Conference Transcript - ADPT 2026-06-03

Andrew Brackman, Analyst — William Blair

Good afternoon. Thanks for joining us here on the afternoon session of the second day of William Blair's Grow Stock Conference. If you don't know me, my name is Andrew Brackman. I'm the Diagnostics Equity Research Analyst here at the firm. We're very happy to have the team from Adaptive Biotechnologies joining us today. We have the CEO, Chad Robbins, and from Investor Relations, we have Karina here in the front row. We're going to go through about a 30-minute slide presentation in this room, and then we'll do the breakout in Jenny B. Before handing it over to Chad, I am required to tell you that for a list of full research disclosures, please visit WilliamBlair.com. With that, Chad, take it away.

Chad Robins, CEO

Awesome. I'm on. Okay, great. Thank you. Yeah. Thanks a lot, Andrew. Really appreciate the opportunity to present once again at William Blair. Welcome to everyone in the room and for everyone listening to the webcast online. As the obligatory reminder, we will be making forward-looking statements throughout the presentation and in the breakout afterwards that Andrew mentioned. For those of you who are kind of new to adaptive in the story, I'm going to give you a quick overview. We were founded 16 years ago now out of the Fred Hutch Center in Seattle. We've been public since 2019. We have over 620 employees, about $277 million in revenue at the end of 2025, and we have a strong cash position of $220 million. But Adaptive was really built on the premise that if we can both read and translate the genetics of the adaptive immune system, T and B cells, that we can fundamentally improve how diseases are both diagnosed and treated. So that's the premise. And today we operate in two distinct business units that are derived from this same core foundation. The first is in minimum residual disease or MRD, and this is a commercial sage diagnostic business for patients who have blood cancers. The second is our IM or immune medicine business. This is focused on interpreting that immune receptor data that I just discussed to drive insights across a broad range of immunological applications. So let's look at each one of these businesses. We'll start with MRD and what is really our flagship product called Clonosec. Okay, so Clonosec is well-established. It's really the gold standard in MRD testing for blood cancer patients. It's also the test of choice for pharma companies in this space, and a little bit of a historical context. Adaptive was the first company to do next-generation sequencing, or NGS MRD. So as also shown on the slide, the moats around Clonosec and our progress today is really quite evident. It is by far the most sensitive NGS test in the heme market. It's backed by an incredibly strong IP portfolio with more than 250 peer-reviewed publications. It's the only FDA-cleared MRD assay in lymphoid cancers, and that reinforces our sensitivity, our reliability, and our reproducibility in routine clinical care underpinning our pharma business we have exceptional coverage with over 300 million covered lives and we're being used today in over 160 active pharma trials and it's a clinical endpoint in about half of those trials and and we just kind of recently passed a really nice milestones over a hundred thousand patients have used have been used the clonosec test to monitor disease and over 50 percent of us hemox now use and order the test last as of last year so like if you take these all together these moats make clonosec very difficult to displace clinically and again it's the platform of choice for biopharma trials um so yeah let's let's actually kind of dive in and talk about the exquisite nature and why we can really test it's such a highly specific and have clinical actionable MRD insights from our testing. So at its core, MRD testing is about separating the true cancer signal from background noise. So as we push higher insensitivity, so assays that rely on signals that can be generated by error, for example, if you're tracking a small number of mutations, they inevitably start to generate false positive because kind of the signal gets lost in the noise. Clonosec largely avoids this problem because we actually leverage the unique biology of T and B cells. In lymphoid malignancies, each cancer clone for each patient carries a patient-specific immune receptor DNA sequence. It's essentially, think of it like as a barcode for that patient-specific cancer. And so what happens is at diagnosis, the clonacy test identifies that barcode, and then over time, we can simply use that barcode to track the cancer. And essentially what we're doing is we're counting cancer cells. Like MRD, what we're doing is not that complex. We actually can count specifically and accurately the number and sensitively the number of cancer cells in a patient's body both during and after treatment. And because that kind of sequence barcode, it's almost generated, it's almost impossible that you can generate this by accident clonosec quantifies with very high sensitivity and we have essentially no false positives in our test it literally rounds to zero which allows this detection this exquisite quantification of one cancer cell among a million healthy cells so and and it's really that biology driven specificity is why clono-seq is leading and is widely considered the gold standard in mrd and in lymphoid malignancies so our mrd business is comprised of two main pillars really there's the clonacy clinic clinical tests that's offered to clinicians and the clono-seq assets offered to farmer partners uh that enables drug development so and it's it's really important to understand that these that these pillars of the business are very synergistic and they complement each other Most therapies use clonocyte to guide treatment as we're involved in more and more clinical trials, MRD testing becomes more and more part of routine clinical care. So let's take a look at some of the financials of the MRD business. MRD, I'm proud to say, is now a profitable business. We achieved positive adjusted EBITDA in 2025, followed by positive cash flow. And this has obviously been a key inflection point in our business. Revenue has scaled consistently with a 34% CAGR from 21 to 25, surpassing 210 million. Within that, the clinical revenue side has grown at a 53% CAGR and pharma at 15%. And this reflects kind of a strong adoption and increased utilization in both areas of clinical adoption and pharma adoption. At the same time that we've increased revenue, we've also increased our margin expansion. gross margins and have improved significantly uh they've driven by our lab efficiencies including the switch to the novaseq sequencer and we generated some really clear operating leverage over time as well across the commercial organization and and i think it's important to point out that we see a continued path for improvement across all these metrics as we continue to execute against our strategy which remains the same this year as it was last year and we'll kind of dive into that now which the which are the clinical testing performance and and future drivers of the business so clinical volumes have grown significantly year over year uh delivering a 42 kegger since 2021 um importantly we were kind of seeing this mounting mounting traction across the the the key drivers that support adoption and they are as of q1 again remaining the same as last year blood-based testing so blood-based testing reached 40 49 percent of total mrd volume in multi-myeloma which is you know historically and traditionally be considered a bone marrow driven indication the contribution of blood-based mrd is now increased to 29 it's up eight percentage points year over year um second is expansion in the community setting where 55% of heme patients are treated in the community setting. Overall, if you look at our mix, community now represents 35% of total testing versus 29% a year ago. Physician engagement continues to expand with the number of ordering clinicians growing 43% year over year to 5,000 in Q1. And EMR integrations are just critical and they continue to expand. In embedding ClonoSeq into EMR workflows, both across the academic and the community settings, material lowers the friction. It just makes it easier to order. It expands access. And importantly, we're showing is leading to repeat usage or more tests per patient. So like it's we actually started this effort about two years ago, and today we're integrated in in over 180 accounts. 80 accounts we expect to continue adding and optimizing to that and the academic medical center it's epic integrations in the community it's flat iron and I also kind of want to highlight we can with all this growth that's been achieved the penetration remains relatively early across all of our indications so we're pretty kind of low on the penetration curve And even in ALL, our most established indication, where MRD is now the standard of care, penetration's still under 35%. And in all of our other indications, including multmyeloma, which is the biggest growth driver, penetration remains under 16%. So there's a lot of room to grow here, and there's substantial headroom to increase across all indications and to increase the frequency of testing or the number of tests per patient in all of these indications as well. So our strategy is to continue to drive sustainable clinical volume growth. It's really driven by a combination of five interrelated factors as shown on the slide. And again, as I mentioned, it's been the same five factors that we've noticed, that we're repeating, that we continue to allocate capital to. And those are blood-based testing, expanding presence in the community, clinical guideline inclusion, ongoing data generation and EMR integration. And what's key to truly understand about our business, people ask all the time, well, what's the catalyst? It's not one of these factors alone that drives growth. It's really a combination. All of these five factors really reinforce each other, both increasing physician adopting and as I mentioned, the testing per patient frequency across all the indications. So we'll cover these in more detail. Blood-based testing and community presence are very interrelated. As MRD shifts increasingly to blood, it's really more accessible in the community setting because community oncologists do blood-based testing and they don't do bone marrow pulse. Our focus on blood-based testing, blood-based adoption, it really has three components. The first is the continued growth in blood-based testing and indications that are only blood-based, CLL, DLBCL, and MCL. And the second is ongoing data generation in blood, which reinforces really the clinical confidence. And third is to enhance our assay in blood, particularly in multiple myeloma, to be able to increase our sensitivity in a test that's traditionally, as I mentioned, been kind of driven by bone marrow testing. Moving on to the next topic, Guideline updates are really an important kind of driver of sustained MRD adoption as they continue to expand the role of MRD, really from what we call a supporting test to really a clinical decision-making tool, meaning how are you going to change the treatment of a patient based on the information you get from the ClonaSeq test. I'll give you a good example of this. In CLL, the guidance update last year explicitly to focus on serial testing, meaning that they included assessments every three to six months for MRD-guided regimens, so we obviously see this as a meaningful step for clinical utility of Clonoseek and Firstline CLL, and we believe, like, if you look at it kind of on a whole and looking at our numbers, we believe we just started to see the impact in Q1 of this year. with a stronger CLL sequential growth versus prior quarters, and we hope that will continue. The next component of our growth driver is data generation. At ASH, just take ASH last year. We had nearly 90 abstracts that featured our clonal-seq data, and there was a clear emphasis of MRD as an interventional tool. If you look, and I know many of you in the room are invested in the solid tumor MRD space where they're just talking about data being prognostic we're way past that we're talking about interventional tool and this is what i just talked about how can you use the information to change a decision on the treatment course of a patient and so this is about treatment duration intent intensity and frequency including decisions key decisions around transplantation consolidation and maintenance therapy to give some real examples whether or not to transplant the patient depends on mrd status whether you can take a patient off a maintenance therapy in multi-myeloma that has like really high side effects and also cost the system you know 130 to 150 000 a year depends on two subsequent mrd negative tests so these are really really powerful indications so and also of note this year at asco which obviously just wrapped up here in the city and at eha we have over 30 abstracts that are reinforcing clonisic's role in kind of the assessing really the depth of response uh also longitudinal disease monitoring and mr mrd guided treatment decision making uh and lastly and and and i'd say these are all important but this this is a biggie for us is emr integrations it's key to be able to really provide that ease of workflow and access to clono seek both in as i mentioned both in the academic and in the community setting okay so now now we've kind of really focused so far on volumes in the clinical and clinical testing uh there's another side of the equation too which is uh asps um or average selling price so let's just kind of take take a look at some history here at the start of 2025 the updated medicare gap fill rate of 2000 2007 per test went into effect this was up from 1700 a test so So we see this as a clear path to our long-term ASP target of $1,700 to $1,800 per test by 2029. And this is supported by several well-defined factors. So first is policy expansion. We're continuing to broaden our commercial coverage, particularly in CLL and non-Hodgkin's lymphoma like a DLBCL. The second area is contract negotiation. We're systematically going through kind of one by one of our contract and updating them, and we're closing new agreements at the updated rate. We have several wins from 2025, which will contribute as you look at our 2026 ASP and onwards. The third area is recurrence monitoring. So in recurrence monitoring, this expands coverage beyond the Medicare episode where we get paid on four tests. In 2025, we received the first Medicare approval for recurrence monitoring in mantle cell lymphoma, and we've got a clear path to expand into CLL in 2026. Then if you look at the kind of pipeline there, it's DLBCL after that and ultimately in multi-myeloma. And finally, if you're just kind of looking at the blocking and tackling, we're getting a lot better. So if you take revenue cycle management, we've got ongoing improvements in Medicare Advantage billing medic medicaid collections we're automating the appeals process the prior authorization using some really nice tools uh uh uh you know that are that are ai supported um you know our turnaround times are getting a lot better and all this is leading to kind of driving higher paid claims and uh more uh more consistent realization of revenue um so if you look at kind of again putting all these together, you've got continued ASP expansion and really durable coverage. Okay, so I covered the clinical testing side. Now I want to turn to our MRD pharma business. So if you look at our MRD pharma portfolio today, it's really anchored in multiple myeloma, where MRD has now achieved formal acceptance as a clinical endpoint. And Clonosec is, if you look at it, it's really incorporated into almost every pivotal trial in multiple myeloma for biopharma companies developing therapies in that indication. In 2025, about 70% of the sequencing revenue, about 60% of our backlog came from myeloma studies. So this reflects both maturity of the indication and the depth of our biopharma partnerships, which really is leading to, if you look at the pipeline now, we're seeing meaningful diversification beyond multiple myeloma, particularly in CLL and DLBCL. For example, in CLL, bookings have increased substantially. This has really been supported and underpinned by updated NCCN guidelines for fixed duration regimens and a set of emerging data that highlights the need for higher sensitivity mr mrd to differentiate between therapies um and and importantly like we're also seeing our biopharma portfolio uh expanding towards registrational trials kind of moving from moving from kind of research i'll call it like up the value chain to registrational trials so if you look at q1 most of the bookings came primarily from regulated studies now including several registrational trials where mrd will be used either as the primary or or the co-primary endpoint in both multiple myeloma and in cll so we also we clearly expect this trend to continue as mrd is used kind of more interventionally in trials across diseases and and if you look at our biofarmer sponsors they're increasingly requiring higher sensitivity assays to differentiate therapeutics and a guide treatment today we've about approximately 20 ongoing interventional studies where mrd is used for enrollment stratification or to guide therapy decisions so if you look at kind of the deep sensitivity the high specificity and fda validation clone seek is really well positioned to be able to capture this mixed shift across disease states through kind of this deeper longer duration pharma partnerships that also they it's like if you look at it it's really this flywheel between biopharma and clinical testing if the The adoption of Clonosec in drug development generates the evidence, it strengthens clinical utility and then obviously further then drives demand once that drug gets into the clinic. So again, you know, I'll just kind of reinforce and repeat that both across clinical and biopharma built this really durable MRD platform that have multiple growth drivers. They're firmly in place. know what they are and we continue to double down on them um and so this year just to wrap up mrd this year we expect to achieve significant growth both in the top line and in the bottom line and it's and it is reflected in our guidance uh and let's take a look at that whether it is mrd revenues expected to increase 33 percent versus prior year i i want to be clear though this is excluding milestone payments um this this will be primarily uh driven by the clinical testing volume growth of we've we've raised that from 30 to now 35 percent um average asp we've talked about that number being uh increasing to 1400 on average at the end of the year uh and again this is reflecting this continued progress across coverage contracting and reimbursement execution and then sequencing gross margins also will continue to improve you know we we've reached reached over 70 for fiscal 2026 uh it's driven by scale uh ongoing operational efficiencies including the switch to nova seek uh and we we believe that there also could be upside closer to 75 percent you know towards towards the year end in the gross margin yeah i mean we're super excited uh to deliver on these goals this year we're going to continue building momentum that we're seeing and uh you know it's just uh it's really turning into a a a very strong growth driver and durable business uh with that i'll kind of wrap up uh mrd opportunity for now and switch over to our other business unit which is immune medicine um you know we've really spent over a decade building technology and generating data to understand a fundamental challenge which is how how t-cell receptors bind to antigens and how those interactions drive immune responses across various disease states of cancer autoimmunity and infectious diseases so this is this is really a challenge that's defined by scale and there are billions of distinct t-cell receptors interacting with millions of clinically relevant antigens this is a problem that makes it extremely well suited for ai and machine learning today we have more than six million functional tcr antigen pairs with data that currently spans about 50 000 antigens and 50 plus hla types which is sufficient to train predictive predictive models of adaptive immune response across diseases that's really really important powerful data and and this is generating very impactful biological insights and usually if we use this platform we've identified disease causative t cell receptors and their antigens and various autoimmune disorders right now including type 1 diabetes celiac disease multiple sclerosis and ankylosing spondylitis so our goal is to monetize this our immune receptor data while continuing to scale the tcr engine data and to further improve our prediction models in targeted applications that could be attractive to partners that are seeking to leverage our data and our digital capabilities so last year we signed two non-exclusive agreements with pfizer the first is a data licensing deal on a subset small subset of our tcr engine training data focused on specific hla types where pfizer can use this data to support the development of their ai and machine learning models and the others in target discovery in rheumatoid arthritis where pfizer is using our immune medicine platform to identify the specific disease causing t cell receptors in ra we already have a thousand patient samples and we're on track to deliver the ra data package in the second half of this year and that partnership is going well as we continue to make progress on these 2026 goal we're advancing discussions on additional data partnerships maintaining a very disciplined approach to capital allocation as you recall you know we've talked about ring fencing the im cash burn to 15 to 20 million dollars for the year and if you look at it from kind of your perspective most or a lot in this room is um life science tools and diagnostics investors as as think about a low-cost call option on a on a very high margin uh potential opportunity so with that and kind of wrapping up the immune medicine business i want to close with three takeaways uh first uh in mrd we're continuing to strengthen extend our leadership position in mrd testing for blood cancers there's clear momentum across volumes as i discussed asps and margin and our focus is on capturing market growth while continuing to expand profitability in mrd second in immune medicine our priority is advancing our immune receptor data platform and executing on targeted monetization opportunities that build long-term strategic value and third and most importantly financial execution based on the progress that you've seen across the business we expect to achieve positive adjusted ebitda and positive free cash flow for the entire company by the end of 2026. so thank you for your time today with that i'll hand it back over to can do a little q a awesome yeah oh Oh, we're moving. Okay, great. Yeah, thank you.