Good day, and thank you for standing by. Welcome to Adaptive Biotechnologies' Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Karina Calzadilla. Thank you.

Please go ahead..

Thank you, Evangeline, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies' third quarter 2021 earnings conference call. Earlier today, we issued a press release reporting Adaptive's financial results for the third quarter of 2021. The press release is available at www.adaptivebiotech.com.

We are conducting a live webcast of this call, and will be referencing a slide presentation that has been posted to the Investor section in our corporate website.

During the call, management will make projections and other forward-looking statements within the meaning of federal securities laws regarding future events and the future financial performance of the Company. These statements reflect management's current perspective of the business as of today.

Actual results may differ materially from today's forward-looking statements depending on a number of factors, which are set forth in our public filings with the SEC, and listed in this presentation.

In addition, non-GAAP financial measures will be discussed during the call and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad Robins, our CEO and Co-Founder; and Chad Cohen, our Chief Financial Officer.

In addition, Harlan Robins, Adaptive's Chief Scientific Officer and Co-Founder; and Nitin Sood, Chief Commercial Officer will be available for Q&A. With that, I will turn the call over to Chad Robins.

Chad?.

Thanks, Karina. Good afternoon, everybody. Thank you for joining us on our third quarter 2021 earnings call. We had another quarter of strong performance with key progress across our business areas, paving the way for our immune medicine platform to transform disease diagnosis and drug discovery.

Thank you to all of our employees for their dedication and commitment to our company and the patients we serve. This quarter, we had the pleasure of opening our new corporate headquarters and laboratory facility in Seattle. This building represents a new chapter for Adaptive to scale our business as we continue to grow.

From sample processing, data analysis, this is truly an end-to-end facility designed to be a place that inspires our workforce to deliver innovative solutions for our patients and our community. Moving to the slides. Starting on Slide 3. Our third quarter results demonstrate continued progress.

Revenue in the quarter was $39.5 million, representing significant growth of 50% versus prior year. Increasing the overall value of our clonoSEQ brand through both clinical adoption and pharma MRD collaborations remains a key focus.

We recently launched an enhanced version of the clonoSEQ assay for CLL patients, which gives patients IGHV mutation status in the same test where we measure the trackable MRD sequence. This is an important step as clonoSEQ will become an even more valuable diagnostic for hematologists to use at the start of patient workups.

In addition, our pharma partners continue to benefit from using our MRD assay as an endpoint in clinical trials and this quarter, recognized another regulatory milestone. Our COVID efforts continue to gain traction on multiple fronts.

We are delighted to report that we received a positive assessment from MolDX recommending coverage for T-Detect COVID for immunocompromised patients. This is a further validation that T cell testing fills an important gap in understanding the immune response to the virus and is a key reimbursement milestone for the T-Detect franchise.

Of note, a large subset of the immunocompromised population is the same blood cancer patients we target with our clonoSEQ commercial team. In addition, there is an increasing number of research collaborators and vaccine manufacturers interested in using immunoSEQ T-MAP COVID to assess whether T cells may provide a correlate of protection.

These data would answer key questions in understanding immunity of the virus. Beyond COVID, our T-Detect franchise continues to progress. We completed our ImmuneSense Lyme study, which showed our T cell-based diagnostic to be nearly two times more sensitive than standard two-tier testing in identifying individuals with early disease.

This is the second technical proof of concept that our T cell-based testing has advantages over serology in the diagnosis of infectious diseases. We continue to advance T-Detect in autoimmune indications.

For IBD, we already have a signal in ileal Crohn's and approximately 5,000 IVD samples in-house, of which over 80% have been sequenced and the remainder are in process. We expect to have the totality of the data completed by year-end and will share steps of development at that time.

We have also identified a signal in multiple sclerosis and have additional samples in-house, which are currently under analysis. Autoimmune disease diagnosis is a key focus area for Adaptive and we are prioritizing our development efforts around our business units. In our drug discovery efforts, our Genentech collaboration is progressing well.

On the shared product, we are assessing efficacy and safety data with Genentech to enable a decision by year-end to move our lead product into early development. For the private product, we are on track to complete our proof-of-concept in 60 cancer patients by the end of this year.

In addition, it was great to see Vaccibody announced the initiation of its Phase I/II study for the two SARS-CoV-2 vaccine candidates under development, one of which includes T cell-based components identified by our immune medicine platform.

This is the first time that our platform is being used to inform the construct of a novel vaccine and we're encouraged by this important advancement. In summary, we are executing toward our 2021 goals and continue to generate data to enable multiple opportunities stemming from our platform.

I'll now provide more detail on some of these highlights and then I'll pass it over to Chad Cohen, who will review the financials. Starting with clonoSEQ on Slide 4. On the left side, clonoSEQ clinical volumes of 5,928 tests in the quarter grew 47% versus prior year and 8% versus the prior quarter.

During the quarter, orders were placed by over 1,000 unique healthcare providers spending 260 accounts for approximately 3,800 patients tested and clonoSEQ has now been used to test more than 20,000 unique patients. Test delivered grew quarter over quarter in each indication.

We increased the number of ordering physicians and the number of accounts, including within the community setting. So far into the fourth quarter, we have seen our daily order volumes increase and expect to achieve sequential growth.

The recent launch of IGHV was an important milestone for clonoSEQ, which we expect to influence utilization for CLL patients. IGHV testing is recommended in clinical practice guidelines because it has shown to be prognostic in CLL.

We do believe this added feature will help boost CLL orders and have already observed a 20% increase in CLL orders in the four weeks since launch. Although off a small base, we believe this is a great indicator at this very early point in the launch.

We continue to drive expansion of payer coverage policies, reaching over 240 million covered lives in ALL and multi myeloma and over 150 million in CLL.

Of note, CLL covered lives increased 15% this quarter and we had an important payer addition with Centene, who now consider clonoSEQ as medically necessary for their patients with ALL, multi myeloma and CLL. On the right side of the slide, you can see our MRD pharma partnerships continue to drive the value for the clonoSEQ brand.

In addition to sequencing revenues, we have over $330 million in future regulatory milestones. This portfolio of eligible milestones continues to grow and materialize over time. And this quarter, we recognized an additional $1.5 million, which brings the total to $10 million year to date. Turning to T-Detect on Slide 5.

The interest in T-Detect COVID orders despite vaccine rollout continued over the quarter, mostly related to concerns with the Delta variant.

Importantly, given the lack of effective test to assess the immune response to COVID-19 infection in certain groups of individuals, including immunocompromised patients, MolDX has allowed for reimbursement of T-Detect COVID at $770 per test. There are approximately 1 million oncology-related immune-compromised patients in the United States.

Notably, we are planning to leverage our clonoSEQ sales channel and increase our promotional efforts to this population. This is an exciting advancement for T-Detect as this is the first reimbursement that potentially paves the way to accelerate market access for future indications.

For T-Detect Lyme, our ImmuneSense Lyme study was completed and data was presented at IDWeek in October. The study validated that T-Detect Lyme in patients tested within 30 days of symptom onset is nearly twice as sensitive versus standard two-tiered serology testing and detecting Lyme disease.

Given the focus of these data in the acute setting, we decided to make T-Detect Lyme available closer to the start of the Lyme season, while focusing our near-term efforts on operationalizing the T-Detect COVID reimbursement launch. I also want to emphasize the key interplay between our clinical diagnostic and pharma research business.

Just as the overall value of our clonoSEQ brand is driven by a combination of clinical test volumes and the strength of our MRD pharma portfolio that same applies with T-Detect.

The right side of the slide shows a variety of ways in which our pharma and research partners are using T-MAP COVID to assess T-cell response to vaccines and potential correlates of protection. We believe that the role of T-cells will continue to gain traction as COVID become endemic and questions about immunity remain unanswered.

We intend to be the go-to platform for the acute and accurate quantification of T-cell response for our pharma partners and other research collaborators. Lastly, on Slide 6, our drug discovery efforts continue to advance. We are on track with our Genentech Cell Therapy collaboration to advance both the shared and the private products.

Both programs are making good progress as expected and our joint Genentech, Adaptive teams are working closely together to assess efficacy and safety data of our lead TCR for our shared product to enable a decision by year end to move into early development. The teams also continue to establish the private product specifications.

Last quarter, we disclosed the extension of our drug discovery capabilities to inform the design and development of vaccines with Vaccibody. Vaccibody designed its next-generation T cell-based COVID-19 vaccine candidates by including multiple spike and non-spike specific T-cell epitopes validated by Adaptive.

This T cell-based vaccine is intended to address SARS-CoV-2 variants of concern and to be used as a potential universal booster through available vaccines.

This morning, Vaccibody announced the start of its two-arm Phase I/II trial to evaluate the safety, reactogenicity and immunogenicity of its two vaccine candidates and RBD-only vaccine and our T cell-based vaccine. Both vaccine candidates will be tested in already vaccinated individuals.

Look forward to seeing progress on this new and important program that aims to address variants of concern and we will continue to work with Vaccibody team to share any additional information at the appropriate time. Our Vaccibody collaboration is yet another validation of our platform in drug discovery.

We are excited to pursue additional opportunities to inform the design and development of next-generation T cell-based vaccines in other diseases. I'll now pass it over to Chad Cohen for our third quarter financial update..

Thanks, Chad. Turning to our financial results on Slide 7. Total revenue in the third quarter was $39.5 million, representing a 50% increase from $26.3 million in the same period last year. Our revenue mix for the third quarter consisted of 56% of our revenues coming from our sequencing category and 44% coming from our development category.

Sequencing revenue in the third quarter was $22.1 million and increased 96% from the same period of 2020. Growth in sequencing revenue was driven primarily by $5.8 million increase and revenue generated from our biopharmaceutical customers and $5.4 million increase in revenue generated from our clinical customers.

Research sequencing volume increased to 8,710 sequences, up 33% from 6,541 sequences delivered in the third quarter of 2020. Clinical sequencing volume excluding our T-Detect COVID volume, increased 47% to 5,928 clinical tests delivered in the third quarter of 2021, up from 4,023 clinical tests delivered during the same period in 2020.

Development revenue grew to $17.4 million in the third quarter, up 16% from the same period last year. The largest driver of our development revenue continues to be the amortization of our Genentech upfront. This quarter, we also recognized a $1.5 million MRD regulatory milestone from one of our pharma partners.

As of the third quarter this year, we have over $330 million and potential MRD pharma milestones available to us, representing a net increase of $20 million compared to the same period last year. Shifting now from our revenue to our operating costs.

Total operating expenses for the third quarter of 2021 were $95.8 million, representing a 51% increase from $63.3 million in the same quarter last year. Working down our operating expenses, cost of revenue was $14.2 million during the third quarter of 2021 compared to $6.1 million for the third quarter last year, representing a 124% increase.

Higher cost of revenue was primarily driven by increases in material costs due to sample volume, and increase in labor and overhead costs and growth and expenses during the sample collection for our T-Detect COVID product.

Research and development expenses for the third quarter of 2021 were $36.1 million compared to $30.3 million in the third quarter of 2020, representing a 19% increase. The growth was largely related to an increase in personnel costs, driven mainly be innovation and new product development initiatives.

Sales and marketing expenses for the third quarter of 2021 were $24.9 million compared to $14.5 million in the third quarter of 2020, representing an increase of 72%.

Most of this growth was due to increased personnel costs, particularly related to teams supporting our clinical diagnostic businesses and medical affairs as well as larger investments in our clonoSEQ marketing efforts.

General and administrative expenses for the third quarter of 2021 were $20.2 million compared to $12.1 million in the third quarter of 2020, representing an increase of 67%. This increase was primarily driven by growth in headcount, personnel costs, as well as expanding our overall facility footprint and higher depreciation expenses.

Net loss for the third quarter of 2021 was $56 million compared to third quarter 2020 net loss of $36.7 million. Adjusted EBITDA for the third quarter of 2021 was a loss of $41.1 million compared to a loss of $28.4 million in the same period last year.

We ended the quarter with approximately $632 million in cash, cash equivalents and marketable securities, and we had no debt. With respect to our outlook, we are reiterating our guidance range for the full-year of $148 million to $155 million, representing 54% growth year-over-year at the midpoint of the range.

For the full-year, we estimate a fairly even 50-50 split between our sequencing and development revenues given the realization of milestones already recognized through the third quarter. I will now turn the call back over to Chad Robins for his final remarks..

Thanks, Chad. I'm proud and encouraged with our achievement year-to-date across all business areas and looking forward to the additional key milestones we expect to accomplish over the next couple of months as outlined on Slide 8.

The data emerging from our platform continue to support the current and future value generated from our clinical diagnostic and drug discovery opportunities. With that, I'd like to turn the call back over to the operator and open up for questions..

Thank you. Our first question comes from the line of Tycho Peterson of JPMorgan. Your line is now open..

Hey, good afternoon. Congrats on the reimbursement coverage for T-Detect COVID. I know that's a big deal.

Can you maybe just help us think about the intended use case, the benefit of using it and how you size the market opportunity?.

Yes, sure. Thanks, Tycho. And yes, this is we're really, really excited about this, the news of coverage. So maybe I'll – the first question about who is intended – who the product of T-Detect COVID is intended for.

I'll take that and then I'm going to pass it over to our new chief commercial officer, Nitin Sood and if you could handle the question about the benefits and the market opportunity from there. So just to – for the first question, just kind of let me outline it.

So Medicare issued a coverage decision for a certain population, the immunocompromised patients who are less capable of mounting an immune response to either the natural infection of COVID and/or to the vaccination. But we believe and we said this from the beginning that unfortunately, this is going to be endemic in our population.

And these subset of patients will – they're always going to be at risk even as the virus moves from kind of the pandemic state to an endemic state. So the risk will remain high about whether or not they can amount an immune response. And if you look at kind of this estimated population of immunocompromised population, it's around kind of seven.

The estimates vary, but on the low end, we think it's around 7 million in the United States. And this will be kind of the population that we believe will benefit from our T-Detect COVID test. And we think that this kind of T cell testing is at a really high level, it's going to fill a big gap in the current testing paradigm.

So Nitin, you want to take how it will be used and the benefit to this population?.

Yes. Thanks, Chad. So as you all know, your body produces T cells as part of your immune response to infections and vaccinations and our T-Detect COVID test reliably assesses the presence of T cells or a T cell response to COVID-19, indicating recent or prior infections.

COVID vaccines also produce a T cell response, which may result in a positive T-Detect COVID test. And physicians can use this to help their managed care.

And as like Chad talked about, particularly for immunocompromised patients, helping physicians to make decisions related to vaccines or vaccine boosters and patients who are on immune-suppressing medications including deferring or postponing such medications or providing even preventative monoclonal antibody treatments.

As Chad noted earlier, part of that immunocompromised population is in the oncology space and that is the population we're going to target. We think out of those 7 million individuals, 1 million are in the oncology segment. And we're going to use the clonoSEQ sales team to target those physicians.

And then we're going to do sort of more targeted promotion to transplant centers, HIV treatment centers, where we also believe there is an autoimmune sector, where we believe there is an immune-compromised population.

And simultaneously long term, we're working on generating additional evidence to make the test semi-quantitative as well as generate a correlate of protection, which we think is going to be not only beneficial to physicians and strengthen our value proposition to physicians, but also really strengthen our value proposition to vaccine developers.

And I think longer term, I think it sort of opens up a whole lot of opportunities for us. Given the success of mRNA vaccines, I think there's going to be a lot of activity in vaccine development even beyond COVID.

And I think having a test that measures quantitatively the T cell response and produces evidence around correlate of protection, will open up a whole bunch of doors beyond COVID as well..

Great. That's super helpful. And maybe just sticking with the vaccine theme then on Moderna, you mentioned you've got the samples in-house. Obviously, you're working on the second-generation COVID vaccine.

How should we think about time lines there? Any updates on the development path?.

Sure.

Harlan, do you want to take that one?.

Sure. Thanks, Tycho. We're evaluating the response to the cellular immune response to the vaccine and we're – the data is going to be owned by Moderna. So it's not going to be at our liberty to discuss the outcomes of that. But we're definitely wrapping up soon in returning data..

Okay. And then on the enhanced clonoSEQ for CLL, how do you size the IGHV opportunity? I know you talked about a 20% increase in orders early on.

But how are you sizing the incremental opportunity there?.

Nitin, do you want to take that?.

Yes. I mean I think the benefit there is going to be that it's going to encourage physicians that order CLL to order the ID test. There is sometimes less incentive for them to order the ID test. Now they're going to get actual prognostic information right at diagnosis. So I think it encourages physicians to order the ID test.

And really CLL is treated a lot in the community setting and really enhances the value of clonoSEQ in the community setting. So that's how we think about this..

Okay, great. And one last one for Chad Cohen before I hop off. Just on guidance, $3 million beat. You're keeping guidance intact. 4Q guidance is a bit below the Street.

Anything to think about for the fourth quarter, why you might be a little bit more cautious here?.

Yes. I mean we tend to think about the business in semesters more than quarters. And we've historically just talked about it that way, front half versus back half. So third quarter, we saw a lot of really strong pharma volumes that we had really contemplated a little more in the fourth quarter. They came a little early.

We're still seeing really strong sequencing business. If you look at the back half, growth over last year is looking at about 70%, given the numbers that we implied with our guide, growing really nicely also first half over second half at about 20 or so percent.

And the business really is performing far better in the back half from a core sort of sequencing perspective. We gave the guide around sort of 50-50 split between sequencing and development. The first half was sort of more of like a 40-60 split. The back half is more of like a 60-40, it sort of gets to those numbers.

So our sequencing volumes and our sequencing revenue in the back half are really strong relative to the first half. The first half also just had $8.5 million in milestones, which makes that first half number look a little bigger from a development perspective..

Okay. I appreciate the color. Thanks. I’ll let others hop in..

Thanks..

Our next question comes from the line of Derik De Bruin of Bank of America. Your line is now open..

Hey. Good afternoon, everyone..

Hey, Derik..

So I guess first question and it's – sort of tag teams on Tycho's. What was sort of the impact on your clinical sequencing volumes and your biopharma volumes from the spike in the Delta variant? You and a number of other companies last quarter were a bit cautious on sort of your second half views given that.

So just wondering if you could sort of like quantify what's going on or what you sort of saw with it in terms of volumes?.

Yes. There was definitely a third quarter impact related to the Delta variant on the clinical sequencing volume for clonoSEQ and that was really primarily for two reasons.

The first reason is because our reps had really limited access to be able to get into accounts, especially when you're talking about kind of the new accounts and new indications like CLL, which were growing, you really need kind of that in-person kind of rep access.

And the second also related to certain populations, which kind of interplay with the COVID announcement is this population because they're immune compromised, we're really being told to – In cases where they didn't need to come in for imminent treatment, just that we're really kind of delaying their in-person hospital and clinician visits.

So that kind of the combination of those two factors definitely took a hit in the third quarter.

Like the preprepared remarks, we are encouraged based on the IGHV launch in CLL and some of the trends that we're starting to see in the fourth quarter, both related to the IGHV launch in CLL, but also with, I think, the Delta variant not having an impact fortunately, for a lot of reasons, we're starting to see some really positive signs..

So I know it's a little – I know it's early to start thinking about next year, but I have to ask. When you began this year, you talked about doubling your total clinical test volumes and obviously, with the uncertainty with Delta, that understandably doesn't happen.

But do you have any initial thoughts on how you sort of think about clinical volumes trending for 2023?.

Excuse me, for 2022?.

I'm sorry, 2022. Sorry, I'm already a year past. I'm on the beat. There you go..

Yes. Look, Derik, I mean we're bullish on this business and we're encouraging –encouraged by the trends that we're seeing. Like I said, although there was an impact from the Delta variant, our overall thesis in the clonoSEQ business is incredibly positive.

We're not yet at the point where we're prepared to release guidance for 2022 yet, but we certainly think it's going to be a strong – we certainly expect to have strong growth in 2022. And I would say, again, we look at the interplay in that business, the clinical sequencing volume plus the MRD pharma opportunity overall makes up the clonoSEQ brand.

And overall, that business has been growing quite nicely and we expect it to grow and get on a nice growth trajectory in 2022..

Great. Thank you very much..

Sure..

Our next question comes from the line of Brian Weinstein of William Blair. Your line is now open..

Hey, guys. Good afternoon. Thanks for taking the question.

I was hoping you could maybe help us understand a little bit more on the news from Vaccibody today, the importance that it has for Adaptive at a high level relative to kind of the technology? And then can you just remind us practically what it means to the company and the potential financial opportunity if all of this were to play out positivity?.

Yes, sure. Hi, Brian. Thanks for the question. First, let me – I want to put this into context. I understand that kind of Vaccibody isn't a household name like Moderna and J&J. But this is really important for Adaptive because we do view this as kind of a true extension of the platform into another area of drug discovery.

And what I mean by that is, yes, you've heard about kind of Moderna and J&J deals where we work really from essentially looking at the immune response to their vaccines and being able to, as Harlan said, kind of hand over that data to really help them understand how their vaccines are working.

This is different in that we're actually using our platform to inform the design and development of the vaccines.

You kind of more specifically from a scientific standpoint, pieces of the virus or the viral proteom called T-cell receptor epitopes, we can essentially by looking at the T cell response to those pieces of virus, we can determine which pieces go into the vaccine construct to specifically elicit a broad and diverse T cell immune response.

And this is a new type of vaccine, a T cell-based vaccine, of which our technology is perfectly kind of suited to be able to inform that design and development. So we think it's important for two reasons.

One is we can potentially extend this proof of concept would allow us to extend to other disease areas if we can show that this is the right way to design and develop T cell-based vaccines and potentially with other larger players and/or Vaccibody.

But then secondly, there's a potential based on their delivery mechanism, they have a DNA-based vaccine, which doesn't have cold chain storage requirements.

So there's an opportunity here and we'll have some royalties on the vaccine that if this vaccine could be delivered as another option of a booster to certain parts of the world where you would benefit from not requiring or not having accessibility to cold chain storage requirements, that's really where we kind of see the potential opportunity.

But first and foremost, Brian, we're really looking at is, hey, does this work? Can we use our platform to design a vaccine and then this really opens up we believe a lot of opportunities for us..

Great. And then for you, Harlan, just your thoughts in general on current vaccine effectiveness.

We listened to the webinar that you did back, and I think it was October and you've been a little bit concerned about durability there, and just a need for a T cell-based approach kind of like, what Chad was just talking about with Vaccibody and how you guys are playing there.

But just general your thoughts on what you’re seeing on current vaccine effectiveness in the need for a T cell-based approach in general?.

Yes. So certainly, we should be I think very pleased with the efficacy of the vaccines. I mean we're seeing at six, eight months out that the response is staying quite strong. It's certainly in the cellular immune response. But it is – it does start to wane after that.

We can see it, depending on the vaccine start dropping at six months or start dropping at eight months, so which is really corresponding to other measures, the efficacy measures that show that the rate of breakthrough infection starts going up at that point in time. So I think the booster regimen that's being suggested is right on schedule.

And hopefully, we can broaden that I think to having that for the wider population would be, in my opinion, a very good thing. And certainly, the side effects seem to be staying quite manageable. So I think we're moving in a good direction and I'm excited for the next generation of vaccines coming out too..

Okay. Thank you for that. And then one more for me, just you've talked about MolDX kind of looking at T-Detect. Anything on private payers, if you guys are reaching out to them and any thoughts on the likelihood of getting coverage in some of the larger private payers there for the same population? Thanks guys..

And Nitin, do you want to comment on private payers?.

Yes. So the current COVID testing guidelines provide for commercial payer coverage of FDA, EUA COVID test within the context of the public health emergency and our T-Detect COVID test falls within this category. So we’ll be working with private payers over the next several weeks to outline the operational process for brining coverage online..

Thanks, Chad..

Thanks..

Our next question comes from the line of Dan Brennan of Cowen. Your line is now open..

Great. Thank you. Hey, Chad. Nice to be on the call. First question is just on clonoSEQ. Just maybe stepping back, I know Derik asked the question.

I'm just wondering, can you just provide an update on the commercial investments that you've made to kind of drive growth? Obviously, Delta could be having to kind of temporal on back right now, but just give us an update on people that have been put in place, what you've seen thus far? And if we look out towards 2022 and beyond, what are the key kind of milestones in terms of regulatory approvals and new enhancements that could be important to driving growth in the franchise?.

Yes. So first off, welcome to the call, Dan. Pleasure to have you covering us.

We're making kind of significant investments in clonoSEQ and kind of preparing for 2022 in particular kind of increasing the amount of reps on the ground, both in terms of our key account managers and dedicated hematology specialists based on some early signs that we've seen in the IGHV kind of launch.

But we also believe that kind of training this cohort as a class together will have kind of significant benefits as we look to scale the business. With that, I'll turn it over to Nitin to make more specific remarks..

Yes. I mean I think – yes, we've spoken before, we are pretty positive on our clonoSEQ business. We have the best-in-class sensitivity. We have FDA approval. We have widespread payer coverage. In fact, this quarter alone, we increased coverage for CLL by 15%. We see other positive trends.

There was an MRD white paper that was published in July that supported the use of MRD both as a regulatory endpoint and in clinical practice. Authors included many top KOLs – Nicole Gormley of the FDA.

We saw a German cost impact analysis study published in September that there is a favorable – €75,000 favorable economic impact with the use of clonoSEQ directed therapy. So I think we see positive trends. As a result, we're investing in the channel. We're strengthening how we market the product.

We're improving and investing in improving customer experience. So repeat ordering is seamless. And then longer term, we think we'll get some positive feedback from the FDA on ALL in blood. We have three major studies going on in multiple myeloma. We received some positive feedback for the 80 studies we have ongoing for NHL, for non-Hodgkin's lymphoma.

So overall, I think we see all kinds of positive trends and we continue to invest in the business broadly..

Great. Thank you for that. And then just on MRD, obviously, sizable kind of milestone opportunity to be recognized there.

In terms of thinking about the events that will play out, to start to realize more significant portion of that, is that more so like 2023, 2024 or could 2022, just given the time lines for the development program? Just wondering how we should think about kind of when a bigger part of that starts to become realistic..

Yes. Dan, this is Chad Cohen. How are you doing? Good to hear from you on the call. As we mentioned, we have over $330 million of milestones available to us and that's been growing really nicely even as we've been taking these down.

It's hard to really sort of bookend the time frame with respect to our participation in them but they'll happen over the next few years. I think just to characterize the milestones, they represent probably on the order of a dozen or more different deals with even more compounds and projects within those deals.

And I'd say two-thirds of the economics in those milestones relate to primary endpoints, which is a much bigger sort of pool of endpoints that we hope to participate in, in some day. What we've really been participating in so far are the secondary endpoint milestones which continue to grow and for which we've recognized about $10 million this year.

So I really feel it's becoming more of a structural component of our P&L than it even has in the past and they continue – we continue to grow the available pool of milestones and hope to do more deals, especially as we get into other indications like NHL..

Awesome. Great. Thanks guys. Appreciate it..

Our next question comes from the line of Mark Massaro of BTIG. Your line is now open..

Hey, guys. Thanks for taking the questions and congrats on the attractive reimbursement for T-Detect COVID. I guess, how should we think about – I know that this question has been asked, but there's about 1 million cancer patients that would be eligible. 1% of that market is about $8 million of revenue.

So just, I guess we're trying to get a sense for how quickly do you think you can get 5% of that opportunity? Is it two years? Is it one year? And I think it would be helpful from a modeling perspective..

Yes. Let me make a couple of comments and again, Nitin, feel free to add on. First off, I want to make – in order to operationalize, this, it's going to be – probably 60 to 90 days.

There's a lot of things that we need to do to put in place to be able to offer this to HCPs through a reimbursed channel, including going out and a good question earlier on private payer reimbursement, we need a specific code from the AMA to be able to ensure coverage by the private payers.

But that being said, our target is the 1 million, in terms of a direct coverage, is the 1 million immunocompromised patients that we have access to. And then secondly, there's another, call it, 6 million to 7 million patients who are immune compromised that we'll be doing non-direct promotional activities to as well.

But I think it's fair to say, look, this is not only a new product launch, but this is a new product category. So we're extremely encouraged and bullish. But in terms of kind of how quickly we can get to 5%. And the good news is, I think the world has been helping and talking about the adaptive immune response to the virus. So that bodes in our favor.

So some of that kind of marketing effort is done. But in terms of the specific use case, which was asked earlier, exactly how and when you use it, what therapeutic regimens or lifestyle choices will a patient – will a doctor provide to assist in the management of patients, this all has to be worked into the current patient paradigm of care.

So we're going to go as quickly as possible to capture as much of the market as possible and we're working through that right now.

Nitin, do you want to add onto that?.

I mean I just want to reemphasize the fact that we do have a sales channel exactly into those 1 million patients, but it is going to be an effort on our part to educate that physician population about the adaptive immune system. So I think we're going full steam ahead to make this available and we're going to keep an eye out on it.

And I think we're going to include updates for you all when we provide guidance next year..

And then obviously, we're bullish about it because we're prioritizing it. And that was catalyzed based on the fact that we were able to get the coverage that we did allows us to step on the gas and go in and pursue this opportunity because we think it's real..

That's great. So you did acknowledge you were impacted by the Delta variants in Q3. You made some positive commentary about volumes here in Q4. You grew 8% sequentially for clinical clonoSEQ volumes in Q3.

Do you think it's reasonable based on the positive commentary for Delta so far, one-third of the way through Q4 that you can kind of have an almost similar performance on the clinical side for clonoSEQ in Q4?.

Yes. We certainly anticipate having sequential growth in the fourth quarter..

Okay. That's helpful. And then just my last question.

How should we think about the opportunity for Lyme disease as it relates to reimbursement? Certainly, I wouldn't expect $700 or $800 a test, but any thoughts you have there and update you have as it relates to discussions with any payers?.

Yes. I mean I can speak to that. I think as we've said in prepared remarks, we're going to be launching the Lyme test closer to the Lyme season. We've reprioritized and refocused ourselves on T-Detect COVID.

And at this point in time, we're engaging with payers and having conversations and we'll provide you an update as real information is available to us. But that is a focus for us to figure out the reimbursement for Lyme, yesah..

Great. That's it for me..

Thank you. .

Our next question comes from the line of Salveen Richter of Goldman Sachs. Your line is now open..

Hey, good evening. This is Elizabeth on for Salveen. Thank you for taking our questions. I just wanted to ask about the enhanced version of clonoSEQ for CLL patients.

Are there any other enhancements for clonoSEQ that you're considering or would potentially consider for other indications?.

Yes. So I think we're not prepared to disclose anything right now, but certainly, NHL, non-Hodgkin's lymphoma, is an area that's going to be a lot of focus for us and enhancing our capability in the blood-based multiple myeloma, test is going to be a focus for us.

And then we're also potentially considering adding an IGHV like test in other indications..

Thanks..

Our next question comes from the line of Tejas Savant of Morgan Stanley. Your line is now open..

Hi. This is Yuko on for Tejas.

Now having gone through the reimbursement process for T-Detect COVID, could you just share some of the learnings from that process? And how are you thinking about positioning reimbursement pricing discussion as you roll out additional indications for T-Detect?.

Hey, Yuko. Thanks for the question. So I think the first thing to keep in context is that because we got an EUA from the FDA, it gave us the opportunity to expedite reimbursement discussions with MolDX. And what essentially that means is there's a significant amount of education that has to go in to be able to really to understand exactly what this is.

Because this is a new way to diagnose disease using T cells, we were able to go in and really outline the case. And so now you've got a baseline set at the MolDX program. And frankly, we were able to do some of this at CMS National.

Now as we look to kind of future indications, we do believe there's an opportunity to price a test based on the value that test provides to patients and the healthcare system. Don't get me wrong.

We're pretty encouraged by the price point we were able to kind of receive from MolDX, but we think in certain high unmet medical needs, in particular, in the autoimmune category, there should be potential to really price a test based on the true value it provides to the system and to patients.

So I don't know if that totally answers your question, but those are some thoughts we have around kind of reimbursement, what we went through with COVID and how it impacts our thinking in terms of kind of the longer-term thinking for the franchise..

Yes. That was super helpful. Thank you. And then also, you mentioned you saw the impact from Delta variant this quarter.

Have you seen improved physician office access towards end of the quarter and in October? And then you previously mentioned that COVID-19 may disproportionately affect the community channel, did you see that also playing out this quarter?.

Yes, we did. I mean, the reality is, is that we're still restricted access to both the community oncology setting and the academic medical centers. It really hasn't opened up yet to the extent that we want. So we were able to achieve the growth we did kind of despite having some of those headwinds out in front of us.

On a regional basis, you're seeing some of that, but our reps are being creative and trying to meet where we're allowed to, even outside the hospital settings and coffee shops and parks and doing everything that they can to be able to educate the clinical community..

Thank you..

Sure. .

The next question comes from the line of David Westenberg of Guggenheim Securities. Your line is now open..

Hi. Thank you for taking the question. So question number one is, we've seen for kind of a number of years researchers doing immune mapping using single-cell approaches. And I think there just a company – a private company recently that raised a pretty big round on using single-cell approach in order to map the immune system.

So I just wanted to ask just in terms of your approach differing from others that are using that other kind of approach..

Yes. So there – people mean a lot of different things by mapping the immune system. I think what you're referring to is a company that has an approach to look at a whole bunch of different parameters to get some kind of more global picture of what they think is going on in the immune response.

We're, I would say, in some ways, more focused and focused specifically on the immune receptors, which is the immune system's way of specifically identifying disease. So it's not – it's sort of a different approach and probably has very different sets of applications.

For the diagnostic approach, I don't think that those other approaches are really playing in that space. So I think we're the only ones, I would guess, really working on – I shouldn't say that – but likely the only ones working on the diagnostic space.

But on the target discovery space, we're more focused on antigenic targets as well as the T cell receptors used for therapeutic use against those targets, which is very different than maybe looking for more general immune-based targets that some of these other companies might be using. They're very early on.

We don't have a ton of data on what they're exactly doing. But certainly, the immune system is, as we know, quite large and is affecting every aspect of medicine right now, including the primary direction people are going for cancer therapies in addition to obviously working in the vaccine space in autoimmune.

So I think there's – we'll see more and more different directions. The confusion of using the same term to mean different things, mapping of the immune system, hopefully, we can clarify what we mean by that anyway so that it's not such a confusion..

No, I appreciate it. It's just a question we just got a couple of days ago.

So anyway, secondly, in terms of T-Detect COVID, are there any other infectious diseases that might have utility in terms of, A, finding T cell versus B cell immunity, differentiating natural versus vaccine immunity and kind of measuring immune response length for a period of time? I'm just trying to contemplate future applications for T-Detect that you've discovered today that might be applicable to other infectious diseases that we maybe haven't thought about in the future? And I'll stop there after that..

Yes. I mean this is a great question.

And the biggest appreciation and learning was, I think the community at large, even the scientific community, the immunologist and virologists, I don't think everybody really appreciated the role that the cellular immune system is playing in protection, whereas – and part of this is probably just historical that we've had the ability to measure an antibody response and even a neutralizing antibody response for 50 years.

And we didn't really have a way of measuring the T cell response at scale.

But now that we do and also now that we're in this situation where we're seeing these new variants from COVID that are really avoiding the neutralizing antibody response from the vaccines at high levels, we're seeing the importance of the T cell response to really give us the protection that we need to prevent severe disease.

And so because of that, there's been an uptake in interest in looking at the T cell response. And what's on us, we have to prove that the T cell response really correlates with protection.

If we can show that directly, then we really have the tool that people can use going forward in a whole variety of different vaccine efforts in different diseases to help them develop the right vaccine but also prove that their vaccine is working and provide the information that the regulatory bodies need as well.

So we're pretty excited about this evolution of this field. We're obviously a little frustrated. It was slower than we – we had hoped that for people to start appreciating T cells, but it is happening and there's going to be, I don't know, the T cell revolution is coming..

Appreciate it. Thank you..

There are no further questions at this time, and that concludes today's conference call. Thank you for participating. You may now disconnect..