# Adaptive Biotechnologies Corp: Form 10-Q for the period ended Mar 31, 2024

- Company: [Adaptive Biotechnologies Corp](/companies/adpt.md) (CIK 1478320)
- Form: 10-Q
- Filed: 2024-05-07
- Accepted by EDGAR: May 7, 2024, 16:30 ET
- Period: 2024-03-31
- Accession: 0000950170-24-054604
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1478320/000095017024054604/adpt-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1478320/000095017024054604/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $41.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $18.1m | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $30.2m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$48.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $3.0m | us-gaap:InterestExpense |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$47.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.33 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.33 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 145,787,527 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$38.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $1.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $71.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $374.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $620.3m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $83.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $345.6m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $131.5m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-03-31 | $274.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 46,731 characters.

*You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes and the other financial information appearing elsewhere in this report, as well as the other financial information we file with the SEC from time to time. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties relating to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements.*

*As a result of many factors, including those factors set forth in the “Risk Factors” section of this report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.*

### Overview

We are advancing the field of immune medicine by harnessing the inherent biology of the adaptive immune system to transform the diagnosis and treatment of disease. We believe the adaptive immune system is nature’s most finely tuned diagnostic and therapeutic for most diseases, but the inability to decode it has prevented the medical community from fully leveraging its capabilities. Our immune medicine platform applies our proprietary technologies to read the diverse genetic code of a patient’s immune system and understand precisely how the immune system detects and treats disease in that patient. We capture these insights in our dynamic clinical immunomics database and related antigen annotations, which are underpinned by computational biology and machine learning, and use them to develop and commercialize clinical products and services that can be tailored to the needs of individual patients. Our existing and future commercial products and services are aligned to two business areas which we refer to as MRD and Immune Medicine.

Our current product and service offerings in MRD related to the MRD market are our clonoSEQ clinical diagnostic test, offered to clinicians, and our clonoSEQ or MRD assay, offered to biopharmaceutical partners to advance drug development efforts (“MRD Pharma”). Our first clinical diagnostic product, clonoSEQ, is the first test authorized by the Food and Drug Administration for the detection and monitoring of MRD in patients with multiple myeloma, B cell acute lymphoblastic leukemia and chronic lymphocytic leukemia, and is also available as a CLIA-validated laboratory developed test for patients with other lymphoid cancers, including diffuse large B-cell lymphoma. With the use of clonoSEQ, we are transforming how lymphoid cancers are treated by working with providers, pharmaceutical partners and payors.

Immune Medicine leverages our proprietary ability to sequence, map, pair and characterize T cell receptors (“TCRs”) and B cell receptors (“BCRs”) at scale to drive opportunities in cancer, autoimmune disorders, infectious diseases and neurodegenerative disorders. Our core research product, Adaptive Immunosequencing, serves as our underlying research and development engine and generates revenue from biopharmaceutical and academic customers. Leveraging our collaboration with Microsoft Corporation, we are creating the TCR-Antigen Map. We are using the TCR-Antigen Map to identify and validate disease signatures to improve the diagnosis and treatment of many diseases. In Drug Discovery, we use our proprietary capabilities to discover new drug targets and leverage our validated TCR and BCR discovery approaches to discover and develop TCR or antibody therapeutic assets. Drug Discovery includes our worldwide collaboration and license agreement with Genentech (the “Genentech Agreement”).

We recognized revenue of $41.9 million and $37.6 million for the three months ended March 31, 2024 and 2023, respectively. Net loss attributable to Adaptive Biotechnologies Corporation was $47.5 million and $57.7 million for the three months ended March 31, 2024 and 2023, respectively. We have funded our operations to date principally from the sale of convertible preferred stock and common stock and, to a lesser extent, revenue and proceeds from the revenue interest purchase agreement we entered into in September 2022 with OrbiMed Royalty & Credit Opportunities IV, LP, an affiliate of OrbiMed Advisors LLC, as collateral agent and administrative agent for the purchasers party thereto (the “Purchase Agreement”). As of March 31, 2024 and December 31, 2023, we had cash, cash equivalents and marketable securities of $308.9 million and $346.4 million, respectively.

### 2023 Quarterly Segment Information

In 2024, in connection with an organizational realignment, we began operating our business as two reporting segments: MRD and Immune Medicine. These segments are organized by market opportunity in commercial diagnostics and drug discovery, respectively. See Note 13, *Segment Information* for more information regarding our segments and the assumptions used to allocate shared expenses, which are based on judgments and methods related to our 2024 organizational changes.

The following tables set forth our segment information for the periods presented (in thousands):

|  | Three Months Ended December 31, 2023 MRD | Immune Medicine | Unallocated Corporate | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $30,762 | $15,022 | $— | $45,784 |
| Operating expenses | 58,183 | 26,280 | 32,389 | 116,852 |
| Adjusted EBITDA(1) | (17,763) | (2,979) | (3,923) | (24,665) |
| **Reconciliation of Net Loss to Adjusted EBITDA:** |  |  |  |  |
| Net loss | $(27,421) | $(11,258) | $(30,788) | $(69,467) |
| Net loss attributable to noncontrolling interest | — | — | 26 | 26 |
| Net loss attributable to Adaptive Biotechnologies Corporation | (27,421) | (11,258) | (30,762) | (69,441) |
| Interest and other income, net | — | — | (4,613) | (4,613) |
| Interest expense | — | — | 3,012 | 3,012 |
| Depreciation and amortization expense | 2,413 | 2,529 | 450 | 5,392 |
| Impairment of right-of-use and related long-lived assets | — | — | 25,429 | 25,429 |
| Share-based compensation expense | 7,245 | 5,750 | 2,561 | 15,556 |
| Adjusted EBITDA(1) | $(17,763) | $(2,979) | $(3,923) | $(24,665) |

|  | Three Months Ended September 30, 2023 MRD | Immune Medicine | Unallocated Corporate | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $24,668 | $13,251 | $— | $37,919 |
| Operating expenses | 55,977 | 26,400 | 6,498 | 88,875 |
| Adjusted EBITDA(1) | (21,616) | (4,986) | (3,229) | (29,831) |
| **Reconciliation of Net Loss to Adjusted EBITDA:** |  |  |  |  |
| Net loss | $(31,309) | $(13,148) | $(5,869) | $(50,326) |
| Net loss attributable to noncontrolling interest | — | — | 26 | 26 |
| Net loss attributable to Adaptive Biotechnologies Corporation | (31,309) | (13,148) | (5,843) | (50,300) |
| Interest and other income, net | — | — | (4,282) | (4,282) |
| Interest expense | — | — | 3,652 | 3,652 |
| Depreciation and amortization expense | 2,489 | 2,546 | 728 | 5,763 |
| Share-based compensation expense | 7,204 | 5,616 | 2,516 | 15,336 |
| Adjusted EBITDA(1) | $(21,616) | $(4,986) | $(3,229) | $(29,831) |

|  | Three Months Ended June 30, 2023 MRD | Immune Medicine | Unallocated Corporate | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $25,882 | $23,044 | $— | $48,926 |
| Operating expenses | 58,944 | 30,681 | 7,119 | 96,744 |
| Adjusted EBITDA(1) | (23,079) | 1,264 | (3,004) | (24,819) |
| **Reconciliation of Net Loss to Adjusted EBITDA:** |  |  |  |  |
| Net loss | $(33,063) | $(7,636) | $(7,112) | $(47,811) |
| Net loss attributable to noncontrolling interest | — | — | 1 | 1 |
| Net loss attributable to Adaptive Biotechnologies Corporation | (33,063) | (7,636) | (7,111) | (47,810) |
| Interest and other income, net | — | — | (3,612) | (3,612) |
| Interest expense | — | — | 3,605 | 3,605 |
| Depreciation and amortization expense | 2,267 | 2,608 | 778 | 5,653 |
| Share-based compensation expense | 7,717 | 6,292 | 3,336 | 17,345 |
| Adjusted EBITDA(1) | $(23,079) | $1,264 | $(3,004) | $(24,819) |

24

### Adaptive Biotechnologies Corporation

|  | Three Months Ended March 31, 2023 MRD | Immune Medicine | Unallocated Corporate | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $21,427 | $16,220 | $— | $37,647 |
| Operating expenses | 56,025 | 31,672 | 7,143 | 94,840 |
| Adjusted EBITDA(1) | (26,386) | (7,427) | (3,285) | (37,098) |
| **Reconciliation of Net Loss to Adjusted EBITDA:** |  |  |  |  |
| Net loss | $(34,597) | $(15,452) | $(7,651) | $(57,700) |
| Net loss attributable to noncontrolling interest | — | — | 1 | 1 |
| Net loss attributable to Adaptive Biotechnologies Corporation | (34,597) | (15,452) | (7,650) | (57,699) |
| Interest and other income, net | — | — | (3,024) | (3,024) |
| Interest expense | — | — | 3,531 | 3,531 |
| Depreciation and amortization expense | 2,056 | 2,753 | 614 | 5,423 |
| Share-based compensation expense | 6,155 | 5,272 | 3,244 | 14,671 |
| Adjusted EBITDA(1) | $(26,386) | $(7,427) | $(3,285) | $(37,098) |

(1) Adjusted EBITDA is a non-GAAP financial measure. See “Adjusted EBITDA” below for an explanation for how it is calculated and used by management.

### Components of Results of Operations

### Revenue

We derive revenue by providing diagnostic and research services in our MRD and Immune Medicine business areas. Our MRD revenue consists of revenue generated from (1) providing our clonoSEQ report to clinical customers; (2) providing MRD sample testing services to biopharmaceutical customers and certain academic institutions, including investigator-led clinical trials; and (3) providing our clonoSEQ report or results to certain international laboratory sites through technology transfers. We disclose our clonoSEQ test volume, which includes the number of clonoSEQ reports and results we have provided to ordering physicians in the United States (“U.S.”) and international technology transfer sites. These volumes do not include sample results from our biopharmaceutical customers or academic institutions utilizing our MRD services. Our Immune Medicine revenue consists of revenue generated from (1) providing sample testing services for our commercial research product, Adaptive Immunosequencing, to biopharmaceutical customers and academic institutions; and (2) our collaboration agreements with Genentech and other biopharmaceutical customers in areas of drug and target discovery.

For our clinical customers, we primarily derive revenue from providing our clonoSEQ report to ordering physicians. We bill commercial, government and medical institution payors based on reports delivered to ordering physicians. Amounts paid for clonoSEQ by commercial, government and medical institution payors vary based on respective reimbursement rates and patient responsibilities, which may differ from our targeted list price. We recognize clinical revenue by evaluating customer payment history, contracted reimbursement rates, if applicable, and other adjustments to estimate the amount of revenue that is collectible.

For our clonoSEQ coverage under Medicare, we bill an episode of treatment when we deliver the first eligible test report. This billing contemplates all necessary tests required during a patient’s treatment cycle, which is currently estimated at approximately four tests per patient, including the initial sequence identification test. Revenue recognition commences at the time the initial billable test report is delivered and is based upon cumulative tests delivered to date. Any unrecognized revenue from the initial billable test is recorded as deferred revenue and recognized either as we deliver our estimate of the remaining tests in a patient’s treatment cycle or when the likelihood becomes remote that a patient will receive additional testing.

For our research customers, which include biopharmaceutical customers and academic institutions for both our MRD and Adaptive Immunosequencing services, delivery of the respective test results may include some level of professional support and analysis. Terms with biopharmaceutical customers generally include non-refundable payments made in advance of services (“upfront payments”), which we record as deferred revenue. For all research customers, we recognize revenue as we deliver sequencing results. From time to time, we offer discounts in order to gain rights and access to certain datasets. Revenue is recognized net of these discounts and costs associated with these services are reflected in cost of revenue. In periods where our sample estimates are reduced or a customer project is cancelled and, in either case, we have remaining related deferred revenue, we recognize revenue using a cumulative catch-up approach based on the proportion of samples delivered to date relative to the total samples expected to be delivered. Certain of our MRD revenue arrangements with biopharmaceutical customers include cash consideration from the achievement of regulatory milestones of the respective biopharmaceutical customers’ therapeutics. Such revenue is constrained from recognition until it becomes probable that such milestone will be achieved.

Under certain agreements with our biopharmaceutical customers who seek access to our platform to support their therapeutic development activities, revenues are generated from research and development support services that we provide. These agreements may include substantial non-refundable upfront payments, which we recognize over time as we perform the respective services. Revenue recognized from these activities relate primarily to the Genentech Agreement.

We expect our MRD revenue to increase in the long term as we continue to increase our MRD clinical testing volume through increased penetration in our existing covered patient populations, expand into new patient populations and optimize payor coverage. Our MRD revenue may fluctuate period to period due to the uncertain timing of receipt of our biopharmaceutical customer samples, which may cause uncertainty in the delivery of our products and services, the recognition of milestones related to regulatory approvals of our biopharmaceutical customers’ therapeutics and changes in estimates of our clinical revenue reimbursement rates.

We expect our Immune Medicine revenue to decrease in the short term primarily due to our expected reduction in revenue generated from the Genentech Agreement. Over the long term, we expect our Immune Medicine revenue to increase as we or our collaborators advance therapies to commercialization. Our Immune Medicine revenue may fluctuate from period to period due to the timing of expenses incurred, changes in estimates of total anticipated costs related to the Genentech Agreement and other events not within our control, including the recognition of milestones under the Genentech Agreement and the timing of receipt of customer samples from our biopharmaceutical customers.

### Cost of Revenue

Cost of revenue includes the cost of materials, personnel-related expenses (including salaries, benefits and share-based compensation), shipping and handling expenses, equipment costs, allocated facility costs associated with processing samples and professional support costs related to our service revenue activities. Allocated facility costs include depreciation of laboratory equipment, as well as allocated facility occupancy and information technology costs. Costs associated with processing samples are recorded as expense, regardless of the timing of revenue recognition. As such, cost of revenue and related volume does not always trend in the same direction as revenue recognition and related volume. Additionally, costs to support the Genentech Agreement are a component of our research and development expenses.

We expect cost of revenue to increase in absolute dollars in the long term as we grow our sample testing volume, but the cost per sample to decrease over the long term due to the efficiencies we may gain as assay volume increases from improved utilization of our laboratory capacity, automation and other value engineering initiatives. If our sample volume throughput is reduced, cost of revenue as a percentage of total revenue may be adversely impacted due to fixed overhead costs.

### Research and Development Expenses

Research and development expenses consist of laboratory materials costs, personnel-related expenses (including salaries, benefits and share-based compensation), equipment costs, allocated facility and information technology costs and contract service expenses. Research and development activities support further development and refinement of existing assays and products, discovery of new technologies and investments in our immune medicine platform. We also include in research and development expenses the costs associated with software development of applications to support future commercial opportunities, as well as development activities to support laboratory scaling and workflow. We are currently conducting research and development activities for several products and services and we typically use our laboratory materials, personnel, facilities, information technology and other development resources across multiple development programs. Additionally, certain of these research and development activities benefit more than one of our product opportunities. We have not historically tracked research and development expenses by specific product candidates.

The costs to support the Genentech Agreement are a component of our research and development expenses. Additionally, a component of our research and development expenses are costs supporting clinical and analytical validations to obtain regulatory approval for future clinical products and services. Some of these activities have generated and may in the future generate revenue.

We expect research and development expenses to decrease in the short term and to decrease as a percentage of revenue in the long term, although the percentage may fluctuate from period to period due to the timing and extent of our development and commercialization efforts.

### Sales and Marketing Expenses

Sales and marketing expenses include personnel-related expenses (including salaries, benefits and share-based compensation) for commercial sales, product and account management, marketing, reimbursement, medical education and business development personnel that support commercialization of our platform products. In addition, these expenses include external costs such as advertising expenses, customer education and promotional expenses, market analysis expenses, conference fees, travel expenses and allocated facility and information technology costs.

We expect sales and marketing expenses to remain relatively consistent in the short term. In the long term, we expect sales and marketing expenses to increase in absolute dollars as we increase marketing activities to drive awareness and adoption of our products and services. However, we expect sales and marketing expenses to decrease as a percentage of revenue in the long term, subject to fluctuations from period to period due to the timing and magnitude of these expenses.

### General and Administrative Expenses

General and administrative expenses include personnel-related expenses (including salaries, benefits and share-based compensation) for our personnel in executive, legal, finance and accounting, human resources and other administrative functions, including third-party clinical billing services. In addition, these expenses include insurance costs, external legal costs, accounting and tax service expenses, consulting fees and allocated facility and information technology costs.

We expect general and administrative expenses to remain relatively consistent in the short term and to decrease as a percentage of revenue in the long term.

### Interest Expense

Interest expense includes costs associated with our revenue interest liability related to the Purchase Agreement and noncash interest costs associated with the amortization of the related deferred issuance costs. We impute interest expense using the effective interest rate method. We calculate an effective interest rate which will amortize our related obligation to zero over the anticipated repayment period. A significant increase or decrease in or changes in timing of forecasted revenue will prospectively impact our interest expense.

### Statements of Operations Data and Other Financial and Operating Data

The following table sets forth our statements of operations data and other financial and operating data for the periods presented (in thousands, except share and per share amounts):

| Statements of Operations Data: | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Revenue | $41,873 | $37,647 |
| Operating expenses |  |  |
| Cost of revenue | 18,051 | 18,681 |
| Research and development | 30,245 | 32,601 |
| Sales and marketing | 22,319 | 22,308 |
| General and administrative | 19,597 | 20,831 |
| Amortization of intangible assets | 423 | 419 |
| Total operating expenses | 90,635 | 94,840 |
| Loss from operations | (48,762) | (57,193) |
| Interest and other income, net | 4,222 | 3,024 |
| Interest expense | (2,993) | (3,531) |
| Net loss | (47,533) | (57,700) |
| Add: Net loss attributable to noncontrolling interest | 26 | 1 |
| Net loss attributable to Adaptive Biotechnologies Corporation | $(47,507) | $(57,699) |
| Net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted | $(0.33) | $(0.40) |
| Weighted-average shares used in computing net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted | 145,787,527 | 143,511,142 |
| **Other Financial and Operating Data:** |  |  |
| Adjusted EBITDA(1) | $(28,180) | $(37,098) |

(1) Adjusted EBITDA is a non-GAAP financial measure that we define as net loss attributable to Adaptive Biotechnologies Corporation adjusted for interest and other income, net, interest expense, income tax (expense) benefit, depreciation and amortization expense, impairment costs for right-of-use and related long-lived assets, restructuring expense and share-based compensation expense. See “Adjusted EBITDA” below for a reconciliation between Adjusted EBITDA and net loss attributable to Adaptive Biotechnologies Corporation, the most directly comparable GAAP financial measure, and a discussion about the limitations of Adjusted EBITDA.

### Comparison of the Three Months Ended March 31, 2024 and 2023

### Revenue

*(in thousands, except percentages)*

| MRD revenue | Three Months Ended March 31, 2024 | 2023 | Change $% |  | Percent of Revenue 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Service revenue | $28,126 | $21,427 | $6,699 | 31% |  |  |
| Regulatory milestone revenue | 4,500 | — | 4,500 | \* |  |  |
| Total MRD revenue | 32,626 | 21,427 | 11,199 | 52 | 78% | 57% |
| Immune Medicine revenue |  |  |  |  |  |  |
| Service revenue | 4,559 | 7,102 | (2,543) | (36) |  |  |
| Collaboration revenue | 4,688 | 9,118 | (4,430) | (49) |  |  |
| Total Immune Medicine revenue | 9,247 | 16,220 | (6,973) | (43) | 22% | 43% |
| Total revenue | $41,873 | $37,647 | $4,226 | 11 | 100% | 100% |
| \* Not applicable |  |  |  |  |  |  |

The $11.2 million increase in MRD revenue was primarily due to a $5.9 million increase in revenue generated from providing clonoSEQ to clinical customers, a $4.5 million increase in revenue recognized upon the achievement of regulatory milestones by one of our biopharmaceutical customers and a $1.4 million increase in revenue generated from providing MRD sample testing services to biopharmaceutical customers. These increases were partially offset by a $0.6 million decrease in revenue generated from providing MRD sample testing services to investigator-led clinical trials. Our clonoSEQ test volume increased by 41% to 17,040 tests delivered in the three months ended March 31, 2024 from 12,079 tests delivered in the three months ended March 31, 2023.

The $7.0 million decrease in Immune Medicine revenue was primarily due to a $4.4 million decrease in revenue generated from the Genentech Agreement, which resulted from decreased collaboration expenses, and a $2.5 million decrease in revenue generated from our biopharmaceutical and academic customers.

### Cost of Revenue

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | Change $% |  | Percent of Revenue 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of revenue | $18,051 | $18,681 | $(630) | (3)% | 43% | 50% |

The $0.6 million decrease in cost of revenue was primarily attributable to a $1.2 million decrease in overhead and labor costs, which was largely driven by reduced headcount and laboratory relocation and consolidation activities, and a $0.6 million decrease in cost of materials largely due to a reduction in inventory reserve expense. These decreases were partially offset by a $0.6 million increase in materials cost resulting from increased revenue sample volume and a $0.2 million increase related to higher usage of our production laboratory to process revenue samples versus research and development samples.

### Research and Development

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | Change $% |  | Percent of Revenue 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $30,245 | $32,601 | $(2,356) | (7)% | 72% | 87% |

The following table presents disaggregated research and development expenses by cost classification for the periods presented:

*(in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 | Change |
| --- | ---: | ---: | ---: |
| Research and development materials and allocated production laboratory expenses | $4,989 | $6,106 | $(1,117) |
| Personnel expenses | 18,823 | 19,031 | (208) |
| Allocable facilities and information technology expenses | 2,830 | 2,707 | 123 |
| Software and cloud services expenses | 1,289 | 984 | 305 |
| Depreciation and other expenses | 2,314 | 3,773 | (1,459) |
| Total | $30,245 | $32,601 | $(2,356) |

28

The $2.4 million decrease in research and development expenses was primarily attributable to a $1.2 million decrease in costs related to collaboration studies related to Immune Medicine, which was the primary driver of the $1.5 million decrease in depreciation and other expenses, and a $1.1 million decrease in cost of materials and allocated production laboratory expenses, which was driven primarily by decreased investments in drug discovery efforts, including collaboration efforts with Genentech, and decreased TCR-Antigen Map development activities.

### Sales and Marketing

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | Change $% |  | Percent of Revenue 2024 | 2023 |
| --- | ---: | ---: | ---: | --- | ---: | ---: |
| Sales and marketing | $22,319 | $22,308 | $11 | \* | 53% | 59% |
| \* Increase is less than 1% |  |  |  |  |  |  |

The nominal increase in sales and marketing expenses was primarily attributable to a $0.8 million increase in computer and software expenses, partially offset by a $0.4 million decrease in travel and customer event related expenses and a $0.3 million decrease in personnel costs.

### General and Administrative

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | Change $% |  | Percent of Revenue 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | $19,597 | $20,831 | $(1,234) | (6)% | 47% | 55% |

The $1.2 million decrease in general and administrative expenses was primarily attributable to a $1.3 million decrease in building, facility and depreciation related expenses driven by office space transitions made to support laboratory consolidation activities, partially offset by a $0.6 million increase in third-party billing service fees.

### Interest and Other Income, Net

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest and other income, net | $4,222 | $3,024 | $1,198 | 40% |

The $1.2 million increase in interest and other income, net was primarily attributable to an increase in net interest income and investment amortization driven by increased interest rates and related yields of our invested cash and cash equivalents and marketable securities.

### Interest Expense

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $(2,993) | $(3,531) | $538 | (15)% |

The $0.5 million decrease in interest expense was attributable to a change in our assumptions regarding the timeframe in which our Purchase Agreement will be fully repaid.

### Segment Adjusted EBITDA

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| MRD Adjusted EBITDA(1) | $(17,259) | $(26,386) | $9,127 | (35)% |
| Immune Medicine Adjusted EBITDA(1) | (6,927) | (7,427) | 500 | (7) |

(1) Adjusted EBITDA is a non-GAAP financial measure. See “Adjusted EBITDA” below for an explanation for how it is calculated and used by management.

The $9.1 million increase in MRD Adjusted EBITDA was primarily attributable to an $11.2 million increase in MRD revenue, partially offset by an increase in MRD operating expenses. The $0.5 million increase in Immune Medicine Adjusted EBITDA was primarily attributable to reductions in Immune Medicine operating expenses driven primarily by reduced research and development expenses, partially offset by a $7.0 million decrease in Immune Medicine revenue.

### Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we define as net loss attributable to Adaptive Biotechnologies Corporation adjusted for interest and other income, net, interest expense, income tax (expense) benefit, depreciation and amortization expense, impairment costs for right-of-use and related long-lived assets, restructuring expense and share-based compensation expense. We define our segment Adjusted EBITDA in the same way to the extent the net loss attributable to Adaptive Biotechnologies Corporation and adjustments are allocable to each segment. See Note 13, *Segment Information* of the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this report for more information regarding segment Adjusted EBITDA.

Management uses Adjusted EBITDA, including segment Adjusted EBITDA, to evaluate the financial performance of our business and segments and to evaluate the effectiveness of our strategies. We present these figures because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry and it facilitates comparisons on a consistent basis across reporting periods. Further, we believe it is helpful in highlighting trends in our operating results because it excludes items that are not indicative of our core operating performance.

Adjusted EBITDA, including segment Adjusted EBITDA, has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. We may in the future incur expenses similar to the adjustments we make. In particular, we expect to incur meaningful share-based compensation expense in the future. Other limitations include that Adjusted EBITDA does not reflect:

- all expenditures or future requirements for capital expenditures or contractual commitments;
- changes in our working capital needs;
- interest expense, which is an ongoing element of our costs to operate;
- income tax (expense) benefit, which may be a necessary element of our costs and ability to operate;
- the costs of replacing the assets being depreciated and amortized, which will often have to be replaced in the future;
- the noncash component of employee compensation expense;
- right-of-use and related long-lived assets impairment costs; and
- the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations, such as our restructuring activities and reductions in workforce.

In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

The following is a reconciliation of net loss attributable to Adaptive Biotechnologies Corporation, the most directly comparable GAAP financial measure, to Adjusted EBITDA for the periods presented (in thousands):

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net loss attributable to Adaptive Biotechnologies Corporation | $(47,507) | $(57,699) |
| Interest and other income, net | (4,222) | (3,024) |
| Interest expense(1) | 2,993 | 3,531 |
| Depreciation and amortization expense | 5,214 | 5,423 |
| Restructuring expense(2) | 1,044 | — |
| Share-based compensation expense(3) | 14,298 | 14,671 |
| Adjusted EBITDA | $(28,180) | $(37,098) |

(1) Represents costs associated with our revenue interest liability and noncash interest costs associated with the amortization of the related deferred issuance costs. See Note 8, *Revenue Interest Purchase Agreement* of the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this report for details on the Purchase Agreement.

(2) Represents costs associated with our organizational realignment to our two segments initiated in the three months ended March 31, 2024. These costs primarily related to one-time termination benefits and ongoing benefit arrangements.

(3) Represents share-based compensation expense related to stock option, restricted stock unit and market-based restricted stock unit awards. See Note 11, *Equity Incentive Plans* of the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this report for details on our share-based compensation expense.

### Liquidity and Capital Resources

We have incurred losses since inception and have incurred negative cash flows from operations since inception through March 31, 2024, with the exception of certain 2019 periods for which we had positive cash flows from operations. As of March 31, 2024, we had an accumulated deficit of $1.2 billion.

We have funded our operations to date principally from the sale of convertible preferred stock and common stock, and, to a lesser extent, revenue and proceeds from the Purchase Agreement. Pursuant to the Purchase Agreement entered into in September 2022, we received net cash proceeds of $124.4 million, after deducting issuance costs. We are also entitled to receive up to $125.0 million in subsequent installments as follows: (i) $75.0 million upon our request occurring no later than September 12, 2025 and (ii) $50.0 million upon our request in connection with certain permitted acquisitions occurring no later than September 12, 2025, in each case subject to certain funding conditions. As of March 31, 2024, we had cash, cash equivalents and marketable securities of $308.9 million.

We believe our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months. We may consider raising additional capital to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons.

If our available cash, cash equivalents and marketable securities balances and anticipated cash flows are insufficient to satisfy our liquidity requirements, we may request an additional installment under the Purchase Agreement, seek to sell additional equity or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our shareholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. This additional capital may not be available on reasonable terms, or at all.

We plan to utilize the existing cash, cash equivalents and marketable securities on hand primarily to fund our commercial and marketing activities associated with clonoSEQ, our continued investments in streamlining our laboratory operations and our continued research and development initiatives related to drug discovery. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to capital preservation and liquidity. Currently, our funds are held in money market funds and marketable securities consisting of U.S. government treasury securities, commercial paper and corporate bonds.

While we may experience variability in revenue in the near term, over the long-term we expect revenue from our current and future products and services to grow. Accordingly, we expect our accounts receivable and inventory balances to increase. Our levels of accounts receivable may fluctuate relative to our revenue for a number of reasons, including the timing of milestone triggers and related payment of those milestones, as well as reductions in revenue derived from the upfront payment received under the Genentech Agreement and an increase in revenue generated from clinical customers, which may result in more billings in arrears as opposed to upfront payments. Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued expenses, which could result in greater working capital requirements.

### Contractual Obligations

There have been no material changes outside the ordinary course of business to our contractual obligations and commitments as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024.

See Note 7, *Leases* and Note 8, *Revenue Interest Purchase Agreement* of the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this report for more information regarding our contractual obligations relating to lease agreements and the Purchase Agreement, respectively.

### Cash Flows

The following table summarizes our uses and sources of cash for the three months ended March 31, 2024 and 2023 (in thousands):

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(38,353) | $(59,152) |
| Net cash provided by investing activities | 44,509 | 62,979 |
| Net cash provided by financing activities | 44 | 672 |

### Operating Activities

Cash used in operating activities during the three months ended March 31, 2024 was $38.4 million, which was primarily attributable to a net loss of $47.5 million and a net change in operating assets and liabilities of $10.3 million, partially offset by noncash share-based compensation of $14.3 million, noncash depreciation and amortization of $2.6 million, noncash lease expense of $1.4 million and noncash interest expense related to the Purchase Agreement of $0.9 million. The net change in operating assets and liabilities was primarily driven by a $4.1 million increase in accounts receivable, net, which includes $4.5 million in regulatory milestones recognized during the three months ended March 31, 2024, a $3.9 million reduction in accounts payable and accrued liabilities driven largely by the payout of our corporate bonus during the three months ended March 31, 2024, a $2.5 million decrease in operating lease right-of-use assets and liabilities and a $2.4 million reduction in deferred revenue. These changes were partially offset by a $1.5 million decrease in prepaid expenses and other current assets, which was driven largely by a decrease in prepaid software charges, and a $1.1 million decrease in inventory.

Cash used in operating activities during the three months ended March 31, 2023 was $59.2 million, which was primarily attributable to a net loss of $57.7 million and a net change in operating assets and liabilities of $24.5 million, partially offset by noncash share-based compensation of $14.7 million, noncash depreciation and amortization of $3.8 million, noncash lease expense of $1.8 million, noncash interest expense related to the Purchase Agreement of $1.6 million and inventory reserve expense of $1.1 million. The net change in operating assets and liabilities was primarily driven by a $15.9 million reduction in accounts payable and accrued liabilities driven largely by the payout of our corporate bonus during the three months ended March 31, 2023, an $8.5 million reduction in deferred revenue related primarily to revenue recognized from the Genentech Agreement, a $6.6 million increase in inventory and a $2.2 million decrease in operating lease right-of-use assets and liabilities. These changes were partially offset by a $9.1 million decrease in accounts receivable, net primarily related to collections from our biopharmaceutical customers, including receipt of an MRD milestone payment.

### Investing Activities

Cash provided by investing activities during the three months ended March 31, 2024 was $44.5 million, which was primarily attributable to proceeds from maturities of marketable securities of $99.5 million, partially offset by purchases of marketable securities of $53.5 million and purchases of property and equipment of $1.5 million.

Cash provided by investing activities during the three months ended March 31, 2023 was $63.0 million, which was primarily attributable to proceeds from maturities of marketable securities of $155.0 million, partially offset by purchases of marketable securities of $89.1 million and purchases of property and equipment of $2.9 million.

### Financing Activities

Cash provided by financing activities during the three months ended March 31, 2024 was attributable to proceeds from the exercise of stock options.

Cash provided by financing activities during the three months ended March 31, 2023 was $0.7 million, which was attributable to proceeds from the exercise of stock options.

### Net Operating Loss Carryforwards

Utilization of our net operating loss (“NOL”) carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986 (“Section 382”) and similar state provisions. The annual limitation may result in the expiration of NOL carryforwards and credits before utilization. If there should be an ownership change, our ability to utilize our NOL carryforwards and credits could be limited. We have completed a Section 382 analysis for changes in ownership through December 31, 2023 and continue to monitor for changes that could trigger a limitation. Based on this analysis, we do not expect to have any permanent limitations on the utilization of our federal NOLs. Under the Tax Cuts and Jobs Act of 2017, federal NOLs incurred in 2018 and future years may be carried forward indefinitely, but the deductibility of such federal NOLs is subject to an annual limitation. NOLs generated prior to 2018 are eligible to be carried forward up to 20 years. Based on the available objective evidence, management determined that it was more likely than not that the net deferred tax assets would not be realizable as of December 31, 2023. Accordingly, management applied a full valuation allowance against net deferred tax assets as of December 31, 2023.

### Critical Accounting Policies and Estimates

We have prepared the unaudited condensed consolidated financial statements in accordance with GAAP. Our preparation of these unaudited condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities and related disclosures at the date of the unaudited condensed consolidated financial statements, as well as revenue and expense recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and other relevant assumptions that we believe to be reasonable under the circumstances. Estimates are used in several areas, including, but not limited to, estimates of progress to date for certain performance obligations and the transaction price for certain contracts with customers, imputing interest for the Purchase Agreement, the provision for income taxes, including related reserves, the analysis of goodwill impairment and the recoverability and impairment of long-lived assets, among others. These estimates generally involve complex issues and require judgments, involve the analysis of historical results and prediction of future trends, can require extended periods of time to resolve and are subject to change from period to period. Actual results may differ materially from management’s estimates.

While our significant accounting policies are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024, as well as in Note 2, *Significant Accounting Policies* of the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this report, we believe the following accounting policies are critical to the judgments and estimates used in the preparation of the unaudited condensed consolidated financial statements:

- revenue recognition;
- imputing interest for the Purchase Agreement; and
- goodwill.

There have been no material changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024.

### Recent Accounting Pronouncements

See Note 2, *Significant Accounting Policies* of the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this report for more information.

## Market risk

As filed, 525 characters.

### Interest Rate Risk

We are exposed to market risk for changes in interest rates related primarily to our cash and cash equivalents and marketable securities. As of March 31, 2024, there have been no material changes to our market risks as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024. We do not enter into investments for trading purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

## Controls and procedures

As filed, 873 characters.

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2024. There was not any change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the three months ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,410 characters.

Investing in our common stock involves a high degree of risk. We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I, Item 1A under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024. The risk factors may be important to understanding other statements in this report and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes in this report. The occurrence of any single risk or any combination of risks could materially and adversely affect our business, operations, product pipeline, operating results, financial condition or liquidity, and consequently, the value of our securities. Further, additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business, financial condition, operating results and prospects. There have been no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024.

Filed May 7, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-054604. Last ingested by Listed: Oct 29, 2026, 19:53 ET. No prices; not investment advice.