Q4 2023 Adaptive Biotechnologies Corp Earnings Call

February 14, 2024

Okay.

Operator: Thank you for standing by, and welcome to Adaptive Biotechnology's fourth quarter and full year 2023 earnings conference call. At this time, all participants are in listen-only mode.

Thank you Derek by and welcome to the adaptive Biotechnologies fourth quarter and full year 2023 earnings conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. To remove yourself from the queue, simply press star 11 again.

Your telephone to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program or whatnot.

Operator: As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Karina Gauzadara, Head of Investor Relations. Please go ahead.

The Dara head of Investor Relations. Please go ahead.

Karina Gauzadara: Thank you, Jonathan, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnology's fourth quarter and full year 23 earnings conference call. Earlier today, we issued a press release reporting our adaptive financial results for the fourth quarter and full year of 23. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing a slide presentation that has been posted in the investor section on our corporate website. During the call, management will be making 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 perspectives on the businesses of today. However, actual results may differ materially from today's forward-looking statements depending on a number of factors which are set forth in our public filing with the SEC and listed in this 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.

Thank you Jonathan and good afternoon, everyone I would like to welcome you to adaptive Biotechnologies fourth quarter and full year and 23 conference call.

Earlier today, we issued a press release reporting adopted financial results for the fourth quarter and 40 F. 'twenty.

The press release is available at Www Dot adopted com, we are conducting a live webcast of this call I'll be referencing to slide presentation that has been posted in investor section on our corporate website.

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

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

Actual results may differ materially from todays forward looking statements depending on a number of factors, which are set forth in our public filing with the SEC and listening to this 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.

Chad Robbins: Joining the call today are Chad Robbins, our CEO and co-founder, and Tycho Peterson, our chief financial officer. Additional members from management will be available for Q&A. With that, I'll turn the call over to Chad. Thanks, Karina.

Joining the call today are Chuck Robbins, our CEO and cofounder I'm Tycho Peterson, our Chief Financial Officer additional members from management will be available for Q&A with that I'll turn the call over to Chad Robins Chad.

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

Chad Robbins: Good afternoon, everyone, and thank you for joining us on our fourth quarter and full year earnings call. As you can see on slide 3, 2023 was a year of transformation for Adaptive, and key milestones were achieved for both MRD and immune medicine.

As you can see on slide three 2023 was a year of transformation for adaptive.

Key milestones were achieved for both <unk> and immune medicine, we executed opex reduction initiatives to drive efficiencies and reduced burn.

Chad Robbins: We executed OpEx reduction initiatives to drive efficiencies and reduce burn, and we initiated a strategic review process to maximize the value that MRD and immune medicine can deliver to patients and shareholders. We ended the year with $170 million in revenue, including 60% from MRD and 40% from immune medicine. The MRD business grew 27% versus the prior year, excluding milestones, as we experienced outstanding growth from clonacy test volumes. This growth from MRD was offset by a decline in immune medicine, mainly due to the reduction in the upfront amortization of Genentech.

And we initiated a strategic review process to maximize the value that MLD and immune medicine can deliver to patients and shareholders.

We ended the year with $170 million in revenue, including 60% for my Murdy and 40% from immune medicine.

The <unk> business grew 27% versus prior year, excluding milestones as we experienced outstanding growth from currency test volumes.

This growth from <unk> was offset by a decline in immune medicine, mainly due to the reduction in the upfront amortization of Genentech.

Chad Robbins: As a reminder, last quarter, we updated total company guidance to exclude revenue from immune medicine. We made this decision based on a strategic shift in immune medicine to focus exclusively on target and drug discovery. Importantly, we ended the year with a strong cash position of approximately $346 million, which enables us to execute on the strategic priorities of both businesses and help MRD drive ClonoSeq penetration and revenue growth with the goal of reaching profitability by the end of 2025. In Immune Medicine, ADVANCE, our target and drug discovery efforts in cancer and autoimmunity, including supporting the partnership with Genentech, validating a therapeutic candidate in Before I go into the details of each business, I'll provide an update on the strategic review. In the third quarter of 2023, we retain Goldman Sachs to advise on a strategic review to maximize value for our shareholders.

As a reminder, last quarter, we updated total company guidance to exclude revenue from immune medicine.

We made this decision based on a strategic shift in immune medicine to focus exclusive exclusively on target and drug discovery.

Importantly, we ended the year with a strong cash position of approximately $346 million, which enables us to execute on our strategic priorities of both businesses.

Mardi drive currency penetration and revenue growth with the goal of reaching profitability profitability by the end of 2025.

An immune medicine advance our targeting drug discovery efforts in cancer and autoimmune 80.

This includes supporting our partnership with Genentech validating a therapeutic candidate in multiple sclerosis, and scaling target discovery and our other autoimmune disorders.

Before I go into the details of each business.

An update on our strategic review.

In the third quarter of 2023, we've retained Goldman Sachs to advise on a strategic review to maximize value to our shareholders.

MLD and immune medicine businesses at different value drivers investment needs and talent requirements.

We are evaluating various alternatives to unlock the full potential of each business and we are on track to communicate a final outcome at the end of this quarter.

Chad Robbins: The MRD and immune medicine businesses have different value drivers, investment needs, and talent requirements. We are evaluating various alternatives to unlock the full potential of each business, and we are on track to communicate a final outcome at the end of this quarter. Let's now take a closer look at our MRD business, starting with clinical testing on slide six. Clonaseq clinical revenue in the fourth quarter grew 56% versus the prior year and 25% versus the prior quarter, with growth coming from both volume and ASP. Volumes continue to grow quarter over quarter, with 15,680 tests delivered in Q4, representing a 49% increase versus the prior year and a 4% increase sequentially. As a reminder, the fourth quarter is typically impacted by fewer business days.

Let's now take a closer look at our <unk> business, starting with clinical testing on slide six.

Currency clinical revenue in the fourth quarter grew 56% versus prior year, and 25% versus prior quarter with growth coming from both volume and ASP.

Volumes continue to grow quarter over quarter with $15 $680 tests delivered in Q4, representing a 49% increase versus prior year.

And a 4% increase sequentially.

As a reminder, fourth quarter is typically impacted by fewer business days.

We are off to a great start this year with record high quality orders year to date.

Growth came from all marketed indications and multi myeloma continues to be the largest contributor.

In addition, the actions we put in place to improve collections and expand coverage are working.

Asps in the fourth quarter grew double digits sequentially, we continue to be laser focused on driving ASP growth by reducing our policy of non contracted claims and further optimizing revenue cycle management.

As such we anticipate an increase of approximately $200 in ASP per test over the next two years. It is encouraging to see positive trends on currency key indicators as shown on slide seven.

Chad Robbins: We are off to a great start this year with record high clonocyte orders year-to-date. Growth came from all marketed indications, and Multimiloma continues to be the largest contributor. In addition, the actions we put in place to improve collections and expand coverage are working.

Blood based testing increase and all indications contributing 39% of currency test. We expect this percentage to grow as we generate more clinical data in blood and commercialization and non Hodgkin's lymphoma.

Oil based testing is also a key driver of the quarter over quarter growth, we're seeing in the community, which can now contribute nearly one in four clients seek tests.

Chad Robbins: ASPs in the fourth quarter group doubled digits sequentially. We continue to be laser focused on driving ASP growth by reducing out-of-policy and non-contracted claims and further optimizing revenue cycle management. As such, we anticipate an increase of approximately $200 in ASP per test over the next two years. It is encouraging to see positive trends on clonocyte key indicators, as shown on slide 7. Blood-based testing increased in all indications, contributing 39% of clonal seq tests.

Recent data presented at Ash showed evidence of currency <unk> from blood predicts progression free.

Free survival early in the treatment cycle multi myeloma patients.

Also ordering health care providers, and ordering accounts grew 33% and 29% versus prior year respectively.

EMR integration is a key element of our growth strategy and central to our efforts to further enhance our customer experience we.

We completed epic integrations with our first five accounts and expect to complete 15% to 20 more this year.

Several of our largest accounts.

Last week, we signed an important new integration partnership with Flatiron health, a leading provider of EHR software and services for community oncology, we look forward to executing this partnership and expect to make <unk> available to practices via the molecular profiling integration and flat irons Arco EMR.

Chad Robbins: We expect this percentage to grow as we generate more clinical data in blood and commercialize it in non-Hodgkin's lymphoma. Blood-based testing is also a key driver of the quarter-over-quarter growth we are seeing in the community, which now contributes nearly one in four colonoscopy tests. Recent data presented at ASH showed evidence that Clonaceq MRD from blood predicts progression-free survival early in the treatment cycle of multiple myeloma patients.

System in 2025.

Looking at <unk> pharma on slide eight.

Full year revenue was essentially flat versus prior year due to broader macroeconomic factors impacting the biopharma industry, which resulted in lower sample volume across our portfolio prospective trials.

Chad Robbins: Also, ordering health care providers and ordering accounts grew 33% and 29% versus the prior year, respectively. EMR integration is a key element of our growth strategy and central to our efforts to further enhance our customer experience. We completed EPIC integrations with our first five accounts and expect to complete 15 to 20 more this year, including several of our largest accounts. Last week, we signed an important new integration partnership with Flatiron Health, a leading provider of EHR software and services for community oncology. We look forward to executing this partnership and expect to make Clonaseq available to practices via the molecular profiling integration and Flatiron's OncoEMR system in 2025. See MRD Pharma on slide eight. Full-year revenue was essentially flat versus the prior year due to broader macroeconomic factors impacting the biopharma industry, which resulted in lower sample volume across our portfolio of prospective trials.

That said, we saw some recovery in the fourth quarter, which experienced 23% growth sequentially.

Despite these transitory headwinds we ended the year with a healthy backlog of about $185 million and we signed two important pan portfolio collaboration with Takeda in Beijing.

2023 was a great year for <unk>, we are well positioned to cement our leadership as the gold standard in MLD team for clinicians patients pharma partners and Payors.

Looking ahead as shown on slide nine and 10 are priorities for MLD are clear.

First further increased penetration by growing blood based testing expanding into new indications like mcl and <unk>, adding new use cases through data generation and enhancing the customer experience through EMR integrations.

Improving margins through ASP increases and operating leverage with the primary goal of reaching positive adjusted EBITDA in the second half of 2025 and cash flow breakeven in 2026.

Turning to immune medicine on slide 12.

In 2023, our immune medicine business achieved two key milestones one FDA IND acceptance was secured for the first T cell therapy product candidate under our partnership with Genentech and two we discovered a novel novel drug target and multiple sclerosis, which sheds light on potentially new T cell biology.

Chad Robbins: That said, we saw some recovery in the fourth quarter, which experienced 23% growth sequentially. Despite these transitory headwinds, we ended the year with a healthy backlog of about $185 million, and we signed two important PAN portfolio collaborations with Dakota and Beijing. 2023 was a great year for ClonaSeq.

That may be causative trigger to this devastating disease.

These immune medicine milestones further sharpened, our focus and target and drug discovery, specifically and high value opportunities in cancer and autoimmune disease.

As shown on slide 13 in cancer, we continue to support <unk> in the development of two categories of TCR based cell therapy products.

Chad Robbins: We are well positioned to cement our leadership as a gold standard in MRD's aim for clinicians, patients, pharma partners, and payers. Looking ahead, as shown on slides 9 and 10, our priorities for MRD are clear. First, further increase penetration by growing blood-based testing, expanding into new indications like MCL and CTCL, adding new use cases through data generation, and enhancing the customer experience through EMR integration. Second, improve margins through ASP increases and operating leverage with the primary goal of reaching positive adjusted EBITDA in the second half of 2025 and cash flow break-even in 2026. Turning to immune medicine on slide 12, in 2023, our immune medicine business achieved two key milestones. One, FDA IND acceptance was secured for the first T-cell therapy product candidate under our partnership with Genentech. And two, we discovered a novel drugable target in multiple sclerosis, which sheds light on potentially new T-cell biology that may be a causative trigger for this devastating disease.

And our first shared product.

<unk> development team as it gears up for its first in human trial.

For the full it fully personalized program, we completed building our regulated regulated process workflow and this year, we're initiating end to end testing for future clinical readiness.

The valuable immune response after data that we've been generating for over a decade is a treasure trove of information that together with our partner Microsoft we used to develop and train AI ml models to help accelerate our target and drug discovery efforts.

In auto immunity, our focus is to further validate the EMS target and known disease models in parallel we are deploying our antibody platform to identify a therapeutic candidate that specifically binds to this self antigen in blocks of potential positive event in MFS.

In addition, we are applying the exact same approach that we use in MFS to discover novel targets and additional prioritize autoimmune indications, including type one diabetes and rheumatoid arthritis.

As you can see on slide 14 in 2024, we will gauge our R&D investments based on key proof points that drive future value for both our partnered and wholly owned drug discovery pipeline.

I will now pass it over to Tycho.

Thanks, Chad.

Turning on slide 15 with revenue for the fourth quarter and full year.

Total revenue in the fourth quarter was $45 8 million with 67% from MTT and 33% from any medicine.

<unk> revenue grew to $30 8 million up 9% from a year ago.

Chad Robbins: These immune medicine milestones further sharpened our focus on target and drug discovery, specifically high-value opportunities in cancer and autoimmunity. As shown on slide 13, in cancer, we continue to support Genentech in the development of two categories of TCR-based cell therapy products. On the first shared product, we're engaged with Genentech's development team as it gears up for our first in-human trial. For the Fully Personalized Program, we completed building our regulated process workflow, and this year, we're initiating end-to-end testing for future clinical readiness. The valuable immune receptor data that we have been generating for over a decade is a treasure trove of information that, together with our partner Microsoft, we use to develop and train AI-ML models to help accelerate our target and drug discovery efforts. For autoimmunity, our focus is to further validate the MS target in known disease models.

Policy clinical performance was the main driver, partially offset by a reduction in revenue from pharma services and regulatory milestones.

Excluding regulatory milestones <unk> revenue grew 18% from a year ago.

Condensate test volume increased by 49% to 15680 tests delivered from 10526 tests in the same period last year.

Immune medicine revenue was $15 million down, 45%, a year ago, driven as expected by large nanotech amortization, which decreased 53% year over year.

Full year 2023 revenue was $170 3 million, representing an 8% decrease year over year.

MPD revenue was $102 7 million up 18% from a year ago, driven by a 27% increase from <unk> service revenue, partially offset by a lack of regulatory milestones.

Immune medicine revenue was $67 5 million down 31% from the prior year.

As Chad mentioned, starting with a <unk> 23 earnings call, we opted to exclude immune medicine from revenue guidance, given the shift in focus to target and drug discovery.

Moving down the P&L on the right hand side of the slide.

Total gross margin for the quarter was 57% representing an eight point increase versus the third quarter and a 13 point decline versus a year ago.

The sequential increase was largely due to efficiencies from the lab move.

Chad Robbins: In parallel, we are deploying our antibody platform to identify a therapeutic candidate that specifically binds to this self-antigen and blocks a potential causative event in MS. In addition, we're applying the exact same approach that we used in MS to discover novel targets and additional prioritized autoimmune indications, including type 1 diabetes and rheumatoid arthritis. As you can see on slide 14, in 2024, we will gate our R&D investments based on key proof points that drive future value for both our partnered and wholly owned drug discovery pipelines. I'll now pass this over to Tycho. Thanks, Chad.

Versus the prior year, the decline was driven by lower amortization of the genetic upfront and a lack of milestones which have 100% margin contribution.

R&D sales and marketing and G&A operating expenses declined 8% in total versus a year ago as they continue to place a strong emphasis on driving leverage.

Net loss for the quarter was $69 5 million compared to $40 2 million last year.

For the full year operating expenses, excluding the $25 4 million, one time impairment charge in the fourth quarter, which was related to our legacy lab and headquarter space are $371 9 million compared to $385 5 million in 2022, representing 4% decrease.

This reflects ongoing efforts to drive operating efficiencies, partially offset by higher cost of revenue.

Full year net loss was $225 3 million compared to $200 4 million in 2022, while adjusted EBITDA was a loss of $116 4 million compared to a loss of $121 6 million in 2022.

Tycho W. Peterson: Starting on slide 15, with revenue for the fourth quarter and full year. Total revenue in the fourth quarter was $45.8 million, with 67% from MRD and 33% from Indian Medicine. M&D revenue grew to $30.8 million, up 9% from a year ago. Clonal Seq clinical performance was the main driver, partially offset by a reduction in revenue from pharma services and regulatory milestones. Excluding regulatory milestones, MRD revenue grew 18% from a year ago, and ChronoSeq test volume increased by 49% to 15,680 tests delivered from 10,526 tests in the same period last year.

We ended the year with approximately $346 million in cash equivalents and marketable securities.

Now turning to 2024 guidance on slide 16.

As mentioned in our last earnings call revenue guidance will be provided only for the MD business since immune medicine resembles a more traditional drug discovery biotech model and we want to ensure that we do not trade off short term revenues for long term value.

We expect full year revenue for <unk> to be between $130 $140 million.

At the midpoint, we anticipate a 65% and 35% contribution from clinical and pharma services respectively.

Guidance includes conservative <unk> pharma services growth as we continue to monitor broader impacts from the Biopharma industry.

It also includes <unk> milestones and a low single digit millions, which could have upside depending on clinical trial outcomes.

With respect to trends throughout the year, we expect <unk> revenue to be 45% to 55% weighted between the first and second half respectively.

Of note given that our immune medicine efforts are focused on targeting drug discovery revenue from our I am pharma collaborations will be used to offset R&D investments.

Tycho W. Peterson: Immune medicine revenue was $15 million, down 45% a year ago, driven, as expected, by lower genetic amortization, which decreased 53% year over year. Full year 2023 revenue was $170.3 million, representing an 8% decrease year over year. Emerdee revenue was $102.7 million, up 18% from a year ago, driven by a 27% increase in Emerdee service revenue, partially offset by a lack of regulatory milestones. Immune Medicine revenue was $67.5 million, down 31% from the prior year. As Chad mentioned, starting with our 3Q23 earnings call, we opted to exclude immune medicine from revenue guidance given the shift in focus to target and drug discovery. Moving down the P&L on the right hand side of the slide.

Finally, our collaboration with Genentech continues to advance and we expect to recognize roughly $14 million in amortization of the upfront this year.

Moving down the P&L, we expect operating expenses, including cost of revenue to be between 360 $370 million for the year. This.

This deceleration is this deceleration in spending reflects our ongoing efforts to optimize resources and drive operating efficiencies, while supporting healthy top line growth.

We continue to be thoughtful about our cash position.

Excluding potential onetime costs from the strategic review, we expect the burn to average 35 million per quarter, representing an annual reduction of 10% versus 2023.

With that I'll hand, it back over to Chad. Thanks, Tycho, we're off to a running start I am confident in our ability to continue to grow our <unk> business and demonstrate our target and drug discovery capabilities and immune medicine.

Look forward to communicating with you on the outcome of the strategic review, which will enable us to drive success and maximize value for all stakeholders with that I'll turn it back over to the operator and open it up for questions.

Certainly one moment, ladies and gentlemen for our first question.

Our first question comes from the line of Dan Brennan from Cowen Your question. Please.

Great. Thanks, Thanks for taking the questions. Maybe thanks. So can you just walk through a little bit of how the opex kind of.

Outlook for 24 on the revenue kind of what are we considering for burn I know you touched upon it but just kind of walk through the key drivers of where the burners.

Tycho W. Peterson: Total gross margin for the quarter was 57%, representing an 8-point increase versus the third quarter and a 13-point decline versus a year ago. The sequential increase was largely due to efficiencies from the lab vs. the prior year; the decline was driven by lower amortization of the genetic upfront and a lack of milestones, which have a 100% margin contribution. R&D, Sales & Marketing, and G&A Operating Expenses declined 8% in total versus a year ago as we continue to place a strong emphasis on driving leverage. The net loss for the quarter was $69.5 million compared to $40.2 million last year.

Yes, yes, we talked about $35 million per quarter.

Continuing to drive efficiencies across the organization, so youre seeing leverage in sales and marketing G&A and R&D.

So as we've kind of mentioned in prior calls there is no stones unturned as we kind of go through.

The ongoing business review.

Got it and then just on the MRO side of the business.

The clinical on the pharma side just.

Just on the clinical side, so how do we think about like the volume and the realized price implicit in the 'twenty guidance.

Yes, Susan Jones.

Sure.

So let's start with the I guess the volume.

Hello.

At the midpoint of the guidance, which was issued.

<unk> represents over 30% growth for the overall business.

<unk>.

Okay.

Let's talk about the clinical and pharma so the clinical business, we expect to have a healthy growth trajectory, we are anticipating 50% revenue growth.

Revenue growth will come from the volume growth in Asps, we are focused very closely on ASP increases and on the volume side.

The consensus I believe is around 35% today, which we think is fair.

On one side of the business, we are anticipating about 10% growth and thats.

Tycho W. Peterson: For the full year, operating expenses, excluding the $25.4 million one-time impairment charge in the fourth quarter, which was related to our legacy lab and headquarter space, were $371.9 million compared to $385.5 million in 2022, representing a 4% decrease. This reflects ongoing efforts to drive operating efficiencies partially offset by higher cost of revenue. The full-year net loss was $225.3 million compared to $200.4 million in 2022, while adjusted EBITDA was a loss of $116.4 million compared to a loss of $121.6 million in 2022. We ended the year with approximately $346 million in cash, equivalents, and marketable securities.

I think roughly.

Based on the fact that we anticipate continued industry wide headwinds and that you saw in the previous year, but we do have a strong backlog and a healthy backlog of over $185 million, which we believe.

Thank you.

Yes.

Got it and then maybe last one.

Thank you.

We just mentioned low single digit million in milestones for <unk> pharma as well.

In the <unk>.

Thanks, and then maybe last one so Chad.

Tycho just in terms of what we're going to hear at the end of the quarter in terms of the outcome of the strategic review, maybe I know Theres a couple of permutations here that could unfold kind of what can you share at this point and just kind of any color on some of the discussions.

How things have gone.

So Dan I can't really comment on anything specific structures or alternative at the moment.

What I can tell you is in conjunction with our board and with Goldman where our goal is to maximize the value to all stakeholders.

We do have a very strong cash position.

And I can ensure that any decision we make.

Isn't going to jeopardize either part of the business and more committed to providing an update so stay tuned.

Great. Okay. Thank you.

Sure.

Thank you one moment for our next question.

Tycho W. Peterson: Now, turning to 2024 guidance on slide 16. As mentioned in our last earnings call, revenue guidance will be provided only for the MRD business since immune medicine resembles a more traditional drug discovery biotech model and we want to ensure that we do not trade off short-term revenues for long-term value. We expect full-year revenue for MRD to be between $130 million and $140 million.

And our next question comes from the line of David Westenburg from Piper Sandler Your question. Please.

Hi, Thank you for taking the question. So just on the on the <unk> business kind of the visibility can you walk through the revenue cadence expectations in the year, how should we should think about some of the milestones or other kind of payments from pharma and then I just noticed a slight decrease in the sequential growth rate I noticed that.

Same thing happened in Q4 of last year is there a seasonality in the business that we haven't been modeling previously just in terms of volume growth that maybe.

Tycho W. Peterson: At the midpoint, we anticipate a 65% and 35% contribution from clinical and pharma services, respectively. Guidance includes conservative MRD pharma services growth as we continue to monitor broader impacts from the biopharma industry. It also includes MRD milestones in the low single-digit millions, which could have upside depending on clinical trial outcomes. With respect to trends throughout the year, we expect MRD revenue to be 45-55% weighted between the first and second half, respectively.

Maybe I should say.

Haven't been modeling correctly.

Yeah.

So I think to the part about the recent sequential growth and also seasonality so.

I think you're pointing to the 4% quarter over quarter growth clinical business in Q4. So I think one thing that we consider is that Q4 typically with fewer business days in other quarter, we do typically see.

Our latest growth.

Phil.

Other corners.

But importantly in Q4, we continued to see all of the leading indicators of the business that we track moving favorably. Additionally, when we broke out the U S and ex U S clinical businesses in Q4, we note that the U S business grew at 7%, whereas the ex U S business, which are typically more lumpy from quarter to quarter grew more slowly contribute.

Tycho W. Peterson: Of note, given that our immune medicine efforts are focused on target and drug discovery, revenue from our IM Pharma collaborations will be used to offset R&D investment. Finally, our collaboration with Genentech continues to advance, and we expect to recognize roughly $14 million in amortization of the upfront this year. Moving down the P&L, we expect operating expenses, including cost of revenue, to be between $360 million and $370 million for the year.

To the overall growth rate of 4% and then finally, we.

Started 2024 very strong record average daily and monthly volumes in January February to date attending even more favorably and we continue to feel very confident in the strong growth trajectory of that business and I do think seasonality just based on number of business days can be a factor there are other aspects of seasonality that we typically.

For example in summer months, but.

Probably nothing different than you might see.

Average bill.

And Dave we mentioned in the prepared comments for guidance, we expect <unk> revenue to be 45% in the first half 55 in the back half a little more back end.

Chad Robbins: This deceleration in spending reflects our ongoing efforts to optimize resources and drive operating efficiencies while supporting healthy top-line growth. We continue to be thoughtful about our cash position. Excluding potential one-time costs from the strategic review, we expect the burn to average $35 million per quarter, representing an annual reduction of 10% versus 2023. I'll hand this back over to Chad.

Got it got it okay.

Great and then just as we looked at the drivers that drove growth in 2020 for 2023 and as we start to cycle. Those drivers I mean, how should we think about the impact that you've had from epic what inning are you in the epic integration <unk> integration.

Ordering pattern.

Operator: Thanks, Tycho. We're off to a running start. I'm confident in our ability to continue to grow our colonoscopy MRD business and to demonstrate our target and drug discovery capabilities in immune medicine. I look forward to communicating with you on the outcome of the strategic review, which will enable us to drive success and maximize value for all stakeholders. With that, I'll turn it back over to the operator and open it up for questions. Certainly, ladies and gentlemen, for our first question.

Kind of a kind of a conversion of blood. It I mean, I know that's three different areas, but if you can give those three areas kind of what inning. We're in just to get a sense on on how much more growth.

How much you can compound this growth in that business. Thank you I'll stop there.

Sure Yeah. So I mean, I think you're right to think that the growth drivers in 2023, we will continue to be the growth drivers in 'twenty four and in some cases, we're in very early innings.

Some of those growth drivers for the previous calendar year that we will be able to advance further in 2004. So for example, I think integration very early days in 2023 top of the first inning.

We only saw a five account setup to utilize the integration by the end of Q4 and all of those went live just in ink.

Operator: Our first question comes from the line of Dan Brennan from Cowan. Your question, please? Great, thanks for taking the questions. Maybe Tycho, can you just walk through a little bit of the OpEx kind of outlook for 24 and the revenue, kind of what are we considering for burn? I know you touched upon it, but just kind of walk through the key drivers of where the burn goes.

One in September and the other four were completed in December So we haven't yet seen significant lift, albeit anecdotally in those accounts, we are seeing really nice results.

So we continue to work toward additional epic integrations. They are one violent process, we anticipate having 15% to 20 as previously stated by the end of the year of 15 to 20 additional and I think then we will see growth in those accounts, but for the overall business is going to take some time for that to be a very meaningful impact on the <unk>.

Cereal intact.

As Chad noted earlier, we signed another agreement with Flatiron health, which will really start to have impact on the business in the second half of 'twenty five.

Tycho W. Peterson: Yeah, yeah, we talked about, you know, 35 million per quarter. We're obviously, you know, continuing to drive efficiencies across the organization. So you're seeing leverage in sales and marketing, G&A, and R&D. So, you know, as we've kind of mentioned in prior calls, there's kind of no stones unturned as we kind of go through, you know, the ongoing business review. Got it. And then just on the MRD side of the business, you know, the clinical and the pharma side, just on the clinical side, so how do we think about, like, the volume and the realized price implicit in the 24 guidance? Yes, Susan, do you want to take this?

Thing you asked about was <unk> CL.

We saw really nice growth trajectory in India, Bcl align with our internal expectations.

And we continue to promote that very actively as well as focus on data generation. We have a number of studies that we are hoping to advance in 2024 that will continue to support.

The frontline and surveillance setting can use case for the assay is laws.

Real world evidence that we'll be advancing in other NHL indications, which will continue to build the overall business.

In non Hodgkin's lymphoma, or generally so I do think the <unk> combined with other indications like mantle cell lymphoma, indolent NHL category.

Well there will be growth drivers in 2024.

More meaningfully than they had been in previous years.

Then last thing you asked about with blood.

Tycho W. Peterson: Sure. So let's start with, I guess, the volume. So at the midpoint of the guidance, which we've issued, represents over 30 percent growth for the overall business. Now the clinical business, we expect to have a healthy growth trajectory. We are anticipating 50% revenue growth.

We had some very nice data at Ash 2023 at the end of last year, which we've been actively leveraging and promotional conversation for multiple myeloma in blood, we expect to expand the analysis of that data set early this year and see it published as well as presenting some additional data.

Utilizing circulating tumor DNA in multiple myeloma, and particularly in the setting an extra medullary disease.

Tycho W. Peterson: The revenue growth will come from both volume growth and ASP increases. We are focused very closely on ASP increases. And on the volume side, the consensus I believe is around 35% today, which we think is fair. On the pharma side of the business, we are anticipating about 10% growth. And that's roughly based on the fact that we anticipate continued industry-wide headwinds that we saw in the previous year but that we do have a strong backlog, a healthy backlog of over $185 million, which we believe will. We just mentioned low single-digit million in milestones for MRD Pharma as well in the preparations. Thanks, Tycho. And then maybe the last one.

We have enough number of other datasets that we're exploring which may be able to utilize.

This year and so.

This will be a continued data generation year.

For myeloma normal, but that said we've seen the blood based.

Percentage of blood based test continually increase quarter over quarter for myeloma.

Our business more generally we're up to nearly 40% of test in blood test.

I'm glad today as of Q4, and we continue to expect to drive that which will contribute to increased testing in the community and frequency of testing.

Great that was a lot of great detail. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Mark Massaro from <unk>. Your question. Please.

Hey, guys. Thanks for taking the time.

You have steadily increased the percentage of cloud seek tested in blood I think it was 39%. This quarter is there a point in time or do you think.

Chad Robbins: So, Chad or Tycho, just in terms of what we're going to hear at the end of the quarter in terms of the outcome of the strategic review, maybe I know there are a couple of permeations here that could unfold. What can you share at this point and just kind of any color on some of the discussions and, you know, how things have gone? So, Dan, I can't really comment on any of the specific structures or alternatives at the moment.

Blood Kim can become maybe the majority of your of your <unk> volumes and is there a certain target that you have even if it's out like say three.

Three to five years.

Well, absolutely we think the majority of our test blood.

Blood based testing is related to the community as well and as we continue to increase and bring on community counts. The percentage of tests that are done in blood, we will continue to increase so.

Chad Robbins: What I can tell you is, in conjunction with our board and with Goldman, our goal is to maximize value for all stakeholders. We do have a very strong cash position, and I can't ensure that any decision we make isn't going to jeopardize either part of the business, and we're committed to providing an update, so stay tuned. Great, okay. Thank you. Care.

I don't know if I can give you an exact date when it can become a majority but.

That number is growing very rapidly and we see it being a.

A steadily increasing percentage of our overall test mix.

Okay excellent I know at Jpmorgan, you guys provided that 25% to 30% revenue CAGR for MRV between 2023 and 2027, So obviously pretty solid top line growth and then <unk>.

Operator: Thank you. One moment for our next question, and our next question comes from the line of David Westenberg from Piper Sandler.

Maintained your expectations to hit MRV profitability in the second half of 'twenty five.

Operator: Your question, please. Hi, thank you for taking the time to answer my question. So I'm just on the MRD business, kind of the visibility. Can you walk through the MRD revenue cadence expectations for the year? How should we choose to think about some of the milestones or other kind of payments from pharma? And then I just noticed a slight decrease in the sequential growth rate. And I noticed that the same thing happened in Q4 of last year.

I guess im asking on the cost side. So obviously.

You can get to profitability through revenue growth, but I'm. Just curious are there certain costs that that might be able to come out of the kimono seek assay and maybe if you could speak to input costs or maybe some of the instrumentation. Our reagents that are used to.

Just be curious to see what type of levers you might have on the call.

Cogs side.

Yes.

Tycho W. Peterson: Is there seasonality in the business that we haven't been modeling previously, just in terms of volume growth, that maybe, I should say, I haven't been modeling correctly? So I can speak to the part about recent sequential growth and also seasonality. So I think you're pointing to the 4% quarter over quarter growth for the clinical business in Q4. So I think, you know, one thing that we consider is that Q4 typically, with fewer business days than another quarter, we do typically see a lighter growth profile than in other quarters. But importantly, in Q4, we continue to see all of the leading indicators of the business that we track moving favorably. Additionally, when we broke out the U.S. and ex-U.S. clinical businesses in Q4, we know that the U.S. business grew at 7%, whereas the ex-U.S. business, which is typically more lumpy from quarter to quarter, grew more slowly, contributing to the overall growth rate of 4%.

So absolutely as we previously mentioned and I'll reiterate we are looking at.

We've been testing the <unk> and we're looking at a switch to and obviously by the end of this year and that will have a significant reduction in the <unk>.

Cost of goods sold.

But in addition to that.

Tycho So no stone is being left unturned, we're looking at our operating costs as well and we can continue to refine the business to figure out how we can increase.

Increase the profit profitability profile overtime so.

Yes. The answer is yes, we are absolutely looking at.

The cost side of the equation and there is another couple of other things. We've highlighted we're doing olin's overhaul in the first half of the year that'll have implications for overhead.

Reducing the number of extractions that we process. So there is a lot in terms of the workflow.

Okay and then my last question is just on mantle cell lymphoma can you just talk about maybe remind us the size of the market.

Timing of <unk>.

Commercial launch.

Tycho W. Peterson: And then finally, we started 2024 off very strong with record average daily and monthly volumes in January. February to date is trending even more favorably, so we continue to feel very confident in the strong growth trajectory of that business. And I do think seasonality, just based on the number of business days, can be a factor. There are other aspects of seasonality that we typically see, for example, in certain summer months.

What do you think that might do to expand sort of the portfolio.

Yeah sure.

And also as a relatively smaller indication more similar to you perhaps kols in myeloma in the context of our existing covered indications.

That said it is an area of unmet need for monitoring and certainly an area of high interest for MRV based on our interactions with clinicians today, we already have significant existing volume with several kols in the space and anticipate that.

Medicare coverage, which we are actively speaking today will be the trigger for us to begin.

Tycho W. Peterson: But overall, probably nothing different than you might see in an average business of our industry. And Dave, we mentioned the prepared comments for guidance. We expect MRD revenue to be, you know, 45% in the first half, 55% in the back half. So a little more on the back end. Got it. Got it. Okay. No, that's great.

Actively commercializing that indication and we're looking forward to continuing to interact with <unk> and are actively engaged with them now.

We expect to have more information.

Excellent I'll keep my questions. There thanks guys.

Thanks Mark.

Q1 moment for our next question.

And our next question comes from the line of Tejas Savant from Morgan Stanley. Your question. Please.

Hello, Hi, this is Hugo on the call for <unk>.

Earlier this year, you talked about potential for FDA to accept.

Tycho W. Peterson: And then just as we look at the drivers that drew growth in 2024, I mean, 2023, and as we start to cycle those drivers, I mean, how should we think about the impact that you've had from EPIC? You know, what inning are you in, in the EPIC integration, the DBCL ordering pattern, and, you know, kind of the conversion of blood. I mean, I know that's three different areas, but if you can give those three areas, kind of what inning we're in, just to get a sense of how much more growth or how much you can compound this growth in that business. Thank you. I'll stop there.

Primary surrogate endpoint in multiple myeloma could you elaborate on what you're hearing and how quickly we can see that associated upside for MRV business.

Yes, I mean, what we.

<unk> heard us through the.

International Myeloma working group.

Several members of that committee had heard.

<unk> was considering multiple myeloma as a primary endpoint.

So we are we are waiting we are waiting for that decision I don't have any more resolution into.

Timing of that.

But we are certainly hoping that that comes in and.

In the first couple of quarters of this year, but again, it's hard to predict.

A government body.

In terms of acceleration.

Obviously, we have.

Tycho W. Peterson: Sure, yeah. I think you're right to think that the growth drivers in 2023 will continue to be the growth drivers in 2024. And in some cases, we're in very early innings with some of those growth drivers for the previous calendar year that we will be able to advance further in 2024. So for example, Epic Integration, in the very early days of 2023, top of the first inning, we only saw our first five accounts set up to utilize the integration by the end of Q4. And all of those went live just in, you know, either September or December, and the other four were completed in December.

We have deals.

I have written into the contract that upon approval of the drug if our data is used as a primary endpoint.

We there are payments do so.

Certainly be.

Certainly very beneficial to the business.

Yes.

Great. Thank you and then a separate follow up you talked about the limbs overhaul and <unk>, which are some of the cost actions that are underway could you quantify the uplift in margins from those initiatives.

Yes, you go ahead, I don't think we're going to get that granular.

I can talk a little bit about pacing and limited the first half of this year, we've been pretty clear the novus seek really won't have an impact until 2025.

One thing we have said is at scale.

The <unk> business should easily be north of 70% gross margin that includes both clinical and pharma.

But kind of consistent with other CLIA labs, but we're not going to break out contributions from wins versus the Nova transition specifically.

Got it.

Asps will also help there by the way.

Okay.

And maybe just one slip in one more.

One more question here.

The.

In terms of the flat iron.

The flat iron.

EMR agreement, how much additional accounts, how much incremental would it be to the two epic agreements or you already have.

Tycho W. Peterson: So we haven't yet seen a significant lift, albeit anecdotally in those accounts, we are seeing really nice results. So we continue to work toward additional Epic Integrations, they are a one-by-one process; we anticipate having 15 to 20, as previously stated, by the end of the year, 15 to 20 additional Epic Integrations. And I think then, you know, we will see growth in those accounts. But for the overall business, it's going to take some time for there to be a very meaningful impact, a material impact. We, as Chad noted earlier, we've signed another agreement with Flatiron Health, which will really start to have an impact on the business in the second half of 2025. The second thing you asked about was DLBCL.

I mean in terms of access to accounts, yes.

Yes.

So our plan is engaged with they have access to about 40% as the community oncology and Canadian colleges in the U S.

Four zero.

They do.

They are also they are currently.

Implemented in 250 accounts, which did event number that's hard to interpret because.

It's <unk> from these very large accounts.

Yes, the business potential for US is tremendous I mean, just the top 15 accounts that have.

<unk> utilized uncle EMR has 33000 relevant patient for R&D. These indications.

I think I'll leave it at that.

The high level think about and why do we do why we do this thinking about epic as well.

Being integrated into the academic medical centers and institutions and flatiron being integrated into their community oncology and network practices.

Tycho W. Peterson: We saw a really nice growth trajectory in DLBCL, aligned with our internal expectations, and we continue to promote that very actively, as well as focus on data generation. We have a number of studies that we are hoping to advance in 2024 that will continue to support the frontline and surveillance setting use case for the assay, as well as some nice real-world evidence that we'll be advancing in other NHL indications, which will continue to build the overall business in non-Hodgkin's lymphoma more generally. So I do think DLBCL, combined with other indications like mantle cell lympho And then the last thing you asked about was blood.

So we're trying to cover all bases and they are one of the largest EHR providers within the community and gives us access one of the benefits.

To to.

Flatter than that we don't have with epic.

It's a faster I mean, it takes it takes a while to do the upfront setup costs in their backlog on timing, but we're looking kind of at a fourth quarter of this year kind of implementation, but once they hit once they hit kind of a button you can push it out to many of the sites all at the same time as opposed to having to go kind of one by one.

One on the epic integration, so certainly excited about it and excited about what we're seeing kind of early on from the epic integrations that we've already done so continuing to invest in making it easier and easier for a doctor to order a test.

That we believe is going to lead to more tests being ordered and it's just very simply it's a very simple equation.

Tycho W. Peterson: We had some very nice data at ASH 2023, just at the end of last year, which we've been actively leveraging in promotional conversations for multiple myeloma in blood. We expect to expand the analysis of that data set early this year and see it published, as well as present some additional data utilizing circulating tumor DNA in multiple myeloma, particularly in the setting of extramedullary disease. We have a number of other data sets that we're exploring, which we may be able to utilize this year. And so I think this will be a continued data generation year for multiple myeloma. But that said, we've seen the blood-based percentage of blood-based tests continually increase quarter over quarter, both for myeloma, as well as for our business more generally.

Got it. Thank you so much for that color.

You bet.

Thank you one moment for our next question.

And our next question comes from the line of Andrew <unk> from William Blair. Your question. Please.

Hi, guys. Good afternoon. Thanks for taking my question I, just wanted to circle back on pricing here for a minute I think in the past you've sort of talked about some improvements coming from reducing Medicaid mix.

And then also revenue cycle management can you just sort of get an update on where those initiatives stand and how you're thinking about those impacting 2024.

Yes.

I'll just kind of reiterate some of the things I mentioned in my prepared remarks were really excited about the work that we've put in and outs kind of already starting to play out on <unk>.

ASP increases so we're kind of reducing non contracted claims auto policy claims.

And just working on a lot of the blocking and tackling on the appeals process prior off process et cetera. So all those things are working in terms of Medicaid.

Tycho W. Peterson: We're up to nearly 40% of tests in blood, MRD tests in blood today, as of Q4, and we continue to expect to drive that, which will contribute to increased testing in the community and frequency of testing. Great. That was a lot of great detail.

Naturally as we continue to expand into.

More indications Medicaid as a overall percentage of our test.

Test mix excuse me kind of winds up going going down in a large percentage of Medicaid also relates to ALLL.

So.

Overall overall.

Our initiatives are working what we've talked about just in terms of quantifying that as a $200 increase over the next two years and we've already we're already starting to see that work.

Tycho W. Peterson: Thank you. Thank you. One moment for our next question. And our next question comes from the line of Mark Massaro from BTIG. Your question, please. Hey, guys, thanks for taking the time. You've steadily increased the percentage of clonaseq tests in blood. I think it was 39 percent this quarter.

Okay. That's perfect and then I just wanted to go back to your comments around sort of gating R&D investment for specific proof points within the immune medicine side of things any color that you can give us with respect to some of the things you might be looking for as Youre thinking about what level of spend you might be comfortable there. Thanks for taking the question.

Chad Robbins: Is there a point in time when blood can become maybe the majority of your clonaseq volumes? And is there a certain target that you have, even if it's out, like, say, three to five? Well, absolutely, we think a majority of our blood-based testing is related to the community as well. And as we continue to increase and bring on community accounts, the percentage of tests that are done on blood will continue to increase. So, you know, I don't know if I can give you an exact date when this can become a majority, but that number is growing very rapidly, and we see it as a steadily increasing percentage of our overall test mix.

Yes, Andrew I'm going to turn that over to Sharon <unk>, who runs the IR business.

Yeah. Thanks for the question so.

So of course on the heels of our discovery of the first novel target using our platform.

It's a target that we've identified in multiple sclerosis, obviously, a devastating disease.

And this year, we're very focused on further validation of the target of being positive of multiple sclerosis, we're using both in vitro and in vivo MF disease model.

Two to ensure that data on that one we expect in the first half of the year and then in parallel we look forward starting to think about what drug modality to us to be able to.

Go after that target.

In parallel this year, we're also deploying and have already deployed our antibody discovery platform. We completed at the end of last year, a successful proof of concept for our antibody discovery approach and so we're pretty encouraged by parallel processing those two work streams with the.

Chad Robbins: Okay, excellent. I know at J.P. Morgan, you guys provided the 25 to 30% revenue CAGR for MRD between 2023 and 2027. So obviously, you know, pretty solid top-line growth. And then you've maintained your expectations to hit MRD profitability in the second half of 2025. I guess I'm asking on the cost side. Obviously, you can get to profitability through revenue growth, but I'm just curious, are there certain costs that might be able to come out of the Clonoseq assay? And maybe you could speak to input costs or maybe some of the instrumentation or reagents that are used. I'd just be curious to see what type of levers you might have on the COGS side.

The goal to ultimately.

Have antibody candidates that we can designate.

If you'd like.

Candidates to advance over the next during the next two years into the clinic.

Great. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of sung <unk> Nam from Scotia Bank. Your question. Please.

Hi, Thanks for taking the question.

If I can probe a little further on the marquee pharma side, obviously, a solid backlog there, but could you maybe talk about the trends you guys are seeing that specific to adaptive are you seeing.

And your trial cancellations or are these mostly trial delays or kind of lengthening of the of the studies.

Chad Robbins: Yes, absolutely. As I kind of previously mentioned, and I'll reiterate, we are looking at it. We've been testing NovaSeq, and we're looking at a switch to NovaSeq by the end of this year. And that'll have a significant reduction in cost and the cost of goods sold. But in addition to that, as Tycho said, no stone is being left unturned.

I think probably one thing thats relevant to note is just the indications that we are in and the trends that we're seeing in the broader market with regard to investment in clinical trials over the last several years in multiple myeloma.

The largest contributor to our pharma business.

The number of trials with steadily increasing the number peaked in 2021 and since then has been declining and so I think one thing to be aware of is that.

For our specific business very strong position in that indication potentially made even stronger if and when the FDA accept them already as a surrogate.

Chad Robbins: We're looking at our operating costs as well, and we can continue to refine the business to figure out how we can increase the profitability profile over time. So yes, the answer is yes, we are absolutely looking at the cost side of the equation. And there are another couple of things we've highlighted. We're doing a limited overhaul in the first half of the year. That'll have implications for overhead because we're reducing the number of extractions that we process.

For accelerated approval, but we are competing for a smaller subset of trials are drawing from I should say is a smaller subset of trials over time in other indications like in non Hodgkin's lymphoma. The trends are different the number of trials hasn't hasnt extreme that hasnt started to decline in two hours.

Really consistent over the last several years and so that's a big area of focus for us in terms of cloud is driving increased penetration in the non hodgkin's lymphoma, whereas we have likely.

Tycho W. Peterson: So there is a lot in terms of the workflow. Okay, and then my last question is just about mantle cell lymphoma. Can you just talk about, maybe remind us the size of the market and, you know, the timing of the commercial launch and, you know, what you think that might do to expand sort of the portfolio? Sure. Mental health is a relatively smaller indication, more similar to perhaps ALLs and myeloma in the context of our existing covered indications.

Less growth opportunity just in the context of a smaller a shrinking market in multiple myeloma over the longer term.

Got you great.

And then just going back to the question on the NPL Tcl market opportunity. There my understanding is that <unk>, roughly 20% 30% of NHL.

And then there is about 60% of the aggressive subtypes of NHL. So.

Is the 60% of NHL kind of be potentially addressable market do you think in the in the future or is it too early to tell just kind of curious how you know as well.

Tycho W. Peterson: That said, it is an area of unmet need for monitoring and certainly an area of high interest for MRD based on our interactions with clinicians to date. We already have significant existing volume with several KOLs in the space and anticipate that Medicare coverage, which we are actively seeking today, will be the trigger for us to begin proactively commercializing that indication. We're looking forward to continuing to interact with MoDx and are actively engaged with them now, so we expect to have more information.

Think about the potential market size.

Yeah, I think it's early to say we are still developing a lot of data in non Hodgkin's lymphoma in indications beyond the first steel and so what percentage of that total capital market. We can ultimately tap and it remains to be seen but I will say that yes.

Technically it is applicable in any pharma and it will just be a question of which evidence.

Turning into investing in developing but we at the same data as you do that.

<unk> represents about 50, 50, plus 50% to 60% of NH.

NHL. So that is one area as we mentioned that we are aggressively focused on.

The other two.

That we're following with Medicare on this year or Mcl and <unk>.

Got you and then one quick one for Tycho, sorry, if I missed it but the $40 million amortization.

Tycho W. Peterson: Excellent. I'll keep my questions there. Thanks, guys. Thanks, Mark.

In fact this year is that just to be modeled that radio ratably throughout the year.

Operator: Thank you. One moment for our next question. And our next question comes from the line of T.J. Savant from Morgan Stanley. Your question, please: Hi, are you earlier this year for FBB?

Yes, yes.

I think thats right way to do it.

I mean, it will shift around month to month, but yes, just kind of ratably for the year is fine.

Great. Thank you.

Welcome. Thank you.

Ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone.

Chad Robbins: Mellom, did you elaborate on............... Yeah, what we've heard through the International Myeloma Working Group that several members of that committee had heard that the FDA was considering multi-myeloma as a primary endpoint. So we are waiting for that decision. I don't have any more resolution on the timing of that, but we're certainly hoping that that comes in the first couple quarters of this year. But again, it's hard to predict a government body.

Our next question comes from the line of Celgene Ritchie from Goldman Sachs. Your question. Please.

Hey, guys. Good evening. This is Elizabeth <unk> for Zalviso too.

Two questions from us today. So the first is on your partnership with Flatiron Health can you provide some color just around how that partnership is structured and if that would include.

Chad Robbins: In terms of acceleration, you know, obviously, we have deals that have been written into the contract that upon approval, the drug, if our data is used as a primary endpoint, that there are payments due. So it would certainly be beneficial to the business, and then a separate follow-up about the limb overhaul. Quantified, App. Yeah, you go. I don't think we're going to get that granular.

Milestone payments or would it be more kind of a continuous revenue recognition for <unk> and then second is on the epic partnership just curious if you've had any feedback from users our physicians and what Youre learning thus far in the early days about how this integration works and how it's being used.

Thank you.

Yes.

The first one Elizabeth and then I'll kick it over to Susan to provide more color on the epic integration early early day learnings as far as Florida, and while I can't go into the.

Tycho W. Peterson: You know, I can talk a little bit about pacing and LIMS's first half of this year. You know, we've been pretty clear that the NOVA-seq really won't have an impact until 2025. You know, one thing we have said is, at scale, the MRT business should easily be north of 70% gross margin. You know, that includes both clinical and pharma. But you know, kind of consistent with other CLIA labs, but we're not going to break out contributions from LIMS versus, you know, the NOVA transition specifically. ASP will also help there, by the way.

<unk> of the agreement.

To be able to protect <unk> position in the industry.

What I can tell you is your question is it doesn't entail kind of milestone payments.

It's basically.

Setup fee and an agile and Youll see us I think the most I can elaborate at this point, but Susan you want to talk about epic sure yes.

The feedback has been very positive to date in <unk>.

<unk> seen several of our early sites come back after just a short time of having experienced with the integration in <unk> to expand the scope of the integration for example, bringing on more physicians or inquiry expanding.

Expanding to the inpatient setting versus outpatient only we.

We've seen increases in both the number of ordering physicians and the volumes that are flowing through.

Each of the accounts, where we integrated to date.

Tycho W. Peterson: Very good. Okay. Moore, Hair, Ow!

The most the most important improvement is simply the reduction in manpower required to enter orders and to not only enter orders that you received the results from orders as they now land directly into the EMR in the place where you would find other test results versus kind of having to be manually.

Tycho W. Peterson: Tycho Peterson, Derik Bruin, Doug Schenkel, Daniel Brennan, Sung Nam, Brian Weinstein, Flatiron, and Onco EMR Agreement. How much additional... screening in terms of access to accounts?

I'll put it in search for the other benefit of epic integration is discrete data delivery.

Chad Robbins: Yeah. So Flatiron is engaged with, and they have access to about 40% of the community oncologists in the U.S. for Xero. They are currently implemented in 250 accounts, which is a bit of a number that's hard to interpret because some of these are very large accounts, but the business potential for us is tremendous. I mean, just the top 15 accounts that have utilized OncoEMR have 33,000 relevant patients for our disease indications. So I think I'll leave it at that. You go at a high level, think about why we do this. Think about Epic as being integrated into the academic and medical centers and institutions and Flatiron being integrated into the community oncology and network practices. So we're trying to cover all bases, and they're one of the largest EHR providers within the community, so they give us access.

Which is going to enable more streamline real world evidence.

Now assists, which more and more of our accounts are coming to us and expressing interest in performing so I think it will be a tool not only for clinical.

Efficiency, but also for expanding research insights around that might be.

Got it that's helpful. Thank you.

Okay.

Thank you one moment for our next question.

Yes.

And our next question is a follow up from the line of Rachel <unk> from Jpmorgan. Your question. Please.

Okay, Hey, good afternoon. Thanks, so much for taking the question I wanted to follow up on some of the ASP comments earlier. So you noted that you expect to lift asps by $200 over the next two years. So can you just talk about how should we think about the cadence of that step up over the next 24 months will be linear.

Any comments there would be helpful.

So yes at this point model it out as linear I think the reality is asps fees based on age collections in a variety of different factors. They can vary month to month, even quarter to quarter, but we're seeing kind of all of the leading indicators point to.

Chad Robbins: One of the benefits to Flatiron that we don't have with Epic is a faster, I mean, it takes a while to do the upfront setup costs, and they're backlogged on timing, but we're looking kind of at a fourth quarter of this year kind of implementation. But once they hit a button, they can push it out to many of the sites all at the same time, as opposed to having to go kind of one by one on the Epic integration.

Kind of a linear growth to over $200 in ASP increases over the next two years.

Great and then just as a follow up can you walk us through your updated thinking around the state biomarker bells, what type of impact could that really have on the business and then do you have any of that benefit embedded in the guide for the 2024 euro as well.

Tycho W. Peterson: So certainly excited about it and excited about what we're seeing early on from the Epic integrations that we've already done. So continuing to invest in making it easier for a doctor to order a test is something that we believe is going to lead to more tests being ordered. It's just very simple. It's a very simple equation for that.

It's a great question and we don't have it specifically baked into the guide, but we are optimistic.

I would say we are increasingly optimistic based on.

So discussions and conversations that we've been having that the enforcement of the state biomarker.

Operator: You bet. Thank you. One moment for our next question, and our next question comes from the line of Andrew Brackman from William Blair. Your question, please. Hi, guys. Good afternoon.

Flaws or are starting to take hold just.

Just to give some context I sit on the board of coalition for 20, <unk> century medicine, and we're working hard on this initiatives and if you look at <unk> and all the industry associations.

Tycho W. Peterson: Thanks for taking the question. I just want to circle back on pricing here for a minute. I think in the past, you sort of talked about some improvements coming from reducing Medicaid mix and then also revenue cycle management. Can we just sort of get an update on where those initiatives stand and how you're thinking about them impacting 2024? Thanks.

A prominent areas of focus obviously you are fighting the insurance company lobbies that are trying to not not pay but net net I think from a national physician, that's coming down on the states you are seeing.

Incremental evidence of kind of positive trends that insurance companies are starting to comply with this legislation so.

Again, I don't think it's going to be an overnight.

Success, and obviously were hoping more states enact the biomarker legislations, but but you will see over time incremental and no. It's not it's not baked into the guide.

Tycho W. Peterson: Yeah, I'll just kind of reiterate some of the things I mentioned in my prepared remark. We're really excited about the work that we put in and how it's kind of already starting to play out on ASP increases. So we're going to reduce non-contracted claims, out of policy claims, and just working on a lot of the blocking and tackling on the appeals process, prior off process, etc. So all those things are working

Great. That's it for me thank you.

Thank you this does.

This concludes the question and answer session as well as today's program. Thank you, ladies and gentlemen for your participation you may now disconnect. Good day.

Okay.

Yes.

Okay.

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Tycho W. Peterson: In terms of Medicaid, naturally, as we continue to expand into more indications, Medicaid's overall percentage of our test mix, excuse me, kind of winds up going down, and a large percentage of Medicaid also relates to ALL. So overall, our initiatives are working. What we've talked about, just in terms of quantifying that, is a $200 increase over the next two years, and we're already starting to see that work. Okay, that's perfect. And then I just want to go back to your comment around sort of gating R&D investment for specific proof points within the immune medicine side of things. Any color that you can give us with respect to some of the things you might be looking for as you're thinking about what level of set spend you might be comfortable with there?

Okay.

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Tycho W. Peterson: Thanks for taking the question. Yeah, Andrew, I'm going to turn that over to Sharon Benzino, who runs the IAM business. Yeah, thanks for the question. So, on the heels of our discovery of the first novel target using our platform, it's a target that we've identified in multiple sclerosis, obviously a devastating disease. And this year, we're very focused on further validation of the target as being causative of multiple sclerosis. We're using both in vitro and in vivo MS disease models to ensure that data on that plant we expect in the first half of the year.

Okay.

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Sharon Benzino: And then, in parallel, we're, of course, starting to think about what drug modality to use to be able to go after this target. In parallel, this year, we're also deploying, and have already deployed, our antibody discovery platform. We completed a successful proof of concept in mice for our antibody discovery approach at the end of last year.

Yes.

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Sharon Benzino: And so we're pretty encouraged by parallel processing those two work streams with the goal of ultimately having antibody candidates that we can designate as therapeutic candidates to advance over the next, during the next two years into the clinic. Great, thank you. Thank you. Please take a moment for our next question. And our next question comes from the line of Sung Tee Nam from Scotiabank. Your question, please. Hi, thanks for taking the question. Maybe if I can probe a little further on the MRD-Pharma side, obviously, you know, solid backlog there, but could you maybe talk about the trends you guys are seeing that's specific to adaptive? Are you seeing, you know, any trial cancellations, or are these mostly trial delays or some kind of lengthening of the studies?

Yes.

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Sharon Benzino: I think probably one thing that's relevant to know is just the indications that we are in and the trends that we're seeing in the broader market with regard to investment in clinical trials. For example, over the last several years in multiple myeloma, which is the largest contributor to our pharma business, the number of trials was steadily increasing. The number peaked in 2021, and since then, it has been declining.

Okay.

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Tycho W. Peterson: And so I think one thing to be aware of is that for our specific business, we have a very strong position in that indication, potentially made even stronger if and when the FDA accepts MRD as a surrogate for accelerated approval. But we are competing for a smaller subset of trials or drawing from, I should say, a smaller subset of trials over time. In other indications, like non-Hodgkin's lymphoma, the trends are different.

Yes.

Okay.

Yes.

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Tycho W. Peterson: The number of trials hasn't started to decline. It seems to be relatively consistent over the last several years. And so that's a big area of focus for us in terms of growth driving increased penetration in non-Hodgkin's lymphomas, whereas we have likely less growth opportunity just in the context of a smaller, shrinking market in multiple myeloma over the longer term.

Okay.

Sure.

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Okay.

Tycho W. Peterson: Gotcha, great. And then just going back to the question on the MCL, CTCL market opportunity there, my understanding is that DLBCL is roughly 25-30% of NHL, and then there are about 60% of the aggressive subtypes of NHL. So is 60% of the NHL kind of a potential adjustable market, do you think, in the future? Is it too early to tell? Just kind of curious how, you know, as we think about the potential market size. Yeah, you know, I think it's early to say we're still developing a lot of data in non-Hodgkin's lymphoma and indications beyond the first few, and so what percentage of that total addressable market we can ultimately tap into remains to be seen, but I will say that the assay is technically applicable to any lymphoma, and it will just be a question of which evidence we determine to invest in developing.

Yes.

Okay.

Yes.

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Tycho W. Peterson: We have the same data as you do that the LBCL represents about 50, 50 plus, 50 to 60 percent of all NHL, so that is one area, as we mentioned, that we're aggressively focused on, and the other two that we're filing with Medicare on this year are MCL and CTCL. Gotcha. And then one quick one for Tycho, sorry if I missed it, but the $14 million amortization for Genentech this year, should we model that rate of relief throughout the year? I mean, I think that's the right way to do it.

Okay.

Sure.

Okay.

Sure.

Okay.

Yes.

Tycho W. Peterson: I mean, yeah, it'll shift around month to month, but yeah, just kind of readable for the year is fine. Great. Thank you. Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star 1-1 on your telephone. Our next question comes from the line of Sylvia and Richter from Goldman Sachs. Your question, please. Hey guys, good evening. This is Elizabeth on First Alvene.

Okay.

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Operator: Two questions from us today. So the first is on your partnership with Flatiron Health; can you provide some color just around how that partnership is structured and if that would include Milestone Payments, or would it be more kind of a continuous revenue recognition for Clonoseq? And then second, on the EPIC partnership.

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Operator: I'm just curious if you've had any feedback from users or physicians and what you're learning thus far in the early days about how this integration works and how it's being used. Thank you. Yeah, I'll go over the first one, Elizabeth, and then I'll kick it over to Susan to provide more color on the EPIC integration early day learnings. As far as Flatiron, while I can't go into the specifics of the agreement, you know, to be able to protect Flatiron's position in the industry, what I can tell you is your question is, it doesn't entail any kind of milestone payments.

Okay.

Yes.

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Okay.

Chad Robbins: You know, it's basically, you know, a setup fee and an annual fee. I think that's the most I can elaborate on at this point. Susan, do you want to talk about EPIC? Sure. Yeah, the feedback has been very positive so far. In fact, we've seen several of our early sites come back after just a short time of having experience with the integration and ask to expand the scope of the integration, for example, bringing on more physicians or expanding to the inpatient setting versus outpatient only. We've seen increases in both the number of ordering positions and the volumes that are flowing through in each of the accounts where we've integrated to date. I think the most, you know, the most important improvement is simply the reduction in manpower required to enter orders and to not only enter orders but to receive the results from orders as they now land directly into the EMR in the place where you would find other test results versus having to be manually uploaded and searched for.

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Tycho W. Peterson: The other benefit of Epic integration is discrete data delivery, which is going to enable more streamlined real-world evidence analysis, which more and more of our accounts are coming to us and expressing interest in performing. So I think this will be a tool not only for clinical efficiency but also for expanding research insights around MRD in HEME. Got it. That's helpful. Thank you. Thank you. One moment for our next question, and the next question is a follow-up from the line of Rachel Vatzendael from J.P. Morgan. Your question, please. Perfect. Hey, good afternoon. Thanks so much for taking the questions.

Okay.

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Operator: I wanted to follow up on some of the ASP comments earlier. So you noted that you expect to lift ASPs by $200 over the next two years. So can you just talk about how we should think about the cadence of that step up over the next 24 months will be linear? You know, any comments that would be helpful? Hi Rachel. Yeah, I would at this point model it out as linear.

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Tycho W. Peterson: I think the reality is, you know, ASPs, based on age collections and a variety of different factors, they can vary month to month, even quarter to quarter. But we're seeing kind of all the leading indicators point to kind of linear growth of over $200 in ASP increases over the next two years. Great. And then, just as a follow-up, can you walk us through your updated thinking on the state biomarker bills? What type of impact would that really have on the business?

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Tycho W. Peterson: And then, do you have any of that benefit embedded in the guide for the 2024 year as well? It's a great question, and we don't have it specifically baked into the guide, but we are optimistic. I would say we're increasingly optimistic, based on the discussions and conversations that we've been having, that the enforcement of the state biomarker laws is starting to take hold. Just to give some context, I sit on the board of the Coalition for 21st Century Medicine, and we're working kind of hard on this initiative. And if you look at AdvoMed, ACLA, and all the industry associations, it's a prominent area of focus. Obviously, you're fighting the insurance company lobbies that are trying to not pay, but net-net, I think, from a national position that's coming down on the states, you are seeing incremental evidence of positive trends that insurance companies are starting to comply with this legislation. So, you know, again, I don't think it's going to be an overnight kind of success, and obviously, we're hoping more states enact the biomarker legislation, but you will see kind of an overtime incremental, and no, it's not baked into the guide.

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Tycho W. Peterson: Great. That's it for me. Thank you. Thank you. This does conclude the question and answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Transcription by Commandfo, Edited by Dilanka Translated by Evan Robinson, Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music, The Green? Camps Obelix by TravelPod memberrices In The Green Obelix, ?en obra, camels are OUT... by TravelPod membertorag Anyone that puts a camel outfit on their doll looks forward to their Chearpark Day 2 The Green Obelix, No Lost Walkie-Talkie Game by TravelPod member marcow slots Ho Bachelor in the Green Obelix by TravelPod member marcow

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