Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes and the other financial information appearing elsewhere in this report, as well as the other financial information we file with the SEC from time to time. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties relating to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements.
As a result of many factors, including those factors set forth in the “Risk Factors” section of this report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are advancing the field of immune medicine by harnessing the inherent biology of the adaptive immune system to transform the diagnosis and treatment of disease. We believe the adaptive immune system is nature’s most finely tuned diagnostic and therapeutic for most diseases, but the inability to decode it has prevented the medical community from fully leveraging its capabilities. Our immune medicine platform applies our proprietary technologies to read the diverse genetic code of a patient’s immune system and aims to understand precisely how the immune system detects and treats disease in that patient. We capture these insights in our dynamic clinical immunomics database, which is underpinned by computational biology and machine learning, and use them to develop and commercialize clinical products and services that we are tailoring to each individual patient. We have commercial products and services and a robust pipeline of clinical products and services that we are designing to diagnose, monitor and enable the treatment of diseases, such as cancer, autoimmune disorders and infectious diseases.
Our immune medicine platform is the foundation for our expanding suite of products and services. The cornerstone of our platform and core immunosequencing product, immunoSEQ, serves as our underlying research and development engine and generates revenue from biopharmaceutical and academic customers.
Leveraging our collaboration with Microsoft, we are creating the TCR-Antigen Map. We are using this map to develop research solutions by disease, called immunoSEQ T-MAP, and a diagnostic product for many diseases from a single blood test, called T-Detect, for which we have launched two indications: T-Detect COVID, which is designed to confirm past SARS-CoV-2 infection, and T-Detect Lyme, which is designed to help diagnose early Lyme disease.
Our therapeutic product candidates, being developed under our worldwide collaboration and license agreement with Genentech (the "Genentech Agreement"), leverage our platform to identify specific receptors on immune cells to develop into cellular therapies in oncology. We also extended our platform to identify highly potent neutralizing antibodies against SARS-CoV-2 and we believe this differentiated approach may be leveraged across multiple disease states.
Our first clinical diagnostic product, clonoSEQ, is the first test authorized by the Food and Drug Administration for the detection and monitoring of MRD in patients with multiple myeloma, B cell acute lymphoblastic leukemia and chronic lymphocytic leukemia, and is also available as a CLIA-validated laboratory developed test for patients with other lymphoid cancers. We disclose our clonoSEQ test volume, which includes the number of clonoSEQ reports and results we have provided to ordering physicians in the United States and international technology transfer sites. These volumes do not include sample results from our biopharmaceutical customers or academic institutions utilizing our MRD services.
We are actively pursuing opportunities to deepen our relationships with current customers and initiate relationships with new customers. We have an experienced, specialty salesforce that is targeting department heads, laboratory directors, principal investigators, core facility directors, clinicians, payors, research scientists and pathologists at leading academic and research institutions, biopharmaceutical companies and contract research organizations. As MRD assessment becomes standard practice for patient management across a range of blood cancers, we believe it will be essential for clinicians and patients to have access to a highly accurate, sensitive and standardized MRD assessment tool. We are focused on establishing and maintaining collaborative relationships with payors, developing health economic evidence and building billing and patient access infrastructure to expand reimbursement coverage for our clinical diagnostics. We continue to seek expanded coverage of our clonoSEQ diagnostic test and have successfully expanded coverage through contractual agreements or positive medical policies with Medicare and several of the largest national private health insurers in the United States.
25
Adaptive Biotechnologies Corporation
We recognized revenue of $47.8 million and $39.5 million for the three months ended September 30, 2022 and 2021, respectively, and $130.1 million and $116.4 million for the nine months ended September 30, 2022 and 2021, respectively. Net loss attributable to Adaptive Biotechnologies Corporation was $45.3 million and $55.9 million for the three months ended September 30, 2022 and 2021, respectively, and $160.1 million and $145.8 million for the nine months ended September 30, 2022 and 2021, respectively. We have funded our operations to date principally from the sale of convertible preferred stock and common stock and, to a lesser extent, revenue and proceeds from the revenue interest purchase agreement. As of September 30, 2022 and December 31, 2021, we had cash, cash equivalents and marketable securities of $527.8 million and $570.2 million, respectively.
Revenue Interest Purchase Agreement
In September 2022, we entered into a revenue interest purchase agreement (the "Purchase Agreement") with OrbiMed Royalty & Credit Opportunities IV, LP ("OrbiMed"), an affiliate of OrbiMed Advisors LLC, as collateral agent and administrative agent for the purchasers party thereto (the “Purchasers”). Pursuant to the Purchase Agreement, we received $125 million from the Purchasers at closing (the "First Payment"), less certain transaction expenses. We will also be entitled to receive up to $125 million in subsequent installments as follows: (i) $75 million upon our request occurring no later than September 12, 2025 (the “Second Payment”) and (ii) $50 million upon our request in connection with certain permitted acquisitions occurring no later than September 12, 2025 (the “Third Payment”), in each case subject to certain funding conditions.
As consideration for such payments, the Purchasers will have a right to receive certain revenue interests (the “Revenue Interests”) from us based on a percentage (the “Applicable Payment Percentage”) of all revenue as measured in accordance with accounting principles generally accepted in the Unites States of America ("GAAP") (the "Revenue Base"). If only the First Payment has been made, the Applicable Payment Percentage shall be five percent of the quarterly Revenue Base. If both the First Payment and Second Payment have been made, the Applicable Payment Percentage shall be eight percent of the quarterly Revenue Base. If each of the First, Second and Third Payments have been made, the applicable payment percentage applied to the Revenue Interest shall be ten percent of the quarterly Revenue Base.
Payments in respect of the Revenue Interests shall be made quarterly within 45 days following the end of each fiscal quarter (each, a “Revenue Interest Payment”). If OrbiMed has not received Revenue Interest Payments in the aggregate equal to or greater than the sum of its invested capital (the “Cumulative Purchaser Payments”) on or prior to September 12, 2028, the revenue interest rate shall be increased to a rate which, if applied retroactively to our cumulative Revenue Base, would have resulted in Revenue Interest Payments equal to the sum of all Cumulative Purchaser Payments.
OrbiMed will be entitled to 100% of the Revenue Interest Payments until it has received a total cumulative value of 165% of the Cumulative Purchaser Payments (the “Return Cap”), unless full repayment of the amount of the Return Cap has not been made by September 12, 2032, in which case the Return Cap shall be increased to 175% of the Cumulative Purchaser Payments.
In addition, the Purchase Agreement contains various representations and warranties, information rights, non-financial covenants, indemnification obligations and other provisions that are customary for a transaction of this nature.
Revenue Reclassification and clonoSEQ Test Volume
We previously disclosed revenue bifurcated into sequencing and development financial statement captions. Beginning with the reporting period ended March 31, 2022, we changed how we classify revenue and now present total revenue on the unaudited condensed consolidated statements of operations included elsewhere in this report. We disaggregate revenue under our Immune Medicine and MRD market opportunities in Note 3 of the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this report.
26
Adaptive Biotechnologies Corporation
The following table presents the amount of sequencing revenue and development revenue recognized under our Immune Medicine and MRD market opportunities for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
|
June 30, 2021 |
|
|
March 31, 2021 |
|
Immune Medicine revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Sequencing revenue |
|
$ |
6,860 |
|
|
$ |
8,170 |
|
|
$ |
5,404 |
|
|
$ |
4,048 |
|
Development revenue |
|
|
14,514 |
|
|
|
15,445 |
|
|
|
17,635 |
|
|
|
16,057 |
|
Total Immune Medicine revenue |
|
|
21,374 |
|
|
|
23,615 |
|
|
|
23,039 |
|
|
|
20,105 |
|
MRD revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Sequencing revenue |
|
|
16,201 |
|
|
|
13,936 |
|
|
|
13,151 |
|
|
|
11,126 |
|
Development revenue |
|
|
355 |
|
|
|
1,916 |
|
|
|
2,315 |
|
|
|
7,211 |
|
Total MRD revenue |
|
|
16,556 |
|
|
|
15,852 |
|
|
|
15,466 |
|
|
|
18,337 |
|
Total revenue |
|
$ |
37,930 |
|
|
$ |
39,467 |
|
|
$ |
38,505 |
|
|
$ |
38,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, 2020 |
|
|
September 30, 2020 |
|
|
June 30, 2020 |
|
|
March 31, 2020 |
|
Immune Medicine revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Sequencing revenue |
|
$ |
3,310 |
|
|
$ |
3,691 |
|
|
$ |
2,036 |
|
|
$ |
3,170 |
|
Development revenue |
|
|
17,155 |
|
|
|
12,438 |
|
|
|
12,856 |
|
|
|
11,077 |
|
Total Immune Medicine revenue |
|
|
20,465 |
|
|
|
16,129 |
|
|
|
14,892 |
|
|
|
14,247 |
|
MRD revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Sequencing revenue |
|
|
9,399 |
|
|
|
7,585 |
|
|
|
5,949 |
|
|
|
6,299 |
|
Development revenue |
|
|
321 |
|
|
|
2,585 |
|
|
|
147 |
|
|
|
364 |
|
Total MRD revenue |
|
|
9,720 |
|
|
|
10,170 |
|
|
|
6,096 |
|
|
|
6,663 |
|
Total revenue |
|
$ |
30,185 |
|
|
$ |
26,299 |
|
|
$ |
20,988 |
|
|
$ |
20,910 |
|
We also previously disclosed the number of clonoSEQ reports provided to ordering physicians in the United States, referred to as “clinical sequencing volume” or “clinical sequencing volume, excluding T-Detect COVID volume” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of certain of our SEC filings. Beginning with the reporting period ended March 31, 2022, we changed our disclosures related to volume metrics and now present the number of clonoSEQ reports and results we have provided to ordering physicians in the United States and international technology transfer sites, collectively referred to as “clonoSEQ test volume.” Our clonoSEQ test volume does not include sample results from our biopharmaceutical customers or academic institutions utilizing our MRD services.
The following table presents our clonoSEQ test volume for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
|
June 30, 2021 |
|
|
March 31, 2021 |
|
Clinical sequencing volume, excluding T-Detect COVID volume |
|
|
6,356 |
|
|
|
5,928 |
|
|
|
5,475 |
|
|
|
4,757 |
|
clonoSEQ reports or results provided to international technology transfer sites |
|
|
494 |
|
|
|
413 |
|
|
|
422 |
|
|
|
543 |
|
clonoSEQ test volume |
|
|
6,850 |
|
|
|
6,341 |
|
|
|
5,897 |
|
|
|
5,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, 2020 |
|
|
September 30, 2020 |
|
|
June 30, 2020 |
|
|
March 31, 2020 |
|
Clinical sequencing volume |
|
|
4,509 |
|
|
|
4,023 |
|
|
|
3,136 |
|
|
|
3,518 |
|
clonoSEQ reports or results provided to international technology transfer sites |
|
|
704 |
|
|
|
375 |
|
|
|
310 |
|
|
|
238 |
|
clonoSEQ test volume |
|
|
5,213 |
|
|
|
4,398 |
|
|
|
3,446 |
|
|
|
3,756 |
|
27
Adaptive Biotechnologies Corporation
Components of Results of Operations
Revenue
We derive revenue by providing diagnostic and research services in our Immune Medicine and MRD market opportunities. Our Immune Medicine revenue consists of revenue generated from (1) providing sample testing services for our commercial research product, immunoSEQ, to biopharmaceutical customers and academic institutions; (2) providing our T-Detect COVID tests to clinical customers; and (3) our collaboration agreements with Genentech and other biopharmaceutical customers in areas of drug and target discovery. Our MRD revenue consists of revenue generated from (1) providing our clonoSEQ report to clinical customers; (2) providing MRD sample testing services to biopharmaceutical customers and certain academic institutions, including investigator-led clinical trials; and (3) providing our clonoSEQ report or results to certain international laboratory sites through technology transfers.
For our research customers, which include biopharmaceutical customers and academic institutions for both our immunoSEQ and MRD services, delivery of the respective test results may include some level of professional support and analysis. Terms with biopharmaceutical customers generally include non-refundable payments made in advance of services ("upfront payments"), which we record as deferred revenue. For all research customers, we recognize revenue as we deliver sequencing results. From time to time, we offer discounts in order to gain rights and access to certain datasets. Revenue is recognized net of these discounts and costs associated with these services are reflected in cost of revenue. In periods where our sample estimates are reduced or a customer project is cancelled and, in either case, we have remaining related deferred revenue, we recognize revenue using a cumulative catch-up approach based on the proportion of samples delivered to date relative to the remaining samples expected to be delivered. Certain of our MRD revenue arrangements with biopharmaceutical customers include consideration in the form of regulatory milestones upon regulatory approval of the respective biopharmaceutical partners’ therapeutics. Such revenue is constrained from recognition until it becomes probable that such milestone will be achieved.
Under certain agreements with our biopharmaceutical customers who seek access to our platform to support their therapeutic development activities, revenues are generated from research and development support services that we provide. These agreements may include substantial non-refundable upfront payments, which we recognize over time as we perform the respective services. Revenue recognized from these activities relate primarily to our Genentech Agreement.
For our clinical customers, we primarily derive revenue from providing our clonoSEQ report to ordering physicians. We bill medical institutions and commercial and government payors based on reports delivered to ordering physicians. Amounts paid for clonoSEQ by medical institutions and commercial and government payors vary based on respective reimbursement rates and patient responsibilities, which may differ from our targeted list price. We recognize clinical revenue by evaluating customer payment history, contracted reimbursement rates, if applicable, and other adjustments to estimate the amount of revenue that is collectible.
For our clonoSEQ coverage under Medicare, we bill an episode of treatment when we deliver the first eligible test report. This billing contemplates all necessary tests required during a patient’s treatment cycle, which is currently estimated at approximately four tests per patient, including the initial sequence identification test. Revenue recognition commences at the time the initial billable test report is delivered and is based upon cumulative tests delivered to date. Any unrecognized revenue from the initial billable test is recorded as deferred revenue and recognized either as we deliver our estimate of the remaining tests in a patient’s treatment cycle or when the likelihood becomes remote that a patient will receive additional testing.
We expect revenue to increase over the long term. Our revenue may fluctuate from period to period due to the uncertain nature of delivery of our products and services, the achievement of milestones by our customers, timing of expenses incurred, changes in estimates of total anticipated costs related to our Genentech Agreement and other events not within our control, such as the delivery of customer samples or customer decisions to no longer pursue their development initiatives.
Due to the ongoing uncertainties related to the COVID-19 pandemic, we may experience variability in revenue in the near term as our customers’ abilities to procure samples for their research initiatives change, as customer initiatives evolve and as clinical testing is impacted by the pandemic.
Cost of Revenue
Cost of revenue includes the cost of materials, personnel-related expenses (including salaries, benefits and share-based compensation), shipping and handling expenses, equipment costs, allocated facility costs associated with processing samples and professional support for our service revenue activities. Allocated facility costs include depreciation of laboratory equipment, as well as allocated facility occupancy and information technology costs. Costs associated with processing samples are recorded as expense, regardless of the timing of revenue recognition. As such, cost of revenue and related volume does not always trend in the same direction as revenue recognition and related volume. Additionally, costs to support our Genentech Agreement are a component of our research and development expenses.
28
Adaptive Biotechnologies Corporation
We expect cost of revenue to increase in absolute dollars as we grow our sample testing volume and make investments in laboratory automation and facilities, but the cost per sample to decrease over the long term due to the efficiencies we may gain as assay volume increases from improved utilization of our laboratory capacity, automation and other value engineering initiatives. If our sample volume throughput is reduced, cost of revenue as a percentage of total revenue may be adversely impacted due to fixed overhead costs.
Research and Development Expenses
Research and development expenses consist of laboratory materials costs, personnel-related expenses, equipment costs, allocated facility costs, information technology expenses and contract service expenses. Research and development activities support further development and refinement of existing assays and products, discovery of new technologies and investments in our immune medicine platform. We also include in research and development expenses the costs associated with software development of applications to support future commercial opportunities, as well as development activities to support laboratory scaling and workflow. We are currently conducting research and development activities for several products and services and we typically use our laboratory materials, personnel, facilities, information technology and other development resources across multiple development programs. Additionally, certain of these research and development activities benefit more than one of our product opportunities. We do not track research and development expenses by specific product candidates.
A component of our research and development expenses are costs supporting clinical and analytical validations to obtain regulatory approval for future clinical products and services. Additionally, the costs to support our Genentech Agreement are a component of our research and development expenses. Some of these activities have generated and may in the future generate Immune Medicine collaboration revenue.
We expect research and development expenses to experience decreases in the short term and to decrease as a percentage of revenue in the long term, although the percentage may fluctuate from period to period due to the timing and extent of our development and commercialization efforts.
Sales and Marketing Expenses
Sales and marketing expenses include personnel-related expenses for commercial sales, product and account management, marketing, reimbursement, medical education and business development personnel that support commercialization of our platform products. In addition, these expenses include external costs, such as advertising expenses, customer education and promotional expenses, market analysis expenses, conference fees, travel expenses and allocated facility costs.
We expect sales and marketing expenses to experience modest increases in the short term. In the long term, we expect sales and marketing expenses to increase in absolute dollars as we increase marketing activities to drive awareness and adoption of our products and services. However, we expect sales and marketing expenses to decrease as a percentage of revenue in the long term, subject to fluctuations from period to period due to the timing and magnitude of these expenses.
General and Administrative Expenses
General and administrative expenses include personnel-related expenses (including salaries, benefits and share-based compensation) for our personnel in executive, legal, finance and accounting, human resources and other administrative functions, including third-party billing services. In addition, these expenses include insurance costs, external legal costs, accounting and tax service expenses, consulting fees and allocated facility costs.
We expect general and administrative expenses to experience nominal fluctuations in the short term and to decrease as a percentage of revenue in the long term.
Interest Expense
Interest expense includes costs associated with our revenue interest liability and noncash interest costs associated with the amortization of the related deferred issuance costs. We impute the related interest expense using the effective interest rate method. We calculate an effective interest rate which will amortize our related obligation to zero over the anticipated repayment period. A significant increase or decrease in forecasted revenue will materially impact our interest expense.
29
Adaptive Biotechnologies Corporation
Statements of Operations Data and Other Financial and Operating Data
The following table sets forth our statements of operations data and other financial and operating data for the periods presented (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
47,830 |
|
|
$ |
39,467 |
|
|
$ |
130,110 |
|
|
$ |
116,414 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
14,907 |
|
|
|
14,189 |
|
|
|
41,320 |
|
|
|
34,945 |
|
Research and development |
|
|
35,658 |
|
|
|
36,072 |
|
|
|
110,534 |
|
|
|
107,644 |
|
Sales and marketing |
|
|
21,513 |
|
|
|
24,949 |
|
|
|
71,887 |
|
|
|
68,769 |
|
General and administrative |
|
|
20,755 |
|
|
|
20,154 |
|
|
|
66,099 |
|
|
|
51,156 |
|
Amortization of intangible assets |
|
|
428 |
|
|
|
428 |
|
|
|
1,270 |
|
|
|
1,270 |
|
Total operating expenses |
|
|
93,261 |
|
|
|
95,792 |
|
|
|
291,110 |
|
|
|
263,784 |
|
Loss from operations |
|
|
(45,431 |
) |
|
|
(56,325 |
) |
|
|
(161,000 |
) |
|
|
(147,370 |
) |
Interest and other income, net |
|
|
765 |
|
|
|
327 |
|
|
|
1,454 |
|
|
|
1,429 |
|
Interest expense |
|
|
(653 |
) |
|
|
— |
|
|
|
(653 |
) |
|
|
— |
|
Net loss |
|
|
(45,319 |
) |
|
|
(55,998 |
) |
|
|
(160,199 |
) |
|
|
(145,941 |
) |
Add: Net loss attributable to noncontrolling interest |
|
|
38 |
|
|
|
95 |
|
|
|
136 |
|
|
|
95 |
|
Net loss attributable to Adaptive Biotechnologies Corporation |
|
$ |
(45,281 |
) |
|
$ |
(55,903 |
) |
|
$ |
(160,063 |
) |
|
$ |
(145,846 |
) |
Net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted |
|
$ |
(0.32 |
) |
|
$ |
(0.40 |
) |
|
$ |
(1.12 |
) |
|
$ |
(1.04 |
) |
Weighted-average shares used in computing net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted |
|
|
142,928,654 |
|
|
|
140,833,564 |
|
|
|
142,334,342 |
|
|
|
140,060,379 |
|
Other Financial and Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1) |
|
$ |
(25,868 |
) |
|
$ |
(41,059 |
) |
|
$ |
(102,024 |
) |
|
$ |
(106,795 |
) |
(1) Adjusted EBITDA is a non-GAAP financial measure that we define as net loss attributable to Adaptive Biotechnologies Corporation adjusted for interest and other income, net, interest expense, income tax (expense) benefit, depreciation and amortization expense, restructuring expense and share-based compensation expense. Please refer to “Adjusted EBITDA” below for a reconciliation between Adjusted EBITDA and net loss attributable to Adaptive Biotechnologies Corporation, the most directly comparable GAAP financial measure, and a discussion about the limitations of Adjusted EBITDA.
30
Adaptive Biotechnologies Corporation
Comparison of the Three Months Ended September 30, 2022 and 2021
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
|
|
Percent of Revenue |
|
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
Immune Medicine revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue |
|
$ |
6,559 |
|
|
$ |
8,169 |
|
|
$ |
(1,610 |
) |
|
(20)% |
|
|
|
|
|
|
|
Collaboration revenue |
|
|
21,320 |
|
|
|
15,446 |
|
|
|
5,874 |
|
|
|
38 |
|
|
|
|
|
|
|
Total Immune Medicine revenue |
|
|
27,879 |
|
|
|
23,615 |
|
|
|
4,264 |
|
|
|
18 |
|
|
|
58 |
% |
|
|
60 |
% |
MRD revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue |
|
|
19,951 |
|
|
|
14,352 |
|
|
|
5,599 |
|
|
|
39 |
|
|
|
|
|
|
|
Regulatory milestone revenue |
|
|
— |
|
|
|
1,500 |
|
|
|
(1,500 |
) |
|
|
(100 |
) |
|
|
|
|
|
|
Total MRD revenue |
|
|
19,951 |
|
|
|
15,852 |
|
|
|
4,099 |
|
|
|
26 |
|
|
|
42 |
% |
|
|
40 |
% |
Total revenue |
|
$ |
47,830 |
|
|
$ |
39,467 |
|
|
$ |
8,363 |
|
|
|
21 |
|
|
|
100 |
% |
|
|
100 |
% |
The $4.3 million increase in Immune Medicine revenue was primarily due to a $5.4 million increase in revenue generated from the Genentech Agreement due to increased collaboration expenses and a $1.3 million increase in revenue generated from our biopharmaceutical and academic customers, which were partially offset by a $2.5 million decrease in revenue generated from our T-Detect COVID clinical customers.
The $4.1 million increase in MRD revenue was primarily due to a $3.3 million increase in revenue generated from providing our clonoSEQ report to clinical customers and a $2.5 million increase in revenue generated from providing MRD sample testing services to biopharmaceutical customers. These increases were partially offset by a $1.5 million decrease in revenue recognized upon the achievement of certain regulatory milestones by our biopharmaceutical customers' therapeutics. Our clonoSEQ test volume increased by 52% to 9,649 tests delivered in the three months ended September 30, 2022 from 6,341 tests delivered in the three months ended September 30, 2021.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
|
|
Percent of Revenue |
|
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
Cost of revenue |
|
$ |
14,907 |
|
|
$ |
14,189 |
|
|
$ |
718 |
|
|
|
5 |
% |
|
|
31 |
% |
|
|
36 |
% |
The $0.7 million increase in cost of revenue was primarily attributable to a $2.2 million increase in labor and overhead costs, a $0.9 million increase in cost of materials related to mix to higher cost assays and a $0.3 million increase related to higher usage of our production laboratory to process revenue samples versus research and development samples. These increases were partially offset by a $1.7 million decrease in materials cost resulting from decreased revenue sample volume and a $0.8 million decrease in certain sample collection costs.
31
Adaptive Biotechnologies Corporation
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
|
Percent of Revenue |
|
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
2022 |
|
|
2021 |
|
Research and development |
|
$ |
35,658 |
|
|
$ |
36,072 |
|
|
$ |
(414 |
) |
|
(1)% |
|
|
75 |
% |
|
|
91 |
% |
The following table presents disaggregated research and development expenses by cost classification for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
Research and development materials and allocated production laboratory expenses |
|
$ |
10,138 |
|
|
$ |
12,620 |
|
|
$ |
(2,482 |
) |
Personnel expenses |
|
|
16,534 |
|
|
|
16,184 |
|
|
|
350 |
|
Allocable facilities and information technology expenses |
|
|
2,616 |
|
|
|
1,560 |
|
|
|
1,056 |
|
Software and cloud services expenses |
|
|
729 |
|
|
|
825 |
|
|
|
(96 |
) |
Depreciation and other expenses |
|
|
5,641 |
|
|
|
4,883 |
|
|
|
758 |
|
Total |
|
$ |
35,658 |
|
|
$ |
36,072 |
|
|
$ |
(414 |
) |
The $0.4 million decrease in research and development expenses was primarily attributable to a $2.5 million decrease in cost of materials and allocated production laboratory expenses driven primarily by decreased investments in T-Detect and TCR-Antigen Map development activities, which were partially offset by an increase in drug discovery expenditures primarily related to the Genentech Agreement. This decrease was partially offset by a $1.1 million increase in allocable facility expenses and a $0.8 million increase in depreciation and other expenses, which was driven primarily by a $0.5 million increase in depreciation expense and a $0.5 million increase in consultant costs.
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
|
Percent of Revenue |
|
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
2022 |
|
|
2021 |
|
Sales and marketing |
|
$ |
21,513 |
|
|
$ |
24,949 |
|
|
$ |
(3,436 |
) |
|
(14)% |
|
|
45 |
% |
|
|
63 |
% |
The $3.4 million decrease in sales and marketing expenses was primarily attributable to a $3.1 million decrease in marketing expenses driven primarily by reduced clonoSEQ marketing efforts, as well as reduced corporate and T-Detect marketing activities. There was also a $0.4 million decrease in consultant costs and a $0.3 million decrease in travel and customer event related expenses, which were partially offset by a $0.4 million increase in people costs.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
|
|
Percent of Revenue |
|
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
General and administrative |
|
$ |
20,755 |
|
|
$ |
20,154 |
|
|
$ |
601 |
|
|
|
3 |
% |
|
|
43 |
% |
|
|
51 |
% |
The $0.6 million increase in general and administrative expenses was primarily attributable to a $0.7 million increase in computer and software expenses, a $0.5 million increase in personnel costs and a $0.5 million increase in building, facility and depreciation related expenses, which were partially offset by a $0.6 million decrease in insurance costs and a $0.3 million decrease in consultant costs.
Interest and Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
Interest and other income, net |
|
$ |
765 |
|
|
$ |
327 |
|
|
$ |
438 |
|
|
134% |
The $0.4 million increase in interest and other income, net was primarily attributable to an increase in net interest income and investment amortization resulting from a larger portfolio.
32
Adaptive Biotechnologies Corporation
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
Interest expense |
|
$ |
(653 |
) |
|
$ |
— |
|
|
$ |
(653 |
) |
|
(100)% |
The $0.7 million increase in interest expense was attributable to the Purchase Agreement entered into during the three months ended September 30, 2022.
Comparison of the Nine Months Ended September 30, 2022 and 2021
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
Percent of Revenue |
|
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
Immune Medicine revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue |
|
$ |
20,968 |
|
|
$ |
17,622 |
|
|
$ |
3,346 |
|
|
|
19 |
% |
|
|
|
|
|
|
Collaboration revenue |
|
|
50,105 |
|
|
|
49,137 |
|
|
|
968 |
|
|
|
2 |
|
|
|
|
|
|
|
Total Immune Medicine revenue |
|
|
71,073 |
|
|
|
66,759 |
|
|
|
4,314 |
|
|
|
6 |
|
|
|
55 |
% |
|
|
57 |
% |
MRD revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue |
|
|
55,037 |
|
|
|
39,655 |
|
|
|
15,382 |
|
|
|
39 |
|
|
|
|
|
|
|
Regulatory milestone revenue |
|
|
4,000 |
|
|
|
10,000 |
|
|
|
(6,000 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
Total MRD revenue |
|
|
59,037 |
|
|
|
49,655 |
|
|
|
9,382 |
|
|
|
19 |
|
|
|
45 |
% |
|
|
43 |
% |
Total revenue |
|
$ |
130,110 |
|
|
$ |
116,414 |
|
|
$ |
13,696 |
|
|
|
12 |
|
|
|
100 |
% |
|
|
100 |
% |
The $4.3 million increase in Immune Medicine revenue was primarily due to an $8.5 million increase in revenue generated from our biopharmaceutical and academic customers, which was partially offset by a $2.8 million decrease in revenue generated from our T-Detect COVID clinical customers and a $1.3 million decrease in revenue generated from the Genentech Agreement due to reduced collaboration expenses.
The $9.4 million increase in MRD revenue was primarily due to a $10.7 million increase in revenue generated from providing our clonoSEQ report to clinical customers and a $5.3 million increase in revenue generated from providing MRD sample testing services to biopharmaceutical customers. These increases were partially offset by a $6.0 million decrease in revenue recognized upon the achievement of certain regulatory milestones by our biopharmaceutical customers' therapeutics and a $0.8 million decrease in revenue generated from providing MRD sample testing services to investigator-led clinical trials. Our clonoSEQ test volume increased by 50% to 26,345 tests delivered in the nine months ended September 30, 2022 from 17,538 tests delivered in the nine months ended September 30, 2021.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
Percent of Revenue |
|
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
Cost of revenue |
|
$ |
41,320 |
|
|
$ |
34,945 |
|
|
$ |
6,375 |
|
|
|
18 |
% |
|
|
32 |
% |
|
|
30 |
% |
The $6.4 million increase in cost of revenue was primarily attributable to a $4.1 million increase in labor, overhead and facility costs, a $2.4 million increase in cost of materials related to mix to higher cost assays and a $0.5 million increase related to higher usage of our production laboratory to process revenue samples versus research and development samples. These increases were partially offset by a $0.9 million decrease in certain sample collection costs.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
Percent of Revenue |
|
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
Research and development |
|
$ |
110,534 |
|
|
$ |
107,644 |
|
|
$ |
2,890 |
|
|
|
3 |
% |
|
|
85 |
% |
|
|
92 |
% |
33
Adaptive Biotechnologies Corporation
The following table presents disaggregated research and development expenses by cost classification for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
Research and development materials and allocated production laboratory expenses |
|
$ |
35,623 |
|
|
$ |
40,453 |
|
|
$ |
(4,830 |
) |
Personnel expenses |
|
|
51,826 |
|
|
|
46,107 |
|
|
|
5,719 |
|
Allocable facilities and information technology expenses |
|
|
6,495 |
|
|
|
4,750 |
|
|
|
1,745 |
|
Software and cloud services expenses |
|
|
2,132 |
|
|
|
2,682 |
|
|
|
(550 |
) |
Depreciation and other expenses |
|
|
14,458 |
|
|
|
13,652 |
|
|
|
806 |
|
Total |
|
$ |
110,534 |
|
|
$ |
107,644 |
|
|
$ |
2,890 |
|
The $2.9 million increase in research and development expenses was primarily attributable to a $5.7 million increase in personnel costs, of which $0.7 million related to our restructuring activities, a $1.7 million increase in allocable facility expenses and a $0.8 million increase in depreciation and other expenses, which was driven primarily by a $1.6 million increase in depreciation expense and a $0.9 million increase in consultant costs, which were partially offset by a $1.3 million decrease in collaboration and medical advisory costs. These increases were partially offset by a $4.8 million decrease in cost of materials and allocated production laboratory expenses, which was driven primarily by decreased investments in drug discovery, clonoSEQ and T-Detect and TCR-Antigen Map development activities.
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
Percent of Revenue |
|
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
Sales and marketing |
|
$ |
71,887 |
|
|
$ |
68,769 |
|
|
$ |
3,118 |
|
|
|
5 |
% |
|
|
55 |
% |
|
|
59 |
% |
The $3.1 million increase in sales and marketing expenses was primarily attributable to $7.5 million in additional personnel costs, of which $0.9 million related to our restructuring activities, as well as a $2.1 million increase in travel and customer event related expenses. These increases were partially offset by a $6.3 million decrease in marketing expenses driven primarily by reduced clonoSEQ, corporate and T-Detect marketing activities.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
Percent of Revenue |
|
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
General and administrative |
|
$ |
66,099 |
|
|
$ |
51,156 |
|
|
$ |
14,943 |
|
|
|
29 |
% |
|
|
51 |
% |
|
|
44 |
% |
The $14.9 million increase in general and administrative expenses was primarily attributable to an $8.3 million increase in building, facility and depreciation related expenses, as well as a $4.5 million increase in personnel costs, a $2.1 million increase in computer and software expenses and a $0.9 million increase in consultant costs. These increases were partially offset by a $1.1 million decrease in legal and accounting fees.
Interest and Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change |
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
Interest and other income, net |
|
$ |
1,454 |
|
|
$ |
1,429 |
|
|
$ |
25 |
|
|
2% |
Interest and other income, net did not significantly change period over period.
34
Adaptive Biotechnologies Corporation
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change |
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
Interest expense |
|
$ |
(653 |
) |
|
$ |
— |
|
|
$ |
(653 |
) |
|
(100)% |
The $0.7 million increase in interest expense was attributable to the Purchase Agreement entered into during the three months ended September 30, 2022.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that we define as net loss attributable to Adaptive Biotechnologies Corporation adjusted for interest and other income, net, interest expense, income tax (expense) benefit, depreciation and amortization expense, restructuring expense and share-based compensation expense.
Management uses Adjusted EBITDA to evaluate the financial performance of our business and the effectiveness of our business strategies. We present Adjusted EBITDA because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry and it facilitates comparisons on a consistent basis across reporting periods. Further, we believe it is helpful in highlighting trends in our operating results because it excludes items that are not indicative of our core operating performance.
Adjusted EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. We may in the future incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. In particular, we expect to incur meaningful share-based compensation expense in the future. Other limitations include that Adjusted EBITDA does not reflect:
•all expenditures or future requirements for capital expenditures or contractual commitments;
•changes in our working capital needs;
•interest expense, which may be a necessary and ongoing element of our costs and ability to operate;
•income tax (expense) benefit, which may be a necessary element of our costs and ability to operate;
•the costs of replacing the assets being depreciated and amortized, which will often have to be replaced in the future;
•the noncash component of employee compensation expense; and
•the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations, such as our March 2022 restructuring and reduction in workforce.
In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.
The following is a reconciliation of net loss attributable to Adaptive Biotechnologies Corporation to Adjusted EBITDA for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net loss attributable to Adaptive Biotechnologies Corporation |
|
$ |
(45,281 |
) |
|
$ |
(55,903 |
) |
|
$ |
(160,063 |
) |
|
$ |
(145,846 |
) |
Interest and other income, net |
|
|
(765 |
) |
|
|
(327 |
) |
|
|
(1,454 |
) |
|
|
(1,429 |
) |
Interest expense |
|
|
653 |
|
|
|
— |
|
|
|
653 |
|
|
|
— |
|
Depreciation and amortization expense |
|
|
5,383 |
|
|
|
3,528 |
|
|
|
15,634 |
|
|
|
9,104 |
|
Restructuring expense (1) |
|
|
— |
|
|
|
— |
|
|
|
2,023 |
|
|
|
— |
|
Share-based compensation expense (2) |
|
|
14,142 |
|
|
|
11,643 |
|
|
|
41,183 |
|
|
|
31,376 |
|
Adjusted EBITDA |
|
$ |
(25,868 |
) |
|
$ |
(41,059 |
) |
|
$ |
(102,024 |
) |
|
$ |
(106,795 |
) |
(1) Represents expenses recognized in conjunction with restructuring activities. See Note 13 of the accompanying notes to our unaudited condensed consolidated financial statements included elsewhere in this report for details on our restructuring expense.
(2) Represents share-based compensation expense related to stock option, restricted stock unit and market-based restricted stock unit awards. See Note 12 of the accompanying notes to our unaudited condensed consolidated financial statements included elsewhere in this report for details on our share-based compensation expense.
35
Adaptive Biotechnologies Corporation
Liquidity and Capital Resources
We have incurred losses since inception and have incurred negative cash flows from operations since inception through September 30, 2022, with the exception of certain 2019 periods for which we had positive cash flows from operations. As of September 30, 2022, we had an accumulated deficit of $879.0 million.
We have funded our operations to date principally from the sale of convertible preferred stock and common stock, and, to a lesser extent, revenue and proceeds from our Purchase Agreement. Pursuant to the Purchase Agreement entered into with OrbiMed in September 2022, we received net cash proceeds of $124.7 million, after deducting certain issuance costs. As of September 30, 2022, we had cash, cash equivalents and marketable securities of $527.8 million.
We believe our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months. We may consider raising additional capital to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons.
If our available cash, cash equivalents and marketable securities balances and anticipated cash flows from operations are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our shareholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. This additional capital may not be available on reasonable terms, or at all.
We plan to utilize the existing cash, cash equivalents and marketable securities on hand primarily to fund our continued research and development initiatives for our pipeline candidates and drug discovery initiatives, our ongoing investments in our immune medicine platform and our commercial and marketing activities associated with our clinical products and services. We also expect to make capital expenditures in the near term related to our laboratory space and expect to continue investing in laboratory equipment to support our anticipated growth. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to capital preservation and liquidity. Currently, our funds are held in money market funds and marketable securities consisting of United States government debt securities and corporate bonds.
While we may experience variability in revenue in the near term, as long-term revenue from sales of our current and future products and services is expected to grow, we expect our accounts receivable and inventory balances to increase. Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued expenses, which could result in greater working capital requirements.
Contractual Obligations
Other than the contractual obligations set forth below, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 15, 2022.
Pursuant to the Purchase Agreement entered into during September 2022, the Purchasers will have a right to receive Revenue Interests from us based on the Applicable Payment Percentage of the Revenue Base. If only the First Payment has been made, the Applicable Payment Percentage shall be five percent of the quarterly Revenue Base. If both the First Payment and Second Payment have been made, the Applicable Payment Percentage shall be eight percent of the quarterly Revenue Base. If each of the First, Second and Third Payments have been made, the applicable payment percentage applied to the Revenue Interest shall be ten percent of the quarterly Revenue Base.
Revenue Interest Payments shall be made quarterly within 45 days following the end of each fiscal quarter. If OrbiMed has not received Revenue Interest Payments in the aggregate equal to or greater than the Cumulative Purchaser Payments on or prior to September 12, 2028, the revenue interest rate shall be increased to a rate which, if applied retroactively to our cumulative Revenue Base, would have resulted in Revenue Interest Payments equal to the sum of all Cumulative Purchaser Payments.
OrbiMed will be entitled to 100% of the Revenue Interest Payments until it has received the Return Cap, unless full repayment of the amount of the Return Cap has not been made by September 12, 2032, in which case the Return Cap shall be increased to 175% of the Cumulative Purchaser Payments.
As projected revenues change from our initial estimates, the amount of the obligation and timing of payment is likely to change.
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Adaptive Biotechnologies Corporation
See Note 8 and Note 9 of the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this report for more information regarding our contractual obligations relating to lease agreements and our Purchase Agreement, respectively.
Cash Flows
The following table summarizes our uses and sources of cash for the nine months ended September 30, 2022 and 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
Net cash used in operating activities |
|
$ |
(153,926 |
) |
|
$ |
(138,901 |
) |
Net cash provided by investing activities |
|
|
100,449 |
|
|
|
113,998 |
|
Net cash provided by financing activities |
|
|
132,259 |
|
|
|
23,868 |
|
Operating Activities
Cash used in operating activities during the nine months ended September 30, 2022 was $153.9 million, which was primarily attributable to a net loss of $160.2 million and a net change in our operating assets and liabilities of $61.1 million, partially offset by noncash share-based compensation of $41.2 million, noncash depreciation and amortization of $17.5 million, noncash lease expense of $5.4 million, research and development inventory reserve charge of $2.6 million and noncash interest expense related to our Purchase Agreement of $0.7 million. The net change in our operating assets and liabilities was primarily due to a $44.0 million reduction in deferred revenue primarily related to revenue recognized from the Genentech Agreement, an increase in accounts receivable, net of $9.1 million, a reduction in accounts payable and accrued liabilities of $3.4 million driven largely by the payout of our corporate bonus during the three months ended March 31, 2022, a $3.0 million decrease in operating lease right-of-use assets and liabilities and an increase in inventory of $2.2 million.
Cash used in operating activities during the nine months ended September 30, 2021 was $138.9 million, which was primarily attributable to a net loss of $145.9 million and a net change in operating assets and liabilities of $44.6 million, partially offset by noncash share-based compensation of $31.4 million, noncash depreciation and amortization of $15.1 million and noncash lease expense of $5.3 million. The net change in operating assets and liabilities was primarily due to a $46.3 million reduction in deferred revenue primarily related to revenue recognized from the Genentech Agreement, an increase in accounts receivable, net of $7.1 million, an increase in inventory of $4.2 million and increases in prepaid expenses and other current assets of $2.2 million, all of which were partially offset by an increase in operating lease right-of-use assets and liabilities of $9.9 million and an increase in accounts payable and accrued liabilities of $5.5 million.
Investing Activities
Cash provided by investing activities during the nine months ended September 30, 2022 was $100.4 million, which was primarily attributable to proceeds from maturities of marketable securities of $228.0 million, partially offset by purchases of marketable securities of $113.7 million and purchases of property and equipment of $13.8 million.
Cash provided by investing activities during the nine months ended September 30, 2021 was $114.0 million, which was primarily attributable to proceeds from maturities of marketable securities of $404.5 million, partially offset by purchases of marketable securities of $238.0 million and purchases of property and equipment of $52.5 million.
Financing Activities
Cash provided by financing activities during the nine months ended September 30, 2022 was $132.3 million, which was attributable to $124.7 million in proceeds from our Purchase Agreement entered into during September 2022, net of settled issuance costs, as well as $7.6 million in proceeds from the exercise of stock options.
Cash provided by financing activities during the nine months ended September 30, 2021 was $23.9 million, which was primarily attributable to proceeds from the exercise of stock options of $23.4 million.
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Adaptive Biotechnologies Corporation
Net Operating Loss Carryforwards
Utilization of our net operating loss (“NOL”) carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986 (“Section 382”) and similar state provisions. The annual limitation may result in the expiration of NOL carryforwards and credits before utilization. If there should be an ownership change, our ability to utilize our NOL carryforwards and credits could be limited. We have completed a Section 382 analysis for changes in ownership through December 31, 2020 and continue to monitor for changes that could trigger a limitation. Based on this analysis, we do not expect to have any permanent limitations on the utilization of our federal NOLs. Under the Tax Cuts and Jobs Act of 2017, federal NOLs incurred in 2018 and future years may be carried forward indefinitely, but the deductibility of such federal NOLs is subject to an annual limitation. NOLs generated prior to 2018 are eligible to be carried forward up to 20 years. Based on the available objective evidence, management determined that it was more likely than not that the net deferred tax assets would not be realizable as of December 31, 2021. Accordingly, management applied a full valuation allowance against net deferred tax assets as of December 31, 2021.
Critical Accounting Policies and Estimates
We have prepared the unaudited condensed consolidated financial statements in accordance with GAAP. Our preparation of these unaudited condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities and related disclosures at the date of the unaudited condensed consolidated financial statements, as well as revenue and expense recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and or other relevant assumptions that we believe to be reasonable under the circumstances. Estimates are used in several areas, including, but not limited to, estimates of progress to date for certain performance obligations and the transaction price for certain contracts with customers, imputing interest for our Purchase Agreement, the provision for income taxes, including related reserves, and goodwill, among others. These estimates generally involve complex issues and require judgments, involve the analysis of historical results and prediction of future trends, can require extended periods of time to resolve and are subject to change from period to period. Actual results may differ materially from management’s estimates.
While our significant accounting policies are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 15, 2022, as well as in Note 2 of the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this report, we believe the following accounting policies are critical to the judgments and estimates used in the preparation of the unaudited condensed consolidated financial statements:
•imputing interest for our Purchase Agreement; and
Revenue Interest Liability, Net and Related Imputed Interest
The revenue interest liability balance associated with the Purchase Agreement that we entered into in September 2022 with OrbiMed is presented net of issuance costs on our unaudited condensed consolidated balance sheets. We impute our associated interest expense using the effective interest rate method. We calculate an effective interest rate which will amortize our related obligation to zero over the anticipated repayment period. The effective interest rate may vary during the term of the agreement depending on a number of factors, including changes in forecasted GAAP revenues. We evaluate the effective interest rate quarterly based on both achieved and forecasted revenues, utilizing the prospective method. The estimates of future revenues and resulting revenue interest payments are based on key assumptions including population, penetration, probability of success, and sales price, among others. A significant increase or decrease in forecasted revenue will materially impact our interest expense and the time period for repayment.
Other than that detailed above, there have been no material changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 15, 2022.
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Adaptive Biotechnologies Corporation