Welcome to Adaptive Biotechnologies Second Quarter Financial Results Call. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to turn the call over to Carrie Mendivil, with Investor Relations. Ma'am, you may begin.

Thank you. Earlier today Adaptive Biotechnologies released financial results for the quarter ended June 30, 2019. If you have not received this news release, or if you'd like to be added to the company's distribution list, please send an email to investors at adaptivebiotech.com. Before we begin, I'd like to remind you that management will make statements during this call that are forward looking statements within the meaning of Federal Securities Laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled forward looking statements in the press release adaptive issued today. For more complete list and description, please see the risk factors section on the Company's final prospectus on June 27, 2019 and the other filings the Company's makes from time to time with the Securities and Exchange Commission. Adaptive disclaims any intention or obligation to update or revise any financial projections or forward-looking statements for new information, future events or otherwise, except as required by law. In addition, non-GAAP financial measures will be discussed during this call. Please visit the aforementioned press release for the reconciliation to the most directly comparable GAAP measure. This conference call contains time sensitive information, and is accurate only as of the live broadcast August 13, 2019.With that, I would like to turn the call over to Chad Robins, Adaptive's Co-Founder and Chief Executive Officer. Chad?

Thanks, Carrie. Thank you, everyone for joining us this afternoon. I'm very pleased to welcome you to Adaptive's first earnings call as a public company to review our results for the second quarter of 2019. Joining me today is Julie Rubinstein, our President and Chad Cohen, our Chief Financial Officer. In addition Harlan Robins, Adaptive Chief Scientific Officer and Co-Founder will be available for Q&A. As many of you know, we completed our initial public offering in July, raising approximately 321 million in net proceeds after deducting underwriting discounts and commissions. Before we get started, I'd like to express my sincere thanks to a strong team we have assembled at Adaptive. Our progress is truly a testament to their collective dedication and passion. I would also like to thank our long standing investors for their continued support, and welcome our new investors. We look forward to developing meaningful long term relationships as we grow the company.At Adaptive, our mission is to translate the genetics of the Adaptive immune system into clinical products to transform how diseases are diagnosed and treated. Our approach represents one of the largest clinical applications of next generation sequencing because the Adaptive immune system has a role to play in almost every disease. Additionally, the Adaptive immune system both detects and treats most diseases, including cancer, autoimmune disorders and infectious diseases in exactly the same way. It does this through specialized cells of the Adaptive immune system, T-cells and B-cells that each have receptors on their cell surface called TCRs, or BCRs that act as scanners. When there is a match between the immune cell receptor and a disease specific signal or antigen, the immune response begins. The same immune cell that detects disease springs into action to respond to the disease acting as both an…

Thank you. As Chad mentioned, we developed our immune medicine platform to decode and translate the information held within our adaptive immune systems with the scale, precision and speed necessary to develop clinical products. We are leveraging this platform across three key areas, life sciences research, clinical diagnostics, and drug discovery. Starting first with life sciences research, this is at the core of everything we do at Adaptive. Our research product is called immunoSEQ and it is the key component of our platform that enables us to sequence immune receptors at high throughput. Its primary purpose is to generate data to inform the development of future clinical products. That said immunoSEQ is also a revenue generating product with a $1 billion market opportunity. Since its launch in 2010. immunoSEQ has been used by over 2000 academic researchers and 125 biopharma companies in over 480 clinical trials to empower the discovery of new prognostic and diagnostic biomarkers in cancer and other immune mediated diseases.We are also on track to launch a new RUO kit later this year, which will enable even more quantitative results for any sample type that a researcher is using in their lab. We also plan to further increase utilization of immunoSEQ among our biopharma partners by moving into later stage clinical trials and expanding beyond oncology. Turning next to clinical diagnostics, our first clinical diagnostic product, clonoSEQ is for monitoring MRD in most blood cancers. MRD refers to the amount of cancer cells remaining in a patient on end or after treatment. We are focused on select blood cancers called lymphoid malignancies, in which the cancer cell is in mature T or B cell. ClonoSEQ leverages our proprietary immuno-sequencing platform to identify and quantify specific DNA sequences found in malignant cells, allowing clinicians to assess and monitor…

Thanks, Julie. We classify our revenue into two distinct revenue categories sequencing and development. Our sequencing revenue category primarily includes our research fee for service offering and our FDA cleared and clinical clonoSEQ services. We aggregate these two revenue streams together as they're both tied to and will grow with increasing volume and price. Our development revenue category includes those revenues we generate from our various biopharma partnerships we seek access to our platform to grow their business. These revenues are not driven by volume or pricing, but other terms such as fees and upfront payments to access our platform, and co-development services as well as receipt of milestone payments. Today, our revenues have been primarily driven by selling our immuno-sequencing research services to biopharma and academic partners and though the opportunity for clinical testing with clonoSEQ is massive, it has not been a significant revenue contributor as it was just recently covered under Medicare and several private payers.It's important to note that our growth rates and mix of sequencing versus development revenues will vary from quarter to quarter until we start to significantly penetrate the clinical community with clonoSEQ and will also vary based on the timing of bringing in new development partners.With that background in mind I'll now turn to our results for the second quarter. Total revenue in the second quarter was 22.1 million, representing an increase of 91% from 11.6 million in the same period last year. Our revenue mix for the second quarter consisted of 54% of our revenues coming from our sequencing category and 46% coming from our development category. Sequencing revenue was 11.9 million and grew 43% from the same period in 2018. This increase was primarily driven by organic growth and revenue generated from our biopharma research customers. It's important to note…

[Operator Instructions]. Our first question comes from Patrick Donnelly with Goldman Sachs. Your line is open.

Maybe just one on clonoSEQ, Julie, I know you mentioned the transition of blood a couple times. Can you just talk about the timing for the transition there, you know, the regulatory process for this? You know, getting a few questions on that as during the process and be curious just to hear your perspective on how that rolls out and what you guys need to do to make that transition.

Sure. So we've engaged with a set of presubs to the FDA and have agreed to the extent the FDA agrees on our plans for the analytical validation and we have our set of clinical validation actually being completed as we speak as well so we're on path to submit by the end of the year for CLL and blood and the analytical validation will cover all as many lymphoid malignancies as we can so ALL and multiple myeloma will be included as well as non-Hodgkins lymphoma in our analytical validation.

Okay, so they'll be under the same umbrella for that one.

Yes.

Okay. But the analytical validation, the clinical validation are separate.

Right. And then maybe just on the adoption of clonoSEQ you guys have gotten great traction on the commercial side. Can you maybe just talk through that your focus internally between commercial coverage and then also driving the commercial adoption out there? I know, I think it was, Julie that mentioned, you guys are expanding the salesforce there to drive the test volumes up, can you maybe just talk about the internal focus again, between, continuing the commercial adoption, the commercial coverage versus the test volume side.

Absolutely. So, just to sort of set context, as you know, patients with these blood cancers are living longer due to more effective therapies. So this need for better tests, to monitor their response to treatment is more important than ever. So we've been committed to ensuring that these patients have access and to really do this, we had to start with investing and market development activities, to educate clinicians about the benefits of monitoring MRD for their patients. So to-date, most of the focus, as you said, has been on key account activation, establishing order workflow and building coverage to ensure this access for patients. We're just now really positioned to expand our focus on driving clinical usage. So some of the areas that we're focused on now are, as Harlan mentioned, label expansion and just to sort of recap there we are on track for submission of the full submission for CLL by the end of this year and some of the pre-work that will be required for submissions later on for clinical validation in our existing ALL and multiple myeloma, indications in blood followed with NHL in blood as well. We're also focused very much on medical education, data publications and presentations, coverage, expansion, and beginning more heavy engagement with patient groups. We think all of these activities will really work together to see continued growth in our clinical volumes and corresponding growth, obviously in our clonoSEQ revenues over time.

Okay, great. And then maybe just a quick housekeeping one for Chad on the guidance. I know it's always hard quarter to quarter with you guys but can you just talk through maybe the back half cadence 3Q and 4Q if you want to provide any visibility there? Appreciate it.

Yes sure. So I think the back half in terms of the mix of revenues between sequencing and development is going to look a lot like Q2 in a lot of ways. From a sequencing perspective there is some variability but you know, from quarter to quarter, that's why we're only providing sort of full year on the research side. We will continue to see continued growth in clonoSEQ volumes and revenues and then in terms of our development revenue, most of that revenues coming from the amortization as I pointed out of our Genetech up front and it's really dependent on the level of efforts we deploy there against that opportunities that and we've ramped up those efforts pretty significantly in the second quarter and you'll continue to see sort of somewhat of a stable sort of rhetoric cadence, I would say, in Q3, and Q4 there. So similar-ish mix from Q2, I would say, and looking at given just the visibility we have right now of 78 to 81, for the full year.

Thank you. And our following question comes from Tycho Peterson with JPMorgan. Your line is open.

On clonoSEQ and the private payer discussions and guidance and guidance and conclusion you said you know one or three quarters, are these just standard pilot programs you have to go through or what's kind of the protocol and why you think it'll take that long?

What that comment was really about was, in terms of how we estimate revenue for clonoSEQ we have to start seeing payments come in once we've know that the policy that's put into place is in contract and then you got to get you got to get paid on that, that contract. And I think it's just going to take some time before we start getting paid before we can end up sort of baking in those new payer rates into the overall revenues that we recognize for clonoSEQ. So that's what that comment was really about.

Then on kind of the blood comments, following up in the earlier question, how do you think it kind of changes the market opportunity, obviously, much less invasive versus bone marrow? So what is the transition, you know, to blood when you do roll it out? What would be the adoption curve in your view?

So as you know, we're starting now penetrating ALL and multiple myeloma in our current label for bone marrow. When we file at the end of this year for CLL in blood we will be able to see an increase ideally in the number of tests per patient in CLL. When we file in ALL multiple myeloma in the future, when we transition into blood for those two indications, we also expect to see an increase in the number of tests per patient. And again, the filing in NHL which will follow sometime in the future will be directly in blood as well. So overall, we're really moving to this paradigm where clinicians can use the same standardized sensitive, MRD test from blood in longitudinal time points for all of their patients with lymphoid malignancies in the future.

And our next question comes from Derik De Bruin with Bank of America. Your line is open.

If I've missed it, my apologies but did you give a specific breakout on the sequencing revenue between the contribution from the research at partner to the research side and confirmation from the diagnostic side with clonoSEQ side.

We haven't, but I will say that the clinical clonoSEQ product represents less than 10% of our revenues in Q2.

Great. And I think the question. I think the ramp been a little bit lower than I thought maybe in the second half of the year is that typically do because going back just to taking time for the commercial payers to come on board for that is that sort of like you just making a little bit conservatism, is it the timing?

I wouldn't say it's conservatism, I would just say this is just a best view as of today, we're going to continue to see growth in overall sample volume for clonoSEQ and into this clinical test results throughout the year. I would just say that majority of our investments as Julie pointed out, have really been in terms of sign up accounts, developing market awareness, establishing workflow with our accounts and as we continue to apply resources and turn the corner to 2020 those resources will be more focused on driving account utilization, physician adoption and those types of activities.

Got it. And pricing on an [indiscernible] kit, RUO kit.

We have not finalized the pricing on the kit yet. That will be disclosed during the launch period at the end of this year, beginning of next year.

Great. And how should we look about news flow from the Genentech partnership, I mean is this the stuff that you're going to be releasing or they are going to be releasing in terms of when targets have been selected, what's going on. Can you just talk about how should we just look at some of the data catalyst coming up?

Absolutely. So I'll first say we have a great alliance with Genentech and are thrilled to be working with them on this important cellular therapy, product development effort in oncology, as they are leading the commercial efforts any communication that we make related to that alliance will be done in conjunction with Genentech. So we don't expect many public announcements until the IND filing next year.

And our next question comes from the line of Doug Schenkel with Cowen. Your line is open.

Chad, I think you gave us diagnostic volume in the quarter, but I think I wasn't quick enough to take that down. I don't think I'm making that up. Would you be willing to share that again?

Yes, absolutely. I think we had about what hold one second 20388 clinical tests.

Okay. So I know there's some error around this math. But you know, if you know, based on what you said about clinical accounting for under 10% of sales, but if it's close to that and I divide that revenue number by that diagnostic volume, it does seem like and I know, we don't have a lot of quarters of history here but it does seem like a ASPs are improving. Is that largely a function of just started getting the accountants more comfortable with essentially some of the payer coverage that does seem to be evolving in a positive way pretty quickly.

Yes, no, you're right on the map in terms of growth in ASPs for sure. In terms I mean, the color there is really improved, you know from last quarter, and from last year, the number of total tests that are paid in part or in full and so more than 50% of our tests are being paid in part or full. And you know, this time last year, it was sort of less than 50%. So directionally, everything's going up, which is, you know, improving our overall ASPs, as well as bringing on Medicare coverage in the first quarter of the year. So we're continuing to make progress there and I'll just take a couple quarters of those contracts to be realized and baked into how we estimate revenue for clonoSEQ.

And our next question comes from Brian Weinstein with William Blair. Your line is open.

On the immunoSEQ product, Julie, did I hear you right that you gave an update on [indiscernible] but what was the specific update on ovarian and the timing on that?

We are working on ovarian cancer in addition to generating additional signal data for Celiac disease, Lyme and others, as you know, so we don't have a specific update, but all is moving along quite well, in all of these areas of research.

Okay, and then just kind of from a high level here. Can you talk about the process as it relates to expanding indications that you're looking at for immunoSEQ. I mean, is this exclusively driven by kind of your internal process? Are you working with KOLs and are they kind of pushing you more towards an oncology focused an auto immune focused and infectious disease focus? How are you kind of parsing through all the different opportunities that you guys are getting as you're building up the map?

Sure, that's a great question. So to begin with, as we've mentioned, we've selected a particular indication, which is within each of the three disease areas that we are interested in studying first, which are cancer, autoimmune disorders and infectious disease. And then within each of those categories, we have a variety of reasons for the various indications that we've begun to share publicly ranging from, you know, really high unmet medical need to understanding the antigenic phase really well, to access to well characterized samples from retrospective studies and other key criteria that we use to select our initial set of indications. We are beginning the early market development efforts now where we're coordinating with KOLs in each of these areas, and others and we'll be expanding those efforts in the very near future, now that we have these two and other promising early clinical signals that we are going to be expediting additional studies to really validate these signals.

And our next question comes from Dave Westenberg with Guggenheim Securities. Your line is open.

Sticking with immunoSEQ Dx, so what are the gating factors in terms of speed recovery? Is it cost? Is it personnel? Is it computational? And then do you envision immunoSEQ longer term to be kind of maybe discreet in finding tests or do you see this more as a kind of a crossword puzzle where you figure out a couple clues and all of a sudden you have a ton of momentum?

Can you repeat the first question first, that was just a way unclear on the two parts of the question.

What is the kind of the gating factor in terms of discovering new tests on immunoSEQ? Do you think it's more speed of discovering new test? Is it cost? Is it personnel? Is it computational? I'm just kind of thinking about, you know, the IPO, you did raise a lot of money does that potential to maybe speed up timelines versus relative expectation? Or is it more you need the right personnel in place? Is it you know, solving the problem? That's kind of the basis of that first question.

Okay, I think Harlan is going to take the first question, and then we'll hear the second question, Harlan.

Yes. So the difficulty in signal finding really is different depending on the different disease states. So infectious disease is actually reasonably straightforward and has proved to be easier, the autoimmune space is sort of in the middle on cancer because of the diversity of the antigens is a longer road to toe [ph] where we absolutely are stepping on the gas and collecting large amounts of samples with the various disease states but also as we're saying, We're scaling the antigen map lab that's going to produce these -- the connections between T cell receptors and antigens. We've accelerated the rate at which we're doing this and using the increased funds to really both increase personnel as well as samples running through the lab just overall workflow.

Great, and actually, I'm just going to move on to the another question. This one's probably a little bit more for Julie, we appreciate the color and basically an paradox how it's not -- there's kind of a little more of an adhoc back and forth process in terms of getting paid, but can you maybe talk about pair adoption, in terms of how that correlating with physician ordering. Are physicians understanding of the system is adopting the test and maybe they're more keen in ordering or just give us a little bit more color on that overall process? Thank you.

Sure. Absolutely. So we are really excited about the progress the team has made in such a short period of time to sign on so many private payers, and that certainly opens up access now for patients to be for patients -- for patients and clinicians to treat them by monitoring MRD with clonoSEQ. It's a little separate from utilization still, though, there's still the efforts that have to be put in place to educate the clinicians to sign on their accounts, to implement workflow, and to really help clinicians understand when and in which patients to use clonoSEQ. So the coverage provides access and then there's still all of the additional efforts underway to increase utilization by clinicians now that they have that access. So they're tied together but they're still for us, we're really focused on both of those efforts at the same time.

And our last question comes from a line of Amanda Murphy with BTIG. Your line is open.

I just had a question just given the dynamics of where the patients are being treated, you know, thinking about mostly at academic centers, and those centers probably have their own labs with demo type flow cytometry themselves and then in tandem, you have maybe an appreciation for this needs to have higher sensitivity in terms of getting the 10 to the minus six [ph]. I'm just curious as you now have FDA approval and pair coverage, are you seeing their centers more willing to send out test you or how is that flow working?

I would say there's a mix certainly, in the United States, there is a lot of Tier 1 institutions that are open to and already sending us many samples, there are others that are sort of evaluating that decision that you so clearly laid out. And I think time will tell, I do believe that clonoSEQ has many advantages, some of what you just mentioned and right now, it's the most sensitive, accurate, standardized tests out there for these patients and we hope that most of the Tier 1 institutions over time will be able to work with us. We're also as we discussed with you previously, developing a clinical kit, which should help take care of that scenario that you described in the future.

I know we had talked about this previously, but how does it work if a patient gets they go to, you know, a center and get deployed [indiscernible] can they still then come to you for the monitoring aspect? Or do you need to have that initial ID first?

We do have to have the initial ID sample first. And we have quite an efficient way of ensuring that we can gain access to that sample. Now, we have operations setup to do that and we work with our customers all the time to ensure that we get that ID sample for their patients.

Thank you. And I'm showing no further questions. At this time I would not like to turn the call back to Chad Robins for closing remarks.

Thank you, everyone for joining the call. We look forward to building relationships as we move forward and continue to execute quarter over quarter. So thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.