Q3 2024 Adaptive Biotechnologies Corp Earnings Call
Good day and welcome to Adaptive Biotechnology's third quarter financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Karina Calzadilla, Head of Investor Relations. Please go ahead.
Karina Calzadilla: Thank you, Michelle. Good afternoon, everyone. I would like to welcome you to Adaptive Biotechnology's third quarter 2024 earnings conference call. Earlier today, we issued a press release reporting adaptive financial results for the third 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 to a slide presentation that has been posted to the investor section or corporate website.
Karina Calzadilla: During the call, management will make projections and other forward-looking statements within the meaning of federal security laws regarding future events and the future financial performance of the company.
Karina Calzadilla: These statements reflect management's current perspective of the businesses 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.
Karina Calzadilla: In addition, non-GAAP financial measures will be discussed during these calls, and a reconciliation from non-GAAP to gap metrics can be found in her earnings release.
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&A. With that, I'll turn the call over to Chad. Chad? Thanks, Karina. Good afternoon, and thank you for joining us on our third quarter earnings call.
Karina Calzadilla: As shown on slide 3, results for the quarter are a clear testament of our continued strong execution on the top and bottom line.
Karina Calzadilla: MRD revenue increased 52% year-over-year driven by both clinical and pharma. This quarter we reached two catalysts that will drive MRD revenue growth.
Karina Calzadilla: One, Medicare set a new gap of $2,007 for our Clonoseq test, which is a 17% increase from our previous rate under the episode structure. And two, we secured Medicare coverage for mantle cell lymphoma.
Karina Calzadilla: Operating spend had another significant decline of 11% versus prior year and 5% sequentially, excluding ones on cost.
Karina Calzadilla: Sequencing gross merger further increased six percentage points compared to last quarter as we successfully executed efficiencies and workflow leading to lower per sample cost.
Karina Calzadilla: And cash ended at approximately $267 million, which represents a burn reduction of 38% in the first nine months this year, compared to the same period a year ago.
Karina Calzadilla: Due to our strong year-to-date performance, we are raising the lower end of our previous MRD revenue guidance. We are reducing our full-year operating expenses and lowering our annual cash burn target. Kyle will share more in his detailed remarks.
Karina Calzadilla: Now let's take a closer look at the MRD business on slide 4.
Karina Calzadilla: ClonaC clinical revenue grew 39% versus prior year. Tests delivered reached a new record representing 30% growth year-over-year and 6% sequentially with growth observed across all marketed indications.
Karina Calzadilla: Multiviloma continues to be the largest contributor at 41% of volume, followed by ALL at 34%, CLL at 10%, and DLBCL at 6%.
Karina Calzadilla: Other clonocyte key indicators continue to trend positively. Blood-based testing represented 41% of tests and we expect it to continue to increase as we generate additional data in blood and launch new blood-based indications such as MCL.
Karina Calzadilla: Tests in the community grew 11% sequentially, with overall steady contribution at about 25% of tests delivered. And ordering HCPs and ordering accounts grew 39% and 16% versus prior year respectively.
Karina Calzadilla: As mentioned, we achieved important catalysts for the business this quarter. First, new pricing for Kodose.
Karina Calzadilla: Recently, CMS published its updated gap build determination for Clonaseq of $2,007 per test. Accordingly, we're pleased to see that Moldex has updated the episode rate to $8,029 for our Medicare-covered indications.
Karina Calzadilla: Based on the updated gap fill rate, we have executed new agreements with non-contracted commercial payers at this new price per test or higher, and we are seeing positive momentum with several other key non-contracted payers.
Karina Calzadilla: Additionally, we are working with our contract payers to accelerate negotiations to increase rates based on this information.
Karina Calzadilla: As a result, coupled with our ongoing efforts to optimize revenue cycle management,
Karina Calzadilla: When reduced out of policy and non-contracted claims, we anticipate ASP will reach approximately $1,300 per test on average for fiscal year 2025.
Karina Calzadilla: This represents an increase of $250 per test from fiscal year 2023.
Karina Calzadilla: Second, the launch of Clonaceq and This morning we announced that Moldex has expanded coverage of Clonaceq for Medicare patients with MCL.
Karina Calzadilla: NCL is an aggressive form of non-Hodgkin's lymphoma, accounting for about 6% of NHLs, with most patients experiencing
Karina Calzadilla: Repeated relapses. We're pleased with Moldex's decision as it reaffirms Clonaseq's role as a valuable tool for disease monitoring in another than point malignancy.
Karina Calzadilla: With this coverage now in place, we have initiated promotional activities in MCL. Of note, coverage follows the current episode structure and reflects the updated gap fill rate.
Karina Calzadilla: Lastly, EMR integration continues to be a key focus to enhance customer experience and drive growth.
Karina Calzadilla: This quarter, we successfully completed Epic integrations for six accounts, including our largest customer, MD Anderson.
Karina Calzadilla: We are now live with a total of 11 accounts and have nine more integrations scheduled to be completed by year-end, representing about 20% of our projected volume in 2024.
Karina Calzadilla: Beyond EPIC, we have initiated our ONCO EMR integration with Flatiron Health and have several other active EMR integration projects with large community practice networks with target launch dates throughout 2025.
Now looking at MRD Pharma on slide 5.
Karina Calzadilla: Our farmer business had another strong quarter with revenue growth of 73% versus prior year, which included $5 million in regulatory milestone revenue.
Karina Calzadilla: We continue to experience significant momentum following the April ODAC recommendation in three main areas.
Karina Calzadilla: First, new studies. We have seen increased investments from biopharma and have closed 16 new myeloma studies year to date. These new bookings will support future revenue growth.
Second, regulatory endpoints.
Karina Calzadilla: As expected, MRD is increasingly being used as a primary endpoint.
Karina Calzadilla: We now have 10 multiple myeloma studies utilizing Clonaseq as a primary endpoint, including two recently signed studies and three that were upgraded from secondary to primary.
Karina Calzadilla: Some of these studies will yield high single-digit million-dollar milestone payments upon successful regulatory approval.
Karina Calzadilla: And third, clinical impact. As mentioned, the pharma and clinical businesses are synergistic. Pharma companies are starting to highlight the clinical utility of MRD testing, educating both physicians and patients about its significance as a key measure of treatment response.
Karina Calzadilla: New MRD-directed treatment regimens, if FDA approved, will further enhance adoption in the clinic. In summary, MRD is thriving on multiple fronts. The successes we have achieved throughout the year bolster our confidence in a long-term outlook for the business.
Now let's turn to immune medicine on slide 6.
[inaudible]
Karina Calzadilla: We are advancing R&D efforts to develop differentiated immune-based therapeutics in cancer and autoimmunity. In oncology, we continue working with Genentech to deliver high-impact TCR-based cell therapy to as many patients with solid tumors as possible. Our focus is to improve turnaround time and reduce costs, which will enhance the profile of our fully personalized cell therapy product. We will provide an update on our progress with Genentech at the appropriate time.
Karina Calzadilla: In autoimmunity, we successfully identified a subset of autoreactive T cell receptors that are likely causing disease in patients with multiple sclerosis, type 1 diabetes, and several other devastating autoimmune indications with high unmet medical need.
Karina Calzadilla: As mentioned last quarter, we successfully completed several antibody mouse immunization campaigns. This quarter, we started making and functionally testing a subset of these antibodies that we selected because of their attractive properties.
Karina Calzadilla: Our goal is to nominate a lead autoimmune indication by year-end and focus our antibody development efforts to build a robust preclinical data package in this first autoimmune program. Now I'm going to pass it over to Kyle to walk through the financial results and guidance updates. Kyle?
Kyle Piskel: Thanks, Chad. Let's start with revenue for the third quarter on slide 7. Total revenue in the third quarter was $46.4 million with 81% from MRD and 19% from immune medicine, representing 22% growth from the same period last year.
Kyle Piskel: MRD revenue grew 52% versus prior year to $37.5 million, with clinical and pharma contribution of 56% and 44% respectively.
Kyle Piskel: Clonoseq test volume, including international, increased 30% to 19,600 tests delivered from 15,072 tests in the same period last year.
Kyle Piskel: ASP in the U.S. grew 3% versus prior year despite a 1.8 million reserve charge we took this quarter related to aged claims from 2023.
Kyle Piskel: MRDD's pharma sequencing revenue grew 21% versus prior year, reflecting healthy recovery from last year's biopharma industry pressures.
Kyle Piskel: Immune medicine revenue was $9.0 million, down 32% from a year ago, driven by an anticipated 56% decrease in Genentech upfront amortization, partially offset by a 4% increase in immune medicine pharma and academic services.
Speaker Change: Moving down the P&L, I want to highlight that sequencing margin, which excludes milestones and Genentech amortization, was 56% for the quarter. This represents a significant increase of 13 percentage points versus prior year and 6 percentage points sequentially.
Speaker Change: This improvement is mainly attributed to lower overhead costs from efficiencies in the production lab and direct labor leverage, which combined drove lower cost per sample.
Speaker Change: Total operating spend for the quarter, inclusive of cost of revenue, was $79.1 million.
Speaker Change: representing an 11% decrease from last year. This decrease continues to be mainly driven by our focus on driving leverage across functions with R&D once again being the biggest contributor of this decline given more targeted investments in immune medicine.
Speaker Change: As you can see from the segment reporting table at the bottom of the slide, MRD-adjusted EBITDA has improved sequentially throughout the year to a loss of $6.1 million this quarter, driven by both higher revenue and lower operating spend. Immune medicine-adjusted EBITDA loss also improved due to increased revenue and reductions in operating spend.
Speaker Change: Total company adjusted EBITDA was a loss of $14.3 million in the third quarter, compared to $21.4 million in the second in the third quarter of 2024 and $29.8 million a year ago.
Speaker Change: Finally, interest expense from our royalty financing agreement with Old Man was $2.9 million, which continues to be more than offset by interest income.
Net loss for the quarter was $32.1 million.
Now turning to our full-year guidance on slide 8.
Speaker Change: Related to MRD revenue for the full year, we are increasing the bottom end of our previous range from $140 million to $145 million, to now $143 million to $145 million.
Speaker Change: This is a result of our better-than-expected performance in the third quarter, mainly attributed to the regulatory milestone realized.
Speaker Change: We expect total company operating spend for the full year to be between $335 million and $340 million, excluding one-time restructuring and asset impairment charges.
Speaker Change: This compares to our prior range of $340 million to $350 million.
Speaker Change: Of this total spend, approximately 66% sits within the MRD business and approximately 25% within immune medicine.
The remaining is due to unallocated corporate costs.
Speaker Change: In addition, we are lowering our expected annual cash burn. We now expect the burn to be approximately $105 million versus our previous estimates of $115 million and represents a 31% reduction over full year 2023.
Speaker Change: We expect approximately 47% of the burn this year to come from the MRD business and approximately 39% from the immune medicine business. The remaining is due to unallocated corporate costs.
Speaker Change: I am encouraged by the strides we are making to enhance our financial profile while supporting top-line growth and managing our capital, and I look forward to a strong close of the year. With that, I'll hand it back over to Chad.
Speaker Change: We are delivering on the promises we've made. Our relentless focus on execution and disciplined capital allocation are driving growth in our MRD business with a clear path to profitability, while we continue to advance our targeted immune medicine programs.
Speaker Change: With that, I'd like to turn it back over to the operator and open it up for questions.
Speaker Change: Thank you. If you'd like to ask a question, please press star 11.
Speaker Change: If your question hasn't been answered and you'd like to remove yourself from the queue, please press star 11 again.
Speaker Change: Our first question comes from Dan Brennan with TD Cowen, your line is open.
Dan Brennan: Great, thank you. Thanks for the questions and congrats on the on the quarter. Maybe the first one just on the final gap fill price.
Dan Brennan: So in terms of the $1,300 realized price that now you're targeting for 2025, can you just give us a sense of kind of what you're assuming there and maybe what's like a range of outcomes if you're more or less successful in converting some of these commercial contracts over to the higher price?
Speaker Change: Sure, Dan. I'll start with that, and Kyle, feel free to kind of jump in here. So, first, I just want to say, yeah, we're extremely pleased to see, you know, close to a $300 increase in the gas bill price, in terms of kind of what that means for the long-term, you know, margin profile of the business.
Speaker Change: This will take some time to kind of bleed in and so let me just explain what that means so
Speaker Change: Of the fee-for-service Medicare is about 20%, 37% Medicare overall fee-for-service is about 20%. We'll see that impact more immediately for new Medicare patients.
Speaker Change: For commercial payers, we expect to renegotiate with contracted payers at a higher rate and bring on contract patients on sooner. But some of that timing of that is
So...
Speaker Change: $200 per test is driven by initiatives that we've put in place to grow ASP this year.
Speaker Change: which includes what I mentioned, the expansion of payer coverage, closure of contracts with some of the remaining large outstanding payers, and there's a ton of operational enhancements that we're doing that are going on right now, and we're shifting the test mix kind of away from, or more away from Medicaid.
Speaker Change: In addition, can we expect, anticipate that at least $50 plus per test on average?
Speaker Change: During 2025 will come from this new capital rate and how that kind of works through the variety of different of different payers
Speaker Change: So, we do believe, I will put this out there, we do believe there is a potential for upside, but we need to really assess the pace at which we can kind of impact the remaining pairs.
For more information, visit www.FEMA.gov
Speaker Change: Great. Thanks, Chad. And maybe just as a follow-up, just on the MRD Pharma.
Speaker Change: That's exciting as well. Just kind of what's baked in now for the guide for 2024 for MRD Pharma?
Speaker Change: Are you assuming any more milestones, and could you just walk through a little bit of your funnel activity in terms of studies and kind of what that might portend for kind of a farmer growth as you look beyond 24?
Kyle Piskel: Kyle, you want to take that? Yeah, I mean as it relates to the milestones and Q4, I'd just say we have, you know, a risk adjusted.
Speaker Change: assumption there. I wouldn't say there's a big dollar amount associated to it.
Speaker Change: Relating to funnel, I mean, you know, broadly, we have roughly around 200 million in backlog, but you know, and ODAC is going to continue to catalyze that backlog and as well, you know, through new bookings.
Speaker Change: So, I think we're pretty confident in the pharma profile, you know, not explicitly ready to talk about 2025 guidance, but, you know, I think we can assume a decent growth rate into 2025 that's probably similar to what we achieved this year.
[inaudible]
Speaker Change: Great, thank you very much. I'll go back in the queue.
Speaker Change: Thank you. Our next question comes from Mark Massaro with BTIG. Your line is open.
Mark Massaro: Hey guys, thank you for taking the questions. Congrats on the quarter. Maybe I'll start on the guidance. So, you know, you did beat by about $6 million in Q3 on revenue.
you did not
Mark Massaro: increased the upper end of the MRD guide. Can you maybe just walk me through some of the factors that might have contributed to that, recognizing that you are seeing strong growth in pharma. I just wanted to get your thoughts on either the philosophy of the guidance or any particulars that we should be aware of.
Speaker Change: gave us confidence to kind of de-risk the low end of the range. So, you know, we were comfortable moving up. I guess, why not taking it further? I mentioned the AFC charge we took in 3Q, which we didn't previously forecast. So that's some of the, you know, the rest of it is
Speaker Change: You know, pharma is challenging. I've mentioned this before. It's probably a broken record about the quarter-to-quarter volatility and, you know, one or two studies pushes out to the next subsequent period and that can hurt us pretty meaningfully in one quarter.
Speaker Change: You know, the other thing is, you know, there's potential for some softness just given the hurricane impact and we're still sorting through it. But, you know, we're confident in the guidance and confident in the numbers we're putting out. And we want to, we want to be just prudent, just given all that's going on. So, so we can, you know, deliver and hit our guide.
Speaker Change: Okay, that's great. And do I have it right in terms of the numbers on MRD-Pharma? Did you say you now have 10 clinical trials in MM as a primary endpoint? And just to kind of level set, I think there might be about 60 or so trials. So I'm just trying to get a sense for how many trials you think might move over to primary, even if we look at, say, a year or two years.
Speaker Change: Yeah, we do now have 10 multiple myeloma studies using Clonaseq as a primary.
including two that have recently been signed as new studies.
Speaker Change: and three that were already converted and upgraded from secondary to primary. So that, and the trajectory is looking good. You know, of all the studies that we have in myeloma, you know, we continue to push. It'd be hard to kind of put a.
Speaker Change: and put a direct number on it and speculate, but we do see kind of a great traction from the ODAic decision and we do, you know, really in three areas, one is kind of new studies.
Speaker Change: where we've seen kind of an increase of, we've closed on 16 new myeloma studies year-to-date, 11 of which were post-ODAC.
Speaker Change: and so obviously in terms of kind of the future growth and studying new studies that's that's that's great to see.
And then secondly, the impact on milestones, just...
There's an opportunity to accelerate some of these milestones.
because, you know,
Speaker Change: These companies are moving quickly to get their approvals based on the new Accelerator Approval Pathway.
Speaker Change: And then third is kind of mentioned in the remarks, but I do think it's always worth highlighting is you know There's there's a really nice kind of interplay between kind of the pharma and clinical business and we're seeing really An increase in efforts from pharma companies to highlight kind of the importance of importance of MRD going for clinical management and as a measurement of treatment response and so that that that kind of folder Bolsters our confidence in the clinical business So not a direct answer, but we do expect many more to convert for us to be able to access
Speaker Change: kind of that pool of milestones outstanding and new milestones that we sign on new contracts.
Speaker Change: Great, and if I can sneak one last one in that's related to that.
Speaker Change: What are you hearing from PhRMA specifically about the move from secondary to primary? Maybe if you could provide any more granular details just about the potential time savings or the clinical trial enrichment and or the probability of success. What are some of the key things you're hearing about this interest to move to the primary?
Mark Massaro: Sure, Mark. Yeah, I mean, first of all, it's important to note that each each company needs to independently evaluate with the FDA whether their trials are eligible for accelerated approval and whether
Mark Massaro: MRD can be utilized as a primary endpoint so it will depend in some regard on the trial design and the specifics of the therapy that's being evaluated in the setting.
Mark Massaro: That said, though, certainly companies are anticipating that there can be a significant improvement in the time frame it takes to complete the study. I mean, we're talking, you know, going from
Mark Massaro: years to get to a PFS endpoint to, you know, potentially three years to get to an MRD endpoint, depending on how it's defined. And we've now seen the first.
Mark Massaro: two studies over the last year that have read out with MRD as a primary end point and I think those studies have both been received very favorably by the clinical community, which I think is also an important thing to note. So
Mark Massaro: The feedback we're getting is that it is very uniformly of interest to evaluate whether primary endpoint could be utilized. However, there are nuances to each individual development program and certainly distinctions in exactly how much time can be saved depending on the setting and the treatment.
Be invited.
That's helpful. Thanks, guys.
Timar.
Speaker Change: Thank you. Our next question comes from Matt Sykes with Goldman Sachs. Your line is open.
Speaker Change: and the coverage you got there. I realize it's a smaller market indication relative to some of the other markets that you're in, but just given sort of the disease-aggressive and recurrent nature, like how should we think about frequency of testing there and a potential volume ramp?
Speaker Change: understanding it's one smaller market but slightly different type of characteristics of the disease.
Speaker Change: Yeah, thanks for the question and good insights underlying the question. So mantle cell is indeed a bit smaller It's around an annual incidence in the US around 4,200 patients, maybe 20,000 prevalent patients
Speaker Change: So, you know, not dissimilar to ALL, which, you know, I will note is, you know, 35% of our volume today. But that said, it's also an aggressive disease. As you noted, patients are often monitored for long periods of time. They will relapse multiple times over the course of years.
Speaker Change: and so there are a number of testing opportunities over the course of a patient's lifetime. The treatment journey is somewhat similar to some of the other indications you're familiar with for clonaseq, like myeloma or DLBCL, where there's an induction phase, there might be consolidation therapy, maintenance therapy, some patients are transplanted, and then there's also later line interventions, including potentially CAR-T.
Speaker Change: And so at each of those time points, much like in in other malignancies we test, there's an opportunity for MRD to play a role. Now, that said, guidelines have not been defined for mantle cell lymphoma like they have been for myeloma, for example. So that is work that remains to be done. But there is.
currently a monitoring modality in place, which is imaging.
Speaker Change: and imaging is being done periodically for these patients at varying frequencies depending on the point in their disease trajectory and the treatment. And so we do think that over time there's quite an opportunity both for response assessment as well as for ongoing monitoring for disease recurrence.
Great, thanks, very helpful, Caller. And then Kyle, just on...
Speaker Change: Slide 7, just looking at sort of this quarter relative to last year's Q3, looks like G&A and R&D were some of the areas where you did most savings. Could you just kind of give us an idea among some of these categories, sales and marketing, G&A, R&D, like where is there still kind of runway for you to improve upon that and and how long do you expect that runway to last?
Speaker Change: Yeah, I mean, I think, you know, the improvement we've made, you know, we've done a handful of restructuring throughout the year, but I'd say
Speaker Change: Sales and marketing, it's a leverage story. We have the investments we've made. There's some targeted investments we want to make in the reimbursement ops function, but primarily looking at that as leverage. A bit similar story with GNA, you know, we've flattened out the org.
Speaker Change: quite a bit to kind of drive a lot of the savings.
Speaker Change: R&D, this is, you know, primarily a result of targeted investments in immune medicine. You know, we do have some larger initiatives left in MRD, the Novaseq being one of them. So, you know, I think as we continue to assess opportunities and look for opportunities for additional savings, we'll identify them, but we're not making any plans to have further reductions in those areas.
Speaker Change: You know, you didn't ask about it, but I'll also mention in Ops, you know, we're continuing to drive additional leverage through, you know, a lot of initiatives to reduce.
Speaker Change: Our overhead cost in flattening the organ, I think, you know, there's still some leverage there. We will continue to get, but again, I don't think we have any plans for anything targeted at this time.
Great. Thanks, Hal.
The End
[inaudible]
Speaker Change: Thank you. Our next question comes from Andrew Brackman with William Blair. Your line is open.
Speaker Change: In Q2, and we saw quarter over quarter growth in Q3, and 13% and Thats.
Speaker Change: It's for four of the six accounts have been library. So that's now in the third quarter post integration. There is still growing at a pace faster than the rest of the business, which is great to see 38 five accounts that were in line just in the past couple of months, where we were happy to seasonally strong month over month growth in October which has been consistent with our previous experiences.
Speaker Change: The higher growth rates, we see right out of the gate for new accounts. So again, we're trying to get a better consistent.
Speaker Change: Growth pattern.
Speaker Change: Patterns look like we have quite a few in progress integrations that are proceeding now with Cisco back to half.
Speaker Change: <unk> integration in total of about 20 accounts by the end of this year.
Speaker Change: And we're targeting by the end of 'twenty five that about 50% of our total order volume will flow through an integrated platform, whether that be ethic flat iron ore another community EMR platform add highly utilized in some of the lag community networks.
Speaker Change: We are we have kicked off the work with Flatiron and we're looking forward to bringing that as well as several of their key integrations life in 2025.
Speaker Change: Great. Thank you so much.
Speaker Change: And then just on I think it was just mentioned and then one of the last question, but can you just update us on the progression.
Speaker Change: Rollout of Novus seek and just how we should be thinking about the opportunity for Cogs reduction there.
Speaker Change: Just looking into 2025 here. Thanks, so much.
Speaker Change: Yes, we're making a lot of progress a lot of them.
Speaker Change: Headway.
Speaker Change: Our plans are still for it to launch in the third quarter of 2025.
Speaker Change: Assuming everything goes well.
Speaker Change: Everything is pointing in that direction currently as it relates to the financial profile.
Speaker Change: Depending on where volumes are at we think annualized you can probably get 5% to 8% improvement in margin profile. The first 12 months of that and then as volumes continue to grow expanding margin profile from there.
Speaker Change: I think just to reiterate our long term trajectory that we believe we can get to 70% gross margin profile for the MRM business.
Speaker Change: Okay.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you. Our next question comes from sung <unk> Nam with Scotiabank. Your line is open.
Speaker Change: Hey, this is quarter rosenbaum on for <unk>, Thanks for taking my questions.
Speaker Change: Could you remind us how much of that Genentech amortization remains if any following this year.
Speaker Change: I believe we'll probably exit was around $50 to $60 million.
Speaker Change: Got you thanks for that.
Speaker Change: As we look to next year in MRV continues to grow at a faster pace and immune medicine is the best way to think about the total opex spend bill round 70, 25 between <unk> and immune medicine.
Speaker Change: For next year.
Speaker Change: We will provide updated guidance in February what I can say is we are.
Speaker Change: We're looking to kind of constrain the immune medicine spend so it will be it will be lower on a percentage basis.
Speaker Change: Alright, Thats all for me. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Tejas Savant with Morgan Stanley. Your line is open.
Speaker Change: Hi, This is Jason on for pages. Thank you for taking our questions and congratulations on the quarter.
Speaker Change: So maybe just starting off there were some recent news from a large player in the diagnostics space, where United Health announced that they would no longer cover multi gene panels for behavioral health. So obviously you have a different portfolio, but was just wondering how do you think about the challenges. Some of these private payers have chase recently on spiraling costs wing on their enthusiasm for genetic testing.
Speaker Change: More broadly.
Speaker Change: Perhaps due to more stringent prior authorization or just dragging their feet on biomarker Bill Brown. Thank you.
Bill Brown: I think it's a good question and one.
Bill Brown: Just for background.
Bill Brown: I sit on the board for coalition for 20, <unk> century medicine, we spend a lot of our time.
Bill Brown: Board looking at the payer landscape more broadly both on the government side and on the private payer side.
Bill Brown: And I would I would just say this.
Bill Brown: With respect to <unk>, it's about the value of our debt.
Bill Brown: And what it brings for patients.
Bill Brown: And so we consistently.
Bill Brown: Two value and if you look at.
Bill Brown: Health economics and outcomes research.
Bill Brown: And really be.
Bill Brown: The overall kind of savings to the health system and as it relates to the price of oil et cetera, I think all of those factors kind of play a role into making sure that your test is.
Bill Brown: We don't comment on other other people's.
Bill Brown: Tests or reimbursement profiles in general I'm, just speaking directly about currency and the value that it brings and the value that's been recognized by both the government and Medicare and by private payers really across the board.
Bill Brown: One Great example of that is.
Bill Brown: If you look at the use cases expanding rapidly for us is taking patients off of maintenance therapy.
Bill Brown: In multiple myeloma.
Bill Brown: The savings that.
Bill Brown: That test provides to be able to give the confidence to a clinician.
Bill Brown: Two subsequent mrna readings take a patient off.
Bill Brown: A very expensive I won't name names, but you know the maintenance therapies and most of our <unk> are over $100000 per year and so when you are talking about a test that caused $2000 per year to do that.
Bill Brown: The value that it brings to payers is something that we continue to continue to promote but.
Bill Brown: I would say in general.
Bill Brown: If you are being.
Bill Brown: <unk> diagnostics.
Bill Brown: Business.
Bill Brown: I mean this is this is where we're all faced with challenges on the payer side, making sure that we're getting paid at a high rate, making sure that we're collecting that that cash which is why we have such a.
Bill Brown: Our heavy emphasis and focus on on reimbursement at both on the contracting side and then reimbursement operations.
Bill Brown: That's an area that we're investing in and that we want to get the best people in that we want to continue to progression.
Speaker Change: Got it. Thank you for that and then maybe just a quick follow up there was some news of September that Roche, they announced a 25% and narrowing of their pipeline.
Speaker Change: Just wondering after this announcement have you sensed any impact to your partnership with Genentech. Thank you.
Speaker Change: Great question as Roche also announced.
Speaker Change: That they were reorder organizing.
Speaker Change: There are ecology research division they have they have assured us that that does not have an impact.
Speaker Change: <unk>.
Speaker Change: Our partnership and that's all I can comment on.
Speaker Change: At this time.
Speaker Change: Great appreciate the time guys.
Speaker Change: Thank you I'm showing no further questions at this time. This does conclude the program and you may now disconnect everyone. Good day.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Good day, and welcome to adaptive Biotechnologies third quarter financial results at this time, all participants are in a listen only mode.
Speaker Change: After the Speakers' presentation, there'll be a question and answer session and instructions will be given at that time.
Speaker Change: As a reminder, this call maybe recorded.
Speaker Change: I would now like to turn the call over to Karina Casa Dios head of Investor Relations. Please go ahead.
Speaker Change: Thank you Michelle good afternoon, everyone I would like to welcome you to adaptive Biotechnologies third quarter 2024 earnings conference call.
Speaker Change: Earlier today, we issued a press release reporting adopt this financial results for the third quarter of 2004. The press release is available at Www dot adopted by the Dot Com. We are conducting a live webcast of this call and we'll be referencing to slide presentation that has been posted to the investor section of our corporate website.
Speaker Change: During the call management will make projections and other forward looking statements within the meaning of federal security laws regarding future events and the future financial performance of the company.
Speaker Change: These statements reflect managements and perspective of the business as of today.
Speaker Change: <unk> results may differ materially from todays forward looking statements depending on a number of factors, which are set forth in our public filings with the SEC unlisted in this presentation.
Speaker Change: In addition, non-GAAP financial measures will be discussed during this call and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release.
Speaker Change: Joining the call today are Chad Robbins, our Sian go ponder uncalled fiscal our Chief Financial Officer additional members of management, who will be available for Q&A.
Speaker Change: With that I'll turn the call over to chart 10.
Speaker Change: Thanks Corrina.
Speaker Change: Good afternoon, and thank you for joining us on our third quarter earnings call.
As shown on slide three results for the quarter are a clear Testament of our continued strong execution on the top and bottom line.
Speaker Change: <unk> revenue increased 52% year over year, driven by both clinical and pharma.
Speaker Change: This quarter, we reached two catalysts that will drive <unk> revenue growth.
Speaker Change: Medicare set a new GAAP fill rates of $2007 for our quality tests, which is a 70, 17% increase from our previous rate under the episodes structure.
Speaker Change: Two we secured Medicare coverage for mantle cell lymphoma.
Operating spend at another significant decline of 11% versus prior year, and 5% sequentially, excluding onetime costs.
Speaker Change: Sequencing gross margin further increased six percentage points compared to last quarter, as we successfully executed efficiencies and workflow leading to lower per sample cost.
Speaker Change: Cash ended at approximately 267 million, which represents a burn reduction of 38% in the first nine months this year compared to the same period a year ago.
Speaker Change: Due to our strong year to date performance, we are raising the lower end of our previous <unk> revenue guidance, we are reducing our full year operating expenses.
Speaker Change: And lowering our annual cash burn target Kyle will share more in his detailed remarks.
Speaker Change: Now, let's take a closer look at the <unk> business on slide four.
Speaker Change: <unk> clinical revenue grew 39% versus prior year.
Speaker Change: Tests delivered reached a new record representing 30% growth year over year at 6% sequentially with growth growth observed across all marketed indications.
Speaker Change: Multiple myeloma continues to be the largest contributor at 41% of volume followed by al at 34% CLO at 10% NGL Bcl at 6%.
Other quality key indicators continued to trend positively.
Speaker Change: Blood based testing represented 41% of test and we expect it to continue to increase as we generate additional data in blood and launched new blood based indications such as mcl.
Speaker Change: <unk> in the community grew 11% sequentially with overall steady contribution at about 25% of tests delivered.
Speaker Change: And order of Hcp's, and ordering accounts grew 39% and 16% versus prior year respectively.
Speaker Change: As mentioned, we achieved important catalysts for the business this quarter first new pricing for currency.
Speaker Change: Recently <unk>.
Speaker Change: CMS published its updated GAAP build determination for <unk> of $2007 per test.
Speaker Change: Accordingly, we're pleased to see that <unk> has updated the episode rate to $8 $29 four are Medicare covered indications.
Speaker Change: Based on the updated Gaslog right, we have executed new agreements with non contracted commercial payors at this new price per test or higher and we are seeing positive momentum with several other key contracted payers.
Speaker Change: Additionally, we are working with our contracted payers to accelerate negotiations to increase rates based on this information.
Speaker Change: As a result, coupled with our ongoing efforts to optimize revenue cycle management.
Speaker Change: And reduce other policy of non contracted claims we anticipate asps.
Speaker Change: Will reach approximately <unk> hundred dollars per test.
Speaker Change: On average for fiscal year 2025.
Speaker Change: This represents an increase of $250 per test from fiscal year 2023.
Speaker Change: Second the launch of policy <unk> mantle cell lymphoma or mcl.
Speaker Change: This morning, we announced that <unk> has expanded coverage policy for Medicare patients with Mcl.
Speaker Change: And CLS and aggressive form of non Hodgkin's lymphoma accounting for about 6% of Nhl's with most patients experiencing.
Speaker Change: Repeated relapses, we're pleased with <unk> decision as it reaffirms policies roll as a valuable tool for disease monitoring and another lymphoid malignancy.
Speaker Change: With this covered now in place we are initially initiated promotional activities in mcl.
Speaker Change: Coverage follows the current episodes structure and reflects the updated capital rate.
Speaker Change: Lastly, EMR integration continues to be a key focus to enhance customer experience and drive growth.
Speaker Change: This quarter, we successfully completed epic integrations for six accounts, including our largest customer MD Anderson.
Speaker Change: We are now live with a total of 11 accounts and have nine more integration scheduled to be completed by year end, representing about 20% of our projected volume in 2024.
Speaker Change: Beyond epic, we have initiated our EMR integration with Flatiron health and have several other active EMR integration projects with large community practice networks with target launch date throughout 2025.
Speaker Change: Now looking at <unk> pharma on slide five.
Speaker Change: Our pharma business had another strong quarter with revenue growth of 73% versus prior year, which included $5 million in regulatory milestone revenue.
Speaker Change: We continue to experience significant momentum following the April <unk> recommendation in three main areas.
Speaker Change: First new studies, we have seen increased investments from Biopharma Nf closed 16, new enrollment studies year to date.
Speaker Change: These new bookings will support future revenue growth.
Speaker Change: Second regulatory endpoint.
Speaker Change: As expected MRV is increasingly being used as a primary endpoint. We now have 10 multiple myeloma studies utilizing <unk> as a primary endpoint, including two recently signed studies and three that were upgraded from secondary to primary.
Speaker Change: Some of these studies will yield high single digit million dollar milestone payment upon successful regulatory approval.
Speaker Change: And third clinical impact.
Speaker Change: As mentioned the pharma and clinical businesses are synergistic.
Speaker Change: Pharma companies are starting to highlight the clinical utility of MRV testing educating both physicians and patients about its significance as a key measure of treatment response.
Speaker Change: New MRV directed treatment regimens, if FDA approved will further enhance adoption in the clinic.
Speaker Change: In summary, MRV is thriving on multiple fronts. The successes, we have achieved throughout the year bolster our confidence in our long term outlook for the business.
Now, let's turn to immune medicine on slide six.
Speaker Change: We are advancing R&D efforts to develop differentiated immune based therapeutics in cancer and autoimmunity.
Speaker Change: In oncology, we continue working with Genentech to deliver high impact TCR based cell therapy to as many patients with solid tumors as possible. Our focus is to improve turnaround time and reduce costs, which will enhance the profile of our fully personalized cell therapy product.
Speaker Change: We will provide an update on our progress with genentech at the appropriate time.
Speaker Change: In auto immunity, we successfully identified a subset of auto reactive T cell receptors that are likely causing disease in patients with multiple sclerosis type one diabetes and several other devastating autoimmune indications with high unmet medical need.
Speaker Change: As mentioned last quarter, we successfully completed several antibody mouse immunization campaigns. This quarter, we started making and functionally testing a subset of these antibodies that we selected because of their attractive properties.
Speaker Change: Our goal is to nominate at least Pete autoimmune indication by year end and focus our antibody development effort to build a robust preclinical data package in this first autoimmune program now.
Kyle Piskel: Now I'm going to pass it over to Kyle to walk through the financial results and guidance update Kyle.
Kyle Piskel: Thanks, Chad, let's start with revenue for the third quarter on slide seven.
Kyle Piskel: Total revenue in the third quarter was $46 $4 million with 81% from MRV and 19% from immune medicine.
Kyle Piskel: Representing 22% growth from the same period last year.
Kyle Piskel: <unk> revenue grew 52% versus prior year to $37 $5 million with clinical and pharma contribution of 56% and 44% respectively.
Kyle Piskel: Corona seek test volume, including international increased 30% to 19600 tests delivered from 15072 tests in the same period last year.
Kyle Piskel: Asps in the U S grew 3% versus prior year, despite a $1 $8 million reserve charge, we took this quarter related to aged claims from 2023.
Kyle Piskel: MRV pharma sequencing revenue grew 21% versus prior year, reflecting healthy recovery from last year's Biopharma industry pressures.
Medicine revenue was nine zero down 32% from a year ago, driven by an anticipated 56% decrease in genentech upfront amortization, partially offset by 4% increase in immune medicine pharma and academic services.
Kyle Piskel: Moving down the P&L I want to highlight that sequencing margin, which excludes milestones and genentech amortization was 56% for the quarter. This represents a significant increase of 13 percentage points versus prior year and six percentage points sequentially.
Kyle Piskel: This improvement is mainly attributed to lower overhead costs from efficiencies in our production lab enter direct labor leverage, which combined Charles lower cost per sample.
Kyle Piskel: Total operating expense for the quarter inclusive of cost of revenue was $79 1 million.
Kyle Piskel: Representing an 11% decrease from last year. This decrease continues to be mainly driven by our focus on driving leverage across functions with R&D. Once again being the biggest contributor this decline given more targeted investments in immune medicine.
Kyle Piskel: As you can see from the segment reporting table at the bottom of the slide MRV adjusted EBITDA has improved sequentially throughout the year to a loss of $6 $1 million this quarter, driven by both higher revenue and lower operating expense.
Kyle Piskel: Madison adjusted EBITDA loss also improved due to increased revenue and reductions in operating expense.
Kyle Piskel: Total company adjusted EBITDA was a loss of $14 3 million in the third quarter compared to $21 4 million in the second and the third quarter of 2024, and $29 8 million a year ago.
Kyle Piskel: Finally interest expense from a royalty financing.
Kyle Piskel: <unk> was $2 9 million.
Kyle Piskel: Which continues to be more than offset by interest income.
Kyle Piskel: Net loss for the quarter was $32 $1 million.
Kyle Piskel: Now turning to our full year guidance on slide eight.
Kyle Piskel: Related to <unk> revenue.
Kyle Piskel: For the full year, we are increasing the bottom end of our previous range from $140 million to $145 to now $143 million to 145.
Kyle Piskel: This is a result of our better than expected performance in the third quarter, mainly attributed to the regulatory milestone realized.
Kyle Piskel: We expect total company operating spend for the full year to be between $335 million and $340 million, excluding onetime restructuring and asset impairment charges.
Kyle Piskel: This compares to our prior range of 340 million to $350 million.
Kyle Piskel: Of this total spend approximately 66% sits within the <unk> business of approximately 25% with an immune medicine.
Kyle Piskel: The remaining is due to unallocated corporate costs.
Kyle Piskel: In addition, we are lowering our expected annual cash burn we now expect the burn to be approximately $105 million versus our previous estimates of $115 million and represents a 31% reduction of our full year 2023.
Kyle Piskel: We expect approximately 47 of the burn this year has come from the MRI business and approximately 39% from the immune medicine business. The remaining is due to unallocated corporate costs in.
Kyle Piskel: I am encouraged by the strides we are making to enhance our financial profile, while supporting top line growth and managing our capital and I look forward to a strong close to the year with that I'll hand, it back over to Chad. Thanks Kyle.
Speaker Change: We're delivering on the promises we've made a relentless focus on execution and disciplined capital allocation are driving growth in our <unk> business with a clear path to profitability, while we continue to advance our targeted immune medicine programs.
Speaker Change: With that I'd like to turn it back over to the operator and open it up for questions.
Speaker Change: Thank you if you'd like to ask a question. Please press star one one.
Speaker Change: If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Speaker Change: First question comes from Dan Brennan with TD Cowen Your line is open.
Dan Brennan: Great. Thank you thanks for the questions and congrats on the quarter.
Dan Brennan: Maybe the first one just on the final gap fill price.
Speaker Change: So in terms of the <unk> hundred dollars realized price and how you're targeting for 2025.
Speaker Change: Can you just give us a sense of kind of what youre, assuming there and maybe what's like a range of outcomes, if you're more or less successful in converting some of these commercial contracts over to the higher price.
Speaker Change: Sure Dan.
Speaker Change: I'll start with that and feel free to kind of jump in here.
Speaker Change: So first of all I just wanted to say, yes, we are.
Speaker Change: Extremely pleased to see.
Speaker Change: Ill close to a $300 increase in the Gaslog price in terms of kind of what that means for the long term.
Speaker Change: The margin profile of the business.
Speaker Change: This will take some time to kind of bleed in and so let me just explain what that means.
Speaker Change: So.
Speaker Change: The fee for service Medicare is about 20%, 37% Medicare overall fee for service is about 20%, we'll see that impact more immediately for new Medicare patients.
Speaker Change: For commercial payers, we expect to renegotiate with contracted payers at a higher rate and bring on track it on contract patients on sooner, but some of that timing of that is is more uncertain, but if you look at kind of overall, the 2023 average ASP of $10 50, and now increasingly.
Speaker Change: <unk> to $2 32, an average price of $1300 2025, which obviously means that at some point in 2025, we go above the 1300 to average at 300, so $200 per test is driven by initiatives that we've put in place to grow ASB. This year, which includes what I mentioned the expansion of payer.
Speaker Change: Coverage closure of contract with remains some of the remaining large outstanding pace Payors and Theres a ton of operational enhancements that we are doing that are going on right now.
We're shifting the test the test mix kind of away from or more away from Medicaid.
Speaker Change: In addition, we expect anticipate that at least 50 $50 plus per test on average during $2012 25 will come from this new GAAP low rate and how that kind of work through.
Speaker Change: A variety of different of different payors. So we do believe I will put this out there. We do believe there is a potential for upside, but we need to really assess the pace at which we can kind of impact the remaining pairs.
Speaker Change: Great. Thanks, Chad and then maybe just as a follow up just on the <unk> pharma, that's exciting as well just kind of what's baked in now for the guide for 2024 for MRV pharma are you assuming any more milestones and could you just walk through a little bit of your funnel activity in terms of studies and kind of what that what that might.
Speaker Change: <unk> that might portend for kind of a pharma growth as you look beyond 'twenty four.
Speaker Change: <unk> you want to take that yes, I mean as it relates to the milestones in Q4 I would just say we have a risk adjusted.
Speaker Change: Assumption there I wouldn't say, there's a big dollar amount associated to it.
Speaker Change: Relating to funnel.
Speaker Change: Broadly, we have roughly around $200 million in backlog, but.
And <unk> is going to continue to catalyze that backlog and as well through new bookings.
Speaker Change: So I think we're pretty confident in the pharma profile.
Speaker Change: Not explicitly ready to talk about 2025 guidance, but I think we can assume a decent growth rate into 2025, thats, probably similar to what we achieved this year.
Speaker Change: Great. Thank you very much I'll get back in the queue.
Speaker Change: Thank you. Our next question comes from Mark Massaro with BTG. Your line is open.
Mark Massaro: Hey, guys. Thank you for taking the questions.
Speaker Change: Congrats on the quarter maybe.
Speaker Change: I'll start on the guidance. So you did beat.
Speaker Change: By about $6 million in Q3 on revenue.
Speaker Change: You did not increase the upper end of the MRV Guide can you maybe just walk me through some of the factors that might have contributed to that recognizing that you are seeing strong growth in pharma I just wanted to get your thoughts on either the philosophy of the guidance or any particulars that we should be aware of.
Speaker Change: Yes.
Speaker Change: The assembly of the MRI milestone happening in Q3 drove an increase in gave us confidence to kind of derisk. The low end of the range. So we are comfortable moving up I guess why not taking it further.
Speaker Change: I mentioned the AFC charge, we took in <unk>, which we didn't previously forecast. So that's some of the the.
Speaker Change: The rest of it is.
Speaker Change: Pharma is challenging I've mentioned this before it's probably a broken record about the quarter to quarter volatility.
Speaker Change: One or two studies pushes out to the subsequent period and that can hurt us.
Speaker Change: Pretty pretty meaningfully in one quarter.
Speaker Change: The other thing is.
Speaker Change: For some softness just given the hurricane impact and we're still sorting through it but.
Speaker Change: We're confident in the guidance.
Speaker Change: Confident in the numbers, we're putting out and we want to we want to be just prudent just given all that's going on so we can deliver and hit our guidance.
Speaker Change: Okay, that's great and do I have it right in terms of the numbers on <unk> Pharma did you say you now have 10.
Speaker Change: <unk> clinical trials in <unk> as a primary endpoint and just to kind of level set.
Speaker Change: I think there might be about 60, or so trials. So I'm just trying to get a sense for how many trials you think might move over to primary even if we look out say a year or two years.
Speaker Change: Yes.
Speaker Change: Do you now have kind of a 10 multiple myeloma studies using <unk> as a primary including two that have recently been signed as new studies and three that were already converted.
Speaker Change: And upgraded from secondary to primary.
Speaker Change: So that in the trajectory is looking good.
Speaker Change: All the studies that we have in myeloma.
Speaker Change: Continue to push it would be it would be hard to kind of put a put a direct number on it.
Speaker Change: Speculate, but we do we do see kind of great traction from the <unk> decision and we view.
Speaker Change: It really in three areas, one is kind of new studies.
Speaker Change: Where we've seen kind of an increase of we've closed on 16, New myeloma studies year to date 11 of which were post <unk>.
Speaker Change: And so obviously, it's kind of the future growth in starting new studies.
Speaker Change: Great to see and then secondly, the impact on milestones or just.
Speaker Change: Yeah, there is an opportunity to accelerate some of these milestones.
Speaker Change: Because.
Speaker Change: These companies are moving quickly to.
Speaker Change: Due to get their approvals based on the new accelerated approval pathway.
Speaker Change: And then third is just kind of mentioned in the remarks, but I do think it's always worth highlighting is there is.
Speaker Change: There's a really nice kind of interplay between kind of the pharma and clinical business and we're seeing really in it.
Speaker Change: The increase in efforts from pharma companies to highlight kind of the importance of importance of MLD got it for clinical management and it is a measurement of treatment response, and so that kind of pull that bolsters our confidence in the clinical business. So not a direct answer but we do expect many more to conversion.
For us to be able to access that pool of milestones outstanding and new milestones that we sign a new contract.
Speaker Change: Great. If I can sneak one last one then that's related to that.
Speaker Change: What are you hearing from pharma, specifically about the move from secondary to primary.
Speaker Change: If you could provide any more granular details just about the potential time savings.
Speaker Change: Or the clinical trial enrichment and or the probability of success. What are some of the key things you are hearing about this interest to move to the primary.
Mark Massaro: Sure Mark I mean.
Mark Massaro: First of all it's important to note that.
Mark Massaro: Each company needs to independently evaluate with the FDA, whether theyre trials are eligible for accelerated approval and weather.
Mark Massaro: Marty can be utilized as a primary endpoint. So it will depend in some regard on the trial design.
Mark Massaro: Specific cell therapies are being evaluated in the setting.
Mark Massaro: That said, though certainly companies are anticipating that that can be a significant improvement in the timeframe. It takes to complete that study I mean, we're talking going from.
Mark Massaro: Eight 910 years to get a PFS endpoint, two potentially three years to get to an MRP endpoint, depending on how it's defined.
We've now seen the first two studies over the last year that have read out with MRV at the primary endpoint and I think those studies have both been received very favorably.
Mark Massaro: The clinical community, which I think is often an important thing to note.
Mark Massaro: The feedback we're getting.
Mark Massaro: They're uniformly of interest to evaluate whether the primary endpoint could be utilized however, there are nuances to each individual development program and certainly.
Mark Massaro: The stations and exactly how much time can be Steve depending on the study.
Mark Massaro: Sure.
Mark Massaro: Right.
Mark Massaro: That's helpful. Thanks, guys.
Sure Mark.
Mark Massaro: Thank you.
Speaker Change: Our next question comes from Matt <unk> with Goldman Sachs. Your line is open.
Speaker Change: Hi, good afternoon. Thanks, taking my questions. Congrats on the quarter, maybe just pivoting over to mantle cell and the.
Speaker Change: And the coverage you got there.
Speaker Change: I realize it's a smaller market indication relative to some of the other markets that you're in but just given sort of the disease is aggressive and recurrent nature like how should we think about frequency of testing there and the potential volume ramp understanding it's one smaller market, but slightly different type of characteristics of the disease.
Speaker Change: Yeah. Thanks for the question and good insights underlying the question until mantle cell is indeed.
Speaker Change: And then annual incidence in the U S around 4200 patients maybe 20000 prevalent patients.
Speaker Change: So not dissimilar to al Al which I will note is.
Speaker Change: 35% of our volume today.
Speaker Change: But that said.
Speaker Change: Also an aggressive disease as he noted patients are often monitored for long periods of time, they will relapse multiple times over the course of the year and so there are a number of testing opportunity the question on <unk>.
Speaker Change: <unk> lifetime.
Speaker Change: The treatment journey, it's somewhat similar to some of the other indications you are familiar with <unk> like myeloma or <unk>, where there's an induction phase there might be consolidations therapy maintenance therapy. Some patients are transplanted and then they saw sale later line indicator.
Speaker Change: Interventions, including potentially car T.
Speaker Change: And so each of those time points much like in other malignancies. We test there is an opportunity for <unk> to play a role now that set guidelines have not been defined for mantle cell lymphoma like they have been for myeloma. For example, so that is work that remains to be done but there is.
Speaker Change: Currently monitoring modality in place, which is imaging and imaging is being done periodically for these patients and varying frequencies, depending on the point in their in their disease trajectory in the treatment.
Speaker Change: So we do think that over time.
Speaker Change: Right and opportunity both for response assessment.
Speaker Change: Well as the ongoing monitoring for disease recurrence.
Speaker Change: Great. Thanks, very helpful color and then Kyle just on.
Speaker Change: You made a pretty impressive progress on the on the cost savings year to date and just looking at.
Speaker Change: Slide seven just looking at sort of this quarter relative to last year's Q3, it looks like G&A and R&D, where some of the areas where you did most savings could you just kind of give us an idea amongst some of these categories sales and marketing G&A R&D like where is there still kind of a runway for you.
Speaker Change: To improve upon that.
Speaker Change: How long do you expect that runway to last.
Speaker Change: Yes, I mean, I think the improvement we've made we've done a handful of restructurings throughout the year, but I would say sales and marketing at the leverage story.
Speaker Change: We have the investments we've made there is some targeted investments we want to make in the reimbursement ops function, but primarily looking at that as leverage outlook.
Speaker Change: Similar story with G&A.
Speaker Change: We flattened out.
Speaker Change: Quite a bit to kind of drive a lot of those savings.
Speaker Change: R&D this is.
Speaker Change: Primarily a result of targeted investments in immune medicine.
Speaker Change: We do have some larger initiatives left in <unk>.
Speaker Change: <unk> being one of them. So I think as we continue to assess opportunities and look for opportunities for additional savings.
Speaker Change: <unk> them, but we're not making any plans to have further reductions in those areas.
Speaker Change: You didn't ask about it but I'll also mention and ops.
Speaker Change: Continuing to drive additional leverage through a lot of initiatives to reduce.
Speaker Change: Our overhead cost and a flattening the Oregon, I think theres still some leverage there we will continue to get but again I don't think we have any plans for anything target. This time.
Speaker Change: Great. Thanks Al.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Andrew Blackman with William Blair. Your line is open.
Speaker Change: Hi, everyone. This is Maggie Barry on for Andrew today, Thanks for taking our question.
Speaker Change: I wanted to ask one on EMR integration. So it sounds like there was some nice progress in the quarter with epic and expanding account Barry. So can you talk about some of the learnings. There now that you have 11 accounts live and then just as you think about expanding your EMR integration work, even further with why iron how do you expect this to impact volume.
Speaker Change: Both altogether in 2025.
Speaker Change: Sure. Thanks for that question Maggie So first in terms of learning.
Speaker Change: I think over the course of the 11 integrations that we've now completed we've gotten substantially more efficient we've understood kind of how best to leverage the accounts resources, which are often come with <unk> limited.
Speaker Change: Complete these integrations effectively into.
Speaker Change: Make sure that we can hit the ground running with those accounts to implement some of the tools that are helpful and standardizing testing going forward with those accounts. So that's been a big area of focus is to leverage the tools already built into epic.
Speaker Change: Increased standardization and testing time point.
Speaker Change: We have seen now with 11 accounts center about mistakes that have been in place for more than a quarter, we're starting to get a better understanding of what growth looks like.
Speaker Change: Accounts puts integration.
Speaker Change: For the six accounts that are in line or at least since Q2, and we saw quarter over quarter growth in Q3 of 13% and Thats.
Speaker Change: It's for four of the six accounts they've been library here. So that's now in the third quarter post integration. They are still growing at a pace faster than the rest of the business, which is great to see.
Speaker Change: The eight five accounts that went live just in the past couple of months, where we were happy to seasonally strong month over month growth in October which has been consistent with our previous experience with sort of the higher growth rates, we see right out of the gate for new accounts. So again, we're starting to get a better consistent.
Speaker Change: Gross.
Speaker Change: Patterns look like we have quite a few in progress integrations that are proceeding now we still expect to have.
Speaker Change: <unk> integration in a total of about 20 accounts by the end of this year.
Speaker Change: And we're targeting by the end of 'twenty five that about 50% of our total order volume will flow through an integrated platform, whether that be ethic flat iron ore another community EMR platform add highly utilized in some of the lag community networks.
Speaker Change: So we are we have kicked off the work with Flatiron and we're looking forward to bringing you that as well as several other community increase implied in 2025.
Great. Thank you so much.
Speaker Change: And then just on I think it was just mentioned and then one of the last question, but can you just update us on the progression.
Speaker Change: Rollout of Novus seek and just how we should be thinking about the opportunity for Cogs reduction there.
Speaker Change: Just looking into 2025 here. Thanks, so much.
Yes, we're making a lot of progress a lot of headway.
Speaker Change: Our plans are still for it to launch in the third quarter of 2025.
Speaker Change: Assuming everything goes well.
Speaker Change: Everything is pointing in that direction currently as it relates to the financial profile.
Speaker Change: Depending on where volumes are at we think annualized you can probably get 5% to 8% improvement in margin profile. The first 12 months of that and then as volumes continue to grow expanding margin profile from there.
Speaker Change: I think I'd just reiterate it's our kind of long term trajectory that we believe we can get to 70% gross margin profile for the MRM business.
Yes.
Great. Thanks, so much.
Speaker Change: Thank you. Our next question comes from sung <unk> Nam with Scotiabank. Your line is open.
Speaker Change: Hey, this is quarter rosenbaum on for <unk>, Thanks for taking my questions.
Could you remind us how much of the Genentech amortization remains if any following this year.
Speaker Change: I believe we'll probably exit was around $50 million to $60 million.
Speaker Change: Got you thanks for that.
Speaker Change: As we look to next year in MRV continues to grow at a faster pace and immune medicine is the best way to think about the total opex spend still round 70, 25 between <unk> and immune medicine.
Speaker Change: For next year.
Speaker Change: We will provide updated guidance in February what I can say is we are.
Speaker Change: We're looking to kind of constrain the immune medicine spend so it will be it will be lower on a percentage basis.
Speaker Change: Alright, Thats all for me. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from <unk> with Morgan Stanley. Your line is open.
Speaker Change #100: Hi, This is Jason on for pages. Thank you for taking our questions and congratulations on the quarter.
Speaker Change #100: So maybe just starting off there were some recent news from a large player in the diagnostics space, where unitedhealth announced that they would no longer cover multi gene panels for behavioral health. So obviously you have a different portfolio, but was just wondering how do you think about the challenges. Some of these private payers have chase recently on spiraling costs weighing on their enthusiasm for a genetic test.
Speaker Change #100: More broadly.
Speaker Change #100: Perhaps due to more stringent prior authorization or just dragging their feet on biomarker Bill Brown. Thank you.
Bill Brown: No I think it's a good question and one.
Speaker Change #101: Just for background.
Speaker Change #101: I sit on the board for coalition for 20, <unk> century medicine, we spend a lot of our time.
Speaker Change #101: Board looking at the payer landscape more broadly both on the government side and on the private payer side.
Speaker Change #101: And I would I would just say this.
Speaker Change #101: With respect to colonial C. It's about the value of our cash and what it brings for patients.
Speaker Change #101: And so we consistently.
Speaker Change #101: Go to value and if you look at <unk>.
Speaker Change #101: Health economics and outcomes research.
Speaker Change #101: And really the.
Speaker Change #101: The overall kind of savings to the health system and as it relates to appropriately. So I think all of those factors kind of play a role into making sure that your test is.
Speaker Change #101: We don't comment on other other people's.
Speaker Change #101: Tests or reimbursement profiles in general I'm, just speaking directly about currency and the value that it brings and the value that's been recognized by both the government and Medicare and by private payers really across the board.
One Great example of that is.
Speaker Change #101: If you look at a new use case, that's expanding rapidly for us is taking patients off of maintenance therapy.
Speaker Change #101: In multi myeloma.
Speaker Change #101: The savings that.
Speaker Change #101: That test provides to be able to give the confidence to a clinician.
Speaker Change #101: Our two subsequent mrna readings take a patient all of them.
Speaker Change #101: A very expensive I won't name names, but you know the maintenance therapies and most of our <unk> are over $100000 per year and so when you are talking about a test that caused $2000 per year to do that.
Speaker Change #101: The value that it brings to payers is something that we continue to continue to promote but.
Speaker Change #101: I would say in general.
Speaker Change #101: If you are being.
Speaker Change #101: <unk> diagnostics.
Speaker Change #101: Business.
Speaker Change #101: I mean this is this is where we're all faced with challenges on the payer side, making sure that we're getting paid at a high rate, making sure that we're collecting that that cash which is why we have such a.
Speaker Change #101: Our heavy emphasis and focus on reimbursement both on the contracting side and then reimbursement operations that's in there.
Speaker Change #101: That we're investing in and that we want to get the best people in that we want to continue to progression.
Speaker Change #102: Got it. Thank you for that and then maybe just a quick follow up there was some news of September that Roche, they announced a 25% and narrowing of their pipeline. So just wondering after this announcement have you sensed any impact to your partnership with Genentech. Thank you.
Speaker Change #103: Great question.
Speaker Change #103: As Roche also announced.
Speaker Change #103: They were re org organizing.
Speaker Change #103: There are ecology research division they have they have assured us that that does not have an impact.
Speaker Change #103: On our on our partnership and that's all we can comment on.
Speaker Change #103: At this time.
Speaker Change #104: Great appreciate the time guys.
Speaker Change #105: Thank you I'm showing no further questions at this time. This does conclude the program and you may now disconnect everyone. Good day.