10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____to _____

Commission File Number: 001-38957

 

ADAPTIVE BIOTECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Washington

27-0907024

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

1165 Eastlake Avenue East

Seattle, Washington

98109

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (206) 659-0067

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.0001 per share

 

ADPT

 

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of April 28, 2023, the registrant had 144,311,000 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

Page

PART I.

FINANCIAL INFORMATION

4

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations

5

 

Condensed Consolidated Statements of Comprehensive Loss

6

 

Condensed Consolidated Statements of Shareholders’ Equity

7

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II.

OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

32

Signatures

33

 

 

 

 


Adaptive Biotechnologies Corporation

 

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are based on management’s beliefs and assumptions and on information currently available to management. All statements contained in this report other than statements of historical fact are forward-looking statements, which include but are not limited to, statements about:

our ability to leverage and extend our immune medicine platform to discover, develop and commercialize our products and services, including further commercialization and development of products and services related to our Immune Medicine and Minimal Residual Disease (“MRD”) market opportunities, particularly in light of the novelty of immune medicine and our methods;
our ability to achieve and maintain commercial market acceptance of our current products and services, such as clonoSEQ and immune sequencing, as well as our ability to achieve market acceptance for any additional products and services beyond our current portfolio, if developed;
our collaboration with Genentech, Inc. (“Genentech”) and our ability to develop and commercialize cellular therapeutics, including our ability to achieve milestones and realize the intended benefits of the collaboration;
our ability to develop a comprehensive map of the interaction between the immune system and disease (“TCR-Antigen Map”) and yield insights from it that are commercially viable; and
our expected reliance on collaborators and other third parties for development, clinical testing and regulatory approval of current products in new indications and potential product candidates, which may fail at any time due to a number of possible unforeseen events.

The forward-looking statements in this report also include statements regarding our ability to develop, commercialize and achieve market acceptance of our current and planned products and services, our research and development efforts and other matters regarding our business strategies, use of capital, results of operations and financial position and plans and objectives for future operations. In some cases, you can identify forward-looking statements by the words “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. These risks, uncertainties and other factors are described under “Risk Factors,” “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in other documents we file with the Securities and Exchange Commission (“SEC”) from time to time. We caution you that forward-looking statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. As a result, the forward-looking statements may not prove to be accurate. The forward-looking statements in this report represent our views as of the date of this report.

We undertake no obligation to update any forward-looking statements for any reason, except as required by law.

Unless otherwise stated or the context otherwise indicates, references to “we,” “us,” “our” and similar references refer to Adaptive Biotechnologies Corporation.

 

3


Adaptive Biotechnologies Corporation

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

 

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

94,612

 

 

$

90,030

 

Short-term marketable securities (amortized cost of $347,988 and $412,282, respectively)

 

 

346,083

 

 

 

408,166

 

Accounts receivable, net

 

 

30,972

 

 

 

40,057

 

Inventory

 

 

19,874

 

 

 

14,453

 

Prepaid expenses and other current assets

 

 

9,792

 

 

 

9,440

 

Total current assets

 

 

501,333

 

 

 

562,146

 

Long-term assets

 

 

 

 

 

 

Property and equipment, net

 

 

81,294

 

 

 

83,447

 

Operating lease right-of-use assets

 

 

78,960

 

 

 

80,763

 

Restricted cash

 

 

2,315

 

 

 

2,398

 

Intangible assets, net

 

 

6,408

 

 

 

6,827

 

Goodwill

 

 

118,972

 

 

 

118,972

 

Other assets

 

 

2,181

 

 

 

2,064

 

Total assets

 

$

791,463

 

 

$

856,617

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

6,333

 

 

$

8,084

 

Accrued liabilities

 

 

8,041

 

 

 

12,424

 

Accrued compensation and benefits

 

 

6,120

 

 

 

15,935

 

Current portion of operating lease liabilities

 

 

9,287

 

 

 

9,230

 

Current portion of deferred revenue

 

 

60,320

 

 

 

64,115

 

Total current liabilities

 

 

90,101

 

 

 

109,788

 

Long-term liabilities

 

 

 

 

 

 

Operating lease liabilities, less current portion

 

 

96,494

 

 

 

98,772

 

Deferred revenue, less current portion

 

 

53,908

 

 

 

58,599

 

Revenue interest liability, net

 

 

127,008

 

 

 

125,360

 

Total liabilities

 

 

367,511

 

 

 

392,519

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Preferred stock: $0.0001 par value, 10,000,000 shares authorized at March 31, 2023 and December 31, 2022; no shares issued and outstanding at March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock: $0.0001 par value, 340,000,000 shares authorized at March 31, 2023 and December 31, 2022; 144,279,969 and 143,105,002 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

14

 

 

 

14

 

Additional paid-in capital

 

 

1,402,692

 

 

 

1,387,349

 

Accumulated other comprehensive loss

 

 

(1,905

)

 

 

(4,116

)

Accumulated deficit

 

 

(976,781

)

 

 

(919,082

)

Total Adaptive Biotechnologies Corporation shareholders’ equity

 

 

424,020

 

 

 

464,165

 

Noncontrolling interest

 

 

(68

)

 

 

(67

)

Total shareholders’ equity

 

 

423,952

 

 

 

464,098

 

Total liabilities and shareholders’ equity

 

$

791,463

 

 

$

856,617

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


Adaptive Biotechnologies Corporation

 

Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Revenue

 

$

37,647

 

 

$

38,620

 

Operating expenses

 

 

 

 

 

 

Cost of revenue

 

 

18,681

 

 

 

13,192

 

Research and development

 

 

32,601

 

 

 

37,839

 

Sales and marketing

 

 

22,308

 

 

 

26,093

 

General and administrative

 

 

20,831

 

 

 

24,144

 

Amortization of intangible assets

 

 

419

 

 

 

419

 

Total operating expenses

 

 

94,840

 

 

 

101,687

 

Loss from operations

 

 

(57,193

)

 

 

(63,067

)

Interest and other income, net

 

 

3,024

 

 

 

271

 

Interest expense

 

 

(3,531

)

 

 

 

Net loss

 

 

(57,700

)

 

 

(62,796

)

Add: Net loss attributable to noncontrolling interest

 

 

1

 

 

 

60

 

Net loss attributable to Adaptive Biotechnologies Corporation

 

$

(57,699

)

 

$

(62,736

)

Net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted

 

$

(0.40

)

 

$

(0.44

)

Weighted-average shares used in computing net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted

 

 

143,511,142

 

 

 

141,697,252

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


Adaptive Biotechnologies Corporation

 

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Net loss

 

$

(57,700

)

 

$

(62,796

)

Other comprehensive income (loss)

 

 

 

 

 

 

Change in unrealized gains and losses on investments

 

 

2,211

 

 

 

(3,646

)

Comprehensive loss

 

 

(55,489

)

 

 

(66,442

)

Add: Comprehensive loss attributable to noncontrolling interest

 

 

1

 

 

 

60

 

Comprehensive loss attributable to Adaptive Biotechnologies Corporation

 

$

(55,488

)

 

$

(66,382

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


Adaptive Biotechnologies Corporation

 

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands, except share amounts)

(unaudited)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated Other

 

 

Accumulated

 

 

Noncontrolling

 

 

Total

 

 

Shares

 

 

Amount

 

 

Paid-In Capital

 

 

Comprehensive Loss

 

 

Deficit

 

 

Interest

 

 

Shareholders’ Equity

 

Balance at December 31, 2021

 

 

141,393,865

 

 

$

14

 

 

$

1,324,006

 

 

$

(1,137

)

 

$

(718,891

)

 

$

110

 

 

$

604,102

 

Issuance of common stock for cash upon exercise of stock options

 

 

648,208

 

 

 

 

 

 

2,734

 

 

 

 

 

 

 

 

 

 

 

 

2,734

 

Vesting of restricted stock units

 

 

141,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

12,861

 

 

 

 

 

 

 

 

 

 

 

 

12,861

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(3,646

)

 

 

 

 

 

 

 

 

(3,646

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(62,736

)

 

 

(60

)

 

 

(62,796

)

Balance at March 31, 2022

 

 

142,183,258

 

 

$

14

 

 

$

1,339,601

 

 

$

(4,783

)

 

$

(781,627

)

 

$

50

 

 

$

553,255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2022

 

 

143,105,002

 

 

$

14

 

 

$

1,387,349

 

 

$

(4,116

)

 

$

(919,082

)

 

$

(67

)

 

$

464,098

 

Issuance of common stock for cash upon exercise of stock options

 

 

145,758

 

 

 

 

 

 

672

 

 

 

 

 

 

 

 

 

 

 

 

672

 

Vesting of restricted stock units

 

 

1,029,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

14,671

 

 

 

 

 

 

 

 

 

 

 

 

14,671

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

2,211

 

 

 

 

 

 

 

 

 

2,211

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(57,699

)

 

 

(1

)

 

 

(57,700

)

Balance at March 31, 2023

 

 

144,279,969

 

 

$

14

 

 

$

1,402,692

 

 

$

(1,905

)

 

$

(976,781

)

 

$

(68

)

 

$

423,952

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


Adaptive Biotechnologies Corporation

 

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(57,700

)

 

$

(62,796

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

Depreciation expense

 

 

5,004

 

 

 

4,637

 

Noncash lease expense

 

 

1,805

 

 

 

1,792

 

Share-based compensation expense

 

 

14,671

 

 

 

12,861

 

Intangible assets amortization

 

 

419

 

 

 

419

 

Investment amortization

 

 

(1,609

)

 

 

862

 

Inventory reserve

 

 

1,080

 

 

 

 

Noncash interest expense

 

 

1,648

 

 

 

 

Other

 

 

5

 

 

 

(20

)

Changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable, net

 

 

9,085

 

 

 

(5,109

)

Inventory

 

 

(6,607

)

 

 

(1,739

)

Prepaid expenses and other current assets

 

 

(352

)

 

 

962

 

Accounts payable and accrued liabilities

 

 

(15,878

)

 

 

(7,545

)

Operating lease right-of-use assets and liabilities

 

 

(2,223

)

 

 

2,035

 

Deferred revenue

 

 

(8,486

)

 

 

(10,812

)

Other

 

 

(14

)

 

 

 

Net cash used in operating activities

 

 

(59,152

)

 

 

(64,453

)

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,924

)

 

 

(3,077

)

Purchases of marketable securities

 

 

(89,097

)

 

 

(60,235

)

Proceeds from maturities of marketable securities

 

 

155,000

 

 

 

101,000

 

Net cash provided by investing activities

 

 

62,979

 

 

 

37,688

 

Financing activities

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

672

 

 

 

2,749

 

Net cash provided by financing activities

 

 

672

 

 

 

2,749

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

4,499

 

 

 

(24,016

)

Cash, cash equivalents and restricted cash at beginning of year

 

 

92,428

 

 

 

141,203

 

Cash, cash equivalents and restricted cash at end of period

 

$

96,927

 

 

$

117,187

 

Noncash investing activities

 

 

 

 

 

 

Purchases of equipment included in accounts payable and accrued liabilities

 

$

1,651

 

 

$

2,952

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

2,760

 

 

$

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

8


Adaptive Biotechnologies Corporation

 

Notes to Unaudited Condensed Consolidated Financial Statements

(unaudited)

 

1. Organization and Description of Business

Adaptive Biotechnologies Corporation (“we,” “us” or “our”) is a commercial-stage company advancing the field of immune medicine by harnessing the inherent biology of the adaptive immune system to transform the diagnosis and treatment of disease. We believe the adaptive immune system is nature’s most finely tuned diagnostic and therapeutic for most diseases, but the inability to decode it has prevented the medical community from fully leveraging its capabilities. Our immune medicine platform applies our proprietary technologies to read the diverse genetic code of a patient’s immune system and aims to understand precisely how the immune system detects and treats disease in that patient. We capture these insights in our dynamic clinical immunomics database, which is underpinned by computational biology and machine learning, and use them to develop and commercialize clinical products and services that we are tailoring to each individual patient. We have commercial products and services and a robust pipeline of clinical products and services that we are designing to diagnose, monitor and enable the treatment of diseases, such as cancer and autoimmune disorders.

We were incorporated in the State of Washington on September 8, 2009 under the name Adaptive TCR Corporation. On December 21, 2011, we changed our name to Adaptive Biotechnologies Corporation. We are headquartered in Seattle, Washington.

2. Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Adaptive Biotechnologies Corporation, Adaptive Biotechnologies B.V., our wholly-owned subsidiary, and Digital Biotechnologies, Inc., a corporate subsidiary we have 70% ownership interest in. The remaining interest in Digital Biotechnologies, Inc., held by certain of our related parties and their related family trusts, are shown in the unaudited condensed consolidated financial statements as noncontrolling interest. All intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience and other relevant assumptions that we believe to be reasonable under the circumstances. Estimates are used in several areas including, but not limited to, estimates of progress to date for certain performance obligations and the transaction price for certain contracts with customers, share-based compensation, imputing interest for our revenue interest purchase agreement (the “Purchase Agreement”) that we entered into in September 2022, the provision for income taxes, including related reserves, and the analysis of goodwill impairment, among others. These estimates generally involve complex issues and require judgments, involve the analysis of historical results and prediction of future trends, can require extended periods of time to resolve and are subject to change from period to period. Actual results may differ materially from management’s estimates.

Unaudited Interim Condensed Consolidated Financial Statements

In our opinion, the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information. These unaudited condensed consolidated financial statements include all adjustments necessary to fairly state our financial position and the results of our operations and cash flows for interim periods in accordance with GAAP. All such adjustments were of a normal, recurring nature. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on February 14, 2023.

Restricted Cash

We had a restricted cash balance of $2.3 million and $2.4 million as of March 31, 2023 and December 31, 2022, respectively. Our restricted cash primarily relates to certain balances we are required to maintain under lease arrangements for some of our property and facility leases.

9


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

Concentrations of Risk

We are subject to a concentration of risk from a limited number of suppliers, or in certain cases, single suppliers, for some of our laboratory instruments and materials. This risk is managed by targeting a quantity of surplus stock.

Cash, cash equivalents and marketable securities are financial instruments that potentially subject us to concentrations of credit risk. We invest in money market funds, United States (“U.S.”) government treasury and agency securities, corporate bonds and commercial paper with high-quality accredited financial institutions.

Significant customers are those that represent more than ten percent of our total revenue or accounts receivable, net balances for the periods and as of each condensed consolidated balance sheet date presented, respectively.

For each significant customer, revenue as a percentage of total revenue for the periods presented and accounts receivable, net as a percentage of total accounts receivable, net as of the dates presented were as follows:

 

 

 

Revenue

 

Accounts Receivable, Net

 

 

Three Months Ended March 31,

 

March 31,

 

December 31,

 

 

2023

 

2022

 

2023

 

2022

Customer A

 

*%

 

*%

 

*%

 

15.8%

Customer B

 

*

 

17.9

 

*

 

19.5

Genentech, Inc. and Roche Group

 

26.6

 

33.8

 

*

 

*

* less than 10%

 

 

 

 

 

 

 

 

Revenue Recognition

For all revenue-generating contracts, we perform the following steps to determine the amount of revenue to be recognized: (1) identify the contract or contracts; (2) determine whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (3) measure the transaction price, including the constraint on variable consideration; (4) allocate the transaction price to the performance obligations based on estimated selling prices; and (5) recognize revenue when (or as) we satisfy each performance obligation.

We derive revenue by providing diagnostic and research services in our Immune Medicine and Minimal Residual Disease (“MRD”) market opportunities. Our Immune Medicine revenue consists of revenue generated from (1) providing sample testing services for our commercial research product, immunoSEQ, to biopharmaceutical customers and academic institutions; (2) providing our T-Detect COVID tests to clinical customers; and (3) our collaboration agreements with Genentech, Inc. (“Genentech”) and other biopharmaceutical customers in areas of drug and target discovery. Our MRD revenue consists of revenue generated from (1) providing our clonoSEQ report to clinical customers; (2) providing MRD sample testing services to biopharmaceutical customers and certain academic institutions, including investigator-led clinical trials; and (3) providing our clonoSEQ report or results to certain international laboratory sites through technology transfers.

For research customers who utilize either immunoSEQ or our MRD services, contracts typically include an amount billed in advance of services (“upfront”) and subsequent billings as sample results are delivered to the customer. Upfront amounts received are recorded as deferred revenue, which we recognize as revenue upon satisfaction of performance obligations. We have identified two typical performance obligations under the terms of our research service contracts: (1) the delivery of our immunoSEQ or MRD data for customer provided samples; and (2) related data analysis. We recognize revenue for both identified performance obligations as sample results are delivered to the customer. In periods where our sample estimates are reduced or a customer project is cancelled and, in either case, we have remaining related deferred revenue, we recognize revenue using a cumulative catch-up approach based on the proportion of samples delivered to date relative to the remaining samples expected to be delivered.

For agreements where we provide our clonoSEQ report to ordering physicians, we have identified one performance obligation: the delivery of a clonoSEQ report. We bill and receive payments for these transactions from commercial, government and medical institution payors. As payment from the respective payors may vary based on the various reimbursement rates and patient responsibilities, we consider the transaction price to be variable and record an estimate of the transaction price, subject to the constraint for variable consideration, as revenue at the time of delivery. The estimate of transaction price is based on historical and expected reimbursement rates with the various payors, which are monitored in subsequent periods and adjusted, as necessary, based on actual collection experience.

Regarding our clonoSEQ coverage under Medicare, we bill an episode of treatment when we deliver the first eligible test report. This billing contemplates all necessary tests required during a patient’s treatment cycle, which is currently estimated at approximately four tests per patient, including the initial sequence identification test. Revenue recognition commences at the time the initial billable test report is delivered and is based upon cumulative tests delivered to date. We estimate the number of tests we expect to deliver over a patient’s treatment cycle based on historical testing frequencies for patients by indication. These estimates are subject to change as we develop more information about utilization over time. Any unrecognized revenue from the initial billable test is recorded as deferred revenue and is recognized either as we deliver our estimate of the remaining tests in a patient’s treatment cycle or when the likelihood becomes remote that a patient will receive additional testing.

10


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

The contract transaction price for agreements we enter into with biopharmaceutical customers to further develop and commercialize their therapeutics may consist of a combination of non-refundable upfront fees, separately priced MRD testing fees and milestone fees earned upon our customers’ achievement of certain regulatory approvals. Depending on the contract, these agreements include single or multiple performance obligations. Such performance obligations include providing services to support our customers’ therapeutic development efforts, including regulatory support for our technology intended to be utilized as part of our customers’ registrational trials, developing analytical plans for our data, participating on joint research committees, assisting in completing a regulatory submission and providing MRD testing services related to customer-provided samples for our customers' regulatory submissions. Generally, the support services, excluding MRD testing services, are not distinct within the context of the contract and thus are accounted for as a single performance obligation. The transaction price allocated to the respective performance obligations is estimated using an adjusted market assessment approach for the regulatory support services and a standalone selling price for the estimated MRD testing services. When MRD sample testing services are separately priced customer options, we assess if a material right exists and, if not, the customer option to purchase additional MRD sample testing services is not considered part of the contract. We recognize revenue related to MRD testing services over time using an output method based on the proportion of sample results delivered relative to the total amount of sample results expected to be delivered, when expected to be a faithful depiction of progress. We use the same method to recognize the regulatory support services. When an output method based on the proportion of sample results delivered is not expected to be a faithful depiction of progress, we utilize an input method using a cost-based model based on estimates of effort completed. Selecting the measure of progress and estimating progress to date requires significant judgment. Except for any non-refundable upfront fees, the other forms of compensation represent variable consideration. At contract inception, we fully constrain any consideration related to regulatory milestones, as the achievement of such milestones is subject to third-party regulatory approval and the customers’ own submission decision-making. Variable consideration related to regulatory milestones is estimated using the most likely amount method, where variable consideration is constrained until it is probable that a significant reversal of cumulative revenue will not occur. Milestone payments for regulatory approvals, which are not within our customers’ control, are not considered probable of being achieved until those approvals are received. Determining whether regulatory milestone payments are probable is an area that requires significant judgment. In making this assessment, we evaluate scientific, clinical, regulatory and other risks, as well as the level of effort and investment required to achieve the respective milestone.

3. Revenue

We disaggregate our revenue from contracts with customers by market opportunity and type of arrangement, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

The following table presents our disaggregated revenue for the periods presented (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Immune Medicine revenue

 

 

 

 

 

 

Service revenue

 

$

7,102

 

 

$

7,113

 

Collaboration revenue

 

 

9,118

 

 

 

13,703

 

Total Immune Medicine revenue

 

 

16,220

 

 

 

20,816

 

MRD revenue

 

 

 

 

 

 

Service revenue

 

 

21,427

 

 

 

14,804

 

Regulatory milestone revenue

 

 

 

 

 

3,000

 

Total MRD revenue

 

 

21,427

 

 

 

17,804

 

Total revenue

 

$

37,647

 

 

$

38,620

 

During the three months ended March 31, 2023, we recognized $1.0 million in MRD service revenue related to Medicare reimbursements resulting from our determination that the likelihood of additional testing for specific patients was remote and from cancelled customer contracts.

During the three months ended March 31, 2022, we recognized $1.2 million in MRD service revenue related to Medicare reimbursements resulting from our determination that the likelihood of additional testing for specific patients was remote, a change in estimates of total samples to be provided under certain of our agreements and cancelled customer contracts.

As of March 31, 2023, we could receive up to an additional $404.5 million in milestone payments in future periods if certain regulatory approvals are obtained by our customers’ therapeutics in connection with MRD data generated from our MRD product.

11


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

Genentech Collaboration Agreement

In December 2018, we entered into a worldwide collaboration and license agreement with Genentech (the “Genentech Agreement”) to leverage our capability to develop cellular therapies in oncology. Subsequent to receipt of regulatory approval in January 2019, we received a non-refundable, upfront payment of $300.0 million in February 2019 and may be eligible to receive more than $1.8 billion over time, including payments of up to $75.0 million upon the achievement of specified regulatory milestones, up to $300.0 million upon the achievement of specified development milestones and up to $1,430.0 million upon the achievement of specified commercial milestones. In addition, we are separately able to receive tiered royalties at a rate ranging from the mid-single digits to the mid-teens on aggregate worldwide net sales of products arising from the strategic collaboration, subject to certain reductions, with aggregate minimum floors. Under the Genentech Agreement, we are pursuing two product development pathways for novel T cell immunotherapies in which Genentech intends to use T cell receptors (“TCRs”) screened by our immune medicine platform to engineer and manufacture cellular medicines:

Shared Products. The shared products will use “off-the-shelf” TCRs identified against cancer antigens shared among patients (“Shared Products”).
Personalized Product. The personalized product will use patient-specific TCRs identified by real-time screening of TCRs against cancer antigens in each patient (“Personalized Product”).

Under the terms of the Genentech Agreement, we granted Genentech exclusive worldwide licenses to develop and commercialize TCR-based cellular therapies in the field of oncology, including licenses to existing shared antigen data packages. Additionally, Genentech has the right to determine which product candidates to further develop for commercialization purposes. We determined that this arrangement meets the criteria set forth in Accounting Standards Codification (“ASC”) Topic 808, Collaborative Arrangements (“ASC 808”), because both parties are active participants in the activity and are exposed to significant risks and rewards depending on the activity’s commercial failure or success. Because ASC 808 does not provide guidance on how to account for the activities under a collaborative arrangement, we applied the guidance in ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) to account for the activities related to the Genentech Agreement.

In applying ASC 606, we identified the following performance obligations at the inception of the agreement:

1.
License to utilize on an exclusive basis all TCR-specific platform intellectual property to develop and commercialize any licensed products in the field of oncology.
2.
License to utilize all data and information within each shared antigen data package and any other know-how disclosed by us to Genentech in oncology.
3.
License to utilize all private antigen TCR product data in connection with research and development activities in the field of use.
4.
License to existing shared antigen data packages.
5.
Research and development services for Shared Products development, including expansion of shared antigen data packages.
6.
Research and development services for private product development.
7.
Obligations to participate on various joint research, development and project committees.

 

We determined that none of the licenses, research and development services or obligations to participate on various committees were distinct within the context of the contract, given such rights and activities were highly interrelated and there was substantial additional research and development to further develop the licenses. We considered factors such as the stage of development of the respective existing antigen data packages, the subsequent development that would be required to both identify and submit a potential target for investigational new drug acceptance under both product pathways and the variability in research and development pathways given Genentech’s control of product commercialization. Specifically, under the Genentech Agreement, Genentech is not required to pursue development or commercialization activities pertaining to both product pathways and may choose to proceed with one or the other. Accordingly, we determined that all of the identified performance obligations were attributable to one general performance obligation, which is to further the development of our TCR-specific platform, including data packages, and continue to make our TCR identification process available to Genentech to pursue either product pathway.

Separately, we have a responsibility to Genentech to enter into a supply and manufacturing agreement for patient-specific TCRs as it pertains to any Personalized Product therapeutic. We determined this was an option right of Genentech should they pursue commercialization of a Personalized Product therapy. Because of the uncertainty resulting from the early stage of development, the novel approach of our collaboration with Genentech and our rights to future commercial mile