Adaptive Biotechnologies Corp (ADPT) 2023 Q4 法說會逐字稿

Thank you for standing by and welcome to the Adaptive Biotechnologies fourth-quarter and full-year 2023 earnings conference call. (Operator Instructions) As a reminder, today's program is being recorded.

And now, I'd like to introduce your host for today's program, Karina Calzadilla, Head of Investor Relations. Please go ahead.

Thank you, Jonathan, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies fourth-quarter and full-year '23 earnings conference call. Earlier today, we issued a press release reporting Adaptive financial results for the fourth quarter and full year of '23. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing to a slide presentation that has been posted in the Investors section on our corporate website.

During the call, management will be making projections and other forward-looking statements within the meaning of federal security laws regarding future events and the future financial performance of the company. These statements reflect management's current perspective of the business as of today. Actual results may differ materially from today's forward-looking statements depending on a number of factors which are set forth in our public filing with the SEC and listed in this presentation.

In addition, non-GAAP financial measures will be discussed during the call and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad Robins, our CEO and Co-Founder; and Tycho Peterson, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I'll turn the call over to Chad Robins. Chad?

Thanks, Karina. Good afternoon, everyone, and thank you for joining us on our fourth quarter and full-year earnings call. As you can see on slide 3, 2023 was a year of transformation for Adaptive. Key milestones were achieved for both MRD and immune medicine. We executed OpEx reduction initiatives to drive efficiencies and reduce burn. And we initiated a strategic review process to maximize the value that MRD and immune medicine can deliver to patients and shareholders.

We ended the year with $170 million in revenue, including 60% from MRD and 40% from immune medicine. The MRD business grew 27% versus prior year, excluding milestones, as we experienced outstanding growth from clonoSEQ test volumes. This growth from MRD was offset by a decline in immune medicine mainly due to the reduction in the upfront amortization of Genentech.

As a reminder, last quarter, we updated total company guidance to exclude revenue from immune medicine. We made this decision based on a strategic shift and immune medicine to focus exclusively on target and drug discovery.

Importantly, we ended the year with a strong cash position of approximately $346 million, which enables us to execute on the strategic priorities of both businesses: in MRD, drive clonoSEQ penetration and revenue growth with the goal of reaching profitability by the end of 2025; in immune medicine, advance our target and drug discovery efforts in cancer and autoimmunity. This includes supporting a partnership with Genentech, validating a therapeutic candidate in multiple sclerosis, and scaling target discovery in other autoimmune disorders.

Before I go into the details of each business, I'll provide an update on the strategic review. In the third quarter of 2023, we retained Goldman Sachs to advise on a strategic review to maximize value to our shareholders. The MRD and immune medicine businesses have different value drivers, investment needs, and talent requirements. We are evaluating various alternatives to unlock the full potential of each business, and we're on track to communicate a final outcome at the end of this quarter.

Let's now take a closer look at our MRD business starting with clinical testing on slide 6. clonoSEQ clinical revenue in the fourth quarter grew 56% versus prior year and 25% versus prior quarter, with growth coming from both volume and ASP.

Volumes continue to grow quarter over quarter with 15,680 tests delivered in Q4, representing a 49% increase versus prior year and a 4% increase sequentially. As a reminder, fourth quarter is typically impacted by fewer business days. We are off to a great start this year with record-high clonoSEQ quarters year to date.

Growth came from all marketed indications and multi-myeloma continues to be the largest contributor. In addition, the actions we put in place to improve collections and expand coverage are working. ASPs in the fourth quarter grew double digits sequentially. We continue to be laser-focused on driving ASP growth by reducing out-of-policy and non-contracted claims and further optimizing revenue cycle management.

As such, we anticipate an increase of approximately $200 in ASP per test over the next two years. It is encouraging to see positive trends on clonoSEQ key indicators as shown on slide 7.

Blood-based testing increased in all indications contributing 39% of clonoSEQ test. We expect this percentage to grow as we generate more clinical data in blood and commercialization in non-Hodgkin's lymphoma. Blood-based testing is also a key driver of the quarter-over-quarter growth we are seeing in the community, which can now contribute nearly one in four clonoSEQ test.

Recent data presented at ASH showed evidence that clonoSEQ MRD from blood predicts progressive-free survival early in the treatment cycle of multi-myeloma patients. Also, ordering healthcare providers and ordering accounts grew 33% and 29% versus prior year, respectively.

EMR integration is a key element of our growth strategy and central to our efforts to further enhance our customer experience. We completed Epic integrations with our first five accounts and expect it to complete 15 to 20 more this year, includes several of our largest accounts.

Last week, we signed an important new integration partnership with Flatiron Health, a leading provider of EHR software and services for community oncology. We look forward to executing this partnership and expect to make clonoSEQ available to practices via the molecular profiling integration and Flatiron's OncoEMR system in 2025.

Looking at MRD pharma on slide 8, full-year revenue was essentially flat versus prior year due to broader macroeconomic factors impacting the biopharma industry, which resulted in lower sample volume across our portfolio prospective trials. That said, we saw some recovery in the fourth quarter, which experienced 23% growth sequentially.

Despite these transitory headwinds, we ended the year with a healthy backlog of about $185 million, and we signed two important patent portfolio collaboration with Takeda and BeiGene. 2023 was a great year for clonoSEQ and we are well positioned to cement our leadership as the gold standard in MRD team for clinicians, patients, pharma partners, and payers.

Looking ahead, as shown on slide 9 and 10, our priorities for MRD are clear. First, further increase penetration by growing blood-based testing, expanding into new indications like MCL and CTCL, adding new use cases through data generation and enhancing the customer experience through EMR integrations. Second, improving margins through ASP increases and operating leverage with the primary goal of reaching positive-adjusted EBITDA in the second half of 2025 and cash flow breakeven in 2026.

Turning to immune medicine on slide 12, in 2023, our immune medicine business achieved two key milestones. One, FDA IND acceptance was secured for the first T-cell therapy product candidate under our partnership with Genentech. And two, we discovered a novel druggable target in multiple sclerosis, which sheds light on potentially new T-cell biology that may be causative trigger to this devastating disease. These immune medicine milestones further sharpened our focus in target and drug discovery, specifically in high-value opportunities in cancer and autoimmunity.

As shown on slide 13, in cancer, we continue to support Genentech in the development of two categories of TCR-based cell therapy products. On the first shared product, we're engaged with Genentech's development team as it gears up for its first-in-human trial. For the fully personalized program, we completed building our regulated process workflow, and this year, we're initiating end-to-end testing for future clinical readiness.

The valuable immune receptor data that we have been generating for over a decade is a treasure trove of information that, together with our partner Microsoft, we used to develop and train AI ML models to help accelerate our target and drug discovery efforts. In autoimmunity, our focus is to further validate the MS target in known disease models.

In parallel, we are deploying our antibody platform to identify a therapeutic candidate that specifically binds to this self-antigen and blocks a potential causative event in MS. In addition, we're applying the exact same approach that we use in MS to discover novel targets and additional prioritized autoimmune indications including Type 1 diabetes and rheumatoid arthritis.

As you can see on slide 14, in 2024, we will gate our R&D investments based on key proof points that drive future value for both our partnered and wholly owned drug discovery pipeline. I'll now pass it over to Tycho.

Thanks, Chad. Starting on slide 15, with revenue for the fourth quarter and full year. Total revenue in the fourth quarter was $45.8 million, with 67% from MRD and 33% from immune medicine. MRD revenue grew to $30.8 million, up 9% from a year ago. Policy clinical performance was the main driver partially offset by a reduction in revenue from pharma services and regulatory milestones. Excluding regulatory milestones, MRD revenue grew 18% from a year ago.

clonoSEQ test volume increased by 49% to 15,680 tests delivered from 10,526 tests in the same period last year. Immune medicine revenue was $15 million, down 45% a year ago driven as expected by lower Genentech amortization, which decreased 53% year over year.

Full-year 2023 revenue was $170.3 million, representing an 8% decrease year over year. MRD revenue was $102.7 million, up 18% from a year ago, driven by a 27% increase from MRD service revenue, partially offset by a lack of regulatory milestones.

Immune medicine revenue was $67.5 million, down 31% from the prior year. As Chad mentioned, starting with our 3Q '23 earnings call, we opted to exclude immune medicine from revenue guidance given the shift in focus to target and drug discovery.

Moving down to P&L, on the right-hand side of the slide, total gross margin for the quarter was 57%, representing an 8-point increase versus the third quarter and a 13-point decline versus a year ago. The sequential increase was largely due to efficiencies from the lab move. Versus the prior year, the decline was driven by lower amortization of the Genentech upfront and a lack of milestones which have a 100% margin contribution.

R&D, sales and marketing, and G&A operating expenses declined 8% in total versus a year ago as we continue to place a strong emphasis on driving leverage. Net loss for the quarter was $69.5 million, compared to $40.2 million last year. For the full year, operating expenses, excluding the $25.4 million one-time impairment charge in the fourth quarter, which was related to our legacy lab and headquarter space over $371.9 million, compared to $385.5 million in 2022, representing a 4% increase. This reflects our ongoing efforts to drive operating efficiencies, partially offset by higher cost of revenue.

Full-year net loss was $225.3 million, compared to $200.4 million in 2022, while adjusted EBITDA was a loss of a $116.4 million, compared to a loss of $121.6 million in 2022. We ended the year with approximately $346 million in cash equivalents and marketable securities.

Now turning to 2024 guidance on slide 16, as mentioned in our last earnings call, revenue guidance will be provided only for the MRD business since immune medicine resembles a more traditional drug discovery biotech model and we want to ensure that we do not trade off short-term revenues for long-term value. We expect full-year revenue for MRD to be between $130 million and $140 million. At the midpoint, we anticipate a 65% and 35% contribution from clinical and pharma services respectively.

Guidance includes conservative MRD pharma services growth as we continue to monitor broader impacts from the biopharma industry. It also includes MRD milestones in the low-single-digit millions, which could have upside depending on clinical trial outcomes.

With respect to trends throughout the year, we expect MRD revenue to be 45% to 55% weighted between the first and second half, respectively. Of note, given that our immune medicine efforts are focused on target and drug discovery, revenue from our IM pharma collaborations will be used to offset R&D investments. Finally, our collaboration with Genentech continues to advance and we expect to recognize roughly $14 million in amortization of the upfront this year.

Moving down the P&L, we expect the operating expenses including cost of revenue to be between $360 million and $370 million for the year. This deceleration in the spending reflects our ongoing efforts to optimize resources and drive operating efficiencies, while supporting healthy top-line growth.

We continue to be thoughtful about our cash position. Excluding potential one-time costs from the strategic review, we expect to burn to average $35 million per quarter, representing an annual reduction of 10% versus 2023.

With that, I'll hand it back over to Chad.

Thanks, Tycho. We're off to a running start. I'm confident in our ability to continue to grow our clonoSEQ MRD business and to just demonstrate our target and drug discovery capabilities in immune medicine. I look forward to communicating with you an outcome of the strategic review, which will enable us to drive success and maximize value for all stakeholders.

With that, I'll turn it back over to the operator and open it up for questions.

Dan Brennan, Cowen.

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

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

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

Yes. Susan, do you want to take that?

Sure. So let's start with, I guess, the volume. So at the midpoint of the guidance, which was issued, represents over 30% growth for the overall business. We'll talk about the clinical and the pharma.

So the clinical business, we expect to have a healthy growth trajectory. We are anticipating 50% revenue growth. The revenue growth will come from both volume growth and ASP. We are focused very closely on ASP increases. And on the volume side, the consensus, I believe, is around 35% today, which we think is fair.

On the pharma side of the business, we are anticipating about 10% growth, and that's I think, roughly based on the fact that we anticipate continued industry-wide headwinds that we saw in the previous year. But then we do have a strong backlog, a healthy backlog of over $185 million, which we believe we will be able to continue to draw from as we have in the past.

Got it. And then maybe last one --

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

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

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

Great. Okay, thank you.

Sure.

David Westenberg, Piper Sandler.

Hi, thank you for taking the question. So just on the MRD business, the visibility, can you walk through the MRD revenue cadence expectations in the year? How should we think about some of the milestones or other kind of payments from pharma?

And then I just noticed a slight decrease in the sequential growth rate, and I noticed that same thing happened in Q4 of last year. Is there a seasonality in the business that we haven't been modeling previously just in terms of volume growth that -- well, maybe I should say I haven't been modeling correctly?

So I can speak to that part about the recent sequential growth and also seasonality. So I think you're pointing to the 4% quarter-over-quarter growth for the clinical business in Q4. So I think one thing that we consider is that Q4 typically with fewer business days and other quarters, we do typically see a lighter growth profile than in other quarters.

But importantly in Q4, we continue to see all of the leading indicators in the business that we track moving favorably. Additionally, when we broke out the US and ex-US clinical businesses in Q4, we note that the US business grew at 7%. Whereas the ex-US business, which is typically more lumpy from quarter-to-quarter, grew more slowly, contributing to the overall growth rate of 4%.

And then finally, we started 2024 off very strong with record average daily and monthly volumes in January. February to date is trending even more favorably, so we continue to feel very confident in the strong growth trajectory of that business.

And I do think seasonality, just based on the number of business days, can be a factor. There are other aspects of seasonality that we typically see, for example, in certain summer months. But overall, probably nothing different than you might see in an average business of our industry.

And, Dave, we mentioned in the prepared comments, for guidance, we expect MRD revenue to be 45% in the first half, 55% in the back half. So more back end (multiple speakers).

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

Sure, yeah. So, I mean, I think you're right to think that the growth drivers in 2023 will continue to be the growth drivers in '24. And in some cases, we are in the very early innings in some of those growth drivers for the previous calendar year that we will be able to advance further in '24.

So for example, Epic integration, very early days in 2023, top of the first inning. We only saw our first five accounts set up to utilize the integration by the end of Q4 and all of those went live just in either -- one in September and the other four were completed in December.

So we haven't yet seen significant lift, albeit anecdotally in those accounts, we are seeing really nice results. So we continue to work toward additional Epic integrations. They are a one-by-one process. We anticipate having 15 to 20 as previously stated by the end of the year, 15 to 20 additional. And I think then, we will see growth in those accounts.

But for the overall business, it's going to take some time for that to be a very meaningful impact, a material impact. As Chad noted earlier, we've signed another agreement with Flatiron Health, which will really start to have impact on the business in the second half of '25.

The second thing, you asked about the DLBCL. We saw a really nice growth trajectory in DLBCL aligned with our internal expectations, and we continue to promote that very actively, as well as focus on data generation. We have a number of studies that we are hoping to advance in 2024 that will continue to support the frontline and surveillance setting in use case for the assay as well as some nice, real-world evidence that we'll be advancing in other NHL indications, which will continue to build the overall business in non-Hodgkin's lymphoma more generally. So I do think DLBCL, as combined with other indications like mantle cell lymphoma in that NHL category, will be growth drivers in 2024, more meaningfully than they have been in previous years.

And then last thing you asked about was blood. We had some very nice data at ASH 2023 just at the end of last year, which we've been actively leveraging in promotional conversations for multiple myeloma in blood. We expect to expand the analysis of that data set early this year and see it published, as well as present some additional data utilizing circulating tumor DNA in multiple myeloma, particularly in the setting of extramedullary disease.

We have enough number of other data sets that we're exploring, which we may be able to utilize this year. And so I think this will be a continued data generation year for multiple myeloma.

But that said, we've seen the percentage of blood-based test continually increase quarter over quarter both for myeloma, as well as for our business more generally. We're up to nearly 40% of tests in blood, MRD test in blood today as of Q4. And we continue to expect to drive that, which will contribute to increased testing in the community and frequency of testing.

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

Mark Massaro, BTIG.

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

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

Okay, excellent. I know at JPMorgan, you guys provided the 25% to 30% revenue CAGR for MRD between 2023 and 2027. So obviously, pretty solid top-line growth and then you've maintained your expectations to hit MRD profitability in the second half of '25.

I guess I'm asking on the cost side. So obviously, you can get to profitability through revenue growth. But I'm just curious, are there certain costs that might be able to come out of the clonoSEQ assay? And maybe if you could speak to input costs or -- and then maybe some of the instrumentation or reagents that are used. I'd just be curious to see what type of levers you might have on the COGS side.

Yes, so absolutely, as we previously mentioned and I'll reiterate, we are looking, and we've been testing the NovaSeq and we're looking at a switch for the NovaSeq by the end of this year. And that will have a significant reduction in the cost of goods sold.

But in addition to that, as Tycho said, no stone is being left unturned. We're looking at our operating cost as well and we continue to refine the business to figure out how we can increase the profitability profile over time. So yes, the answer is yes. We are absolutely looking at the cost side of the equation.

And there's another couple of things we've highlighted. We're doing a [limbs] overhaul in the first half of the year. That will have implications for overhead. We're reducing the number of extractions that we process. So there is a lot in terms of the workflow.

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

Yeah, sure. Mantle cells are a relatively smaller indication, more similar to perhaps ALL than myeloma in the context of our existing covered indications. That said, it is an area of unmet need for monitoring and certainly an area of high interest for MRD based on our interactions with clinicians to date.

We already have significant existing volume with several KOLs in the space and anticipate that Medicare coverage, which we are actively seeking today, will be the trigger for us to begin proactively commercializing that indication. We're looking forward to continuing to interact with MolDX and are actively engaged with them now. So we expect to have more information this year.

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

Thanks, Mark.

Tejas Savant, Morgan Stanley.

Hello. Hi, this is Yuko on the call for Tejas. Earlier this year, you talked about potential for FDA to accept MRD as a primary surrogate endpoint in multiple myeloma. Could you elaborate on what you're hearing and how quickly we could see that associated upside for MRD business?

Yeah, and what we've heard is through the International Myeloma Working Group that several members of that committee had heard that the FDA was considering multi-myeloma as a primary endpoint. So we are waiting for that decision. I don't have any more resolution into the timing of that, but we're certainly hoping that that comes in the first couple of quarters of this year. But again, it's hard to predict a government body.

In terms of acceleration, obviously, we have deals that have written into the contract that upon approval of the drug, if our data is used as a primary endpoint that we -- there are payments due. So it would certainly be beneficial to the business.

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

Yeah, Yuko, I don't think we're going to get that granular. I can talk a little bit about pacing and limbs as the first half of this year. We've been pretty clear that NovaSeq really won't have an impact until 2025.

One thing we have said is, at scale, the MRD business should easily be north of 70% gross margin. That includes both clinical and pharma, but kind of consistent with other CLIA labs, but we're not going to break out contributions from limbs versus the Nova transition specifically.

Got it. And then --

ASPs will also help there, by the way. Sorry, go ahead.

Yeah, okay. Maybe just slip in one more question here. In terms of the Flatiron OncoEMR agreement, how much additional accounts -- how much incremental would it be to the Epic agreement that you already have?

You mean in terms of access to accounts?

Yes.

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

Yuko, at a high level, think about -- and why we do this. Think about Epic as a [vape] being integrated into the academic and medical centers and institutions and Flatiron being integrated into the community oncology and network practices. So we're trying to cover all bases and they're one of the largest EHR providers within the community and gives us access.

One of the benefits to Flatiron that we don't have with Epic, it's a faster -- I mean, it takes a while to do the upfront setup cost and their backlog on timing, but we're looking at a fourth quarter of this year implementation. But once they hit the button, they can push it out to many of the sites all at the same time as opposed to having to go one by one on the Epic integration.

So certainly excited about it and excited about what we're seeing early on from the Epic integrations that we've already done. So continuing to invest in making it easier for a doctor to order a test is something that we believe is going to lead to more test being ordered. And it's just a very simple equation.

Got it. Thank you so much for that color.

You bet.

Andrew Brackmann, William Blair.

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

Yeah, I'll just reiterate some of the things I mentioned in my prepared remarks. We're really excited about the work that we put in and how it's going to -- already starting to play out on ASP increases. So we're reducing non-contracted claims, out-of-policy claims, and just working on a lot of the blocking and tackling on the appeals process, prior auth process, et cetera. So all those things are working.

In terms of Medicaid, naturally, as we continue to expand into more indications, Medicaid is an overall percentage of our test mix, kind of winds up, going down in a large percentage of Medicaid, kind of also relates to ALL. So overall, our initiatives on -- are working. What we've talked about just in terms of quantifying that is a $200 increase over the next two years and we're already starting to see that work.

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

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

Yeah, thanks for the question. So of course, on the heels of our discovery of the first novel target using our platform, it's a target that we've identified in multiple sclerosis, obviously a devastating disease. And this year, we're very focused on further validation of the target as being causative of multiple sclerosis.

We're using both in vitro and in vivo MS disease models to ensure that data on that front we expect in the first half of the year. And then in parallel, we are, of course, starting to think about what drug modality to use to be able to go after the target.

In parallel this year, we're also deploying and have already deployed our antibody discovery platform. We completed at the end of last year a successful proof of concept in MS for an antibody discovery approach. And so we're pretty encouraged by parallel processing those two work streams with the goal to ultimately have antibody candidates that we can designate as therapeutic candidates to advance during the next two years into the clinic.

Great, thank you.

Sung Ji Nam, Scotiabank.

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

Go ahead.

I think, probably, one thing that's relevant to know is just the indications that we are in and the trends that we're seeing in the broader market with regard to investment in clinical trials over the last several years in multiple myeloma, which is the largest contributor to our pharma business. The number of trials was steadily increasing. The number peaked in 2021 and since then it has been declining.

And so I think one thing to be aware of is that for our specific business, we have a very strong position in that indication, potentially maybe even stronger if and when the FDA accepts the MRD as a surrogate for accelerated approval. But we are competing for a smaller subset of trials or drawing kind of, I should say, a smaller subset of trials over time.

In other indications like in non-Hodgkin's lymphoma, the trends are different. The number of trials hasn't started to decline. It seems relatively consistent over the last several years. And so that's a big area of focus for us in terms of growth is driving increased penetration in the non-Hodgkin's lymphoma, whereas we have likely less growth opportunity just in the context of a smaller shrinking market in multiple myeloma over the longer term.

Got you, great. And then just going back to the question on the MCL, PTCL market opportunity there, my understanding is that DLBCL is roughly 25%, 30 % of NHL, and then that there's about 60% of the aggressive subtypes of NHL. So is the 60% of NHL the potential adjustable market, do you think, in the future or is it too early to tell? Just kind of curious how -- as we think about the potential market size.

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

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

Got you. And then one quick one for Tycho, sorry if I missed it, but the $14 million amortization for Genentech this year, is that -- should we model that ratably throughout the year?

Yeah, I mean, I think that's right way to do it. I mean, it was just around multi -- but yeah, just kind of ratably for the year is fine.

Great, thank you.

(Operator Instructions) Salveen Richter, Goldman Sachs.

Hey, guys. Good evening. This is Elizabeth on for Salveen. Two questions from us today. So the first is on your partnership with Flatiron Health. Can you provide some color just around how that partnership is structured and if that would include milestone payments or would it be more a continuous revenue recognition for clonoSEQ?

And then second is on the Epic partnership. Just curious if you've had any feedback from users or physicians and what you're learning thus far in the early days about how this integration works and how it's being used. Thank you.

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

Sure. Yeah, the feedback has been very positive to date. In fact, we've seen several of our early sites come back after just a short time of having experience with the integration and asked to expand the scope of the integration, for example, bringing on more physicians or expanding to the in-patient setting versus outpatient only. We've seen increases in both the number of ordering physicians and the volumes that are flowing through in each of the accounts where we've integrated to date.

I think the most important improvement is simply the reduction in manpower required to enter orders and to not only enter orders, but to receive the results from orders as they now land directly into the EMR, in the place where you would find other test results versus having to be manually uploaded and searched for.

The other benefit of Epic integration is discreet data delivery, which is going to enable more streamlined, real-world, evidenced analysis, which more and more of our accounts are coming to us and expressing interest in performing. So I think this will be a tool not only for clinical efficiency, but also for expanding research and sites around MRD.

Got it, that's helpful. Thank you.

Rachel Vatnsdal, JPMorgan.

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

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

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

It's a great question and we don't have it just specifically baked into the guide, but we are optimistic. Right. I would say we're increasingly optimistic based on the discussions and conversations that we've been having, that the enforcement of the state biomarker laws are starting to take hold.

Just to give some context, I sit on the Board of Coalition for 21st Century Medicine and we're working hard on these initiatives. And if you look at AdvaMed, ACLA, and all the industry associations, it's a prominent area of focus.

Obviously, you're fighting the insurance company lobbies that are trying to not pay. But net-net, I think from a national position that's coming down on the stage, you are seeing incremental evidence of positive trends and insurance companies are starting to comply with this legislation. So again, I don't think it's going to be an overnight success. And obviously, we're hoping more states enact the biomarker legislations, but you will see over time incremental, and no, it's not baked into the guide.

Great, that's it for me. Thank you.

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