Thank you for joining us for the Adaptive Biotechnologies Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants are currently in listen-only mode. After the presentations, there will be a question and answer session. Today's program is being recorded. I would like to introduce your host for today, Karina Calzadilla, Head of Investor Relations. Please proceed.

Thank you, Jonathan, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies fourth quarter and full year '23 earnings conference call. Earlier today, we issued a press release reporting Adaptive financial results for the fourth quarter and full year of '23. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and we’ll be referencing a slide presentation that has been posted to the Investors section on our corporate website. During the call, management will be making 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 Tycho Peterson, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I will turn the call over to Chad Robins. Chad?

Thanks, Karina. Good afternoon, everyone, and thank you for joining us on our fourth quarter and full year earnings call. As you can see on Slide 3, 2023 was a year of transformation for Adaptive. Key milestones were achieved for both MRD and immune medicine. We executed OpEx reduction initiatives to drive efficiencies and reduce burn, and we initiated a strategic review process to maximize the value that MRD and immune medicine can deliver to patients and shareholders. We ended the year with $170 million in revenue, including 60% from MRD and 40% from immune medicine. The MRD business grew 27% versus prior year excluding milestones as we experienced outstanding growth from clonoSEQ’s volumes. This growth from MRD was offset by a decline in immune medicine mainly due to the reduction in the upfront amortization of Genentech. As a reminder, last quarter, we updated total company guidance to exclude revenue from immune medicine. We made this decision based on a strategic shift in immune medicine to focus exclusively on targeted drug discovery. Importantly, we ended the year with a strong cash position of approximately $346 million, which enables us to execute on the strategic priorities of both businesses. In MRD, we aim to drive clonoSEQ’s penetration and revenue growth with the goal of reaching profitability by the end of 2025. In immune medicine, we will advance our targeted drug discovery efforts in cancer and autoimmunity, which includes supporting the partnership with Genentech, validating a therapeutic candidate for multiple sclerosis and scaling target discovery for other autoimmune disorders. Before I go into the details of each business, I'll provide an update on the strategic review. In the third quarter of 2023, we retained Goldman Sachs to advise on a strategic review to maximize value to our shareholders. The MRD and immune medicine businesses had different value drivers, investment needs, and talent requirements. We are evaluating various alternatives to unlock the full potential of each business and we're on track to communicate the final outcome at the end of this quarter. Let's now take a closer look at our MRD business starting with Clinical Testing on Slide 6. clonoSEQ’s clinical revenue in the fourth quarter grew 56% versus prior year and 25% compared to the prior quarter with growth coming from both volume and ASP. Volumes continue to grow quarter-over-quarter with 15,680 tests delivered in Q4, representing a 49% increase versus prior year and a 4% increase sequentially. As a reminder, the fourth quarter is typically impacted by fewer business days. We are off to a great start this year with record-high clonoSEQ volumes year-to-date. Growth came from all marketed indications and multiple myeloma continues to be the largest contributor. In addition, the actions we put in place to improve collections and expand coverage are working. ASPs in the fourth quarter grew double-digits sequentially. We continue to be laser-focused on driving ASP growth by reducing out-of-policy and non-contracted claims and further optimizing revenue cycle management. As such, we anticipate an increase of approximately $200 in ASP per test over the next two years. It is encouraging to see positive trends on clonoSEQ key indicators as shown on Slide 7. Blood-based testing increased with all indications contributing 39% of clonoSEQ tests, and we expect this percentage to grow as we generate more clinical data in blood and commercialization in non-Hodgkins lymphoma. Blood-based testing is also a key driver of the quarter-over-quarter growth we are seeing in the community, which now contributes around one in four clonoSEQ tests. Recent data presented at ASH showed evidence that clonoSEQ MRD from blood predicts progression-free survival early in the treatment cycle for multiple myeloma patients. Additionally, ordering healthcare providers and ordering accounts grew 33% and 29% versus prior year respectively. EMR integration is a key element of our growth strategy and is central to our efforts to further enhance our customer experience. We completed EPIC integrations with our first five accounts and expect to complete 15 to 20 more this year, including several of our largest accounts. Last week, we signed an important new integration partnership with Flatiron Health, a leading provider of EHR software and services for community oncology. We look forward to executing this partnership and expect to make clonoSEQ available to practices via the molecular profiling integration and Flatiron’s OncoEMR system in 2025. Looking at MRD Pharma on Slide 8. Full year revenue was essentially flat versus prior year due to broader macroeconomic factors impacting the biopharma industry, which resulted in lower sample volume across our portfolio's prospective trials. That said, we saw some recovery in the fourth quarter, which experienced 23% growth sequentially. Despite these transitory headwinds, we ended the year with a healthy backlog of about $185 million and signed two important pan portfolio collaboration agreements with Takeda and BeiGene. 2023 was a great year for clonoSEQ, and we are well-positioned to cement our leadership as the gold standard in MRD for clinicians, patients, pharma partners, and payers. Looking ahead, as shown on Slides 9 and 10, our priorities for MRD are clear. First, further increase penetration by growing blood-based testing, expanding into new indications like MCL and CTCL, and adding new use cases through data generation and enhancing the customer experience through EMR integrations. Second, improve margins through ASP increases and operating leverage with the primary goal of reaching positive adjusted EBITDA in the second half of 2025 and cash flow breakeven in 2026. Turning to immune medicine on Slide 12. In 2023, our immune medicine business achieved two key milestones: first, FDA IND acceptance was secured for the first T-cell therapy product candidate under our partnership with Genentech; and second, we discovered a novel druggable target in multiple sclerosis, which sheds light on potentially new T-cell biology that may be a causative trigger for this devastating disease. These immune medicine milestones further sharpened our focus on target and drug discovery, specifically in high value opportunities in cancer and autoimmunity. As shown on Slide 13, in cancer, we continue to support Genentech in the development of two categories of TCR-based cell therapy products. On the first product, we are engaged with Genentech’s development team as it gears up for its first in human trial. For the fully personalized program, we completed building our regulated process workflow, and this year, we're initiating end-to-end testing for future clinical readiness. The valuable immune receptor data that we have been generating for over a decade is a treasure trove of information that, together with our partner Microsoft, we used to develop and train AI/ML models to help accelerate our target and drug discovery efforts. In autoimmunity, our focus is to further validate the MS target in known disease models. In parallel, we're deploying our antibody platform to identify a therapeutic candidate that specifically binds to this self-antigen and blocks a potential causative event in MS. In addition, we’re applying the exact same approach that we used in MS to discover novel targets in additional prioritized autoimmune indications including Type 1 diabetes and rheumatoid arthritis. As you can see on Slide 14, in 2024, we will gate our R&D investments based on key proof points that drive future value for both our partnered and wholly-owned drug discovery pipeline. I'll now pass it over to Tycho.

Thanks, Chad. Starting on Slide 15 with revenue for the fourth quarter and full year. Total revenue in the fourth quarter was $45.8 million with 67% from MRD and 33% from Immune Medicine. MRD revenue grew to $30.8 million, up 9% from a year ago. clonoSEQ clinical performance was the main driver, partially offset by a reduction in revenue from pharma services and regulatory milestones. Excluding regulatory milestones, MRD revenue grew 18% from a year ago. clonoSEQ test volume increased by 49% with 15,680 tests delivered from 10,526 tests in the same period last year. Immune medicine revenue was $15 million, down 45% from a year ago driven as expected by lower Genentech amortization, which decreased 53% year-over-year. For the full year, 2023 revenue was $170.3 million, representing an 8% decrease year-over-year. MRD revenue was $102.7 million, up 18% from a year ago, driven by a 27% increase from MRD service revenue, partially offset by a lack of regulatory milestones. Immune medicine revenue was $67.5 million, down 31% from the prior year. As Chad mentioned in the 3Q '23 earnings call, we opted to exclude Immune Medicine from revenue guidance given the shift in focus to target and drug discovery. Moving down to the P&L, on the right-hand side of the slide, total gross margin for the quarter was 57%, representing an eight-point increase versus the third quarter and a 13-point decline versus a year ago. The sequential increase was largely due to efficiencies from the lab moves. Versus the prior year, the decline was driven by the lower amortization of the Genentech upfront and a lack of milestones which have a 100% margin contribution. R&D, sales and marketing, and G&A operating expenses declined 8% in total versus a year ago as we continue to place a strong emphasis on driving leverage. Net loss for the quarter was $69.5 million, compared to $40.2 million last year. For the full year, operating expenses, excluding the $25.4 million one-time impairment charge in the fourth quarter, which was related to our legacy lab and headquarters space totaled $371.9 million, compared to $385.5 million in 2022 representing a 4% decrease. This reflects our ongoing efforts to drive operating efficiencies, partially offset by a higher cost of revenue. Full year net loss was $225.3 million, compared to $200.4 million in 2022 while adjusted EBITDA was a loss of $116.4 million, compared to a loss of $121.6 million in 2022. We ended the year with approximately $346 million in cash equivalents and marketable securities. Now turning to 2024 guidance on Slide 16. As mentioned in our last earnings call, revenue guidance will be provided only for the MRD business since immune medicine resembles a more traditional drug discovery biotech model, and we want to ensure that we do not trade off short-term revenues for long-term value. We expect full year revenue for MRD to be between $130 million and $140 million. At the midpoint, we anticipate a 65% and 35% contribution from clinical and pharma services respectively. Guidance includes conservative MRD pharmacy services growth as we continue to monitor broader impacts affecting the pharma industry. It also includes MRD milestones in the low-single-digit millions, which could have upside depending on clinical trial outcomes. With respect to trends throughout the year, we expect MRD revenue to be 45% to 55% weighted between the first and second half respectively. Of note, given that our immune medicine efforts are focused on target and drug discovery, revenue from our IM pharma collaborations will be used to offset R&D investments. Finally, our collaboration with Genentech continues to advance and we expect to recognize roughly $14 million in amortization of the upfront this year. Moving down the P&L, we expect operating expenses, including cost of revenue, to be between $360 million and $370 million for the year. This deceleration in spending reflects our ongoing efforts to optimize resources and drive operating efficiencies, while supporting healthy top-line growth. We continue to be thoughtful about our cash position; excluding potential one-time costs from the strategic review, we expect an average burn of $35 million per quarter representing an annual reduction of 10% versus 2023. With that, I'll hand it back over to Chad.

Thanks, Tycho. We're off to a running start. I'm confident in our ability to continue to grow our clonoSEQ MRD business and to demonstrate our target and drug discovery capabilities in immune medicine. I look forward to communicating with you on the outcome of the strategic review, which will enable us to drive success and maximize value for all stakeholders. With that, I'll turn it back over to the operator and open it up for questions.

Our first question comes from Dan Brennan from Cowen. Please go ahead with your question.

Great. Thanks. Thanks for taking the questions. Maybe Tycho, can you just walk through a little bit of how the OpEx kind of outlook for '24 and the revenue kind of what are we considering for burn? I know you touched upon it? But just kind of walk through the key drivers of where the burn goes?

Yeah, yeah, we talked about $35 million per quarter. We're obviously continuing to drive efficiencies across the organization. So you're seeing leverage in sales, marketing, G&A and R&D. So, as we've kind of mentioned in prior calls, there's currently no stone unturned as we kind of go through the ongoing business review.

Got it. And then, just on the MRD side of the business, the clinical and the pharma side, just on the clinical side, so how do we think about like the volume and the realized price implicit in the '24 guidance?

Yes, Susan, do you want to take that?

Sure. So, look I guess the volume, so at the midpoint of the guidance, which was issued, represents over 30% growth for the overall business. We’ll talk about the clinical and on the pharma. So the clinical business we expect to have a healthy growth trajectory. We anticipate 50% revenue growth. The revenue growth will come from both volume growth and ASP. We are focused very closely on ASP increases and on the volume side, the consensus I believe is around 35% today, which we think is fair. On pharma side of the business, we are anticipating about 10% growth and I think roughly based on the fact that we anticipate continued industry-wide headwinds that we saw in the previous year. But then we do have a strong backlog, a healthy backlog of over $185 million, which we believe we will be able to continue to draw from as we have in the past.

Got it. And then, maybe last one.

We did mention low-single-digit million in milestones for MRD pharma as well in the prepared remarks.

Thanks, Tycho. And then maybe last one. So, Chad or Tycho, just in terms of what we're going to hear at the end of the quarter in terms of the outcome of the strategic review? Maybe I know there's a couple of permeations here that could unfold. Kind of what can you share at this point? And just kind of any color on some of the discussions and how things have gone?

So, Dan, I can't really comment on any specific structures or alternatives at the moment. What I can tell you is in conjunction with our Board and with Goldman, our goal is to maximize the value of all stakeholders. We do have a very strong cash position, and I can ensure that any decision we make is going to jeopardize either part of the business, and we're committed to providing an update. So, stay tuned.

Great. Okay. Thank you.

Thank you.

Thank you. One moment for our next question. And our next question comes from the line of David Westenberg from Piper Sandler. Your question please.

Hi. Thank you for taking the question. So, just on the MRD business kind of the visibility, can you walk through the MRD revenue cadence expectations in the year? How should, shouldn't think about some of the milestones or other kind of payments from pharma? And then, I just noticed a slight decrease in the sequential growth rate, and I noticed that same thing happened in Q4 of last year. Is there seasonality in the business that we haven't been modeling previously just in terms of volume growth that maybe I should say I haven't been modeling correctly?

So, I can speak to that part about the recent sequential growth and also seasonality. So, I think you're pointing to the 4% quarter-over-quarter growth for the clinical business in Q4. One thing that we consider is that Q4 typically with fewer business days, we do typically see a lighter growth profile than in other quarters. But importantly in Q4, we continue to see all of the leading indicators in the business that we track moving favorably. Additionally, when we broke out the US and ex-US clinical businesses in Q4, we noted that the US business grew at 7%, whereas the ex-US business, which is typically more lumpy from quarter-to-quarter, grew more slowly contributing to the overall growth rate of 4%. And then finally, we started 2024 off very strong with record average daily and monthly volumes in January, February to date is trending even more favorably. So we continue to feel confident in the strong growth trajectory of that business. I do think seasonality just based on the number of business days can be a factor. There are other aspects of seasonality that we typically see - for example, in certain summer months, but overall, probably nothing different than you might see in an average business.

And then, Dave, we mentioned in the prepared comments for guidance, we expect MRD revenue to be 45% in the first half and 55% in the back half.

Got it. Got it. Okay. No, that's great. And then, just as we look at the drivers that drew growth in 2024, I mean, 2023 and as we start to cycle those drivers, I mean, how should we think about the impact that you had from Epic? What inning are you in with the Epic integration the DBCL integration or ordering pattern and kind of conversion of blood? I mean, I know that's three different areas, but if you can give those three areas kind of what inning we are in and just to get a sense on how much more growth - how much you can compound this growth in that business? Thank you. I'll stop there.

Sure, yeah. So, I mean I think you're right to think that the growth drivers in 2023 will be worked out in 2024 and in some cases we are in the very early innings with some of those growth drivers for the previous calendar year that we will be able to adapt further in 2024. So, for example, Epic integration, very early days in 2023, top of the first inning. We only saw our first five accounts set up to utilize the integration by the end of Q4 and all of those went live just in each, either one in September and the other four were completed in December. So we haven't yet seen significant lift albeit anecdotally in those accounts. We are seeing really nice results. So we continue to work toward additional Epic integrations. They are a one-by-one process. We anticipate having 15 to 20 as previously stated by the end of the year, and I think then we will see growth in those accounts, but for the overall business, it's going to take some time for us to be a very meaningful impact, material impact. We - as Chad noted earlier, we signed another agreement with Flatiron Health, which will really start to have impact on the business in the second half of '25. The second thing you asked about DLBCL. We saw a really nice growth trajectory in DLBCL aligned with our internal expectations, and we continue to promote that very actively as well as focus on data generation. We have a number of studies that we are hoping to advance in 2024 that will continue to support the frontline and surveillance setting in use case for the app as well as some nice real-world evidence that we will be advancing in other NHL indications which will continue to build the overall business in non-Hodgkins lymphoma more generally. So I do think DLBCL combined with other indications like mantle cell lymphoma in that NHL category will be growth drivers in 2024 more meaningfully than they have been in previous years. And then last thing you asked about was blood. We had some very nice data at ASH 2023, which was the end of last year, which we've been actively leveraging in promotional conversations for multiple myeloma in blood. We expect to expand the analysis of that data set early this year and see it published, as well as present some additional data utilizing circulating tumor DNA in multiple myeloma particularly in the setting of extramedullary disease. We have a sufficient number of other data sets that we’re exploring which may be able to utilize this year. And so I think this will be a continued data generation year for multiple myeloma, but that said we've seen the blood-based percentage of blood-based tests continually increase quarter-over-quarter both for myeloma, as well for our business more generally. We're up to nearly 40% of tests using blood as of Q4, and we continue to expect to drive that, which will contribute to increased testing in the community and frequency of testing.

Great. That was a lot of great detail. Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Mark Massaro from BTIG. Your question please.

Hey guys. Thanks for taking the time. You've steadily increased the percentage of clonoSEQ tests in blood. I think it was 39% this quarter. Is there a point in time where you think blood can become maybe the majority of your clonoSEQ volumes? And is there a certain target that you have even if it's out like say, three to five years?

Absolutely, we think the majority of our tests, blood-based testing is all related to the community, as well. And as we continue to increase and bring on community accounts, the percentage of tests that are done in blood will continue to increase. And so, I don't know if I can give you an exact date on when it's going to become a majority, but that number is growing very rapidly, and we see it being a steadily increasing percentage of our overall test mix.

Okay. Excellent. I know at JPMorgan you guys provided the 25% to 30% revenue CAGR for MRD between 2023 and 2027. So obviously, pretty solid top-line growth, and then you've maintained your expectations to hit MRD profitability in the second half of '25. I guess, I'm asking on the cost side. So obviously, you can get to profitability through revenue growth, but I'm just curious are there certain costs that might be able to come out of the clonoSEQ assay? And maybe if you could speak to input costs, or instrumentation, or reagents that are used. I’d just be curious to see what type of levers you might have on the COGS side?

Yes, so, absolutely, as we previously mentioned and I'll reiterate, we are looking and we have been testing the NovaSeq, and we're looking at a switch for the NovaSeq by the end of this year. And that will have a significant reduction in the cost of goods sold. But in addition to that, as Tycho said, no stone is being left unturned. We're looking at our operating costs as well and we continue to refine the business to figure out how we can increase the profitability profile over time. So, yes, the answer is yes. We are absolutely looking at the cost side of the equation.

And there are a couple of things we've highlighted we're doing a lens overhaul, in the first half of the year that will have implications for overhead. We are reducing the number of extractions that we process. So there is a lot in terms of the workflow.

Okay, and then my last question is just on mantle cell lymphoma. Can you just talk about maybe remind us the size of the market and timing of commercial launch and what you think that might do to expand that portfolio?

Yeah, sure. Mantle cells are a relatively smaller indication, more similar to perhaps AOLs in myeloma in the context of our existing covered indications. That said, it is an area of unmet need for monitoring and certainly an area of high interest for MRD based on our interactions with clinicians to date. We already have significant existing volume with several KOLs in the space and anticipate that Medicare coverage, which we are actively seeking today, will be the trigger for us to begin proactively commercializing that indication. We're looking forward to continuing to interact with - and are actively engaged with them now. So we expect to have more information this year.

Excellent. I'll keep my questions there. Thanks, guys.

Thanks, Mark.

Thank you. One moment for our next question. And our next question comes from line of Tejas Savant from Morgan Stanley. Your question, please.

Hello, this is on the call for Tejas. Earlier this year, you mentioned the possibility of the FDA accepting MRD as a primary surrogate endpoint in multiple myeloma. Can you provide more details on what you're hearing and how soon we might see the benefits for the MRD business?

Yeah, what we've heard is through the International Myeloma Working Group that several members of that committee have heard that the FDA was considering MRD in multiple myeloma as a primary endpoint. So we are waiting for that decision. I don't have any more resolution into the timing of that. But we're certainly hoping that that comes in the first couple of quarters of this year. But again, it's hard to predict a government body. In terms of acceleration, obviously we have deals that have been written into the contracts that state upon approval of the drug using our data as a primary endpoint, there are payments due. So, it would certainly be beneficial to the business.

Great. Thank you. And then, a separate follow-up, you talked about the limbs overhaul and NovSeq switch as some of the cost actions that are underway? Could you quantify the uplift in margins from those initiatives?

Yeah. I don't think I'm going to get that granular. I can talk a little bit about pacing and limited to the first half of this year. We've been pretty clear that NovaSeq really won't have an impact until 2025. One thing we have said is, at scale, the MRD business should easily be north of 70% gross margin. That includes both clinical and pharma, but we're not going to break out contributions from limbs versus the Nova transition specifically.

Got it. And then,

ASPs will also help here by the way.

Okay. And maybe just one slip in one more question here. In terms of the Flatiron – the Flatiron OncoEMR agreement, how much additional accounts, how much incremental would it be to the two Epic agreements that you already have?

You mean in terms of access to accounts?

Yes.

Flatiron has access to about 40% of community oncologists in the US, and they are currently implemented in 250 accounts, which is a bit of a number that's hard to interpret because it's large. These are very large accounts, but the business potential for us is tremendous. I mean, just the top 15 accounts that have utilized OncoEMR have 33,000 relevant patients for our disease indications. So, I think I'll leave it at that.

At a high level think about it, and why we do this. Think about Epic as being integrated into the academic and medical centers and institutions and Flatiron being integrated into the community oncology and network practices. And so that we're trying to cover all bases, and they're one of the largest EHR providers within the community, giving us access. One of the benefits to Flatiron is that we can expedite the implementation process. It takes a while to do the upfront setup cost with Epic, but we're looking at a fourth quarter of this year implementation, and once they hit the button, they can push it out to many of the sites all at the same time as opposed to having to go from one by one on the Epic integration. So, we are excited about it and what we're seeing early on from the Epic integrations that we've already done. Continuing to invest in making it easier for a doctor to order a test is something that we believe is going to lead to more testing being ordered, and it’s a very simple equation.

Got it. Thank you so much for that color.

You bet.

Thank you. One moment for our next question. And our next question comes from the line of Andrew Brackmann from William Blair. Your question please.

Hi guys. Good afternoon. Thanks for taking my question. I just want to circle back on pricing here for a minute. I think in the past, you sort of talked about some improvements coming from reducing Medicaid mix and then also revenue cycle management. We just sort of get an update on where those initiatives stand and how you are thinking about those impacts in 2024? Thanks.

Yeah, I’d just kind of reiterate some of the things I mentioned in my prepared remarks. We’re really excited about the work that we've put in and how it's going to already starting to play out on ASP increases. So we're kind of reducing non-contracted claims, out-of-policy claims, and just working on a lot of blocking and tackling on the appeals process, prior authorization process, etc. So, all those things are working. In terms of Medicaid, you'll naturally as we continue to expand into more indications, Medicaid is going to be an overall percentage of our test mix, and I expect it to wane down; a large percentage of Medicaid also relates to AOL. So, overall our initiatives are working. What we've talked about just in terms of quantifying that is a $200 increase over the next two years, and we've already started to see that work.

Okay, that's perfect. And then, I just want to go back to your comments around gating R&D investments for specific proof points within the Immune Medicine side of things. Any color that you can give us with respect to some of the things you might be looking for as you're thinking about what level of spend you might be comfortable with there? Thanks for taking the questions.

And I am going to turn that over to Sharon Benzeno, who runs the IM business.

Yeah, thanks for the question. So, of course, on the heels of our discovery of the first novel target using our platform, it's a Target that we've identified in multiple sclerosis. Obviously a devastating disease. This year we're very focused on further validation of the target as being causative of multiple sclerosis. We're using both in vitro and in vivo MS disease models to ensure that data on that front, and we expect it in the first half of the year. In parallel, we're also starting to think about what drug modality to use to be able to target that specific target. In parallel, this year we’re also deploying and have already deployed our antibody discovery platform. We completed a successful proof-of-concept in MS for the antibody discovery approach at the end of last year, and we’re pretty encouraged by parallel processing those two workstreams with the goal to ultimately have antibody candidates that we can designate as therapeutic candidates to advance over the next year into the clinic.

Great. Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Sung Ji Nam from Scotiabank. Your question please.

Hi, thanks for taking the questions. Maybe if I can pull it a little further on the MRD pharma side, obviously, solid backlog there, but could you maybe talk about the trends you guys are seeing that’s specific to Adaptive? Are you seeing any trial cancellations, or is it mostly trial delays, or kind of lengthening of the studies?

Go ahead.

I think probably one thing that's relevant to notice is that the indications that we are in the trends that we're seeing in the broader market with regard to investment in clinical trials over the last several years in multiple myeloma, which is the largest contributor to our pharma business. The number of trials are steadily increasing; the number peaked in 2021 and since then it has been declining. So, I think one thing to be aware of is that we have a very strong position in that indication, potentially stronger if and when the FDA accepts MRD as a surrogate for accelerated approval. But we are competing for a smaller subset of trials or drawing kind of, I should say, a smaller subset of trials over time. In other indications like in Non-Hodgkins Lymphoma, the trends are different. The number of trials hasn't started to decline; it seems relatively consistent over the last several years. And so, that's a big area of focus for us in terms of growth is driving an increased penetration in the Non-Hodgkins lymphomas, whereas we have likely less growth opportunity just in the context of a smaller shrinking market in multiple myeloma over the longer term.

Gotcha. Great. And then just going back to the question on the MCL and PTCL market opportunity there. My understanding is that, not DLBCL is roughly 25% to 30% of NHL and then that there's about 60% of the aggressive subtypes of NHLs. So is the 60% of NHL kind of the potential adjustable market, do you think in the future? Or is it too early to tell; just kind of curious how as we think about the potential market size?

Yeah, I think it's early to say. We're still developing a lot of data in the Non-Hodgkins Lymphoma and indications beyond the first few. And so what percentage of that total addressable market we can ultimately tap into remains to be seen. But I will say that the assay is technically applicable in any of these lymphomas, and it will just be a question of which evidence we determine to invest in developing.

But we have the same data that indicates DLBCL represents about 50% to 60% of all NHL. So that is one area, as we mentioned, that we're going to be aggressively focused on, and the other two that we’re following with Medicare this year are MCL and CTCL.

Gotcha. And then one quick one for Tycho. Sorry if I missed it, but the $14 million amortization for Genentech this year, should that be modeled ratably throughout the year?

Yeah, I mean I think that’s the right way to do it. I mean, it was just around multiple myeloma; yeah, just kind of ratably for the year is fine.

Great. Thank you.

Thank you. Our next question comes from Salveen Richter from Goldman Sachs. Please go ahead with your question.

Hey guys. Good evening. This is Elizabeth on for Salveen. Two questions from us today. So the first is on your partnership with Flatiron Health. Can you provide some color just around how that partnership is structured? And if that would include milestone payments or would it be more kind of a continuous revenue recognition for clonoSEQ? And then, second is on the Epic partnership, just curious if you've had any feedback from users or physicians and what you're learning thus far in the early days about how this integration works and how it's being used? Thank you.

I’ll go with the first one, Elizabeth, and then I'll kick it over to Susan to provide more color on the Epic integration and early day learnings. As far as Flatiron, I can't go into the specifics of the agreement to protect Flatiron’s position in the industry. What I can tell you is it doesn't entail milestone payments. It's basically a setup fee and an annual fee. That’s I think the most I can elaborate on at this point. But Susan, do you want to talk about Epic?

Sure. Yeah, the feedback has been very positive to date. In fact, we've seen several of our early sites come back after just a short time of having experience with the integration in advance to expand the scope of the integration, for example, bringing on more physicians or expanding to the inpatient setting versus outpatient only. And we've seen increases in both the number of ordering physicians and the volumes that are flowing through in each of the accounts where we integrated to date. I think the most important improvement is simply the reduction in manpower required to enter orders and to not only enter orders, but to receive the results from orders as they now land directly into the EMR in the place where you would find other test results versus kind of having to be manually updated, uploaded, and searched for. The other benefit of Epic integration is discrete data delivery, which is going to enable more streamlined real-world evidence analysis, which more and more of our accounts are coming to us in expressing interest in performing. So I think this will be a tool not only for clinical efficiency but also for expanding research and sites around MRD.

Got it. That's helpful. Thank you.

Thank you. One moment for our next question. And our next question is a follow-up from the line of Rachel Vatnsdal from JPMorgan. Your question, please.

Perfect. Hey, good afternoon. Thanks so much for taking the questions. I want to follow up on some of the ASP comments earlier. So you noted that you expect to lift ASP by $200 over the next two years. So can you just talk about how should we think about the cadence of that step up over the next 24 months? Will it be linear? Any comments there would be helpful.

Hi, Rachel. Yeah, I would at this point, model it out as linear. I think the reality is, you know ASPs based on age collections and a variety of different factors can vary month-to-month, even quarter-to-quarter, but we're seeing all the leading indicators point to a kind of linear growth over $200 in ASP increases over the next two years.

Great. And then just as a follow-up, can you walk us through your update on the state biomarker bills? What type of impact will that really have on the business? And then do you have any of that benefit embedded in the guide for the 2024 year, as well?

It's a great question, and we don't have that specifically baked into the guide, but we are optimistic, right? We’re increasingly optimistic based on the discussions and conversations that we've been having that the enforcement of the state biomarker laws are starting to take hold. Just to give some context, I sit on the board of the Coalition for 21st Century Medicine, and we're working hard on these initiatives. If you look at Evamed, Aqua, and all the industry associations, it's a prominent area of focus. Obviously, you're fighting the insurance company lobbies that are trying to not pay. But net-net, I think from a national position, that's coming down on the stage. You are seeing incremental evidence of positive trends and insurance companies are starting to comply with this legislation. So, again, I don't think it's going to be an overnight success, and obviously we're hoping more states enact biomarker legislations, but you will see over time incremental impacts, and no, it's not baked into the guide.

Right. That's it for me. Thank you.

Thank you. This does conclude the question-and-answer session, as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.