Good day, and thank you for standing by. Welcome to the Adaptive Biotechnologies Second Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be question-and-answer session. [Operator Instructions] Pleased 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..

Thank you, Jacinda, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies second quarter 2023 earnings conference call. Earlier today, we issued a press release reporting Adaptive financial results for the second quarter of 2023. 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 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 this 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 Tycho Peterson, our Chief Financial Officer. Additional members from management will be available for Q&A.

With that, I’ll turn the call over to Chad Robins.

Chad?.

Thanks, Karina. Good afternoon, everybody, and thank you for joining us on our second quarter 2023 earnings call. As always, I want to thank all of our Adaptive employees for their continued dedication and execution. We’re halfway through the year with solid six months results and key milestones achieved.

As shown in slide 3, revenue for the quarter was $48.9 million, representing 12% growth versus prior year. This growth reflects strong performance from clonoSEQ clinical testing and the achievement of our first milestone in drug discovery, which more than offset an anticipated reduction in our Genentech amortization.

Our R&D programs in oncology and autoimmune disorders continue to progress. Both programs in cancer with Genentech are advancing, and we’re very pleased to see the IND acceptance for our first candidate in cell therapy.

In addition, given our efforts to streamline our organization and improve operating efficiencies, we achieved gross margin improvement of 8 percentage points related to sequencing alone versus prior quarter. We are laser focused on achieving operating leverage and ensuring our path to profitability with current cash on hand.

Earlier today, we announced that Nitin Sood, Head of our MRD business, is leaving Adaptive to take a new position at a multinational public company. Susan Bobulsky, who has led the clinical business for the past five years will assume additional responsibilities and report directly to me.

I’d like to thank Nitin for his leadership and the important contributions he’s made in laying a solid foundation for our MRD business and we wish him success in his new endeavor. Let’s now take a closer look at MRD business on slide 4. Total MRD for the quarter, including clinical testing and pharma grew 22% versus prior year.

On the left side of the slide, you can see strong clonoSEQ clinical volume growth with all metrics trending in the right direction. Tests delivered grew 52% year-over-year with double-digit volume growth in all marketed indications. Multiple myeloma continues to be the largest contributor and the main growth driver.

Ordering healthcare providers and ordering accounts grew 44% and 37% versus prior year, respectively. Blood-based testing increased in all indications and grew 16% sequentially. Now approximately 37% of all MRD tests are in blood.

Community accounts, a key factor to accelerate penetration in blood continued its growth trajectory quarter-over-quarter, and now contributes 21% of clonoSEQ volume versus 11% a year ago. As shown on the right side of the slide, MRD Pharma grew 14% excluding regulatory milestones.

The slight slowdown in growth this quarter reflects macro factors impacting the broader biopharma industry as trials are getting extended and portfolios reprioritized. That said, strength in bookings reflect healthy demand for the business going forward. Zooming into clonoSEQ test volume on slide 5.

We continued to set record high volumes quarter-over-quarter. This quarter volume grew 13% sequentially to over 13,660 tests delivered. Our strategy to drive clonoSEQ volume is working and we reaffirm our commitment to end the year with over 50% volume growth versus 2022.

ASPs were impacted in the quarter due to growth in out of policy indications and higher Medicaid contribution. However, we have a targeted ASP plan focused on closing remaining payer contracts and policy gaps, as well as increasing resources for claim management to improve collections.

We are confident these initiatives will enable reacceleration of ASP growth for the next several years. Related to ongoing initiatives to expand clonoSEQ utilization, Epic integration is progressing well, and we are excited to bring our first pilot sites live this month with additional integration sites to follow.

This marks a milestone for our partnership with Epic and demonstrates our commitment to investing in the clonoSEQ customer experience. We also continue to expand meaningful data readouts at the ASH conference, particularly highlighting blood-based testing in multiple myeloma. As shown on slide 6.

The final analysis of the MASTER study was presented during the EHA conference in June. This study shows that for patients who discontinued therapy after two consecutive negative clonoSEQ tests, over 85% of them in the standard or high risk category did not progress after three-year follow-up data.

These data have been very well received by physicians and are driving adoption of clonoSEQ for making critical therapy decisions for patients. In summary, the setup for MRD is strong in both clinical testing and pharma, and we look forward to continuing to fuel its growth. Switching to our Immune Medicine business on slide 7.

We generated $23 million in revenue this quarter from drug discovery and pharma services with drug discovery contributing more than 75% of the revenue. Our IM pharma services business was impacted this quarter by macro factors affecting the broader biopharma industry, including strategic and/or budget reprioritization.

In addition, year-over-year comparisons vary as the RUO pharma business is lumpy throughout the year. This was an important quarter for drug discovery. We recognized the first IND development milestone from our cell therapy partnership with Genentech.

This milestone represents a new revenue stream to help offset the decrease in the Genentech amortization this quarter. Let’s take a closer look at our cell therapy program with Genentech on slide 8. Genentech secured the FDA IND acceptance for the first neoantigen directed T-cell therapy product candidate.

Importantly, this IND acceptance reaffirms the value of our TCR discovery platform and our ability to identify and characterize clinical grade therapeutic T-cell receptors, which is a cornerstone of our drug discovery capabilities.

We are thrilled by this acceptance and look forward to supporting Genentech as it gears up for the first inhuman trial with this potentially life-saving therapy for patients with solid tumors. In addition, the personalized program is also maturing.

We are on track to standardize our end-to-end workflows and are making good progress in building the required regulated infrastructure and our dedicated South San Francisco laboratory. Our focus with Genentech is to build the product development requirements this year that lay the foundation for clinical readiness.

As you can see in slide 9, in addition to our cancer cell therapy partnership with Genentech, we’re executing to deliver on our key R&D proof points in autoimmunity. This includes focusing resources on high value R&D programs to discover novel targets starting in multiple sclerosis.

We aim to identify at least one novel disease specific target by year-end. We’re excited by the progress we’re making and we look forward to providing an update as we advance these programs during the second half of this year. I’ll now pass it over to Tycho..

Thanks, Chad. Turning to our financials on slide 10. Total revenue in the second quarter was $48.9 million, with 53% from MRD and 47% from Immune Medicine, representing a 12% increase from a year ago, which was primarily attributable to growth from the clonoSEQ clinical business and the Genentech IND milestone.

MRD revenue grew to $25.9 million, up 21% from a year ago with growth from both clinical testing and pharma partnerships, partially offset by a lack of MRD regulatory milestones. ClonoSEQ test volume, including international increased 52% to 13,664 tests delivered from 8,998 tests in the same period last year.

Immune Medicine revenue was $23 million, up 3% from a year ago, driven by recognition of the IND milestone, which more than offset the decline in Genentech amortization and pharma services. Now moving down the P&L on slide 11.

Total gross margin for the quarter was 63%, representing a 13 percentage-point increase versus last quarter and a 6-point decline versus a year ago. The sequential increase was mainly attributed to the IND milestone as well as a 4% decrease in cost of revenue.

Other OpEx, including R&D, sales and marketing and G&A declined 5% in total versus a year ago, mainly due to a 13% decline in R&D. In total, OpEx including cost of revenues remained stable year-over-year and sequentially while revenue grew 12% and 30% respectively during the same periods.

We look forward to continuing to optimize our processes to further enhance margins through a number of efforts, including streamlining the organization, disciplined R&D investments and completion of the lab move with updated lab information management systems.

In addition, we are evaluating switching from NextSeq to NovaSeq X, which we expect to contribute to significant savings going forward. Finally, interest expense from a royalty financing agreement with OrbiMed was $3.6 million, which was offset by interest income. Net loss for the quarter was $47.7 million compared to $52.1 million last year.

We ended the quarter with approximately $417 million in cash, equivalents and marketable securities, which as Chad noted in his comments, will bridge us to profitability without the need for additional capital. Now turning to our outlook on slide 11. We are reiterating full year guidance of $205 million to $215 million in revenues.

At the midpoint, we continue to expect the contribution from our businesses to be approximately 55% from MRD and 45% from Immune Medicine. Within our MRD business, we expect over 50% growth in clonoSEQ test volumes as well as MRD regulatory milestones in the back half of the year.

We expect second half revenues to be more heavily weighted toward the fourth quarter, mainly attributed to drug discovery deals that we expect to close by year-end. As we continue to drive operating efficiencies, we are also reiterating our full year OpEx targets, including cost of revenue to be below 2022 OpEx of $385 million.

Cash preservation remains a priority and we now expect our burn for the remainder of 2023 to average $35 million per quarter versus the $40 million previously estimated. Q2 financial results were solid and we remain committed to driving additional operating leverage and achieving positive EBITDA in 2025 and cash breakeven in 2026.

I’ll now turn the call back over to Chad..

Thanks, Tycho. As discussed during our call, our MRD and Immune Medicine businesses are performing well and we are looking at ways to maximize the potential value of each business to best serve our patients and our shareholders. In our MRD business, we are executing to increase clonoSEQ penetration and solidify our market leading position.

In our Immune Medicine business we continue to advance our partner programs with Genentech and our internal R&D efforts in autoimmunity. With that, I’d like to turn the call back over to the operator and open up for questions..

[Operator Instructions] Our first question comes from Rachel Vatnsdal of JPMorgan Chase. Please go ahead..

So first up with Nitin’s announced departure, can you just walk us through the management transition plan for MRD and if you expect to have any strategic changes in that business going forward? And as a follow-up, you flagged some of the temporary delays around clinical trials and reprioritization of portfolios at pharma.

So, could you walk us through how long do you think that those delays in reprioritization could really weigh on the MRD business?.

Yes, sure. Thanks for your questions, Rachel. First, with respect to Nitin, I want to thank Nitin who’s on the call. I’ll turn it over to him in a minute to make some comments. But I want to thank him for all his contributions to the business. There’s going to be a seamless transition that we are more than prepared for. We have an incredibly strong bench.

Susan Bobulsky is going to lead the clinical business and report directly to me. She’s been actually leading the clinical business with direct oversight of the sales team for the last several years, and is really a fantastic leader that’s been with the company for 10 years. And the business is in really good shape. The strong foundation is there.

We’re firing on all cylinders. ClonoSEQ volumes are growing at a very fast pace. We’re committed to over 50% volume growth this year. And as mentioned during the call, all metrics are pointing in the right direction and we’re in very good shape and expect a very seamless transition.

Nitin, do you want to make any comments?.

Yes. Thanks, Chad. This decision has been a difficult one, as Adaptive has been a truly rewarding place for me to work at. And the MRD business is on a solid foundation. Our latest quarterly results demonstrate that.

We have a market leading position in hem cancer MRD with the best performing products, strong clinical evidence, broad reimbursement, and we are the product of choice in pharma. And Susan is a fantastic leader, has been a key player in building the business from the ground up.

We have a dedicated and committed team that’s deeply passionate about improving the lives of hem cancer patients. And I’m honored to play my part in such solid and impactful business, and I’m very confident it’ll do extremely well in the future and continue on the growth trajectory that we’ve demonstrated over the last few quarters.

So, it was not an easy choice. But again, I’m really delighted that Susan is stepping up and the businesses on a very strong, strong footing. Chad, back to you..

And maybe just a comment there on clinical trials reprioritization?.

Chad, do you want me to answer that or you want to take that first? It looks like they may have dropped. Yes, we’ve been closely monitoring the business and we don’t have a sort of a firm timeline. We’ll give you guys an update every quarter. A lot of our business in the MRD pharma space comes from multiple myeloma.

We’re in pretty much every trial in multiple myeloma. So, not only there’s some reprioritization of the portfolio going in multiple myeloma, but a lot of these trials are competing for the same patient pool. And as a result, there has been some delays in enrollment, but we keep a close eye on it. And as and when we hear updates, we’ll update you..

Great. And best of luck. Maybe if I could just squeeze in one more on margins. Gross margin came in at 63% during the quarter, a nice improvement sequentially versus 1Q.

So, could you just walk us through the components of the increase there? And then really how should we think about gross margins evolving for the rest of the year and even into 2024? And remind us really, what are those margin drivers? Thank you..

I think we lost the room that has Tycho, Chad and Sharon in it. So, can we come back to that question? This is Harlan. I think I’ll get in trouble for answering a financial question. So, let’s wait for Tycho to come back on and we’ll return to that question..

Can you hear us Harlan?.

Karina, are you back on?.

Yes, we’re back on. Hold on, I’m going to call again..

Karina, did you hear the question around gross margin?.

Yes, we did. Tycho is right here. Hold on..

Yes. So, as it relates to gross margins, versus the prior quarter, milestones within our business, we have in both the MRD and Immune Medicine business, they come in at a 100%. So, we saw the lack of milestones have an impact on the first quarter.

Conversely, in the second quarter, we obviously had the IND with Genentech that had a significant positive impact. I did call out in the prepared comments, lower cost to revenues. So that drove about an 8-point improvement in sequencing margins. We’re continuing to streamline the organization there and drive efficiencies in the lab.

We are in the midst of a lab move. On the back of that, we’re doing a LIMS implementation. We’ve talked about evaluating NovaSeq. So, we have a number of drivers embedded for continued margin improvement around the sequencing business. As it relates to the year-over-year dynamic, there was a step-down in Genentech amortization, and no MRD milestones.

So, that was a bit of a headwind this quarter. And then cost of revenue was higher due to overhead spending in the lab. Again, we’re moving our lab into the headquarters right now. We’re in the midst of that, so that’ll lead to lower cost of revenue on the backend, but that did weigh on it a little bit.

Importantly, you know, I would just once again flag the 8% sequential improvement in sequencing margins, and the fact that we do have a number of additional steps we’re evaluating, including a potential shift to NovaSeq..

Our next question comes from Dan Brennan of TD Cowen..

You talked about clonoSEQ ASPs, could you just give a little more color there? Like what was the expectation? You mentioned a couple of the headwinds and actions you’re taking to get the ASPs going in the right direction? Just walk us through a little bit of the impact this quarter and what we should expect going forward?.

Yes, sure, Dan. The quarter ASP was impacted by three different factors. One is growth and indications that remain out of policy. So looking at DLBCL and MCL as an example. The second was testing for Medicaid patients increased to 12% of our product mix. And then third, prior authorization hurdles with certain payers.

And I should just say that we have an ASP acceleration plan in place that’s focused on a couple of different items. The first is closing the remaining payer contracts and policy gaps and the second is increasing our resources for claim management and prior authorizations to improve our collections.

So, as we tackle some of the ASP leakage, we do expect to reverse the trend in the second half versus the first half of this year. And we are committed to an acceleration onward and are confident in reaching the $1,600 a ASP kind of price point by 2027 with a kind of solid increase year-over-year to get there..

And then maybe just one back to Rachel’s question on biopharma. So, just kind of broadly, I know you don’t give a lot of sub-component details about guidance.

But like where are we in the evolution of some of the biopharma kind of hopefully more temporary pressures on spending and maybe availability of patients? How do we think about the trajectory, like Q3, does growth pick up on -- both on the MRD side and then in immunoSEQ R&D side, or do you think the type of growth persists for the rest of the year?.

Yes. So, we did talk about it being a backend loaded year, more skewed toward the fourth quarter. Keep in mind last year we had about 55% of revenues in total in the fourth quarter. It’ll be a bit higher this year. There’s a couple other moving dynamics.

I’ll answer your pharma question in a minute, but we are expecting MRD to grow in the third quarter at a higher rate than we saw in the first half. And then keep in mind, we had a big quarter of Genentech amortization and Immune Medicine in Q3 last year, it was $20 million. So there’s a little bit of a tough comp issue.

And then we’ve got both growth in pharma services and new drug discovery deals that are in discussion that are expected to come in by the fourth quarter. As it relates to pharma services specifically, we’ve got a very diversified portfolio. We’re involved in 120 active trials, 60 companies.

It’s a mix of mid cap and large pharma in different stages of development. So, I’m not sure if you heard my comment earlier, because I know the line cut in and out, but we are committing to the 20% CAGR for that business over the next five years. So we’re very confident in the long-term outlook.

It’s also coming off a tough comp that business had significant growth last year. So, we are acknowledging that we do see some reprioritization of pipelines. But overall given the diversified portfolio, we’re comfortable that that pharma services business can continue to grow north of 20% over the next five years..

Our next question comes from David Westenberg of Piper Sandler..

So I just want to dive in a little bit more on in terms of the ASPs here. Because you did have pretty good momentum going in that business, so caught me a little bit off guard here.

Can you talk about how those uncovered indications tend to grow faster? I mean, was there a lot of marketing? Was there just kind of an under-penetration and maybe you’re over -- or more penetrated in kind of the higher growth indications?.

Let’s take DLBCL, DLBCL grew 28% quarter-over-quarter, albeit from somewhat lower base. So, it is increases in new indication, but it’s a variety of different factors. One is an industry related factor that Medicare advantage from private payers has been a challenge for the industry and collections.

And we’ve got a very targeted plan to work on collecting at the Medicare rate for Medicare advantage plans is another area, but it’s kind of -- as you grow indications and new indications that aren’t covered yet, you tend to -- that tends to be going to -- while a drag on ASPs, it also bodes well for the future as we close those policy and pay our gaps.

So, net-net we’ve got a very targeted ASP acceleration plan in place. We expect to reverse that. It’s actually you already starting to reverse in the third quarter, expected to reverse it not only second half of the year, but going forward to be able to achieve kind of that top line 1,600 by 2027..

And then, is there any headwind from maybe getting tests ran outside of the first four covered indication in Medicare? Are you seeing Medicare patients order that? Can that be a potential headwind in the future? And then just to clarify, I believe most of your private payer coverage, it’s just based on a test by taste basis.

It’s not the same way as that Medicare. And so, I’m going to squeeze one more in. You do seem to implying like on a sequential -- we should be returning to sequential improvement in ASPs as we see maybe quarter-on-quarter sequential improvement or year-on-year sequential improvement.

I mean that is tracking -- when we see, I don’t know, maybe next year Q1-ish. Sorry, I’m kind of rambling there. So, I’ll stop..

No, it’s like Rodney Dangerfield in Back to School, but I think I’ve got -- I think I’m tracking you, David. So a couple of things. One is, our test by test basis for private payers, the answer is yes, that’s confirmed. It’s not on an episode of care basis, like it is on Medicare. The third question was with regards to ASP acceleration.

We do have a targeted plan for ASP acceleration and we do expect ASPs to accelerate in the second half of this year. And then, the third, if you look at kind of our different indications, I will just say that, multiple myeloma continues to be biggest growth driver. It is under coverage policy.

But we are expanding indications for CLL and diffuse large B-cell lymphoma in other indications with private payers as well.

So, if you combine all those factors, that’s what’s going to lead to ASP acceleration along with, again, I can’t reiterate enough that we’re putting additional resources into kind of workflow and collections and getting prior authorizations where necessary..

Sorry, I’m squeezing in a third. So you answered pretty quick. Just quick on the biotech funding, are you seeing that in Immune Medicine or MRD or both? And hopefully you could just answer that quickly. Sorry everybody for that third question..

We’re seeing that a little bit in both as budget reprioritization. However, both have strong pipelines in place and market leading positions. So we -- but we do see some impact for different reasons in the case of budget reprioritization in the MRD pharma business.

Some of it also has to do with kind of multi myeloma competition for patients in clinical trials as well..

Thank you. We will move on to our next question. Please hold. Our next question comes from Mark Massaro of BTIG..

Thanks for taking the questions. It’s tough to follow Rodney Dangerfield on a call, but -- and I wanted to say Nitin, it was good working with you and best of luck going forward. And Susan, I look forward to working with you some more. So, we got some investor questions, a little bit -- a little more on the ASP side.

So, Tycho, I heard you maintain the clonoSEQ volume guidance for 50% plus, which is great to see. I think you guys had previously talked about wanting to grow clonoSEQ ASPs up in the mid-single-digit range. Although today you guys called out some of the -- three pressures that you called out.

So I’m just curious, if that mid-single-digit growth in ASPs is still on target, or do you think that might drift into 2024 as you kind of make progress on some of those initiatives you called out?.

Yes. I mean, we're definitely expecting an improvement in the back half of the year versus the first half. We had noise in both the first and second quarter here, in particular, around Medicare Advantage -- Medicaid overall, by the way, is 12% of our test mix. So the -- and then Chad talked about growth and indications out of policy.

But yes, I'd say stay tuned. I mean, I don't know that we necessarily want to update. We're going to update on the third quarter in terms of how we're thinking about ASPs for the full year, but we do expect the back half certainly to be better than the first half. Again, we've taken a lot of steps over the last few months to tackle the ASP leakage.

It's an industry-wide problem, by the way. I mean [indiscernible] our competitors are dealing with a lot of this noise too. And we are still expecting to get to $1,600 over time. So whether it takes a quarter or two to kind of work through the rest of this noise, TBD, but we're very comfortable in the long-term outlook for ASPs overall..

Yes. And add CareDx to that list as well of labs dealing with these pressures. Okay. So, I guess, can you guys call out what the milestone payment was in the quarter? I think it's somewhere in the $4 million to $7 million range.

Is that the right ballpark?.

So, Dave, there was the Genentech IND acceptance, right? That was 7.8. It's a $10 million milestone, but we amortize the rest of it. And yes, there was nothing for MRD..

And then just last one, just to kind of clarify. Obviously, I don't think there's any change to reimbursement rate for clonoSEQ, nothing like that. I think this is largely just a function of higher Medicaid mix, some prior auth, mix of DLBCL.

I guess, one of the things I think investors would love clarity on is how quickly do you think you guys can make progress on the prior auth side? And then do you think Medicaid is transitory, or do you think that will remain around 12% of mix? And then, like where are you guys again on DLBCL commercial payer? I know it's super early, but are you guys making any progress there, or do you think it's going to be more of a further out?.

Yes. So just to address the [Technical Difficulty] that in terms of Medicaid, we're looking at converting some of the high ordering accounts that have made a high volume of Medicaid patients to roster billing accounts to close some of that gap.

With respect to prior authorizations, we've already started implementing and putting that kind of workflow in place to get prior authorization. So, this isn't a several quarters out. This is happening now.

And then third, in terms of Medicare Advantage and private payers covering at the Medicare rates, we've already started to make progress on that front as well. Your last question with respect to coverage in DLBCL and frankly, other indications. We've done a good job on CLL. We're now about 200 million lives under contract.

DLBCL, we have additional data readouts coming in ASH, which we think should be a catalyst for private payer contracts into 2024. The current rate is we have about 75 million covered lives under it and we look to increase that significantly in 2024..

Our next question comes from Salveen Richard of Goldman Sachs..

This is Elizabeth on for Salveen. I wanted to ask about the impact of the Epic integration on MRD going forward through the end of this year and into next and what you would expect in terms of the cadence of growth impact from that as it seems like it could be a significant driver.

And then just on the Genentech collaboration, when we could expect an update on the personalized products. Thank you..

Yes, sure. Thanks, Elizabeth. First, yes, we're thrilled that we're starting the first Epic integration this month with a couple of different customers. The first successful Epic launches, I think, demonstrate what is incredibly hard work to integrate into the Epic site. And so, we're ready to go.

We have received substantial interest from additional sites that are eager to gain access to clonoSEQ testing and integrate with their EMR system. Rollout is really gated by the availability of the IT resources at each different center. So, it is kind of really a hand-to-hand combat with each site.

But the reality is there's a ton of interest and we'll be kind of rolling them on month by month, quarter by quarter until we have what we deem as full penetration as much as possible within Epic. Just a couple of numbers here for you. I think as of June, there are 161 sites in the U.S.

that had adopted Epic or a network, which is their precision medicine add-on that's required for clonoSEQ integration. And it's also required for all the other diagnostic tests that are partnered with Epic such as FMI Exact, et cetera. It will take us a few years to get through that number of integrations.

In the meantime, the list of sites that kind of adopt or will also continue to grow. So, we expect that -- we expect that this will grow over time.

And we also have talked about really the contributions in terms of volume being really coming in 2024, although we will see kind of some impact in the back half of this year, which we talked about to achieve our over 50% volume growth..

Got it. That's helpful. And then just on the time lines for an update on the personalized product..

Sharon, can you take that one?.

Absolutely. Hi Elizabeth. Thanks for the question. So of course, on the heels of the first IND FDA clearance, this of course validates our ability to identify clinical grade therapeutic T-cell receptors that is for the first product. And obviously, the capabilities built to that end is what we're also leveraging for the fully personalized.

In terms of time lines, we're not in a position to disclose specific time lines, but certainly, in terms of an update, we're continuing to develop the prototype hand-in-hand with Genentech across really multiple parameters.

Number one is the number of patients to whom we can identify specific TCRs to each patient's unique tumor mutation, and then really having an understanding to ultimately standardize the ability to understand the total number of T-cell receptors we can identify from each patient.

And that allows us to establish really a more reproducible, reliable expectations for the end-to-end process that we're putting in place. So, more to come across the board on that.

I will say that in terms of updates, Genentech earlier this year started just sharing some of the data, including the proof-of-concept study design for one lung cancer patient that we also presented earlier this year in a conference in New York. And that was a great example of one patient where end-to-end, the process has worked.

And so, we'll obviously look forward to sharing more information as more data reads out with our partner, Genentech..

Our next question comes from Tejas Savant of MS..

This is Yuko on the call for Tejas. Thank you for taking our questions.

Following the recognition of IND acceptance milestone from Genentech this quarter, could you speak to the next events that could trigger a milestone? And would you recognize a similar amount of milestone, approximately $7.8 million, upon IND acceptance of additional candidates that advance into the clinic, or should we expect the milestone for the IND acceptance of the first candidates to be bigger than the additional candidates that follows?.

Thanks for the question. We haven't disclosed the quantum of IND milestones, but of course, they stack. And the more progress across development of a given candidate as is typical in these types of licensing deals, the higher the economics. So, we're excited, certainly by this first IND clearance.

And as was mentioned, we do have other TCRs that are being advanced as well as ultimately our fully personalized product program..

And then regarding the evolving landscape and move towards the use of MRD status as a regulatory endpoint in clinical trials.

Could you provide an update on where that stands today and how you see the more recent conversion of BLINCYTO to full approval influences that view?.

Yes. Hey Yuko. So, we continue to put pressure along with our pharma partners on the agency for the use of MRD as an endpoint, particularly as moving from surrogate to secondary to primary endpoint.

We do believe that we are making progress in the data that continue to be generated points in the direction that this should be converted to an endpoint in clinical trials soon. It's really hard to be prescriptive about giving a time frame as to when the FDA is going to act on it, but metrics are pointing in the right direction.

So, the second question, again?.

Just wondering if the recent approval -- full approval of BLINCYTO that had an accelerated approval a few years ago, if that influences the view on the primary endpoints or have you seen any more traction following that?.

Yes. I mean, so Glen and ALL, I think it does vary by indication. We're primarily now focused on multi myeloma. I think that's, to us, the biggest catalyst. If you look at where our milestones are. I think that clearly, it's helpful to have kind of full approvals that use MRD in their trials across indications.

There is a CLL study with Genentech as well that includes MRD. So yes, a lot of different pressures from multiple directions in multiple indications are pointing towards the incorporation of MRD as an endpoint by the agency..

And then I'll just add, Yuko, you've heard us talk in the past, we've got line of sight to about $400 million in eligible milestones -- sorry, line of sight of about $170 million of that.

But if FDA does move forward and endorse MRD as a primary endpoint, that's kind of upside relative to what we've previously talked about in terms of the path to profitability. So, that's not baked in the guidance at this point..

Our next question comes from Dan Leonard of Credit Suisse..

You talked about Epic. I'm wondering if you could update us on your efforts to integrate clonoSEQ with community EMRs..

Yes. So, we -- obviously, Epic isn't the EMR of choice in the community. We are evaluating the EMR systems to figure out just colloquially where we're going to get the biggest bang for our buck as we look to essentially make the test easier to order and integrate into system. So it's certainly on the radar and under evaluation..

And then my follow-up.

Can you speak to your expectation for more drug discovery deals in the fourth quarter? And how confident you are given the macro factors and reprioritization that you flagged?.

Yes. Sure. I'll start with that and then maybe pass it off to the team for additional color. First, it should be noted that the deals that we have for drug discovery in the fourth quarter are based on the existing data that we've already developed and the platforms that we've developed in TCR discovery and antibody discovery.

And the discussions are well underway. They're in progress. They've been advancing. Otherwise, they wouldn't be incorporated into our annual numbers here. And then secondly, we have a series of essentially target discovery initiatives underway that are really exciting, and I think will lead to future development deals as well.

We can either choose to partner on those programs or develop those targets in-house, combining with our platform capabilities. Tycho, did you want to add anything on that? Okay, great..

Our next question comes from Derik de Bruin of Bank of America..

Just impressive that you're going to do 50% volume growth this year in clonoSEQ. Right now, looking at the visible alpha consensus, the Street is looking for about 40% growth in 2024 -- year-over-year growth.

Is that a reasonable number to think just given some of the ERP integrations and things that are going on? Is that -- I mean, are you comfortable with growing at that level?.

Derik, we haven't put out guidance yet for 2024. However, I can say we are committed to significant double-digit growth. We think there's a strong trajectory in clonoSEQ volumes that will continue well into the future.

So, I would -- if I had to go off -- it's not unreasonable, but we'll get back to you with more specifics as we come out with our guidance..

Got it.

And can you talk a little bit about just upcoming milestones or catalysts for your autoimmune program? How should we sort of think about that since autoimmunity being a lot more interesting AI than some of the other stuff?.

Absolutely. Hi. It's Sharon. So, in our focus in R&D and autoimmunity, as we've indicated, our goal this year is to discover at least one novel target in one indication, including our focus specifically is in multiple sclerosis and IBD. And so we're making great progress and are quite excited.

Some of the ramifications here is that we're looking at targets that are implicated in a large patient population. And then, the data we're generating to accelerate target identification is absolutely leveraging some of our existing machine learning and AI capabilities, including, of course, with our partner, Microsoft.

So, we're extremely bullish around novel target discovery and really the discovery engine that we're building the foundations of around MS and other autoimmune indications to come..

Thank you. I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect..