Good day, and thank you for standing by. Welcome to the Adaptive Biotechnologies Second Quarter 2022 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Karina Calzadilla, Head of Investor Relations. Please go ahead..

Thank you, Daniel. Thank you, Daniel, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies Second Quarter 2022 Earnings Conference Call. Earlier today, we issued a press release reporting Adaptive financial results for the second quarter of 2022. The press release is available at www.adaptivebiotech.com.

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

During the call, management will make projections and other forward-looking statements within the meanings of federal security 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. Joining the call today are Chad Robins, our CEO and Co-Founder; and Tycho Peterson, our Chief Financial Officer.

In addition, Harlan Robins, Adaptive’s Chief Scientific Officer and Co-Founder; Nitin Sood, Head of the immune -- MRD business; and Sharon Benzeno, Head of Immune Medicine business, will be available for Q&A. With that, I'll turn the call to Chad Robins.

Chad?.

ALL, multi myeloma and CLL. All metrics are pointing in the right direction. Ordering HCPs or health care providers and ordering accounts experienced significant growth of 53% and 44% versus prior year, respectively. Unique patients tested grew 56%.

Slide 5 shows our strategy to solidify our leadership in MRD testing for patients with lymphoid malignancies. First, the team is focused on further penetrating existing institutional accounts and increasing the activation of new community accounts with our expanded field force, which is now fully trained and deployed.

72% of the volume growth this quarter came from established institutional accounts, underscoring the potential to expand usage within existing accounts. We also grew the number of newly activated community accounts by 20%, which is a positive indicator of our sales team expansion.

Another key driver of growth is blood-based testing, which has the potential to both increase penetration of clonoSEQ among clinicians and increase the number of tests run per patient. About 30% of all clonoSEQ MRD tests are performed using blood, and importantly, multi myeloma in blood increased 33% versus prior quarter.

We plan to expand into DLBCL following our positive Medicare coverage decision. The policy is effective immediately and extend to all DLBCL patients, 75% of which are Medicare-aged, regardless of line of therapy, treatment regimen or testing time point. We continue to build our DLBCL evidence base to support guideline inclusion.

Based on these efforts, we expect DLBCL to contribute to clonoSEQ growth in 2023 and beyond. Data continues to emerge, strengthening clinical utility and the value of MRD testing for patients. Slide 6 highlights data presented at ASCO from the Phase III determination trial for newly diagnosed multiple myeloma patients.

This study was designed to assess the benefit of adding transplant to frontline triple therapy followed by maintenance therapy until progression.

An important result from the study showed that patients who achieved MRD negativity by clonoSEQ prior to maintenance had similar outcomes independent of transplant, and the authors state that the elimination of MRD is of increasing importance in tailoring treatment, in informing clinical care and as a treatment goal given its prognostic value for better outcomes.

Let's shift to our MRD pharma portfolio on Slide 7. Our clonoSEQ assay is being used in 168 active trials, representing about 21% penetration among active heme pharma trials. In multi myeloma, we are the gold standard, almost 50% penetration. Our goal is to replicate our multi myeloma success in NHL and CLL.

This quarter, we signed a new pan portfolio agreement with a major pharma partner, increasing our eligible milestones to over $355 million from ongoing and future studies. Now turning to our Immune Medicine business on Slide 8.

We have proven our ability to map T cell receptors to antigens at scale and can leverage this data for multiple diagnostic and therapeutic opportunities. To drive growth for our Immune Medicine business in the near to midterm, we will focus on pharma partnerships and drug discovery collaborations.

Clinical testing with T-Detect is expected to be a meaningful contributor to revenue in the long term once we establish T cell signatures in multiple indications that can be offered as a reimbursed differentiated diagnostic panel to patients with shared symptomatology.

On Slide 9, we provide an overview of our growing Immune Medicine business opportunities in pharma and drug discovery. From a base level, T cell and B cell receptor sequencing to inform research and development continues to expand in immunoSEQ as a gold standard.

Layering on our ability to map disease-specific TCRs to antigens unlock a valuable product offering called T-MAP that is used to support our pharma partners in measuring the T cell response to various drugs, including vaccines.

We are partnering on COVID and RSV vaccine programs and expect to drive additional revenue in infectious disease, autoimmunity and oncology. Moving up the R&D value chain. Immune response data can be also used as a regulated clinical endpoint with diagnostic applications.

In drug discovery, we further characterize antigen-specific TCRs for target and/or drug discovery. This is the basis of our partnership with Genentech. We are increasing our focus on additional high-value drug discovery opportunities. Turning to our T-Detect clinical testing strategy on Slide 10.

We proved and validated our T-Detect clinical testing capability in infectious diseases. Specifically, T-Detect COVID achieved EUA and was key to educate the FDA about a new class of T cell-based testing.

We also made T-Detect Lyme available in our CLIA lab, which enabled us to implement end-to-end and CLIA workflows and to continuously improve the algorithm. As mentioned previously, our experience showed us that the cost to commercialize and improve signals through self-pay customers disease by disease is high.

Therefore, we have decided not to launch T-Detect test before there is a clear path to reimbursement. We believe we can improve the signals to drive clinical evidence for coverage and commercial uptake by focusing on internal R&D and pharma partnering.

This will allow us to drive near-term revenue and generate more signals that support the vision of T-Detect. We are confident that this disciplined approach will enable us to achieve commercial success with T-Detect as a differentiated high-value clinical tests.

We are excited about the multiple business opportunities that we discussed today and look forward to providing additional updates on our progress. I'll now pass it over to Tycho for a financial update..

Thank you. Turning to our financial results, starting with revenue on Slide 11. Total revenue in the second quarter was $43.7 million, representing a 13% increase from $38.5 million in the same period last year with 51% from Immune Medicine and 49% from MRD.

MRD revenue, which is comprised of clonoSEQ clinical testing, plus revenues from our MRD pharma and research partnerships, was $21.3 million, an increase of 38% from a year ago. clonoSEQ clinical testing and MRD partnerships drove approximately 65% and 35% of the growth, respectively.

Within our MRD pharma business, we recognized a $1 million regulatory milestone. While we continue to see milestones from our MRD partnerships materializing and accelerating over time, these can vary quarter-to-quarter.

ClonoSEQ test volumes, which include tech transfer, increased by 53% to 8,998 tests delivered from 5,897 in the same period last year. We expect similar or higher volume growth trends to continue for the remainder of the year. Immune Medicine revenue was $22.4 million, down 3% from a year ago.

The change was driven by a $3.7 million increase from pharma and academic customers using immunoSEQ and T-MAP products as well as a $1 million decrease in revenue from T-Detect COVID and a $3.4 million decrease from Genentech amortization, which as we have noted in the past, varies from quarter-to-quarter. Shifting to our operating costs on Slide 12.

Total operating expenses were $96.2 million or a 9% increase from $88.3 million last year and a 6% decrease from $102 million last quarter. Cost of revenue was $13.2 million compared to $10.8 million last year, representing a 23% increase driven mainly by a mix to higher cost assays.

R&D expenses were $37 million compared to $37.8 million a year ago, representing a 2% decrease, which was partially attributable to reduced collaboration and medical advisory costs.

Sales and marketing expenses were $24.3 million compared to $23.2 million a year ago, representing an increase of 5% due largely to higher T&E and increased personnel costs from the sales force expansion partially offset by a decrease in marketing expenses.

G&A expenses were $21.2 million compared to $16.1 million a year ago, representing an increase of 32%. This was primarily driven by the expansion of our facility footprint with the opening of our new headquarters in the back half of 2021 as well as higher depreciation expenses and increased personnel costs.

Net loss for the second quarter of 2022 was $52.1 million compared to $49.3 million last year. Now turning to full year guidance. We are reiterating our full year revenue range of $185 million to $195 million.

Both our MRD and Immune Medicine businesses have great momentum, and we expect them to still contribute to our full year revenues approximately 50-50 at the midpoint of the range.

For operating expenses, we now expect full year -- our full year target to be between $410 million to $415 million as compared to our previous expectation of $425 million to $435 million.

This reflects our continuous efforts in managing investments and improving operating efficiencies beyond the restructuring activities that we announced at the beginning of the year. Some of the operating efficiencies we are exploring include real estate consolidation, sequencing and workflow cost reductions and software optimization.

Importantly, we are being thoughtful about our cash, and we expect to deploy capital off our balance sheet to support operations, and we expect our quarterly burn rate to be approximately $55 million in the back half of the year. Our capital position is strong.

We ended the quarter with about $450 million in cash and equivalents, which provides us around 2 years of runway.

As Chad mentioned, given current market conditions, we are exploring non-dilutive financing alternatives to extend our cash runway while also working extensively on our long-range plan, and I look forward to providing you with further details on our path to profitability in the back half of the year. With that, I'll hand it back over to Chad. .

Thanks, Tycho. As outlined today, we are sharpening our focus and remain disciplined with our investments as we fine-tune our path to profitability. Both our Immune Medicine and our MRD businesses have great momentum and are on track to achieve their respective catalysts listed on Slide 13. We're looking to a great second half of the year.

I'd like to turn it back over to the operator and open it up for questions..

Our first question comes from Brian Weinstein with William Blair..

At least I don't have to fight with Tycho, obviously, on who's going to get the first question anymore here. So that's a positive. Just a question for you on the sharpening of the focus here with Immune Medicine. I understand prioritizing pharma partnering and sort of discovery opportunities.

So can you just talk about what led to doing this now? What really changed? Was it the costing? Was it time that it was taking for R&D? Was it recognizing the commercial path is going to be a little bit more challenging? Can you just talk about why now? And then can you also help us further understand the growth profile of Immune Medicine absent the T-Detect portion as sort of a first question?.

Yes. Thanks for the question, Brian. And just -- I just want to kind of put out there that we remain committed to the vision of T-Detect as a single blood test with multiple answers. However, we realized that our near-term path of commercializing disease by disease is challenging and costly.

And at the same time, we have this incredibly rich immune receptor data that will drive growth in our Immune Medicine business as we kind of continue to strengthen the signals. And as a matter of fact, we're able to -- in many of these pharma deals, we're able to leverage that data to essentially get paid and increase our signals at the same time.

So if you look at kind of the capital efficiency of being able to do that, it just -- as we're developing our long-range plan, it just -- it really came into light to sharpen our focus to say this is a much better path as we look towards profitability.

And if you take a look at it, I mean, big picture, pharma is actually the fastest-growing segment of our Immune Medicine business. It's grown over 100% so far this year, and we expect it to continue to grow at very healthy rates.

So while we're deferring the commercialization of T-Detect, we're going to continue to monetize what I'll call our higher-margin profile opportunities from our pharma partners using kind of this really rich and unique immune receptor data set. I think it's a much more efficient way to generate strong signals.

And essentially, what we're doing is kind of replacing the revenue with a higher margin profile in the near term..

Got it. And you guys talked about having a number of high-value drug discovery opportunities that you were looking at.

I mean, is there a way to kind of give us an idea about when we may hear about some of these newer opportunities? Are these things that you would be press releasing? Are these smaller types of deals that are kind of going on behind the scenes? Just what does that kind of pipeline of opportunities to kind of -- to leverage this look like outside of what you've already disclosed?.

Yes, Brian. I think it will be a combination of -- with -- as it's warranted, we'll be -- we'll press release deals. And quarter-to-quarter, again, as appropriate, we'll be filling in where our pharma partners allow for us for disclosure. We'll be talking more and more about the kind of multiple opportunities.

But really, if you look at that pipeline slide, it's really across the spectra from -- everything from -- on the early research side all the way up through the target discovery, drug discovery on the higher-end side..

Okay. And then last one for me. Tycho, I want to confirm what I thought you said was we'll get some idea about profitability time frames and maybe even some thoughts on some of these non-dilutive options that you guys have teased over the last couple of quarters.

What -- we should expect to hear something from you on that here in the back half of the year? Nothing to comment on other than that at this point?.

Yes. So on profitability, it's incredibly important. We're in the midst of our kind of 3- to 5-year long-range planning kind of updating that. And so we'll communicate more around the path to profitability in the back half of the year, likely on the third quarter call is how we're thinking about that.

And then on the financing front, yes, we've publicly said and Chad reiterated today, we're looking at non-dilutive financing opportunities to extend our cash runway starting from a position of strength. We've got over $450 million to begin with so 2 years of cash on hand.

But we're looking to shore that up, and we'll have more to talk about it when we can communicate. So hopefully sooner rather than later, but I'm not going to put a time line on that..

Our next question comes from Julia Qin with JP Morgan..

So to start off on the clonoSEQ business. Obviously, it's great to see you get expanded coverage for DLBCL. Obviously, we know it's a big market, like you talked about.

How quickly do you think you can drive that penetration? Do you think the uptake will mirror your historical experiences with the other clonoSEQ indications? Or do you think we could potentially see faster uptake maybe benefiting from the expanded sales force? Just help us think through the near-term revenue ramp and how that might change your MRD revenue trajectory in the near term..

Sure, Julia.

Nitin, do you want to take a crack at that?.

Yes. Thanks, Julia, for that question. Yes, look, we're really excited about the DLBCL coverage. It's the most common subtype of non-Hodgkin's lymphoma. And as you've heard Chad say, we're the first and only MRD test for DLBCL to receive Medicare coverage.

I view that as a clear validation that we continue to extend our leadership position in MRD testing for lymphoid cancers. In terms of DLBCL contributing to growth, we expect this to happen in the second half of 2023. We'll have to do the standard things that we do with all other disease types. We have to go out there and educate the physicians.

We have to change physician behavior. We have to get into guidelines.

And I'm very bullish that we'll be able to do that as the therapy landscape for DLBCL has significantly advanced in recent years and is a pretty large unmet need for monitoring disease progression and guiding patient care, similar to what we've seen happen in multiple myeloma recently. And we have good data.

For example, recently, we published that MRD assessment using clonoSEQ in DLBCL post CAR-T treatment can be more informative than in identifying patients who are at high risk of relapse. So overall, I expect the MRD business to continue to grow at or above the annual growth rate we're going to see this year but off of a higher base.

So in the outer years, we continue this growth trajectory but off a higher base. And so in some ways, we're adding more incremental tests every year going forward..

Great. That's helpful. And then one for Tycho on the non-dilutive financing. I understand you're planning to save more details for when you're ready to talk about it. But on a very high level, I was wondering if you can give an update on the kind of deal types or deal structures you're currently exploring.

What kind of conversations are you having right now? And are they going to be closely tied to your increased focus on the T-MAP business with biopharma?.

Yes. No, it's a fair question. So non-dilutive, meaning equity is kind of off the table here. And I'd say from a kind of high level, we're generally reluctant to issue debt just given the nature of kind of balloon payments. So we are exploring a potential royalty-type deal.

I don't want to give much more detail than that, but this is a well-established model in the therapeutic world with companies that do these kind of type of royalty transactions. So those are the discussions we're having now. Still in process. So again, no firm updates and not specifically tied to the T-MAP program.

I mean, these types of things would generally be done on kind of a basket of revenues, total revenues overall..

And then a follow-up on the long-range plan. I know you're currently working on it.

Without getting into the specific details, can you maybe talk about whether there are any new components to plan or new approaches you're thinking about and the visibility about pharma milestones is something you're working on? So maybe give us some color around how you would approach it..

Yes. Look, I mean, we're -- the initial cut is kind of build the revenue map and then kind of think about kind of the OpEx that's going to be required to kind of get us there. I don't envision it involves any kind of significant change in trajectory overall.

I mean I think it's a lot of kind of continuation of stuff that's in progress, obviously continuing to build out the pharma portfolio, for Nitin's world, continuing to kind of penetrate the MRD market further.

I don't know, Sharon, is there anything you want to add from kind of the pharma immune side that you would highlight on a long-range view?.

Yes. You highlight exactly the components.

And of course, we have -- we take into account prior books, deals and studies and obviously continue our business development efforts, as Chad indicated, in the different research uses or regulated uses in the future target discovery in therapeutics that add up to the revenue component as we project 3 to 5 years out..

Our next question comes from Derik De Bruin with Bank of America..

So I appreciate the fact that the T-Detect landscape was a little bit more complex. But can you give us some sense of timing on when you sort of think the first products could start having some commercial benefit? I mean we had modeled some Lyme and some GI and some stuff into our models.

Not a lot, but I mean, I just need to know how much of that comes out.

And then also, how should we think about T-Detect COVID? Is that also going to disappear next year?.

Yes. Derik, why don't I take the first one first, which is T-Detect COVID. We are going to keep T-Detect COVID up. We think it's important as a -- this is the first and only T cell test authorized by the EUA.

And for cellular immunity, we continue to work closely with pharma partners on a correlative protection study, which we think has the potential to really impact the kind of paradigm here. But there was -- there wasn't a significant amount of kind of revenue in the model.

We've talked about it as being a very small contributor from a financial standpoint. That being said, that data is, along with other data sources, is supporting our T-MAP COVID product, which we're partnering on pharma, which is a larger contributor to the revenue source. So T-Detect COVID will be left up.

We have made the decision to take down the Lyme offering. We made it available. We accomplished what we set out to do.

We made it available on our CLIA lab, which enabled us to put in all the building blocks and infrastructure software, how we validate in a CLIA lab and have a kind of a self-improving diagnostic with the algorithm, which kind of -- we checked all those boxes for future launches.

But -- and again, I think there should have been kind of -- and we guided to very little kind of revenue associated with that.

That being said, Derik, we are continuing the work on our PTLSD, which is the post-treatment Lyme disease syndrome or chronic Lyme, because as part of a panel of shared symptomatology, chronic Lyme could be confused with many other neurological disorders, including MS, even kind of long-haul COVID. So that work is ongoing from an R&D perspective.

And if the data is positive, the other thing we can do, which is -- really goes for every single one of these singles that we're generating is we're going to leverage that data kind of with pharma -- with our pharma partners, and there's kind of -- there's different programs going on kind of across the spectrum from kind of GI to Lyme, et cetera, where we can leverage that immune receptor data to potentially bring in near-term revenue..

Okay.

But to the -- then just circling back, though, but then when would be a good time to start thinking about when T-Detect would start to contribute to the top line, right, the sort of the revamp and the reset here?.

Yes. We're probably a couple of years out, Derik, and we'll get back more on when we kind of roll out the 3 to 5-year long-range plan in the November earnings, but we'll have kind of a more detailed view. But we are going to let the science do the talking here and kind of leverage that data near term.

And it's a revamp, but it's really a replacement strategy. I mean, in some assets, we're kind of replacing those revenues at a kind of higher margin profile with kind of near-term pharma. It's just a different strategy for kind of the R&D development..

Okay.

And that's where I was going to, right? I think do you sort of see and -- are they enough to offset what you sort of have planned in the models for like these higher revenue ones or something that could drive -- could actually be potentially higher in the near term?.

Yes. I'm going to let Tycho and Karina work with you on the models, Derik. But I think the -- we're certainly encouraged by what we're seeing in terms of kind of replacing kind of those revenues with a higher margin profile, quality of revenue.

That's essentially what I'll consider at least paid for R&D are somewhat going to burn off some R&D from our partnerships with pharma to develop those products and get to a panel approach that has kind of multiple indications for earlier detection at the same time..

And our next question comes from David Westenberg with Piper Sandler..

Congrats on some of the great clonoSEQ stuff. So I'll stick with that because I think that was the biggest sequential increase in -- that we've seen.

Can you give a little bit more color on what exactly might have happened that you finally had this inflection -- on-quarter inflection? And I have a couple more on clonoSEQ, and I'll stop there for you to answer that..

Sure, Nitin, do you want to take that?.

Yes, I'll take that. I think there's multiple factors. First, our sales team is fully trained and deployed out there. And I think as we've talked about, where our strategy there was to increase penetration in our existing accounts and then also sign up new accounts in the community setting as well as drive penetration in blood.

So we're seeing all of those factors contribute. Our existing institutional accounts, they are still driving growth. We saw sort of 72% growth coming from institutional accounts, but we're also increasing our -- the contribution from the community accounts.

The new accounts we're signing up are -- many of them or most of them are in the community setting, that's driving growth. And then we continue to see increasing amounts of evidence come out. We talked about the DETERMINATION trial.

I think one of the big decision points for a physician treating multiple myeloma is to -- whether to do stem cell transplant or not. The DETERMINATION trial really helped highlight the fact that that's an important decision, and MRD can be used to make that decision.

And I think as general awareness in the physician community that the goal of lymphoid cancer treatment should be MRD negativity. So we see that also contributing to growth. So I wouldn't say there's one thing that's contributing to growth.

There's a lot of things coming into play that are contributing growth, and we expect this robust growth to continue in the subsequent years as well..

Got it. I'll ask it, I guess, a little more offline because it does seem like you went 8%, 8%, 12%, 17%. It just seems like there was a big inflection here. So anyway, we'll look at that. And then just a couple of questions on NHL.

Can you remind us why NHL is a little bit more piecemeal in that DLBCL rather than the whole non-Hodgkin's lymphoma? I'm sorry, I'm not an oncologist, not a scientist. So just kind of remind me on that. And then also, can you -- you're talking about this as a 2023 contributor.

These are the same oncologists that are ordering blood cancer tests, and we found plenty of our checks with oncologists finding the ones that are ordering even like T cell lymphomas and you're not indicated for that. So why is this a 2023 inflection point? And I'll stop there after that..

Yes. So first of all, answering your first question, within non-Hodgkin's lymphoma, there are multiple subtypes, which each subtype has a slightly different treatment paradigm and, as a result, a different evidence set that's required. There's follicular lymphoma. There's mantle cell lymphoma. The DLBCL is about 35% of non-Hodgkin lymphoma.

So we went after DLBCL first, but we will continue to tackle the rest of non-Hodgkin's lymphoma subtypes. And we're feeling confident that we'll be able to get Medicare reimbursement for those. So we wanted to do it a step at a time because the evidence that's required for each subtype is different. And then talking about DLBCL contributing to growth.

First of all, our current DLBCL test accepts plasma. And in order to -- for it to be widely used, we needed to accept whole blood in Streck tubes. So we've previously talked about that. We're doing that work. We launched the Streck tube assay for DLBCL later in this year.

And then we have to go through the whole education process of convincing physicians, getting into guidelines. And as a result, it's going to really kick in, in the second half of 2023. Even though it's the same physician set, we still need to do the education process. And the use of a blood test in MRD in non-Hodgkin's lymphoma isn't established.

So we'll do all the work. We have the evidence. We have the studies. We have expanded sales team and the capability now to do that. But it's going to take time, and that's why we think the real growth is going to kick in, in the second half of 2023..

Our next question comes from Daniel Brennan with Cowen & Company..

Tycho, congrats on first call here. Maybe, Tycho, maybe I'll start with you. So on the balance sheet, I guess, the burn guide that you're targeting in the back half of the year is $55 million. That's basically in line with the prior guide, I believe, but you have lower OpEx. So maybe just kind of help me think through that a little bit.

And if we were to plug in the forecast that you guys are giving, where should we be landing at year-end for cash? Is it, I think, around $200 million? Is that the right ZIP code?.

Yes. So yes, we are guiding to $55 million burn in -- quarterly burn in the back half of the year. As I mentioned, we took OpEx down to $410 million to $415 million. So that kind of reflects the restructuring and some of the other efforts that I kind of highlighted around workflow and things like that.

From a cash position, yes, I don't think that's too far off in terms of where we'll be at year-end.

What was the other part of it?.

No, I just -- I guess, maybe some of the OpEx cuts are noncash because I know that I think the prior burn guidance was $50 million to $60 million in the back half. And so CapEx is coming down. I'm just wondering if the burn reduction could come down more, that's all..

Look, we're trying to get more efficient every day, right? We've got other efforts underway to bring down the OpEx. So that's an ongoing effort and part of our long-range planning, too, right? As we think about the 3 to 5-year plan, we're generally trying to hold OpEx if not bring it down annually..

Got it. And then maybe on clonoSEQ. Just I know there's a few questions asked already, but can you just speak to what the access looks like today? Has that changed much? I know different diagnostic companies have discussed access really being stuck. But obviously, you're in a more acute space with cancer. So maybe that's kind of continuing to improve.

So where is access? And I know it was touched upon earlier, maybe to Dave's question, but just are we at -- like where are we at in terms of productivity of the expanded sales force? Are we halfway there, fully there? Is there a lot more to go as they kind of are in the field more?.

Yes. But before we do that, Dave, just on the cash question earlier, $350 million at the end of the year. I think you had said $250 million. But no, it's $350 million. Go ahead, Nitin..

Yes. So I think, unfortunately, the access hasn't changed much in the last few months. I think it seems to be a new normal. But on the other hand, we are able to get ahold of physicians through other channels. And so we expect that to not change much in the outer years and in the second half of the year as well.

I'm sorry, what was your second question?.

It was just on the expanded commercial team. Just trying to get a sense of kind of the rate of productivity enhancements, how far along the way with that team in place now..

Yes. So I think there's a lot -- a long way to go in terms of increasing the productivity. I think this is the first quarter where the sales team was trained and deployed. It still takes 6 to 8 months for individuals in new territories to develop their territories to really understand what's going on in each of their territories.

And so I expect our sales productivity to increase continuously going forward. We're quite a way away from it. I would say, at least 12 to 18 months away from increasing productivity side. I don't expect us to increase our sales footprint going forward.

I think we can drive a lot of increase in business with the current footprint by increasing productivity..

And then maybe just one more on T-Detect. So for ileal Crohn's and colitis, I know you run a fair number of samples at the presentations.

So is the idea that you need to have a broader signal across more indications than just something like that, which I think those were maybe targeted to be maybe the first out of the chute? Was the idea that the commercial impact of just having those isn't going to be enough so you need to have a broader spectrum of kind of signals? Or were the signals not strong enough in those areas? Maybe just speak a little bit to the first indication you were initially targeting and kind of how those first indications would evolve into a bigger panel..

Sure.

Sharon, do you want to take that?.

Yes, absolutely. Thanks for the question to help clarify. So IBD is still a top priority. In fact, we initiated our clinical study in IBD that covers both Crohn's and ulcerative colitis.

And we are aiming, as Chad mentioned, in terms of this shift and focus in a panel, which includes not just IBD from ulcerative colitis but also other GI disorders, including enhancing our signal, for example, potentially in Celiac disease, and really having a panel of, for example, GI symptomatology that T-Detect could help differentially diagnose and diagnose early.

So that's one example of a panel. And we are still pursuing MS and neuro as a panel where, as Chad indicated, our signal and the strengthening of the signaling lines can also come into play to differentially diagnose. So those are the activities.

And again, we are continuing and are encouraged by the signals that we've generated to date, and that will continue to scale in multiple indications..

Got it. And then maybe a final one just on kind of the outlook is could you help us think through in the context of the guidance for revenues? I know you said 50-50 between MRD and Immune Medicine.

But when we think about some of the buckets within that, would you be willing to provide some color across a clonoSEQ clinical and clonoSEQ pharma MRD development? The different buckets, as you report, how we should think about kind of the trajectory of those businesses implicit in your guidance?.

I don't know, Dan. I don't know if we could specifically break it down. I mean, I think you can, frankly, probably back into it. If you have the ASP and the test delivered numbers, you can probably get close to that. I think the first cut, as you know, is you're going to kind of Immune Medicine and MRD, those broad-based bucket.

Over time, we may provide kind of further resolution into that. But I think you can get somewhat of a proxy. Obviously, the milestones are kind of sitting out there and are probably harder to quantify, but we'll work with you on the model..

Our next question comes from Salveen Richter with Goldman Sachs..

This is Elizabeth on Salveen. This is on the drug discovery vertical. And I'm just hoping you can help kind of frame the opportunity in target discovery and how much that contributes to the long-term growth..

Sure.

Sharon, do you want to take that?.

Yes, absolutely. So on the heels of the signals that we are generating, we mentioned autoimmune disorders like IBD and MS. There's a lot of opportunity that we and potential partners see there in terms of really validating and discovering novel targets to then pursue as therapeutics in these diseases where there's a high unmet need.

And so that's what we're exploring. That is the heart and soul of the TCR antigen mapping effort with our Microsoft colleagues.

And so we're very excited to continue to pursue that and scale that and really get to these novel targets that we can structure deals around discovery and licensing that could also enable some drug discovery opportunities for us in terms of TCRs against those targets or even antibodies..

Our next question comes from Tejas Savant with Morgan Stanley..

This is Yuko on the call for Tejas.

With the DLBCL expected to make a more meaningful contribution in the back half of '23, could you elaborate on the potential opportunities on the clinical research side and whether you see that opportunity to be more near term?.

Sure.

Nitin, you want to take the question?.

Yes, good question. Absolutely. So I think we are already working towards increasing our penetration in DLBCL with pharma companies. And as I mentioned, the therapy landscape for DLBCL is very rich. There's a lot of activity going on there.

There's a large number of clinical trials going on, and our penetration in those clinical trials as an endpoint is very low. So we are working with all the major players in that space, and we expect that to be a near-term revenue contributor. We've already heard from a handful of pharma companies that they view the Medicare coverage very positively.

The fact this test is very broadly available for patient management is viewed positively by them, and we're already having some conversations about using clonoSEQ as an endpoint in DLBCL trials..

Great. And then just as an unrelated follow-up, some of the -- some of your peers in the industry noted they're seeing staffing shortages in hospitals and physician offices.

Is that something you also run into? And if so, has it been a headwind for clonoSEQ?.

Yes. So I think we are seeing something similar, and we do actually see that we get some order spikes on a couple of days within a week largely because I think they are trying to accumulate orders on 2 days out of a week and send us those orders. We see sort of that day-to-day variability.

And -- but despite that, we saw some very strong performance this quarter, and we hope to continue that in Q3 and Q4 as well..

And our next question comes from Mark Massaro with BTIG..

I guess, congrats on the reimbursement for non-Hodgkin's lymphoma. I guess can you comment about whether or not you've received pricing on the test and how we should think about that? I think in the past, you've received sort of a bundle for 4 tests.

Should we think about that as flat to what you already have? And is it fair to think that NHL can be ordered somewhere around 2 to 4x per patient in the blood?.

Yes. Thanks for that question, Mark. Yes, so the pricing is identical through the historic pricing we received for clonoSEQ, the bundle pricing. And in terms of usage, I think that's going to grow over time.

I think our approach is to tackle the relapsed refractory setting of DLBCL first, which is where we think there is greatest utility in the near term. And then as we build evidence and as we build familiarity with physicians on using clonoSEQ on DLBCL, it will also move upstream into frontline treatment.

And I think as more and more treatments come online and as people live longer and longer with these diseases, we expect the usage to increase over time..

Okay. And I know you were asked this question earlier, but maybe just can you confirm that pricing, I think, is already effective immediately. So I guess, why won't this have more of an impact in the second half of '22? I understand that it could be small numbers in the early days.

But given the size of your sales force and the fact that everyone knows what clonoSEQ is, are you just being conservative that the bigger uptake is in '23? Or maybe just walk us through why you have low expectations for the initial uptake in the first 6 months..

Yes. So I think it's a very specific reason. On the current test, I think we talked about this in prior earnings, the current test is based on plasma. And as you know, in the community setting where DLBCL is most frequently treated, the physician's capability to take whole blood, spin that down into plasma and send plasma to us is limited.

So at the end of this year, we're launching a change to the product, where we will be able to accept whole blood in Streck tubes, which are very similar to all the other sort of liquid biopsy tests out there. So that's happening at the end of the year. And I think that's going to be a limiting factor for driving growth in the second half.

So that's sort of the real discrete reason why we think growth in adoption for DLBCL will be limited. And again, I just want to emphasize that the Medicare coverage is for all without limitations, which covers DLBCL throughout the treatment paradigm for DLBCL.

But given that Streck tube limitation, which we're addressing, we think the growth will come really in 2023..

Mark, I'll add one comment to that because it's been said a couple of times. But just to clarify, in -- our largest penetration so far is in kind of the academic medical center where there is a lot more specialization between the leukemias, multi myeloma and then kind of lymphoma is a different category.

Granted in the community, some -- there is still some specialization in the community, but in the community where they do kind of treat all-comers, it's -- we're much more lower penetration rates right now.

So this kind of notion that our sales force -- and obviously, that's what we're trying to get to is that one doc who treats all patient understands our test well, but that's a growing but smaller -- off a smaller base right now..

Okay. Excellent. One last question on MRD. Your press release on NHL sort of referred to the indication as being based on circulating tumor DNA. And I think you've talked about how NHL or DLBCL is almost a borderline heme disorder.

So recognizing that you guys certainly are the dominant market leaders in heme, obviously, solid tumors are also a big opportunity.

I guess, have you learned anything through the development of NHL or DLBCL that leads you to believe that this may be sort of a potential precursor into solid tumor development?.

Yes. I'll address that. I think the ctDNA test that we have developed for DLBCL essentially uses the same underlying technology that we have for DNA that originates from whole cells.

So in that sense, it's very similar and it leverages the years and years of development effort that we put into that assay, all the IP protection we have, all the controls we have in manufacturing and all the operational excellence we have around that test.

But at the same time, it also demonstrates that, hey, we can leverage our technology and look at different analytes. And in terms of looking at solid tumors, that's something we can -- we haven't talked about it, yes..

I'll take that one. And Mark, it's a good question. It's a natural question, especially as kind of new technology we're developing potentially lends itself to being able to evaluate MRD in solid tumors. And from a corporate development perspective, we're continuing -- we continuously kind of evaluate our opportunities.

And that's obviously something naturally we will evaluate amongst kind of many other opportunities to expand our franchise..

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