm going to turn this over to Nick <unk>, who runs our <unk> business and calling in from San Francisco.

Yeah, I mean, I think first of all I just want to remind everyone that our current penetration is about 5%. So there's a lot of room for us to grow.

As Chad mentioned 2023 is off to a very strong start.

I am very confident that it will grow.

Volumes at greater than 50% off a larger base business this year and that combined with the ASP increase which we which we are seeing steadily we will see revenue increase by 60%.

A few things I want to point out and as you know our focus in growth strategy has been in the U S to twofold to drive deeper penetration and to increase business in the community.

In the last few quarters, we've seen.

Our orders per account in institutional accounts increased by 30% our community business has grown from 8% of our total business to 15% and I expect that to be.

20%.

2023 business.

All leading indicators are looking favorable new hcp's accounts grew by 50% unique patients tested grew by.

60% multiple myeloma, which is a key growth driver for us continues to deliver.

And we've had some very significant data readouts this year master.

Termination and then finally, the increased reach and effectiveness of our sales team is coming into play and we will sort of fully delivered in 2023, so over and above <unk> and epic Theres a lot of.

Growth catalysts and I expect.

Our gross very confidently that we grow about 50%.

This year on year and beyond.

Got it no. Thank you for the color.

I noticed you have 10 10 analysts here so I'll just ask one on margins.

Probably have a lot more questions here.

You did keep up burn rate or expenses I think you said were flat.

I respect that you're probably going to grow revenue, which basically means you are going to have to have sales compensation for our sales people that are hitting their numbers.

Bonus is just the natural.

Hi.

Cost of goods sold that are associated with with higher revenue here. So can you give us a little sense on on where you have where you are.

Have cuts remaining in 2023, given the fact that I think that you will grow on the year end Youre holding opex steady.

Sure. So a couple of things yes.

<unk> guidance is $40 million on average for the year Q1 will be higher.

Bonus payouts.

We had a pretty low quarter in the fourth quarter. There was favorable working capital low capex spending and high investment income. So we're coming off a low low burn on the fourth quarter by <unk> will be a pretty significant step up.

We look at kind of total Opex overall, we spent just over $385 million, including cost of revenue last year. Some of the areas. We've talked about in prior calls workflow enhancement leveraging lower sequencing cost DNA extraction costs cloud compute real estate. These are ongoing initiatives. We've done a lot of work around R&D as well, we've mapped projects to revenue or margin.

Enhancement opportunities and others. There is some leverage there that we've seen similarly with G&A and then we're doing a lot of work on gross margins now we'll have more to say on that.

Some point in the future, but this is an area, where we do see significant potential as we scale. So the important thing about opex as it is not coming from a single area. It's all parts of the company. There has been a real cultural shift underway here at adaptive and really there are no sacred cows. So we'll continue to look for opportunities to get more efficient and better as a company going forward, but it's across all parts of the business.

Thank you for the color.

That's on a good great.

And thank you.

And one moment our next question.

And our next question comes from Daniel Brennan from Cowen. Your line is now open.

Great. Thanks, Thanks for the questions.

Maybe just the first one would just be as we think about the.

The 23 guide.

Okay.

<unk> academic and pharma.

And then as well on what's implied for <unk>, just give us a sense of.

Obviously these are fast growing businesses, but hard for us to see underneath the hood, obviously is a lot happening to this what's kind of implied in 'twenty three.

The visibility on that outlook.

Yes, Tycho you want to yes, I mean.

We're not going to give specific guidance around immuno seek our academic or some of the sub segments.

Sharon is there anything specifically you want to stay on immune for your part of it and then maybe we'll put it over to Nick as well, but we're not going to guide specifically on sub segments.

Yes happy to spend again, it's about execution as I said, our strategy is to increase penetration with our portfolio of pharma companies and biotechs in later and larger stage clinical trials and early for major indications and so we're heads down focused on doing that to generate revenue.

And then just again at midpoint of the range of our immune medicine is about 45%, so that implies kind of $90 million to $95 million.

Genentech amortization is a big headwind for that business right, it's $30 million to $35 million a share versus north of 60 last year. So that that's something that has to be factored in and that pharma services, we've publicly talked about that business growing.

Growing at a 20% plus CAGR in the long run so that gives you kind of some sense of how we're thinking about it and then theres. The milestone we talked about earlier with genentech towards the end of the year.

55% is the range at the midpoint that implies about $115 million, we talked earlier about volume growth of 50% for <unk> and mid single digit ASP growth.

Milestones there I mentioned earlier are going to be in the kind of the mid to high millions.

And then.

You've.

You've got the MRV pharmacy, Princess business around 45 million growth of about 10% at the midpoint.

Add to that.

No I think I would just point out that for the first time.

Our clinical diagnostic business.

<unk> is a key growth driver and it's going to be larger than our pharma business in <unk>. So it's a pretty exciting year for us in 2023.

And maybe one quick follow up just in terms of the clinical trials on the adoption in blood.

What's the.

Are there any important milestone not not milestones in terms of dollar milestone, but in terms of.

Our guidance in these trials such that it would lead to maybe a more meaningful.

Proven impacts such that you could see.

Greater ability to market it and doctors I know that we spoke to a few doctors and they are looking for continued data to mature over time, so will any of that would be happening in 'twenty three with just kind of an ongoing basis.

Go ahead.

Yes, So I think first I just wanted to remind everyone that we are selling in blood today, 30% of all NRT tests are in blood.

<unk>, our blood test, primarily 26% of all ALLL tests are in blood multiple myeloma I used to be primarily a bone marrow test. However.

I'll now 12% of all test in multiple myeloma in blood and this is increasing and the use case for blood is simple in the case of multiple myeloma.

When the test is positive in blood cancers there.

Treat the patient make it negative in blood and then verify annually in bone marrow.

On top of this we're conducting additional studies in blood to strengthen our evidence to demonstrate that we are better than other biomarkers in blood, we expect to have data for multiple myeloma readout at the international Myeloma Society in September and Ash in December and then we have data also for CLO and <unk> reading out.

<unk>, we are a major conference coming up in June .

So we're executing commercially in and we will have additional data.

<unk>.

Blood volume to go up.

Excellent. Thank you very much.

And thank you.

And one moment our next question.

And our next question comes from Julia Quinn from Cowen. Your line is now open.

Hi, Good afternoon Giulia from J P. Morgan.

It looks like this.

For Q U S.

A&P over 11 time Jack.

Faster than what we were modeling.

Could you maybe give us an update on your private payer conversation so far.

And why why why.

It is not possible for us to see accretion.

Above that mid single digit growth that youre guiding to.

Go ahead.

Yes, I think we've seen sort of a steady ASP growth for clothes seek over the past couple of years and we anticipate that growth to continue in the mid single digit range over the next two to three years and trend towards 700.

Dollars per test, which we have is the contracted rate with private payors.

We continue to invest in getting additional pricing agreements with non contracted payers.

Including large Medicaid plans, where we've seen a lot of usage of Columbus each recently.

We're improving our collection performance, so we're going to invest in that area. This year.

And then you know.

We are also going after some of the expanded coverage for new indications like <unk> <unk> we have.

Medicare coverage only but this year, we expect to expand that into private payer coverage and then we have minor indications like mcl and <unk> that we need coverage on so a lot of things that are happening.

And we expect.

ESP to grow steadily towards 700 in the next few years.

Yes.

Alright, and then on the immune medicine side with Genentech, you mentioned that you will focus for this year. The first candidate is complete the kinetic to Quebec.

Can you elaborate on what Ken adaptive due to kind of go to speed up that process and what kind of timeline, we should be thinking about and then for those two additional TCR data packages with the timeline.

This is a decision on that.

Sure.

<unk>.

They control the timing of the filing.

And obviously interactions directly with FDA when they do file.

And so thats ongoing where we're very optimistic and are working closely to support along the way as it relates to the two additional TCR data packages that we completed and delivered at the end of last year.

Those are being reviewed together jointly by the working teams and obviously, we will update in terms of any progress to advance those as potential.

Is it product candidates.

Okay. Thank you.

And thank you.

And one moment our next question.

And our next question comes from Mark Massaro from <unk>. Your line is now open.

Hey, guys.

Questions.

Hey, How's it going so I wanted to know.

Maybe ask a follow up question I know, it's sort of been asked but as we think about anniversarying a.

Relatively challenging comp at a 50% 50% growth is is really pretty elite and diagnostics.

So it seems to me that the the key variable in the back half of the year as the <unk> launch just to give people confidence that you can exceed 50% again this year, but the one thing that I don't think I've heard is like how should we think about the incremental contribution from <unk> in any way for us to think about it in terms of market penetration.

<unk> or early early access interest or anything of that variety.

Yes, Mark I'm going to take this because yet while <unk> is one component, it's really not only the multiple multi pronged strategy that we laid out but there are just major levers across the board, including increasing penetration in the community setting.

<unk> done a lot of work in defining pathways and we've done really had success as of late and penetrating some of the larger community practice accounts that have taken a long time to crack.

We also mentioned kind of epic integration.

In the back half of the year, I think that really being able to go right into your your EHR and order directly from there should especially on accounts that are already ordering Corona stated, we think that should accelerate usage.

They are.

In terms of increasing clinical utility.

The previous question on.

Blood based usage in multiple myeloma and the Readouts that we have coming I think that will that will continue the additional use cases for the discontinuation of maintenance therapy as you get kind of more and more data from the master trial, and the MRV to stop trial and other and others that are kind of reading out.

And then I'll make an overall comment that.

I think I am seeing and I don't know you can go ahead.

Agree on this but <unk> in general is becoming a much more accepted.

Within health care.

Providers.

It took a long time to get here and I actually think even a lot of the noise around <unk> in solid tumors, and just kind of a nomenclature and understanding kind of what the assay is.

And no one wants to be first but no one who also wants to be last and we're kind of hitting that starting to I would say starting to hit that point, where it's become kind of more more common practice and that's obviously, what we're trying to get two words.

It's something you do on every patient.

That has one of these hematological malignancies that are just applies to so I think it's a variety of factors that gives us confidence that we're going to be able to hit that 50% number in 2023.

Okay, Great and then.

Okay.

To that a little bit in.

In multiple myeloma, which is R.

Biggest growth driver.

We are less than 10% penetrated so there's a lot of room for us to grow in Seattle, where less than 5% penetrated.

So even in the existing diseases, we have a lot of room to grow and then lastly, I think we expect the sales seem to be twice as more productive this year than last year last year, we increased the size of the sales team we deployed them in various territories.

And community our penetration is extremely low so that's there's a lot of growth drivers other than <unk> and yes, the 50% comp is above what other diagnostic companies do but I think we have the best product.

<unk> already and we have a great team in place.

Okay excellent.

Also wanted to ask about.

Just to kind of confirm.

The key detect initiative should we assume that that's effectively paused.

Because I guess I'm also trying to arrive at how the opex can be lower.

While the top line is growing.

Maybe if you could walk us through any of the buckets.

Presumably G&A.

Maybe up a little bit sales and marketing maybe up a little bit should we assume R&D is likely down.

Yes, I mean look as I said earlier, we're working on getting leverage.

Cross the company and yes, I mean G&A for sure we've got some leverage.

And marketing a little bit but to <unk> point a minute ago. We did double the sales force last year. So you've got to keep that in mind and then yes. There is R&D leverage I mentioned earlier, we went through a very thorough process over the summer to kind of mapping out every R&D project.

With that in mind, there was some stuff that dropped out that wasn't necessarily napping to revenue or margin opportunities. So we do have R&D leverage as well.

And then just in terms of your question directly on <unk> Mark as you know we made the decision in 2022 to delay commercialization efforts of T. Detect is a diagnostic test until we have strong enough signal data that can change physician behavior with a clear path to reimbursement, but that said we've got to have.

Really nice opportunity to leverage the data and continue to develop that and energen mapping data for both pharma services.

And in our internal efforts and drug discovery.

One of them.

If you look at kind of probability of success of therapies that are tied to an effective biomarker that can stratify patient populations. This is exactly the strategy that we're hoping to deploy with with our edge and mapping efforts in developing those signals.

Excellent that's it for me thanks, guys.

And thank you.

And one moment our next question.

And our next question comes from Salvino Victor from Goldman Sachs. Your line is now open.

Hey, guys. Thanks for taking the question. This is Elizabeth on for solving when should we consider proof of concept being achieved for the drug discovery efforts do you think that would be this year upon IND acceptance for the fresh air product just curious how youre thinking of proof of concept generation. There and then could you remind us of the timelines around.

Personal lines.

T cell therapy and whatnot.

I guess, what the next milestones are for that thank you.

Yes sure.

Highlands.

I'll start and then I'll pass it over to Sharon.

I think really there is two different sets of kind of proof points in the drug discovery business.

First is with our partnership with Genentech in oncology and cell therapy.

What youll see versus an IND filing on a shared product and then then we're making really strong efforts, we haven't yet disclosed the timeline, but I can tell you that we are moving rapidly towards proof of concept.

On the private product.

And then we have another set of kind of proof points of validation point that we're working hard towards with our internal programs, which I will pass over and assurance.

But our described.

So for our internal programs.

<unk> is focused first and foremost in autoimmunity.

Get to at least one target disease specific.

We highlighted our efforts and our focus and investments in multiple sclerosis and.

IBD and once we have a target.

Thats validated that we're confident.

<unk> therapeutic program, that's where we'll deploy or a TCR or antibody capabilities to develop an actual therapeutic assets and advance those with a goal to advance those.

Our cell into the clinic.

Got it that's helpful. Thank you.

And thank you.

And one moment our next question.

And our next question comes from Andrew Brachman from William and Blair. Your line is now open.

Hi, guys. Good afternoon, thanks for taking the questions.

Maybe I just want to follow up on some of the Kronos seek commentary for the community setting Chad I think you just referenced a win.

On a large account sort of basis, maybe just qualitatively can you talk about the tipping point.

Therefore that win and maybe some of the other.

Counts that you are talking to how the funnel progressing there. Thanks.

Sure.

I'll have you want to highlight without necessarily being specific on the apology, while I'll highlight kind of what the tipping point was for one you can pick one of them one of our large cleaning practices accounts that has recently signed on.

Yes, I mean, I think first I'll, just sort of broadly speak.

We did this year was higher additional individuals with focus on.

Community accounts, and we took a multi pronged approach here, we not only have individuals who sort of do.

Physician education, but we have a sort of a strategic account management team that works with large community practices at the C level.

So.

Multiple things came into place in one particular account.

After engaging with them over several months they are sort of standardized their clinical workflows on Qantas seek upon the arrival of every patient that's diagnosed for.

For example, with C L.

And we expect more of these to happen in 2023 and will be a key contributor to growth and as I said our community business.

Is trending upwards.

I'm sort of 8% at the beginning of 2022% to 15% and I expect that to become 20% of our business.

In 2023, while our penetration in academic and institutional accounts also increases.

Okay.

Okay. Thanks for that and then just a quick one on the macro frontier I think about a month ago, you referenced inflation reduction act as a potential headwind. There can you just give us a current thoughts on how youre thinking about that and maybe some of that.

Conversations youre, having with pharma related to that.

Sure sure sure.

Well, we're going to go first and maybe sharing to comments from the pharma services business as well.

Yes, I mean, I think we've had many conversations pharma companies and we're hearing from many of you that due to the irony. There is increased scrutiny of where their budgets.

And I think the second thing we're seeing play out is.

Particularly in the multiple myeloma there is a lot of competition lots of drug programs aren't going on out there.

The efficacy of the drugs that have recently come out at a very high.

And pharma companies are looking at some of which programs to continue with that program to sunset.

Marty pharma side I'll pass Sharon for immune medicine.

Yes, I think so.

Mostly a watch and wait but obviously that's top of mind.

And we will monitor but no immediate impact as of yet.

Thank you.

And thank you.

And one moment our next question.

And our next question comes from sung <unk> Nam from Scotiabank. Your line is now open.

Hi, Thanks for taking the question just a couple of husky.

Housekeeping questions for Tycho.

Sorry, if I missed it but did you are you guys, including the potential milestone payments for <unk> from Genentech IND filing in your guidance.

We are.

So that's at the end of the year as I mentioned earlier, we recognize the milestone is on acceptance.

That can lag filing by a minimum of 30 days, but it can take longer.

And we recognized $7 million of that upfront and then amortized the remaining $3 million.

And there is no other genetic milestone so we're only recognizing the one in guidance.

Okay got you and then for <unk> would you be able to break out what your assumption is for the interest expense for the year.

Yes so.

Good thing is.

First income actually.

The offsets interest expense. So we have about I think it's over 30 million now on interest income in the model so that actually pays for the orbit med deal.

<unk>.

Great. Thank you.

Okay.

And thank you.

And one moment our next question.

And our next question comes from Dan Leonard from Credit Suisse. Your line is now open.

Hey, Thank you just a couple of questions on the 23 guide.

Michael I'm trying to map to that $95 million revenue figure for immune medicine in 'twenty. Three I think you said genentech amortization is $35 million. So that would mean the balance 60 million is pharma services is that it looks like thats nearly a double year on year from the 'twenty two number and is that math even correct.

And what's driving that is there any kind of bookings or book to bill or anything you could you could offer yes, so Dan I talked earlier about kind of the long term CAGR for pharma services being in the 20% range. There is other drug discovery right. So we have various in ongoing discussions with potential drug discovery partners that that would be the remainder of that.

So it's not all at farmer servers, and the milestones and milestone yet.

Yes, and then a question on revenue phasing I think this was asked a couple different ways, but you you.

You highlighted a very strong start to the year and Mardi you are flagging, though Q1 is a low point is there anything to reconcile the timing related besides just the milestones in the second half of the year when thinking about phasing.

Yes, so I talked about the Genentech headwind, that's the biggest headwind on the year in the first quarter alone, it's about a $4 $2 million headwind.

We did recognize a $3 million MLD pharma milestone last year. So there is a comp from that as well.

<unk> revenue. So those are some of the factors that would impact the first quarter relative.

Relative to the remainder of the year.

Helpful. Thank you.

And thank you.

And I am showing no further questions. This concludes today's conference call. Thank you for participating and you may now disconnect.

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

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