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, 2024

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 May 2, 2024, the registrant had 147,368,324 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

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

PART II.

OTHER INFORMATION

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

35

Item 6.

Exhibits

36

Signatures

37

 

 

 

 


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 Minimal Residual Disease (“MRD”) and Immune Medicine business areas, 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 Adaptive Immunosequencing, 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 realize payments, such as milestone fees, based on our customers' use of our technologies in connection with their achievement of research or regulatory goals relating to their own products;
our ability to develop a comprehensive map of the interaction between the immune system and disease (the “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 (the “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, 2024

 

 

December 31, 2023

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

71,233

 

 

$

65,064

 

Short-term marketable securities (amortized cost of $237,745 and $281,122, respectively)

 

 

237,639

 

 

 

281,337

 

Accounts receivable, net

 

 

42,021

 

 

 

37,969

 

Inventory

 

 

13,291

 

 

 

14,448

 

Prepaid expenses and other current assets

 

 

9,850

 

 

 

11,370

 

Total current assets

 

 

374,034

 

 

 

410,188

 

Long-term assets

 

 

 

 

 

 

Property and equipment, net

 

 

65,260

 

 

 

68,227

 

Operating lease right-of-use assets

 

 

50,999

 

 

 

52,096

 

Restricted cash

 

 

2,963

 

 

 

2,932

 

Intangible assets, net

 

 

4,705

 

 

 

5,128

 

Goodwill

 

 

118,972

 

 

 

118,972

 

Other assets

 

 

3,390

 

 

 

3,591

 

Total assets

 

$

620,323

 

 

$

661,134

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

12,170

 

 

$

7,719

 

Accrued liabilities

 

 

7,914

 

 

 

8,597

 

Accrued compensation and benefits

 

 

6,404

 

 

 

13,685

 

Current portion of operating lease liabilities

 

 

9,594

 

 

 

9,384

 

Current portion of deferred revenue

 

 

46,870

 

 

 

48,630

 

Total current liabilities

 

 

82,952

 

 

 

88,015

 

Long-term liabilities

 

 

 

 

 

 

Operating lease liabilities, less current portion

 

 

86,900

 

 

 

89,388

 

Deferred revenue, less current portion

 

 

44,160

 

 

 

44,793

 

Revenue interest liability, net

 

 

131,545

 

 

 

130,660

 

Total liabilities

 

 

345,557

 

 

 

352,856

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Preferred stock: $0.0001 par value, 10,000,000 shares authorized at March 31, 2024 and December 31, 2023; no shares issued and outstanding at March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock: $0.0001 par value, 340,000,000 shares authorized at March 31, 2024 and December 31, 2023; 147,368,324 and 145,082,271 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

14

 

 

 

14

 

Additional paid-in capital

 

 

1,466,844

 

 

 

1,452,502

 

Accumulated other comprehensive (loss) gain

 

 

(106

)

 

 

215

 

Accumulated deficit

 

 

(1,191,839

)

 

 

(1,144,332

)

Total Adaptive Biotechnologies Corporation shareholders’ equity

 

 

274,913

 

 

 

308,399

 

Noncontrolling interest

 

 

(147

)

 

 

(121

)

Total shareholders’ equity

 

 

274,766

 

 

 

308,278

 

Total liabilities and shareholders’ equity

 

$

620,323

 

 

$

661,134

 

 

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,

 

 

 

2024

 

 

2023

 

Revenue

 

$

41,873

 

 

$

37,647

 

Operating expenses

 

 

 

 

 

 

Cost of revenue

 

 

18,051

 

 

 

18,681

 

Research and development

 

 

30,245

 

 

 

32,601

 

Sales and marketing

 

 

22,319

 

 

 

22,308

 

General and administrative

 

 

19,597

 

 

 

20,831

 

Amortization of intangible assets

 

 

423

 

 

 

419

 

Total operating expenses

 

 

90,635

 

 

 

94,840

 

Loss from operations

 

 

(48,762

)

 

 

(57,193

)

Interest and other income, net

 

 

4,222

 

 

 

3,024

 

Interest expense

 

 

(2,993

)

 

 

(3,531

)

Net loss

 

 

(47,533

)

 

 

(57,700

)

Add: Net loss attributable to noncontrolling interest

 

 

26

 

 

 

1

 

Net loss attributable to Adaptive Biotechnologies Corporation

 

$

(47,507

)

 

$

(57,699

)

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

 

$

(0.33

)

 

$

(0.40

)

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

 

 

145,787,527

 

 

 

143,511,142

 

 

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,

 

 

 

2024

 

 

2023

 

Net loss

 

$

(47,533

)

 

$

(57,700

)

Other comprehensive (loss) income

 

 

 

 

 

 

Change in unrealized gains and losses on investments

 

 

(321

)

 

 

2,211

 

Comprehensive loss

 

 

(47,854

)

 

 

(55,489

)

Add: Comprehensive loss attributable to noncontrolling interest

 

 

26

 

 

 

1

 

Comprehensive loss attributable to Adaptive Biotechnologies Corporation

 

$

(47,828

)

 

$

(55,488

)

 

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) Gain

 

 

Deficit

 

 

Interest

 

 

Shareholders’ Equity

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2023

 

 

145,082,271

 

 

$

14

 

 

$

1,452,502

 

 

$

215

 

 

$

(1,144,332

)

 

$

(121

)

 

$

308,278

 

Issuance of common stock for cash upon exercise of stock options

 

 

30,900

 

 

 

 

 

 

44

 

 

 

 

 

 

 

 

 

 

 

 

44

 

Vesting of restricted stock units, net

 

 

2,255,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

14,298

 

 

 

 

 

 

 

 

 

 

 

 

14,298

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(321

)

 

 

 

 

 

 

 

 

(321

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47,507

)

 

 

(26

)

 

 

(47,533

)

Balance at March 31, 2024

 

 

147,368,324

 

 

$

14

 

 

$

1,466,844

 

 

$

(106

)

 

$

(1,191,839

)

 

$

(147

)

 

$

274,766

 

 

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,

 

 

 

2024

 

 

2023

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(47,533

)

 

$

(57,700

)

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

 

 

 

 

 

 

Depreciation expense

 

 

4,791

 

 

 

5,004

 

Noncash lease expense

 

 

1,369

 

 

 

1,805

 

Share-based compensation expense

 

 

14,298

 

 

 

14,671

 

Intangible assets amortization

 

 

423

 

 

 

419

 

Investment amortization

 

 

(2,643

)

 

 

(1,609

)

Inventory reserve

 

 

249

 

 

 

1,080

 

Noncash interest expense

 

 

885

 

 

 

1,648

 

Other

 

 

114

 

 

 

5

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable, net

 

 

(4,052

)

 

 

9,085

 

Inventory

 

 

1,111

 

 

 

(6,607

)

Prepaid expenses and other current assets

 

 

1,520

 

 

 

(352

)

Accounts payable and accrued liabilities

 

 

(3,941

)

 

 

(15,878

)

Operating lease right-of-use assets and liabilities

 

 

(2,549

)

 

 

(2,223

)

Deferred revenue

 

 

(2,393

)

 

 

(8,486

)

Other

 

 

(2

)

 

 

(14

)

Net cash used in operating activities

 

 

(38,353

)

 

 

(59,152

)

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,511

)

 

 

(2,924

)

Purchases of marketable securities

 

 

(53,480

)

 

 

(89,097

)

Proceeds from maturities of marketable securities

 

 

99,500

 

 

 

155,000

 

Net cash provided by investing activities

 

 

44,509

 

 

 

62,979

 

Financing activities

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

44

 

 

 

672

 

Net cash provided by financing activities

 

 

44

 

 

 

672

 

Net increase in cash, cash equivalents and restricted cash

 

 

6,200

 

 

 

4,499

 

Cash, cash equivalents and restricted cash at beginning of year

 

 

67,996

 

 

 

92,428

 

Cash, cash equivalents and restricted cash at end of period

 

$

74,196

 

 

$

96,927

 

Noncash investing activities

 

 

 

 

 

 

Purchases of equipment included in accounts payable and accrued liabilities

 

$

1,115

 

 

$

1,651

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

2,289

 

 

$

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 understand precisely how the immune system detects and treats disease in that patient. We capture these insights in our dynamic clinical immunomics database and related antigen annotations, which are underpinned by computational biology and machine learning, and use them to develop and commercialize clinical products and services that can be tailored to the needs of individual patients. 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, the analysis of goodwill impairment and the recoverability and impairment of long-lived assets, 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, 2023 filed with the Securities and Exchange Commission (the “SEC”) on February 29, 2024.

9


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

Segment Information

We operate as two operating and reportable segments: MRD and Immune Medicine. We have determined that our chief executive officer is the chief operating decision maker (“CODM”). The CODM reviews operating results and other financial information presented at the MRD and Immune Medicine segment level, as well as on a consolidated basis, to make resource allocation decisions. The MRD and Immune Medicine segments are also our two reporting units.

Restricted Cash

We had a restricted cash balance of $3.0 million and $2.9 million as of March 31, 2024 and December 31, 2023, 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.

Goodwill

Goodwill represents the excess of the purchase price over the net amount of attributed identifiable assets acquired and liabilities assumed in a business combination measured at fair value. We assess goodwill for impairment annually on October 1, or more frequently if events or changes in circumstances would more likely than not reduce the fair value of one or both of our reporting units below their respective carrying value. We evaluate goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value of one or both of our reporting units is less than their respective carrying amount. If we so determine, or if we choose to bypass the qualitative assessment, we perform a quantitative goodwill impairment test. If impairment exists, the carrying value of the allocated goodwill is reduced to its fair value through an impairment charge recorded in the consolidated statements of operations. To date, we have not recognized any impairment of goodwill.

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,

 

 

2024

 

2023

 

2024

 

2023

Customer A

 

*%

 

*%

 

*%

 

*%

Customer B

 

*

 

*

 

*

 

*

Customer C

 

11.7

 

*

 

11.2

 

*

Genentech, Inc. and Roche Group

 

13.5

 

26.6

 

*

 

*

* 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.

10


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

We derive revenue by providing diagnostic and research services in our Minimal Residual Disease (“MRD”) and Immune Medicine business areas. 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. Our Immune Medicine revenue consists of revenue generated from (1) providing sample testing services for our commercial research product, Adaptive Immunosequencing, to biopharmaceutical customers and academic institutions; and (2) our collaboration agreements with Genentech, Inc. (“Genentech”) and other biopharmaceutical customers in areas of drug and target discovery.

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.

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.

For research customers who utilize either our MRD or Adaptive Immunosequencing 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 MRD data or Adaptive Immunosequencing 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 total samples expected to be delivered.

11


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

New Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which intends to enhance reportable segment disclosures about significant segment expenses. This guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the guidance is to be applied retrospectively. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which primarily intends to enhance the rate reconciliation and income taxes paid disclosures. This guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted and the guidance is to be applied prospectively; retrospective application is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

3. Revenue

We disaggregate our revenue from contracts with customers by business area 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,

 

 

 

2024

 

 

2023

 

MRD revenue

 

 

 

 

 

 

Service revenue

 

$

28,126

 

 

$

21,427

 

Regulatory milestone revenue

 

 

4,500

 

 

 

 

Total MRD revenue

 

 

32,626

 

 

 

21,427

 

Immune Medicine revenue

 

 

 

 

 

 

Service revenue

 

 

4,559

 

 

 

7,102

 

Collaboration revenue

 

 

4,688

 

 

 

9,118

 

Total Immune Medicine revenue

 

 

9,247

 

 

 

16,220

 

Total revenue

 

$

41,873

 

 

$

37,647

 

During the three months ended March 31, 2024, we recognized $1.5 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, 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.

As of March 31, 2024, we could receive up to an additional $430.5 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.

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. Additionally, we received a $10.0 million milestone in 2023. We may be eligible to receive $1.8 billion over time, including payments of up to $65.0 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 therapeutic products 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”).

12


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

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 milestones and royalty payments, we determined that this option right was not a material right that should be accounted for at inception. As such, we will account for the supply and manufacturing agreement when entered into between the parties.

We determined the initial transaction price shall be made up of only the $300.0 million upfront, non-refundable payment, as all potential regulatory and development milestone payments were probable of significant revenue reversal given their achievement was highly dependent on factors outside our control. As a result, these payments were fully constrained and were not included in the initial transaction price. In May 2023, one of the regulatory milestones was achieved, resulting in a $10.0 million addition to the transaction price, $7.7 million of which was recognized as revenue in the three months ended June 30, 2023, with the remainder included in deferred revenue to be recognized as revenue over the remaining research and development period. We continue to exclude the commercial milestones and potential royalties from the transaction price, as those items relate predominantly to the license rights granted to Genentech and will be assessed when and if such events occur.

13


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

As there are potential substantive developments necessary, which Genentech may be able to direct, we determined that we would apply a proportional performance model to recognize revenue for our performance obligation. We measure proportional performance using an input method based on costs incurred relative to the total estimated costs of research and development efforts to pursue both the Shared Products and Personalized Product pathways. When any of the potential regulatory and development milestones are no longer fully constrained and are included in the transaction price, such amounts will be recognized using the cumulative catch-up method based on proportional performance at such time. We currently expect to recognize revenue generated from the Genentech Agreement over a period of approximately nine years from the effective date. This estimate of the research and development period considers pursuit options of development activities supporting both the Shared Products and Personalized Product, but may be reduced or increased based on the various activities as directed by the joint committees, decisions made by Genentech, regulatory feedback or other factors not currently known.

In total, we recognized $4.7 million and $9.1 million in Immune Medicine collaboration revenue during the three months ended March 31, 2024 and 2023, respectively, related to the Genentech Agreement. Costs related to the Genentech Agreement are included in research and development expenses.

4. Deferred Revenue

Deferred revenue from the Genentech Agreement represents $8.4 million and $41.6 million of the current and non-current deferred revenue balances, respectively, as of March 31, 2024 and $13.6 million and $41.1 million of the current and non-current deferred revenue balances, respectively, as of December 31, 2023. We expect our current deferred revenue to be recognized as revenue within 12 months. We expect the majority of our non-current deferred revenue to be recognized as revenue over a period of approximately four years from March 31, 2024. This period of time represents an estimate of the research and development period to develop cellular therapies in oncology, which may be reduced or increased based on various research and development activities.

Changes in deferred revenue during the three months ended March 31, 2024 were as follows (in thousands):

 

Deferred revenue balance at December 31, 2023

 

$

93,423

 

Additions to deferred revenue during the period

 

 

10,802

 

Revenue recognized during the period

 

 

(13,195

)

Deferred revenue balance at March 31, 2024

 

$

91,030

 

 

As of March 31, 2024, $10.5 million was recognized as revenue that was included in the deferred revenue balance at December 31, 2023.

5. Fair Value Measurements

The following tables set forth the fair values of financial assets as of March 31, 2024 and December 31, 2023 that were measured at fair value on a recurring basis (in thousands):

 

 

 

March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

44,303

 

 

$

 

 

$

 

 

$

44,303

 

Commercial paper

 

 

 

 

 

10,777

 

 

 

 

 

 

10,777

 

U.S. government treasury securities

 

 

 

 

 

217,701

 

 

 

 

 

 

217,701

 

Corporate bonds

 

 

 

 

 

9,161

 

 

 

 

 

 

9,161

 

Total financial assets

 

$

44,303

 

 

$

237,639

 

 

$

 

 

$

281,942

 

 

 

 

December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

45,123

 

 

$

 

 

$

 

 

$

45,123

 

Commercial paper

 

 

 

 

 

10,630

 

 

 

 

 

 

10,630

 

U.S. government treasury and agency securities

 

 

 

 

 

264,426

 

 

 

 

 

 

264,426

 

Corporate bonds

 

 

 

 

 

6,281

 

 

 

 

 

 

6,281

 

Total financial assets

 

$

45,123

 

 

$

281,337

 

 

$

 

 

$

326,460

 

 

14


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

Level 1 securities include highly liquid money market funds, for which we measure the fair value based on quoted prices in active markets for identical assets or liabilities. Level 2 securities consist of U.S. government treasury and agency securities, commercial paper and corporate bonds, and are valued based on recent trades of securities in inactive markets or on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.

6. Investments

Available-for-sale investments consisted of the following as of March 31, 2024 and December 31, 2023 (in thousands):

 

 

 

March 31, 2024

 

 

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Estimated Fair Value

 

Short-term marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

10,777

 

 

$

 

 

$

 

 

$

10,777

 

U.S. government treasury securities

 

 

217,805

 

 

 

25

 

 

 

(129

)

 

 

217,701

 

Corporate bonds

 

 

9,163

 

 

 

 

 

 

(2

)

 

 

9,161

 

Total short-term marketable securities

 

$

237,745

 

 

$

25

 

 

$

(131

)

 

$

237,639

 

 

 

 

December 31, 2023

 

 

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Estimated Fair Value

 

Short-term marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

10,630

 

 

$

 

 

$

 

 

$

10,630

 

U.S. government treasury and agency securities

 

 

264,214

 

 

 

232

 

 

 

(20

)

 

 

264,426

 

Corporate bonds

 

 

6,278

 

 

 

3

 

 

 

 

 

 

6,281

 

Total short-term marketable securities

 

$

281,122

 

 

$

235

 

 

$

(20

)

 

$

281,337

 

 

All the U.S. government treasury and agency securities, commercial paper and corporate bonds designated as short-term marketable securities have an effective maturity date that is equal to or less than one year from the respective condensed consolidated balance sheet date. Those that are designated as long-term marketable securities have an effective maturity date that is more than one year from the respective condensed consolidated balance sheet date.

Accrued interest receivable is excluded from the amortized cost and estimated fair value of our marketable securities. Accrued interest receivable of $1.1 million and $1.0 million was presented separately within the prepaid expenses and other current assets balance on the unaudited condensed consolidated balance sheet as of March 31, 2024 and on the condensed consolidated balance sheet as of December 31, 2023, respectively.

 

The following table presents the gross unrealized holding losses and fair values for investments in an unrealized loss position, and the length of time individual securities have been in a continuous loss position, as of March 31, 2024 (in thousands):

 

 

 

Less Than 12 Months

 

 

12 Months Or Greater

 

 

 

Fair Value

 

 

Unrealized Loss

 

 

Fair Value

 

 

Unrealized Loss

 

U.S. government treasury securities

 

$

134,826

 

 

$

(129

)

 

$

 

 

$

 

Corporate bonds

 

 

6,514

 

 

 

(2

)

 

 

 

 

 

 

Total available-for-sale securities

 

$

141,340

 

 

$

(131

)

 

$

 

 

$

 

 

We periodically review our available-for-sale securities to assess for credit impairment. Some of the factors considered in assessing impairment include the extent to which the fair value is less than the amortized cost basis, adverse conditions related to the security, an industry or geographic area, changes to security ratings or sector credit ratings and other relevant market data.

As of March 31, 2024, we did not intend, nor were we more likely than not to be required, to sell our available-for-sale investments before the recovery of their amortized cost basis, which may be maturity. Based on our assessment, we concluded all impairment as of March 31, 2024 to be due to factors other than credit loss, such as changes in interest rates. A credit allowance was not recognized and the impairment of our available-for-sale securities was recorded in other comprehensive loss.

7. Leases

We have operating lease agreements for laboratory, office and warehouse facilities in Seattle, Washington, South San Francisco, California and Bothell, Washington. As of March 31, 2024, we were not party to any finance leases.

15


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

The following table reconciles our undiscounted operating lease cash flows to our operating lease liabilities, less current portion balance as of March 31, 2024 (in thousands):

 

2024 (excluding the three months ended March 31, 2024)

 

$

10,297

 

2025

 

 

14,098

 

2026

 

 

12,330

 

2027

 

 

11,944

 

2028

 

 

12,282

 

Thereafter

 

 

56,962

 

Total undiscounted lease payments

 

 

117,913

 

Less: Imputed interest rate

 

 

(21,419

)

Total operating lease liabilities

 

 

96,494

 

Less: Current portion

 

 

(9,594

)

Operating lease liabilities, less current portion

 

$

86,900

 

 

During the three months ended March 31, 2024 and 2023, cash paid for amounts included in the measurement of lease liabilities was $3.7 million and $3.4 million, respectively.

We have $2.1 million in letters of credit with one of our financial institutions in connection with certain of our leases.

8. Revenue Interest Purchase Agreement

In September 2022, we entered into the Purchase Agreement with OrbiMed Royalty & Credit Opportunities IV, LP (“OrbiMed”), an affiliate of OrbiMed Advisors LLC, as collateral agent and administrative agent for the purchasers party thereto (the “Purchasers”). Pursuant to the Purchase Agreement, we received $125.0 million from the Purchasers at closing, less certain transaction expenses. We are also entitled to receive up to $125.0 million in subsequent installments as follows: (i) $75.0 million upon our request occurring no later than September 12, 2025 and (ii) $50.0 million upon our request in connection with certain permitted acquisitions occurring no later than September 12, 2025, in each case subject to certain funding conditions.

As consideration for such payments, the Purchasers have a right to receive certain revenue interests (the “Revenue Interests”) from us based on a percentage of all GAAP revenue. Payments in respect of the Revenue Interests shall be made quarterly within 45 days following the end of each fiscal quarter (each, a “Revenue Interest Payment”).

Accounting Treatment

We accounted for the transaction as debt recorded at amortized cost using the effective interest rate method.

To determine the amortization of the Purchase Agreement obligation, we are required to estimate the amount and timing of future Revenue Interest Payments based on our estimate of the timing and amount of future revenues and calculate an effective interest rate which will amortize the obligation to zero over the amortization period. The calculated effective interest rate as of March 31, 2024 was 9.2%.

In connection with the Purchase Agreement, we incurred debt issuance costs of $0.6 million. Debt issuance costs have been recorded to debt and are being amortized over the estimated term of the debt using the effective interest method, adjusted on a prospective basis for changes in the underlying assumptions and inputs.

The assumptions used in determining the expected repayment term of the obligation and amortization period of the issuance costs requires that we make estimates that could impact the short- and long-term classification of these costs, as well as the period over which these costs will be amortized. We periodically assess the amount and timing of expected Revenue Interest Payments based on internal forecasts. To the extent such payments are greater or less than our initial estimates or the timing of such payments is materially different than our original estimates, we will prospectively adjust the amortization of the revenue interest liability and the effective interest rate.

The following table sets forth the revenue interest liability, net activity during the three months ended March 31, 2024 (in thousands):

 

Revenue interest liability, net at December 31, 2023

 

$

130,660

 

Interest expense

 

 

2,993

 

Revenue interest payable

 

 

(2,108

)

Revenue interest liability, net at March 31, 2024

 

$

131,545

 

 

16


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

Revenue interest payable of $2.1 million and $2.3 million was included within the accounts payable balance on the unaudited condensed consolidated balance sheet as of March 31, 2024 and on the condensed consolidated balance sheet as of December 31, 2023, respectively.

9. Commitments and Contingencies

Legal Proceedings

We are subject to claims and assessments from time to time in the ordinary course of business. We will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. We were not party to any material legal proceedings as of March 31, 2024.

Indemnification Agreements

In the ordinary course of business, we may provide indemnification of varying scope and terms to vendors, lessors, customers and other parties with respect to certain matters including, but not limited to, losses arising out of breach of our agreements with them or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with members of our board of directors and certain of our executive officers that will require us to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments that we could be required to make under these indemnification agreements is, in many cases, unlimited. We have not incurred any material costs as a result of such indemnifications and are not currently aware of any indemnification claims.

10. Shareholders’ Equity

Common Stock

Our common stock has no preferences or privileges and is not redeemable. Holders of our common stock are entitled to one vote for each share of common stock held. The holders of record of outstanding shares of common stock shall be entitled to receive, when, as and if declared, out of funds legally available, such cash and other dividends as may be declared from time to time.

Our 2019 Equity Incentive Plan (the “2019 Plan”) provides for annual increases in the number of shares that may be issued under the 2019 Plan on January 1, 2020 and on each subsequent January 1, thereafter, by a number of shares equal to the lesser of (a) 5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our board of directors.

Furthermore, our Employee Stock Purchase Plan (the “ESPP”) provides for annual increases in the number of shares available for issuance under our ESPP on January 1, 2020 and on each January 1, thereafter, by a number of shares equal to the smallest of (a) 1% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our board of directors.

Effective January 1, 2024, our 2019 Plan and ESPP reserves increased by 7,254,113 shares and 1,450,822 shares, respectively.

As of March 31, 2024, we had reserved shares of common stock for the following:

 

Shares issuable upon the exercise of outstanding stock options granted

 

 

13,588,812

 

Shares issuable upon the vesting of outstanding restricted stock units granted and the maximum outstanding market-based restricted stock units eligible to be earned

 

 

15,986,199

 

Shares available for future grant under the 2019 Equity Incentive Plan

 

 

15,149,986

 

Shares available for future grant under the Employee Stock Purchase Plan

 

 

5,686,170

 

Total shares of common stock reserved for future issuance

 

 

50,411,167

 

 

17


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

11. Equity Incentive Plans

2009 Equity Incentive Plan

We adopted an equity incentive plan in 2009 (the “2009 Plan”) that provided for the issuance of incentive and nonqualified common stock options and other share-based awards for employees, directors and consultants. Under the 2009 Plan, the exercise price for incentive and nonqualified stock options were not to be less than the fair market value of our common stock at the date of grant. Stock options granted under this plan expire no later than ten years from the grant date and vesting was established at the time of grant. Pursuant to the terms of the 2019 Plan, any shares subject to outstanding stock options originally granted under the 2009 Plan that terminate, expire or lapse for any reason without the delivery of shares to the holder thereof shall become available for issuance pursuant to awards granted under the 2019 Plan. While no shares are available for future grant under the 2009 Plan, it continues to govern outstanding equity awards granted thereunder.

2019 Equity Incentive Plan

The 2019 Plan became effective immediately prior to the closing of our initial public offering in July 2019. The 2019 Plan provides for the issuance of awards in the form of stock options and other share-based awards for employees, directors and consultants. Under the 2019 Plan, the stock option exercise price per share shall not be less than the fair market value of a share of stock on the effective date of grant, as defined by the 2019 Plan, unless explicitly qualified under the provisions of Section 409A or Section 424(a) of the Internal Revenue Code of 1986. Additionally, unless otherwise specified, stock options granted under this plan expire no later than ten years from the grant date and vesting is established at the time of grant. Except for certain stock option and restricted stock unit grants made to non-employee directors, stock options and restricted stock units granted under the 2019 Plan generally vest over a four-year period, subject to continuous service through each applicable vesting date. As of March 31, 2024, we had 39,881,924 shares of common stock authorized for issuance under the 2019 Plan.

Changes in shares available for grant during the three months ended March 31, 2024 were as follows:

 

 

 

Shares Available for Grant

 

Shares available for grant at December 31, 2023

 

 

15,299,763

 

2019 Equity Incentive Plan reserve increase effective January 1, 2024

 

 

7,254,113

 

Stock options and restricted stock units granted and the maximum market-based restricted stock units granted eligible to be earned

 

 

(8,399,478

)

Stock options and restricted stock units forfeited or expired

 

 

995,588

 

Shares available for grant at March 31, 2024

 

 

15,149,986

 

Stock Options

Stock option activity under the 2009 Plan and 2019 Plan during the three months ended March 31, 2024 was as follows:

 

 

 

Shares Subject to
Outstanding Stock Options

 

 

Weighted-Average Exercise
Price per Share

 

 

Aggregate Intrinsic Value
(in thousands)

 

Stock options outstanding at December 31, 2023

 

 

12,875,045

 

 

$

15.90

 

 

 

 

Stock options granted

 

 

1,008,364

 

 

 

3.99

 

 

 

 

Stock options forfeited

 

 

(195,745

)

 

 

17.55

 

 

 

 

Stock options expired

 

 

(67,952

)

 

 

17.31

 

 

 

 

Stock options exercised

 

 

(30,900

)

 

 

1.43

 

 

 

 

Stock options outstanding at March 31, 2024

 

 

13,588,812

 

 

$

15.02

 

 

$

108

 

Stock options vested and exercisable at March 31, 2024

 

 

9,662,208

 

 

$

16.25

 

 

$

108

 

 

The weighted-average remaining contractual life for stock options outstanding as of March 31, 2024 was 6.2 years. The weighted-average remaining contractual life for vested and exercisable stock options as of March 31, 2024 was 5.2 years.

18


Adaptive Biotechnologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

Restricted Stock Units

Restricted stock unit activity under the 2019 Plan during the three months ended March 31, 2024 was as follows:

 

 

 

Restricted Stock Units
Outstanding

 

 

Weighted-Average Grant Date
Fair Value per Share

 

Nonvested restricted stock units outstanding at December 31, 2023

 

 

9,669,460

 

 

$

10.32

 

Restricted stock units granted

 

 

5,327,094

 

 

 

3.99

 

Restricted stock units forfeited

 

 

(731,891

)

 

 

10.05

 

Restricted stock units vested

 

 

(2,255,158

)

 

 

11.04

 

Nonvested restricted stock units outstanding at March 31, 2024

 

 

12,009,505

 

 

$

7.39

 

Market-Based Restricted Stock Units

In addition to the restricted stock units described above, our board of directors approved awards of market-based restricted stock units to our chief executive officer, former chief financial officer, president/chief operating officer and chief scientific officer in March 2024. The shares of common stock that may be earned under the awards granted to our chief executive officer, former chief financial officer, president/chief operating officer and chief scientific officer, which range from zero shares to 709,220 shares, 295,580 shares, 350,000 shares and 709,220 shares, respectively, are calculated based on our total shareholder return during a three-year performance period as measured against that of the group of companies comprising the S&P Biotechnology Select Industry Index as of the grant date, subject to certain adjustments to such index group. Except as expressly provided in the terms of each award's agreement, vesting is subject to the respective grantee's continuous service through the end of the three-year performance period. These market-based restricted stock units, along with those granted in March 2022 and March 2023, which had a weighted-average grant date fair value per share of $