Ladies and gentlemen, thank you for standing by and welcome to the Adaptive Biotechnologies’ First Quarter Financial Results Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session.

[Operator Instructions] Please be advised, that today’s conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your speaker today, Carrie Mendivil, Investor Relations. Please go ahead, ma’am..

Thank you. Earlier today, Adaptive Biotechnologies released financial results for the first quarter ended March 31, 2020. If you have not received this news release or if you’d like to be added to the company’s distribution list, please send an e-mail to investors@Adaptivebiotech.com. Like most of you many of us are working from home.

So please bear with us if you encounter any unforeseen audio issues with today's call.Before we begin, I’d like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section titled Forward-Looking Statements in the press release Adaptive issued today.

For a more complete list and description, please see the Risk Factors section of the company’s annual report on Form 10-K supplemented by the risk factors set forth in the company’s 10-Q for the first quarter to be filed today.Adaptive disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise, except as required by law.

In addition, non-GAAP financial measures will be discussed during this call. Please visit the aforementioned press release for a reconciliation to the most directly comparable GAAP measure.

This conference call contains time-sensitive information and is accurate only as of the live broadcast, May 12, 2020.With that, I’d like to turn the call over to Chad Robins, Adaptive’s Cofounder and Chief Executive Officer.

Chad?.

Thanks, Carrie. Good afternoon and thank you all for joining us on our first quarter 2020 earnings call.

I hope that you and your loved ones are staying safe and healthy as we navigate through these challenging times.Given our current environment, I'll start off by reviewing our efforts and contributions towards the fight against COVID-19, explain how these endeavors are enabled by our existing platform and review our long-term vision for the company.

Next, Julie will give an update across our commercial business and clinical development pipeline, which will include detail on the impact of COVID-19 in the final weeks of Q1 and into April.

Finally, Chad C will provide a more detailed look at our financials and then we'll open it up for questions.I want to start off by saying, I'm truly honored to be part of the Adaptive team. At Adaptive, we are focused on translating the genetics of the Adaptive immune system into clinical products to detect and treat disease.

We are committed to leveraging our immune medicine platform in any way that we can to support the efforts to combat the COVID-19 pandemic.Led by our COVID-19 Response Committee, our entire company has shown unwavering dedication and flexibility over the past few months.

In early March, we moved quickly to protect the health and safety of our employees and join the fight against COVID-19, all while ensuring that our labs remained open to service our patients and our partners.In addition, I never felt more privileged to be part of the broader healthcare community antibiotic industry.

It's been incredibly motivating to see so many entities and in some cases our competitors proactively collaborating to solve this global pandemic.It has always been our vision at Adaptive that the immune response should be broadly incorporated into the diagnosis and treatment of disease.

The world is now watching this unfold in real time, as information about patient's immune response to the coronavirus is published on an almost daily basis.However, there are still many outstanding questions with respect to the immune response to the virus.

Why are some individuals virtually asymptomatic, while others have severe complications? Beyond using age and known risk factors, can we determine ahead of time who may have a more severe immune reaction or require hospitalization versus being able to recover at home.

How can we identify with more certainty whether an individual has or has had the disease, even if antibodies are not detectable and are certain strains of the virus more virulent than others?Our immune medicine platform was built intentionally to answer questions like these in response to many diseases, including infectious diseases.

Now we are using our platform to help deliver diagnostic and therapeutic solutions for people suffering from COVID-19.Importantly, this is not a new effort for Adaptive, as infectious and debilitating as COVID-19 is to society, the immune system seizes as it would any other disease and our platform works in exactly the same way.Specifically, we are applying our platform to assist in two ways to help solve this crisis.

On the diagnostic side, we extended our partnership with Microsoft to decode the immune system's response to COVID-19 virus to potentially develop a test that will measure the presence of virus specific T-cells in the immune system.Much like we are doing in line and other disease states, we are measuring the presence of T-cells that identify disease early on and then clone themselves to combat infection.While there's been great progress made in a short amount of time with PCR tests, that look at the presence of the virus itself and serology tests that look at a patient's antibody response, both have standardization and biological issues that make it challenging to understand how widespread the virus really is and who has truly developed immunity.To generate immune response data to address these issues, we are proud to have recently announced the launch of our ImmuneRACE study to enroll at least a thousand patients in 24 metropolitan areas across the United States.

We are collecting de-identified blood samples from individuals currently diagnosed with, recovered from or exposed to COVID-19 using LabCorp-enabled mobile phlebotomy service.Immune cell receptors from these blood samples will be sequenced and then mapped to antigens that had been confirmed by our platform to be specific to SARS-CoV-2.

Leveraging Microsoft's machine learning capabilities in the Azure cloud platform, the accuracy of the immune response signature will be continuously improved and updated online in real time, as more trials are sequenced from the study.The ImmuneRACE study data will be combined with data from thousands of additional unique patient samples from many institutions around the world.

The list of participating institution is growing, as we continue to work with other investigators in the US, Europe, Australia, Asia and Africa to collect and sequence valuable patient cohorts.We expect to have preliminary data to share within a matter of weeks.

And we will be making our findings publicly available to health officials, academia and industry.

That way, in addition to potentially advancing our own test, we can also equip others with our data to include their immune response into their own efforts.On the therapeutic side, we partnered with Amgen to use our immune medicine platform to identify and develop therapeutic antibodies from the blood of patients who are either actively fighting or have recently recovered from COVID-19.

Like others, we think that neutralizing antibodies may be efficacious since this virus seems to mutate more slowly than other RNA viruses and mutated strains are genetically similar.There have been some early successes using convalescent plasma therapy to boost the ability of patients with severe cases of COVID-19 to fight off the infection.

And this is great. But unfortunately this approach is hard to scale and standardize.In collaboration with Amgen, we're using our high throughput method of screening immune cells to find the best antibody or antibodies, ones which neutralize the virus.

These could be used to treat patients fighting the disease and to potentially prevent disease and those with heightened exposure, such as health care workers.The key to neutralizing antibodies is their ability to fight infection alone or in small groups, meaning that they have to do the job of what normally takes hundreds of antibodies to do in a typical immune response.

But finding the most efficacious neutralizing antibodies is challenging because the vast majority of the antibodies don't neutralize the virus.We are approaching this search for neutralizing antibodies with an Amgen in much the same way that we work with Genentech to identify T-cell receptors for use in cancer.

The key is our scale and speed to assess hundreds of thousands of possible antibodies against a wider range of targets to select those that neutralize SARS-CoV-2.Grown up in Chicago and bringing – and binging on the lap dance, Harlan can I equate this to finding the Michael Jordan of antibodies.

The search has to include the ability to scout every single high school basketball - basketball player in the entire country at the exact same time, not just the players in one high school, one city or even one state.Once we have narrowed down to a set of the most promising antibodies Amgen and then leverage its world class antibody engineering and drug development capabilities to develop and manufacture antibodies to bind and neutralize SARS-CoV-2.

While its still early days, we are ready moving fast and see some exciting results and they're confident that we can deliver potent antibodies to Amgen in the coming months.We have always said that our platform presents an open-ended opportunity across many disease states.

Our ability to move quickly on these solutions for COVID-19 demonstrates the power and versatility of our immune medicine platform.Turning to the first quarter. We ended the quarter with just over $20.9 million in revenue, up 65% over the first quarter of 2019.

While our business started off strong, we did start to see an impact from the spread of COVID-19 over the last few weeks of March.

Julie will discuss his impact in greater detail during her review of the commercial business and Chad Cohen during his review of our financials.Due to the evolving and significant uncertainties related to the impact of COVID-19 pandemic, we are withdrawing our full year 2020 guidance.

While our near-term revenue may be impacted due to the macro challenges in our health and economic environments, I am more confident than ever in our vision for Adaptive and the importance of broadly incorporating immune response into the diagnosis and treatment of disease.

We are well capitalized to continue to invest across our business, to execute on our vision and move into this next phase of growth.With that, I'll hand over to Julie, who will walk through more detail across each of our product areas, as well as provide more detail on the impact from COVID-19.

Julie?.

Thanks, Chad. And thanks to all of you for joining us today. I really hope you and your families are safe and healthy.

I want to echo Chad thanks to our incredible employees who have shown tremendous dedication and fortitude during this uncertain time.I'm going to start with an update on our two commercial products, clonoSEQ and immunoSEQ, followed by more operational details about our clinical diagnostic pipeline immunoSEQ Dx and our drug discovery program.Starting with clonoSEQ.

In the first quarter test volumes grew 75% to 3,518 tests compared to the first quarter of 2019. The quarter started off strong and in line with our expectations. Throughout the quarter clonoSEQ was ordered by over 500 HCPs at 120 institutions for more than 2,300 unique patients.

We attribute this to the growing incorporation of clonoSEQ MRD testing into clinical practice.

The important progress on both the reimbursement and regulatory fronts and the significant investments we have made in our sales force.However, beginning in early March volumes began to drop off as cases of COVID-19 increased across the US and patient visits to hospitals slowed dramatically to prevent exposure to the virus.

Coming out of March and through April, we saw an approximate 30% lower clinical test volume than in the first eight weeks of the year.However, we are starting to see positive trends in our order volume in the first weeks of May which we are closely monitoring.

Order volumes are a strong indication of future clinical test volumes.As you likely know, cancer patients are among the highest risk group for COVID-19 and are facing numerous challenges.

Practices are limiting in-person appointments, important treatments are being de-intensified or delayed to avoid immunosuppression and some procedures are being cancelled or deferred.These adjustments to patient management have made the bone marrow draws used to conduct MRD testing increasingly difficult to obtain.

Yet the need for MRD testing to inform patient management persist and in some cases may be even greater, as providers try to understand the implications of unplanned changes to patient care protocols.Clinical volumes may continue to be impacted until oncology practices open up more consistently across the country.

However, we have ramped up and instituted a number of efforts to continue engagement with physicians and patients during these unusual times.First and perhaps most importantly, our medical team has been communicating with the clinical community about blood based MRD testing via our clear service.

While clonoSEQ is not FDA cleared for blood-based testing yet in ALL and multiple myeloma, our clear service runs the exact same assay and is covered by Medicare and many private insurance payers.We are pleased to announce an important partnership with LabCorp to enable remote blood collection to make MRD testing more accessible.

Patients will soon be able to visit lab for patient service centers nearly 2000 across the US to access clonoSEQ after he is been ordered by their clinician.We are also negotiating agreements with some home - with some home blood collection providers to further support patient access to clonoSEQ.

Looking ahead, even after COVID restrictions get lifted, we believe these solutions may continue to benefit patients by enabling a convenient and safe alternative to in-patient visits when possible.In the field, our team has done a remarkable job of staying positive, ensuring the best possible customer service and continuing to engage the clinical and patient communities via a regular cadence of virtual education.Finally, our regulatory milestones for clonoSEQ remain on track.

We are preparing for the launch of clonoSEQ for monitoring MRD in CLL from blood, following clearance from the FDA, which we anticipate mid-year.

And in the second half of 2020, we are on track to file our second label expansion to the FDA for monitoring ALL from blood samples.We made foundational investments throughout 2019 to ensure that as many patients as possible can benefit from clonoSEQ.

And as stated on the last call, we have seen increasing clinical acceptance of MRD testing.While adoption of clonoSEQ will be temporarily impacted as a result of the pandemic, we are confident that volumes will continue to grow as clinics reopen and new customer sites complete onboarding.Moving onto immunoSEQ.

Research sequencing volume, which includes sequences reported from both our biopharma and academic customers increased by 23% to 6,030 sequences from 4,891 sequences in the first quarter of 2019. The quarter started off strong.

However, several pharmaceutical sample sets were slated to ship in Q1 that got pushed out to subsequent quarters due to slow clinical trial enrolment, sample delays and impacts of COVID-19.In Q2 to date, we have seen a 50% to 60% decline in samples arriving at our lab, as more trials got halted and new study starts delayed due to COVID-19.

We anticipate sequencing revenue from pharmaceutical clinical trials will be significantly impacted until these gating factors are reversed.Our partners have been transparent in giving up their best estimate for sample shipments and our laboratory is fully functional and ready to run these samples as they arrive.While we have limited visibility into the timing for receiving samples due to COVID-19, we are still actively signing on new pharma partners and encouraged by the growing interest in incorporating immuno sequencing into clinical trials.We are seeing similar challenges in the academic research setting where 75% of labs are closed and the remaining labs are operating at reduced capacity.

As a result, we slowed our investment in our RUO kit launch activities, including marketing and training until we have more clarity about the return to work.We are bullish in the medium to longer term because our team is busy ramping up adoption in advance of the reopening of the labs.

In fact, we are drawing between 80 to 100 participants at each of our immunoSEQ virtual webinars, at least every two weeks.

We also continue to progress on key partnerships with CROs zeroes to enable immuno sequencing in other qualified labs.Finally, in addition to our two proactive COVID initiatives, we are also receiving many inbound requests for immunoSEQ to be used in other researchers COVID work, such as vaccine development and identification of biomarkers of immune response to the virus.Moving on to our clinical pipeline for immunoSEQ Dx and drug discovery.

With regards to immunoSEQ Dx, the work we are doing on COVID-19 and Lyme disease has solidified our initial commercial focus for immunoSEQ Dx in infectious diseases.

We are using mobile phlebotomy to collect samples for our clinical validations in both COVID-19 and Lyme disease to work around the difficulty of running clinical trials that traditionally require in-person visits.We are confident that we will be able to develop and commercialize diagnostics based on TCR signatures for infectious diseases that can address the needs for more accurate testing for patients at multiple time points.For the COVID-19 program, the team is currently focused on recruiting patients to the immune race study, defining our product specifications and planning for product development activities.

To date, we already have over 300 people consented to participate.In particular, we are studying three possible use cases for the product.

One, diagnosed infection from the virus early on potentially even in asymptomatic patients, two, identify immunity to determine who has either recovered from or been exposed to the virus and three, triaged patients into risk categories based on their immune response, something that we believe no other test is capable of doing today.We are also beginning to plan for market development and commercialization efforts, assuming the data is strong, which we expect to confirm in the next few weeks.

In Q1, we made several investments to advance immunoSEQ Dx.

We hired an onboarded our commercial SVP, a new Head of Research for the antigen map and a new Chief Technology Officer, all of whom have already contributed enormously to our ability to execute our vision for this product.We also completed important market research in Q1, which confirmed the commercial viability of an improved diagnostic for Lyme disease.

Of the 3.4 million US patients who get tested for Lyme each year, we are focusing initially on over 1 million of those who are either newly diagnosed or who continue to have recurring symptoms even after traditional antibiotic treatment.We are launching our clinical validation study with IQVIA, one of the largest clinical research and information companies in the coming weeks.

Over time, our clinical development plan will extend to the remainder of the 2 million patients with nondescript symptoms who get tested for Lyme every year in the US alone.Early pricing research indicates a range that confirms a healthy margin profile, supporting our decision to move forward with commercialization of aligned diagnostic.

We are on track with our plans to submit a Lyme diagnostic application for immunoSEQ Dx to the FDA by the end of this year.

Although, we have suggested that Lyme would be our first submission, there is a chance that we may submit a COVID-19 diagnostic prior to that.In line with our immunoSEQ Dx product strategy, both indications, COVID-19 and Lyme will support the development of a single test that is capable of delivering multiple results within and across disease areas.

This is just the starting point as we layer on more diagnostic results to the same test, leading to a truly outsized margin profile in the future.Moving on to drug discovery.

We continue to leverage our immune medicine platform to enable the discovery and development of novel therapeutics, now including both TCR discovery for cellular therapies in oncology with Genentech and antibody discovery for neutralizing antibodies against SARS-CoV-2 with Amgen.

Both of these drug discovery programs leverage the unique capabilities of our platform to accurately screen immune receptors and further characterize and prioritize them for therapeutic use.We remain on track for our work with Genentech.

We have delivered to Genentech an IND-enabling GLP-compliance data package for our lead TCR candidate against the selected shared antigen and they are progressing on the engineering and development of our first shared products for IND submission.In parallel, we have expanded our lease in South San Francisco to build a prototype lab for the personalized cellular therapy product and anticipate opening the lab in Q1 of ‘21.The work we are doing with Amgen follows a similar discovery funnel where we identify naturally occurring therapeutic candidates from human blood and advanced them through our proprietary screening and characterization process.

We are confident in our ability to deliver on both of our drug discovery commitments.To date, we have started to screen for SARS-CoV-2 neutralizing antibodies from the blood of more than 45 COVID-19 patients. At the rate we are moving, we anticipate completing sample collection from donors by the end of Q2.

We will confirm the subset of antibodies that are specific for the virus and then screen for those that are neutralizing to various strains of the virus.We are working closely and collaboratively with the Amgen team and feel confident that we will have antibody candidates to advance into early development and testing by Amgen in a few months.I'll now pass it over to Chad C., who will provide you with a financial update.

Chad?.

Thanks, Julie. I hope you're all staying safe and healthy. Similar to prior earnings calls, I'll run through our financials and compare results to the same period in the prior year.

For this call, I will also provide some additional details in order to better characterize our financial results against the backdrop of the COVID crisis.Turning to our results, total revenue in the first quarter was $20.9 million, representing an increase of 65% from $12.7 million in the same period last year.

Our revenue mix for the first quarter consisted of 45% of our revenues coming from our sequencing category and 55% coming from our development category.Sequencing revenue in the first quarter was $9.5 million and grew 56% from the same period in 2019.

This increase was primarily driven by growth in revenue generated from our clinical customers, as well as growth in revenue generated from our biopharma and academic customers and their related sequencing volume.clonoSEQ clinical testing volume increased 75% in the first quarter 2020 to 3,518 clinical tests from 2011 clinical tests in its first quarter of 2019.

As Julie mentioned, volumes were impacted by the spread of COVID-19 starting in March and testing volume slowed over the last two weeks of the month.Research sequencing volume, which includes sequences reported to both our biopharma and academic customers increased by 23% to 6,030 sequences from 4,891 sequences in the first quarter of 2019.Development revenue grew to $11.4 million in the first quarter, which is up 74% from the same period last year.

The increase was primarily due to revenue generated from our Genentech partnership and this was largely in line with our own internal expectations.Shifting now from our revenue to our operating costs.

Total operating expenses for the first quarter of 2020 were $55.5 million, representing a 70% [ph] percent increase from $32.7 million in the same quarter last year.Working down our operating expenses, cost of revenue was $5.3 million during the first quarter 2020 compared to $5 million for the first quarter last year, representing an approximate 7% increase.Increases in clinical and research volume offset by cost per unit reductions helped manage down the overall increase in our costs from prior year.

Research and development expenses for the first quarter of 2020 were $23.9 million compared to $12.5 million in the first quarter of 2019, representing an increase of 92%.

The increase was primarily attributable to growth in people and lab costs to support overall platform development efforts, immunoSEQ Dx and TCR antigen map development and our drug discovery efforts.Sales and marketing expenses for the first quarter of 2020 were $14 million compared to $7.8 million in the first quarter of 2019, representing an increase of 79%.

The increase was primarily due to additional personnel costs and external sales and marketing expenses to support market adoption of clonoSEQ and to a lesser extent increases in cost to support our broader corporate marketing initiatives.General and administrative expenses for the first quarter 2020 were $11.8 million, as compared to $7 million in the first quarter of 2019, representing an increase of 69%.

This increase was driven primarily by increased headcount and cost associated with being a public company.Net loss for the first quarter 2020 was $31.4 million compared to the first quarter of 2019 net loss of $18.4 million.

Net loss attributable to common shareholders for the period was also $31.4 million or $0.25 per basic and diluted share compared to $18.6 million net loss or $1.45 per basic and diluted share in the first quarter of 2019.Our earnings per share are based on approximately $126.1 million and $12.9 million weighted average shares outstanding for the first quarter of 2020 and 2019 respectively.Adjusted EBITDA for the first quarter of 2020 was a loss of $28 million compared to a loss of $15.2 million in the same period of the prior year.We ended the first quarter of 2020 with approximately $656 million in cash, cash equivalents and marketable securities and we had no debt.

As Chad R mentioned, given the uncertainty that COVID-19 has put on our ability to confidently forecast our financial indicators, we are formally withdrawing all guidance, including our revenue and clonoSEQ testing volume outlook.While our near-term revenue is uncertain due to the macro challenges in our health and economic environments, our long-term goals and vision for Adaptive are both squarely in tact.

We believe that long term we have a number of economic advantages in our business model that we can make modest investments to develop applications on top of our platform which open up huge opportunities for us to capture significant market share in large addressable markets.During these times, we understand the need to be strong stewards of our capital.

We are using this moment to balance our short term investments, which would have normally driven near-term revenues against driving investment into long term platform extensions and improvements.

This reprioritization, coupled with the strength of our balance sheet lead us to be incredibly bullish on the long term opportunity that stem from our platform.With that, I'd like to turn the call back to the operator and open it up for questions..

Thank you. [Operator Instructions] Our first question comes from Brian Weinstein with William Blair. You may proceed with your question..

Hey, guys. Thanks for taking the questions. I guess just to start with, I think you covered it fairly well in the prepared remarks, but a couple of questions on COVID-19 in general.

So just to be clear about how your diagnostic test is differentiated versus other things that are there in the market?And then also you know, it really does seem like you fit in pretty well with the platform that you guys have in your capabilities here.

But maybe you just want to expand on that a little bit and talk about you know what about your platform and capabilities gives you the opportunity to quickly pivot into something like COVID-19 and just sort of highlight that a little bit..

Harlan I'm going to have you cover what kind of differentiates the test and then I'll talk about how it fits in with the platform and long term strategy..

Sure. Thanks, Brian. So currently there is two types of tests for COVID-19. There's a PCR test that we - you know, is the nasal swab, and then there's the serology tests which indicates exposure to the – and potential immunity against the virus by measuring the presence of antibodies in the blood.So – but there are gaps in both of these tests.

The PCR tests lack sensitivity at early time points, it's a lower respiratory virus, so sometimes it doesn't get the upper respiratory very quickly and is prone to operator error because you have to stick the nasal swabs really far up, leading to false negatives.Serology tests run the risk of cross reacting to other corona viruses which cause the common cold, leading to false positives, is particularly dangerous for determining a path to reopen society.

Neither a test is able to provide information to predict the severity disease, which would be very, very helpful to determine treatment alternatives for new patients.So Adaptive and Microsoft believe a third type of test can potentially address the gaps in the current testing paradigm.

Our testing strategy lets the Adaptive immune system directly tell us what it's seeing. The T-cell response comes up fast. It's specific to the virus and it persists as immunological memory.Importantly, all evidence would suggest that the robustness of the T-cell response determines the severity of disease, which may help with three aging patients.

We believe that our diagnostic, which we call immunoSEQ Dx, which directly reads the T-cell response has the potential to fill many of these gaps that I just talked about.What gives us confidence in the T-cell receptors signature we are developing is twofold.

First is that, we get to compare to a set of controls from our massive database that we've already sequenced prior to - prior to COVID-19. In other words, we've already applied our exact same technology to two patients before this virus even existed. So we know they're truly true negative.

So that is the first case.And then separately from that, we've also done this before with Lyme which is what we're separately commercializing.

We have a signal that's significantly better than standard of care, so which is a serology test in Lyme.So once we confirm a TCR signature, we're also very interested to see if we can identify immunity in people who have been asymptomatic or mildly symptomatic, but may have - may have already been infected.

This is the true value that we're hoping for in this immune scan that we're doing.As Chad and Julie discussed, we're collecting samples from over 4000 patients, 1000 of which are being prospectively collected from the ImmuneRACE study and we are leveraging this together with tens of thousands of negative controls already in our database, as we said prior to COVID-19.

And Chad can you answer those....

Yeah. So I mean, Brian, thanks for the question. I mean, in terms of how this fits into the – you know, our platform, our long term strategy, our strategy is to incorporate the immune response into detection and treatment of any disease and as awful as COVID-19 is to the world.

It's just another disease that the immune system sees in a same way that it sees any other disease.So therefore you know, our work for COVID-19 directly extends our product pipeline, while allowing our commercial teams to continue to focus on the commercial products of immunoSEQ and clonoSEQ.

If we can break this down, on the diagnostic side it's a new indication for immunoSEQ Dx and we're leveraging the platform and infrastructure that we've already built with Microsoft.Just pointing it towards this new disease, there are really three things that allowed us to move extremely quickly with COVID.

First is the chemistry, which we built to connect receptors to antigens.

The second is you know, what Harlan just mentioned is, we've got the larger set of controls in the world in our database.And then third, with Microsoft we've already built - the lot of the machine learning algorithms that are able to really, really quickly find the disease specific-immune response signatures.

So from a business models standpoint it's always been to do this for disease after disease after disease and once we can map multiple diseases, it's the same test, that can be run on a person's blood and then deliver kind of multiple test results for anything that's been mapped.And then correspondingly, if we look on the therapeutic side, I work with Amgen, it actually is a platform extension.

It's something we always say that we do when the time was right.

We built the platform to harness immune receptors as targeting molecules to kill disease.While we we've already developed this expertise in screening and characterizing T-cell receptors for cell therapy in cancer with Genentech, we're now starting to apply this kind of methodology and screening technology to the characterization of antibodies with Amgen for therapeutic use in infectious disease.

And so this actually does unlock a new core competency, a future opportunity for us and antibody discoveries.And so I guess looking ahead, it really doesn't change our long term strategy, as a matter of fact, its just a great proof of concept for our strategy for both immunoSEQ Dx and in a new area of drug discovery. So it's another puzzle.

So it really helps solidify our focus on infectious diseases for immunoSEQ Dx. And again, I think it represents a platform extension for drug discovery. Sorry, that might have been longer answer than you were looking for, but I think it's really important to understand how it does fit into the platform..

No, that was great. And I think that's very clear. And then Julie, one for you. You talked about the blood-based MRD via the CLIA service, can you talk a little bit more about what that entails and when you're running something on blood versus the marrow.

Can you just confirm and just review the performance of the assay in the two different sample types, if there's any difference at all? Thanks..

Sure. So – and we've always offered clonoSEQ via our clear service, as I think you know. But our reps are - market only the ALL multiple myeloma indications that are FDA cleared.

And so really the clear services used for all different indications, that we generally see are pretty similar sensitivity of the testing in blood.As we've discussed in the past, I would say the only disease state where that sensitivity in the blood maybe a little bit lower than multiple myeloma, but it's still higher than it is in slow.And so we're just making sure that people know that this is an option that's available to them.

And as I mentioned, we are also partnering with LabCorp and potentially looking for other partners to just make it more accessible to patients during COVID times and beyond, most likely as perhaps medicine may change a little bit all around..

Great. Thank you, guys..

Thanks, Brian..

Thanks, Brian.A - Julie RubinsteinThanks, Brian..

Thank you. Thank you. Our next question comes from Doug Schenkel with Cowen. You may proceed with your question..

Hey. Good afternoon, everybody.

So obviously a lot of focus in your prepared remarks on your efforts with Amgen and LabCorp programs to advance COVID-19 testing and diagnostic initiatives and clearly these partnerships and the fact that you're moving so quickly are nice affirmations of your platform and how nimble you can be.That said, you know, there's a lot of announcements about COVID out there and I think when it comes to you guys, some wonder if - you know, I guess there's really two things people wonder about.

The first is, keeping in mind there are already I think 210 treatments under consideration for COVID-19.And secondly, the practical need for a rapid tests that are ideally done near patients. If the combination of those things really render these initiatives as not being really a good fit with what the needs are practically speaking of the market.

And I think that could be furthered by the point that you know, first, you're just starting your therapeutic initiatives, there's no approval yet, so this is a - you know, it's an exciting but still a new area for you guys.And secondly, your diagnostic infrastructure really isn't optimized to really go after a rapid decentralized market.

And hopefully by the time you get to the market, the hope would be there's already therapies, more diagnostics and maybe a vaccine on the market.So how do you respond to that specifically one, what are realistic timelines? Two, how do you get a diagnostic to the market that's rapid and quick enough for the needs of the market in a decentralized way? And third, what would be the plausible pricing for both, given many therapeutic player - players have already indicated they're going to supply a cost and not make any money on these.

And given that diagnostic reimbursement protest out there, seems to be at most around $100 from CMS?.

Yeah. Doug, I'll start and then you know, Harlan can chime in. I think we need to break it down. You're talking about diagnostics and therapeutics and we need to cover them kind of one by one, so let's first - let's first take the diagnostic and some of it really depends on you know, what the data sets and how good it is.

So what the product market fit is.So you know, there's a couple of different use cases that our test lends itself to and which potentially only our test can do. The first is in terms of hospitalizations, we are triaging patients to whether they can stay home or whether they need to go to the hospital.

This is a test that you can have potentially a longer turnaround time that is sequencing based.The second, one of the large markets is employers and kind of returning to work. And so I think I there's many, many different serology tests. Again, none of them are standardized.

And I think there is a lot of open questions with whether these kind of truly provide a kind of an immune scan to allow employers - to allow their employees to come back to work. So some of it depends on that.Secondly, in terms of - I think you bring up a good point, with respect to sequencing.

I do want to say, we were ready begun evaluating the ability to turn sequencing into a faster deliverable test with other technologies, kind of recognizing - recognizing kind of the turnaround and kind of sample requirements for sequencing.

So those are those are two considerations that I think are really important to think about.Third, in terms of kind of pricing, as you mentioned, kind of pricing has gone from you know $50 dollars to kind of $100 dollars for kind of high volume testing and the serology testing are getting $200 - $100.That being said, again depending on the utility of the data, and again you know, what it's being - where specifically being used for, I do believe that the payer community, both public and private would support a higher price point test.And then as we move to therapeutics, there are - we believe that it's going to be potentially and I do agree with you on, it might be a long time before we get a vaccine.

There are other companies that are going to beat us to market with antibody strategies.However you - if you look at kind of what - the first set of therapies in terms of repurposing existing drugs, look at the remdesivir, right? What it is, is working on severe patients that's reducing hospital stays essentially.And then you have – then you're going to have kind of some neutralizing antibodies which will potentially beat to market, but they may not work on an all population.

So again, it's going to be the quality of how good the neutralizing antibodies are. And I think there is going to be potentially room for kind of multiple strategies to effectively neutralize the virus..

Okay. And the timeline question..

So for the diagnostic, we're kind of actively working on commercialization in parallel to accumulating the data.

We again, as we said, we think we'll have a signal within the next few weeks and then going to move quickly on kind of product market fit and move - and move very quickly to the EAU pathway, sorry EUA pathway with the FDA and hopefully have something in the coming months on the diagnostic front in the near term.In terms of therapeutic, all we're commenting right now is, I the next – actually turn it over to Harlan who's closer to the therapeutic efforts in terms of our timeline..

Yeah.

I mean, these are great questions and I think on the therapeutic side you know, the drugs that are front-end center right now and that are getting a lot of the play time are drugs that are being kind of repurposed, that didn't work in other cases or do something completely unrelated and hope - you know people are hoping we'll have efficacy.And sure that - you know, we've seen cases where there's been sort of mild efficacy that might allow certain cases to be - to provide clinical value, but the vast majority are either not providing any value or very, very limited value.This is not going away, this is going to likely be endemic in our population.

So having a set or having a really good therapy even if it takes a little bit longer is going to be vital and for many, many years to come in.And so we together with Amgen have really set apart and said okay, let's take a little bit longer. We're not going to be necessarily first, but we'd like to be the product that actually works effectively.

And so that's really the strategy there..

Okay. All right. All super helpful. Thanks for all those details. Just one more for me. And this may be a Julie question.

Are there any signs that CMS might accelerate timelines to reimburse blood-based clonoSEQ for ALL and multiple myeloma in the face of challenges with patients actually getting into doctors offices for bone marrow draws?.

Yes….

Chad, do you want to take that….

Yeah, go ahead Julie..

No, no. You take that Chad. You're working more closely with CMS..

Just let me clarify. Doug, the question is whether CMS will approve and then pay for blood-based testing for multi myeloma and ALL….

Yeah. As you move - as we think about some of the indications that you're moving into where we hope to get or where you already are, but haven't traditionally reimburse blood-based in general.

And I think we've all expected that to happen at some point.I'm just wondering if maybe they're getting a little more aggressive with timelines, given the ease of use with a blood-based test, which wouldn't require folks to go in and see their doctors..

Yes. Doug, as a matter of fact we already got a positive coverage determination in blood testing for ALL multiple myeloma and CLL.

We did not press release it because we're currently into the FDA on A CLL submission, so we can't yet market blood-based testing as a product for any of those until we get FDA approval.But we are already being covered and we offer it in a clear service environment currently.

And this was recently put into place and we can you to the coverage policy and a subsequent letter that was provided to us from Moldex clarifying the coverage determination..

So that could be a nice tailwind in the current environment, right. I mean, maybe it's - you already have a good product, its reimbursed. You've been held back a little bit by promoting it, but practically speaking, argue an even better alternative in the current environment for the reasons I noted..

Correct. Okay..

Okay. All right, thanks. Really appreciate all those details..

Yeah. Thank you, Doug. Appreciate it..

Thank you. Your next question comes from Tycho Peterson with JPMorgan. You may proceed with your question..

Thanks. I'll start with one for Julie. Just on the recovery path for clonoSEQ volumes here in the near term. I think you talked about the first two weeks amazing, some improvement.

How should we think about patients coming back? Are they already kind of starting to come back and anything on the private payer front we should be keeping an eye on? I know you had that innovated Street last quarter?.

Yeah. So I think what we're really seeing is, it's a little unclear when restrictions will be lifted uniformly and I think this will continue to vary region by region and even institution by institution in the coming months, as you and I both know New York is probably under more strict of a lockdown, than let's say the Bay Area.So I think it varies.

We do have teams throughout the entire country and they are working closely with their customers and doing what's appropriate in each of their respective regions.But as you heard, we are starting to see an uptick in the early part of May and receiving some requests for in-person appointments by some clinicians scattered throughout the country at this stage.We are - we've increased our coverage to over 200 million covered lives throughout the first part of this year, so continue to add on additional coverage as expected the team is just doing a great job working with additional payers, both regional and national..

And then just thinking about kind of the halo effect from some of the COVID work. You know, you talked about the potential per immunoSEQ to be used in vaccine development and work on biomarkers.

Can you just give us a sense of the scale of what you're talking about here in terms of number of projects and programs you think that could incorporate MRC [ph] development work?.

Sure. So actually we don't have numbers that we're sharing at this stage.

I will say that the team which is really the immunoSEQ team is the ones that are working on a daily basis with all of our pharma partners are beginning to get a fair amount of inbound requests and have signed a couple of projects already.But it's early days and we suspect that will grow, particularly as we share the data connecting receptors to antigens and I think more pharmaceutical companies begin to understand the value of measuring immune response, perhaps even longitudinally in patients that they are testing drugs for it in their trials.

So we do anticipate that growing over time..

Last one on Amgen and I appreciate the additional color on the deal and we had gotten the question as well as to whether Michael Jordan or anybody is over peal. So I appreciate you kind of clarifying that.But you had mentioned that you know, there may be evidence that neutralizing anybodies [ph] by other programs may not work in all populations.

I'm curious if you can kind of elaborate is there really data behind that at this point?And then, do we have evidence whether antibodies against COVID-19 actually give you immunity [ph] to the virus is exposed in the future? That's another question we've gotten. Thanks..

So what that second question?.

The last one..

Antibodies against COVID19, give you immunity to the virus if exposed in the future..

So both good questions. So I guess, earlier I was speaking a little more generally, I think the - in terms of the drugs being applied to COVID-19 are quite broad. So some of them, a few of them are neutral - attempting to be neutralizing antibodies.

But I think in general most of these different drugs will probably be not globally efficacious.In terms of neutralizing antibodies, some of these - depending on the strategy, some of the early work in particular, it was before we had all the genomic information about what's truly conserved, what are the new strains emerging in different parts of the world and if your antibodies as a binding against something that the virus can escape from you know, either it will only work in the population that has that strain of the virus or it will be quite limited.And so there's - it's challenging to make - to find antibodies with the right property.

It's probably going to be a cocktail of a few that can truly neutralize this virus broadly and across a wide variety of patients.

So I think there is going be a long game and there's a lot of opportunity, but it's not - it's unlikely that someone is going to solve this problem in a very short term.So you know, some of the some of the early guys who might have a jumpstart that doesn't - it'd be great if it works obviously because we'd love to have this - have a cure.

But you know, let's - maybe that's not the ultimate bet right now.And then as far as creating immunity, were you asking about whether a vaccine could create immunity, what reaction to create immunity?.

No. No. Whether the antibodies against COVID could actually give you immunity to viruses exposed in the future, right? I mean, there's this kind of fear that you know, it comes back in some cases, a thought on that..

Oh, yeah. So I mean, I think this is - so you know, unfortunately the evidence that we have with the strains of - the four strains of coronavirus that cause the common cold are such that you can get re-infected with the same strain of virus repeatedly.

So it is true that you do gain immunity for some period of time, it just doesn't last very long.So you know, I think the belief right now, kind of the common belief would be that it's the same that there's - you would get some semblance of immunity, but it wouldn't be protective for a substantial period of time.The hope is that it's enough cross protected that at least the severe cases are dampened, kind of like how the flu evolves from something that's truly lethal to over time as you get some cross protection is the morbidity and mortality drop.

So as this becomes more endemic in our population and more and more people have it, the next round of infections hopefully are much less severe.But you know, the other thing is that this should shape vaccine strategy, right, which is that you can imagine, you know, you want to really think about timing and design a strategy that can be boosted on a regular basis, just like - like influenza..

Okay. Thank you..

Our next question comes from Derik De Bruin with Bank of America. You may proceed with your question..

Hello and good afternoon. I actually just wanted to jump off on that in terms of sort of like applications and vaccine research and you know, it's that an additional avenue where you're getting some inquiries on helping develop and study there.

I am just very curious on one what sort of your opportunities are there?.

Julie, do you want answer….

You go ahead..

Yes. So certainly this has been an active area of discussion with multiple different players. I mean we do think as with the rest of the world you know, if we could get a functioning vaccine that would allow us to reopen society.

And so we're doing everything we can and decoding and mapping out the exact immune response, we think is vital for this effort.

So allowing and sharing that data and then also digging into more specific cases that would allow particular vaccine strategies to hopefully be more efficacious.I mean, effectively what you want to do is you want to target that.

I mean, vaccines intent is to trick the immune system into thinking it's already seen that pathogen, so that the next time it gets it, it's ready to fight it again.And so we’re - the key there is you need to make sure that you're making the vaccines targeting the immune system on exactly the right thing, so that - when the real virus comes it's targeting the right thing.

And so identifying exactly what the parts of the virus are that are being attacked by the immune system is really what we do and that's the kind of vital information for creating an effective vaccine.

So, yeah.So yes, we're in both in a BD context, as well as in a - you know, kind of working with other players, as well as just offering information on a service basis. We're doing both..

Got it. Hey, can I talk a little bit about the sequencing revenue business. I mean, you mentioned Academe down 75% and your clinical volumes down - your clinical lines down in the 50%, 60% range.

Is that a sort of similar, is that how you sort of would characterize how we should look at the second quarter and maybe modest - modeling a little bit of pick up in the third quarter.

I'm just sort of thinking us like any sort of guidance on how we should sort of look at that coming back?.

Julie, you want to take that….

I'll start just to clarify a couple things. I think on the - I think what I had said was that there were about 75% of academic labs that are closed, but that's not our number, so the research sequencing volumes were down more in the 60% range, 50% to 60% percent range and then the clonoSEQ volumes were down more in the 30% range.

Just to clarify the point.And then you know, I'll pass to Chad Cohen to give guidance. But in general as I've mentioned, we're staying in close contact with our customers. Our field based teams are working really closely with all of them, meeting with them regularly, virtually to prepare, to generate demand for when the world kind of reopens.

But I will let Chad Cohen speak to any particular guidance..

So Derek, the way we're looking at things here and we're not providing any sort of official guidance because again all this is pretty, pretty hard to predict.

But from the vantage point that we have, obviously the second quarter appears to be the bottom of the curve with hopefully the return back to sort of Q1 levels happening sometime between the third and fourth quarter.We are seeing as Julie mentioned in her script, potential for some bright spots, and the most recent weeks.

But you know, did see a sort of depression of those numbers that you mentioned in the weeks sort of toward a couple of weeks towards back of March and most of April, that is obviously impacting our ability to predict our sequence volume confidently at this point..

Got it. And since I have you Chad, sort of some commentary on the OpEx, look forward, I mean, Q1 quite a bit higher than we were forecasting, just some general commentary.

I mean, obviously you've got a lot of investments going on and just sort of the cost of the build out in South San Francisco, any sort of additional color?.

Yeah. So the way I think about our investment trends from here on out, is we've been adding somewhere between $4 million and $6 million of incremental investment per quarter. Historically if you look back at least over 2019.

And if you look - and looking forward, I think that trajectory is going to continue.We do have some heavier investments coming online in the fourth quarter, sort of vis-à-vis the new build out of our South San Francisco prototyping facility, a little more office space down there and some retrofitting.

In addition to our new headquarters up here in Seattle for which you know, we have a CapEx investment, that's going to be pretty heavy, as well as obviously new leases that are going to have to start being paid as of the end of the quarter, I am sorry as of the end of the last quarter of the year.So when you layer on the OpEx growth of that sort of $4 million to $6 million per quarter, slightly heavier maybe in the fourth quarter.

And on top of that sort of provision, I'd say between $20 million and $25 million in full year CapEx, you'll get a sense for you know, sort of the trajectory of our overall investment for the year. Hopefully some of that color is helpful there..

Got it. And so I guess, what's - and then the next question is, you've delivered the package to Genentech and then what sort of next steps. I mean, obviously it's in their hand and they've got a lot of things going on, just any sort of sense of timing.

I assume we'll hear some data on that?.

Julie, do you want to asset?.

You can go ahead. Sorry, we’re not missing it. You can go ahead….

We're working on a library of T-cell receptors that can be used for therapeutic use. The intent would be to also deliver a second one later this year.

In terms of commercializing the first one, you know, our goal is to - is on track for filing an IND towards the end of the year and also getting the prototype setup for the personalized version.So I think when you ask, my guess and obviously this is going to be in Genentech for the non-personalized version for these shared products.

Once we deliver the full package, which we have been working to confirm everything that's needed for the IND filing and the safety package and all that, once that's been completely delivered per package then the ball is in Genentech’s court unless there's feedback from the FDA or et cetera that we need to do more stuff.So we're then switching on to the next set of receptors, as well as private – the personalized version.

So we expect towards the - so basically what I'm saying is that the data coming out will be in Genentech’s hands as to when they deliver it. So we don't really have timing..

Great. Thank you..

Thank you. Our next question comes from David Westenberg with Guggenheim. You may proceed with your question..

Hi. Thanks for taking the question. So this one is for Chad Cohen.

If we did see maybe a second or third wave of COVID, what levers would you plan on pulling in terms of the expense line?.

So I really believe that we have our hands on a number of levers of this business. As you know our cost structure is primarily comprised of headcount.

And already we've made a lot of decisions with respect to the amount of volume that we're seeing in the second quarter, as well as the volume that we are forecasting through the end of the year.In terms of a number of heads that we originally slated to be on plan to effectively be put in a pending or hold position until we see the return of that volume.

So that's pretty significant from our perspective in terms of levers that we're already utilizing to help us sort of modulate our overall investment for the year.We've also made additional cuts in terms of investments that would have normally been purpose to drive near-term revenue and top line production and have really been thoughtful about cutting back on some of those areas and either deferring and or using those investment areas to repurpose to continue to build out applications and platform extensions.So there are a number of levers that we have in the business, but primarily they relate to headcount, because that's 40% to 50% of our cost structure.

The number of experiments that we run and the consumption of materials and reagents and sequencing, pushing out on some of our CapEx investments to the extent that they're volume related.And then there's a whole litany of other discretionary expenses sort of underneath all that, with respect to marketing, professional services, consulting and other levers that we have to slow down our rate of investment and or prioritize the rate of investment if we were to see another wave..

Okay. Thank you very much. And just sticking with the effectiveness of the infectious disease platform. You got Lyme earlier than you expected. You're working on a COVID tests.

If this comes - if COVID comes sooner than most expect, do you maybe put the foot on the accelerator in the infectious disease franchise and deemphasize maybe the Celiac and autoimmune diseases? Or just how should we think about that in terms of success here?.

Yeah. I think it's a great question and unfortunately the way our platform is set up the cost and effort upfront to generate the signal is actually relatively low so we can do a lot in parallel for signal generation and then pivot based on that.

So we're absolutely have put together an effort to go after larger numbers of infectious diseases in groups and to start really leveraging the kind of grouping that we can get by running the same assay on the same blood, we need to start going after test that you'd want to perform on the same patients.

And so that's really the way we're thinking of to really leverage the true value of the platform.How do you get it since we're running the same tests in the same blood sample with just multiple algorithms, how do you get to the point where you would want the same like 10, 15 different tests to be run on the same patient because you want to assess different disease status for that one patient, so that's really how we're thinking and whether or not the- and of course, autoimmune and cancer we're still excited about and our pushing on those directions too, if we get a signal then we’ll – if we get a really good signal there we'll have to make some decisions on the next steps which are more expensive, commercial - regular regulatory commercialization, et cetera..

Got it. Thank very much. I’ll end it right there..

Thanks, David..

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Chad Robins for any further remarks..

Thank you everyone for joining the call today. Please stay safe and stay healthy and we'll see you next quarter on the call. Bye..

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect..