UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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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:
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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.
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).
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 |
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Emerging growth company |
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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
As of April 30, 2020, the registrant had
Table of Contents
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Page |
PART I. |
4 |
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Item 1. |
4 |
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4 |
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5 |
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6 |
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Condensed Statements of Convertible Preferred Stock and Shareholders’ (Deficit) Equity |
7 |
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8 |
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9 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 3. |
33 |
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Item 4. |
33 |
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PART II. |
34 |
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Item 1. |
34 |
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Item 1A. |
34 |
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Item 2. |
36 |
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Item 3. |
36 |
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Item 4. |
36 |
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Item 5. |
36 |
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Item 6. |
37 |
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38 |
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:
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our ability to leverage and extend our immune medicine platform to discover, develop and commercialize our products and services, particularly in light of the novelty of immune medicine and our methods; |
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our ability to obtain regulatory clearance, authorization and approval for such products and services; |
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our collaboration with Genentech, Inc. (“Genentech”) and ability to develop and commercialize cellular therapeutics, including our ability to achieve milestones and realize the intended benefits of the collaboration; |
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our ability to develop a map of the interaction between the immune system and disease (“TCR-Antigen Map”) and yield insights from it that are commercially viable; |
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our expected reliance on collaborators for development and clinical testing of potential diagnostic and therapeutic product candidates, which may fail at any time due to a number of possible unforeseen events; and |
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the potential adverse effect on our business, operations and plans or timelines (including those plans and timelines related to expansion initiatives and clinical development) resulting from a health epidemic or pandemic, including the recent COVID-19 pandemic. |
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 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 Balance Sheets
(in thousands, except share and per share amounts)
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March 31, |
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December 31, |
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2020 |
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2019 |
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(unaudited) |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term marketable securities (amortized cost of $ |
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Accounts receivable, net |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Long-term assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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— |
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Long-term marketable securities (amortized cost of $ |
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Restricted cash |
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Intangible assets, net |
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Goodwill |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and shareholders’ equity |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Accrued compensation and benefits |
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Current portion of deferred rent |
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— |
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Current operating lease liabilities |
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— |
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Current deferred revenue |
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Total current liabilities |
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Long-term liabilities |
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Deferred rent liability, less current portion |
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— |
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Operating lease liabilities, less current portion |
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— |
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Financing obligation |
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— |
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Deferred revenue, less current portion |
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Other long-term liabilities |
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— |
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Total liabilities |
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Commitments and contingencies (Note 9) |
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Shareholders’ equity |
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Preferred stock: $ December 31, 2019; December 31, 2019 |
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Common stock: $ December 31, 2019; March 31, 2020 and December 31, 2019, respectively |
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Additional paid-in capital |
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Accumulated other comprehensive gain |
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Accumulated deficit |
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( |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these financial statements.
4
Adaptive Biotechnologies Corporation
Condensed Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)
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Three Months Ended March 31, |
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2020 |
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2019 |
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Revenue |
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Sequencing revenue |
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$ |
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$ |
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Development revenue |
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Total revenue |
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Operating expenses |
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Cost of revenue |
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Research and development |
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Sales and marketing |
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General and administrative |
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Amortization of intangible assets |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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Interest and other income, net |
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Income tax benefit |
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— |
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Net loss |
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( |
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( |
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Fair value adjustment to Series E-1 convertible preferred stock options |
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— |
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( |
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Net loss attributable to common shareholders |
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$ |
( |
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$ |
( |
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Net loss per share attributable to common shareholders, basic and diluted |
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$ |
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$ |
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Weighted-average shares used in computing net loss per share attributable to common shareholders, basic and diluted |
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The accompanying notes are an integral part of these financial statements.
5
Adaptive Biotechnologies Corporation
Condensed Statements of Comprehensive Loss
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2020 |
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2019 |
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Net loss |
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$ |
( |
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$ |
( |
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Change in unrealized gain on investments |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these financial statements.
6
Adaptive Biotechnologies Corporation
Condensed Statements of Convertible Preferred Stock and Shareholders’ (Deficit) Equity
(in thousands, except share amounts)
(unaudited)
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Convertible Preferred Stock |
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Common Stock |
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Additional Paid-In |
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Accumulated Other Comprehensive |
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Accumulated |
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Total Shareholders’ (Deficit) |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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(Loss) Gain |
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Deficit |
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Equity |
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Balance at December 31, 2018 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Issuance of common stock for cash upon exercise of stock options |
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— |
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— |
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— |
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— |
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— |
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Issuance of Series E-1 convertible preferred stock for cash upon exercise of Series E-1 convertible preferred stock options at fair value |
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— |
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— |
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— |
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— |
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— |
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— |
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Change in redemption value for vested Series E-1 convertible preferred stock options |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Common stock option share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2019 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Balance at December 31, 2019 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Adjustments to accumulated deficit for adoption of guidance on accounting for leases |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock for cash upon exercise of stock options |
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Common stock option and restricted stock unit share- based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2020 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these financial statements.
7
Adaptive Biotechnologies Corporation
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2020 |
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2019 |
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Operating activities |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Depreciation expense |
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Noncash lease expense |
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— |
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Share-based compensation expense |
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Intangible assets amortization |
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Investment amortization |
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( |
) |
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( |
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Fair value adjustment of convertible preferred stock warrant |
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— |
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Benefit from income tax |
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( |
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— |
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Other |
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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Inventory |
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( |
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( |
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Prepaid expenses and other current assets |
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( |
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Accounts payable and accrued liabilities |
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( |
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( |
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Deferred rent |
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— |
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( |
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Operating lease liabilities |
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( |
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— |
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Deferred revenue |
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( |
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Other |
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( |
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— |
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Net cash (used in) provided by operating activities |
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( |
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Investing activities |
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Purchases of property and equipment |
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( |
) |
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( |
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Purchases of marketable securities |
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( |
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( |
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Proceeds from sales and maturities of marketable securities |
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Net cash provided by (used in) investing activities |
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( |
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Financing activities |
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Proceeds from exercise of stock options |
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Other |
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— |
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( |
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Net cash provided by financing activities |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of year |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Noncash investing and financing activities |
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Purchases of equipment included in accounts payable and accrued liabilities |
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$ |
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$ |
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Deferred offering costs included in accounts payable and accrued expenses |
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$ |
— |
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$ |
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Derecognition of lease financing arrangements upon adoption of guidance on accounting for leases |
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$ |
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$ |
— |
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The accompanying notes are an integral part of these financial statements.
8
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed 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-driven 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 is the foundation for our expanding suite of products and services. The cornerstone of our immune medicine platform and core immunosequencing product, immunoSEQ, serves as our underlying research and development engine and generates revenue from academic and biopharmaceutical customers. Our first clinical diagnostic product, clonoSEQ, is the first test authorized by the Food and Drug Administration (“FDA”) for the detection and monitoring of minimal residual disease (“MRD”) in patients with select blood cancers.
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.
Initial Public Offering
Our registration statement on Form S-1 related to our initial public offering was declared effective on June 26, 2019, and our common stock began trading on the Nasdaq Global Select Market on June 27, 2019. On July 1, 2019, we completed our initial public offering in which we issued and sold
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Significant Accounting Policies |
Basis of Presentation and Use of Estimates
The preparation of 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 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, including the fair value of stock, the provision for income taxes, including related reserves, and goodwill, 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 Financial Statements
In our opinion, the accompanying unaudited condensed financial statements have been prepared in accordance with GAAP for interim financial information. These unaudited condensed financial statements include all adjustments necessary to fairly state the financial position and the results of our operations and cash flows for interim periods in accordance with GAAP. All such adjustments are 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 financial statements should be read in conjunction with our audited financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on February 26, 2020.
Restricted Cash
We are required to maintain certain balances under lease arrangements for our property and facility leases. We had restricted cash of $
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Adaptive Biotechnologies Corporation
Leases
We determine if an arrangement contains a lease at inception. We have operating lease agreements for the laboratory and office facilities that we occupy, as well as server space. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized at the date the underlying asset becomes available for our use and are based on the present value of the future minimum lease payments over the lease term. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. As our leases generally do not provide an implicit interest rate, the present value of our future minimum lease payments is determined using our incremental borrowing rate. This rate is an estimate of the collateralized borrowing rate we would incur on our future lease payments over a similar term and is based on the information available to us at the lease commencement date, or as of January 1, 2020 for commenced leases that existed as of our adoption of the new lease standard, discussed in more detail below.
Certain of our leases contain options to extend or terminate the lease; lease terms are adjusted for these options only when it is reasonably certain we will exercise these options. Our lease agreements do not contain residual value guarantees or covenants.
We have made a policy election regarding our real estate leases not to separate nonlease components from lease components, to the extent they are fixed. Nonlease components that are not fixed are expensed as incurred as variable lease expense. Our leases for laboratory and office facilities typically include variable nonlease components, such as common-area maintenance costs. We have also elected not to record on the balance sheet a lease that has a lease term of twelve months or less and does not contain a purchase option that we are reasonably certain to exercise.
Lease expense is recognized on a straight-line basis over the terms of the leases. Incentives granted under our facilities leases, including rent holidays, are recognized as adjustments to lease expense on a straight-line basis over the terms of the leases.
Concentrations of Risk
We are subject to a concentration of risk from a limited number of suppliers, or in some 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 debt securities, U.S. government agency securities, commercial paper and corporate bonds with high-quality accredited financial institutions.
Significant customers are those which represent more than 10% of our total revenue or accounts receivable, net balances for the periods and as of each balance sheet date presented, respectively. Revenue from these customers reflects their purchase of our products and services and our collaboration efforts with Genentech.
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 periods presented were as follows:
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Revenue |
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Accounts Receivable, Net |
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Three Months Ended March 31, |
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March 31, |
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December 31, |
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2020 |
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2019 |
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2020 |
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2019 |
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Customer A |
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*% |
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*% |
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Customer D |
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* |
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* |
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* |
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Genentech, Inc. |
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* |
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* |
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* less than 10% |
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Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”), Revenue from Contracts with Customers. Under ASC 606, 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. The following is a summary of the application of the respective model to each of our revenue classifications.
Overview
Our revenue is generated from immunosequencing (“sequencing”) products and services (“sequencing revenue”) and from regulatory or development support services leveraging our immune medicine platform (“development revenue”). When revenue generating contracts have elements of both sequencing revenue and development revenue, we allocate revenue based on the nature of the performance obligation and the allocated transaction price.
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Adaptive Biotechnologies Corporation
Sequencing Revenue
Sequencing revenue reflects the amounts generated from providing sequencing services and testing through our immunoSEQ and clonoSEQ products and services to our research and clinical customers, respectively.
For research customers, 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
For other research customers who choose to purchase a research use only kit, the kits are sold on a price per kit basis with amounts payable upon delivery of the kit. Payments received are recorded as deferred revenue. For these customers, we have identified one performance obligation: the delivery of sample results. We recognize revenue as the results are delivered to the customer based on a proportion of the estimated samples that can be reported on for each kit.
For clinical customers, we derive revenues from providing our clonoSEQ test report to ordering physicians, and we bill and receive payments from medical institutions, commercial and government third-party payors. In these transactions, we have identified one performance obligation: the delivery of a clonoSEQ report. 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.
In January 2019, clonoSEQ received Medicare coverage aligned with the FDA label and National Comprehensive Cancer Network (“NCCN”) guidelines for longitudinal monitoring in multiple myeloma (“MM”) and B cell acute lymphoblastic leukemia (“ALL”). We bill Medicare for an episode of treatment when we deliver the first eligible test results. 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 is recognized at the time the initial billable test result 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 as we deliver the remaining tests in a patient’s treatment cycle.
Development Revenue
We derive revenue by providing services through development agreements to biopharmaceutical customers who seek access to our immune medicine platform technologies. We generate revenues from the delivery of professional support activities pertaining to the use of our proprietary immunoSEQ and clonoSEQ services in the development of the respective customers’ initiatives. The transaction price for these contracts may consist of a combination of non-refundable upfront fees, separately priced sequencing fees, progress based milestones and regulatory milestones. The development agreements may include single or multiple performance obligations, depending on the contract. For certain contracts, we may perform services to support the biopharmaceutical customers’ regulatory submission as part of their registrational trials. These services include regulatory support pertaining to our technology intended to be utilized as part of the submission, development of analytical plans for our sequencing data, participation on joint research committees and assistance in completing a regulatory submission. Generally, these services are not distinct within the context of the contract, and they are accounted for as a single performance obligation.
When sequencing services are separately priced customer options, we assess if a material right exists and, if not, the customer option to purchase additional sequencing services is not considered part of the contract. Except for any non-refundable upfront fees, the other forms of compensation represent variable consideration. Variable consideration related to progress based and 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 recognized will not occur. Progress milestones, such as the first sample result delivered or final patient enrollment in a customer trial, are customer dependent and are included in the transaction price when the respective milestone is probable of occurring. Milestone payments that are not within our customers’ control, such as regulatory approvals, 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 that must be managed, as well as the level of effort and investment required to achieve the respective milestone.
The primary method used to estimate standalone selling price for performance obligations is the adjusted market assessment approach. Using this approach, we evaluate the market in which we sell our services and estimate the price that a customer in that market would be willing to pay for our services. We recognize revenue using either an input or output measure of progress that faithfully depicts performance on a contract, depending on the contract. The measure used is dependent on the nature of the service to be provided in each contract. Selecting the measure of progress and estimating progress to date requires significant judgment.
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Adaptive Biotechnologies Corporation
Net Loss Per Share Attributable to Common Shareholders
We calculate basic net loss per share attributable to common shareholders by dividing the net loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common shareholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, convertible preferred stock, common stock warrants, stock options, restricted stock units, shares issuable pursuant to the employee stock purchase plan, shares subject to repurchase from early exercised options and contingently issuable shares are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common shareholders, as their effect is anti-dilutive.
Prior to the closing of our initial public offering in July 2019 and the conversion of our convertible preferred stock into common stock, we calculated our basic and diluted net loss per share attributable to common shareholders in conformity with the two-class method required for companies with participating securities. We considered our convertible preferred stock to be participating securities. In the event a dividend had been declared or paid on common stock, holders of convertible preferred stock would have been entitled to a share of such dividend in proportion to the holders of common stock on an as-if converted basis. Under the two-class method, basic net loss per share attributable to common shareholders is calculated by dividing the net loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding for the period. Net loss attributable to common shareholders is determined by allocating undistributed earnings between common and preferred shareholders. The net loss attributable to common shareholders was not allocated to the convertible preferred stock under the two-class method, as the convertible preferred stock did not have a contractual obligation to share in our losses. The diluted net loss per share attributable to common shareholders was computed by giving effect to all potential dilutive common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, convertible preferred stock, common stock warrants and stock options were considered common stock equivalents but were excluded from the calculation of diluted net loss per share attributable to common shareholders, as their effect was anti-dilutive.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”), intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheets and disclosing key information about leasing arrangements. We adopted the guidance effective January 1, 2020 using the optional transition method described in ASU 2018-11, Leases (Topic 842) Targeted Improvements. Under the optional transition method, we recognized a cumulative-effect adjustment in the period of adoption. Prior period amounts were not adjusted and continue to be reported in accordance with the previous accounting under ASC 840, Leases (“ASC 840”).
In adopting the new standard, we utilized certain practical expedients available. These practical expedients include waiving reassessment of 1) whether any expired or existing contracts are or contain leases; 2) lease classification of expired or existing leases; and 3) initial direct costs for existing leases. We also elected to use hindsight in determining the lease term and in assessing impairment of our right-of-use assets. Furthermore, we have made a policy decision regarding our real estate leases not to separate nonlease components from lease components, to the extent they are fixed. We have also elected not to record on the balance sheet a lease that has a lease term of twelve months or less and does not contain a purchase option that we are reasonably certain to exercise.
The standard had a material impact on our unaudited condensed balance sheets but did not have a material impact on our unaudited condensed statements of operations or unaudited condensed statements of cash flows. The most significant impact was the recognition of $
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Adaptive Biotechnologies Corporation
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The expected credit losses are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, and the net carrying value of the financial asset is presented on the unaudited condensed balance sheet. The guidance also amends the previous other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account, limited to the difference between a security’s amortized cost basis and its fair value. Furthermore, the standard update removes the distinction between whether an impairment is temporary or other-than temporary. We adopted the guidance effective January 1, 2020. Given the short-term nature of our accounts receivables, the adoption as it relates to trade receivables did not have a significant impact on our financial statements. Furthermore, impairment of available-for-sale debt securities as of the adoption date was determined to be due to factors other than credit loss; therefore, a credit allowance was not recognized.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other: Internal-Use Software (Subtopic 350-40) to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement. We adopted this guidance effective January 1, 2020 on a prospective basis, and the adoption did not have any impact on our financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. Among other things, this guidance also clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied prospectively, except for certain amendments. We early adopted the guidance on January 1, 2020 and the adoption did not have a material impact on our financial statements.
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Revenue |
MRD Development Agreements
We have entered into agreements with biopharmaceutical customers to further develop and commercialize clonoSEQ and the biopharmaceutical customers’ therapeutics. Under each of the agreements, we received or will receive non-refundable upfront payments and could receive substantial additional payments upon reaching certain progress milestones or achievement of certain regulatory milestones pertaining to the customers’ therapeutic and our clonoSEQ test.
Under the contracts, we identify performance obligations, which may include: (1) obligations to provide services supporting the customer’s regulatory submission activities as they relate to our clonoSEQ test; and (2) sequencing services for customer-provided samples for their regulatory submissions. 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 immunosequencing services. At contract inception, we fully constrained any consideration related to the regulatory milestones, as the achievement of such milestones is subject to third-party regulatory approval and the customers’ own submission decision-making. We recognize revenue relating to the sequencing services as sequencing revenue 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 and 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 based on estimates of effort completed using a cost-based model.
We recognized $
As of March 31, 2020, in future periods we could receive up to an additional $
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Adaptive Biotechnologies Corporation
Genentech Collaboration Agreement
In December 2018, we entered into a worldwide collaboration and license agreement (“Genentech Agreement”) with Genentech 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 $
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Shared Products. The shared products will use “off-the-shelf” TCRs identified against cancer antigens shared among patients (“Shared Products”). |
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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 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 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 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:
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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. |
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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. |
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License to utilize all private antigen TCR product data in connection with research and development activities in the field of use. |
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License to existing shared antigen data packages. |
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Research and development services for shared product development including expansion of shared antigen data packages. |
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Research and development services for private product development. |
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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 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, as opposed to both. 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 as a result of 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.
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Adaptive Biotechnologies Corporation
We determined the initial transaction price shall be made up of only the $
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 Product and Personalized Product pathways. We currently expect to recognize the revenue over a period of approximately
We recognized revenue of $
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Fair Value Measurements |
The following tables set forth the fair value of financial assets as of March 31, 2020 and December 31, 2019 that were measured at fair value on a recurring basis (in thousands):
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March 31, 2020 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Financial assets |
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Money market funds |
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$ |
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$ |
— |
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$ |
— |
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$ |
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Commercial paper |
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— |
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— |
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U.S. government debt and agency securities |
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— |
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— |
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Corporate bonds |
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— |
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— |
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Total financial assets |
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$ |
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$ |
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$ |
— |
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$ |
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