Q2 2024 Adaptive Biotechnologies Corp Earnings Call

Good day and thank you for standing by.

Operator: Technology. 2nd Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode.

Speaker Change: Welcome to the Adaptive Biotechnologies 2nd Quarter 2024 Earnings Call.

Operator: 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 on your telephone. You will then hear an automated message advising that your hand is raised.

Speaker Change: At this time, all participants are in listen-only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.

Karina Calzadilla: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Karina Calzadilla, Head of Investor Relations. Please go ahead.

Operator: To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Karina Calzadilla, Head of Investor Relations. Please go ahead.

Karina Calzadilla: Thanks, Anton, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnology's 2nd Quarter 2024 Earnings Conference. Earlier today, we issued a press release reporting adaptive financial results for the second quarter of 24. 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 to the investor section of our corporate website. During the call, Manitou will make projections and other forward-looking statements within the meanings of federal security law regarding future events and the future financial performance of the company.

Karina Calzadilla: Thanks, Anton, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnology's 2nd Quarter 2024 Earnings Conference Call.

Speaker Change: Earlier today, we issued a press release reporting adaptive financial results for the second quarter of 2024.

Speaker Change: The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing to a slide presentation that has been posted to the investor section in our corporate website.

Manitou: During this call, Manitou will make projections and other forward-looking statements within the meanings of federal security law regarding future events and the future financial performance of the company.

Karina Calzadilla: These statements reflect management's current perspective of the business as 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 filings 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.

Manitou: These statements reflect management's current perspective of the business as of today. Actual results may differ materially from today's forward-looking statements depending on a number of factors which are set forth in our public filings with the SEC and listed in this presentation.

Speaker Change: 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 the call today are Chad Robins, our CEO and co-founder, and Kyle Piskel, our Chief Financial Officer.

Karina Calzadilla: Joining the call today are Chad Robins, our CEO and co-founder, and Kyle Piskel, our Chief Financial Officer. Additional members from management will be available for Q and A. With that, I'll turn the call over to Chad Robins. Thanks, Karina. Good afternoon, everyone, and thank you for joining us on our second quarter earnings call. It is CFAIR weekend here in Seattle, so if the Blue Angels are flying overhead, we are live, and I may pause for a couple seconds.

Speaker Change: Additional members from management will be available for Q&A. With that, I'll turn the call over to Chad Robins. Chad?

Chad Robins: Thanks, Karina. Good afternoon, everyone, and thank you for joining us on our second quarter earnings call. It is CFAIR weekend here in Seattle, so if the Blue Angels are flying overhead, we are live, and I may pause for a couple seconds.

Chad Robins: Let's jump in. Our second quarter results are extremely encouraging. We are laser focused on fueling growth on the top line, reducing spend, and managing our capital. And this is exactly what we achieved this quarter, as you can see on slide three. MRD revenue grew 36% versus prior year and 8% versus prior quarter, with growth coming from both clinical and pharma. However, total operating spend, less one-time costs, had a significant decline of 15% versus prior year and 8% sequentially, with reductions observed across all segments.

Speaker Change: Let's jump in.

Speaker Change: Our second quarter results are extremely encouraging. We are laser-focused on fueling growth on the top line, reducing spend, and managing our capital. And this is exactly what we achieved this quarter, as you can see on slide 3.

Speaker Change: MRD revenue grew 36% versus prior year and 8% versus prior quarter with growth coming from both clinical and pharma.

Speaker Change: Total operating spend, less one-time costs, had a significant decline of 15% versus prior year and 8% sequentially, with reductions observed across all segments.

Chad Robins: Sequencing gross margin increased 5 percentage points compared to last quarter, and cash ended at approximately $292 million. This reflects a cash burn reduction of 32% in the first half of this year versus a year ago. As a result of this strong performance, we are updating our full-year guidance. We are raising our MRD revenue, decreasing our operating spend, and reducing our annual cash burn. Kyle will provide further details in his prepared remarks.

Speaker Change: Sequencing Gross Margin increased 5 percentage points compared to last quarter.

Speaker Change: And cash ended at approximately $292 million. This reflects a cash burn reduction of 32% in the first half of this year versus a year ago.

Speaker Change: As a result of this strong performance, we are updating our full-year guidance. We are raising our MRD revenue range.

Speaker Change: Decreasing our operating spend and reducing our annual cash burn. Kyle will provide further details in his prepared remarks.

Chad Robins: Now, let's take a closer look at the MRD business on slide four. ClonoSeq clinical revenue grew 43% versus prior year driven by both volume and ASP. Tests delivered had another record quarter growing 36% versus prior year and 9% versus prior quarter to over 18,500 tests. We observed double-digit growth sequentially in all marketed indications. Multibioma continues to be the largest contributor, representing 42% of

Kyle: Now, let's take a closer look at the MRD business on slide 4.

Kyle: Clonoseq clinical revenue grew 43% versus prior year driven by both volume and ASP.

Kyle: Tests delivered had another record quarter growing 36% versus prior year and 9% versus prior quarter to over 18,500 tests.

Kyle: We observed double-digit growth sequentially in all marketed indications.

Kyle: Multibioma continues to be the largest contributor representing 42% of volume.

Chad Robins: Importantly, non-Hodgkin's lymphoma now contributes 11% of clonaceic tests, with DL-BCL growing at 25% quarter over quarter. Blood-based testing continues to be a focal point of our strategy, currently representing 40% of tests with multiple myeloma in blood at 21% versus 16% a year ago. We expect our planned launch in mantle cell lymphoma, coupled with continued promotion of expanding evidence for utility of blood in other disease states, to be key drivers of clonal-seq testing in blood during the second half.

Kyle: Importantly, non-Hodgkin's lymphoma now contributes 11% of clonaceic tests with DL-BCL growing at 25% quarter over quarter.

Kyle: Blood-based testing continues to be a focal point of our strategy, currently representing 40% of tests with multiple myeloma in blood at 21% versus 16% a year ago.

Kyle: We expect our planned launch in mantle cell lymphoma, coupled with continued promotion of expanding evidence for utility of blood in other disease states, to be key drivers of clonal seq testing in blood during the second half.

Chad Robins: EMR integration remains an important area of investment for the MRD business, both as a future growth accelerant and as an additional competitive mode for a business. We are now live with six accounts in EPIC and have 13 more in progress.

Kyle: EMR integration remains an important area of investment for the MRD business, both as a future growth accelerant and as an additional competitive mode for a business.

Kyle: We are now live with six accounts in Epic and have 13 more in progress.

Chad Robins: We remain confident that we will have completed EPIC integrations with 20 or more accounts by year end. Notably, in the second half of this year, our integration activities will expand beyond EPIC with a planned Q4 kickoff for our Onco EMR integration work with Flatiron Health. On the reimbursement front, we continue to reduce out-of-policy and non-contracted claims and optimize revenue cycle management to drive ASP growth, which increased 3% in Q2 versus Q1.

Speaker Change: We remain confident that we will have completed EPIC integrations with 20 or more accounts by year-end. Notably in the second half of this year, our integration activities will expand beyond EPIC, with a planned Q4 kickoff to our Onco EMR integration work with Flatiron Health.

Speaker Change: On the reimbursement front, we continue to reduce out-of-policy and non-contracted claims and optimize revenue cycle management to drive ASP growth, which increased 3% in Q2 vs. Q1.

Chad Robins: Results through the first half of the year coupled with a preliminary gap fill rate set by Medicare further solidifies our confidence to grow ASB by $200 per test by the end of 2025. Looking at MRD Pharma on slide five, our pharma business had another strong quarter with revenue growth of 28% versus the prior year, which included a $3 million milestone from a drug approval and multi-mile loan.

Speaker Change: Results through the first half of the year, coupled with a preliminary gap fill rate set by Medicare, further solidifies our confidence to grow ASP by $200 per test by the end of 2025.

Speaker Change: Looking at MRD Pharma on slide 5.

Speaker Change: Our pharma business had another strong quarter, with revenue growth of 28% versus prior year, which included a $3 million milestone from a drug approval in Multimiloma.

Chad Robins: This momentum comes on the heels of the ODAC announcement last quarter, which voted in favor of using MRD as a primary endpoint to support accelerated approval of new therapies in multiple myeloma. We are already seeing positive impact post this recommendation. In the past few months, we have booked two new studies and are in advanced discussion for another three new studies where the decision to use MRD as a primary endpoint was made based on the ODAC outcome. Additionally, two existing studies have converted MRD from a secondary endpoint to a primary endpoint.

Speaker Change: This momentum comes on the heels of the ODAC announcement last quarter, which voted in favor of using MRD as a primary endpoint to support accelerated approval of new therapies in multiple myeloma.

Speaker Change: We are already seeing positive impact post this recommendation. In the past few months, we have booked two new studies and are in advanced discussions for another three new studies where the decision to use MRD as a primary endpoint was made based on the ODAC outcome.

Speaker Change: Additionally, two existing studies have converted MRD from a secondary endpoint to a primary endpoint, and we are in talks with partners about another four studies already underway that may also upgrade.

Chad Robins: And we are in talks with partners about another four studies already underway that may also upgrade. Importantly, we are also seeing a positive halo effect for the continued acceptance of MRD in other disease states, as our partners increasingly seek to incorporate MRD as a primary endpoint in CLL and DL-BCL. As the only FDA-cleared MRD assay that can consistently deliver the sensitivity and standardization needed to meet the FDA's performance standards, we are confident that Clonoseq will continue to be the test of choice not only for multiple myeloma drug development but also for other lymphoid malignancies.

Speaker Change: Importantly, we are also seeing a positive halo effect for the continued acceptance of MRD in other disease states, as our partners increasingly seek to incorporate MRD as a primary endpoint in CLL and DL-BCL.

Speaker Change: As the only FDA-cleared MRD assay that can consistently deliver the sensitivity and standardization needed to meet the FDA's performance standards,

Speaker Change: We are confident that Clonaseq will continue to be the test of choice not only for multiple myeloma drug developers, but also in other lymphoid malignancies.

Chad Robins: Now, let's turn to immune medicine on slide six. We're making good progress in R&D toward the discovery and future development of differentiated immune-based therapeutics for cancer and autoimmunity. In oncology, we continue to work closely with Genentech and our cancer cell therapy program. Both companies are excited and committed to delivering high-impact TCR-based cell therapy products to as many cancer patients as possible, and we will provide an update at the appropriate time. In Autoimmunity, we've successfully identified a subset of autoreactive T cell receptors that are likely causing devastating diseases in patients with MS, T1D, and This quarter, we started our target discovery efforts in T1D. As we did in multiple sclerosis, our goal is to identify the protein to which these autoreactive or problem TCRs bind.

Speaker Change: Now, let's turn to immune medicine on slide 6.

Speaker Change: We're making good progress in R&D toward the discovery and future development of differentiated immune-based therapeutics in cancer and autoimmunity. In oncology, we continue to work closely with Genentech and our cancer cell therapy programs.

Speaker Change: Both companies are excited and committed to deliver high-impact, TCR-based cell therapy products to as many cancer patients as possible, and we will provide an update at the appropriate time.

Speaker Change: In autoimmunity, we've successfully identified a subset of autoreactive T-cell receptors that are likely causing devastating diseases in patients with MS, T1D, and several others.

Speaker Change: This quarter, we started our target discovery efforts in T1D. As we did in multiple sclerosis, our goal is to identify the protein to which these autoreactive or problem TCRs bind.

Chad Robins: This helps de-risk our assumptions and confirm that the disease biology makes sense. Also this quarter, we successfully completed our first antibody mouse immunization campaign, Wave 1 in our lead autoimmune indications, including multiple sclerosis and type 1 diabetes.

Speaker Change: This helps de-risk our assumptions and confirm that the disease biology makes sense.

Speaker Change: Also, this quarter, we successfully completed our first antibody mouse immunization campaign, wave one, in our lead autoimmune indications, including multiple sclerosis and type 1 diabetes.

Kyle Piskel: By year end, we aim to identify and make a subset of antibodies to start functionally testing these candidates. Now, I'm going to pass it over to Kyle to walk through the financial results and guidance update. Thanks, Chad.

Speaker Change: By year end, we aim to identify and make a subset of antibodies to start functionally testing these candidates. Now I'm going to pass it over to Kyle to walk through the financial results and guidance updates. Kyle? Thank you.

Kyle Piskel: Let's start with revenue for the second quarter on slide seven. Total revenue in the second quarter was $43.2 million, with 82% from MRD and 18% from MRD. MRD revenue grew to $35.3 million, up 36% from a year ago, with Clonoseq Clinical Testing and MRD Pharma Partners each driving approximately 66% and 34% of the growth. Excluding the $3 million in regulatory milestones recognized this quarter, MRD revenue grew 25% Immune Medicine revenue was $7.9 Down 66% from, driven by an anticipated 82% decrease in Genentech upfront amortization and no related milestone in the quarter versus $7.7 million in milestones recognized in Q2 of 2020. This increase was partially offset by a 12% increase in immune medicine pharmacogenesis.

Kyle: Thanks, Chad. Let's start with revenue for the second quarter on slide seven.

Kyle: Total revenue in the second quarter was $43.2 million, with 82% from MRD and 18% from immune medicine.

Kyle: MRD revenue grew to $35.3 million, up 36% from a year ago, with Clonaseq Clinical Testing and MRD Pharma partnerships each driving approximately 66% and 34% of the growth, respectively.

Kyle: Excluding the $3 million in regulatory milestones recognized this quarter, MRD revenue grew 25% from a year ago.

Kyle: Medicine Revenue was $7.9M, down 66% from a year ago, driven by an anticipated 82% decrease in Genentech upfront amortization and no related milestone in the quarter versus $7.7M in milestone revenue recognized in Q2 of 2023.

Kyle: This increase was partially offset by a 12% increase in immune medicine pharma services.

Kyle Piskel: Moving down the P&L, I want to highlight that sequencing margins, which excludes the MRD milestone and Genentech amortization, were 50% for the quarter, an increase of 7 percentage points versus the prior year and 5 percentage points sequentially. The sequencing margin increase was mainly attributed to lower overhead costs from improvements in the production lab driving lower cost per sequence. Excluding one-time costs from asset impairments and severance related to restructuring initiatives, post-strategic review, total operating expense, inclusive of cost of revenue, was $82.6 million.

Speaker Change: Moving down the P&L, I want to highlight that sequencing margin, which excludes the MRD milestone and Genentech amortization, was 50% for the quarter, an increase of 7 percentage points versus prior year, and 5 percentage points sequentially.

Kyle: The sequencing margin increase was mainly attributed to lower overhead costs from improvements in the production lab driving lower costs per sample.

Kyle: Excluding one-time costs from asset impairments and severance related to restructuring initiatives post-strategic review, total operating spend inclusive of cost of revenue was $82.6 million, representing a 15% decrease from last year.

Kyle Piskel: Representing a 15% decrease. This decrease was mainly driven by the continued emphasis on driving leverage across functions, with R&D being the biggest contributor to such a decline, driven by more targeted investment in. As you can see from the segment reporting table on the right side of the slide, MRD adjusted EBITDA with a loss of $11.3 million. A deficit that was reduced by 35% from the first quarter, driven by both higher revenue and lower operating costs.

Kyle: This decrease was mainly driven by the continued emphasis on driving leverage across functions, with R&D being the biggest contributor of such decline, driven by more targeted investments and re-investments.

Kyle: As you can see from the segment reporting table on the right side of the slide, MRD-adjusted evido was a loss of $11.3 million this quarter.

Kyle: Care, a deficit that was reduced by 35% from the first quarter driven by both higher revenue and lower operating costs.

Kyle Piskel: Immunomedicine-adjusted EBITDA loss remained flat sequentially as reductions in operating expense were offset by lower Genentech. Total company adjusted EBITDA with a loss of $21.4 million in the second quarter compared to $28.2 million in the first quarter of 2024 and $24.8 million a year ago. Finally, interest expense from our royalty financing agreement with Orvimed was $2.79, which once again was more than offset by. Net loss for the quarter was $46.2 million, or $38.4 million excluding one-time asset impairment and restructuring charges compared to $47.2 million.

Kyle: [inaudible]

Kyle: Total company adjusted EBITDA with a loss of $21.4 million in the second quarter compared to $28.2 million in the first quarter of 2024 and $24.8 million a year.

Kyle: Finally, interest expense from our Royalty Financing Agreement with Orvimed was $2.79, which once again was more than offset by interest income.

Kyle: Net loss for the quarter was $46.2 million, or $38.4 million excluding one-time asset impairment and restructuring charges compared to $47.8 million last year.

Kyle Piskel: Now, turning to our updated owner guidance on slide. We are increasing our MRV full-year revenue guidance from our prior range of $135 million to $140 million to now between $140 million and $145 million. This increase in guidance reflects better than expected results in the second quarter, inclusive of the regulatory milestone. With respect to trends throughout the second half, we expect MRE revenue to be about 45-55 weighted between the third and fourth quarters. We are also further reducing the total company estimated operating spend, excluding one-time restructuring and asset impairment charges, from our previous range of $350 million to $360 million to now between $340 million and $350 million.

Kyle: Now, turning to our updated Soldier Guidance on Slide 8.

Kyle: We are increasing our MRV full-year revenue guidance from our prior range of $135 million to $140 million to now $140 million to $145 million.

Kyle: This increase in guidance reflects the better-than-expected results in the second quarter, inclusive of the regulatory milestone realized.

Kyle: With respect to trends throughout the second half, we expect MRD revenue to be about $45-55 weighted between the third and fourth quarter, respectively.

Kyle: We are also further reducing the total company estimated operating spend, excluding one time restructuring and asset impairment charges from our previous range of $350 million to $360 million to now $340 million to $350 million.

Kyle Piskel: A $10 million reduction as we continue to drive leverage across the business and manage investment. Of this total spend, approximately 70% sits within the MRD business, and approximately 25%. In addition, we are lowering our expected annual cash burn. We now expect the burn to be approximately $60 million for the second half of. This implies an annual cash burn of $115 million versus our previous estimate of $130 million and represents a 24% reduction over the full year of 2020. We continue to expect approximately 50% of the cash earned this year to come from the MRD business and approximately 40% from the immune medicine. The remaining 10% is due to unallocated corporate costs.

Kyle: A $10 million reduction as we continue to drive leverage across the business and manage investments.

Kyle: Of this total spend, approximately 70% is within the MRD business and approximately 25% within immune medicine.

Kyle: In addition, we are lowering our expected annual cash burn. We now expect the burn to be approximately $60 million for the second half of the year.

Kyle: This implies an annual cash burn of $115 million versus our previous estimate of $130 million, and represents a 24% reduction over full year of 2023.

Kyle: We continue to expect approximately 50% of the cash burned this year to come from the MRD business and approximately 40% from the immune benefit business.

Chad Robins: I look forward to providing you with further financial updates throughout the year as we continue our diligent trajectory strengthening our financial profile. With that, I'll hand it back over to you, Kyle. I'm encouraged by the team's execution in the first half of the year. We will continue to drive revenue growth in our MRD business and advance our focus programs in immune medicine. We will do this with disciplined spend and targeted investments to enhance long-term value. With that, I'd like to turn the call back over to the operator and open up the call for questions.

Kyle: The remaining 10% is due to unallocated corporate costs. I look forward to providing you with further financial updates throughout the year as we continue diligent trajectory strengthening our financial profile. With that, I'll hand it back over to Chad.

Chad Robins: Thanks, Kyle.

Chad Robins: I am encouraged by the team's execution in the first half of the year.

Chad Robins: We will continue to drive revenue growth in our MRD business and advance our focus programs in immune medicine. We will do this with disciplined spend and targeted investments to enhance long-term value.

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

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you need to press star one on your telephone and wait for your name to be announced.

Speaker Change: Thank you. At this time, we will conduct the question and answer session.

Speaker Change: As a reminder, to ask a question, you need to press star one one on your telephone and wait for your name to be announced.

Operator: To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. The first question comes from Mark Massaro from BTIG. Please go ahead.

Speaker Change: The first question comes from Mark Massaro from BTIG.

Mark Massaro: Hey guys, congrats on a strong, beaten, and raised quarter. I guess my first question, which I find quite interesting, is the number of new studies that are moving to primary endpoints. You talked about two new studies in Q2. You're advanced in three more. I think in the past I've heard you say that the level of economics can be roughly two times greater for a primary versus a secondary endpoint. Can you maybe just clarify that in terms of just the unit economics?

Mark Massaro: Hey guys, congrats on a strong, beaten, raised quarter.

Mark Massaro: I guess my first question, which I find quite interesting, is the number of new studies that are moving to primary endpoints. You talked about two new studies, I believe, in Q2. You're advanced in three more.

Speaker Change: I think in the past I've heard you say that the level of economics can be roughly two times greater for a primary versus a secondary endpoint. Can you maybe just clarify that in terms of just the unit economics?

Chad Robins: Yeah, I mean, I think what you're referring to is the milestone revenue that we could realize. And I think that is, you know, where you see that delta as it relates to the economics. I think, you know, as it relates to these studies and the bookings of these studies, I think we continue to expect that that will be a 2025 tailwind, and in 2024, we're really focused on executing the bookings and growing the backlog as we exit the year.

Speaker Change: Yeah, I mean, I think what you're referring to is the milestone revenue that we could realize from those studies, and I think that is

Mark Massaro: You know.

Mark Massaro: Where you see that delta as it relates to economics, I think, you know, as it relates to these studies and the bookings of these studies, you know, I think we continue to expect

Mark Massaro: That will be a 2025 tailwind, and 2024, we'll really focus on executing the bookings and growing the backlog as we exit the year. So, I think as it relates to the unit economics, I think of that primarily as the milestones, but it may catalyze the sequencing revenue faster than we anticipated previously.

Chad Robins: So I think as it relates to the unit economics, I think of that primarily as like the milestones, but it may catalyze some sequencing rather than faster. Okay, that's helpful. And then I found it interesting that there's a group working with the FDA in additional disease states. I think he called up CLL and DLBCL.

Speaker Change: Okay, that's helpful. And then I found it interesting that there's a group working with the FDA.

Speaker Change: In additional disease states, I think he called up CLL and DLBCL.

Speaker Change: Do you have any sense for timing there and, you know, give us a sense for, you know, are you involved in this discussion or this group? Maybe just walk us through some of the stakeholders and how you think about this playing out over the coming months. Thank you.

Chad Robins: Do you have any sense for timing there? And, you know, give us a sense of, you know, are you involved in this discussion or this group? Maybe just walk us through some of the stakeholders and how you think about this playing out over the coming weeks. Yeah, first, Mark, thanks for the question and the compliments on the quarter. I appreciate it. We, a lot of our investigators, our principal investigators that we work with, are involved in those conversations, and they're asking us to provide clonal-seq data to help support them in those discussions, very much like we did in multiple myeloma with the International Myeloma Working Group and others as they presented to the ODAC committee. We honestly don't have a sense of timing.

Speaker Change: Yeah, first, Mark, thanks for the question and the compliments on the quarter. Appreciate it. We, a lot of our investigators, our principal investigators that we work with, are involved in those conversations, and they're asking us to provide ClonaSeq data to help support them in those discussions.

Speaker Change: Very much like we did in multiple myeloma with the International Myeloma Working Group and others as they presented to the ODAC committee. We honestly don't have a sense of timing. It did take some time for multiple myeloma to be accepted as a primary endpoint. However, I think once the first domino has fallen, we would at least be hopeful that the next disease stage will be faster moving forward.

Chad Robins: It did take some time for multiple myeloma to be accepted as a primary endpoint. However, I think once the first domino has fallen, we would at least be hopeful that the next disease stage will be faster moving forward. The other thing I will mention, and this isn't immediate, although it has catalyzed new discussions with investigators who were initially reluctant, there's just a lot more noise and chatter around MRD being used in multiple myeloma now that the ODAC decision has been made in the clinic as well, which is great. Maybe the last one for me. I don't know if this was in your deck or not.

Speaker Change: The other thing I will mention, and it's not immediate, although it has catalyzed new discussions with investigators who were initially reluctant, there's just a lot more kind of noise.

Speaker Change: Chatter around MRD being used in multiple myeloma now that the ODAC decision has been made in the clinic as well, which is great to see.

Chad Robins: But I think you've talked about approximately 60 clinical studies for multiple myeloma, and if I have it right, you had six as primary. It looks like that number now is eight, in Advanced Discussions. I think, as we think about this longer term, where could that number be 10 or 11, where do you think that might go, looking at, say, two to three years from today? It's hard to put a number on that.

Speaker Change: Excellent. Maybe last one for me. I don't know if this was in your deck or not, but I think you've talked about approximately 60 clinical studies for multiple myeloma. And if I have it right, you had 6 as primary. It looks like that number now is 8.

Speaker Change: 3 are in advanced discussions, that could be 11. I think as we think about this longer term, where could that, you know, 10 or 11, where do you think that might go, you know, looking out, say, two to three years from today?

Chad Robins: Obviously, we believe that number is going to go, you know, up and hopefully, significantly, but I'd be hard pressed to start making those projections. You know, once we get a little bit farther into this, maybe a year down the road, we could have better visibility into making those projections. Okay, that's it for me.

Speaker Change: It's hard to put a number on that obviously we believe that number is going to go you know often and hopefully up

Speaker Change: Significantly, but I'd be hard-pressed to start making those projections. Once we get a little bit farther into this, maybe a year down the road, we could have better visibility into making those projections, Mark.

Speaker Change: Okay, that's it for me. Thanks guys. Thank you.

Mark Massaro: Thanks, guys. Thank you. Thank you. One moment for our next question. Our next question comes from David Westenberg from Piper-Sandler. Please go ahead.

Speaker Change: Thank you. One moment for our next question.

Speaker Change: Our next question comes from David Westenberg from Piper-Sandler. Please go ahead.

David Westenberg: Hi, thank you for taking the question and congrats on the big cost reduction burn and the MRDB. So, Chad, I hate to ask this question because, like, we should be celebrating your achievements in reducing the OpEx. Is there any – you got any – is there any risk here that you maybe went too lean and that, you know, this could hurt the top-line growth, particularly in that MRD business? I don'

David Westenberg: Thank you for taking the question and congratulations on the big cost reduction burn and the MRDB.

Speaker Change: and ... ... ... ... ... ... ...

David Westenberg: So, Chad, I hate to ask this question because, like, we should be celebrating your achievements in reducing the op-ex.

Speaker Change: Is there any risk here that you maybe went too lean and that this could hurt the top-line growth particularly on that MRD business?

Chad Robins: Maybe I would ask, in addition to that, do you actually think you could accelerate revenue if you did add reps to that business, or do you – anyway, I'll stop there. Yeah, no, I think, you know, the sales and marketing, just so you know, David, we're, you know, untouched, relatively untouched, except for, you know, where we always manage our performance. We're talking about a lot within the business with kind of GNA, overhead, and just looking at every nook and cranny to be able to kind of reduce, reduce our expenses.

Chad Robins: Um, um...

Speaker Change: I don't know. Maybe I would ask, in addition to that, do you actually think you could accelerate the revenue if you did add reps to that business? Anyway, I'll stop there.

Speaker Change: Yeah, no, I think, you know, the sales and marketing, just so you know, David, we're, you know, untouched, relatively untouched, except for, you know, where we always manage our performance.

Speaker Change: We're talking about a lot within the business with GNA, overhead, and just looking at every nook and cranny to be able to kind of reduce our expenses. So the answer is no, and where we are adding is in kind of our market access team. If you look at, you know, coverage.

Chad Robins: So, the answer is no, and, you know, where we are adding is in our market access team. If you look at, you know, coverage and collections, these are particular areas of focus for us, which we continue to make investments in, where we believe that we can, you know, increase the ASP and essentially kind of the cash coming into the business. But, but, you know, we will continue to kind of monitor reps and add reps as needed and look at territory alignments as we do consistently.

Speaker Change: and Collections. These are particular areas of focus to us, which we continue to make investments in, where we believe that we can, you know, up the ASP and essentially kind of the cash coming into the business. But, you know, we will continue to kind of monitor reps and add reps as needed and look at territory alignments as we do consistently. So, the final point is we're looking, you know, across the board at ways that we can, you know, continue to, first and foremost, make sure that we're hitting our numbers and said another way that we're de-risking the numbers.

Chad Robins: So, we, the final point is that we look, we're looking across the board at ways that we can continue to first, first and foremost, make sure that we're hitting our numbers and, said another way, that we're de-risking the numbers. But it's all about kind of operating efficiencies without hurting the top line. And we feel, we feel very comfortable that we're, we're, we're making the right investments in the right areas. I really, really, really appreciate that.

Speaker Change: It's all about operating efficiencies without hurting the top line, and we feel very comfortable that we're making the right investments and the right moves.

David Westenberg: Just, you know, I did not want to just talk about some of the potential for both operating leverage and cost reduction in Clonoseq. I know you've made efforts in the past to kind of get some kind of COG reductions there. You know, where are we at in terms of progress there? And then, just in terms of, are you getting some of that naturally just via more volume through that product? And, you know, how should we think about gross margins over the kind of a three-year, four-year period or three to five-year period as this business becomes, you know, a lot more clinical MRD? And I'll stop there.

Speaker Change: I really, really, really appreciate that. Just, you know, I did not want to just talk about some of the potential for both operating leverage and cost reduction in Clonoseq.

Speaker Change: I know you've made efforts in the past to kind of get some some kind of cog reductions there. You know, where, where are we at in terms of progress there? And then just in terms of

Speaker Change: Are you getting some of that naturally just via more volume through that product? And, you know, how should we think about gross margins over the kind of a three year, four year period, or three to five year period, as this business becomes

Kyle Piskel: I know there are a lot of analysts that want to ask questions. Yeah, I mean, as it relates to our progress, I think as we've seen in the quarter and first half of the year, we're continuing to gain leverage through efficiency initiatives we've put in place, flattening out the org, and yet we are getting some of that naturally through increased volumes and increased revenue. And we'll continue to see that in the second half of the year.

Speaker Change: You know, a lot more clinical MRD. And I'll stop there. I know there's a lot of analysts that want to ask questions. Thank you.

Speaker Change: Yeah, I mean, I think as it relates to our progress, I think as we've seen in the quarter and first half of the year, we're continuing to gain leverage through some of the

Speaker Change: you know, efficiency initiatives we put in place.

Speaker Change: Plotting out the org and yet we are getting you know some of that actually through increased volumes.

David Westenberg: I think we're going to gain additional leverage back in the second half of the year. I would say 3 to 5% improvement on that sequencing margin line. Over the long term, we have some initiatives going on, one of which is NovaSeq, which we expect to launch in the back half of 2025, and that can drive a lot of efficiencies. And then, again, as the last point, we've got to continue to do some work and continue to execute on the ASP line, and that's going to drive a large amount of improvement to get us to that 70% target margin range that we see over the 3 to 5 year outlook.

Speaker Change: and increased revenue. And we'll continue to see that in the back half of the year. I think we're going to gain additional leverage back half the year. You know, I think at I would say 3 to 5% improvement on that sequencing margin line.

Speaker Change: Over the long term, you know, we have some initiatives going on, one of which is the NovaSeq, which we, you know, we expect to launch the back half of 2025, and that can drive a lot of things.

Speaker Change: And then as the last point, you know, we've got to continue to do some work and continue to execute on the ASP line. And that's going to drive a large amount of improvement to get us to that 70% target margin range that we see over the three to five year outlook.

David Westenberg: And I should note, you know, the milestones will also continue to drive and support the business at the end of the day, you know, even absent the clinical trial... which I think ODAC only accelerates or makes that more durable growth. Thank you so much.

Speaker Change: I should note, the Milestones will also continue to drive and support the business at the end of the day, even absent the clinical performance, along with the pharma business.

Speaker Change: which I think ODAC only accelerates or makes that more durable growth over the longer term.

Chad Robins: And again, congratulations on the big cost reduction curve and reduction and beat. Thank you. Thank you. One moment for our next question. Our next question comes from Tejas. Number seven from Morgan Stanley. Please go ahead. Hey, guys. Good evening.

Speaker Change: Thank you so much. And again, congrats on the big cost reduction curve and reduction and BEAT.

Speaker Change: Thank you.

Speaker Change: Thank you. One moment for our next question.

Speaker Change: Our next question comes from Tejas.

Tejas Savant: Thanks for your time here. Chad, I want to follow up on Mark's question related to the ODAC guidance and so on. So, first of all, when do you expect the FDA to finalize that in MM? And does that finalization have any sort of impact in terms of accelerating MRD endpoint adoption beyond what you're seeing today in terms of that cadence and penetrating those potential trials? And then on a related note, I think in the past you've talked about a little bit of a halo effect, if you will, on the clinician side as well in terms of adopting Clonoseq. So, any more color on that would be helpful.

Speaker Change: 7, from Morgan Stanley , please go ahead.

Speaker Change: Hey, guys. Good evening. Thanks for the time here. Chad, I want to follow up on Mark's question related to, you know, the ODAC guidance and so on. So, first of all, when do you expect the FDA to finalize that in MM? And does that finalization have any sort of impact in terms of accelerating MRD endpoint adoption beyond what you're seeing today in terms of that cadence, you know, and penetrating those potential trials? And then, on a related note, I think in the past you've talked about a little bit of a halo effect, if you will, on the clinician side as well in terms of adopting Clonoseq. So, any color on that would be helpful.

Chad Robins: Sure, I'll cover the first part, and then I'll pass it over to Susan Bobulsky, the Chief Commercial Officer of the MRD business, to talk about the kind of impact and maybe give you some anecdotes as to what's going on from a clinical perspective. As far as the ODAC vote, remember, the advisory council is a little bit different than it is for a drug approval, and we've gotten some kind of messaging around the format that they're going to kind of cement this decision as to whether it's going to be kind of a formal white paper or come out as a kind of formal decision.

Speaker Change: Sure, I'll cover the first part and then I'll pass it over to Susan Bobulsky, the Chief Commercial Officer of the MRD business.

Susan Belosky: to talk about kind of the impact and maybe give you some anecdotes.

Susan Belosky: As far as the ODAC vote, the advisory council is a little bit different than it is for drug approval, and we've gotten some messaging around the format that they're going to cement this decision as to whether it's going to be a formal white paper or come out as a formal decision. There's a little bit of debate as to exactly how the FDA is going to—obviously, it was a 12-to-0, overwhelmingly positive vote, so we don't have a direct line as to exactly the timing or the format, but I will say it has had no impact—well, it's had only a

Chad Robins: There's a little bit of debate as to exactly how the FDA is going to, obviously, it was a 12 to 0 overwhelmingly positive vote. So, we don't have a direct line as to exactly the timing or the format, but I will say this has had no impact. Well, it's had only a positive impact. Our farmer partners aren't waiting in any way, shape, or form.

Speaker Change: Positive Impact. Our pharma partners aren't waiting in any way, shape, or form. They know that the FDA, for every drug approval that's coming forward, they now have the opportunity to look at it as a primary endpoint based on this decision. The FDA is not waiting, and neither are our pharma partners.

Chad Robins: They know that the FDA, for every drug approval, is coming forward. They now have the opportunity to look at it as a primary endpoint based on this decision. The FDA is not waiting, and neither are our farmer partners.

Speaker Change: So that's, you know, and that's why we're already seeing the trajectory that we have. I do want to caution a little bit, and Kyle mentioned this, but I'll just...

Speaker Change: It's a great leading indicator, but it doesn't necessarily impact 2024 revenue, it's more we're seeing bookings that essentially, you know, I would say solidifies the long-term kind of health of the pharma business going out into the future at those bookings.

Chad Robins: So, that's why we're already seeing the trajectory that we have. I do want to caution a little bit, and Kyle mentioned this, but I'll just say, it's a great leading indicator, but it doesn't necessarily impact 2024 revenue. We're seeing bookings that, essentially, you know, I would say, solidify the long-term kind of health of the pharma business going out into the future as those bookings convert into revenue opportunities as those milestones are achieved. And as more trials sign up, we get more sequencing revenue from those additional trials. Susan, can you provide, perhaps, some anecdotes of how you're seeing those discussions in the clinic? Sure. Thanks, Chad.

Speaker Change: convert into revenue opportunities as those milestones are achieved. And as more trials sign up, we get more sequencing revenue from those additional trials. Susan, can you provide perhaps some anecdotes of how you're seeing that, those discussions in the clinic?

Susan Bobulsky: Since the ODAC vote in April, we've increasingly seen clinicians are aware of that ODAC vote, and they bring it up and view it favorably in the context of clinical conversations we have with them about MRD. The way that we've been framing it, and I think this seems to resonate, is that by seeing the FDA vote of confidence behind MRD as a means to assess response to bring a drug into the market, that's really an incredible amount of credibility that it lends to MRD as a marker for your individual patient.

Susan Belosky: Sure. Thanks, Chad.

Susan Belosky: Since the ODAC vote in April , we've increasingly seen clinicians are aware of that ODAC vote and they bring it up and view it favorably in the context of clinical conversations we're having with them about MRD.

Susan Belosky: The way that we've been framing it, and I think this seems to resonate, is that by seeing the FDA's vote of confidence behind MRD as a means to assess response.

Susan Belosky: To bring a drug into the market, that's really an incredible amount of credibility that it lends to MRD as a marker for your individual patients.

Susan Bobulsky: We can predict the efficacy of that drug and approve it for marketing, and we can also predict the efficacy of that drug in your individual patient, and you can use that to inform conversations and dialogues with your patient. So, I think that's really responding.

Susan Belosky: We can predict the efficacy of that drug and approve it for marketing and we can also predict the efficacy of that drug in your individual patient and you can use that to inform conversations and dialogues with your patient. So I think that's really resonating.

Susan Bobulsky: Interestingly, another area where we see a lot of interest is in what we call the ID of patients. In other words, the first step of ClonaSeq is to evaluate a high-disease load sample and to identify the sequences that we will track for that patient's MRD. And most physicians order ID tests when they decide they need their first MRD.

Susan Belosky: Interestingly, another area where we see a lot of interest is in what we call the ID of patients. In other words, the first step of ClonaSeq is to evaluate a high-disease load sample and to identify the sequences that we will track for that patient's MRD.

Speaker Change: And most physicians order ID tests when they decide they need their first MRD test.

Susan Bobulsky: But in the context of pharma increasingly anticipating the use of MRD as an endpoint, there's an interesting synergy between our two businesses. Pharma companies would love to see more and more patients being ID'd for quantity testing at the time of diagnosis so that they are eligible for any trial that might come along, and there's no delays or hurdles in finding an appropriate specimen to get them ID tested. Calibration rates, the rate of patients for whom we find viable sequences, are also higher when we test fresh samples at diagnosis.

Speaker Change: But, in the context of pharma increasingly anticipating use of MRD as an endpoint,

Speaker Change: There's an interesting synergy for our two businesses.

Speaker Change: The pharma companies would love to see more and more patients being ID'ed for chronic disease testing at the time of diagnosis so that they are eligible for any trial that might come along and there's no delays or hurdles in finding an appropriate specimen to get them ID tested.

Speaker Change: Calibration Rates. The rate of patients for whom we find viable sequences are also higher when we test fresh samples at diagnosis.

Susan Bobulsky: And so pharma companies are essentially saying to us that it would be great if more and more accounts could do this ID testing up front at the time of diagnosis. And correspondingly, our accounts, particularly community accounts where they're very eager to bring new kinds of trials on board, are saying to us, hey, do you think that pharma companies would be more interested in working with us if we ID our patients up front? And this is a strategy we've been pushing for a bit of time, and we're starting to see good traction, but I think the ODAC is actually going to provide a tailwind to that strategy to get more and more patients to be tested for a quote-unquote ID at the time of diagnosis, and essentially, that means they're MRD enabled from day one, and they can get MRD testing whenever they need it in So it seems like it's a win-win-win for us, for pharma, for the clinic, and for the patient. And that's something we've been talking very actively about and again seeing res... Got it. That's super helpful.

Speaker Change: Pharmacompanies are essentially saying to us, it would be great if more and more accounts can do this ID testing up front at the time of diagnosis, and correspondingly, our accounts, particularly community accounts where they're very eager to bring new clinical trials on board, are saying to us, hey, do you think that pharma companies would be more interested in working with us if we ID our patients up front? And this is a strategy we've been pushing for a bit of time, and we're starting to see good traction, but I think the ODAC is actually going to provide a tailwind.

Speaker Change: to that strategy to bring more and more patients.

Speaker Change: To be tested for a chronic I.D. at the time of diagnosis and essentially that means they're M.R.D. enabled.

Speaker Change: from day one, and they can get MRT testing whenever they need it in a trial in the clinic. So it seems like it's a win-win-win for us, for pharma, for the clinic and the patient. And that's something we've been talking very actively about, and again, seeing resonate.

Tejas Savant: And then, guys, a couple more on the clinical side of things. So maybe for Kyle here, you talked about that $200 ASP increase over the next couple of years, and you're confident of getting there. You've also got that preliminary CLFS rate. I think it gets finalized on Jan 1st, 2025.

Speaker Change: Got it. That's super helpful. And then guys, a couple more on the on the clinical side of things. So maybe for Kyle here, you know, you talked about that $200 ESP increase over the next couple of years, and you're confident of getting there. You've also got that preliminary CLFS rate, I think it gets finalized on Jan 1st in 2025.

Kyle Piskel: So could you just walk us through any color on the cadence of the ASP increases? I'm sure there are a few moving parts beneath that, including perhaps some help from the biomarker bill, etc. Should it be front-end loaded?

Speaker Change: So, could you just walk us through any color on the cadence of the ASP increases, I'm sure there's a few moving parts beneath that, including perhaps some help from the biomarker bill, etc. Should it be front-end loaded, should it be relatively even-keeled between where it is today? And then, second, do you think, from a commercial or physician education standpoint, that the ASP increases should be front-end loaded? Yeah, absolutely. Absolutely.

Speaker Change: You are where you need to be in the community setting today and it's just a function of time or are there more investments to come on that front? Thank you.

Kyle Piskel: Should it be relatively even-keeled between where it is today? And then, second, do you think from a commercial or physician education standpoint, you are where you need to be in the community setting today, and it's just a function of time, or are there more investments to come on that front? Thank you. Hi Tejas, I'll take the question on ASP, and then I'll pass it off to Susan to give you some color on the clinical side. But from the, our ASP acceleration plan is really comprised of three key pillars: coverage, contracting, and collection.

Speaker Change: Yes. Thank you.

Speaker Change: Hi Tejas, I'll take the question on ASP and then again I'll pass it off to Susan to give you some color on the clinical side. But from the, our ASP acceleration plan is really comprised of three, three key pillars. Coverage,

Kyle Piskel: So, on the coverage side, we're seeking Medicare coverage for a broader set of indications. We're also exploring novel coverage structures, including recurrence monitoring for selected indications. And that's actually what we've already submitted and are in discussions on for our MCL. We're actively reducing out-of-policy claims and have aligned our business to drive the core indications where we now have that solid coverage in place. And that is – we can further kind of double-click on that to look at how we've modified our sales force incentive compensation plan. We also have made changes in ordering requirements for customers who wish to order the out-of-criteria test.

Susan Belosky: Contracting, and Collections. So on the coverage side we're seeking Medicare coverage for a broader set of indications.

Susan Belosky: We're also exploring novel coverage structures, including recurrence monitoring for selected indications. And that's actually what we've already submitted and are in discussions on for our MCL.

Speaker Change: We're actively reducing out-of-policy claims and have aligned our business

Speaker Change: to drive the core indications where we now have that solid coverage in place. And that is, we can further kind of double-click on that to look at how we modified our sales force and set of compensation plan.

Speaker Change: We also have kind of changes in ordering requirements for customers who wish to order the out-of-criteria test.

Kyle Piskel: And then the third component of that is really new operational policies that will increase the percentage of tests that we get paid for. And as a result of that, we've seen a really positive shift in our mix towards contracted indications, where those have really grown as a percentage of our mix. So that really covers the first pillar of coverage. The second one is contracting.

Speaker Change: And then the third component of that is really new operational policies that will increase the percentage of tests that we get paid for. And as a result of that, we've seen a really positive shift in our mix towards contracted indications.

Speaker Change: where those have really grown as a percentage of our mix.

Speaker Change: So that really covers the first pillar of coverage.

Kyle Piskel: So there are a couple things to talk about in terms of contracting. First, we continue to negotiate agreements with our non-contracted payers. The objective here is obviously to secure pricing at or above the Medicare price.

Speaker Change: The second one is contracting.

Speaker Change: So there's a couple things to talk about on contracting. First, we continue to negotiate agreements.

Speaker Change: With our non-contracted payers, the objective here is obviously to secure pricing at or above the Medicare price.

Kyle Piskel: And within that, we've already talked about this, but we expect the publication of that preliminary gap fill rating to provide really meaningful leverage as we go out and have those conversations with payers. We can reference that new rate as a benchmark to be set that they have to be at or above that rate. A good example of that is one of the large outstanding payers with Anthem, which we're waiting for that rate to go to Anthem and say, you know, this is what we expect or better. And then the third is in the area of, I'll just call it, blocking and tackling with collections.

Speaker Change: And within that, we we've already talked about this, but we expect the publication of that preliminary gap bill rating that to provide really meaningful leverage. As we go out and have those conversations with payers, we can go reference.

Kyle Piskel: And we're taking, you know, a few different steps on collection performance. The first is that we continue to place a real focus on Medicare Advantage collections. This has been a problem for the industry, which, you know, I think we're starting to see some resolution on. There are these large claims projects that we're going after. And we're directly engaging CMS at a national level to help us support this kind of claim payment resolution with Medicare Advantage from private payers.

Kyle Piskel: The second component of that is, just as I mentioned this in a prior question, we've increased our resourcing allocated to claims management. So we actually have more people going after, I'll call it, smiling and dialing, and there's actually more to it. We actually have some really nice AI projects for the appeals process and claims management.

Speaker Change: I mentioned this in a prior question, but we've increased our resourcing allocated to claims management. So we actually have more people going after, I'll call it smiling and dialing, and there's actually more to it. We actually have some really nice AI projects for the appeals process and claims management. We put in place new initiatives on how we do prior authorizations, et cetera. And the final pillar of that is we've made some significant headway on the implementation of our PLA code. And further progress, you know, I think will be significant.

Kyle Piskel: We put in place new initiatives on how we do prior authorizations, et cetera. And the final pillar of that is that we've made some significant headway on the implementation of our PLA code. And further progress, you know, I think will be supported by the new preliminary Medicare. With that, Susan, do you want to comment on his question regarding clinical research? Sure. I think you asked about, you know, whether we're where we need to be in the community setting. Do we need to invest additionally?

Speaker Change: With that, Susan, do you want to comment on his question regarding clinical?

Susan Bobulsky: So, you know, over the last several quarters, we've seen somewhere between 20 and 25% of our business kind of coming consistently from that community segment. And we believe that, over time, that contribution can be much higher. And we've actually seen some really nice acceleration in Q2 in our academic segment, in concert with continued steady growth in the community. So we have a lot of excitement in both segments. And so we can't focus only on one at the expense of the other.

Susan Belosky: Sure, I think you asked about, you know, whether we're where we need to be in the community setting. Do we need to invest additionally? So,

Susan Bobulsky: We have a lot of untapped potential to capture in both. But that said, winning in the community is going to be a long-term critical success factor for this business and clinic. But, you know, given the proportion of patients who are treated either entirely or partially in community settings, and we, our penetration is much lower in the community than it is in academic settings.

Susan Belosky: Winning in the community is going to be a long-term critical success factor for the students.

Susan Bobulsky: So there are a couple of things that we've done recently and then a few things that we will be starting to do, and we have plans to do in the coming months. So one of the things we've done recently is really reorient our peer-to-peer educational programs and medical education programs and other types of sponsorship dollars that we invest in physician education to really be focused on connecting thought leaders, both academic and community thought leaders, who have mastered the use of MRD in their own practices to bring their playbooks to the community to show in a variety of ways, both written and verbal, how they are using MRD. Because We have some very nice data sets on actionability of MRD, but there's a lot more in motion right now that we'll read out over the next couple of years.

Speaker Change: Recently, and then a few things that we will be starting to do and we have plans to do in the coming months.

Speaker Change: for Physician Education, to really be focused on connecting thought leaders, both academic and community thought leaders, who have mastered the use of MRD in their own practices to bring their playbooks to the community to show in a variety of ways, both written, verbal.

Speaker Change: How they are using MRD, because that is the number one question we get in the clinic, and the data will continue to develop. We have some very nice data sets on actionability of MRD, but there's a lot more in it.

Susan Bobulsky: So while we're waiting for that, let's show what the KOLs have really gotten comfortable with. So that's been a big area of focus and investment, as well as ensuring that we have the right team structure in place. So as you know, back at the beginning of 2022, we hired our first community salesperson, and the Nut team has been able to drive tremendous increases in contribution to that business. We were only 5% community when they started.

Susan Bobulsky: But we've also got a small team, what we call strategic accounts managers. And those folks are really the ones driving C-suite engagement in the Oncology Community Practice Network, or Supergroup, which is where the majority of patients in the community are managed. And we recently reorganized our strategic accounts team under a dedicated leader, which has had a variety of strategic benefits. The other place where we are going to invest in the coming months, and you've heard about this a little bit, is EMR integration-oriented charters.

Speaker Change: But we've also got a small team of what we call strategic accounts managers, and those folks are really the folks driving C-suite engagement in the Oncology Community Practice Network, or Supergroup, which is where the majority of patients in the community are managed.

Speaker Change: And we recently reorganized our strategic accounts team under a dedicated leader, which had a variety of strategic benefits. The other place where we are going to invest in the coming months, and you've heard about this a little bit, is EMR integration oriented toward the community.

Susan Bobulsky: So Flatiron is a big partnership we've discussed, but we have a number of ongoing or recently initiated integration projects, more integration discussions, and negotiations, which will allow us to significantly increase our footprint for integration. Got it. Super helpful. Appreciate all the color guys.

Speaker Change: Got it. Super helpful. Appreciate all the color, guys. Thank you. Hey, Josh, just on the ASD increase, you know, we've talked about the $200 increase over, you know, in the past.

Tejas Savant: Course of the Next Two Years. I think what we're seeing from these ASP initiatives and what Chad was summarizing is, you know, we've got strong confidence, we'll start to see some of the early evidence from this in the back half of the year, and the gap fill rate effectively gives us confidence heading into 2025 that we can continue to deliver that growth. Thank you, Kyle.

Speaker Change: We've got strong confidence, you know, we'll start to see kind of some of the early evidence from this in the back half of the year and the gap fill rate effectively gives us confidence heading into 25 that we can continue to deliver that growth over the next few years.

Kyle Piskel: I appreciate it. Thank you. One moment for our next question. Our next question comes from Dan Brennan from TD Cowen. Please go ahead.

Speaker Change: Thank you. One moment for our next question.

Speaker Change: Our next question comes from Dan Brennan from TD Cowen. Please go ahead.

Dan Brennan: Thanks. Thanks for the questions. Maybe one just on the burn and the margin improvement. Could you just speak a little bit more about kind of what went better in the quarter? You're obviously taking down the guide or, excuse me, improving the guide.

Kyle Piskel: Just kind of what are you thinking about in the back half of the year in terms of some of the line items about what's getting better? Yeah, Dan. I would say we've done a number of initiatives here to get the workforce along. I think we're going to continue to see.

Speaker Change: Yeah, Dan, I would say, you know, we've done a number of, you know, initiatives here to get the workforce aligned and our spend aligned with where we think the business should be. I think we're going to continue to see

Kyle Piskel: Leveraging that in those areas, especially as it relates to the margin profile, you know, we're continuing to expect increased volumes, both in the clinic and increased revenues in the pharma business. So we're going to continue to see that leverage in the back half of the year. And you know, I think we've got some decent initiatives in place for 25 that way, to play out there.

Speaker Change: Leveraging that in those areas, especially as it relates to the margin profile, you know, we're continuing to expect increased volumes, both in the clinic and increased revenues in the pharma business.

Speaker Change: So, we're going to continue to see that leverage in the back half of the year, and, you know, I think we've got some decent initiatives in place for 2025 that will continue to play out there. As it relates to the burn, I mean, again, I don't want to sound like a broken record,

Dan Brennan: As it relates to the burn, I mean, again, I don't want to sound like a broken record, but, you know, the restructuring initiatives we put in place over the, you know, first half of the year have led us to some increased confidence as a result of the reductions in spend, to be confident that we can continue to reduce the burn and focus our investments in IM, which will, you know, yield benefits in the longer term. But, you know, as it relates to Q2, we have some significant collections across the business, the milestones being one of them, the pharma business, and in the clinic.

Speaker Change: The restructuring initiatives we put in place over the first half of the year have led us to some increased confidence as a result of the reductions in percent, to be confident that we can continue to reduce the burn.

Speaker Change: And, you know, focus our investments in IM, which will, you know, yield benefits in the longer term. But, you know, as it relates to Q2, we have some significant collections across the business, the Milestone being one of them, the pharma business, and in the clinic. So, you know, I think what we're going to see in the course of the year is just

Dan Brennan: So, you know, I think what we're going to see in the course of the year. And as you march down that path, there is a bit of seasonality in the back half of the year from a spend perspective. So that's why it's just a little bit slightly higher than the first. Okay, that sounds good. What about on the medicine side?

Speaker Change: Just a continued march down that path. There is a bit of seasonality in the back half of the year from a spend perspective, so that's why it's just a little bit slightly higher than the first half of the year.

Chad Robins: You know, biotech funding has been healthier. I know that's generally been a drag over the last period of time, kind of a spending environment. Like, what are you guys seeing just on a macro basis on that side of the business? Are you talking about from kind of an IM, pharma, revenue perspective, Dan? Yeah, yeah, yeah, exactly. Sorry, Chad.

Speaker Change: Okay, that sounds good. What about on the medicine side? You know, biotech funding has been healthier. I know that's generally been a drag over the last period of time, kind of a spending environment. Like, what are you guys seeing just for more of like a macro basis on that side of the business?

Speaker Change: Are you talking about from kind of an IM, pharma, revenue perspective, Dan? Yeah, yeah, yeah, exactly. Sorry, Chad. Yep.

Dan Brennan: Just as a reminder to everyone, we don't report revenue based on that, but there has been some impact. I think it depends on what our technology is being used for. Some of the very early research and development budgets aren't what they used to be, but we now have longstanding relationships where we've been embedded. Many different pharma companies are looking at the immunelogical response to their therapies, and we've used it in a variety of different contexts, which I think it continues to hold up pretty well.

Speaker Change: Yeah, just as a reminder to everyone, we don't report revenue based on that, but there has been some impact. I think it depends on what

Dan Brennan: Okay, and then maybe on DLBCL, I heard you say like 20% quarterly growth. I think sequentially, it's still penetration is still fairly nascent. Like, how is that progressing versus expectations? Does that kind of keep going linearly? Is there an opportunity for any kind of acceleration there? Yeah, I did.

Speaker Change: Okay, and then maybe on DLBCL, I heard you say like 20% quarterly growth, I think, sequentially, so penetration is still fairly nascent, like, what's, how is that progressing versus expectations? Does that kind of keep going linearly? Are there an opportunity for any kind of acceleration there?

Chad Robins: I'll pass it over to Susan to answer that question. But it was 25% sequential growth. Susan, do you want to give some color on the trajectory? Sure. Sure, yeah.

Susan Bobulsky: So, you know, DLVCL is now up to 6% of our total business, clinical business, which is up from 3% a year ago. And we've been pleased. We've been hitting our internal projections with the indication level for DLVCL so far. We've been pleased to see significant uptake in the community setting and also, you know, continued opportunities to report out new data. You may have noted that earlier in Q2 in May, we saw a really nice publication on Clonaseq and DLVCL in the context of a study known as, for a regimen known as VIPER, the relapsed refractory regimen.

Speaker Change: Please we've been hitting our internal projections of the indication level with CLBCL so far. We've been pleased to see significant uptake in the community setting

Speaker Change: And also, you know, continued opportunities to report out new data. You may have noted that earlier in Q2 in May, we saw a really nice publication on colonophagin DLVCL. Thank you. Thank you.

Susan Bobulsky: And it was published in the New England Journal of Medicine in May. And in that study, we saw really nice performance from the Clonaseq assay in terms of the ability to differentiate patients who would have better or worse progression-free survival and overall survival. In that study, 15 patients who achieved complete responses at the end of therapy and remained progression-free throughout the study had MRD that was undetectable by Clonaseq.

Speaker Change: in the context of a study for a regimen known as VIPER, the relapsed refractory regimen, and it was published in the New England Journal of Medicine in May. And in that study, we saw really nice performance from the Clonacy GAPA in terms of the ability to differentiate patients.

Speaker Change: who would have better or worse progression-free survival and overall survival.

Speaker Change: In that study, 15 patients who achieved

Susan Bobulsky: And of those that progressed, three out of four had detectable ctDNA prior to the evidence of relapse. So, we saw it as another nice demonstration, albeit in a small patient population, of the performance of the assay in a relapsed refractory setting. We continue to generate data, and that will certainly be a catalyst for ongoing adoption, as well as our ongoing work with regulatory agencies to expand access to and increase the utilization of DLVCL by pharma companies.

Speaker Change: MRD that was undetectable by clonaseque and of those that progressed

Speaker Change: Out of the Four had detectable ctDNA prior to the evidence of relapse. So we thought it was another nice demonstration, albeit in a small patient population, of the performance of the assay in a relapsed refractory setting.

Susan Bobulsky: So, actually, last week, we submitted our DLVCL STREC offering to New York State CLEP, which will expand access to DLVCL in New York, if approved, and we continue to work on our FDA. [inaudible] Awesome. Thanks a lot and congrats.

Speaker Change: So actually last week we submitted our DLBCL STREC offering to New York State CLEP, which will expand the access to DLBCL in New York, if approved, and we continue to work on our FDA submission.

Dan Brennan: Thanks, Dan. Thank you. One moment for our next question. Our next question comes from Andrew Brackmann, from William Blair. Please go ahead. Hi, guys. Good afternoon.

Speaker Change: Thanks, Dan.

Andrew Brackmann: Thanks for taking the questions. Maybe just going back to the EPIC integrations, it sounds like things are moving nicely there, but can you maybe just sort of talk about, of those accounts who have integrated, just what you're seeing in terms of any utilization uptick, and I guess how should we be thinking about the impact here, not necessarily just over the next couple of quarters but more so over the next few years? Thank you. Sure, Susan.

Speaker Change: From William Blair, please go ahead.

Speaker Change: Hi guys, good afternoon, thanks for taking the questions. Maybe just going back to the EPIC integrations, it sounds like things are moving nicely there, but can you maybe just sort of talk about, of those accounts who have integrated, just what you're seeing in terms of any utilization uptick, and I guess how should we be thinking about the impact here, not necessarily just over the next couple of quarters, but more so over the next few years?

Susan Bobulsky: Yeah, sure. Yeah. So, you know, as Chad mentioned, we now have six sites integrated. Four of those have been integrated for about six months, and then two are brand new in Q2. We have 13 others that are actively progressing toward the completion of the integration, plus a variety of additional sites kind of in the funnel where they've been approved, but we're waiting for the resources to be able to implement them on the account side.

Speaker Change: Thank you.

Susan Belosky: Sure, Susan. Yeah.

Speaker Change: Yeah.

Speaker Change: So, as Chad mentioned, we now have six sites integrated, four of those have been integrated for about six months, and then two are brand new in Q2. We have 13 others that are actively progressing towards the completion of the integration, plus a variety of additional sites kind of in the funnel where they've been approved while waiting for the resources to be able to implement them on the account side.

Susan Bobulsky: But the accounts that we started with were relatively smaller accounts, and so we saw a very nice pickup almost immediately upon integration. You know, double-digit increases in adoption and in test volumes just within a quarter, and also, you know, significant increases in the number of ordering providers, which reflects the ease of use of the integrated test. We also have seen some really nice improvements in operations. For example, the orders that come in through Epic are less likely to have discrepancies that require follow-up from our customer service team or more likely to have complete, accurate billing information, which we need to submit successful claims for reimbursement.

Speaker Change: But the accounts that we started with were relatively smaller accounts and so we saw a very nice pickup almost immediately upon integration.

Speaker Change: You know, double-digit increases in adoption and in test volumes just within a quarter, and also, you know, significant increases in the number of ordering providers, which reflects the ease of use of the integrated test.

Susan Bobulsky: And so, a variety of nice benefits that we've seen in those accounts, but those first four accounts were intentionally relatively small accounts intentionally because we were just getting started. The two very recent accounts are accounts that have larger potential, but they are in very early days from the time of peak adoption. So, in this case, we'll get to evaluate over the next 6 to 12 months whether EMR integration can accelerate sort of upticks from a nascent place to larger potential accounts.

Speaker Change: A variety of nice.

Speaker Change: Benefits that we've seen in those accounts, but those first four accounts were relatively small accounts intentionally because we were just getting started. The two very recent accounts are accounts that are larger potential, but very early days from time of peak adoption. So in this case, we'll get to evaluate over the next...

Speaker Change: 6-12 months, whether EMR integration can accelerate sort of uptick from a nascent place and larger potential account.

Susan Bobulsky: We will have some of our largest current accounts going live by the end of 2024, and so I think that's when we're really going to be able to tell you more about what we've learned about the impact on the business. But I will remind you that Epic integration was a strategy that we've had in mind for some time, and so, you know, we did build in to our 2024 guidance for the clinical business some increase in use based on the implementation of Epic in a set of our... Perfect.

Speaker Change: to our 2024 guidance for the clinical business, some increase in youth based on the implementation of Epic and a set of our accounts.

Andrew Brackmann: And then maybe just on the LIMS overhaul, can you just set us on where that initiative stands and just how we should be thinking about any impact to cost savings over the next couple of quarters in 2025? Thank you. Yeah, with regard to LIMS, I'd say we put that on the back burner to focus initiatives around things that we can do to improve our workflows, namely in the reimbursement space as well as in the customer office space.

Speaker Change: Perfect. And then maybe just on the LIMS overhaul, can you just level set us on where that initiative stands and just how we should be thinking about any impact to cost savings over the next couple of quarters in 2025? Thank you.

Speaker Change: Yeah, with regards to LIMS, I'd say we put that on the back burner as a focus initiative around

Andrew Brackmann: So, you know, right now, coming out of the strategic review and some of the restructuring initiatives, that was one of the projects. You know, we're deprioritizing at this time and reprioritizing other initiatives that we think have a better near term. Thanks guys. Thanks.

Speaker Change: You know, we're deprioritizing at this time and reprioritizing other initiatives that we think have a better near-term ROI.

Kyle Piskel: Thank you. One moment for our next question. Our next question comes from Rachel Vansdall from PG Morgan, JP Morgan. Please go ahead. Perfect. Good afternoon, you guys.

Speaker Change: Got it. Thanks guys.

Speaker Change: Thank you. One moment for our next question.

Speaker Change: Our next question comes from Rachel Vansdall from P.G. Morgan, J.P. Morgan. Please go ahead.

Rachel Vansdall: Thanks so much for taking the questions. It's great to hear about the continued strength of MRD and then the cost savings as well. You previously had kind of talked about a second half of 2025 being break even. So is that still the right way to think about it?

Kyle Piskel: Or could we potentially see that timeline get moved up given where you're at from a cost savings perspective? I'd say that's the right way to think about it right now. I mean, again, we'll continue to monitor performance and, you know, as we get closer to 2025, you know, update you at that point. But right now, that's what we're thinking about. And that's what

Speaker Change: I'd say that's the right way to think about it right now. I mean, again, we'll continue to monitor performance. And, you know, as we get closer to 2025, you know, update you at that point. But right now, that's what we're thinking about. And that's what we're executing towards.

Rachel Vansdall: And then on my follow-up question, just on the COGS side of things, you mentioned NovaSeq in Dave's earlier question. So can you walk us through the timing for that rollout and how we should think about the potential reduction in COGS? How quickly can that really kick in?

Kyle Piskel: And then where do you think you could get on a COGS-per-test with NovaSeq in that rollout there? Thanks. You know, we're moving along in the development phase. It's a pretty significant undertaking, so we're going to be fairly cautious about getting this done and getting it right. But, you know, at the end of the day, you know, we're anticipating, hey, back after 2025, we can get this in, you know, again, we'll see the initial uptake, but, you know, our anticipation is this could be between 5 to 8%. And, you know, once we're up and running and once we get in the flow, we'll have a little bit better data, but, you But we think it's a meaningful driver.

Speaker Change: You know, we're moving along in the development phase. It's a pretty significant undertaking, so we're going to be fairly cautious about getting this done and getting it right. But, you know, at the end of the day, you know, we're anticipating, hey, back half of 2025, we can get this in. You know, again, we'll see the initial uptake, but, you know, our anticipation is this could be between five to eight percentage points.

Speaker Change: And, you know, once we're up and running and once we get in the workflow, we'll have a little bit better data, but, you know, we'll wait and see. But we think it's a meaningful driver. We just need to make sure it's done right.

Kyle Piskel: We just need to make sure. Yeah, and as volumes continue to grow, that percentage reduction in cost will correspondingly grow. So that's an initial estimate of kind of the back half of 2025, Costly.com. Thank you. One moment for our next question. Our next question comes from Sung G. Nam, from Sculpture Bank. Please go ahead. Hi, thanks for taking the questions.

Speaker Change: Yeah, and as volumes continue to grow, that percentage reduction in cost will correspondingly grow.

Speaker Change: So that's an initial estimate of kind of back half of 2025 cost reduction on the 5 to 8 percent was upside from there.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Sung G. Nam.

Sung G. Nam: Just a couple of clarification questions on MRD Pharma. For the $3 million milestone that you received, was that an accelerated, you know, customer accelerating from secondary to, I'm sorry, converting from secondary to primary endpoint in their study, or was it just an acceleration since the ODAC decision in terms of implementing the MRD as the primary endpoint, or is something different altogether? No, it wasn't a result of the ODAC decision.

Speaker Change: from Sculpture Bank. Please go ahead.

Songji Nam: Hi, thanks for taking the questions. Just a couple of clarification questions on MRD Pharma. For the $3 million milestone that you received, was that an accelerated, you know, customer accelerating from

Speaker Change: converting from secondary to primary endpoint in their study or was it just an acceleration since the ODAC in terms of implementing the

Chad Robins: This was a study that had been in play and Data Approval, so nothing that wasn't tied to ODAC. Where MRD data was used in the submission package, we were, again, not related to ODAC or MRD. Okay. Got it.

Sung G. Nam: And then just on the, again, on the MRD Pharma side, are there customers that are currently, You know, that have currently incorporated flow cytometry based monitoring for MRD that might be interested in switching to ClonalSeq given the better standardization that you talked about? Is that a potential opportunity and kind of curious if you might be getting any interest from those customers and hurdles from switching, kind of, if you will, in their studies from one technique to another? Absolutely, there's an opportunity to convert.

Chad Robins: I mean, some already have, and we've been converting them over the years, but certainly, kind of with the ODAQ decision, I think it continues to solidify the importance of NGS MRD with the depth of sensitivity, you know, down to one in a million, where as low as one in 10,000 without even the same level of standardization. So we continue to convert those farmer customers. Great, that's it for me.

Sung G. Nam: Thank you. Thanks, Andrea. Thank you. I am showing no further questions at this time.

Operator: Thank you for participating in today's conference. This does conclude the program. You may now disconnect. 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, Man, A B A B A B A B A B A B A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A Images, Good day and thank you for standing by.

Speaker Change: Great. That's it for me. Thank you. Thanks, Andrea.

Speaker Change: Thank you for watching

Speaker Change: Mark .

Speaker Change: Thanks for watching!

Operator: Welcome to the Adaptive Biotechnology 2nd Quarter 2024 Earnings 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 on your telephone. You will then hear an automated message advising your hand is raised.

Karina Calzadilla: To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Karina Calzadilla, Head of Investor Relations. Please go ahead.

Karina Calzadilla: Thanks, Anton, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnology's 2nd Quarter 2024 Earnings Conference. Earlier today, we issued a press release reporting adaptive financial results for the second quarter of 24. 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 to the investor section of our corporate website. During the call, Manitou will make projections and other forward-looking statements within the meanings of federal security law regarding future events and the future financial performance of the company.

Karina Calzadilla: These statements reflect management's current perspective of the business as 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 filings 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.

Chad Robins: Joining the call today are Chad Robins, our CEO and co-founder, and Kyle Piskel, our Chief Financial Officer. Additional members from management will be available for Q and A. With that, I'll turn the call over to Chad Robins. Thanks, Karina. Good afternoon, everyone, and thank you for joining us on our second quarter earnings call. It is CFAIR weekend here in Seattle, so if the Blue Angels are flying overhead, we are live, and I may pause for a couple seconds.

Chad Robins: Let's jump in. Our second quarter results are extremely encouraging. We are laser focused on fueling growth on the top line, reducing spend, and managing our capital. And this is exactly what we achieved this quarter, as you can see on slide three. MRD revenue grew 36% versus prior year and 8% versus prior quarter, with growth coming from both clinical and pharma. However, total operating spend, less one-time costs, had a significant decline of 15% versus prior year and 8% sequentially, with reductions observed across all segments.

Chad Robins: Sequencing gross margin increased 5 percentage points compared to last quarter, and cash ended at approximately $292 million. This reflects a cash burn reduction of 32% in the first half of this year versus a year ago. As a result of this strong performance, we are updating our full-year guidance. We are raising our MRD revenue, decreasing our operating spend, and reducing our annual cash burn. Kyle will provide further details in his prepared remarks.

Chad Robins: Now, let's take a closer look at the MRD business on slide four. ClonoSeq clinical revenue grew 43% versus prior year driven by both volume and ASP. Tests delivered had another record quarter growing 36% versus prior year and 9% versus prior quarter to over 18,500 tests. We observed double-digit growth sequentially in all marketed indications. Multiple Loma continues to be the largest contributor, representing 42% of

Chad Robins: Importantly, non-Hodgkin's lymphoma now contributes 11% of clonaceque tests, with DL-BCL growing at 25% quarter over quarter. Blood-based testing continues to be a focal point of our strategy, currently representing 40% of tests with multiple myeloma in blood at 21% versus 16% a year ago. We expect our planned launch in mantle cell lymphoma, coupled with continued promotion of expanding evidence for utility of blood in other disease states, to be key drivers of clonal seq testing in blood during the second half.

Chad Robins: EMR integration remains an important area of investment for the MRD business, both as a future growth accelerant and as an additional competitive mode for a business. We are now live with six accounts in EPIC and have 13 more in progress.

Chad Robins: We remain confident that we will have completed EPIC integrations with 20 or more accounts by year end. Notably, in the second half of this year, our integration activities will expand beyond EPIC with a planned Q4 kickoff for our Onco EMR integration work with Flatiron Health. On the reimbursement front, we continue to reduce out-of-policy and non-contracted claims and optimize revenue cycle management to drive ASP growth, which increased 3% in Q2 versus Q1.

Chad Robins: Results through the first half of the year coupled with a preliminary gap fill rate set by Medicare further solidifies our confidence to grow ASB by $200 per test by the end of 2025. Looking at MRD Pharma on slide five, our pharma business had another strong quarter with revenue growth of 28% versus the prior year, which included a $3 million milestone from a drug approval multi-month.

Chad Robins: This momentum comes on the heels of the ODAC announcement last quarter, which voted in favor of using MRD as a primary endpoint to support accelerated approval of new therapies in multibody law. We are already seeing positive impact post this recommendation. In the past few months, we have booked two new studies and are in advanced discussions for another three new studies where the decision to use MRD as a primary endpoint was made based on the ODAC outcome.

Chad Robins: Additionally, two existing studies have converted MRD from a secondary end point to a primary end point, and we are in talks with partners about another four studies already underway that may also upgrade. Importantly, we are also seeing a positive halo effect for the continued acceptance of MRD in other disease states, as our partners increasingly seek to incorporate MRD as a primary endpoint in CLL and DL-BCL. As the only FDA-cleared MRD assay that can consistently deliver the sensitivity and standardization needed to meet the FDA's performance standards, we are confident that Clonoseq will continue to be the test of choice not only for multiple myeloma drug development but also for other lymphoid malignancies.

Chad Robins: Now, let's turn to immune medicine on slide six. We're making good progress in R&D toward the discovery and future development of differentiated immune-based therapeutics for cancer and autoimmunity. In oncology, we continue to work closely with Genentech and our cancer cell therapy program. Both companies are excited and committed to delivering high-impact TCR-based cell therapy products to as many cancer patients as possible, and we will provide an update at the appropriate time. In Autoimmunity, we've successfully identified a subset of autoreactive T cell receptors that are likely causing devastating diseases in patients with MS, T1D, and This quarter, we started our target discovery efforts in T1D. As we did in multiple sclerosis, our goal is to identify the protein to which these autoreactive or problem TCRs bind.

Chad Robins: This helps de-risk our assumptions and confirm that the disease biology makes sense. Also this quarter, we successfully completed our first antibody mouse immunization campaign, Wave 1 in our lead autoimmune indications, including multiple sclerosis and type 1 diabetes.

Kyle Piskel: By year end, we aim to identify and make a subset of antibodies to start functionally testing these candidates. Now, I'm going to pass it over to Kyle to walk through the financial results and guidance update. Thanks, Chad. Let's start with revenue for the second quarter on slide seven. Total revenue in the second quarter was $43.2 million, with 82% from MRD and 18% from MRD.

Kyle Piskel: MRD revenue grew to $35.3 million, up 36% from a year ago, with ClonaC clinical testing and MRD pharma partnerships each driving approximately 66% and 34% of the growth. Excluding the $3 million in regulatory milestones recognized this quarter, MRD revenue grew 25% Immune Medicine revenue was $7.9, down 66% from a year ago, driven by an anticipated 82% decrease in Genentech upfront amortization and no related Recognizing q3 q2 of, This increase was partially offset by a 12% increase in immune medicine pharmacology.

Kyle Piskel: Moving down the P&L, I want to highlight that the sequencing margin, which excludes the MRD milestone and Genentech amortization, was 50% for the quarter, an increase of 7 percentage points versus the prior year and 5 percentage points sequentially. The sequencing margin increase was mainly attributed to lower overhead costs from improvements in the production lab driving lower cost per. Excluding one-time costs from asset impairment and severance related to restructuring initiatives, post-strategic review, total operating expense inclusive of cost of revenue was $82.6 million.

Kyle Piskel: Representing a 15% decrease. This decrease was mainly driven by the continued emphasis on driving leverage across functions, with R&D being the biggest contributor to such a decline, driven by more targeted investments and, As you can see from the segment reporting table on the right side of the slide, MRD-adjusted evido was a loss of $11.3 million. A deficit that was reduced by 35% from the first quarter, driven by both higher revenue and lower options.

Kyle Piskel: Immune Medicine Adjustment Epidemiologists remained flat sequentially as reductions in operating expense were offset by lower genetics, Total company adjusted EBITDA with a loss of $21.4 million in the second quarter compared to $28.2 million in the first quarter of 2024 and $24.8 million a year ago. Finally, interest expense from our royalty financing agreement with Orbitnet was $2.79, which once again was more than offset by. The net loss for the quarter was $46.2 million, or $38.4 million, excluding one-time asset impairment and restructuring charters, compared to $47.2 million.

Kyle Piskel: Now, turning to our updated owner guidance on slide. We are increasing our MRV full-year revenue guidance from our prior range of $135 million to $140 million to now between $140 million and $145 million. This increase in guidance reflects better than expected results in the second quarter, inclusive of the regulatory milestone. With respect to trends throughout the second half, we expect MRT revenue to be about $45.55 weighted between the third and fourth quarters.

Speaker Change: Financial Results. Earlier today, we issued a press release reporting Adaptive Financial Results for the second quarter of 2024.

Manitou: During this call, Manitou will make projections and other forward-looking statements within the meanings of federal security law regarding future events and the future financial performance of the company.

Manitou: 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.

Speaker Change: Joining the call today are Chad Robins, our CEO and co-founder, and Kyle Piskel, 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?

Kyle Piskel: We are also further reducing the total company estimated operating, excluding one-time restructuring and asset impairment charges from our previous range of $350 million to $360 million to now $340 million, a $10 million reduction as we continue to drive leverage across the business and manage investment.

Chad Robins: Thanks, Karina. Good afternoon, everyone, and thank you for joining us on our second quarter earnings call. It is CFAIR weekend here in Seattle, so if the Blue Angels are flying overhead, we are live, and I may pause for a couple seconds.

Kyle Piskel: Of this total spend, approximately 70% sits within the MRD business and approximately 25%. In addition, we are lowering our expected annual cash burn. We now expect the burn to be approximately $60 million for the second half of. This implies an annual cash burn of $115 million versus our previous estimate of $130 million and represents a 24% reduction over the full year of 2020. We continue to expect approximately 50% of the cash generated this year to come from the MRT business and approximately 40% from the immune medicine business. The remaining 10% is due to unallocated corporate costs.

Manitou: Let's jump in.

Speaker Change: Our second quarter results are extremely encouraging. We are laser focused on fueling growth on the top line, reducing spend, and managing our capital. And this is exactly what we achieved this quarter, as you can see on slide three.

Speaker Change: MRD revenue grew 36% versus prior year and 8% versus prior quarter with growth coming from both clinical and pharma.

Speaker Change: Total operating spend, less one-time costs, had a significant decline of 15% versus prior year and 8% sequentially, with reductions observed across all segments.

Speaker Change: Sequencing gross margin increased 5 percentage points compared to last quarter.

Speaker Change: And cash ended at approximately $292 million. This reflects a cash burn reduction of 32% in the first half of this year versus a year ago.

Speaker Change: As a result of this strong performance, we are updating our full-year guidance. We are raising our MRD revenue range.

Chad Robins: I look forward to providing you with further financial updates throughout the year as we continue our diligent trajectory strengthening our financial profile. With that, I'll hand it back over to you. Thanks, Kyle. I'm encouraged by the team's execution in the first half of the year. We will continue to drive revenue growth in our MRD business and advance our focus programs in immune medicine. We will do this with disciplined spending and targeted investments to enhance long-term value. With that, I'd like to turn the call back over to the operator and open up the call for questions.

Speaker Change: Research, Decreasing Our Operating Spend, and Reducing Our Annual Cash Burn. Kyle will provide further details in his prepared remarks.

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you need to press star one on your telephone and wait for your name to be announced.

Operator: To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. The first question comes from Mark Massaro from BTIG. Please go ahead.

Kyle: Now, let's take a closer look at the MRD business on slide 4.

Kyle: Clinical Revenue grew 43% versus prior year driven by both volume and ASP.

Kyle: Tests delivered had another record quarter growing 36% versus prior year and 9% versus prior quarter to over 18,500 tests.

Kyle: We observed double-digit growth sequentially in all marketed indications.

Kyle: Multibioma continues to be the largest contributor representing 42% of volume.

Speaker Change: Importantly, non-Hodgkin's lymphoma now contributes 11% of clonaceic tests with DL-BCL growing at 25% quarter over quarter.

Speaker Change: Blood-based testing continues to be a focal point of our strategy, currently representing 40% of tests with multiple myeloma in blood at 21% versus 16% a year ago.

Speaker Change: We expect our planned launch in mantle cell lymphoma, coupled with continued promotion of expanding evidence for utility of blood in other disease states, to be key drivers of clonaceic testing in blood during the second half.

Speaker Change: EMR integration remains an important area of investment for the MRD business, both as a future growth accelerant and as an additional competitive mode for a business.

Speaker Change: We are now live with six accounts in Epic and have 13 more in progress.

Kyle: We remain confident that we will have completed EPIC integrations with 20 or more accounts by year-end. Notably in the second half of this year, our integration activities will expand beyond EPIC with the planned Q4 kickoff to our Onco EMR integration work with Flatiron Health.

Speaker Change: On the reimbursement front, we continue to reduce out-of-policy and non-contracted claims and optimize revenue cycle management to drive ASP growth, which increased 3% in Q2 vs. Q1.

Speaker Change: Results through the first half of the year, coupled with a preliminary gap fill rate set by Medicare, further solidifies our confidence to grow ASP by $200 per test by the end of 2025.

Kyle: Looking at MRD Pharma on slide 5.

Speaker Change: Our pharma business had another strong quarter with revenue growth of 28% versus prior year, which included a $3 million milestone from a drug approval in Multimiloma.

Kyle: This momentum comes on the heels of the ODAC announcement last quarter, which voted in favor of using MRD as a primary endpoint to support accelerated approval of new therapies in multiple myeloma.

Mark Massaro: Hey guys, congrats on a strong, beaten, and raised quarter. I guess my first question, which I find quite interesting, is the number of new studies that are moving to primary endpoints. You talked about two new studies in Q2. You're advanced in three more. I think in the past I've heard you say that the level of economics can be roughly two times greater for a primary versus a secondary endpoint. Can you maybe just clarify that in terms of just the unit economics?

Kyle: We are already seeing positive impact post this recommendation.

Speaker Change: In the past few months, we have booked two new studies and are in advanced discussions for another three new studies where the decision to use MRD as a primary endpoint was made based on the ODAC outcome.

Speaker Change: Additionally, two existing studies have converted MRD from a secondary endpoint to a primary endpoint, and we are in talks with partners about another four studies already underway that may also upgrade.

Speaker Change: Importantly, we are also seeing a positive halo effect for the continued acceptance of MRD in other disease states, as our partners increasingly seek to incorporate MRD as a primary endpoint in CLL and DL-BCL.

Speaker Change: As the only FDA-cleared MRD assay that can consistently deliver the sensitivity and standardization needed to meet the FDA's performance standards,

Speaker Change: We are confident that Clonaseq will continue to be the test of choice not only for multiple myeloma drug developers, but also in other lymphoid malignancies.

Speaker Change: Now, let's turn to immune medicine on slide 6.

Speaker Change: We're making good progress in R&D toward the discovery and future development of differentiated immune-based therapeutics in cancer and autoimmunity. In oncology, we continue to work closely with Genentech and our cancer cell therapy programs.

Speaker Change: Both companies are excited and committed to deliver high-impact, TCR-based cell therapy products to as many cancer patients as possible, and we will provide an update at the appropriate time.

Speaker Change: In autoimmunity, we've successfully identified a subset of autoreactive T cell receptors that are likely causing devastating diseases in patients with MS, T1D, and several others.

Speaker Change: This quarter, we started our target discovery efforts in T1D. As we did in multiple sclerosis, our goal is to identify the protein to which these autoreactive or problem TCRs bind.

Speaker Change: This helps de-risk our assumptions and confirm that the disease biology makes sense.

Speaker Change: Also this quarter, we successfully completed our first antibody mouse immunization campaign, wave one, in our lead autoimmune indications, including multiple sclerosis and type 1 diabetes.

Kyle Piskel: By year-end, we aim to identify and make a subset of antibodies to start functionally testing these candidates. Now, I'm going to pass it over to Kyle to walk through the financial results and guidance updates. Kyle? Thank you.

Kyle Piskel: Thanks, Chad. Let's start with revenue for the second quarter on slide seven.

Kyle Piskel: Total revenue in the second quarter was $43.2 million, with 82% from MRD and 18% from immune medicine.

Kyle Piskel: MRD revenue grew to $35.3 million, up 36% from a year ago, with Clonaseq Clinical Testing and MRD Pharma partnerships each driving approximately 66% and 34% of the growth, respectively.

Kyle Piskel: Excluding the $3 million in regulatory milestones recognized this quarter, MRD revenue grew 25% from a year ago.

Kyle Piskel: Medicine Revenue was $7.9M, down 66% from a year ago, driven by an anticipated 82% decrease in Genentech upfront amortization and no related milestone in the quarter versus $7.7M in milestone revenue recognized in Q2 of 2023.

Kyle Piskel: This increase was partially offset by a 12% increase in immune medicine pharma services.

Speaker Change: Moving down the P&L, I want to highlight that sequencing margin, which excludes the MRD milestone and Genentech amortization, was 50% for the quarter, an increase of 7 percentage points versus prior year, and 5 percentage points sequentially.

Speaker Change: The sequencing margin increase was mainly attributed to lower overhead costs from improvements in the production lab, driving lower costs per sample.

Speaker Change: Excluding one-time costs from asset impairments and severance related to restructuring initiatives post-strategic review, total operating spending inclusive of cost of revenue was $82.6 million, representing a 15% decrease from last year.

Speaker Change: This decrease was mainly driven by the continued emphasis on driving leverage across functions, with R&D being the biggest contributor of such decline, driven by more targeted investments and reinvestments.

Speaker Change: As you can see from the segment reporting table on the right side of the slide, MRD-adjusted evido was a loss of $11.3 million this quarter.

Speaker Change: Care, a deficit that was reduced by 35% from the first quarter, driven by both higher revenue and lower operating expenses.

Speaker Change: Immune Medicine adjusted EBIT loss remained flat sequentially as reductions in operating expense were offset by lower Genentech revenue.

Speaker Change: Total company adjusted EBITDA with a loss of $21.4 million in the second quarter, compared to $28.2 million in the first quarter of 2024, and $24.8 million a year.

Speaker Change: Finally, interest expense from our Royalty Financing Agreement with Orbitnet was $2.79, which once again was more than offset by interest income.

Speaker Change: Net loss for the quarter was $46.2 million or $38.4 million excluding one-time asset impairment and restructuring charges compared to $47.8 million loss.

Speaker Change: [inaudible]

Speaker Change: Now, turning to our updated full-year guidance on slide 8.

Speaker Change: We are increasing our MRV full-year revenue guidance from our prior range of $135 million to $140 million to now $140 million to $145 million.

Speaker Change: This increase in guidance reflects the better-than-expected results in the second quarter, inclusive of the regulatory milestone revised.

Speaker Change: With respect to trends throughout the second half, we expect MRT revenue to be about $45.55 weighted between the third and fourth quarter respectively.

Speaker Change: We are also further reducing the total company estimated operating spend, excluding one-time restructuring and asset impairment charges from our previous range of $350 million to $360 million to now $340 million to $350 million.

Speaker Change: A $10 million reduction as we continue to drive leverage across the business and manage investments.

Speaker Change: Of this total spend, approximately 70% sits within the MRD business and approximately 25% within immune medicine.

Speaker Change: In addition, we are lowering our expected annual cash burn. We now expect the burn to be approximately $60 million for the second half of the year. This implies an annual cash burn of $115 million versus our previous estimate of $130 million and represents a 24% reduction over the full year of 2023.

Speaker Change: We continue to expect approximately 50% of the cash grown this year to come from the MRD business and approximately 40% from the immune benefit business.

Speaker Change: The remaining 10% is due to unallocated corporate costs. I look forward to providing you with further financial updates throughout the year as we continue diligent trajectory strengthening our financial profile. With that, I'll hand it back over to Chad.

Chad Robins: Thanks, Kyle.

Chad Robins: I am encouraged by the team's execution in the first half of the year.

Chad Robins: We will continue to drive revenue growth in our MRD business and advance our focus programs in immune medicine. We will do this with disciplined spend and targeted investments to enhance long-term value. With that, I'd like to turn the call back over to the operator and open up the call for questions.

Speaker Change: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Speaker Change: The first question comes from Mark Massaro from BTIG. Please go ahead.

Mark Massaro: Hey guys, congrats on a strong beat and raise quarter.

Mark Massaro: I guess my first question, which I find quite interesting, is the number of new studies that are moving to primary endpoints. You talked about two new studies, I believe, in Q2. You're advanced in three more.

Speaker Change: I think in the past I've heard you say that the level of economics can be roughly two times greater for a primary versus a secondary endpoint. Can you maybe just clarify that in terms of just the unit economics?

Chad Robins: Yeah, I mean, I think what you're referring to is the milestone revenue that we could realize. And I think that is, you know, where you see that delta as it relates to the economics. I think, you know, as it relates to these studies and the bookings of these studies, I think we continue to expect that that will be a 2025 tailwind, and in 2024, we're really focused on executing the bookings and growing the backlog as we exit the year.

Chad Robins: So I think as it relates to the unit economics, I think of that primarily as it relates to the milestones, but it may catalyze some sequencing revenue faster. Okay, that's helpful. And then I found it interesting that there's a group working with the FDA in additional disease states. I think you mentioned CLL and DLBCL.

Speaker Change: In additional disease states, I think you called up CLL and DLBCL. Do you have any sense for timing there? And, you know, give us a sense for...

Chad Robins: Do you have any sense for timing there? And, you know, give us a sense of, you know, are you involved in this discussion or this group? Maybe just walk us through some of the stakeholders and how you think about this playing out over the coming weeks. Yeah, first, Mark, thanks for the question and the compliments on the quarter. I appreciate it. We, a lot of our investigators, our principal investigators that we work with, are involved in those conversations, and they're asking us to provide ClonaSeq data to help support them in those discussions, very much like we did in multiple myeloma with the International Myeloma Working Group and others as they presented to the ODAC committee. We honestly don't have a sense of timing.

Chad Robins: Yeah, first, Mark, thanks for the question and the compliments on the quarter. I appreciate it.

Speaker Change: A lot of our investigators, our principal investigators that we work with, are involved in those conversations, and they're asking us to provide clonal-seq data to help support them in those discussions, very much like we did in multi-myeloma with the International Myeloma Working Group and others as they presented to the ODAC committee. We honestly don't have a sense of timing. It did take some time for multi-myeloma to be accepted as a primary endpoint. However, I think once the first domino has fallen, we would at least be hopeful that the next disease stage will be faster moving forward.

Chad Robins: It did take some time for multiple myeloma to be accepted as a primary endpoint. However, I think once the first domino has fallen, we would at least be hopeful that the next disease stage will be faster moving forward. The other thing I will mention, and this isn't immediate, although it has catalyzed new discussions with investigators who were initially reluctant, there's just a lot more noise and chatter around MRD being used in multiple myeloma now that the ODAC decision has been made in the clinic as well, which is great. Maybe this is the last one for me.

Speaker Change: The other thing I will mention, and it's not immediate, although it has catalyzed new discussions with investigators who were initially reluctant, there's just a lot more kind of noise.

Speaker Change: Chatter around MRD being used in multiple myeloma now that the ODAC decision has been made in the clinic as well, which is great to see.

Mark Massaro: I don't know if this was in your deck or not, but I think you've talked about approximately 60 clinical studies for multiple myeloma. And if I have it right, you had six as primary. It looks like that number now is eight. (Inaudible) It's hard to put a number on that. Obviously, we believe that number is going to go, you know, up and, hopefully, significantly, but I'd be hard pressed to start making those projections. You know, once we get a little bit farther into this, maybe a year down the road, we could have better visibility into making those projections. Okay, that's it for me.

Speaker Change: Excellent. Maybe last one for me. I don't know if this was in your deck or not, but I think you've talked about approximately 60 clinical studies for multiple myeloma, and if I have it right, you had six as primary. It looks like that number now is eight.

Speaker Change: 3 are in advanced discussions, that could be 11. I think as we think about this longer term, where could that, you know, 10 or 11, where do you think that might go, you know, looking out, say, two to three years from today?

Speaker Change: It's hard to put a number on that. Obviously, we believe that number is going to go up and hopefully up significantly, but I'd be hard-pressed to start making those projections. Once we get a little bit farther into this, maybe a year down the road, we could have better visibility into making those projections, Mark.

Operator: Thanks guys. Thank you. Thank you. One moment for our next question. Our next question comes from David Westenberg of Piper Sandler. Please go ahead.

Mark Massaro: Okay, that's it for me. Thanks guys. Thank you.

Speaker Change: Thank you. One moment for our next question.

David Westenberg: Hi, thank you for taking the question and congrats on the big cost reduction burn and the MRDB. So, Chad, I hate to ask this question because, like, we should be celebrating your achievements in reducing the off X. Is there any, you got any, is there any risk here that you maybe went too lean and that, you know, this could hurt the top line growth, particularly in that MRD business? I don't know. Maybe I would ask, in addition to that, do you actually think you could accelerate revenue if you did add reps to that business? Or not?

Speaker Change: Our next question comes from David Westenberg from Piper-Sandler. Please go ahead.

David Westenberg: Thank you for taking the question and congratulations on the big cost reduction burn and the MRD beat.

David Westenberg: I'm

David Westenberg: So, Chad, I hate to ask this question because, like, we should be celebrating your achievements in reducing the OpEx. Is there any – you got any – is there any risk here that you maybe went too lean and that, you know, this could hurt the top-line growth, particularly on that MRD business?

Speaker Change: I don't know, maybe I would ask, in addition to that, do you actually think you could accelerate the revenue if you did add reps to that business, or do you, anyway, I'll stop there.

Chad Robins: Anyway, I'll stop there. Yeah, no, I think, you know, the sales and marketing, just so you know, David, we're, you know, untouched, relatively untouched, except for, you know, where we always manage our performance. You know, we're talking about a lot within the business with kind of GNA, overhead, and just looking at every nook and cranny to be able to kind of reduce our expenses.

Chad Robins: Yeah, no, I think, you know, the sales and marketing, just so you know, David, we're, you know, untouched, relatively untouched, except for, you know, where we always manage our performance.

David Westenberg: We're talking about a lot within the business with GNA, overhead, and just looking at every nook and cranny to be able to kind of reduce our expenses. So the answer is no, and where we are adding is in our market access team, if you look at coverage.

Chad Robins: And, you know, where we are adding is in kind of our market access team. If you look at, you know, coverage and collections, these are particular areas of focus for us, which we continue to make investments in, where we believe that we can, you know, increase the ASP and essentially kind of the cash coming into the business. But, you know, we will continue to kind of monitor reps and add reps as needed and look at territory alignments as we do consistently.

David Westenberg: and collections. These are particular areas of focus to us, which we continue to make investments in, where we believe that we can, you know, up the ASP and essentially kind of the cash coming into the business. But, you know, we will continue to kind of monitor reps and add reps as needed and look at territory alignments as we do consistently. So the final point is we're looking, you know, across the board at ways that we can, you know, continue to, first and foremost, make sure that we're hitting our numbers. And you said another way that we're de-risking the numbers, but it's all about kind of operating.

Chad Robins: So, we, the final point is we look, we're looking, you know, across the board at ways that we can, you know, continue to, first and foremost, make sure that we're hitting our numbers, and said another way that we're de-risking the numbers. But it's all about kind of operating efficiencies without hurting the top line. And we feel, we feel very comfortable that we're making the right investments in the right areas. I really, really, really appreciate that.

David Westenberg: [inaudible]

David Westenberg: Just, you know, I did not want to just talk about some of the potential for both operating leverage and cost reduction in Clonoseq. I know you've made efforts in the past to kind of get some kind of COG reductions there. You know, where are we at in terms of progress there? And then, just in terms of, are you getting some of that naturally just via more volume through that product? And, you know, how should we think about gross margins over the kind of a three-year, four-year period or three to five-year period as this business becomes, you know, a lot more clinical MRD? And I'll stop there.

Speaker Change: Really, really, really appreciate that. Just, you know, I did not want to just talk about some of the potential for both operating leverage and cost reduction in Clonoseq.

Speaker Change: I know you've made efforts in the past to kind of get some some kind of cog reductions there. You know, where where are we at in terms of progress there? And then just in terms of

Speaker Change: Are you getting some of that naturally just via more volume through that product and how should we think about gross margins over the kind of a three-year, four-year period or three- to five-year period as this business becomes...

Kyle Piskel: I know there are a lot of analysts that want to ask questions. Yeah, I mean, as it relates to our progress, I think, as you've seen in the quarter and first half of the year, we're continuing to gain leverage through efficiency initiatives we've put in place, flattening out the org, and yet we are getting some of that naturally through increased volumes and increased revenue. And we'll continue to see that in the second half of the year.

Speaker Change: a lot more clinical MRD. And I'll stop there. I know there's a lot of analysts that wanna ask questions. Thank you.

Speaker Change: Yeah, I mean, I think as it relates to our progress, I think as you've seen in the quarter and first half of the year, we're continuing to gain leverage through some of the

Speaker Change: Efficiency Initiatives we put in place.

Speaker Change: Plotting Out the Org. And yes, we are getting, you know, some of that naturally through increased volumes.

Kyle Piskel: I think we're going to gain additional leverage back in the second half of the year. I think at, I would say, 3 to 5% improvement on that sequencing margin line. Over the long term, we have some initiatives going on, one of which is the NovaSeq, which we expect to launch in the back half of 2025, and that can drive a lot of efficiencies. And then again, as the last point, we've got to continue to do some work and continue to execute on the ASP line, and that's going to drive a large amount of improvement to get us to that 70% target margin range that we feel

Speaker Change: [inaudible]

Speaker Change: Over the long term, we have some initiatives going on, one of which is the NovaSeq, which we expect to launch in the back half of 2025, and that can drive a lot of efficiencies.

Speaker Change: And then, again, as the last point, you know, we've got to continue to do some work and continue to execute on the ASP line, and that's going to drive a large amount of improvement to get us to that 70% target margin range that we see over, you know, three to five year outlook.

Kyle Piskel: 3-to-5-year outlook. And I should note, you know, the milestones will also continue to drive and support the business at the end of the day, you know, even absent the clinical trial..., which I think ODAC only accelerates or makes that more durable growth. Thank you so much.

Speaker Change: I should note, the Milestones will also continue to drive and support the business at the end of the day, even absent the clinical performance.

Speaker Change: Living along the farm.

Speaker Change: which I think ODAC only accelerates or makes that more durable growth over the longer term.

Speaker Change: Thank you so much. And again, congrats on the big cost reduction curve and reduction and BEAT.

David Westenberg: And again, congrats on the big cost reduction curve and reduction and beat. Thank you. Thank you. One moment for our next question. Our next question comes from Tejas, number 7 from Morgan Stanley. Please go ahead. Hey, guys. Good evening.

Speaker Change: Thank you.

Speaker Change: Thank you. One moment for our next question.

Tejas Savant: Thanks for your time here. Chad, I want to follow up on Mark's question related to, you know, the ODAC guidance and so on. So, first of all, when do you expect FDA to finalize that in MM? And does that finalization have any sort of impact in terms of accelerating MRD endpoint adoption beyond what you're seeing today in terms of that cadence, you know, and penetrating those potential trials? And then, on a related note, I think in the past you've talked about a little bit of a halo effect, if you will, on the clinician side as well in terms of adopting Clonoseq. So, any more color on that would be helpful.

Speaker Change: Our next question comes from Tejas.

Tejas: 7, from Morgan Stanley , please go ahead.

Tejas: Hey guys, good evening. Thanks for the time here. Chad, I want to follow up on Mark's question related to, you know, the ODAC guidance and so on. So, first of all, when do you expect

Speaker Change: DFTA to finalize that in MM. And does that finalization have any sort of impact in terms of accelerating MRD endpoint adoption beyond what you're seeing today in terms of that cadence, you know, and penetrating those potential trials? And then, on a related note, I think in the past you've talked about a little bit of a halo effect, if you will, on the clinician side as well, in terms of adopting Clonoseq. So, any color on that would be helpful.

Chad Robins: Sure, I'll cover the first part, and then I'll pass it over to Susan Bobulsky, the Chief Commercial Officer of the MRD business, to talk about the kind of impact and maybe give you some anecdotes as to what's going on from a clinical perspective. As far as the ODAC vote, remember, the advisory council is a little bit different than it is for a drug approval, and we've gotten some kind of messaging around the format that they're going to kind of cement this decision as to whether it's going to be kind of a formal white paper or come out as a kind of formal decision. There's a little bit of debate as to exactly how the FDA is going to regulate this. Obviously, it was an 12 to 0 overwhelmingly positive vote.

Speaker Change: Sure, I'll cover the first part and then I'll pass it over to Susan Bobulsky, the Chief Commercial Officer of the MRD business.

Susan Bobulsky: to talk about kind of the impact and maybe give you some anecdotes.

Speaker Change: As far as the ODAC vote, the advisory council is a little bit different than it is for drug approval, and we've gotten some messaging around the format that they're going to cement this decision as whether it's going to be a formal white paper or come out as a formal decision. There's a little bit of debate as to exactly how the FDA is going to—obviously, it was a 12-0, overwhelmingly positive vote. So we don't have a direct line as to exactly the timing or the format. But I will say this, at no impact—well, it's had only a

Chad Robins: So, we don't have a direct line as to exactly the timing or the format, but I will say this had no impact. Well, it's had only a positive impact. Our pharma partners aren't waiting in any way, shape, or form. They know that the FDA, for every drug approval that's coming forward, they now have the opportunity to look at it as a primary endpoint based on this decision. The FDA is not waiting, and neither are our pharmaceutical partners.

Speaker Change: a positive impact. Our pharma partners aren't waiting in any way, shape or form. They know that the FDA, for every drug approval that's coming forward, they now have the opportunity to look at it as a primary endpoint based on this decision. The FDA is not waiting and neither are our pharma partners.

Chad Robins: So, that's why we're already seeing the trajectory that we have. I do want to caution a little bit, and Kyle mentioned this, but I'll just say, it's a great leading indicator, but it doesn't necessarily impact 2024 revenue. It's more, we're seeing bookings that essentially, I would say, solidify the long-term kind of health of the pharma business going out into the future as those bookings convert into revenue opportunities as those milestones are achieved. And as more trials sign up, we get more sequencing revenue from those additional trials. Susan, can you provide, perhaps, some anecdotes of how you're seeing those discussions in the clinic? Sure. Thanks, Chad.

Speaker Change: So that's, you know, and that's why we're already seeing the trajectory that we have. I do want to caution a little bit, and Kyle mentioned this, but I'll just, it's a great leading indicator, but it doesn't necessarily impact, you know, 2024 revenue. It's more, we're seeing bookings that essentially, you know, I would say solidify the long-term kind of health of the pharma business going out into the future as those bookings.

Tejas: Converting to Revenue Opportunities as those milestones are achieved, and as more trials sign up, we get more sequencing revenue from those additional trials. Susan, can you provide perhaps some anecdotes of how you're seeing that, those discussions in the clinic? Thank you.

Susan Bobulsky: Since the ODAC vote in April, we've increasingly seen clinicians are aware of that ODAC vote, and they bring it up and view it favorably in the context of clinical conversations we have with them about MRD. The way that we've been framing it, and I think this seems to resonate, is that by seeing the FDA's vote of confidence behind MRD as a means to assess response to bring a drug into the market, that's really an incredible amount of credibility that it lends to MRD as a marker for your individual patient.

Susan Belosky: Sure. Thanks, Chad.

Susan Belosky: Since the ODAC vote in April , we've increasingly seen clinicians are aware of that ODAC vote and they bring it up and view it favorably in the context of clinical conversations we're having with them about MRD.

Susan: The way that we've been framing it, and I think this seems to resonate, is that by seeing the FDA's vote of confidence behind MRD as a means to assess response.

Susan Belosky: To bring a drug into the market, that's really an incredible amount of credibility that it lends to MRD as a marker for your individual patients.

Susan Bobulsky: We can predict the efficacy of that drug and approve it for marketing, and we can also predict the efficacy of that drug in your individual patient, and you can use that to inform conversations and dialogues with your patient. So I think that's really responding.

Susan Belosky: We can predict the efficacy of that drug and approve it for marketing, and we can also predict the efficacy of that drug in your individual patient, and you can use that to inform conversations and dialogues with your patient. So I think that's really resonating.

Susan Bobulsky: Interestingly, another area where we see a lot of interest is in what we call the ID of patients. In other words, the first step of ClonaSeq is to evaluate a high-disease load sample and to identify the sequences that we will track for that patient's MRD. And most physicians order ID tests when they decide they need their first MRD.

Tejas: Interestingly, another area where we see a lot of interest is in what we call the ID of patients. In other words, the first step of ClonaSeq is to evaluate a high-disease load sample and to identify the sequences that we will track for that patient's MRD.

Susan Bobulsky: But in the context of pharma increasingly anticipating the use of MRD as an endpoint, there's an interesting synergy between our two businesses. Pharma companies would love to see more and more patients being ID'd for chronic disease testing at the time of diagnosis so that they are eligible for any trial that might come along, and there's no delays or hurdles in finding an appropriate specimen to get them ID tested. Calibration rates, the rate of patients for whom we find viable sequences, are also higher when we test fresh samples at diagnosis.

Tejas: And most physicians order ID tests when they decide they need their first MRD test.

Tejas: But, in the context of pharma increasingly anticipating use of MRD as an endpoint,

Speaker Change: There's an interesting synergy for our two businesses. The pharma companies would love to see more and more patients being ID'd for chronic disease testing at the time of diagnosis so that they are eligible for any trial that might come along and there's no delays or hurdles in finding an appropriate specimen to get them ID tested.

Susan Bobulsky: And so pharma companies are essentially saying to us that it would be great if more and more accounts could do this ID testing up front at the time of diagnosis. And correspondingly, our accounts, particularly community accounts where they're very eager to bring new kinds of trials on board, are saying to us, hey, do you think that pharma companies would be more interested in working with us if we ID our patients up front? And this is a strategy we've been pushing for a bit of time, and we're starting to see good traction, but I think the ODAC is actually going to provide a tailwind to that strategy to get more and more patients to be tested for chronic ID at the time of diagnosis, and essentially, that means they're MRD enabled from day one, and they can get MRD testing whenever they need it in a trial in the clinic. So it seems like it's a win, win, win for us, for pharma, for the clinic, and for the patient. And that's something we've been talking very actively about and, again, seeing residents. I got it. That's super helpful.

Tejas: Calibration Rates. The rate of patients for whom we find viable sequences are also higher when we test fresh samples at diagnosis and so

Tejas: Pharma companies are essentially saying to us, it would be great if more and more accounts can do this ID testing upfront at the time of diagnosis. And correspondingly, our accounts, particularly community accounts, where they're very eager to bring new kinds of trials on board, are saying to us, hey, do you think that pharma companies would be more interested in working with us if we ID our patients upfront? And this is the strategy we've been pushing for a bit of time, and we're starting to see good traction. But I think the ODAC is actually going to provide a tailwind.

Tejas: to that strategy to bring more and more patients.

Tejas: To be tested for a colonoscopic I.D. at the time of diagnosis, and essentially that means they're M.R.D. enabled.

Tejas: From day one and they can get MRT testing whenever they need it in a trial in the clinic So it seems like it's a win-win-win for us for pharma for the clinic and the patient And that's something we've been talking very actively about and again seeing resonate

Tejas Savant: And then, guys, a couple more on the clinical side of things. So maybe for Kyle here, you talked about that $200 ASP increase over the next couple of years, and you're confident of getting there. You've also got that preliminary CLFS rate. I think it gets finalized on Jan 1st, 2025.

Tejas: Got it. That's super helpful. And then guys, a couple more on the on the clinical side of things. So maybe for Kyle here, you know, you talked about that $200 ESP increase over the next couple of years, and you're confident of getting there. You've also got that preliminary CLFS rate, I think it gets finalized on Jan 1st in 2025.

Kyle Piskel: So could you just walk us through any color on the cadence of the ASP increases? I'm sure there are a few moving parts beneath that, including perhaps some help from the biomarker bill, et cetera. Should it be front-end loaded?

Tejas: So, could you just walk us through any color on the cadence of the ASP increases, I'm sure there's a few moving parts beneath that, including perhaps, you know, some help from the biomarker bill, et cetera, should it be front-end loaded, should it be relatively even keeled between where it is today? And then second, do you think from a commercial or sort of, or physician education standpoint,

Speaker Change: You are where you need to be in the community setting today and it's just a function of time or are there more investments to come on that front? Thank you.

Kyle Piskel: Should it be relatively even-keeled between where it is today? And then second, do you think from a commercial or physician education standpoint, you are where you need to be in the community setting today, and it's just a function of time, or are there more investments to come on that front? Thank you. Hi Tejas, I'll take the question on ASP, and then I'll pass it off to Susan to give you some color on the clinical side. But from the, our ASP acceleration plan is really comprised of three key pillars: coverage, contracting, and collection.

Speaker Change: Yes.

Speaker Change: Hi Tejas, I'll take the question on ASP and then again I'll pass it off to Susan to give you some color on the clinical side. But from the, our ASP acceleration plan is really comprised of three, three key pillars. Coverage,

Kyle Piskel: So, on the coverage side, we're seeking Medicare coverage for a broader set of indications. We're also exploring novel coverage structures, including recurrence monitoring for selected indications. And that's actually what we've already submitted and are in discussions on for our MCL. We're actively reducing out-of-policy claims and have aligned our business to drive the core indications where we now have that solid coverage in place. And that is – we can further kind of double-click on that to look at how we modified our sales force incentive compensation plan. We also have some changes in ordering requirements for customers who wish to order the out-of-criteria test.

Speaker Change: Contracting, and Collections. So on the coverage side, we're seeking Medicare coverage for a broader set of indications.

Speaker Change: We're actively reducing out-of-policy claims and have aligned our business

Speaker Change: We also have kind of changes in ordering requirements for customers who wish to order the out-of-criteria test.

Kyle Piskel: And then the third component of that is really new operational policies that will increase the percentage of tests that we get paid for. And as a result of that, we've seen a really positive shift in our mix towards contracted indications, where those have really grown as a percentage of our mix. So that really covers the first pillar of coverage. The second one is contracting.

Speaker Change: And then the third component of that is...

Speaker Change: Really new operational policies that will increase the percentage of tests that we get paid for and as a result of that we've seen a really positive shift in

Susan Belosky: In our mix towards contracted indications, where those have really grown as a percentage of our mix.

Kyle Piskel: So there are a couple things to talk about in terms of contracting. First, we continue to negotiate agreements with our non-contracted payers. The objective here is obviously to secure pricing at or above the Medicare price.

Kyle Piskel: And within that, we've already talked about this, but we expect the publication of that preliminary gap bill rating to provide really meaningful leverage as we go out and have those conversations with payers. We can reference that new rate as a benchmark to be set that they have to be at or above that rate. A good example of that is one of the large outstanding payers with Anthem, which we're waiting for that rate to go to Anthem and say, you know, this is what we expect or better. And then the third is in the area of, I'll just call it, blocking and tackling with collections.

Speaker Change: The Medicare Price.

Speaker Change: And within that, we we've already talked about this, but we expect the publication of that preliminary gap fill rating that to provide really meaningful leverage. As we go out and have those conversations with payers, we can go reference.

Kyle Piskel: And we're taking, you know, a few different steps on collection performance. The first is that we continue to place a real focus on Medicare Advantage collections. This has been a problem for the industry, which, you know, I think we're starting to see some resolution on. There are these large claims projects that we're going after. And we're directly engaging CMS at a national level to help us support this kind of claim payment resolution with Medicare Advantage from private payers.

Speaker Change: And then the third is in the area of, I'll just call it blocking and tackling with collections, and we're taking, you know, a few different steps on collection performance. The first...

Speaker Change: We continue to place a real focus on Medicare Advantage collections. This has been a problem for the industry, which

Tejas: You know, I think we're starting to see some resolution on, there's these large claims projects that we're going after, and we're directly engaging a CMS at a national level to help us.

Kyle Piskel: The second component of that is, just as I mentioned this in a prior question, we've increased our resourcing allocated to claims management. So we actually have more people going after, I'll call it, smiling and dialing, and there's actually more to it. We actually have some really nice AI projects for the appeals process and claims management.

Susan Belosky: Support, kind of this claim payment resolution with Medicare Advantage from the private payers.

Susan Belosky: The second component of that is...

Susan Belosky: I mentioned this in a prior question, but we've increased our resourcing allocated to claims management. So we actually have more people going after, I'll call it smiling and dialing, and there's actually more to it. We actually have some really nice AI projects for the appeals process and claims management. We put in place new initiatives on how we do prior authorizations, et cetera. And the final pillar of that is we've made some significant headway on the implementation of our PLA code, and further progress, you know, I think will be significant.

Kyle Piskel: We put in place new initiatives on how we do prior authorizations, et cetera. And the final pillar of that is that we've made some significant headway on the implementation of our PLA code. And further progress, you know, I think will be supported by the new preliminary Medicare. With that, Susan, do you want to comment on his question regarding clinical research? Sure. I think you asked about, you know, whether we're where we need to be in the community setting. Do we need to invest additionally?

Tejas: This is Be Supported by the new preliminary Medicare rate that we talked about.

Tejas: With that, Susan, do you want to comment on his question regarding clinical?

Susan: Sure. I think you asked about, you know, whether we're where we need to be in the community setting. Do we need to invest additionally? So,

Susan Bobulsky: So, you know, over the last several quarters, we've seen somewhere between 20 and 25% of our business kind of coming consistently from that community segment. And we believe that, over time, that contribution can be much higher. And we've actually seen some really nice acceleration in Q2 in our academic segment in concert with continued steady growth in the community. So we have a lot of excitement in both segments. And so we can't focus only on one at the expense of the other.

Susan: You know, over the last several quarters, we've seen somewhere between 20 and 25% of our business kind of coming consistently from that community segment. And we believe that over time that that that contribution can be much higher. And we've actually seen some really nice acceleration in Q2 in our academic segment in concert with continued steady growth in the community. So we have a lot of feeling in both segments. And so we can't focus only on one at the expense of the other. We have a lot of untapped potential to capture in both. But that said, you know,

Susan Bobulsky: We have a lot of untapped potential to capture in both. But that said, you know, winning in the community is going to be a long-term critical success factor for this business. But, you know, given the proportion of patients who are treated either entirely or partially in community settings, our penetration is much lower in the community than it is in academic settings.

Tejas: Winning in the community is going to be a long-term critical success factor for the students.

Speaker Change: Nurses Clinic. But, you know, given the proportion of patients who are treated either entirely or partially in community settings, and we, our penetration is much lower in the community than it is in academic settings. So there's a couple of things that we've done.

Susan Bobulsky: So there are a couple of things that we've done recently and then a few things that we will be starting to do, and we have plans to do in the coming months. So one of the things we've done recently is really reorient our peer-to-peer educational programs and medical education programs and other types of sponsorship dollars that we invest in physician education to really be focused on connecting thought leaders, both academic and community thought leaders, who have mastered the use of MRD in their own practices to bring their playbooks to the community to show in a variety of ways, both written and verbal, how they are using MRD. Because We have some very nice data sets on actionability of MRD, but there's a lot more in motion right now that we'll read out over the next couple of years.

Tejas: Recently, and then a few things that we will be starting to do and we have plans to do in the coming months.

Tejas: One of the things we've done recently is really reorient our peer-to-peer educational programs and medical education programs and other types of sponsorship dollars that we invest.

Tejas: for Physician Education to really be focused on connecting thought leaders, both academic and community thought leaders, who have mastered the use of MRD in their own practices to bring their playbooks to the community to show in a variety of ways, both written, verbal.

Speaker Change: How they are using MRD, because that is the number one question we get in the clinic, and the data will continue to develop. We have some very nice data sets on actionability of MRD, but there's a lot more in it.

Susan Bobulsky: So while we're waiting for that, let's show what the KOLs have really gotten comfortable with. So that's been a big area of focus and investment, as well as ensuring that we have the right team structure in place. So as you know, back at the beginning of 2022, we hired our first community salesperson, and the Nut team has been able to drive tremendous increases in contribution to that business. We were only 5% community when they started.

Tejas: [inaudible]

Susan Bobulsky: But we've also got a small team, what we call strategic accounts managers. And those folks are really the ones driving C-suite engagement in the Oncology Community Practice Network, or Supergroup, which is where the majority of patients in the community are managed. And we recently reorganized our strategic accounts team under a dedicated leader, which has had a variety of strategic benefits. The other place where we are going to invest in the coming months, and you've heard about this a little bit, is EMR integration.

Tejas: and that team has been able to drive tremendous.

Speaker Change: Increases in contribution of that business, we were only 5% community when they started.

Speaker Change: But we've also got a small team of what we call strategic accounts managers.

Speaker Change: And those folks are really the folks driving C-suite engagement in the Oncology Community Practice Network, or Supergroup, which is where the majority of patients in the community are managed.

Speaker Change: We recently reorganized our strategic accounts team under a dedicated leader which had a variety of strategic benefits. The other place where we are going to invest in the coming months, and you've heard about this a little bit, is EMR integration oriented toward the community.

Susan Bobulsky: So Flatiron is a big partnership we've discussed, but we have a number of ongoing or recently initiated integration projects or integration discussions and negotiations, which will allow us to significantly increase our footprint for integration. Got it. Super helpful. Appreciate all the color, guys.

Speaker Change: So Flatiron is a big partnership we've discussed, but we have a number of ongoing or recently initiated integration projects or integration discussions and negotiations, which will allow us to significantly increase our footprint for integration in the community.

Tejas: Got it. Super helpful. Appreciate all the color, guys. Thank you. Hey, Josh. Just on the ASD increase, you know, we've talked about the $200 increase over...

Tejas Savant: Course of the Next Two Years. I think what we're seeing from these ASP initiatives and what Chad is summarizing is, you know, we've got strong confidence, you know, we'll start to see some of the early evidence from this in the back half of the year, and the gap fill rate effectively gives us confidence heading into 2025 that we can continue to deliver that growth. Thank you, Kyle.

Speaker Change: In the course of the next few years. I think what we're seeing from these ASP initiatives and what Chad is summarizing is

Speaker Change: We've got strong confidence, we'll start to see some of the early evidence from this in the back half of the year, and the gap fill rate effectively gives us confidence heading into 2025 that we can continue to deliver that growth over the next few years.

Kyle Piskel: I appreciate it. Thank you. One moment for our next question. Our next question comes from Dan Brennan from TD Cowen. Please go ahead.

Kyle Piskel: Thank you, Kyle.

Speaker Change: Thank you. One moment for our next question.

Dan Brennan: Thanks. Thanks for the questions. Congratulations on the quarter.

Speaker Change: Our next question comes from Dan Brennan from TD Cowen. Please go ahead.

Dan Brennan: Thanks. Thanks for the questions. Congrats on the quarter. Maybe one just on the burn and the margin improvement. Could you just speak a little bit more towards kind of what went better in the quarter? You're obviously taking down the guide or, excuse me, improving the guide. Just kind of what are you thinking about in the back half of the year from some of the line items about what's getting better?

Speaker Change: Yeah, I would say, you know, we've done a number of, you know, initiatives here to get the workforce aligned and our spend aligned with where we think the business should be. I think we're going to continue to see

Tejas: Leveraging that in those areas, especially as it relates to the margin profile, you know, we're continuing to expect increased volumes, both in the clinic and increased revenues in the pharma business.

Tejas: So we're going to continue to see that leverage in the back half of the year. And, you know, I think we've got some decent initiatives in place for 25 that will continue to play out there. As it relates to the burn, I mean, again, I don't want to sound like a broken record, but

Kyle Piskel: Maybe one just on the burn and the margin improvement. Could you just speak a little bit more about kind of what went better in the quarter? You're obviously taking down the guide, or, excuse me, improving the guide.

Tejas: You know, the restructuring initiatives we put in place over the first half of the year, you know, have led up to some increased confidence as a result of the reductions in spend, to be confident that we, you know, we can continue to reduce the burn.

Tejas: And, you know, focus our investments in IM, which will, you know, yield benefits in the longer term. But, you know, as it relates to Q2, we had some significant collections across the business, the milestones being one of them.

Tejas: The Farm of Business, and in the clinic. So, you know, I think what we're going to see in the course of the year is just a continued march down that path. There is a bit of seasonality in the back half of the year from a spend perspective, so that's why it's just a little bit slightly higher than the first half of the year.

Speaker Change: Okay, that sounds good. What about on the medicine side? You know, biotech funding has been healthier. I know that's generally been a drag over the last period of time, what kind of a spending environment, like what are you guys seeing just for more of a macro basis on that side of the business?

Kyle Piskel: Just kind of what are you thinking about in the back half of the year in terms of some of the line items about what's getting better? Yeah, Dan. I would say we've done a number of initiatives here to get the workforce along. I think we're going to continue to see.

Kyle Piskel: Leveraging that in those areas, especially as it relates to the margin profile, you know, we're continuing to expect increased volumes, both in the clinic and increased revenues in the pharma business. So we're going to continue to see that leverage in the second half of the year. And, you know, I think we've got some decent initiatives in place for 25 that to play out there. As it relates to the burn, I mean, again, I don't want to sound like a broken record, but, you know, the restructuring initiatives we put in place over the, you know, first half of the year have led to some increased confidence as a result of the reductions in spend, to be confident that we can continue to reduce the burn and focus our investments in IM, which will, you know, yield benefits in the longer term.

Kyle Piskel: But, you know, as it relates to Q2, we had some significant collections across the business, the milestones being one of them, the pharma business, and in the clinic. So, you know, I think what we're going to see in the course of the year. And you march down that path, there is a bit of seasonality in the back half of the year from a spend perspective. So that's why it's just a little bit slightly higher than the first. Okay, that sounds good. What about on the medicine side?

Dan Brennan: You know, biotech funding has been healthier. I know that's generally been a drag over the last period of time, kind of a spending environment. Like, what are you guys seeing just on a macro basis on that side of the business? Are you talking about from kind of an IM, pharma, revenue perspective, Dan? Yeah, yeah, yeah, exactly. Sorry, Chad, yep.

Tejas: Are you talking about from kind of an IM, pharma, kind of revenue perspective, Dan? Yeah, yeah, yeah, exactly. Sorry, Chad. Yep.

Chad Robins: Just as a reminder to everyone, we don't report revenue based on that, but there has been some impact. I think it depends on what our technology is being used for. Some of the very early research and development budgets aren't what they used to be, but we now have long-standing relationships where we've been embedded, and many different pharma companies are looking at the immunological response to their therapies. And we've used it in a variety of different contexts, and I think it continues to hold up pretty well.

Chad Robins: Yeah, just as a reminder to...

Speaker Change: To everyone, we don't report revenue based on that, but there has been kind of

Speaker Change: Some impact, I think it depends on kind of what.

Speaker Change: What are technologies being used for? Some of the very early kind of research and development budgets aren't what they used to be, but we we now have kind of long-standing relationships where we've been embedded and many different private companies are looking at the immunological response to the therapies and we've been used in a variety of different contexts, which

Chad Robins: Okay, and then maybe on DLBCL, I heard you say like 20% quarterly growth, I think sequentially. So penetration is still fairly nascent. Like how is that progressing versus expectations? Does that kind of keep going linearly? Is there an opportunity for any kind of acceleration there? Yeah, I did.

Speaker Change: You know, I think it continues to hold up pretty well.

Speaker Change: Okay, and then maybe on DLBCL, I heard you say like 20% quarterly growth, I think, sequentially, so penetration is still fairly nascent. Like what's, how is that progressing versus expectations? Does that kind of keep going linearly? Are there an opportunity for any kind of acceleration there?

Susan Bobulsky: I'll pass it over to Susan to answer that question. But it was 25% sequential growth. Susan, do you want to give some color on the trajectory? Sure. Sure. Yeah.

Susan: Yeah, I did. I'll pass it over to Susan to answer that question, but it was 25% sequestered growth. Susan, do you want to give some color on the trajectory? Sure.

Susan Bobulsky: So, you know, DLVCL is now up to 6% of our total business, clinical business, which is up from 3% a year ago. And we've been pleased. We've been hitting our internal projections with the indication level for DLVCL so far. We've been pleased to see significant uptake in the community setting and also, you know, continued opportunities to report out new data. You may have noted that earlier in Q2 in May, we saw a really nice publication on Clonaseq and DLVCL in the context of a study for a regimen known as VIPER, the relapsed refractory regimen.

Susan: Sure, yeah. So, you know, DLVCL is now up to 6% of our total business, clinical business, which is up from 3% a year ago. And it, you know, we've been

Speaker Change: Please we've been hitting our internal projections of the indication level with CLVCL so far. We've been pleased to see significant uptake in the community setting

Speaker Change: And also, you know, continued opportunities to report out new data. You may have noted that earlier in Q2 in May, we saw a really nice publication on colonofecan DLVCL. Thank you. Thank you.

Susan Bobulsky: And it was published in the New England Journal of Medicine in May. And in that study, we saw really nice performance from the Clonaseq assay in terms of the ability to differentiate patients who would have better or worse progression-free survival and overall survival. In that study, 15 patients who achieved complete response at the end of therapy and remained progression-free throughout the study, they all had MRDE that was undetectable by Clonaseq.

Speaker Change: In the context of a study for a regimen known as VIPER, the relapsed refractory regimen. And it was published in the New England Journal of Medicine in May. And in that study, we saw really nice performance from the Clonacy GAPA in terms of the ability to differentiate patients.

Speaker Change: who would have better or worse progression-free survival and overall survival.

Speaker Change: In that study, 15 patients who achieved

Speaker Change: Complete response at the end of therapy and remain progression-free throughout the study. They all had

Susan Bobulsky: And of those that progressed, three out of four had detectable ctDNA prior to the evidence of relapse. So, we saw it as another nice demonstration, albeit in a small patient population, of the performance of the assay in a relapsed refractory setting. We continue to generate data, and that will certainly be a catalyst for ongoing adoption, as well as our ongoing work with regulatory agencies to expand access to and increase the utilization of DLVCL from pharma companies.

Speaker Change: MRD that was undetectable by clonaseque and of those that progressed

Speaker Change: We saw it as another nice demonstration, albeit in a small patient population, of the performance of the assay in a relapsed refractory setting.

Speaker Change: We continue to generate data, and that will certainly be a catalyst for ongoing adoption, as well as our ongoing work with regulatory agencies to expand access and to increase the utilization of DLV cells by pharma companies.

Susan Bobulsky: So, actually, last week, we submitted our DLVCL STREC offering to New York State CLEP, which will expand access to DLVCL in New York, if approved, and we continue to work on our FDA. Awesome. Thanks a lot and congrats.

Speaker Change: So actually last week we submitted our DLBCL STREC offering to New York State CLEP, which will expand the access to DLBCL in New York if approved, and we continue to work on our FDA submissions.

Speaker Change: Psychiatry, we expect to be useful both in the pharma setting and also have a halo effect on the clinic over time.

Dan Brennan: Thanks, Dan. Thank you. One moment for our next question. Our next question comes from Andrew Brackmann, from William Blair. Please go ahead. Hi, guys. Good afternoon.

Speaker Change: Awesome. Thanks a lot and congrats.

dad: Thanks, Dad.

Speaker Change: Thank you. One moment for our next question.

Andrew Brackmann: Thanks for taking the questions. Maybe just going back to the EPIC integrations, it sounds like things are moving nicely there. But can you maybe just sort of talk about, of those accounts who have integrated, just what you're seeing in terms of any utilization uptick? And I guess how should we be thinking about the impact here, not necessarily just over the next couple of quarters but more so over the next few years? Thank you. Sure, Susan.

Speaker Change: Our next question comes from Andrew Brackmann.

Speaker Change: From William Blair, please go ahead.

Andrew Brackmann: Hi guys, good afternoon, thanks for taking the questions. Maybe just going back to the EPIC integrations, it sounds like things are moving nicely there, but can you maybe just sort of talk about of those accounts who have integrated, just what you're seeing in terms of any utilization uptick, and I guess how should we be thinking about the impact here, not necessarily just over the next couple of quarters, but more so over the next few years?

Susan Bobulsky: Yeah, sure. Yeah. So, you know, as Chad mentioned, we now have six sites integrated. Four of those have been integrated for about six months, and then two are brand new in Q2. We have 13 others that are actively progressing toward the completion of the integration, plus a variety of additional sites kind of in the funnel where they've been approved, but we're waiting for the resources to be able to implement them on the account side.

Speaker Change: Thank you.

Susan: Sure, Susan. Yeah, sure.

Speaker Change: Yeah

Speaker Change: So, as Chad mentioned, we now have six sites integrated, four of those have been integrated for about six months, and then two are brand new in Q2. We have 13 others that are actively progressing towards the completion of the integration, plus a variety of additional sites kind of in the funnel where they've been approved while waiting for the resources to be able to implement them on the account side.

Susan Bobulsky: But the accounts that we started with were relatively smaller accounts, and so we saw a very nice pickup almost immediately upon integration. You know, double-digit increases in adoption and in test volumes just within a quarter, and also, you know, significant increases in the number of ordering providers, which reflects the ease of use of the integrated test. We also have seen some really nice improvements in operations. For example, the orders that come in through Epic are less likely to have discrepancies that require follow-up from our customer service team or more likely to have complete, accurate billing information, which we need to submit successful claims for reimbursement.

Speaker Change: You know, double-digit increases in adoption and in test volumes just within a quarter. And also, you know, significant increases in the number of ordering providers, which reflects the ease of use of the integrated test.

Speaker Change: We also have seen some really nice improvements in operations. For example,

Speaker Change: The orders that come in through EPIC are less likely to have discrepancies that require follow-up from our customer service team or more likely to have complete accurate billing information which we need to submit successful claims.

Speaker Change: for reimbursement. And so.

Susan Bobulsky: And so, a variety of nice benefits that we've seen in those accounts, but those first four accounts were relatively small accounts intentionally because we were just getting started. The two very recent accounts are accounts that have larger potential but are in very early days from the time of peak adoption. So, in this case, we'll get to evaluate over the next six to 12 months whether EMR integration can accelerate a sort of uptick from a nascent place in a larger potential account.

Speaker Change: A variety of nice benefits that we've seen in those accounts, but those first four accounts were relatively small accounts intentionally, because we were just getting started. The two very recent accounts are accounts that are larger potential, but very early days from time of peak adoption. So in this case, we'll get to evaluate over the next

Susan Bobulsky: We will have some of our largest current accounts going live by the end of 2024, and so I think that's when we're really going to be able to tell you more about what we've learned about the impact on the business. But I will remind you that Epic integration was a strategy that we've had in mind for some time, and so we did build in to our 2024 guidance for the clinical business some increase in use based on the implementation of Epic, etc. Perfect.

Andrew Brackmann: And then maybe just on the LIMS overhaul, can you just set us on where that initiative stands and just how we should be thinking about any impact to cost savings over the next couple of quarters in 2025? Thank you. Yeah, with regard to LIMS, I'd say we put that on the back burner as a focus initiative around things that we can do to improve our workflows, namely in the reimbursement space as well as the customer office space.

Andrew Brackmann: So, you know, right now, coming out of the strategic review and some of the restructuring initiatives, that was one of the projects. You know, we're deprioritizing at this time and reprioritizing other initiatives that we think have a better near-term. Got it.

Kyle Piskel: Thank you. One moment for our next question. Our next question comes from Rachel Vansdall from PG Morgan, JP Morgan. Please go ahead. Perfect. Good afternoon, you guys.

Rachel Vansdall: Thanks so much for taking the questions. It's so great to hear about the continued strength of MRD and then the cost savings as well. You previously had kind of talked about the second half of 2025 being break even. So is that still the right way to think about it? Or could we potentially see that timeline get moved up given where you're at from a cost savings perspective? I'd say that's the right way to think about it right now. I mean, again, we'll continue to monitor performance and, you know, as we get closer to 2025, you know, update you at that point. But right now, that's what we're thinking about. And that's what it is.

Speaker Change: Perfect. Good afternoon, you guys. Thanks so much for taking the questions. So, great to hear about the continued strength on MRD and then the cost savings as well. You previously had kind of talked about a second half of 2025 break even. So, is that still the right way to think about it, or could we potentially see that timeline get moved up, given where you're at from a cost-savings perspective?

Kyle Piskel: And then on my follow-up question, just on the COGS side of things, you mentioned NovaSeq in Dave's earlier question. So can you walk us through the timing for that rollout and how we should think about the potential reduction in COGS? How quickly can that really kick in?

Rachel Vansdall: And then where do you think you could get on a COGS-per-test with NovaSeq in that rollout there? Thanks. You know, we're moving along in the development phase. It's a pretty significant undertaking.

Kyle Piskel: So we're going to be fairly cautious about getting this done and getting it right. But, you know, at the end of the day, we're anticipating, hey, back half of 2025, we can get this in, you know, again, we'll see the initial uptake, but, you know, our anticipation is this could be between 5 to 8%. And, you know, once we're up and running and once we get into the flow, we'll have a little bit better data, but, you know, we'll wait and see, but we think it's a meaningful driver. We just need to make it. Yeah, and as volumes continue to grow, that percentage reduction in cost will correspondingly grow. So that's an initial estimate of kind of the back half of 2025 cost reduction.

Speaker Change: Yeah, and the volumes continue to grow.

Speaker Change: So that's an initial estimate of kind of back half of 2025 cost reduction of 5 to 8 percent, which is upside from there.

Kyle Piskel: Thank you. Please take a moment for our next question. Our next question comes from Sung G. Nam. From Sculpture Bank, please go ahead.

Sung G. Nam: Hi, thanks for taking the questions. Just a couple of clarification questions on MRD Pharma. For the $3 million milestone that you received, was that an accelerated, you know, customer accelerating from secondary, I'm sorry, converting from secondary to primary endpoint in their study, or was it just an acceleration since the ODAC in terms of implementing the MRD as the primary endpoint, or is something different altogether? No, it wasn't a result of the ODAC decision.

Speaker Change: The MRD is primary endpoint or is something different altogether.

Sung G. Nam: This was a study that had been in play and Data Approval. Okay, I got it. And then just on the, again, on the MRD Pharma side, are there customers that are currently, You know, that have currently incorporated flow cytometry based monitoring for MRD that might be interested in switching to ClonalSeq given the better standardization that you talked about? Is that a potential opportunity and kind of curious if you might be getting any interest from those customers and hurdles from switching, kind of, if you will, in their studies from one technique to another?

Speaker Change: No, it wasn't a result of the ODAC decision. This was a study that had been in play and just recently got approval. It wasn't tied to ODAC. Where MRD data was used in the submission package, again, not related to ODAC or Endpoint.

Speaker Change: Okay, got it. And then just on the, again, on the MRD Pharma side, are there customers that are currently

Speaker Change: You know, that have currently incorporated flow cytometry-based monitoring for MRD that might be interested in switching to clonal-seq given the better standardization that you talked about. Is that a potential opportunity and kind of curious if you might be getting any interest?

Speaker Change: From those customers and hurdles from switching kind of a midway, if you will, and they're in their studies from one technique to another.

Sung G. Nam: Absolutely, there's an opportunity to convert. I mean, some already have, and we've been converting them over the years. But certainly, kind of with the ODAQ decision, I think it continues to solidify the importance of NGS MRD with the depth of sensitivity, you know, down to one in a million, where as low as one in 10,000, without even the same level of standardization.

Speaker Change: Absolutely, there's an opportunity to convert.

Speaker Change: Some already have and we've been converting them over the years

Speaker Change: You know, I think it continues to solidify the importance of NGS MRD with the depth of sensitivity, you know, down to 1 in a million, where as low as 1 in 10,000 without even the same level of standardization. So we continue to convert over those pharma customers.

Chad Robins: So, we continue to convert those farmer customers. Great, that's it for me. Thank you. Thanks, Andrea. Thank you. I am showing no further questions at this time. Thank you for participating in today's conference. This does conclude the program. You may now disconnect.

Speaker Change: Great. That's it for me. Thank you. Thanks, Andrea.

Speaker Change: Thank you. I am showing no further questions at this time. Thank you for participating in today's conference. This does conclude the program. You may now disconnect.