Welcome, day one of the TD Cowen Healthcare Conference. I'm Dan Brennan. I cover tools and diagnostics. Pleased to be joined with me here on stage, Chad Robins, CEO of Adaptive Biotechnologies. First, I'll say, Chad, welcome.
Thanks, Dan.
Terrific to have you. Listen, it's been a, you know, 2024 was a strong year for Adaptive. You had a lot of positive news events, positive pricing decision, really good operating leverage, decision from ODAC with, you know, primary endpoint for ctDNA. So there's a lot of good news there. Maybe just kind of start off by giving us a little bit of review, like how did 2024 play out, and you know, what are you excited about for 2025?
Yeah, thanks for acknowledging that. Yeah, 2024 was an awesome year for Adaptive. I feel like a ton of discipline in the business, a lot of momentum. The vibe is great. We're executing on multiple fronts. We're stacking kind of multiple initiatives on top of each other. You mentioned a couple of them, and maybe I'll reiterate some and add some. The ODAC decision, it can be on the pharma business, but it bleeds over to clinical. You know, the first new primary endpoint is a really, really big deal, and it actually catalyzed, you know, not only additional pharma business, but also in the clinic as well. Doctors that we kind of had been tough to penetrate have kind of now taken inbound calls saying, you know, interested in MRD-based testing. Integration, EMR integration, starting with Epic. You know, we got 20 of them done.
That is an area of continued execution and growth and building competitive moats around the business. I know we'll get more about into that. The pricing decision, you know, got a 70% pricing increase that goes kind of right to the bottom line, and you know, we're looking to leverage that in different ways. And then just discipline across the business in terms of increasing sample volume while maintaining costs, right? Direct labor costs, overhead costs, et cetera. You know, across the business, just have multiple kind of drivers of growth and areas where we can also get leverage on the bottom line as well.
Terrific. Talking to a lot of the tools companies who will be here about, you know, some of the administration initiatives and how that's maybe creating some uncertainty, just to get that out of the way upfront. I know with your guide, it's a little more second half weighted this year. In part, I think you talked about potential headwinds that you're baking in on speed of trial completion or delays on political risk of FDA disruption possibility, right? We're under new leadership. Maybe just speak through a little bit of how you tried to reflect maybe some of the uncertainty in your guide and, you know, kind of, you know, what you think so far.
Yeah, Dan, let me tease that out because there's two different kind of questions that are underpinned in that of the guide. You know, we guided to kind of 40%-60% of kind of first half versus second half in terms of kind of revenue. Really, it's 45-55. If you look at kind of the historical cadence, it's always been 45-55 in terms of kind of volume. What the overlay this year is on ASP. ASP, the reason that that kind of skews it towards 40-60 is because recontracting at higher prices with the existing payers and bringing on some of the new contracts. Also, if you kind of let that Medicare fee for service business kind of start to play out, you're going to get more of an uptake in the second half.
Secondly, with respect to, yeah, we're in a fortunate position where from an NIH perspective, you know, we're relatively insulated because not a lot of our business really comes from kind of NIH funding. You know, that being said, there's a little conservative built in on the pharma business with respect to kind of staffing at the FDA and kind of PDUFA dates and, you know, how quickly drugs will be approved, which, you know, we've built in a little bit of conservative. You know, overall on the guide, I think, you know, what we've learned, Dan, you know, having been doing this a long time, is, you know, for example, we said 25% plus volume growth. Let's put a circle around the plus and also say, hey, it's better to kind of underpromise than overdeliver in this business, and we certainly hope to do so.
Terrific. Okay. Maybe just digging in on MRD and clonoSEQ, you know, you continue to widen, you know, the applications, the latest being MCL. Maybe could you just give us a sense of, you know, when we think about catalysts that could bring clonoSEQ into more primary guidelines, you know, let's zoom out a little bit on trials. What, you know, what kind of trials are ongoing today that are, you know, maybe critical opportunities to be even further unlocking events for clonoSEQ?
Yeah, sure. You know, guideline inclusion is super important, and we have a ton of efforts to incorporate ourselves into the guidelines. If you notice, DLBCL in the frontline setting was just incorporated into the guidelines. We have a bunch of trials that may or may not be guideline inclusion depending on how the trial is structured, but will certainly drive clinical utility. For example, kind of an 800-person kind of study called the MITUS study in multi-myeloma, which basically says if you're kind of MRD positive, that you either need one or two transplants. If you're MRD negative, you may not benefit from a transplant. That's a really nice study. In CLL, we have a study called Veneto-STOP that says that you can, if you're MRD negative in two successive tests, that you can kind of discontinue venetoclax as a backbone maintenance therapy.
The MCL study that just read out at ASH is a great study, but it is continuing to drive that growth in the MCL, which is a new indication for us, but a fast-growing indication, which basically also says there is another transplant study that says that if you are MRD negative, you are not going to benefit from a transplant in MCL. This is super important because there has been like this debate about transplant for the last several years. It has been raging among the MCL docs, and we kind of, I do not want to say put it to bed, but certainly put a definitive mark in terms of kind of framing that argument as a reason to wait for an extremely invasive procedure if you are MRD negative.
Terrific. No, that was really helpful. Back to the 25% plus kind of volume growth for clonoSEQ, maybe just speak to a little bit of kind of what underpins that, you know, kind of that guide. You know, which indication, if any, do you expect to ramp more quickly this year? Yeah, just kind of unpack a little bit of the underpinnings of the guide.
Yeah, yeah. I mean, if you strip out kind of pharma milestone revenue, actually you're going to grow 29% last year, and the guide is about 30% this year. Take out the milestones. You have a very strong guide. Multi-myeloma will really continue to be the kind of largest driver of growth, but all indications will be growing over the course of this year. You know, like I said, I think we've gotten an opportunity given all the initiatives that we're doing with EMR integration, with continued data generation, with kind of Neo coming on in the back half, although we'll talk about when we see a lot of the uptake from that to really be very, very comfortable with the guide.
You look at kind of the pharma guide, you know, a little bit conservative at 9%, just to account for what we talked about earlier with respect to kind of FDA staffing. You know, we feel really confident across the business in our guide.
Maybe just on the community uptake, that's something you've been highlighting for, you know, years now and kind of the progress there. Just kind of remind us kind of where that stands today and what kind of traction you're having and like you're seeing greater success, and if so, why?
Yeah, so just again, to level set, 60% of cancer patients are treated in the community setting. We've been growing that business significantly, but we're super excited. There's a couple of initiatives that really, I think, overlap, which is blood-based testing along with the Flatiron EMR integration. Because if you think about this, in the community hospital setting, they're not doing kind of frequent marrow-based testing. And a couple of our indications are only blood-based testing, and they're treated in the community because the age of the population, et cetera, it's more of a community-based testing. If you look at the second half of this year, Flatiron's going to, we're going to be smart about how we test it and roll it out and make sure it works. Really, we're going to get access to over 100 accounts. I think the number is in the 140s.
There's a little bit of work to do to turn it on, but much, much less than Epic. This provides like a massive moat around the business because once a clinician can order as part of their EMR, get a report delivered, and really understand, start using the report, and then understand kind of a use case on their patients, they can start to expand. If they're doing it from a kind of serial testing, that's obviously going to be as a blood-based test. All these things kind of layer on top of each other, work together, and why we've made investments into expanding kind of the utility into the community. We also do peer-to-peer education programs where we have got KOLs that are going in and educating the community.
What we call it is MRD-enable your sample so that they go in and say, "Hey, make sure you get the ID sample upfront." The interesting thing is like we're certain, I mentioned just to go into some of the disease biology, certain indications are blood-based tests and only blood-based tests. In tests such where you can do a blood or a marrow, such as multi-myeloma, we've also reframed the argument. It's not that you have the same sensitivity of MRD in the marrow as you have in the blood. It's that it's a better blood-based test than anything else you're doing in the blood. If you find an ID sample in the blood, then you can track it in the blood.
Going in and kind of selling and spending time with the community oncologist to really understand the value proposition of the test is kind of super important. With EMR, the ability to go in and onboard them very, very quickly with kind of minimal training is super important.
Maybe in terms of the Flatiron and the EHR integration, just remind us like in terms of that ease of ordering, other diagnostic companies have talked about how much Exact, who was just up here before, have talked about that in the past. What's like a case study when, you know, when you get in the EMR, you know, when you're in Flatiron, is there any level of extra ordering that you see doctors do? Or I'm sure you've done some case studies on this, you know, kind of behind the scenes.
Yeah, so I mean, I can't give a case study on Flatiron because we're not in it yet. But I can give you some, you know, some anecdotal. We're doing all the cohort analyses right now on Epic. Let me actually back up, Dan, and say, look, at the end of 2024, 20% of all orders were done through EMR integrated systems. At the end of 2025, that number is going to increase to 50% of all orders will come through either Epic or Flatiron EMR integrated system. What it means is that, signing up new doctors, but also if you look at kind of the compliance functions that come from it, the ability to kind of read reports in the system and the discrepancy management, right?
Because their information is already ordered, so there's a lot less discrepancies and things that you have to deal with the order. There's all these different benefits. I mean, we have seen, I would say, of the Epic accounts, now we have two of our largest accounts, which is MD Anderson and Memorial Sloan Kettering, up and integrated with Epic. We're seeing a nice, I'm not going to give you numbers yet. I think it's too early. On some of the kind of smaller accounts, those numbers are like 30%, 40%, 50%, but it's a smaller base. What I'm really interested in, and we should be able to give you those numbers probably in six to nine months, is really to understand, you know, what is it, new doctors ordering or is it more tests per patients? Is it both? It'll be both.
What is kind of the breakdown of those? We should, again, I think it's too early on that, but we're certainly really excited about the trends and why I think we're very confident in kind of the numbers we're putting out.
Did you, you know, within your volume growth this year, try to account for that going from 20 to 50 or not really? That would actually be upside if there is this increased rate of ordering.
Yeah, I mean, we sure. I mean, all that comes together to account for our guide, I think, you know, we'll be very excited if we hit that kind of 50%. I'll tell you, I came off, we were at our national sales meeting last week in Tampa and spent three full days out there with, you know, all of our reps. It is a different vibe. It is a different tone, a different feel. You know, reps that have been with, first of all, we've really, it's almost a fully built-out team, a very seasoned and mature team. And we recognize kind of the, or really understand that the phenotype of those reps, it's really more of a diagnostic rep and understanding workflow, understanding how to the clinical sale with data, et cetera.
What we're saying is like we had like for years and probably even two years ago, doctors saying, yeah, this is really interesting technology and a tool, but it's not, this isn't ready for prime time in the clinic. Now we have some of the same doctors that are, you know, this is what I've heard and why I'm excited for the first time kind of making inbound calls and saying, oh, either I heard that ODAC decision or, you know, such and such is using it, you know, at whatever hospital. How do we look at getting up and running? It's like, and we have that from an account level, you know, each rep was excited to talk about different kind of account level initiatives that are coming on board.
Great. Maybe just on DLBCL for a moment. Just can you speak to that opportunity, how it's been going? Is it on pace, behind, or just kind of how we look ahead on DLBCL?
Yeah, no, it's on pace. I mean, remember, I mean, DLBCL is where kind of multi-myeloma was, you know, five or six years ago. You know, so it's, you know, these things take some time to develop. They also really develop in conjunction with new therapeutic interventions. As you have new drugs that are approved that are really good at showing efficacy, you want better tools such as MRD to be able to monitor the efficacy of these therapies. Also, if the patient's in remission, you want to understand when they're coming back. One great use case that's developing for us in DLBCL is that kind of we can kind of pick up before a scan, before a PET scan, can we pick up kind of the recurrence of disease, you know, several months before a scan.
Yeah, again, we're encouraged by DLBCL, but it's, you know, we've been, we do recognize that some of these indications take some time to develop.
Okay. Maybe we jump over to price. You know, you've got a nice price uplift this year. You know, the guidance calls for, I think, $1,300 realized price. That's up from a little over $1,100 in 2024. And you know, you've got the new gap fill rate, which is a big driver of that, right? Maybe beyond Medicare fee for service, you know, how did you think about in that price increase? It looks like you're obviously assuming better payment rates from some of the other payers. Just maybe walk through the visibility on that or just how that kind of capitalizing on better payments has been occurring.
Yeah, yeah. Let's break it down. You've got, we're going from $1,120 to $1,300. I'll just do a percentage and then we can kind of put it into numbers, which is about 70% of that price increase will come from contracting. That's contracting with new payers that aren't under contract and that's renegotiating contracts with existing payers. That's about 70% of it. Then about 20% of it will come from rev cycle management, just blocking and tackling, claims management. We've done a really nice job last year in conversion of prior authorizations. The remaining will come from the shift in product mix. Some of that will be natural occurrence as certain covered in criteria indications wind up becoming a larger percentage.
Some of that will, for example, like moving away from kind of the Medicaid and low pay, no pay into higher paid in criteria indications kind of over time. Some of that will be from kind of more targeted promotional efforts to those in criteria efforts. You can kind of translate those to that $180 at 70, 20, 10 and kind of get close enough. I mean, this is not going to be an exact science at this point, but that is what we are going to get there.
In terms of the new contracting, is that like, has that been steady over the past couple of years or are you guys just having more success with getting payers kind of signed on?
It's been steady, but certainly the gap fill solidification put us in a place to have a catalyst to go out and have a reason for discussion and to have a reason to say, hey, let's go in and build escalators into these contracts. By the way, you know, the government's recognized, it's funny, you know this. Good. The reality is Medicare should be the lowest payer. It winds up being the highest payer and they all kind of want a discount. That being said, we've made intentional choices to hold firm to say, you know, because if we look at the long-term viability of this business and our long-term margin profile, we said, we're not yet, we've all been offered really nice rates, but they're below what we think, you know, should be the long-term rate.
Those are just decisions that, you know, all of our companies have to make. You know, over time, we're really excited about the trajectory of kind of the ASP and what that does for our margin profile.
Okay. Maybe you mentioned NeoGenomics before in one of the comments you make, but I'd love to dig into that a little bit more. Really positive distribution channel to the community. Certainly. Maybe just walk through a little bit about just kind of what that relationship could do for you. Is it included in guidance for this year? Just how do we think about it?
Yeah, so we're really excited about the NeoGenomics partnership. It's going to give us tremendous leverage because 60%, we're not in 60% of the accounts that they're in, in the community. That's really, really cool. The second thing that I don't think is really widely understood is that right now we need an ID sample and we're going out to NeoGenomics anyway to get that ID sample. Building in, they have a diagnostic workup, as I know you know, called CHART. One of the value propositions for them is now they get to go out and sell, hey, we're the only ones that have an MRD, is incorporated into your diagnostic workup because we got clonoSEQ, right? That's cool for them. For us, obviously, it gives us kind of that channel into all those accounts that we're not in. It gives us that sample.
That sample now also allows us to track. They have, sorry, COMPASS is their diagnostic workup. CHART is their MRD workup. It allows us to track in CHART when they do kind of the workup for their monitoring profile going forward. We can include the MRD test in CHART. It is COMPASS and CHART. In terms of the guidance, we have done this before and actually so have they in terms of lab to lab partnerships. We are trying to be very prudent about how we roll this on and doing a lot of training and really connecting the pipes on the back end. That is starting to happen and a lot of that work will happen in the back end.
You may see some volume from kind of the NeoGenomics relationship, but we're also looking out, you know, into 2026 and 2027 and saying, you know, how are we going to continue to have kind of the same or to be able to remain on the trajectory of growth rate that we're on? It is not really a big part of the guide this year, but it'll be a significant part of the guide next year.
Okay. Maybe shifting over to MRD Pharma. You know, I think you spoke about 10 multiple myeloma trials using clonoSEQ as a primary endpoint. I think you said three were upgraded from secondary last year. Just of the backlog that you have today, a little north of $200 million, I think it was. How do we think about the benefit of this elevation of primary milestone and, you know, how could that translate over the next few years in terms of revenue contributions?
Yeah, let me just tease that out a little bit. Quick correction. The $240 million of backlog is backlog of kind of sequencing revenue that will convert over time into kind of our revenue as just part of ongoing trials on a per sample basis. Then separately, we have a milestone, a pool of milestones available to us, which is about $120 million. That's broken up between kind of primary and secondary milestones. Primary milestones range from about $4-9 million and secondary range from about $1-4 million. What we do actually is we kind of take that whole pool and we kind of spread it out over kind of five to seven years, put a probability of success of kind of 30-50% on it. Essentially, you know, that's why, and we're relatively conservative on this.
We, it's about like called $6 million to $7 million in milestones if you kind of annualize that total number over. That being said, a lot of, it's really catalyzed the business. We've had a lot of upgrades. It's allowed us to jump into new conversations. There were a lot of companies that were getting out of the multi-myeloma space that are now back into the multi-myeloma space because of the designation as a potential primary endpoint. Other disease states, I think there's a halo effect on these other disease states where companies are starting to think about, you know, I want to incorporate MRD into my trials because it's going to become a primary endpoint. The final point I make to that is like in talking about milestones is they're like a double-edged sword for us.
They're great because they come in at like 100% margin and it's great cash. On the other hand, they're hard to predict for folks like yourselves that are trying to kind of model out and are on the buy side, trying to model out our milestones. One of the initiatives that we have, and this is going to take some time, is we're trying to convert these contracts from milestone-based to a higher ASP per sample, saying, hey, we're going to give you kind of all the GLP, GLCP regulated trials. We're going to allow you to be like incorporate us into the trial as a primary secondary endpoint, but you're paying us a higher price per sample so we can kind of model that out as a recurring revenue stream. We have been successful at the first couple. By the way, pharma companies hate milestones too.
They forget about them and then they're like, oh shit, I owe these guys like $5 million. That's, you know, so we're trying to kind of convert these contracts, which I think overall will be a nice, really nice smoothing effect for the business.
Got it. Maybe just on the idea of additional beyond multiple myeloma to have a primary endpoint status, if you will, which other indications do you think would be possibly next up? Like where do you think the benefits is such that you could see that elevation?
Yeah, I mean, there's work going on with different consortia around CLL, DLBCL, and now actually mantle cell as well. You know, remember the first white paper we worked on as part of the IMWG was in kind of 2016. It will not be, I'm going to knock on wood and who knows with the agency right now, but I'm hoping it will not be as long for the next, kind of what's, we've kind of broken that seal. Hopefully, hopefully we'll start to have some acceleration in the other disease states. We're certainly again seeing it in the business.
Maybe just one more kind of in MRD Pharma. I think you talked about in the beginning when we talked about the guidance, how you kind of baked in some conservatism on pharma services just given maybe the environment. Maybe just speak to that a little bit again. Like how have you tried to incorporate some, maybe some cushion into that? I don't know if that's directly related to NIH funding or just maybe speak to that guide again.
Yeah, I mean, look, just the funding environment for pharma under uncertainty of drug approval timeframes may constrain some budgets to say, hey, we'll do less time points or we'll start to think about, you know, doing less trials. That's like on the service-based business and then on the kind of milestones, which are based on drug approvals with those PDUFA dates get pushed back. You know, those are things that you could say, okay, milestones may come later than sooner. You know, that being said, I think we're in a fortunate position not to be beholden to kind of NIH funding and something we're being conservative on, but, you know, it's not something that is keeping me up at night.
Got it. Maybe moving over to new medicine then. As we look ahead in 2025, what are, you know, either on, you know, the private product or the shared product? I know you talked about it on the fourth quarter call, but what are the key milestones we should be looking at in 2025 for that business?
Yeah, let me answer the question in terms of kind of the framing because I think this is kind of, I think, resonated really well with our investors starting in January, coming out of JP Morgan and saying, look, this is a low-cost call option on a very high-value opportunity, okay? We are going to constrain our burn to $25 million-$30 million. We have our partner program with Genentech, and then we have our own program in autoimmune diseases where we believe we have a differentiated competitive advantage to be able to identify autoreactive T-cell receptors that are causative of autoimmune disorders. Then we can go and block those with a T-cell, sorry, we can block those T-cell receptors with an antibody. All these are in-house programs. What we have done is we picked the lead indication.
We know the disease state we're going after, and we have done mouse immunization campaigns for several different indications. We picked the lead, and now we're doing kind of lead optimization. We are developing kind of several antibodies against a V beta and a V alpha family for this lead indication. We will have that done kind of this year, and then we will kind of start our preclinical work to file an IND. Again, this is something, you know, super excited about, but it's, you know, we're spending, the other aspect to understand is we've been very intentional about how we've set up the business. We have two very distinct BUs. Our business units have leadership in place. They've got capital allocation in place, and they are very focused on the task at hand before them.
I think we, to you, I, and all our investors, we spend about 90-95% of our time talking about the MRD opportunity and really talking about, hey, there's something that could be really high value kind of over here. We also recognize that we cannot jeopardize the profitability of MRD no matter what we're doing on the IM side.
On the Genentech side, just kind of what's to come there next?
Yeah, I don't know, a little bit frustrating for me, for you, for our investors in that, you know, we can't really talk about it because they control the cadence, the timeline, the commercialization, et cetera. When we have something more to share with you, we will.
Okay. Maybe shifting over to margins, you know, with the price increase this year, you know, gross margins, you know, nice benefit there. You have really strong OpEx initiatives as well. Maybe talk a little bit about, you know, MRD, EBITDA is going to be positive in the back half of the year. Maybe just comment on the profitability kind of, you know, kind of ramp, if you will, in that business. How do we think about it as we exit this year and into next?
Okay. Let me touch on a few of those initiatives, and then we can talk about it in terms of profitability. One is we have committed to, and we are confident in our ability to be EBITDA profitable. Second, getting to EBITDA profitability second half of this year and first half of next year to cash flow profitability. Some of that you mentioned on the top line with price increase and increased volume. On the bottom line, you know, one of the big initiatives is kind of the NovaSeq implementation in the second half of the year. That alone in the first 12 months post-launch will add five to eight percentage points of margin. After that, we're looking at 10% plus.
If you look at that with the top line, you're starting to kind of move kind of very quickly to kind of your 65%-70% kind of gross margins at scale. The scale part's really important here because that NovaSeq is, there are two of them, but we only need one actually to replace 32 NextSeq. We have a second one for redundancy, but we can get out, you know, kind of three years on these two machines, which is, you know, pretty incredible if you think about that. Just that margin profile. Now in terms of, I think, Dan, I think it's a little, let's get to profitability first and then we can talk about what that ramp looks like and how much cash is coming in.
I think, but we're, you know, all of the things that we're doing now with the Flatiron integration, with the NeoDeal, with the NovaSeq, all this is, you stack these on top of each other. It's leading to high growth with a really strong margin profile that's going to, you know, hopefully be able to sustain and continue throwing off, you know, cash well into the future at really high growth rates.
Great. I think with that, we're out of time. Chad, thanks for being with us and thanks everyone in the audience for being here as well.
Thanks, Dan.
All right. Great to see you.
You as well.