UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to _____
Commission File Number: 001-38957
ADAPTIVE BIOTECHNOLOGIES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Washington
(State or other jurisdiction of
incorporation or organization)
1165 Eastlake Avenue East
Seattle, Washington
(Address of principal executive offices)
27-0907024
(I.R.S. Employer
Identification No.)
98109
(Zip Code)
Registrant’s telephone number, including area code: (206) 659-0067
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.0001 per share
Trading
Symbol(s)
ADPT
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☒ NO ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
☒
☐
Non-accelerated filer
☐
Smaller reporting company
Emerging growth company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The
NASDAQ Global Select Market on June 30, 2021 (the last business day of the Registrant’s most recently completed second fiscal quarter), was approximately $3,951,000,000.
As of February 10, 2022, the Registrant had 141,583,720 shares of common stock, $0.0001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive proxy
statement relating to the Annual Meeting of Shareholders to be held in 2022.
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that are based on management’s beliefs and assumptions and on information
currently available to management. Some of the statements in the “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” sections and elsewhere in this Annual Report on Form 10-K contain forward-looking statements. In some cases, you
can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not
all forward-looking statements contain these words.
These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be
materially different from the information expressed or implied by these forward-looking statements. Although we believe we have a reasonable basis for
each forward-looking statement contained in this Annual Report on Form 10-K, we caution you that these statements are based on a combination of facts
and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements expressed or implied in
this Annual Report on Form 10-K include, but are not limited to, statements about:
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the success of our significant investments in our continued research and development of new products and services;
the success of developing, commercializing and achieving commercial market acceptance of clonoSEQ, T-Detect, immunoSEQ, our TCR-
Antigen Map, T cell receptor (“TCR”)-based cellular therapies, neutralizing antibody products or processes, such as TruAB, and additional
products and services beyond our current portfolio;
the potential for our identified research priorities to advance our proprietary immune medicine platform or our future products and services;
the success, cost and timing of our research development activities, preclinical and clinical studies and, in certain instances, clinical trials
and clinical validations;
the potential benefits of collaborations, our ability to enter into collaborations or arrangements and our ability to attract collaborators with
development, manufacturing, regulatory and commercialization expertise;
the ability and willingness of our collaborators to continue development, manufacturing, distribution and commercialization activities
relating to our jointly developed products and services;
our ability to identify research priorities and apply a risk-mitigated strategy to efficiently discover and develop products and services;
our ability to obtain and maintain regulatory approval of our products and services;
the pricing and reimbursement of our products and services following approval where required;
our ability, and that of our collaborators, to commercialize our products and services, including products related to COVID-19;
our ability to obtain equipment and materials (including reagents or other materials that may also require additional internal validation)
from our suppliers, and in some cases single suppliers;
our ability to generate revenue and obtain funding for our operations, including funding necessary to complete further development of our
current and future products and services, and if successful, commercialization;
the size and growth potential of the markets for our products and services, and our ability to serve those markets, either alone or in
combination with others;
the rate and degree of market acceptance of our products and services;
the potential adverse effect on our business, operations and plans or timelines (including those plans and timelines related to expansion
initiatives and clinical development) resulting from a health epidemic or pandemic, including the COVID-19 pandemic and future variants
of the SARS-CoV-2 virus;
our financial performance;
our expectations regarding our ability to obtain and maintain intellectual property protection for our immune medicine platform, products,
services and related technologies and the direction of such protection;
regulatory developments in the United States (“U.S.”) and foreign countries;
the success of competing products or services that are or may become available;
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developments relating to our competitors and our industry;
our ability to attract and retain key scientific or management personnel;
the impact of laws and regulations; and
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.
In addition, you should refer to the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of other important factors that may
cause actual results to differ materially from those expressed or implied by the forward-looking statements. As a result of these factors, we cannot assure
you that the forward-looking statements in this Annual Report on Form 10-K will prove to be accurate. Furthermore, if the forward-looking statements
prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard
these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at
all. The forward-looking statements herein represent our views as of the date of this Annual Report on Form 10-K. We anticipate that subsequent events
and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we
have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as
representing our views as of any date subsequent to the date of this Annual Report on Form 10-K.
In this Annual Report on Form 10-K, unless the context requires otherwise, all references to “we,” “our,” “us,” “Adaptive” and the “Company” refer
to Adaptive Biotechnologies Corporation.
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Item 1. Business
Overview
PART I
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 these insights to develop and commercialize clinical products and services that we are tailoring to each individual patient. We have three
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. Since our inception in 2009, we have characterized over 58 billion
immune receptors, established partnerships and commercial relationships with 175 biopharmaceutical companies and launched three product lines. Our
goal is to understand the adaptive immune system and translate it into new products with unprecedented scale, precision and speed.
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 academic and
biopharmaceutical customers. Our first clinical diagnostic product, clonoSEQ, is the first test authorized by the Food and Drug Administration (“FDA”) for
the detection and monitoring of minimal residual disease (“MRD”) in patients with multiple myeloma (“MM”), B cell acute lymphoblastic leukemia
(“ALL”) and chronic lymphocytic leukemia (“CLL”) and is also available as a CLIA-validated laboratory developed test (“LDT”) for patients with other
lymphoid cancers. Leveraging our collaboration with Microsoft Corporation (“Microsoft”), we are creating a map of the interaction between the immune
system and disease (our “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.
T-Detect COVID, the first indication for the T-Detect product line, received Emergency Use Authorization (“EUA”) for confirmation of recent or
prior SARS-CoV-2 infection, the virus that causes COVID-19, in March 2021. We confirmed signals in Crohn’s disease, celiac disease, and multiple
sclerosis, identified new signals in ulcerative colitis, and rheumatoid arthritis, and are focusing on generating additional signals in autoimmune disease
states. In addition, we have completed our clinical validation of the immuneSense Lyme study, which represents another technical proof point in our ability
to map T cells to disease specific antigens. Our therapeutic product candidates, being developed under our collaboration agreement with Genentech, Inc.
(“Genentech”), leverage our platform to identify specific receptors on immune cells to develop into cellular therapies in oncology. We believe this approach
has the potential to be applicable to patients across a wide range of cancers. In addition, we extended our platform to inform vaccine design and
development through our licensing agreement with Vaccibody AS, now known as Nykode Therapeutics AS (“Nykode”). We believe there is potential to
apply our platform to vaccine development and design across multiple disease states.
Immune medicine is one of the largest global addressable markets in healthcare. We estimate the potential global market opportunity for our
portfolio to be approximately $54 billion, including approximately $6 billion for products and services related to the detection of MRD and approximately
$48 billion for diagnostic and drug discovery applications driven by mapping immune receptors to disease-specific antigens. This currently includes T-
Detect and cellular therapy in oncology and is expected to grow with additional opportunities stemming from our platform. We use multiple sources and
assumptions to estimate the total addressable market for immune medicine. While we believe them to be reasonable, these sources and assumptions may be
incorrect or subject to change due to any number of factors. In particular, the indications we choose to commercialize for T-Detect may vary depending on
ongoing signal validation and market considerations. In addition, our drug discovery initiatives are still in the early stages of development and the market
opportunity excludes neutralizing antibodies, which may make our assumptions and estimates more uncertain. Despite the novelty of this area, we believe
we are uniquely positioned to develop and commercialize a pipeline of immune-driven diagnostic and therapeutic products across multiple disease states by
leveraging the cumulative learning from our immune medicine platform.
We were able to achieve and progress towards many key milestones in 2021 in each business area:
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In March 2021, T-Detect COVID was granted EUA by the Food and Drug Administration, becoming the first-in-class test to confirm recent
or prior COVID-19 infection. Data demonstrates that T-Detect COVID can detect prior infection nearly 12 months after diagnosis in some
patients. T-Detect COVID was ordered by over 30,000 consumers and providers on behalf of their patients. In addition, we received a
positive technical assessment from Palmetto GBA’s Molecular Diagnostics Program (“MolDX”), followed by a coverage decision from
Noridian Mutual Insurance Company providing a path to reimbursement in 2022 for immunocompromised patients.
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immunoSEQ T-MAP COVID, another byproduct of leveraging the TCR-Antigen Map collaboration, continues to be a source of valuable
insight as we advance towards an understanding of the T cell response to SarS-CoV-2 at scale and with precision, including with respect to
emerging variants of concern. For new variants of concern, such as Delta or Omicron, we have demonstrated the ability to identify
mutations and connect them to our large-scale antigen-specific datasets in order to measure T-cell response to vaccination and determine the
role of cellular immunity.
• The T-Detect product continued to make significant advances in the autoimmune space. With respect to autoimmune diseases, we confirmed
signals in Crohn’s disease and multiple sclerosis and identified new signals in ulcerative colitis and rheumatoid arthritis. These clinical
signals were identified in a series of well-characterized case-control sample sets from collaborating institutions, including over 5,000
samples in inflammatory bowel disease (“IBD”), and we plan to advance some of these signals to blinded clinical validation studies in the
near future.
• Our clinical diagnostics business continued to grow year over year. For our clonoSEQ product, we grew our test volume by 48% to 22,516
tests delivered. We increased the all-time number of unique patients tested by more than 46% to over 22,000 patients by the end of 2021.
We have filed to expand our existing label for ALL in bone marrow to include blood, and we enhanced the clinical report for CLL patients
to include immunoglobulin heavy chain – V (“IGHV”) mutation status, which has been well received by our clinical customers.
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In drug discovery, we continue to make good progress with our shared and private product programs under our Genentech collaboration.
Regarding the shared product, we delivered to Genentech efficacy and safety data for our TCR candidate that targets a shared cancer
neoantigen. Following review of data generated by both us and Genentech using this TCR candidate, Genentech recently selected this TCR
candidate to progress as a potential therapeutic product candidate. Also, in 2022, we’re on track to deliver to Genentech up to two additional
TCR data packages for consideration by Genentech. Regarding our private program, we conducted initial proof of concept screens by
successfully processing blood from approximately 60 cancer patients. We continue to work closely with Genentech to establish the private
product specifications and to build our private product data package. The personalized data that we generate in 2022 with Genentech will
help start to define steps toward early product development by Genentech.
• We also extended our drug discovery efforts by establishing a new worldwide licensing agreement in July 2021 with Nykode, whereby
virus-specific T cell epitopes identified by our platform will be used to inform the design and development of novel SARS-CoV-2 vaccine
candidates. The Nykode 2-arm Phase I/II trial started in the fourth quarter of 2021 and is currently enrolling individuals in Norway who are
already vaccinated. This T cell-based vaccine is intended to address SARS-CoV-2 variants of concern and may be used as a potential
universal booster to available vaccines. The Nykode collaboration represents a significant extension of the platform into vaccine design and
development.
• Key financial highlights for 2021 include full year revenue up 57% to $154.3 million, cash, cash equivalents and marketable securities of
$570.2 million and clinical sequencing volume up 48% to 22,516 tests, excluding T-Detect COVID volume.
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In addition, we moved into our new corporate headquarters in Seattle, Washington in September 2021, increased warehouse space in the
Seattle area, and opened a new office in New York City in 2021. These facilities are designed to allow for continued scaling and growth, as
well as laboratory and operational optimization in the Seattle area.
Our Immune Medicine Platform
The adaptive immune system is comprised of specialized cells, called T cells and B cells, which hold the instructions for diagnosing and treating
most diseases. These instructions enable these cells to identify, bind and destroy pathogens or human cells presenting foreign signals of disease (“antigens”)
using receptors on their cell surface. Unlike all other genes in the human genome, the genetic sequences of TCRs and B cell receptors (“BCRs”) rearrange
over time creating massive genetic diversity. The resulting diversity of the adaptive immune repertoire, which consists of over 100 million different genes
in a healthy adult compared to approximately 30,000 genes in the static human genome, gives the immune system the ability to detect and respond to
millions of different antigens associated with human disease.
Our immune medicine platform combines a suite of proprietary chemistry, computational biology and machine learning to generate clinical
immunomics data to decode the adaptive immune system. It extracts and interprets insights from the adaptive immune system with the scale, precision and
speed required to enable the design of clinical products tailored to the specific genetics of each patient’s immune system.
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Our immune medicine platform performs the following key functions related to immune receptors:
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Sequence. immunoSEQ sequences single chains of “Y-shaped” TCRs or BCRs using next generation sequencing (“NGS”), enabling us to
understand the quantity and diversity of T and B cells in a biological sample. This provides deep insights into individual and collective
immune responses at a scale that is thousands of times greater than was previously possible.
• Map. MIRA (Multiplexed Identification of T cell Receptor Antigen Specificity) maps millions of TCRs to thousands of clinically relevant
antigens. Combined with immunoSEQ, MIRA elucidates what potential diseases a patient’s immune system has been exposed to or is
actively fighting.
• Pair. pairSEQ builds on immunoSEQ by using a combinatorial strategy to accurately pair both chains of Y-shaped immune cell receptors at
high-throughput, which is challenging to do at scale using other methods because the two chains of the Y-shaped receptors are located on
different chromosomes. The ability to accurately pair both chains of the receptors in a sample enables us to reconstruct receptors for
therapeutic purposes.
• Characterize. TruTCR characterizes binding, cytotoxicity and safety properties of antigen-specific, paired TCRs to identify a subset that is
therapeutic-grade, enabling the discovery and development of optimal clinical candidates to be engineered into TCR-mediated cellular
therapies. TruAB is our high-throughput antibody discovery process that enables the selection of potent, naturally occurring, full length
antibodies for therapeutic or prophylactic development.
The massive amount of data generated by our immune medicine platform is stored in our dynamic clinical immunomics database. We believe the
application of machine learning, supported by our collaboration with Microsoft, has the potential to exponentially accelerate our ability to derive novel
insights from this database and use them to inform our robust product development efforts.
The current coronavirus pandemic is highlighting the critical importance of understanding the immune response to disease broadly, making our
technology more relevant than ever. In 2020, together with Microsoft, we created the ImmuneCODE program to map the T cell response to SARS-CoV-2
across the global population. Our goal was to leverage the existing capabilities of our high throughput platform to generate an unprecedented amount of T
cell data from over 9,000 samples to understand the adaptive immune response to COVID-19. From these samples, we have mapped over 160,000 high-
confidence TCRs to all parts of the virus which we have shown to be most immunogenic. We have published several papers over the past year that
demonstrate the correlation between the T cell response and real world efficacy of vaccination as the virus has mutated. This mapping effort has enabled us
to develop and commercialize multiple products that have supported the fight against COVID-19. In our research business, we offered a product called
immunoSEQ T-MAP COVID to provide a better way for vaccine developers and researchers to include the T-cell response in their studies. We are pleased
to see top-tier vaccine developers such as Johnson & Johnson, Moderna, and AstraZeneca continue to recognize the power of this product. Leveraging the
same data, we launched a clinical diagnostic called T-Detect COVID to confirm recent or prior infection. T-Detect is the only T cell-based test for COVID
authorized by the FDA pursuant to the EUA pathway. Additionally, we signed a drug discovery agreement with NyKode of the design and development of
a next-generation DNA-based T cell mediated vaccine for COVID and the first patient was dosed in December 2021. Importantly, we believe we can
leverage what we accomplished for COVID-19 using disease-specific immune receptor data across other disease states going forward.
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In addition to the opportunities driven from understanding the T cell response to SARS-CoV-2, we also extended our platform to identify highly
potent neutralizing antibodies against the virus. We currently have a portfolio of highly potent neutralizing antibodies against SARS-CoV-2 and continue to
explore potential partnerships. We are exploring the potential of leveraging this differentiated antibody discovery capability across multiple disease states.
We believe COVID-19 brought the role of the immune system to the forefront of society and has created the opportunity for us to be positioned as
the “go to” company to rapidly and reproducibly assess the T-cell response to any pathogen, including future pandemics.
Our Current Products and Pipeline
Our current portfolio includes commercial products and services in clinical diagnostics and life sciences research, and we are developing products
and services in both clinical diagnostics and drug discovery. We plan to continue to invest in our immune medicine platform to develop additional clinical
products, which we prioritize based on clinical actionability, unmet medical need and commercial viability.
Clinical Diagnostics – clonoSEQ and T-Detect
Our clonoSEQ diagnostic test detects and monitors the remaining number of cancer cells that are present in a patient’s body during and after
treatment, known as MRD. In September 2018, clonoSEQ was granted marketing authorization from the FDA, under the de novo process, for patients with
MM and ALL to monitor their MRD from bone marrow samples. In August 2020, the clonoSEQ label was expanded to include patients with CLL from
bone marrow and blood samples. clonoSEQ is also available for use in other lymphoid cancers as an LDT. In January 2019, clonoSEQ received Medicare
coverage aligned with the FDA label and National Comprehensive Cancer Network (“NCCN”) guidelines for longitudinal monitoring in MM and ALL. We
secured additional payor coverage for clonoSEQ aligned with our FDA label with Medicare, national private payors and large regional plans for a total of
over 240 million covered lives for ALL and MM and over 150 million covered lives for CLL. In November 2021, MolDX published its LCD for MRD
testing. This LCD not only affirms the importance of MRD and clonoSEQ coverage in ALL, MM and CLL in bone marrow and blood, but also provides a
clear and efficient pathway for seeking expanded clonoSEQ coverage through technical assessments in Non-Hodgkin’s Lymphoma (“NHL”).
clonoSEQ testing has been ordered by clinicians for over 22,000 unique patients and used by more than 60 biopharmaceutical companies in over
150 clinical trials. We continue to deepen our commercial investments to expand clinical adoption of clonoSEQ and have increased the strength of our
specialized sales and customer support organization and supporting infrastructure in the United States, and we have successfully transferred the technology
to seven labs in other parts of the world. We believe clonoSEQ has broad applicability across all lymphoid malignancies. We submitted a 510(k) premarket
notification for ALL from blood samples in February 2021 and are actively advancing validation studies in certain NHL sub-types. We are also awaiting
results from a clinical study using clonoSEQ to assess MRD in blood for multiple myeloma.
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In addition, we continue to develop product improvements for clonoSEQ. In the third quarter of 2021, we launched an enhanced version of our
clonoSEQ B-cell Clonality (ID) reports, which now includes IGHV mutation status for patients with CLL. The presence of IGHV mutations have been
proven prognostic of better outcomes in CLL patients. We believe that this improvement strengthens the clonoSEQ product by aiding clinicians in
evaluating prognosis, simplifying diagnosis, and improving overall patient management by providing additional clinically valuable CLL information, and
preliminary feedback indicates these improvements have been well received.
With respect to T-Detect, we developed this diagnostic product by leveraging Microsoft’s machine learning capabilities to create the TCR-Antigen
Map, which may enable early or accurate detection of many diseases from a single blood test. Initially, we are validating detection of a set of discrete
diseases for which there is a significant unmet medical need for better diagnostic testing and early intervention, and where antigen specificity is well-
known. These include infectious diseases, autoimmune disorders and certain prevalent cancer types. We launched the first indication, T-Detect COVID, to
confirm recent or prior SARS-CoV-2 infection, which represents a stepping-stone to the long-term vision of T-Detect where a single blood sample can
provide information about what diseases a person’s immune system has seen or is currently fighting.
We launched T-Detect COVID in the fourth quarter of 2020 and the product received EUA in March 2021. We are in the process of working with
the FDA to extend the label to include a semi-quantitative measure to enable the test to monitor T cell response over time. We are concurrently working
with select biopharmaceutical collaborators to try to establish a correlate of protection. Leveraging the infrastructure built to support this initial indication,
we are on track to make T-Detect Lyme available in our CLIA lab during the 2022 Lyme season. Additionally, we confirmed signals in Crohn’s disease,
celiac disease, and multiple sclerosis, identified new signals in ulcerative colitis and rheumatoid arthritis, and are focusing on generating additional signals
in autoimmune disease states. Our immune medicine platform enables parallel development because it can work with retrospective sample sets and uses
machine learning and computational statistics to continuously improve our detection and accuracy which is applied to all of the diagnostic algorithms.
For T-Detect COVID, our T-cell based test shows higher sensitivity than multiple antibody serology tests to confirm recent or prior infection. Data
demonstrates that T-Detect COVID can detect prior infection nearly 12 months after diagnosis in some patients. Additionally, T-cell testing can be used to
distinguish natural SARS-CoV-2 infection from COVID-19 vaccine response, an important advantage over antibody tests. The sensitivity of T-Detect
COVID is equivalent to or greater than serology testing in RT-PCR-confirmed SARS-CoV-2 cases, and the product has demonstrated a percent positive
agreement (“PPA”) of 100% in individuals with RT-PCR–confirmed SARS-CoV-2.
With T-Detect COVID, we initially targeted groups and individuals for whom knowledge of past infection or exposure is valuable, including self-
pay consumers, employers and concierge medicine physician groups. Our market research showed that there are many people who were unable to access
testing in spring of 2020 or had unexpected results from antibody or PCR testing, and are still curious or skeptical about a previous infection. This is
particularly true for individuals who were asymptomatic or had mild symptoms, in whom antibody testing may be less reliable. Additionally, our research
indicates high interest among consumers in understanding immunity to COVID-19.We believe there is a significant need to for clinicians to manage patient
care, including vaccine or booster regimens, by assessing the immune responses of immunocompromised patients. We also believe we are uniquely suited
to assess and provide insights to clinicians as to the immune responses of those patient whose immunocompromised status is the result of prior cancer
infection, a market that is complementary to our oncology expertise. We continue to offer the ability to contribute to on-market research to quantitatively
assess the duration of immunity as defined by the persistence of SARS-CoV-2 specific T cells.
In addition, we have completed our clinical validation for our immuneSense Lyme study, which represents another technical proof point in our
ability to map T cells to disease specific antigens We expect to leverage the infrastructure built for T-Detect COVID with an anticipated market availability
during the 2022 Lyme season. There are approximately 3.4 million Lyme diagnostic tests performed annually. Initially, we are focused on market entry for
early and more accurate diagnosis of Lyme disease for patients with non-descript symptoms that are suspected to be caused by Lyme. This population is
over 600,000 patients in the United States each year.
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Learnings from T-Detect COVID and Lyme efforts have helped us accelerate our assessment of various diseases in parallel across the different
stages of our research and development pipeline. We begin the process with diseases that meet key market attractiveness criteria such as high unmet
medical need, understanding of the antigenic space, and our access to samples with metadata. We then seek early clinical signals in prioritized disease
states and continue to refine our modeling for those that appear promising. For each signal, we generate data in several ways: run naïve blood to map
receptors to antigens, collaborate on studies with control groups, and leverage a database of unlabeled samples. Once a signal is confirmed in additional
independent cohorts and the product profile is deemed attractive, we proceed with a full commercial validation and generation of a locked-down algorithm
to take into clinical validation and regulatory submission.
There are many economic advantages of T-Detect both in the research and development stage and as a commercial product. For the research and
development pipeline, we leverage the same capital expenditures and workflow for signal generation across all diseases allowing us to study multiple
diseases in parallel without requiring substantial workflow adjustments or significant new capital expenditures for specific new disease states. Once
commercialized, again, we use the same blood sample and the same underlying chemistry for all diseases with a small incremental investment in software
for each individual disease, enabling a long-term high margin profile.
Life Sciences Research
Our immunoSEQ research service and kits are used to answer translational research questions and discover new prognostic and diagnostic signals.
Our technology has been used for research purposes by over 2,400 academic researchers and 175 biopharmaceutical companies and incorporated into over
650 clinical trials since our inception in 2009. Importantly, immunoSEQ is analytically validated so that all research data generated using immunoSEQ can
be used for clinical validation of potential diagnostic applications.
We launched immunoSEQ T-MAP COVID in August 2020 for vaccine developers and researchers to accurately and reproducibly measure the T-cell
immune response to vaccines and track the persistence of that response over time, including with respect to emerging variants of concern. immunoSEQ T-
MAP COVID combines the sequencing and mapping capabilities of Adaptive’s immune medicine platform to show how T cells respond to different parts
of the virus, including the various parts of the spike protein. A key objective with T-MAP COVID is to answer many outstanding questions about durability
of COVID-19 vaccines, especially in light of new variants of the virus. For new variants of concern, such as Delta or Omicron, we have demonstrated the
ability to identify mutations and connect them to our large-scale antigen-specific datasets in order to measure T-cell response to vaccination and determine
the role of cellular immunity. Our T-MAP product offers significant advantages over other technologies to detect and monitor T cells at scale using a small
amount of blood without the need for live cells that require special sample handling.
To date, we have sequenced a subset of patient samples (pre- and post-vaccination) from clinical trials sponsored by several top-tier vaccine
developers, including Moderna, Johnson & Johnson, AstraZeneca, University of Oxford, and the Bill and Melinda Gates Foundation among others. Using
our immunoSEQ T-MAP COVID product, we can identify and track expanded T cells induced by a vaccine, which can be distinguished from a natural
infection, in order to monitor vaccine efficacy. With some partners, we are working towards understanding how T cell activation may provide a correlate of
protection. This has become increasingly critical in the wake of variants since the antibody response is increasingly off-target and T cells are correlating
more closely with real-world vaccine efficacy.
In an effort to understand immunity for immunocompromised patients, we have also collaborated with the Leukemia and Lymphoma Society and
other prestigious academic labs in order to study the T cell response of this subset of patients who do not always have the ability to mount an antibody
response to vaccination.
Drug Discovery
Our drug discovery efforts to date are focused on identifying therapeutic-grade TCRs and antibody-secreting BCRs to enable our partners to
engineer, manufacture and commercialize therapeutic candidates, as well as to design and develop vaccines.
Our TruTCR process characterizes TCRs against shared antigens for use in the development of therapeutics. In December 2018, we entered into an
exclusive collaboration with Genentech to leverage this capability for the development of cellular therapies in oncology. We are pursuing two product
development pathways for novel T cell immunotherapies in which Genentech intends to use TCRs screened by our immune medicine platform to engineer
and manufacture cellular medicines:
•
Shared Products. The shared products will use “off-the-shelf” TCRs identified against cancer antigens shared among patients (“Shared
Products”). We completed an assessment of efficacy and safety data to enable a decision to select our lead TCR candidate. Following
review of this data by both us and Genentech, Genentech recently selected this TCR candidate to progress as a potential therapeutic product
candidate. Meanwhile, we continue to screen and characterize TCRs against clinically relevant targets in solid tumors. We are on track to
deliver to Genentech up to two additional TCR data packages for consideration by Genentech.
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• Personalized Product. The personalized product will use patient-specific TCRs identified by real-time screening of TCRs against cancer
antigens in each patient (“Personalized Product”). In the second half of 2020, we started screening blood from cancer patients to identify
TCRs specific to a patient’s tumor mutations. We conducted initial proof of concept screens by successfully processing blood from
approximately 60 cancer patients, demonstrating that in certain of these patients we were able to identify naturally-occurring TCRs from the
cancer patient’s own blood that are specific to that patient’s unique tumor mutations. To support our near-term and long-term objectives for
the Personalized Product, we opened our dedicated prototype lab in South San Francisco in 2021, which will have capacity to perform first-
in-human clinical trials. We believe the lab positions us to potentially pursue additional opportunities outside of this collaboration, including
cellular therapy in other disease states and cancer vaccines.
We also extended our drug discovery efforts by establishing a new worldwide licensing agreement in July 2021 with Nykode, whereby virus-
specific T cell epitopes identified by our platform will be used to inform the design and development of novel SARS-CoV-2 vaccine candidates. The
Nykode 2-arm Phase I/II trial is currently in progress with individuals in Norway who are already vaccinated. This T cell-based vaccine is intended to
address SARS-CoV-2 variants of concern and may be used as a potential universal booster to available vaccines. The Nykode collaboration represents a
significant extension of the platform into vaccine design and development. The platform is being deployed to both design and develop the vaccine,
potentially creating opportunity for a new commercial product. Although this is the first licensing agreement we have entered into with vaccine design and
development as the primary goal, we believe it may provide a useful proof of concept for extending the platform’s ability to design vaccines that may be
applicable to other disease states as well.
Our TruAB process, similar to our TruTCR process, leverages our high-throughput capabilities to screen millions of BCRs to identify unique
antibodies from the blood of COVID-19 patients. In several months, we used blood from over 300 patients to identify hundreds of thousands of antibodies,
of which we synthesized and characterized over 3,300 antibodies that bind to various parts of the SARS-CoV-2 virus. Our lead TruAB candidates that
neutralize live virus at very low concentrations, which means that a very small amount of each of these antibodies is able to block the virus from infecting
cells. Importantly, our drug discovery approach is differentiated from other groups because of the scale and throughput of our TruAB approach that allows
us to identify a much broader set of naturally-occurring, fully human antibody candidates to select the best ones for clinical development. The first potential
clinical application of our antibodies is to treat patients who are actively fighting or have recently recovered from COVID-19.
Our clonoSEQ pipeline
Our Clinical Portfolio and Pipeline
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Our T-Detect pipeline
Our Drug Discovery Pipeline
Our Competitive Strengths
We aim to harness the inherent biology of the adaptive immune system to develop clinical products and services that improve human health by
leveraging our core competitive strengths.
• Our immune medicine platform is uniquely capable of supporting clinical products. We have developed a platform that is capable of reading
and translating the massive genetic diversity of the adaptive immune system and its selective response to disease. Specifically, our platform
sequences immune receptors and maps them to antigens for diagnostic applications, pairs receptor chains and characterizes antigen-
specific, paired receptors to identify optimal clinical targets for therapeutic use. We are the only company that can perform all of these
functions—and we do so at an unprecedented scale to develop novel clinical diagnostic and therapeutic products.
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• Our clinical immunomics database provides a robust product development engine. Using the adaptive immune system as our product
source-code, we are building a dynamic clinical immunomics database, now being annotated with antigens using machine learning, that
drives our ability to rapidly discover and develop potential diagnostic and therapeutic applications. Our aim is to translate the natural
capabilities of the immune system into the clinic by capturing the millions of diverse unique receptors present in a patient’s blood, then
leveraging the resultant data set into multiple products and services.
• Clinical applicability spans diagnostic and therapeutic product potential. Our ability to accumulate, synthesize and process billions of
immunomic datapoints to generate multiple clinical diagnostic and therapeutic applications across disease areas provides optionality to our
commercial pipeline. Each of our products also has broad applicability, enabling robust product lifecycle extensions.
• Expanding regulatory and reimbursement expertise will help inform future clinical product development. Having successfully obtained
EUA for T-Detect COVID, FDA marketing authorization and expanded coverage for multiple indications of clonoSEQ from Medicare and
several national private payors, we believe we have developed valuable core capabilities that will facilitate future product development
through to regulatory approval and reimbursement. We believe this capability will inform future development of other clinical products,
including early detection tests.
• Transformational collaborations with industry leaders validate our platform. Our collaborations with industry-defining leaders such as
Genentech and Microsoft validate our unique approach to advancing the promise of immune medicine. We will continue to seek
opportunities to optimize our ever-growing clinical immunomics database to drive product development and commercial success and
facilitate efficient use of capital.
•
Strong intellectual property protects our immune medicine platform and its applications. As of December 31, 2021, we had filed 471 patent
applications, 420 of which had issued as of that date, covering improvements in sequencing methods and new ways to leverage adaptive
immune receptors for life sciences research, clinical diagnostic and drug discovery applications.
Our Strategy
Our focus is to leverage our immune medicine platform and competitive strengths to develop transformative clinical solutions accessible to patients
around the world.
• Powering the age of immune medicine. We facilitate the development of the immune medicine field by providing a platform to encourage
generation of immunomics data to facilitate a deeper understanding of, and biological discovery from, the adaptive immune system. We
leverage the unique capability of our platform to translate the genetics of a patient’s immune system with the scale, precision and speed
required to enable the development of personalized products, including clinical diagnostic tests for disease monitoring and early detection,
as well as immune-based therapeutics.
• Entrench our products and services in clinical drug development with biopharmaceutical collaborators. Position our platform as the gold
standard for the validation of potential immune-driven clinical discoveries in late-stage clinical trials. Since inception, our products and
services have been used by 175 biopharmaceutical companies and incorporated into hundreds of clinical trials, and clonoSEQ has proven to
be the MRD test of choice for select registrational trials. To deepen our established position as a partner of choice, we provide end-to-end
support, including hypothesis-driven trial design, extensive data analyses, parallel regulatory support, compliant data transfers and novel
target screening. These synergistic relationships advance the development and adoption of our own clinical products and inform drug
development for our partners.
• Rapidly identify and advance new products, leveraging foundational technology to generate revenue and address clinical diagnostic
challenges in key disease states, such as autoimmune, cancer, and COVID-19. We integrate proven chemistry into our clinical products in
development, avoiding the need to re-engineer new products for every clinical application. We do this by serially identifying new
applications of T-Detect for early detection of disease using retrospective datasets without requiring live cells from large cohorts of patients,
and by characterizing TCRs for therapeutic use. As our platform focuses on cancer, autoimmune disorders and infectious diseases, we
believe we will benefit from economies of scale and drive margin improvement over time.
• Drive the commercial adoption of distributed, reimbursed and regulated clinical products. Expand distribution and drive usage of our
products and services. Leverage the commercial infrastructure built for clonoSEQ and T-Detect COVID to submit clinical data for
regulatory clearance of our products and services, expand current payor coverage and provide robust billing and patient access
infrastructure for multiple clinical applications.
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• Maintain an entrepreneurial, scientifically rigorous, data-driven and inclusive corporate culture. Fuel the promise and potential that our
platform offers to help patients better manage their disease by translating insights from our world-class team, which includes 180 people
with medical or doctoral degrees with expertise in biology, chemistry, bioinformatics, software, drug discovery, development and
commercialization, into clinical products and services. We plan to continue to expand our team to advance the promise of immune
medicine.
A Primer: The Adaptive Immune System
Over millions of years, the adaptive immune system has evolved an elegant solution to keeping people healthy. It recognizes and responds to most
antigens, whether they come from outside the body, such as a virus, or inside the body, such as mutations that drive cancer.
The innate and adaptive immune systems both play a role in human immunity, but only the adaptive immune system provides a specific response to
signals of disease, or antigens. These disease specific antigens are primarily fragments of proteins that are recognized as foreign, such as proteins from a
virus. However, antigens can be recognized as foreign even if they are not from a pathogen. In cancer cells, antigens are generated from neoantigens, which
are derived from mutations specific only to the cancer, or tumor associated antigens (“TAAs”), which are from aberrantly expressed normal proteins. For
autoimmune disorders, the immune system mistakenly recognizes normal protein fragments as foreign antigens and attacks otherwise healthy tissue.
The Adaptive Immune Response
The key cells of the adaptive immune system that enable our bodies to mount responses against antigens are called T cells and B cells. T cells can
destroy target cells directly, and B cells secrete antibodies, activating other parts of the immune system to destroy targets.
Each T and B cell has a unique Y-shaped receptor, which can recognize one or a small number of the millions of antigens to which our bodies are
continuously exposed. When an adaptive immune response is initiated against a particular disease, the T cells and B cells encoding the disease-specific
targeting receptors rapidly multiply through clonal expansion, allowing for a powerful immune response. Some of these expanded cells directly attack the
disease, and others form long-term memory to allow rapid recognition of the same antigens in the future and protect against reinfection. Unlike all other
genes in the human genome, the genetic sequences of TCRs and BCRs rearrange over time through a complex biological process resulting in massive
diversity. The diversity of these receptors is made possible by a unique reshuffling of their genetic code known as V(D)J recombination (V=Variable,
D=Diversity, J=Joining). This recombination process only occurs in T cells and B cells, and it results in each cell clone having a unique receptor-associated
deoxyribonucleic acid (“DNA”) sequence. This unique DNA sequence acts like a barcode that can be used to identify and track an individual receptor over
time, as shown in the figure below:
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The adaptive immune response requires millions of these unique receptors to be widely distributed and present in the blood at all times in order to
have the ability to rapidly respond to many different diseases simultaneously. Even after a specific TCR binds to an antigen and clonally expands, the
frequency of these expanded T-cell clones containing the TCR remains relatively low in relation to the estimated trillions of other T cells that are
circulating. We have demonstrated this by sequencing thousands of healthy individuals for control cohorts for our research and development efforts. We
now know that disease-specific TCRs that are clonally expanded in a patient’s blood are present, on average, at less than 1 cell out of 100,000 cells. Despite
their relatively low abundance, disease-specific TCRs can mount a systemic, persistent response to most perturbations because of the highly specialized
properties of the immune response summarized in the table below:
In order to fully leverage these inherent properties of the immune system to develop clinical products, this enormous diversity and scale must be
taken into consideration to be able to reliably and repeatedly measure the relative frequency of each disease-specific T cell in the blood. For example,
cancer-specific TCRs circulating in the blood of a cancer patient are only present at 1 out of 100,000 cells. Auto-reactive T cells specific to any given
autoimmune disorder circulating in the blood are only present at 1 out of 1,000,000 cells. Accordingly, the ability to detect disease-specific T cells requires
a technology that can quantitatively probe a minimum of hundreds of thousands to millions of blood cells from each sample.
Our Immune Medicine Platform
We built a platform that can reveal and translate these properties of the adaptive immune system with the scale, precision and speed required to
enable the development of personalized products, including disease monitoring, clinical diagnostic tests for early detection and immune-based therapeutics.
Our immune medicine platform combines a suite of proprietary chemistry, computational biology and machine learning to generate clinical immunomics
data to decode the adaptive immune system and transform the diagnosis and treatment of disease.
The massive amount of data generated by our immune medicine platform is stored in our dynamic clinical immunomics database. We believe the
application of machine learning with Microsoft has the potential to exponentially accelerate the growth of novel insights from this database, which we
expect will further inform our product development efforts, as demonstrated by the growing number of clinical signals we are generating, including signals
for SarS-CoV-2 and Lyme disease for our current products. We have also confirmed signals in Crohn’s disease, celiac disease, and multiple sclerosis and
identified new signals in ulcerative colitis and rheumatoid arthritis.
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Sequence with immunoSEQ
immunoSEQ sequences single chains of Y-shaped TCRs and BCRs using NGS. NGS generally describes several modern sequencing technologies
that enable more efficient DNA and ribonucleic acid (“RNA”) sequencing than prior technologies. The key innovation in the development of immunoSEQ,
pioneered by Dr. Harlan Robins and a team of leading immunologists at the Fred Hutchinson Cancer Research Center (“Fred Hutch”), was a novel
approach utilizing PCR, hybridization and sequencing of rearranged TCRs to determine the sequences in millions of rearranged TCR genes, as shown in
the figure below. We apply a similar approach for BCR sequencing. All of the data generated by immunoSEQ is uploaded to our clinical immunomics
database and accessed through our proprietary cloud-based visualization and analytic tool called the immunoSEQ Analyzer.
One of the biggest challenges of any multiplex PCR technique is controlling for PCR amplification bias, which is critical for accuracy. We solved
for this problem by creating a synthetic immune repertoire that mimics rearranged immune receptor loci for all V and J genes. By identifying specific
primers that are either under or over amplified, titrating the primer concentrations and computationally adjusting residual bias, we optimize quantitation.
The accuracy and reproducibility of our bias control methodology was demonstrated in our lab and independently in a multi-center, lab-to-lab concordance
study using our immunoSEQ RUO kit. The ability to generate an unbiased TCR or BCR sequencing read-out is paramount for any clinical product and will
be required for the utility and reliability of clinical kits.
immunoSEQ enables us to observe the majority of receptors involved in a real human immune response, providing deep insights into a complex
biological system that was previously challenging to understand.
Map with MIRA
Our proprietary MIRA technology enables the identification of TCRs specific to thousands of antigens simultaneously. The MIRA technology
leverages a multiplexed, combinatorial approach to mapping TCRs to antigens in four steps:
1. Identify and query antigens of interest which can include neoantigens, tumor-associated, viral, infectious, autoimmune or other antigens.
2. Pool the antigens of interest and incubate them with immune cells from multiple donors whereby antigen specificities are determined based
on the antigen pool design.
3. Sort T cells by marker of interest.
4. Match T cell clones to specific antigens based on the presence of specific sequences in designated pools.
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Combined with immunoSEQ, MIRA elucidates what diseases a patient’s immune system has been exposed to or is actively fighting at a scale that is
one thousand times more sensitive than standard immunological techniques such as ELISPOT, or enzyme-linked immunospot.
Pair with pairSEQ
Our proprietary pairSEQ technology builds on immunosequencing by using a combinatorial strategy to accurately pair the two chains of Y-shaped
immune cell receptors at higher throughput than can be achieved with single cell sequencing. Pairing is difficult because the two chains of the Y-shaped
receptor are located on different chromosomes, which get separated when DNA is extracted from a cell for sequencing. By pairing TCRs or BCRs, we
rapidly detect thousands of complete chain sequences to develop new TCR-mediated cellular therapies or to develop differentiated antibodies.
Characterize with TruTCR
TruTCR characterizes binding, cytotoxicity and safety properties of antigen-specific, paired TCRs to identify a select subset that are therapeutic-
grade, enabling the development of optimal clinical candidates to be engineered into TCR-mediated cellular therapies. Our comprehensive TCR
characterization process utilizes advanced cellular immunology to measure TCRs against a variety of metrics to determine the optimal clinical candidates.
Antigen-specific, paired TCRs undergo evaluation for avidity, cytokine release, cytotoxicity and safety. Those TCRs that pass the first safety filter are then
evaluated for TCR reactivity against T cell lines and primary cells. To date, we have identified and characterized to different stages more than 5,000 unique
antigen-specific TCRs against 600 different clinically relevant targets, constituting our pipeline of possible clinical candidates. TCR characterization using
TruTCR is summarized in the figure below:
In collaboration with Genentech, we plan to apply a similar process to screen, identify and characterize in real-time what we believe are the most
promising patient-specific TCRs targeting the patient’s specific cancer antigens, advancing the next generation of cellular therapy in oncology.
Discover with TruAB
TruAB enables the discovery and characterization of BCRs for use as therapeutic antibodies. Our key differentiator is the ability to tap into the
massive diversity of the B-cell repertoire to identify naturally-occurring, fully human antibodies at unprecedented scale.
In April 2020, we deployed our platform to identify neutralizing antibodies to the SARS-CoV-2 virus that causes COVID-19. We processed blood
from more than 300 recovered and symptomatic COVID-19 patients. We then applied our high-throughput BCR pairing technology and paired more than
490,000 antibody heavy and light chains. We evaluated these BCR sequences in silico and selected more than 3,300 likely attractive antibody candidates
for downstream functional characterization, including affinity binding and live virus neutralization.
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Beyond COVID-19, we believe these efforts represent a differentiated platform extension that will position us to pursue additional potential
antibody discovery opportunities in a variety of disease states, including in autoimmunity where there is an unmet need.
Clinical Immunomics Database
We are developing a large, dynamic clinical immunomics database. We use our proprietary software and core competency in computational biology
to structure and store immune receptor data and to create tools for rapid analysis and easy visualization. All immunosequencing data is processed and
uploaded to a secure cloud-based database.
The record of diseases a person has encountered, both past and present, is recorded in their TCR repertoire. This comprehensive disease information
is contained in the immunosequencing data that we generate from each sample, which we believe will be revealed over time by our TCR-Antigen Map. We
plan to map, both directly and through machine learning, an estimated 1015 TCRs to thousands of clinically relevant antigens, which we believe will allow
us to annotate this immunosequencing data with information about disease states, increasing the value of the data over time.
We leverage our database to fuel our pipeline of immune medicine products. With over 58 billion immune receptors, our platform enables us to
work with retrospective samples which serve as training sets to which our Microsoft collaborators apply machine learning and computational statistics to
improve the accuracy of certain of our clinical products and services.
Our Products and Services
Our current portfolio includes commercial products and services in clinical diagnostics and life sciences research, and we are developing products
and services in both clinical diagnostics and drug discovery. Our commercial research product, immunoSEQ, primarily serves as our underlying research
and development engine to develop and validate our clinical pipeline. Our first commercial diagnostic product, clonoSEQ, is our FDA-cleared test to
monitor MRD in patients with select blood cancers. In 2020 we launched T-Detect COVID, for the confirmation of recent or prior COVID-19 infection.
Our commercial research and clinical products leverage the sequencing and mapping capabilities of our immune medicine platform and the revenue
generated by these products largely contributes to sequencing revenues. Our pipeline of clinical diagnostics for the early and accurate detection of many
diseases will be commercialized under the expanding T-Detect product line and will continue to grow our sequencing revenues over time. Our drug
discovery efforts to date are focused on identifying therapeutic-grade TCRs (TruTCR) and antibody-secreting BCRs (TruAB) to enable our partners to
engineer, manufacture and commercialize therapeutic candidates. With Genentech, we are advancing our pipeline of both shared and personalized TCR-
mediated cellular therapies for cancer patients. We also extended our platform to identify highly potent neutralizing antibodies against SARS-CoV-2 and
this differentiated approach can be leveraged across other disease states. Our drug discovery pipeline leverages the sequencing, mapping, pairing and
characterization components of our platform and generates most of our development revenue. We further extended our platform in drug discovery by
establishing a new worldwide licensing agreement with Nykode, whereby virus-specific T cell epitopes identified by our platform will be used to inform
the design and development of novel SARS-CoV-2 vaccine candidates. We plan to continue to invest in our platform to develop additional clinical
applications, which we prioritize based on rigorous data requirements for clinically actionability, unmet medical need and commercial viability.
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Clinical Diagnostics
We aim to be a global leader in immune-driven diagnostics for early detection, prognosis and monitoring of disease. To achieve this long-term goal,
we are focused on leveraging the sequencing and mapping functions of our immune medicine platform to develop diagnostic tests that meet regulatory
standards, are widely reimbursed and are accessible to patients all around the world.
Monitoring MRD with clonoSEQ
Our first diagnostic product, clonoSEQ, is an FDA-authorized NGS test for the detection and monitoring of MRD in bone marrow or blood samples
in patients with select lymphoid malignancies in which the malignant cell is derived from a T cell or a B cell. MRD refers to the presence and number of
these malignant T or B cells that may remain in a patient’s body during and following treatment. Because our technology quantifies the frequency of every
T cell or B cell in a sample, we can monitor MRD accurately at a sensitivity of 1 out of 1,000,000 cells, given sufficient sample input. By taking a baseline
measurement prior to starting therapy and then tracking the number of cells at several time points following therapy initiation, hematologists can improve
their ability to assess treatment response, predict long-term patient outcomes, monitor disease burden over time and detect potential relapse. clonoSEQ is
FDA-authorized for patients with MM and ALL from bone marrow samples and for patients with CLL from bone marrow and blood samples. clonoSEQ is
also currently available as an LDT for use across lymphoid malignancies and sample types, including those which have not been authorized by the FDA.
NCCN Guidelines recommend using a validated test to measure MRD to define the burden of disease and assess response to therapy in MM and
ALL after each treatment stage. NGS MRD testing has been added to these guidelines and we plan to seek expansion of the recommendations to include
additional time points in each disease state and to incorporate clonoSEQ specific data. To that end, in 2021, NCCN updated the adult ALL guidelines to
emphasize the importance of achieving MRD negativity and incorporate recommendations on MRD actionability post-induction.
MRD monitoring is becoming increasingly important in the hematologic oncology field because highly effective new therapies are extending
survival. This has created a need for more sensitive tools to monitor the disease status of patients over longer periods of time and has introduced the
potential for MRD to be included as a surrogate or primary endpoint in registrational clinical trials. We believe we are uniquely positioned to benefit from
these industry dynamics with both our clinical and biopharmaceutical customers.
In the clinic, clonoSEQ testing has been ordered by clinicians at centers all around the country, including all 31 NCCN centers, for over 22,000
unique patients. We believe increased adoption of clonoSEQ will now be possible due to the extensive coverage policies granted by Medicare to assess
MRD at multiple time points throughout therapy in MM, ALL and CLL, and several national private payors and large regional payors, together
representing over 240 million total covered lives in ALL and MM and over 150 million covered lives in CLL. We are in active discussions with other large
private national and regional payors. To further develop the mounting real-world evidence demonstrating the actionability of MRD monitoring, we
launched a clinical registry in 2020. This prospective, multicenter, observational study will include approximately 500 adult patients with lymphoid
malignancies in the United States.
Among biopharmaceutical companies, we believe clonoSEQ remains the preferred commercial test for MRD monitoring in their registrational trials.
To that end, clonoSEQ is now being used by more than 60 biopharmaceutical companies in over 150 clinical trials. To continue demonstrating clinical
utility across disease settings and lines of therapy, clonoSEQ is also being used in 95 ongoing prospective investigator-led clinical trials, and our MRD data
have been included in over 110 peer-reviewed publications.
We believe clonoSEQ has broad applicability across all lymphoid malignancies. Specifically, we submitted a 510(k) premarket notification for ALL
from blood samples in February 2021 and are actively validating the test for patients with NHL disease types.
We continue to deepen our commercial investments to expand clinical adoption of clonoSEQ and have increased the size of our specialized sales
and customer support organization and supporting infrastructure. We have continued to expand our team of demand generation representatives who are
hematology specialists and are focusing their efforts on expanding access to clonoSEQ in community oncology settings. Outside of the United States, we
have successfully transferred the technology to seven labs across France, Germany, Italy, UK, Spain, Australia and Japan which provide local testing
options, primarily in support of collaborative group and investigator-sponsored studies.
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The Technology
clonoSEQ is our FDA-authorized, NGS MRD technology that is designed to sequence all rearranged receptor sequences in a tumor in parallel to
ensure accurate, sensitive and robust MRD monitoring.
A summary of the steps for FDA-authorized usage is as follows:
1. gDNA is extracted from bone marrow.
2. Extracted DNA quality is assessed, and rearranged immune receptors are amplified using a multiplex PCR.
3. Reaction-specific index barcode sequences for sample identification are added to the amplified receptor sequences by PCR.
4. Sequencing libraries are prepared from barcoded amplified DNA which are then sequenced by synthesis using NGS.
5. Raw sequence data are uploaded from the sequencing instrument to our analysis pipeline.
6. Sequence data is analyzed in a multi-step process, where a sample’s sequence data is first identified using the sample index sequences and
the data is then processed using a proprietary algorithm with in-line controls to remove amplification bias.
7. Following completion of these data processing steps, a report is issued.
Adaptive Assist: Patient support program
Adaptive Assist is our patient support program to facilitate access to clonoSEQ testing services for patients who could benefit from the clinical
insights provided by NGS MRD testing. Patients can call to discuss their individual circumstances with one of our dedicated patient support representatives
in order to better understand their coverage prior to clonoSEQ testing and to navigate the insurance process, including appeals for denied claims. We also
offer financial assistance for qualified uninsured and under-insured patients who cannot afford their patient financial responsibility for clonoSEQ.
Clinical Validation in FDA Filing for MM, ALL and CLL
Our clonoSEQ test has been shown to help better predict patient outcomes and add insight to the evaluation of disease response to therapy because
we have clinically validated clonoSEQ’s ability to detect MRD at a sensitivity greater than the current clinical standard for all lymphoid malignancies.
clonoSEQ has demonstrated sensitivity of 1 out of 1,000,000 cells (10-6), given sufficient sample input, which is a deeper resolution than the current
accepted standard of 1 out of 100,000 cells (10-5), 1 out of 10,000 cells (10-4) or 1 out of 10,000 cells (10-4) for MM, ALL and CLL, respectively. Based
on these results, as further illustrated below, we believe clinical standards for MRD sensitivity may be increased to 10-6 to better predict patient outcomes.
Clinical validation in MM was demonstrated in two studies. The first study, a 720 patient, randomized phase III trial conducted at the Dana Farber
Cancer Institute (DFCI 10-106), evaluated the ability to predict progression-free survival (“PFS”) and disease-free survival in patients who achieved
complete response (“CR”) and the ability to predict PFS in all evaluable patients. This study demonstrates that MRD negativity for patients in CR
significantly predicts PFS.
The second study, a 706 patient, randomized phase III trial sponsored by Janssen Biotech, Inc. (“ALCYONE”), evaluated Darzalex in patients with
newly diagnosed MM who were transplant ineligible and served as the basis of the approval of Darzalex in combination with Bortezomib, Melphalan and
Prednisone (“VMP”) in this patient population. This study provides evidence that our clonoSEQ diagnostic test is predictive of PFS, regardless of treatment
received. Patients who were MRD negative at less than or equal to 10-5 had longer PFS and the group with persistent MRD negativity had the longest PFS
overall.
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Patients who were MRD negative by the clonoSEQ Assay had longer PFS
compared to MRD positive patients regardless of treatment.
Clinical validation in ALL was demonstrated in two Children’s Oncology Group studies, AALL0232 (high risk) and AALL0331 (standard risk) by
evaluating the ability of clonoSEQ to predict event-free survival (“EFS”) at a primary cutoff of 10-4 and across a continuous MRD measure. Results
demonstrate that patients with the lowest levels of MRD have better outcomes than patients with higher disease burden regardless of risk stratification.
Patients with lower levels of MRD (less than 1/100,000 cells), using the increased
sensitivity of clonoSEQ, have a higher probability of EFS.
Clinical validation in CLL was demonstrated in two studies. The first, a 337 patient randomized phase III registrational study in previously untreated
CLL patients sponsored by Roche (CLL14), evaluated the ability of clonoSEQ to predict PFS at a primary cutoff of 10-5 and across continuous MRD
measures from blood. The study demonstrates that MRD negative patients had significantly better PFS, independent of treatment regimen.
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The second was a prospective, phase 2 clinical trial in previously untreated CLL patients in which MRD was assessed from both blood and bone
marrow. MRD negativity at multiple cutoffs (10-4, 10-5, and 10-6) was significantly associated with better PFS. MRD was also prognostic of PFS when
disease burden was assessed as a continuous measure (no MRD threshold). This study demonstrates that MRD is predictive of better PFS and can be
assessed from either bone marrow or blood.
CLL Patients with lower levels of MRD in blood have a higher probability of EFS
Evolution of MRD into Clinical Decision Making Tool
While clinical utility has been a barrier to adoption in the past, this is changing quickly as we see multiple studies reading out that clearly
demonstrate the value of MRD testing for patients.
• For example, the MASTER trial presented at ASH 2021 and published in the Journal of Clinical Oncology (JCO) showed 98% of standard
and high-risk patients who discontinued treatment after two negative clonoSEQ MRD tests did not progress after 12 months of treatment
discontinuation. This data supports the goal of adapting treatment regimens to give relief to patients from side effects and saving substantial
costs for the health care system.
• Martinez-Lopez published a retrospective cohort analysis of 400 newly diagnosed myeloma patients in which MRD was used
interventionaly to escalate, change, or stop therapy for 67 of those patients. Data showed that for MRD negative patients who stopped
therapy, progression-free survival (PFS) was not negatively impacted. Also, for MRD positive patients in whom therapy was changed or
intensified, PFS was significantly better than in patients who remained on the same course of therapy. This analysis supports the potential
for use of MRD to modify treatment.
Strategy to Achieve Market Leadership
We aim to drive adoption and achieve market leadership for MRD monitoring with clonoSEQ for all lymphoid malignancies. To do so, we are
executing upon the following strategic initiatives:
•
Invest in commercial initiatives to increase awareness and usage in the clinic. We are expanding our sales organization to target key
customer segments, including academic centers, integrated health networks and community clinicians, in a tiered manner based on patient
volume. Importantly, clonoSEQ is now being used clinically at all 31 NCCN institutions. In 2021, we also drove significant uptake in Tier
2-3 community accounts. We will continue to increase the strength of our specialized sales organization and supporting infrastructure,
including building out our teams focused on community oncology centers and integrated delivery networks. We are also focusing on deeper
penetration of the patient opportunity within academic institutions currently using clonoSEQ. We also continue to build advocacy on an
educational basis through a variety of patient educational initiatives and peer to peer programming about the impact of MRD status on
clinical decision-making.
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• Expand reimbursement with public and private payors. We are working with new payors to develop appropriate coverage policies, generate
healthcare economic information and provide robust billing and patient access infrastructure. As of December 31, 2021, we secured
Medicare and private payor coverage for clonoSEQ for over 240 million covered lives for MM and ALL and over 150 million covered lives
for CLL. In November 2021, MolDX published its LCD for MRD testing. This LCD not only affirms the importance of MRD and
clonoSEQ coverage in ALL, MM and CLL in bone marrow and blood, but also provides a clear and efficient pathway for seeking expanded
clonoSEQ coverage through technical assessments in NHL.
• Entrench clonoSEQ in biopharmaceutical clinical trials. As the industry pursues the inclusion of MRD as a potential surrogate or primary
endpoint in clinical trials for lymphoid malignancies, having a standardized and highly accurate and sensitive method for MRD testing to
guide clinical decisions in late-stage trials, including registrational trials, is valuable. Our goal is to position clonoSEQ for use by our
biopharmaceutical collaborators as the MRD test of choice for these clinical trials.
• Validate clonoSEQ in additional indications for use. With the end goal of clonoSEQ becoming a universal MRD test for all lymphoid
malignancies, we have developed a robust lifecycle development plan to generate sufficient clinical evidence to support the extension of the
FDA label across lymphoid malignancies. We are already cleared in ALL and MM from bone marrow and CLL from bone marrow and
blood. At the same time, we are increasing marketing support for clonoSEQ usage as a CLIA-validated lab-developed testing service, where
samples for any lymphoid cancer indication and a range of sample types (including blood) are acceptable, and payer coverage is already in
place for blood-based testing in ALL, MM and CLL. Going forward, we will continue to evaluate the optimal commercial path (FDA or
CLIA) for each additional indication, with an increasing focus on NHL.
• Validate clonoSEQ in blood to offer a minimally invasive alternative. Testing with blood is less invasive for patients and less expensive as
compared to MRD testing from bone marrow samples, and it may only be possible because of the deep sensitivity of our clonoSEQ
diagnostic test. Therefore, blood-based MRD testing may enable more frequent monitoring of patients over longer periods of time. We have
already received FDA clearance for clonoSEQ from blood samples for patients with CLL, we submitted for FDA clearance for ALL from
blood samples and are evaluating the path forward, and we will continue to expand testing with blood to other indications over time.
•
Invest in product and customer experience improvements. For 2022, we are making significant investments to support our field force,
including providing enhanced selling direction, data and training. We are also making significant investments in improving our assay’s
performance for evaluation of ctDNA in plasma, and, with respect to the process of ordering malignancies clonoSEQ testing and obtaining
test results, aiming to continue to enhance our customer-facing software interface and user experience.
Early or Accurate Detection with T-Detect
By learning to read the antigen specificity of a patient’s immune system, we are developing the T-Detect test for early or accurate detection across a
broad range of diseases, including infectious diseases, autoimmune disorders, and certain prevalent cancer types. We believe the adaptive immune system
presents an ideal model for diagnostic tools for early or accurate detection of disease. In many cases, treatment is typically most effective early in the
course of a disease, when there is a minimal amount of disease-specific antigen present. TCRs recognize this very small amount of antigen before it is
detectable by conventional methods and then they expand exponentially. Given this large response in proportion to the amount of antigen present, we
believe we will be able to see this signal of disease much sooner than is possible with other methods of early disease detection. Additionally, in some
disease states, knowledge of prior infection from certain pathogens, e.g., COVID-19 and Lyme, may inform the basis of clinical decision-making or
ongoing patient care. Finally, the ability to rapidly and accurately identify the cause of non-descript symptoms may increase efficiency and compress the
timeline between symptom and diagnosis, thus reducing the diagnostic odyssey that patients often endure in the current diagnostic paradigm.
We are leveraging our existing immunoSEQ technology to develop T-Detect for the early or accurate detection of many diseases simultaneously.
This is possible because our platform works with retrospective sample sets and uses machine learning and computational statistics to continuously improve
accuracy without requiring large cohorts of prospective patients. We began by developing T-Detect for the early detection of specific disease states that
meet the following criteria:
• Clinically relevant antigens are known and understood.
• High unmet medical need for diagnosis.
• Potential to improve patient outcomes with early intervention.
• Availability of sample sets with patient outcomes.
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Using these data, we aim to simulate the natural diagnostic capability of the immune system into the clinic where we will use the map for the early
or accurate detection of many diseases. The potential economic model for T-Detect of becoming "one test with many results" is very compelling. When
multiple tests are ordered at the same time, the marginal cost for each additional test result is negligible.
Through iterative data generation efforts, we continue to improve the accuracy of the TCR signatures of each disease by running blood samples
from healthy donors, collaborating on retrospective studies with control groups in select disease states, and leveraging our database for additional
sequences to include in the TCR signatures.
We see the evolution of T-Detect in three phases over time:
• Phase I: Launch T-Detect disease by disease with a more accurate test versus the current standard of care.
• Phase II: Introduce T-Detect panel(s) for the differentiated diagnosis of disease when the symptoms are shared among several diseases.
• Phase III: Enable T-Detect for population immunomics, where anything we map, we will be able to diagnose from a single blood sample.
First Commercial Indication: T-Detect COVID
In response to the COVID-19 pandemic, we collaborated with Microsoft to create the ImmuneCODE program to map the T cell response to SARS-
CoV-2 across the global population. Our goal was to leverage the existing capabilities of our high throughput platform to generate an unprecedented
amount of T cell data from over 9,000 samples to understand the adaptive immune response to COVID. From these samples, we have mapped over
160,000 high-confidence TCRs to all parts of the virus which we have shown to be most immunogenic. T-Detect COVID received EUA for confirmation
of recent or prior SARS-CoV-2 infection in March 2021.
This represents a stepping-stone to the long-term vision of T-Detect where a single blood sample can provide information about what diseases a
person’s immune system has seen or is currently fighting. Data demonstrates that the T-cell response is more persistent than the antibody response to the
virus, persisting to at least twelve months following initial infection, and performance of T-Detect COVID is equivalent to or better than antibody testing at
all timepoints evaluated.
Clinical Validation of Detection of Recent or Prior SARS-CoV-2 Infection
Our T-Detect COVID test is a novel T-cell based assay that has demonstrated high percent positive and percent negative agreement (PPA and NPA)
to identify or exclude prior SARS-CoV-2 infection in PCR-confirmed SARS-CoV-2 cases and lack of cross-reactivity to several viral and/or respiratory
pathogens.
PPA was demonstrated in two studies: 1) a primary PPA study evaluating residual blood samples (N=205) from subjects diagnosed with SARS-
CoV-2 infection based on the EUA Abbott RealTime SARS-CoV-2 RT-PCR test from a single U.S. reference lab (Discovery Life Sciences, New York); and
2) a secondary PPA study using both retrospectively and prospectively collected samples from multiple cohorts (N=77; ImmuneRACE and
ImmuneSense™ COVID-19) and identified as positive based on a variety of EUA testing methods performed by a number of different labs. T-Detect
COVID demonstrated high PPA particularly in the timeframe of ≥15 days since diagnosis (97.1%) as well as ≥15 days since symptom onset (94.5%), as
shown in Table 1.
Table 1. Positive Percent Agreement (PPA) of T-Detect COVID Assay with SARS-CoV-2 RT-PCR according to days since symptom onset or days
since diagnosis.
Days Since
Diagnosis
0-7 days
8-14 days
≥15 days
All (range 0-91 days)
Days Since
Symptom Onset
0-7 days
8-14 days
≥15 days
All (range 0-106 days)
RT-PCR+
Samples (N)
35
33
137
205
13
9
55
77
T-Detect Positive (N)
T-Detect PPA (95% CI)
25
31
133
N/A
7
7
52
N/A
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71.4 (53.7 - 85.4)
93.9 (92.7 - 99.3)
97.1 (92.7 - 99.2)
N/A
53.8 (25.1 - 80.8)
77.8 (40.0 - 97.2)
94.5 (84.9 - 98.9)
N/A
NPA was demonstrated in two studies: 1) a primary NPA including 124 retrospective frozen clinical remnant blood samples collected prior to
December 2019 and thus presumed negative for SARS-CoV-2 infection; and 2) a secondary NPA study using blood samples from subjects enrolled
prospectively (ImmuneSense COVID-19) from October through November 2020 who presented with SARS-CoV-2 symptoms but tested negative for
SARS-CoV-2 using RT-PCR EUA, BioFire RP V2.1, and EUA antibody tests.
T-Detect COVID demonstrated NPA of approximately 100% in individuals who had compatible symptoms of infection but were either presumed or
confirmed negative for SARS-CoV-2 by PCR and antibody testing, as shown in Table 2.
Table 2. Negative Percent Agreement (NPA) of T-Detect COVID Assay with pre-pandemic samples sourced retrospectively (DLS) and
prospectively enrolled subjects (ImmuneSense COVID-19) negative for SARS-CoV-2 by EUA RT-PCR and antibody testing.
Cohort
Samples (N)
T-Detect Negative Results (N)
NPA (95% CI)
DLS
ImmuneSense COVID-19
87
79
87
78
100 (95.8 – 100)
98.7 (93.1 – 99.97)
Second Indication: T-Detect Lyme
We previously established proof of concept in acute Lyme disease from two independent, retrospective cohorts of over 200 patients with early Lyme
disease. The TCR repertoire sequencing demonstrated a near doubling in sensitivity for identifying disease compared to STTT (56% vs. 30%) in patients
tested within 30 days of symptom onset (2/3 of patients were tested within 8 days of symptom onset), with the sensitivity over STTT being most significant
in the four days following the onset of symptoms (44% vs 14%). TCR repertoire sequencing was approximately 99% specific in an independent set of
control samples that had all tested STTT-negative. 37% of early Lyme cases that initially tested STTT negative were identified. Additionally, the relative
abundance of T-cell signatures was found to correlate with disease severity markers, such as abnormal liver function tests, disseminated rashes, and several
other Lyme disease-associated symptoms. The signal in Lyme further demonstrates that machine learning can be leveraged to develop diagnostic signals,
even without the large cohorts of prospective patient data often required for diagnostics development. We completed the ImmuneSENSE Lyme study and
expect to launch as a CLIA-service offering during the 2022 Lyme season, leveraging the infrastructure built for T-Detect COVID.
T-Detect Pipeline
To achieve our goal of developing a diagnostic test for early detection across a broad range of diseases, we are pursuing the following strategic plan:
• Apply machine learning to high-throughput mapping to generate the TCR-Antigen Map.
• Demonstrate clinical signals for early detection using mapped TCRs in select indications.
• Launch one TCR sequencing technology, T-Detect, for initial indications.
• Broaden utility to a wide range of diseases without requiring large prospective trials.
We have optimized our research and development funnel and expanded our lab capacity to expedite our ability to move many diseases through the
funnel in parallel. We start by prioritizing diseases that meet key market attractiveness criteria such as high unmet medical need, understanding of the
antigenic space, and our access to samples with metadata. Once an early signal is identified, we refine our modeling with additional case control studies
and by leveraging our clinical immunomics dataset. Once we confirm a signal, we proceed with a full commercial validation and generation of a locked-
down algorithm to take into clinical validation and regulatory submission.
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In terms of other T-Detect indications in the pipeline, we continue to advance T-Detect in multiple autoimmune indications in parallel. In 2021, we
confirmed signals in Crohn’s disease and multiple sclerosis and identified new signals in ulcerative colitis and rheumatoid arthritis. These clinical signals
were identified in a series of well-characterized case-control sample sets from collaborating institutions, including over 5,000 samples in IBD, and we plan
to advance some of these signals to blinded clinical validation studies in the near future.
For new indications, there are many economic advantages of T-Detect both in the research and development stage and as a commercial product. For
the research and development pipeline, we use the same capital expenditures and workflow for signal generation across all diseases allowing us to study
multiple diseases in parallel. Once commercialized, again, we use the same blood sample and the same underlying chemistry for all diseases with a small
incremental investment in software for each individual disease, enabling a long-term high margin profile.
Life Sciences Research
immunoSEQ for Research Use Only
Our immunoSEQ technology, which we offer to customers as a service and a kit, is the core of our immune medicine platform. immunoSEQ utilizes
multiplex, bias-controlled PCR to accurately and quantitatively sequence millions of immune receptors at high-throughput directly from DNA. We believe
immunoSEQ is positioned to become the global standard for immunosequencing due to the quality and reliability of our data and the analytics and data
visualization tools that are easily accessible to customers in the immunoSEQ Analyzer, whether sequenced as a service or a kit.
Since inception, immunoSEQ has been used for research purposes by over 2,400 academic researchers and 175 biopharmaceutical companies and
incorporated into over 650 clinical trials to answer translational research questions relating to the adaptive immune system, monitor response to therapies
and discover new prognostic and diagnostic signals. These research questions are answered by using the data generated by immunoSEQ and uploaded to
the immunoSEQ Analyzer to study different properties and dynamics of all of the sequences in an immune repertoire, such as frequency or abundance, and
by tracking specific sequences over time in clinical trials. Graphical representations of the Analyzer output are shown in the figure below:
immunoSEQ provides a growing revenue stream. However, we also use immunoSEQ as the foundational technology for our clinical diagnostic and
therapeutic products. To fuel innovation, we also provide immunoSEQ to select research and development collaborators who gain access to immunoSEQ
and significant computational and analytical support, co-share and co-publish the data with us, and contribute to the validation of potential clinical
diagnostic discoveries. For example, we work closely with our collaborators to conduct translational research to explore the use of immunosequencing to
predict responders to novel immunotherapies such as checkpoint inhibitors.
Our immunoSEQ Analyzer is housed on a secure cloud-based database and is the visualization gateway to our clinical immunomics database that
currently has billions of TCR and BCR sequences which are often annotated and accompanied by samples with associated metadata. We offer
computational services to assist our customers in realizing the power of their data and to compare their data to other publicly available datasets in our
clinical immunomics database. We contribute some of our own research and development sequences into the publicly available datasets and customers are
offered the option to make their data public using one of our tools on our immunoSEQ Analyzer, called immuneACCESS, through which researchers can
expedite and streamline the peer-review process by sharing their data with reviewers prior to manuscript submission. The ongoing analysis of immune
receptor data from an expanding database tagged with clinical metadata, when possible, has led to over 650 peer-reviewed publications referencing
immunoSEQ and potential clinical signals to explore.
immunoSEQ T-MAP
In 2020, we identified some key opportunities to expand our research product offering to include mapping data generated by our platform.
Sequences mapped to clinically relevant antigens have many benefits beyond just repertoire sequencing dynamics and we plan to offer immunoSEQ T-
MAP across many disease states in the future.
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We launched immunoSEQ T-MAP COVID in August 2020 for vaccine developers and researchers to accurately and reproducibly measure the T-cell
immune response to vaccines and track the persistence of that response over time, including with respect to emerging variants of concern. immunoSEQ T-
MAP COVID combines the sequencing and mapping capabilities of Adaptive’s immune medicine platform to show how T cells respond to different parts
of the virus, including the various parts of the spike protein. A key objective with T-MAP COVID is to answer many outstanding questions about durability
of COVID-19 vaccines, especially in light of new variants of the virus. For new variants of concern, such as Delta or Omicron, we have demonstrated the
ability to identify mutations and connect them to our large-scale antigen-specific datasets in order to measure T-cell response to vaccination and determine
the role of cellular immunity. Our T-MAP product offers significant advantages over other technologies to detect and monitor T cells at scale using a small
amount of blood without the need for live cells that require special sample handling.
To date, we have sequenced a subset of patient samples (pre- and post-vaccination) from clinical trials sponsored by several top-tier vaccine
developers, including Moderna, Johnson & Johnson, AstraZeneca, University of Oxford, Bill and Melinda Gates Foundation among others. Using our
immunoSEQ T-MAP COVID product, we can identify and track expanded T cells induced by a vaccine, which can be distinguished from a natural
infection, in order to monitor vaccine efficacy. With some partners, we are working towards understanding how T cell activation may provide a correlate of
protection. This has become increasingly critical in the wake of variants since the antibody response is increasingly off-target and T cells are correlating
more closely with real-world vaccine efficacy.
In an effort to understand immunity for immunocompromised patients, we have also collaborated with the Leukemia and Lymphoma Society and
other prestigious academic labs in order to study the T cell response of this subset of patients who do not always have the ability to mount an antibody
response to vaccination.
Drug Discovery
Our aim is to develop immune-mediated therapies in oncology and other disease areas by using the full functionality of our immune medicine
platform, including TruTCR and TruAB for TCR and antibody characterization, respectively. We are currently working to leverage our immune receptor
discovery capabilities to enable commercialization of novel therapies by collaborators. In the future, we may explore expanding our own end-to-end
capabilities for the further development of our own portfolio of therapeutic candidates.
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TCR Discovery for Cellular Therapy using TruTCR
We have developed a high-throughput TCR screening process that allows for the discovery of antigen-specific TCRs that occur in low frequencies
in healthy individuals. We believe this provides a set of naturally-occurring TCRs with a more favorable safety profile in comparison to engineered TCRs.
We then further characterize these naturally-occurring TCRs for binding avidity and cytotoxic potency. To date, we have identified and characterized to
different stages more than 5,000 unique antigen-specific, paired TCRs against 600 different clinically relevant targets, constituting our pipeline of possible
clinical candidates. We complete a data package for each characterized TCR that we believe meets the thresholds for therapeutic evaluation. These
thresholds are divided into a series of seven key steps covering antigen specificity, functional avidity, cytolysis and safety assessment. A package is
considered complete when the TCR meets the rigorous criteria for all seven steps and the data are compiled to support an IND package. As a proof of
concept, we compared our fully characterized TCR against WT-1, a TAA often overexpressed in various cancers, to a benchmark WT-1 TCR. A gold
standard for testing TCR efficacy is killing of cells that naturally express the target antigen at low levels. Using a cancer cell line that is known to express
low levels of WT-1, our candidate WT-1 TCR was over four times more effective at killing cancer cells than the benchmark TCR. The complete data
package for our lead WT-1 TCR candidate demonstrates improved avidity, cytolysis and a promising safety profile.
Our high-throughput screening technologies enable us to discover TCRs against any type of antigen which opens up the potential to develop novel
TCR-mediated cellular therapies for any type of cancer. As compared to cellular therapies that target T cell surface antigens that are not specific to cancer,
we believe our approach to TCR cellular therapies may mitigate the risk of off-target side effects. Therefore, we believe our approach may be applicable to
the vast majority of solid tumors, even those where the tissue of origin is vital to survival such as lung or renal.
In December 2018, Genentech selected our platform to develop, manufacture and commercialize novel neoantigen directed T cell therapies for the
treatment of a broad range of cancers. Our ultimate goal is to harness the vast majority of therapeutically relevant, patient-specific TCRs against
neoantigens and advance the next generation of cellular therapies in oncology. We believe our TCR discovery capabilities may also facilitate the
development of cellular therapies in disease areas beyond cancer, which we can commercialize outside of the Genentech collaboration.
In addition to cellular therapy applications, we believe our TCR screening capabilities can guide the design and development of next generation
vaccines by characterizing the immunogenicity of hundreds of antigens at a time. Our platform can also be used to then monitor early signs of antigen-
specific immune response in patients treated with novel vaccines.
Strategic Collaboration with Genentech
Through our worldwide collaboration and license agreement with Genentech, we plan to develop, manufacture and commercialize novel neoantigen
directed T cell therapies for the treatment of a broad range of cancers to advance the next generation of cellular therapies in oncology. We are pursuing two
product development pathways for novel T cell immunotherapies in which Genentech intends to use TCRs screened by our immune medicine platform to
engineer and manufacture cellular medicines:
•
Shared Products. The Shared Products will use “off-the-shelf” TCRs identified against cancer antigens shared among patients. We
completed an assessment of efficacy and safety data to enable a decision to select our lead TCR candidate. Following review of this data by
both us and Genentech, Genentech recently selected this TCR candidate to progress as a potential therapeutic product candidate.
Meanwhile, we continue to screen and characterize TCRs against clinically relevant targets in solid tumors. We are on track to deliver to
Genentech up to two additional TCR data packages for consideration by Genentech.
• Personalized Product. The Personalized Product will use patient-specific TCRs identified by real-time screening of TCRs against cancer
antigens in each patient. In the second half of 2020, we started screening blood from cancer patients to identify TCRs specific to a patient’s
tumor mutations. We conducted initial proof of concept screens by successfully processing blood from approximately 60 cancer patients,
demonstrating that in certain of these patients we were able to identify naturally-occurring TCRs from the cancer patient’s own blood that
are specific to that patient’s unique tumor mutations. To support our near-term and long-term objectives for the Personalized Product, we
opened our dedicated prototype lab in South San Francisco in 2021, which will have capacity to perform first-in-human clinical trials. We
believe the lab positions us to potentially pursue additional opportunities outside of this collaboration, including cellular therapy in other
disease states and cancer vaccines.
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Under the terms of the agreement, we received a $300.0 million initial upfront payment in February 2019, and we may be eligible to receive
approximately $1.8 billion in aggregate milestone payments upon achievement of specified development, regulatory and commercial milestones.
Additionally, we may receive royalties on sales of products commercialized under that agreement. Genentech will be responsible for clinical, regulatory
and commercialization efforts. We will be responsible for the screening and identification of TCRs that can most effectively recognize and directly target
specific cancer antigens, including neoantigens.
In parallel, we plan to evaluate an investment in additional facilities that would allow us to scale our end-to-end screening of patient-specific TCRs
for potential future late-stage clinical trials and commercialization of the Personalized Product. We believe this investment would position us to potentially
pursue additional opportunities outside of this collaboration, including developing and commercializing vaccines and cellular therapies in other disease
states.
Vaccine Development with Nykode
We also extended our drug discovery efforts by establishing a new worldwide licensing agreement in July 2021 with Nykode, whereby virus-
specific T cell epitopes identified by our platform will be used to inform the design and development of novel SARS-CoV-2 vaccine candidates. The
Nykode 2-arm Phase I/II trial is currently enrolling individuals in Norway who are already vaccinated. This T cell-based vaccine is intended to address
SARS-CoV-2 variants of concern and may be used as a potential universal booster to available vaccines. The Nykode collaboration represents a significant
extension of the platform into vaccine design and development. The platform is being deployed to both design and develop the vaccine as opposed to an
evaluative use of our data following infection, as well as in direct support of a new commercial product. Although this is the first licensing agreement we
have entered into with vaccine design and development as a primary goal, we believe it may provide a useful proof of concept for extending the platform’s
ability to design vaccines for other disease states.
Developing neutralizing antibodies using TruAB
Our TruAB process, similar to our TruTCR process, leverages our high-throughput capabilities to screen millions of BCRs to identify unique
antibodies from human blood. Our first proof of concept is for patients who are actively fighting or have recently recovered from COVID-19. In just
several months, we collected blood from over 300 patients and hundreds of thousands of antibodies, of which we synthesized and characterized over 3,300
antibodies to various parts of the SARS-CoV-2 virus. To date, we identified several candidates that neutralize live virus at very low concentrations, which
means that a very small amount of each of these antibodies is able to block the virus from infecting cells. Using our TruAB antibody discovery approach,
we identified several lead antibody candidates that strongly bind to different parts of the virus. Our growing portfolio of novel antibodies includes
candidates that don’t bind the classic RBD region and instead bind to S1, Trimer or S2. We believe we are one of the only groups that has identified S2-
specific antibodies that neutralize the virus. This could have important advantages in a cocktail strategy that targets different mechanisms of action to
inhibit the virus and potentially virus variants.
27
Importantly, our drug discovery approach is differentiated from other groups because of the scale and throughput of our TruAB approach that allows
us to identify a much broader set of naturally-occurring, fully human antibody candidates to select the best ones for clinical development. Beyond COVID-
19, we are exploring applications of TruAB discovery in other diseases, including autoimmunity.
Our People and Culture
Our employees, internally referred to as “Adapters,” are passionate about immune medicine, empowered by scientific discipline and fueled by our
foresight and curiosity about the adaptive immune system.
As of December 31, 2021, we had 858 full-time employees of which 180 hold medical or doctoral degrees. None of our employees are subject to a
collective bargaining agreement and we have not experienced any work stoppages. We believe relations with our employees are good.
Our talented employees drive our mission and share core values that both stem from and define our culture. This plays an invaluable role in our
ability to execute at all levels in our organization. Our core values are used in candidate screening, rewards and recognition criteria, and in employee
evaluations to help reinforce their importance in our organization:
• Make it happen. Individual ownership and accountability keep us moving forward.
•
Innovate fearlessly. Push against boundaries and think boldly to achieve world-changing results.
• Debate openly. Value discussions inspired by different points of view.
• Work together. Demonstrate you care about the success of others. The same goes for our partners and customers—together we can achieve
more.
• Follow True North. Show up with integrity and do the right thing.
• Have fun. Fun makes everything better.
We believe our employees are highly engaged, and we were recognized consecutively from 2018 to 2021 by the Puget Sound Business Journal as
one of Washington State’s Best Places to Work. We were also nationally certified as a 2021 Great Place to Work.
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Diversity and Inclusion
We pride ourselves on inclusive team building, product design and gender diversity at all levels of management. We are committed to creating and
maintaining a culture of belonging. In 2021, we expanded and implemented several diversity and inclusion initiatives. We continued to provide quality DEI
programming through Employee Resource Groups (“ERGs”) including Women@Adaptive, Adaptive PRIDE, Black Adapter Network and Working Life
and Wellness, and in 2021 launched two new ERGs: Asian Pacific@Adaptive and Sustainability@Adaptive. We continued to explore diversity sourcing
programs and partnerships, and we expanded our diversity training to a growing population of hiring managers. We also integrated hidden bias training into
our Leader of People Program. Our Equity Advisory Council of senior leaders maintained a strategic focus on clinical studies, commercial engagement,
recruiting, and retention through a diversity and inclusion lens. In November 2021, we received a Corporate Equality Index (CEI) score of 95/100 from the
Human Rights Commission. Our score of 95 is an increase of 20 points from last year’s previous CEI score. We successfully executed a second year of our
STEM minority mentoring partnership with University of Washington. During the grand opening of our new Seattle headquarters building, and with the
help of Governor Jay Inslee, we also announced our partnership with SPIN Girls, a transformative local program that builds leadership and provides
immersive STEM experiences, while pairing students with female-identifying mentors of color from across King County.
Compensation and Benefits
We strive to provide compensation and benefits that are competitive to market and create incentives to attract and retain employees. Our
compensation package includes market-competitive base pay, performance-based short-term incentives, health care, retirement benefits, paid time off and
family leave. In addition, we offer employees the benefit of equity ownership in the Company through restricted stock unit awards. We also provide access
to a variety of health and wellness resources, with special attention paid to mental health in 2021. This year also saw the inaugural winners of our Adaptive
Leadership Awards announced, recognizing and celebrating those who best embody our Adaptive Leadership Principles.
Employee Development & Training
We prioritize employee development and training and have established programs to support a culture of employee development. Specifically, in
2021, we offered multiple learning solutions, including our Leader Orientation Program, our Leader of People Program, and our L-re:combinator
Fellowship Program. We launched Leader of Leaders for employees at or above Director level. We also completely reworked and relaunched our employee
onboarding program, DayOne. All of our leadership development programs are multi-week, blended learning courses that feature self-paced online learning
and live virtual training. DayOne focuses not just on HR and compliance orientation, but cultural onboarding with small group interactions among our
Chief Executive Officer, cultural ambassadors and fellow new Adapters.
In 2021, over 130 Adapters attended leadership development programs and consumed approximately 2,400 hours of training. Over 200 Adapters
completed DayOne. In our annual employee survey, Adaptive Listens, Adapters generally judged our managerial corps as one of Adaptive’s strengths, a
sign that investing in their development is translating into real-world results.
COVID-19 Preparedness
Since the emergence of COVID-19, our cross-functional COVID-19 preparedness committee has been meeting at least weekly to monitor the
progress of the disease, stay apprised of expert external guidance, discuss and implement preparedness plans as needed, and provide clear communication
to all Adapters. We implemented measures to reduce the risk of exposure of COVID-19 to the employees who continue to work on site, including the
implementation of work-from-home policies for certain employees, as well as the implementation of shifts and zones to physically distance employees who
remain on site, including extra sanitation measures. For those employees working remotely, we provided additional equipment to support their ergonomic
and technology needs. Beginning in 2022, our offices and infrastructure are now set up to support and enable a hybrid workforce, with safety and other
factors related to on site work continually evaluated by our Covid-19 preparedness committee.
Strategic Collaborations and Other Agreements
Genentech Agreement
In December 2018, we entered into an agreement with Genentech (“Genentech Agreement”) to develop, manufacture and commercialize novel
neoantigen directed T cell therapies for the treatment of a broad range of cancers. Pursuant to the Genentech Agreement, we are responsible for the
screening and identification of TCRs that can most effectively recognize and directly target specific neoantigens, while Genentech is responsible for
clinical, regulatory and commercialization efforts. During the term of the Genentech Agreement, we have agreed to certain defined exclusivity obligations
or restrictions with respect to the development and commercialization of certain cell therapies.
29
In February 2019, we received a $300.0 million upfront payment from Genentech. We also may be eligible to receive approximately $1.8 billion
over time, including payments of up to $75.0 million upon the achievement of specified regulatory milestones, up to $300.0 million upon the achievement
of specified development milestones, and up to $1.4 billion upon the achievement of specified commercial milestones. Genentech will also pay us tiered
royalties at a rate ranging from the mid-single digits to the mid-teens on aggregate worldwide net sales of the Shared Products and the Personalized Product
arising from the strategic collaboration, subject to certain reductions, with aggregate minimum floors. For the year ended December 31, 2021, 2020 and
2019, the Genentech Agreement accounted for 40.2%, 53.7% and 41.3% of our revenue, respectively.
The Genentech Agreement will continue until the expiration of all royalty payments, but may be terminated by mutual agreement, upon an uncured
material breach by either party, upon insolvency of either party, or by Genentech for convenience upon prior written notice.
Microsoft Agreement
In December 2017, we entered into a strategic collaboration agreement with Microsoft (“Microsoft Agreement”) to map TCR sequences to the
antigens they bind with the goal of developing diagnostic tests for early detection of many diseases from a single blood test.
Pursuant to the Microsoft Agreement, Microsoft applies machine learning and computational statistics to our clinical immunomics data in order to
produce predictive models that allow us to map TCR sequences to the antigens they bind. Under the Microsoft Agreement, we retain all rights to these
predictive models and the data underlying our TCR-Antigen Map, including the right to commercialize clinical products using our TCR-Antigen Map. We
and Microsoft have granted each other certain licenses to one another’s intellectual property rights and have agreed to certain defined exclusivity
obligations with respect to collaborations and projects that are substantially similar to the Microsoft Agreement.
During the term of the Microsoft Agreement, we have agreed to exclusively use Microsoft’s Azure cloud services at standard volume pricing with a
minimum Azure consumption requirement. We have also agreed to host each diagnostic product developed as a direct result of the Microsoft Agreement on
Azure throughout the term of the Microsoft Agreement and for a period of five years thereafter. In addition, we have agreed to exclusively use Microsoft’s
immunomics artificial intelligence services for TCR-antigen mapping in connection with all of our technology, products and services developed as a direct
result of our collaboration with Microsoft throughout the term of the Microsoft Agreement.
The Microsoft Agreement has a seven-year term and may be terminated by mutual agreement or by either party upon an uncured material breach.
Concurrently with entry into the Microsoft Agreement, Microsoft purchased shares of our Series F-1 convertible preferred stock which were converted into
common stock upon the closing of our initial public offering in July 2019.
Processing and Manufacturing
We process both clinical and research use samples in our laboratory in Seattle, Washington. Our Seattle laboratory is CLIA-certified, CAP-
accredited and ISO 13485-certified. After we intake samples sent to us from healthcare providers or research and biopharmaceutical customers, we extract
DNA from the sample if required, amplify it and otherwise prepare it for our sequencing and data analysis. Throughout our processes, we apply a rigorous
quality management system, which is designed to comply with the Quality System Regulation (“QSR”) and the requirements of CLIA, CAP and other
applicable state licensing and accreditation requirements.
In order to process samples submitted to us using immunoSEQ or clonoSEQ, we utilize a combination of proprietary primer mixes and commercial
materials, including a multiplex PCR master mix, enzymes, high throughput multi-cycle sequencing reagents and other materials, which we obtain and
assemble as needed from various third-party vendors on customary terms. A number of our processing steps utilize automated equipment to help ensure
consistency and efficiency. Sequencing is performed using the Illumina NextSeq System, which we have appropriately qualified for the intended uses of
our products and services. We also work with a third-party vendor to manufacture our immunoSEQ RUO kit using our proprietary primer mix and other
materials. We also use Illumina to develop IVD kits and provide related support for clonoSEQ and T-Detect, pursuant to a September 2019 development
and supply agreement with a six-year term and payments to Illumina based on Illumina achieving milestones and revenue share payments ranging from a
low to mid-single digit percentage of future net sales, subject to customary reductions.
For our TCR-Antigen Map and drug discovery initiatives, we conduct our current operations at our laboratories in Seattle, Washington and South
San Francisco, California. These laboratories have cell sorting, tissue culture and other processing equipment.
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We use a limited number of suppliers, or in some cases single suppliers, for our laboratory equipment and materials. We manage this concentration
risk by targeting or building to levels of surplus stock that, we believe, would allow us to locate alternative suppliers if needed. However, if one of our
suppliers fails to perform adequately or fulfill our needs, we may be required to incur significant costs and devote significant efforts to find new suppliers
and may face delays in processing samples or developing and commercializing our products and services. We have occasionally faced delays in the form of
longer lead times for equipment that is subject to increased demand due to public health measures taken to combat the COVID-19 pandemic. In particular,
we have purchased the Illumina NextSeq System, and Illumina also supplies us with reagents that have been designed for use solely with this sequencer.
While we acquire these reagents from Illumina on customary terms, if we had to replace the reagents we use we may also need to acquire and qualify a
replacement sequencer, validate the reagents and potentially revalidate aspects of our existing assays.
Distribution
We processed our first immunoSEQ samples in 2011 and issued our first clonoSEQ report in 2013. Since then, we have focused on expanding our
customer base. We sell our products and services primarily through our own internal sales force. Our sales and marketing efforts are targeted at department
heads, laboratory directors, principal investigators, core facility directors, clinicians, payors and research scientists and pathologists at leading academic
institutions, biopharmaceutical companies, research institutions and contract research organizations. We seek to increase awareness of our products and
services among our target customers through direct sales calls, trade shows, seminars, academic conferences, web presence and other forms of internet
marketing. Our drug discovery efforts are focused on large biopharmaceutical companies.
Intellectual Property
We have an extensive global portfolio of intellectual property rights to protect our immune medicine platform, the products and services that draw
on it and our reputation in the industry.
As of December 31, 2021, we owned or controlled 471 active patents and patent applications whose claims are intended to cover what we do, what
we plan to do and what others might do to compete with us. From our earliest patent filings in 2009, our portfolio has been tailored to reflect our efforts to
harness the adaptive immune system for research, diagnostic and therapeutic applications. Our patent claims extend to not only adaptive immune receptor
molecules, but also to uniquely powerful techniques for sequencing immune cell receptors, determining clonality and immune competency, diagnosing
disease, predicting responses to immunotherapy and identifying new drug candidates. Our patent protection generally expires in years ranging from 2029 to
2040.
Critical know-how we develop is protected by a trade secrecy program to ensure against inappropriate disclosure or use. Encompassed in our know-
how is our proprietary database of coding sequences, antigen reactivities and safety profiles for immune receptors, which is vast and growing. Even with
collaborators, access to our immune medicine platform technology is limited and tightly controlled through contracts and careful communication. We own
our immune medicine platform, including improvements we or collaborators make to it, and retain rights in data resulting from its use.
We also pursue trademark registration for our product and service names and promotional slogans in our existing and projected markets.
Intellectual Property Portfolio by the Numbers
As of December 31, 2021, our intellectual property portfolio consisted of the following:
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471 patent applications filed worldwide directly or in conjunction with a co-owner or licensor since 2009;
51 pending patent applications;
420 issued patents across our immune medicine platform;
24 patent families directed to methods and tools useful in our immune medicine platform for non-target specific immunosequencing and
research, including immunoSEQ;
17 patent families directed to methods and tools useful in diagnosis, prognosis and disease monitoring, including clonoSEQ, T-Detect and
the TCR-Antigen Map;
12 patent families directed to methods and tools useful in drug discovery, including TruTCR, MIRA and pairSEQ;
1 patent family directed to therapeutic antibodies;
1 patent family directed to gene sequencing technology; and
28 trademarks registered and pending registration worldwide.
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Patent Portfolio
We have developed an expansive patent portfolio in commercially important markets with claims to critical aspects of our technology, beginning
with our first patent applications exclusively licensed from Fred Hutch in 2009. Our ongoing patent strategy is to generate a return on our patenting
investments, which values substantive quality over volume to build a defensible moat around technology we use as well as what others might develop to
design around our position.
We prioritize pursuing patent claims with a reasonable likelihood of being granted. Where patentability for a particular invention is questionable, we
often choose to protect it as a trade secret instead. In some instances, however, we may seek to push the patentability envelope when the state of the
applicable patent laws are in flux, such as patent eligibility for naturally occurring molecules, including TCRs, in the United States.
Methods of Measuring Adaptive Immunity
In 2009, a U.S. provisional patent application was filed to pursue protection for immunosequencing by our co-founder, Dr. Harlan Robins. The
invention broadly relates to methods for assessing the adaptive immune system status of individuals. Rearranged V and J segment genes of TCRs or BCRs
are targeted as biomarkers for assessing the status of the immune system at one or more points in time. Granted claims extend to the use of particular sets of
amplification primers, while pending claims are being pursued to capture additional assessment techniques. Licensed exclusively to us by Fred Hutch, the
application has since spawned more than 31 additional patent applications, many of which have been granted as of December 31, 2021, including U.S.
Patent No. 9,809,813.
Optimizing Nucleic Acid Amplification Reactions
Amplification of nucleic acids can result in over- or under-representation of the amplified molecules, misrepresenting the number present in the
source material, such as a blood sample. Dr. Robins invented a method to correct for such bias, thereby improving the precision of PCR-based
quantification of TCR and BCR coding sequences in a sample. The claimed approach utilizes synthetic templates, reflecting nucleic acid sequences for
rearranged V and J receptor segments in the sampled cells. More than twenty-eight related patent applications have since been filed, many of which have
been granted as of December 31, 2021, including U.S. Patent Nos. 9,371,558 and 10,214,770.
Diagnosing and Monitoring Disease
In connection with our acquisition (“Sequenta Acquisition”) of Sequenta, Inc (“Sequenta”) in 2015, we purchased Sequenta’s extensive patent
portfolio. The portfolio includes 124 patent applications which disclose and claim methods to identify and quantify T cell-based immune responses to
antigen exposure using NGS. TCR and BCR DNA, RNA or cell-free DNA from samples, including blood and bone marrow, are used to detect, prognose
and monitor disease, including autoimmune disease, infection and cancer. More than one hundred twelve patents have been granted in the portfolio as of
December 31, 2021, including U.S. Patent Nos. 8,628,927 and 8,236,503.
Our diagnostic methods also apply to the detection of MRD (the target of our B cell-based clonoSEQ diagnostic test for assessing how disease
burden changes in response to treatment or during remission) and T-Detect (our T cell-based diagnostic tests). Multiple patents have been granted from
additional applications relating to diagnostic methods and diagnostically significant TCRs filed by us, including U.S. Patent No. 9,824,179.
TCR-Antigen Map
In connection with our Microsoft collaboration, we are developing a diagnostic product to detect cancer and other diseases at their earliest stage by
learning the signals and responses of the activated immune receptors in a patient’s blood. Pre-collaboration, we filed 10 related patent applications for
methods to produce antigen-exposed enriched T cell populations and identify their antigen specificities by comparison to a pre-exposure population of cells
or by use of an algorithm. We have filed additional patent applications relating to algorithmic-based methods to characterize antigen specificities and will
continue to do so as our work proceeds with Microsoft.
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MIRA
We developed and are pursuing patent protection for bioinformatic-based methods to determine the antigen specificity of TCRs by exposing T cells
to a panel of multiple antigens. Antigen exposure can be performed by incubation or presentation; for example, it can be performed via recombinant
expression in another cell. These methods may also be used to pair the two TCR chains as well as to identify high avidity TCRs. Several patents have been
granted as of December 31, 2021, including U.S. Patent No. 10,066,265.
pairSEQ
In nature, TCRs and BCRs exist as a heterodimer of paired chains, each of which is encoded on a different chromosome. Immunosequencing reveals
the nucleotide structure of each individual chain, but not which chains match as cognate pairs. We developed and are pursuing patent protection for
multiple bioinformatic-based approaches to pairing the two chains of TCRs and BCRs, including one deployed in our pairSEQ technique. Our methods also
allow for identification of receptor chain pairs which are specific to particular antigen targets. Over fifty related patent applications have been filed, nearly
half of which have matured into granted patents as of December 31, 2021, including U.S. Patent No. 10,077,478.
Assessing Responsiveness to Immunotherapy
Leveraging our immunosequencing technologies, we developed methods for predicting responses to immunotherapy, vaccines and infection. To
those ends, rearranged TCR or BCR sequences are quantified and their levels or frequencies compared at different points in time. More than 20 related
patent applications have been filed, most of which have been granted as of December 31, 2021, including U.S. Patent No. 10,221,461.
Therapeutic Antibodies
We developed a therapeutic antibody discovery process called TruAB from which neutralizing antibodies to SARS-CoV-2 have been produced. A
patent application to these antibodies was filed in 2020 and is pending.
In-Licensed and Acquired Intellectual Property Rights
While we have developed the majority of our immune medicine platform, products and services, we occasionally license or acquire third-party
owned inventions to bolster the strength of our patent estate and ensure freedom to operate.
Early work by Dr. Robins with Fred Hutch led to discoveries around immunosequencing methods and tools covered by 128 patents and patent
applications in the United States and abroad which we exclusively licensed. Our rights are for all fields of use worldwide and are sublicensable. To the
extent any licensed granted patent rights extend to products or services sold by us, we pay Fred Hutch a royalty rate of 0.75% of net sales on licensed
products.
Through our Sequenta Acquisition, we also obtained an exclusive paid-up license, with rights to sublicense, to patents filed in the United States,
Europe, Australia and China owned by iRepertoire, Inc. The license is for worldwide use in diagnosis, prognosis, treatment and monitoring of any
proliferative disorder for which rearranged nucleic acids capable of encoding an immune receptor, whether productive or unproductive, or functional or
nonfunctional, of a cell, excluding tumor infiltrating lymphocytes, of the proliferative disorder can be used as markers for the disorder, including, but not
limited to, lymphoid and myeloid proliferative disorders, such as ALL, CLL, acute myeloid leukemia, chronic myelogenous leukemia, Hodgkin’s and
NHL, plasma cell neoplasms, such as MM, monoclonal gammopathy of undetermined significance, monoclonal B cell lymphocytosis and myelodysplastic
syndromes.
In addition to the patent estate acquired from Sequenta, we also acquired ownership of immunosequencing-related patent portfolios from Imdaptive,
Inc. and ImmunID S.A.S.
Trademarks
We own various trademarks, applications and unregistered trademarks in the United States and other commercially important markets, including our
company name, product and service names and other trade or service marks. Our trademark portfolio is designed to protect the brands for our products and
services, both current and in the pipeline.
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Trade Secrecy Program
We have a trade secrecy program to prevent disclosure of our trade secrets to others, except under stringent conditions of confidentiality when
disclosure is critical to our business. Our trade secrets include the composition of certain reagents, assay protocols and immunosequencing-related data,
such as immune receptor sequences. We protect trade secrets and know-how by establishing confidentiality agreements and invention assignment
agreements with our employees, consultants, scientific advisors, contractors and collaborators. These agreements provide that all confidential information
developed or made known during the course of an individual or entities’ relationship with us must be kept confidential during and after the relationship.
These agreements also provide that all inventions resulting from work performed for us or relating to our business and conceived or completed during the
period of employment or assignment, as applicable, shall be our exclusive property. In addition, we take other appropriate precautions, such as physical and
technological security measures, to guard against misappropriation of our proprietary information by third parties.
Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and
consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade
secrets or disclose our technology. Accordingly, we may not be able to meaningfully protect our trade secrets. For more information regarding the risks
related to our intellectual property, see “Risk Factors—Risks Related to Our Intellectual Property.”
Competition
The biotechnology and pharmaceutical industries, including the fields of life sciences research, clinical diagnostics and drug discovery, are
characterized by rapidly advancing technologies, intense competition and a strong emphasis on intellectual property. Given the breadth and promise of
immune medicine, we face substantial competition from many different sources, including life sciences tools, diagnostics, pharmaceutical and
biotechnology companies, academic research institutions and governmental agencies and public and private research institutions across various components
of our platform and product and service offerings. Due to the significant interest and growth in immune medicine more broadly, we expect the intensity of
the competition to increase. However, we believe our scale, precision and speed, and the resulting clinical applicability, distinguish us from our
competitors. In life sciences research, immunoSEQ faces competition from a number of companies.
In clinical diagnostics, clonoSEQ faces competition primarily from institutions performing flow cytometry in-house, particularly outside of the
United States. We may also face competition from companies developing early cancer detection testing products for indications that do not currently
compete with clonoSEQ.
In drug discovery, clinical trials in the field of immune medicine are being pursued by a number of industry and academic players.
Immune medicine is being pursued by several biotechnology companies as well as by large-cap biopharmaceutical companies. Many of our current
or potential competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and
development, manufacturing, regulatory approval and compliance, and sales and distribution than we do. Mergers and acquisitions involving life sciences
research, clinical diagnostics or drug discovery companies in the immune medicine space may result in even more resources being concentrated among a
smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and
management personnel and in acquiring technologies complementary to, or necessary for, our programs.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize research or diagnostic products or
services that are more accurate, more convenient to use or more cost-effective than our products or services. Competitor therapeutic products could also
prove safer, more effective, more convenient to administer or more cost-effective than any therapeutic products we may develop with our collaborators.
Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could
result in our competitors establishing a strong market position before we are able to enter the relevant market.
Government Regulation
Life Sciences Research Use Only Technologies
Our core research product, immunoSEQ, is a RUO tool in the United States that provides data to third parties such as biopharmaceutical companies
that are themselves engaged in the research and development of potential diagnostic and therapeutic products and services for which they may later pursue
investigation and clearance, authorization or approval from regulatory authorities, such as the FDA.
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RUO products belong to a separate regulatory classification under a long-standing FDA regulation. From an FDA perspective, products that are
intended for research use only and are labeled as RUO are exempt from most regulatory controls, and are therefore not subject to the regulatory
requirements discussed below for clinical diagnostic products. Thus, RUO products may be used or distributed for research use without first obtaining FDA
clearance, authorization or approval. The products must bear the statement: “For Research Use Only. Not for use in diagnostic procedures.” RUO products
cannot make any claims related to safety, effectiveness or diagnostic utility, and they cannot be intended for human clinical diagnostic use. Accordingly, a
product labeled RUO but intended or promoted for clinical diagnostic use may be viewed by the FDA as adulterated and misbranded under the Federal
Food, Drug, and Cosmetic Act (“FDCA”) and subject to FDA enforcement action. The FDA will consider the totality of the circumstances surrounding
distribution and use of an RUO product, including how the product is marketed and to whom, when determining its intended use. If the FDA disagrees with
a company’s RUO status for its product, the company may be subject to FDA enforcement activities, including, without limitation, requiring the company
to seek clearance, authorization or approval for the products. If the FDA determines an RUO product is adulterated and misbranded, enforcement may also
include a warning letter, seizure, an injunction and/or criminal fines for FDCA violations.
Clinical Diagnostics in the United States
Our first diagnostic product, clonoSEQ, was granted marketing authorization by the FDA for the detection and monitoring of MRD in bone marrow
samples in patients with MM and ALL under the de novo process in September 2018, which classified clonoSEQ and future DNA-based tests to measure
MRD in hematological malignancies as Class II devices, as explained further below. In August 2020, we received our third FDA clearance for clonoSEQ,
following a 510(k) submission, for CLL in bone marrow as well as blood samples. We submitted a 510(k) premarket notification for ALL from blood
samples in February 2021 and are actively advancing validation studies in certain NHL sub-types.
In the United States, medical devices are subject to extensive regulation by the FDA under the FDCA and its implementing regulations, and other
federal and state statutes and regulations. The FDA regulates the design, development, preclinical, analytical and clinical testing, manufacture, safety,
effectiveness, clearance, authorization or approval, record-keeping, packaging, labeling, storage, adverse event reporting, advertising, promotion,
marketing, sales, distribution and import and export of medical devices. IVDs are a type of medical device and include reagents and instruments used in the
diagnosis or detection of diseases, conditions or infections, including, without limitation, the presence of certain chemicals, genetic information or other
biomarkers. Predictive, prognostic and screening tests can also be IVDs.
After a medical device is placed on the market, numerous regulatory requirements apply. These include:
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compliance with the FDA’s QSR, which requires manufacturers to follow stringent design, testing, control, documentation, record
maintenance, including maintenance of complaint and related investigation files, and other quality assurance controls during the
manufacturing process;
labeling regulations, which prohibit the promotion of products for uncleared, or unapproved uses, or “off-label” uses, and impose other
restrictions on labeling; and
obligations to investigate and report to the FDA adverse events, including deaths, or serious injuries that may have been or were caused by a
medical device and malfunctions in the device that would likely cause or contribute to a death or serious injury if it were to recur.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include sanctions, including but
not limited to, warning letters; fines, injunctions, and civil penalties; recall or seizure of the device; operating restrictions, partial suspension or total
shutdown of production; refusal to grant 510(k) clearance or premarket approvals (“PMAs”) of new devices; withdrawal of clearance or approval; and civil
or criminal prosecution.
Position in the European Union
In the EU, IVDs can be placed on the market by obtaining a “CE mark,” which demonstrates conformity via a self-certification with the In vitro
Diagnostic Medical Device Directive (“IVDD”). clonoSEQ obtained a CE mark in May 2019 for all B-cell malignancies with blood and bone marrow. The
requirements under the Directive include:
• Essential Requirements. The IVDD specifies “essential requirements” that all medical devices must meet to demonstrate the product is safe
and effective under normal conditions of use. The requirements are similar to those adopted by the FDA relating to quality systems and
product labeling.
• Conformity Assessment. The requirements to obtain a CE mark are risk-based, and follow a similar classification system as in the United
States. However, unlike the United States, which requires virtually all devices to undergo some level of premarket review by the FDA, the
IVDD currently allows manufacturers to bring many devices to market using a process in which the manufacturer self-certifies that the
device conforms to the applicable essential requirements.
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• Vigilance. The IVDD specifies requirements for post market reporting similar to those adopted by the FDA.
On May 26, 2017, the EU released a new regulatory framework, the In vitro Diagnostic Medical Device Regulation (“IVDR”), which will replace
the IVDD. Our products in the EU will have to comply with the IVDR requirements by May 2026, subject to the applicable transitional provisions before
full compliance is required. The IVDR is considerably stricter in regulatory oversight than the IVDD and will require more IVD devices to be reviewed by
a notified body before being placed on the market. Until that time, our products must continue to meet the requirements of IVDD for commercialization in
the EU.
U.S. Federal and State Regulation of Laboratories
Given that aspects of our business at certain facilities involve acting as a clinical laboratory, we are required to hold certain federal and state
licenses, certifications and permits to conduct our business.
As to federal certifications, CLIA establishes rigorous quality standards for all laboratories that perform testing on specimens derived from humans
for the purpose of providing information for the diagnosis, prevention or treatment of disease, or the impairment of, or assessment of health. As a clinical
laboratory, we must obtain a CLIA certificate based on the complexity of testing performed at the laboratory, such as a Certificate of Compliance for high-
complexity testing. CLIA also mandates compliance with various operational, personnel, facilities administration, quality and proficiency requirements,
intended to ensure that their clinical laboratory testing services are accurate, reliable and timely. CLIA compliance and certification is also a prerequisite to
be eligible to bill for services provided to government payors and for many private payors. Furthermore, we are subject to survey and inspection every two
years to assess compliance with program standards, and may be subject to additional unannounced inspections. Laboratories performing high-complexity
testing are required to meet more stringent requirements than laboratories performing less complex tests.
In addition to CLIA requirements, we elect to participate in the accreditation program of the CAP. The U.S. Centers for Medicare & Medicaid
Services (“CMS”), the agency that oversees CLIA, has deemed CAP standards to be equally or more stringent than CLIA regulations and has approved
CAP as a recognized accrediting organization. Inspection by CAP is performed in lieu of CMS inspections for accredited laboratories. Therefore, because
we are accredited by the CAP Laboratory Accreditation Program, we are deemed to also comply with CLIA.
CLIA provides that a state may adopt laboratory regulations that are more stringent than those under federal law, and a number of states have
implemented their own more stringent laboratory regulatory requirements. Select states, including Washington, have laboratory regulations that have been
deemed by the federal government to be at least as stringent as CLIA, and thus laboratories licensed under those state regimes are exempt from CLIA and
the state Department of Health is permitted to issue a CLIA number, along with a state Medical Test Site license, rather than a certificate being issued by
CMS. Our laboratory holds the required Washington license. State laws may require that laboratory personnel meet certain qualifications, specify certain
quality control procedures, facility requirements or prescribe record maintenance requirements.
Several states additionally require the licensure of out-of-state laboratories that accept specimens from those states. For example, New York requires
a laboratory to hold a permit which is issued after an on-site inspection and approval of each LDT offered by a laboratory, and has various, more stringent
requirements than CLIA and CAP, including those for personnel qualifications, proficiency testing, physical facility and equipment and quality control
standards. Our laboratory holds the required licenses for Maryland, Rhode Island, Pennsylvania, New York and California.
From time to time, other states may require out-of-state laboratories to obtain licensure in order to accept specimens from the state. If we identify
any other state with such requirements, or if we are contacted by any other state advising us of such requirements, we intend to follow instructions from the
state regulators as to how we should comply with such requirements.
If a clinical laboratory is found to be out of compliance with CLIA certification, CAP accreditation or a state license or permit, the applicable
regulatory agency may, among other things, suspend, restrict or revoke the certification, accreditation, license or permit to operate the clinical laboratory,
assess civil monetary penalties and impose specific corrective action plans, among other sanctions.
Laboratory Developed Tests in the United States
The FDA has historically exercised enforcement discretion to not regulate most LDTs. As such, LDTs have not been subject to FDA’s marketing
clearance and approval processes, or post-marketing controls, for medical devices. LDTs are generally considered to be tests that are designed, developed,
validated and used within a single laboratory. Laboratories certified as “high complexity” under CLIA may develop, manufacture, validate and run LDTs.
clonoSEQ is available as an LDT for use in assessing MRD for other lymphoid malignancies, including NHL and use in other specimen types, at our
Seattle, Washington laboratory.
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In that respect, Congress introduced legislation to establish a framework for FDA to oversee marketing of in vitro clinical tests (“IVCTs”), such as
test kits and LDTs (the Verifying Accurate Leading-edge IVCT Development Act, or “VALID Act”). Under the VALID Act, FDA would oversee IVCTs,
requiring pre-market review for high-risk IVCTs which expose patients to serious or irreversible harm and novel IVCTs. As currently drafted, existing
LDTs at the time of VALID Act passage would be grandfathered as approved. For new low risk IVCTs, developers would submit a representative IVCT to
FDA for review and issuance of a technology certification for the specific IVCT reviewed and later developed test within the scope of the certification. It is
not certain whether or in what form the VALID Act bill will pass Congress, but passage could increase the stringency of regulatory review required for our
LDT products.
If the VALID Act does not pass, the FDA may decide to exercise enforcement discretion for LDTs, especially if it perceives a LDT as posing a risk
to patients. Therefore, the regulatory path for marketing of LDTs is subject to uncertainty given the FDA’s latitude in interpreting and applying its laws and
policies.
In November 2020, the U.S. Department of Health and Human Services advised that the FDA did not have authority to require LDTs related to
COVID to obtain an EUA prior to marketing. HHS also instructed the FDA to review voluntary EUA submissions of LDTs for COVID-19 in order to
extend certain statutory immunities to liability for those laboratories under the federal Public Readiness and Emergency Preparedness Act (“PREP Act”). In
March 2021, the FDA issued an EUA for T-Detect COVID to confirm recent or prior SARS-CoV-2 infection. In November 2021, HHS rescinded its
previous statement that the FDA did not have authority over LDTs. The FDA modified its policy and has required all COVID related LDTs on the market
to submit an EUA request within 60 days of the policy, and has also made clear that no additional COVID related LDTs may come onto the market prior to
issuance of an EUA.
Federal and State Privacy, Security and Breach Notification Laws
Many state and federal laws govern the processing of personal information or individually identifiable health information. At the federal level, under
the administrative simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and the Health Information
Technology for Economic and Clinical Health Act of 2009 (“HITECH”), the U.S. Department of Health and Human Services (“HHS”) issued regulations
that establish standards for protecting the privacy and security of “protected health information” used or disclosed by certain healthcare providers and other
“covered entities” and their “business associates.” Three principal data protection-related regulations with which we are required to comply have been
issued in final form under HIPAA and HITECH: privacy regulations, security regulations and security breach notification regulations.
The privacy regulations govern the use and disclosure of “protected” health information by covered healthcare providers, as well as health insurance
plans. They also set forth certain rights that an individual has with respect to his or her protected health information maintained by a covered health care
provider, including the right to access or amend certain records containing protected health information or to request restrictions on the use or disclosure of
protected health information. The security regulations establish requirements for safeguarding the confidentiality, integrity and availability of protected
health information that is electronically transmitted or electronically stored. HITECH, among other things, established certain health information security
breach notification requirements. A covered entity must notify HHS and each affected individual of a breach of unsecured protected health information as
well as the media if the breach involves more than 500 individuals.
HIPAA violations are subject to civil and criminal penalties. Additionally, to the extent that we submit electronic healthcare claims and payment
transactions that do not comply with the electronic data transmission standards established under HIPAA and HITECH, payments to us may be delayed or
denied.
Section 5(a) of the Federal Trade Commission Act (“FTCA”) has also been used to regulate data privacy and security at the federal level. According
to the U.S. Federal Trade Commission (“FTC”), failing to take appropriate steps to keep consumers’ personal information secure or using or disclosing
personal information in violation of a company’s privacy notice may constitute unfair or deceptive acts or practices in or affecting commerce in violation of
the FTCA. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer
information it holds, the size and complexity of its business and the cost of available tools to improve security and reduce vulnerabilities. Although we
have and maintain a system for compliance with privacy laws and regulations, failure to comply with them could expose us to potential FTC enforcement
action and fines.
In addition, certain state laws govern the privacy and security of health information and personal information. Some of the state laws governing
health information privacy and security are more stringent than HIPAA (including providing for patient enforcement of these state laws) and often differ
from each other in significant ways and may not have the same effect, thus complicating compliance efforts. There has also recently been an influx of state
privacy and security laws that introduce similar compliance complexities, including the California Consumer Privacy Act (“CCPA”), the Colorado Privacy
Act (“CPA”) and the Virginia Consumer Data Protection Act (“VCDPA”). In addition, there are state breach notification laws in every state, as well as
D.C., Guam and Puerto Rico. Failure to comply with these laws, where applicable, can result in the imposition of significant civil or criminal penalties and
private litigation.
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General Data Protection Regulation in the EU and Internationally
The General Data Protection Regulation (“GDPR”) is a legal framework that sets requirements for the collection and processing of personal
information of individuals within the European Economic Area (“EEA”). The GDPR sets out the principles for data management and the rights of the
individual, while also imposing very significant fines that can be revenue-based. It applies to U.S. companies that process personal information of persons
in the EEA in connection with the offer of products or services to those persons, or the monitoring of such persons’ behavior. It may also apply when a U.S.
company processes personal information in the context of the activities of an entity established in the EEA. The GDPR became enforceable on May 25,
2018. The regulation is a comprehensive privacy law, meaning that it applies to all types of personal information, including the human resources record of
employees and even the Internet Protocol addresses of people using online services. The GDPR builds upon data rights that the EU had previously
advocated, such as the right of an individual to be forgotten and the right to data portability.
Many other countries and regions also have privacy and data protection laws, some of which are modeled after the European framework. This
includes countries within Europe that are not part of the EEA, such as the United Kingdom and Switzerland, and therefore operate under different privacy
and data protection frameworks.
In addition to laws that directly impose privacy and data protection obligations on companies, there is also a growing interest in laws and regulations
that govern data areas that are related to, but not completely related to data privacy. One area of these laws relates to use and testing of genetic and genomic
data. In addition to the federal Genetic Information Nondiscrimination Act , there are a number of state laws that have recently passed (e.g., the California
Genetic Information Privacy Act) and that continue to make appearances on states’ legislative schedules. There have been similar draft bills at the state
level that would regulate machine learning, artificial intelligence, the Internet of Things, and human specimen use. There have been similar trends
internationally, such as ongoing public consultations in the European Union on the Digital Governance Act and an Artificial Intelligence Regulation.
Federal, State and Foreign Fraud and Abuse Laws
In the United States, there are various fraud and abuse laws with which we must comply and we are subject to regulation by various federal, state
and local authorities, including CMS, other divisions of HHS, such as the Office of Inspector General (“OIG”), the U.S. Department of Justice (“DOJ”) and
individual U.S. Attorney offices within the DOJ, and state and local governments. We also may be subject to foreign fraud and abuse laws.
In the United States, the Anti-Kickback Statute (“AKS”) prohibits, among other things, knowingly and willfully offering, paying, soliciting or
receiving remuneration to induce or in return for patient referrals for, or purchasing, leasing, ordering or arranging for the purchase, lease or order of, any
healthcare item or service reimbursable under a governmental payor program. Courts have stated that a financial arrangement may violate the AKS if any
one purpose of the arrangement is to encourage patient referrals or other federal healthcare program business, regardless of whether there are other
legitimate purposes for the arrangement. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts,
discounts, meals, travel, credit arrangements, payments of cash, consulting fees, waivers of co-payments, ownership interests and providing anything at less
than its fair market value. Recognizing that the AKS is broad and may technically prohibit many innocuous or beneficial arrangements within the
healthcare industry, the OIG issued a series of regulatory “safe harbors.” These safe harbor regulations set forth certain provisions, which, if met, will
assure healthcare providers and other parties that they will not be prosecuted under the AKS. The failure of a transaction or arrangement to fit within a
specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the AKS will be pursued. In those
instances, arrangements will be evaluated on a case-by-case basis to determine whether enforcement will be pursued. Penalties for AKS violations are
severe and can include imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. The
regulations establishing safe harbor protection are subject to change and could affect future operations. Many states also have anti-kickback statutes, some
of which may apply to items or services reimbursed by any third-party payor, including commercial insurers as well as patient self-pay. A violation of the
AKS may be grounds for the government or a whistleblower to assert that a claim for payment of items or services resulting from such violation constitutes
a false or fraudulent claim for purposes of the federal civil False Claims Act.
The civil monetary penalties statute is another potential statute under which a clinical laboratory may be subject to enforcement. Among other
things, the civil monetary penalties statute imposes fines against any person who is determined to have presented, or caused to be presented, claims to a
federal healthcare program that the person knows, or should know, is for an item or service that was not provided as claimed or is false or fraudulent. The
civil monetary penalties statute also prohibits a person from offering or providing remuneration to any Medicare or Medicaid beneficiary that is likely to
influence the individual to order or receive its items or services from a particular provider or supplier.
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The exclusion statute requires the exclusion of entities and individuals who have been convicted of federal-program related crimes or healthcare
felony fraud or controlled substance charges. The statute also permits the exclusion of those that have been convicted of any form of fraud, the AKS, for
obstructing an investigation or audit, certain controlled substance offenses, those whose healthcare license has been revoked or suspended and those who
have filed claims for excessive charges or unnecessary services. If we were to be excluded, our products and services would be ineligible for
reimbursement from any federal programs, including Medicare and Medicaid, and no other entity participating in those programs would be permitted to
enter into contracts with us. In order to preserve access to beneficial healthcare items and services, the government may elect to exclude officers and key
employees of manufacturers, rather than excluding the organization. Such enforcement actions would prohibit us from engaging those individuals, which
could adversely affect operations and result in significant reputational harm.
Congress has also enacted statutes that impose criminal liability for healthcare fraud and abuse. The Health Care Fraud Statute prohibits knowingly
and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute
is a felony and may result in fines, imprisonment or exclusion from governmental payor programs such as the Medicare and Medicaid programs. The false
statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or payment for healthcare benefit programs, items or services-public or private. A violation of this
statute is a felony and may result in fines, imprisonment or exclusion from governmental payor programs.
The False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or
fraudulent claim for payment by a federal governmental payor program. The qui tam provisions of the False Claims Act allow a private individual to bring
actions on behalf of the federal government alleging that the defendant has defrauded the federal government by submitting a false claim to the federal
government and permit such individuals to share in any amounts paid by the entity to the government in fines or settlement. Qui tam complaints are filed
under seal, and the cases may progress for a number of years before a complaint is unsealed and a healthcare provider or supplier becomes aware of its
existence. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by
the government, plus civil penalties ranging from $11,803 to $23,607 for each false claim. The False Claims Act is the federal government’s primary civil
tool in healthcare fraud cases. False Claims Act liability is not limited to direct providers of health items or services. The government has asserted liability
under the False Claims Act against manufacturers and other third parties who caused another party to file a false claim.
In addition, various states have enacted false claim laws analogous to the federal False Claims Act, although many of these state laws apply where a
claim is submitted to any third-party payor and not merely a governmental payor program.
On October 25, 2018, the Substance Use-Disorder Prevention that Promoted Opioid Recovery and Treatment for Patients and Communities Act of
2018 (“SUPPORT Act”) was enacted. The SUPPORT Act included the Eliminating Kickbacks in Recovery Act of 2018 (“EKRA”), which establishes an
all-payor anti-kickback prohibition that extends to arrangements with recovery homes, clinical laboratories and clinical treatment facilities. EKRA includes
a number of statutory exceptions, and directs agencies to develop further exceptions. Current exceptions in some cases reference and in others differ from
the AKS safe harbors. Significantly, the prohibitions apply with respect to the soliciting or receipt of remuneration for any referrals to recovery homes,
clinical treatment facilities, or clinical laboratories, whether or not related to treating substance use disorders. Further, the prohibitions cover the payment or
offer of remuneration to induce a referral to, or in exchange for, an individual using the services of, such providers. This law creates additional risk that
relationships with referral sources could be problematic.
For anti-corruption legislation, the U.S. Foreign Corrupt Practices Act (“FCPA”) is the most widely enforced law. It is the first to introduce
corporate liability, responsibility for third parties and extraterritoriality for corruption offences, meaning companies and persons can be held criminally and
civilly responsible for corruption offences committed abroad. It was enacted for the purpose of making it unlawful for certain classes of persons and entities
to make payments to foreign government officials to assist in obtaining or retaining business. With the enactment of certain amendments in 1998, the anti-
bribery provisions of the FCPA now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt
payment to take place within the territory of the United States. The FCPA also requires companies whose securities are listed in the United States to meet
its accounting provisions, which were designed to operate in tandem with the anti-bribery provisions, require corporations covered by the provisions to
(a) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (b) devise and maintain an adequate system of
internal accounting controls.
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In Europe, various countries have adopted anti-bribery laws providing for severe consequences, in the form of criminal penalties or significant fines,
for individuals or companies committing a bribery offence. Violations of these anti-bribery laws, or allegations of such violations, could have a negative
impact on our business, results of operations and reputation. For instance, in the United Kingdom, under the Bribery Act 2010, which came into effect in
July 2011, a bribery offense occurs when a person offers, gives or promises to give a financial or other advantage to induce or reward another individual to
improperly perform certain functions or activities, including any function of a public nature. Bribery of foreign public officials also falls within the scope of
the Bribery Act 2010. Under this regime, an individual found in breach of the Bribery Act 2010 faces imprisonment of up to 10 years. In addition, the
individual can be subject to an unlimited fine, if found to have committed an offense, as can commercial organizations that are found to have failed to
prevent bribery. In 2016, France passed an anti-bribery and compliance law (“Sapin II”), and the French anti-corruption agency (“AFA”) was established.
The Sapin II law makes it compulsory for companies within the scope of the law to implement internal procedures to fight corruption. One of the items that
must be prepared is a corruption risk map, as well as an anti-corruption code of conduct. These documents are subject to investigation by the AFA and
failure to comply with the requirements can lead to a fine of up to €1.0 million for a company and €200,000 for executives.
In 2021, Adaptive expanded its European presence and hired employees within the UK and as such, has a potential for the UK Bribery Act to apply
as it can be triggered by any act committed within the UK. Currently, we are not subject to the jurisdictional requirements of Sapin II as we do not have
offices in France. If we were to have future growth in the European market, this law could potentially become applicable to us.
U.S. Physician Referral Prohibitions
The Physician Self-Referral Law (“Stark Law”) prohibits physicians from referring patients to entities with which the physician or an immediate
family member has a financial relationship, such as ownership, investment or compensation, for designed health services (“DHS”) payable by Medicare
and Medicaid, unless the financial arrangement meets an applicable exception. DHS includes clinical laboratory tests. Penalties for violating the Stark Law
include the return of funds received for all prohibited referrals, fines, civil monetary penalties and possible exclusion from federal health care programs. In
addition to the Stark Law, many states have their own self-referral bans, which may extend to all self-referrals, regardless of the payor. See “Risk Factors—
Risks Relating to Government Regulation—We are subject to various laws and regulations, such as healthcare fraud and abuse laws, false claim laws and
health information privacy and security laws, among others, and failure to comply with these laws and regulations may have an adverse effect on our
business.”
Corporate Practice of Medicine in the United States
Numerous states have enacted laws prohibiting business corporations, such as us, from practicing medicine and employing or engaging physicians
to practice medicine, generally referred to as the prohibition against the corporate practice of medicine. These laws are designed to prevent interference in
the medical decision-making process by anyone who is not a licensed physician. For example, California’s Medical Board has indicated that determining
what diagnostic tests are appropriate for a particular condition and taking responsibility for the ultimate overall care of the patient, including providing
treatment options available to the patient, would constitute the unlicensed practice of medicine if performed by an unlicensed person. Violation of these
corporate practice of medicine laws may result in civil or criminal fines, as well as sanctions imposed against us or the professional through licensure
proceedings. Typically such laws are only applicable to entities that have a physical presence in the state.
Other Regulatory Requirements
Our laboratory is subject to federal, state and local regulations relating to the handling and disposal of regulated medical waste, hazardous waste and
biohazardous waste, including chemical, biological agents and compounds, blood and bone marrow samples and other human tissue. Typically, we use
outside vendors who are contractually obligated to comply with applicable laws and regulations to dispose of such waste. These vendors are licensed or
otherwise qualified to handle and dispose of such waste.
Our partners in the development of therapeutic agents are responsible for developing and manufacturing those products. In so doing, they are subject
to FDA and Medicare regulatory requirements related to, among other things, manufacture, promotion, price reporting and fraud and abuse laws.
Our laboratories are subject to extensive requirements related to workplace safety established by the U.S. Occupational Safety and Health
Administration. These include requirements to develop and implement programs to protect workers from exposure to blood-borne pathogens by preventing
or minimizing any exposure through needle stick or similar penetrating injuries.
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U.S. Healthcare Reform
In the United States, a number of recent legislative and regulatory changes at the federal and state levels have sought to reduce healthcare costs and
improve the quality of healthcare. For example, in March 2010, the Affordable Care Act (“ACA”) became law. This law substantially changed the way
healthcare is financed by both commercial and government payors, and it has significantly impacted our industry. Since 2016 there have been efforts to
repeal all or part of the ACA. For example, the Tax Cuts and Jobs Act (“TCJA”), among other things, removes penalties for not complying with the ACA’s
individual mandate to carry health insurance. The U.S. Congress may take further action regarding the ACA, including, but not limited to, repeal or
replacement. Additionally, all or a portion of the ACA and related subsequent legislation may be modified, repealed or otherwise invalidated through
judicial challenge, which could result in lower numbers of insured individuals, or reduced coverage for insured individuals, and which could adversely
affect our business. However, it remains to be seen whether or when new legislation modifying the ACA will be enacted, what any such the new legislation
might provide and what impact it might have on the size and coverage of the insured population or on efforts to contain or lower the cost of healthcare. We
cannot predict the implications, if any, of such legislation on our and our collaborators’ businesses and financial conditions.
We anticipate there will continue to be proposals by legislators at both the federal and state levels, regulators and commercial payors to reduce costs
while trying to expand individual healthcare benefits. If enacted, some such proposals could expand or contract the insured population, increasing or
decreasing demand for our products and services. On the other hand, some proposals could impose additional limitations on the prices we will be able to
charge for our tests or on the coverage of or the amounts of reimbursement available for our tests from payors, including commercial payors and
government payors.
The federal physician payment transparency requirements (“Physician Payments Sunshine Act”) and its implementing regulations, which requires
applicable manufacturers of covered drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the State
Children’s Health Insurance Program, with certain exceptions, to annually report to HHS information related to certain payments or other transfers of value
made or distributed to covered recipients, defined to include doctors, dentists, optometrists, podiatrists, chiropractors, physician assistants, nurse
practitioners, clinical nurse specialists, certified registered nurse anesthetists and anesthesiologist assistants, certified nurse-midwives, and teaching
hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals, as well as ownership and
investment interests held by physicians and their immediate family members.
There are also state transparency and gift ban laws that require manufacturers to provide reports to state governments on pricing and marketing
information. Several states have enacted legislation requiring medical device manufacturers to, among other things, establish marketing compliance
programs, file periodic reports with the state, make periodic public disclosures on sales and marketing activities, and such laws may also prohibit or limit
certain other sales and marketing practices. These laws may adversely affect our sales, marketing, and other activities by imposing administrative and
compliance burdens on us. Although we have a system for tracking and reporting “sunshine” law required information, if we fail to do so as required, we
could be subject to government enforcement action and potential penalties.
Coverage and Reimbursement Generally
Reimbursement and billing requirements of applicable laws and payors for diagnostic services are highly complex. Laboratories must bill various
payors, such as private third-party payors, including managed care organizations (“MCO”), and state and federal health care programs, such as Medicare
and Medicaid, and each may have different billing requirements. Depending on the reimbursement arrangement and applicable law, the party that
reimburses us for our services may be a third party who provides coverage to the patient, such as an insurance company or MCO; a state or federal
healthcare program; or the patient. Additionally, the audit requirements we must meet to ensure compliance with applicable laws and regulations, as well as
our internal compliance policies and procedures, add further complexity to the billing process. As such, we are at risk of being paid less or no part of our
price for our products for reasons including:
•
•
variability in coverage and information requirements among various payors;
patient financial assistance programs;
• missing, incomplete or inaccurate billing information provided by ordering physicians;
•
•
•
billings to payors with whom we do not have contracts;
disputes with payors as to which party is responsible for payment; and
disputes with payors as to the appropriate level of reimbursement.
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In addition, we may not be free to determine the price charged for our products. For instance, the No Surprises Act (“NSA”) was enacted on
December 27, 2020 and took effect on January 1, 2022. One of the goals of the NSA is to protect patients from “surprise” medical bills resulting from gaps
in coverage for services provided by out-of-network providers, such as laboratories, related to patient visits at in-network facilities. The NSA limits the
amount out-of-network laboratories may charge a patient for laboratory services ordered during an in-network facility visit. In addition, the NSA
establishes an independent dispute resolution process for determining the amount of reimbursement for the laboratory service in the event that the
laboratory and insurer cannot agree on a rate.
Certain countries, including a number of member states of the EU, set prices and make reimbursement decisions for diagnostics and pharmaceutical
products. Additionally, some countries require approval of the maximum sale price of a product before it can be marketed, and this price may be reviewed
during the product lifecycle, or mandatory discounts or profit caps may be applied. In many countries, the pricing review period begins after marketing or
product licensing approval is granted or the CE mark is obtained. We may therefore be constrained in our pricing strategies in markets outside of the United
States.
For additional information on coverage and reimbursement in the United States, see “Risk Factors—Risks Relating to Government Regulation—
Future Medicare payment rates are uncertain.”
Our Compliance Program
Our compliance program is intended to prevent and detect violations of law or our policies. It was developed in view of both adopting the principles
of the AdvaMed Code of Ethics and addressing the HHS OIG’s elements of a compliance program. We have designed our compliance program to fit the
size, resources, market position and other unique aspects of our company. Our code of conduct is our statement of ethical and compliance principles that
guide our daily operations. In addition, we have developed policies and procedures, and corresponding education and training, to effectively communicate
our standards to employees as it relates to job functions and legal obligations under applicable state and federal healthcare program requirements, as well as
those outside the United States. We regularly perform live and process monitoring activities on a risk-based approach, and audit capabilities are built into
our transparency procedures. We maintain a hotline available via multiple channels to report any known or suspected compliance violations, and we have a
strict non-retaliation policy for all claims brought forward in good faith.
Corporate Information
We were incorporated in the State of Washington on September 8, 2009 under the name Adaptive TCR Corporation. On December 21, 2011, we
changed our name to Adaptive Biotechnologies Corporation. In January 2015, we acquired Sequenta, Inc. (“Sequenta”), a San Francisco, California-based
company that was also developing an NGS test for MRD (“Sequenta Acquisition”). Our principal executive offices are located at 1165 Eastlake Avenue
East, Seattle, Washington 98109, and our telephone number is (206) 659-0067.
Available Information
We maintain a website at www.adaptivebiotech.com. The contents of our website are not incorporated in, or otherwise to be regarded as part of, this
Annual Report on Form 10-K. We make available, free of charge on our website, access to our Annual Report on Form 10-K, our Quarterly Reports on
Form 10-Q, our Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we file or furnish them electronically with the Securities
and Exchange Commission (“SEC”). Investors and others should note that we announce material financial information to our investors using our investor
relations website (http://investors.adaptivebiotech.com), SEC filings, press releases, public conference calls and webcasts. We use these channels as well as
social media to communicate with our members and the public about our company, our services and other issues. It is possible that the information we post
on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review
the information we post on social media channels.
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Item 1A. Risk Factors
Investing in our Company involves a high degree of risk. You should carefully consider the following risks and uncertainties, together with all other
information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes and the “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” section, before investing in our Company. Any of the risk factors we describe below could
adversely affect our business, financial condition, results of operations, prospects or the trading price of our securities. The risks described below are not
the only ones we face and additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business,
financial condition, operating results, prospects and the trading price of our securities.
Summary of Risk Factors
Generally, the risks described below relate to the following:
•
•
•
•
•
•
•
the effects of health epidemics, including the COVID-19 pandemic or future variants of the SARS-CoV-2 virus, in regions where we or
third parties on which we rely have significant laboratory operations, manufacturing facilities, concentrations of clinical trial sites or other
business operations;
our significant net losses since inception, expected net losses in the future and need for significant investments in products and services;
our ability to leverage our immune medicine platform to discover, develop, commercialize and obtain regulatory clearance, authorization
and approval for our products and services, particularly in light of the novelty of immune medicine and our methods;
our ability to develop our TCR-Antigen Map and yield additional insights from it that are commercially viable;
our collaboration with Genentech and ability to develop and commercialize cellular therapeutics, including our ability to achieve milestones
and realize the intended benefits of the collaboration;
our ability to leverage our immune medicine platform to discover, develop and commercialize additional products and services, including
those related to COVID-19, may not be successful;
our laboratory operations, including errors or defects in our products or services and our reliance on a limited number of suppliers, and in
some cases single suppliers, for our equipment and materials, some of which include reagents or other materials that may also require
additional internal validation prior to use;
•
our limited experience with the development and commercialization of cellular therapeutics;
• market acceptance of our products and services, and our limited sales and marketing experience;
•
•
•
•
•
our expected reliance on collaborators for development and clinical testing of therapeutic product candidates, which may fail at any time
due to a number of possible unforeseen events;
our ability to increase our capacity, manage the evolution of our products and services, stay current in our rapidly changing industry, expand
our workforce and otherwise manage our growth;
the loss of any member of our senior management team, or of the support of key opinion leaders;
the extensive regulation of our industry, including reimbursement coverage decisions; and
the validity of our patents, protection of our trade secrets and related intellectual property matters.
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Risks Relating to Our Business
We have incurred significant losses since inception, we expect to incur losses in the future and we may not be able to generate sufficient revenue to
achieve and maintain profitability.
We have incurred significant losses since our inception. For the year ended December 31, 2021, 2020 and 2019, we incurred a net loss of $207.3
million, $146.2 million and $68.6 million, respectively. As of December 31, 2021, we had an accumulated deficit of $718.9 million. We have funded our
operations to date principally from the sale of convertible preferred stock and common stock, including the sale of common stock in our initial public
offering, and, to a lesser extent, sequencing and development revenue. We expect to continue to incur significant expenses and operating losses for the
foreseeable future as we continue to invest in the development of products and services utilizing our immune medicine platform to support the validation of
additional clinical diagnostic and therapeutic products and services. We will need to generate significant additional revenue to achieve and sustain
profitability.
We expect to make significant investments in our continued research and development of new products and services, which may not be successful.
We are seeking to leverage our immune medicine platform to develop a pipeline of future disease-specific research, diagnostic and therapeutic
products and services. For example, we are developing our TCR-Antigen Map with a view toward continually advancing the development of T-Detect, a
diagnostic test that may enable early and accurate detection of multiple diseases from a single blood test, into further indications. In addition, we are
developing certain therapeutic product candidates under our collaboration agreement with Genentech by leveraging our platform to identify TCRs that can
be engineered into personalized cellular immunotherapies. We expect to incur significant expenses to advance these development efforts, but they may not
be successful.
Developing new products and services is a speculative and risky endeavor. Products or services that initially show promise may fail to achieve the
desired results or may not achieve acceptable levels of analytical accuracy or clinical utility. We may need to alter our products in development and repeat
clinical studies before we identify a potentially successful product or service. Product development is expensive, may take years to complete and can have
uncertain outcomes. Failure can occur at any stage of the development. If, after development, a product or service appears successful, we or our
collaborators may, depending on the nature of the product or service, still need to obtain FDA and other regulatory clearances, authorizations or approvals
before we can market it. The FDA’s clearance, authorization or approval pathways, including seeking EUA for new indications of T-Detect or other
products, are likely to involve significant time, as well as additional research, development and clinical study expenditures. The FDA may not clear,
authorize or approve any future product or service we develop. Even if we develop a product or service that receives regulatory clearance, authorization or
approval, we or our collaborators would need to commit substantial resources to commercialize, sell and market it before it could be profitable, and the
product or service may never be commercially successful. Additionally, development of any product or service may be disrupted or made less viable by the
development of competing products or services.
New potential products and services may fail at any stage of development or commercialization and if we determine that any of our current or future
products or services are unlikely to succeed, we may abandon them without any return on our investment. If we are unsuccessful in developing additional
products or services, our potential for growth may be impaired.
If we are not successful in leveraging our immune medicine platform to discover, develop and commercialize additional products and services, our
ability to expand our business and achieve our strategic objectives would be impaired.
A key element of our strategy is to leverage our immune medicine platform to discover, develop and potentially commercialize additional products
and services beyond our current portfolio to diagnose and treat various disease states. In particular, for clonoSEQ we are attempting to generate sufficient
clinical evidence to support the utility of MRD in additional lymphoid cancers beyond ALL, MM and CLL, while also demonstrating the clinical utility of
blood as a sample type for all lymphoid cancers. If we are unable to generate compelling evidence supporting clonoSEQ use in other indications or sample
types, our platform may face a broader obstacle to using our immunosequencing data for commercially viable products and services.
Identifying new products and services requires substantial technical, financial and human resources, whether or not any products or services are
ultimately developed or commercialized. We may pursue what we believe is a promising opportunity to leverage our platform only to discover that certain
of our risk or resource allocation decisions were incorrect or insufficient, or that individual products, services or our science in general has technology or
biology risks that were previously unknown or underappreciated. Our strategy of pursuing the value of our immune medicine platform over a long time
horizon and across a broad array of human diseases may not be effective. In the event material decisions in any of these areas turn out to be incorrect or
sub-optimal, we may experience a material adverse impact on our business and ability to fund our operations and we may never realize what we believe is
the potential of our immune medicine platform.
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Our efforts to develop our TCR-Antigen Map may not be successful, and it may not yield the insights we expect at all or on a timetable that allows us to
develop or commercialize any new diagnostic products.
We are leveraging our collaboration with Microsoft to develop our TCR-Antigen Map. Together we are using immunosequencing, proprietary
computational modeling and machine learning to map TCR sequences to the antigens they bind. However, we may not be successful in developing a
comprehensive TCR-Antigen Map for any number of reasons including difficulty accessing required sample sets to validate signals and complications in
advancing algorithmic-based methods that accurately define TCR signatures to be validated. As a result, it may require significantly more time and
resources for us to determine how to use machine learning to accelerate our mapping process, which could adversely impact our ability to develop or
commercialize new diagnostic products or services. In addition, even with the aid of machine learning, we expect the TCR-Antigen Map to take us several
years to develop.
The TCR-Antigen Map we are developing may not yield clinically actionable insights on a timetable that is commercially viable, or at all. Our goal
is to leverage the TCR-Antigen Map in connection with the development of T-Detect to enable early or accurate detection across a broad range of diseases.
We have confirmed signals for SARS-CoV-2, acute Lyme disease, Crohn’s disease, celiac disease and multiple sclerosis. We have also identified early
signals in ulcerative colitis and rheumatoid arthritis and we will seek to confirm those signals in ongoing validation work. We will also seek to identify new
signals in other select autoimmune disorders or other diseases. If our computational modeling and machine learning efforts do not accelerate the pace at
which we can validate association of TCR sequences to the antigens they bind, the timetable for our business model may not be commercially viable. Even
if we can accelerate this timeline, our products and services derived from our novel technologies may have product or service level errors. If we are unable
to make meaningful progress in our TCR-Antigen Map and successfully use it to develop and commercialize new diagnostic products or services, our
business and results of operations will suffer.
We are exposed to risks associated with our agreement with Genentech, and we may not realize the advantages we expect from it.
In December 2018, we entered into a worldwide collaboration and license agreement with Genentech (“Genentech Agreement”), with the goal of
accelerating the development and commercialization of novel cancer-specific antigen and neoantigen directed T cell therapies for the treatment of a broad
range of tumor types. Under the terms of the Genentech Agreement, we received $300.0 million in an initial upfront payment in February 2019 and may be
eligible to receive approximately $1.8 billion in additional payments over time upon achievement of specified development, regulatory and commercial
milestones. In addition, Genentech will pay us royalties on sales of products commercialized under the agreement. We may not be successful in achieving
these milestones, and products developed under the Genentech Agreement may not be commercialized in the timeframe we expect, achieve significant
sales, or be commercialized at all.
We are exposed to numerous risks associated with the Genentech Agreement, including sharing a measure of control over the operations of our
research and development portions of the collaboration with Genentech and Genentech having sole control over the commercialization of any products
developed via the collaboration. For instance, in 2021, Genentech suspended development of a drug against our first shared antigen target candidate in
response to published data. The Genentech Agreement also prevents us from, among other things, developing or commercializing TCR-based cellular
therapies outside the scope of the collaboration in the field of oncology on our own or with any third party. Our collaboration involves risks that are
different from the risks involved in independently conducting operations, including that Genentech may:
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have or develop economic or business interests that are inconsistent with ours;
take actions contrary to our instructions, requests, policies or objectives;
take actions that reduce our return on investment for this collaboration;
fail to distinguish itself from biosimilar competition; or
take actions that harm our reputation or restrict our ability to run our business.
Genentech’s degree of control over collaboration development and commercialization efforts may impact the amounts we receive under the
Genentech Agreement. For example, Genentech may suspend development of product candidates or decide not to pursue commercialization of product
candidates at all, or it may agree to pay royalties to third parties or adopt a pricing model that reduces the amount of royalties we might otherwise expect. It
is also possible that effective cell therapies will not be developed under the Genentech Agreement or, if developed, approved by the FDA or comparable
regulatory authorities outside of the United States. Genentech may also terminate the Genentech Agreement at its convenience, at any time and without
cause.
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We may not be able to perform our product research, development and commercialization related obligations under the Genentech Agreement,
including performing TCR screening activities for product candidates being developed and commercialized under that agreement. For example, in the event
a product is commercialized under the Genentech Agreement, as the volume of product sales grows, we will likely need to continue to increase our
workflow capacity for sample intake, customer service and general process improvements, and expand our internal quality assurance program to support
TCR screening on a larger scale within expected turnaround times. We will likely need additional certified laboratory scientists and other scientific and
technical personnel for the Personalized Product to identify and target therapeutically relevant, patient-specific neoantigens. We will likely also need to
acquire additional laboratory space and equipment, which can take several months or more to procure, set up and validate. These process enhancements and
increases in scale, expansion of personnel, laboratory space and equipment may not be successfully implemented, and we may not have adequate laboratory
facilities or resources to accommodate all the requirements that we currently anticipate needing to be successful. If we cannot satisfy our obligations,
Genentech is entitled to trigger a technology transfer of our TCR screening process (specific to the Personalized Product) or terminate the Genentech
Agreement. In addition, due to our significant obligations under the Genentech Agreement, we may face challenges in meeting the needs of existing
customers, collaborators and suppliers and securing new customers, including any biopharmaceutical customers that are actual or potential competitors
with Genentech.
If we support the commercialization of one or more products under the Genentech Agreement, we may need to incorporate new equipment,
implement new technology systems and laboratory processes and hire new personnel with different qualifications. Failure to manage this growth or
transition could result in turnaround time delays, higher product costs, declining product quality, deteriorating customer service and slower responses to
competitive challenges. A failure in any one of these areas could make it difficult for us to meet market expectations for our products and could damage our
reputation and the prospects for our business, both under the Genentech Agreement and otherwise. As a result, our relationship with Genentech may not
result in the realization of its anticipated benefits.
We have limited experience with the development and commercialization of cellular therapeutics, and future TCR-based cellular therapies may never
be successfully developed and commercialized as part of our Genentech collaboration.
We have limited experience with the development of cellular therapeutics, and no experience with the commercialization, marketing and distribution
of cellular therapeutics. Our therapeutic product candidates are at an early stage of discovery and development under our Genentech collaboration, and we
are continuing to develop our TruTCR process being used under that collaboration to develop TCR-based cellular therapies for the treatment of cancer.
Under our Genentech collaboration, Genentech has invested significant financial resources to develop future TCR-based cellular therapies, including
conducting preclinical studies and other early research and development activities, and providing general and administrative support for these
operations. Our future success is dependent on our and Genentech’s ability to successfully develop therapeutic product candidates and advance those
product candidates into the clinic, and Genentech’s ability, where applicable, to obtain regulatory and marketing approval for, and then successfully
commercialize, cellular therapeutics. We and Genentech have not yet developed and commercialized any cellular therapeutics, and we may not be able to
do so.
We currently use, and in the future expect to increase our use of, collaborators for several aspects of our operations, and if we cannot maintain current
and enter new relationships with collaborators, our business will suffer.
We have limited resources to conduct our life sciences research, clinical diagnostics and drug discovery operations and have not yet fully established
infrastructure for sales, marketing or distribution in connection with our products and services. Accordingly, we have entered into collaboration agreements
under which our collaborators have provided, and may in the future provide, funding and other resources for developing and potentially commercializing
our products and services. In particular, we have entered into the Genentech Agreement, with the goal of accelerating the development and
commercialization of T cell therapies for the treatment of a broad range of tumor types, and a strategic collaboration agreement with Microsoft (“Microsoft
Agreement”), which provides us with access to Microsoft’s research and machine learning technologies that we are using to develop our TCR-Antigen
Map. We are pursuing several additional industry and academic collaborations to access patient cohorts that could accelerate our TCR-Antigen Map signal
generation and validation for our immune-based diagnostics or drug discovery product or services pipeline. These collaborations may result in our
incurring significant expenses in pursuit of potential products and services, and we may not be successful in identifying, developing or commercializing
any potential products or services.
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Our future success depends in part on our ability to maintain these relationships and to establish new relationships. Many factors may impact the
success of such collaborations, including our ability to perform our obligations, our collaborators’ satisfaction with our products and services, our
collaborators’ performance of their obligations to us, our collaborators’ internal priorities, resource allocation decisions and competitive opportunities, the
ability to obtain regulatory approvals, disagreements with collaborators, the costs required of either party to the collaboration and related financing needs,
and operating, legal and other risks in any relevant jurisdiction. In addition to reducing our revenue or delaying the development of our future products and
services, the loss of one or more of these relationships may reduce our exposure to research, data, clinical trials or computing technologies that facilitate the
collection and incorporation of new information into our clinical immunomics database. All of the risks relating to product and service development,
regulatory clearance, authorization or approval and commercialization described herein apply to us derivatively through the activities of our collaborators.
We engage in conversations with companies regarding potential collaborations on an ongoing basis. These conversations may not result in a
commercial agreement. Even if an agreement is reached, the resulting relationship may not be successful, and any products and services developed as part
of the collaboration may not produce successful outcomes. Speculation in the industry about our existing or potential collaborations can be a catalyst for
adverse speculation about us, or our products or services, which can adversely affect our reputation and our business.
Significant additional research and development and, in certain instances, clinical trials or validation will be required before we can potentially seek
regulatory clearance, authorization or approval for, or commercialize any of our products or services in development.
We are developing a pipeline of immune-driven diagnostics and therapeutics, including T-Detect and cellular therapies in oncology, but significant
additional research and development activities and clinical trials or validations could be required before we and our collaborators will have a chance to
achieve additional commercially viable products. Our research and development efforts remain subject to all of the risks associated with the development
of new products and services based on immune-driven diagnostics and immune-mediated therapies. Development of the underlying technology may be
affected by unanticipated technical or other problems, among other research and development issues, and the possible insufficiency of funds needed to
complete development of these products and services. Safety, regulatory and efficacy issues, clinical hurdles or other challenges may result in delays and
cause us to incur additional expenses that would increase our losses. If we and our collaborators cannot complete, or if we experience significant delays in
developing, our clinical diagnostics or therapeutics, including cellular therapies, T-cell based vaccines or antibody discoveries, particularly after incurring
significant expenditures, our business may fail and investors may lose the entirety of their investment.
Prior to obtaining regulatory clearances, authorizations or approvals for the commercial sale of any new products or services, we must demonstrate
that our products and services are both safe and effective for use in each target disease indication. Clinical studies may be necessary to demonstrate that a
product or service is safe and effective. Clinical testing or validation is expensive and can take many years to complete, and its outcome is inherently
uncertain. Failure can occur at any time. For therapeutics, the results of preclinical studies and early clinical trials of products and services in development
may not be predictive of the results of later-stage clinical trials, and initial success in clinical trials may not be indicative of results obtained when clinical
trials are completed. There is typically an extremely high rate of failure as therapeutic products in development proceed through clinical trials. Products in
later stages of clinical trials or validation also may fail to show the desired safety and efficacy profile despite having progressed through non-clinical
studies and initial clinical trials or validations. Any delays in the development of our products and services may harm our business, financial condition and
prospects significantly.
Errors or defects in our products or services could harm our reputation, decrease market acceptance of our products or services or expose us to product
liability claims.
We are creating new products and services, many of which are initially based on largely untested technologies. As all of our products and services
progress, we or others may determine that we made product or service level scientific or technological mistakes or omissions. The testing processes utilize
a number of complex and sophisticated biochemical, informatics, optical and mechanical processes, many of which are highly sensitive to external factors
and variation between testing runs. Refinements to our processes may initially result in unanticipated issues that reduce the efficiency or increase
variability. In particular, sequencing, which is a key component of these processes, could be inefficient with higher than expected variability thereby
increasing total sequencing costs and reducing the number of samples we can process in a given time period, which may negatively impact customer
turnaround time. Therefore, inefficient or variable processes can cause variability in our operating results and damage our reputation.
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In addition, our laboratory operations could result in any number of errors or defects. Our quality assurance system or product development
processes may fail to prevent us from inadvertent problems with samples, sample quality, lab processes including sequencing, software, data upload or
analysis, raw materials, reagent manufacturing, assay quality or design, or other components or processes. In addition, our assays may have quality or
design errors, and we may have inadequate procedures or instrumentation to process samples, assemble our proprietary primer mixes and commercial
materials, upload and analyze data, or otherwise conduct our laboratory operations. If we provide products or services with undiscovered errors to our
customers, our clinical diagnostics may falsely indicate a patient has a disease or fail to detect disease in a patient who requires treatment. We believe our
customers are likely to be particularly sensitive to product and service defects, errors and delays, including if our products and services fail to indicate the
presence of residual disease with high accuracy from clinical specimens or if we fail to list or inaccurately indicate the presence or absence of disease in our
test report. In drug discovery, such errors may interfere with our collaborators’ clinical studies or result in adverse safety or efficacy profiles for their
products in development. This may harm our customers’ businesses and may cause us to incur significant costs, divert the attention of key personnel,
encourage regulatory enforcement action against us, create a significant customer relations problem for us and cause our reputation to suffer. We may also
be subject to warranty and liability claims for damages related to errors or defects in our products or services. Any of these developments could harm our
business and operating results.
Our current and future products and services may never achieve significant commercial market acceptance.
Our success depends on the market’s confidence that we can provide immune-driven research, diagnostic and therapeutic products and services that
improve clinical outcomes, lower healthcare costs and enable better biopharmaceutical development. Failure of our products and services, or those jointly
developed with our collaborators, to perform as expected could significantly impair our operating results and our reputation. We believe patients, clinicians,
academic institutions and biopharmaceutical companies are likely to be particularly sensitive to defects, errors, inaccuracies, delays and toxicities in or
associated with our products and services. Furthermore, inadequate performance of these products or services may result in lower confidence in our
immune medicine platform in general.
We and our collaborators may not succeed in achieving significant commercial market acceptance for our current or future products and services due
to a number of factors, including:
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our ability to demonstrate the clinical utility of our immune medicine platform and related products and services and their potential
advantages over existing life sciences research, clinical diagnostic and drug discovery technologies to academic institutions,
biopharmaceutical companies and the medical community;
our ability, and that of our collaborators, to secure and maintain FDA and other regulatory clearance, authorization or approval for our
products;
the agreement by third-party payors to reimburse our diagnostics, the scope and extent of which will affect patients’ willingness or ability to
pay for our diagnostics, even in markets that we expect to be primarily self-pay, and will likely heavily influence physicians’ decisions to
recommend our tests;
the rate of adoption of our immune medicine platform and related products and services by academic institutions, clinicians, key opinion
leaders, advocacy groups and biopharmaceutical companies; and
the impact of our investments in product innovation and commercial growth.
Additionally, our customers and collaborators may decide to decrease or discontinue their use of our products and services due to changes in their
research and development plans, failures in their clinical trials, financial constraints, the regulatory environment, negative publicity about our products and
services, competing products or the reimbursement landscape, all of which are circumstances outside of our control. We may not be successful in
addressing these or other factors that might affect the market acceptance of our products, services and technologies. Failure to achieve widespread market
acceptance of our immune medicine platform and related products and services would materially harm our business, financial condition and results of
operations.
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We rely on a limited number of suppliers or, in many cases, single suppliers, for laboratory equipment and materials and may not be able to find
replacements or immediately transition to alternative suppliers.
We rely on a limited number of suppliers, or in many cases single suppliers, to provide certain sequencers and equipment that we use in our
laboratory operations, as well as reagents and other laboratory materials for our products and services. An interruption in our laboratory operations, kit
distribution or technology transfer could occur if we encounter delays, quality issues or other difficulties in securing these sequencers, equipment, reagents
or other materials, and if we cannot then obtain an acceptable substitute. In addition, we would likely be required to incur significant costs and devote
significant efforts to find new suppliers, acquire and qualify new equipment, validate new reagents and revalidate aspects of our existing assays, which may
cause delays in our processing of samples or development and commercialization of products and services. Any such interruption could significantly affect
our business, financial condition, results of operations and reputation. Internal changes in processes or compositions of our reagents or other materials may
also require validation efforts by us and supply of new materials from our suppliers which could impact timing of production and levels of inventory while
such changes are being implemented. Further, as a result of the COVID-19 pandemic, the overall demand for supplies and equipment used in vaccine
development and distribution or other public health or disease prevention initiatives may continue to increase lead times for purchased supplies and
equipment, thus potentially lowering our production capacity. Combined with lowered production capacity, any significantly increased demand for existing
or new products or services, such as T-Detect COVID, may affect our ability to fulfill orders, resulting in a material adverse effect on volume or revenue.
In particular, we have purchased and rely on the Illumina NextSeq System. Illumina supplies us with reagents that have been designed for use solely
with this sequencer and Illumina is the sole provider of maintenance and repair services for the Illumina NextSeq System. We also license our laboratory
information management software from Illumina and receive services from Illumina related to that software. We believe there are only a few other
equipment manufacturers that are currently capable of supplying the equipment necessary for our laboratory operations, including sequencers and various
associated reagents. The use of sequencers manufactured by a company other than Illumina would require us to alter our laboratory operations.
Transitioning to and qualifying a new sequencer would be time-consuming and expensive, may result in interruptions in our laboratory operations, could
affect the performance specifications of our laboratory operations or could require that we revalidate the reagents of our immunoSEQ kits, immunoSEQ
services, T-Detect or clonoSEQ diagnostic testing services, and could require us to obtain additional clearance, authorization, approval, accreditation, or
licensure for the changes. We may not be able to secure and implement alternative sequencers, associated reagents and other materials without experiencing
interruptions in our workflow. In the case of an alternative supplier to Illumina, any replacement sequencers and various associated reagents may not be
available or may not meet our quality control and performance requirements for our laboratory operations. If we should encounter delays or difficulties in
securing, reconfiguring or revalidating the equipment and reagents we require for our products and services, our business, financial condition, results of
operations and reputation could be adversely affected. In addition, Illumina is not obligated to meet all of our requirements for reagent supply. In the event
Illumina ceases or slows its production of, or is otherwise unwilling or unable to continue to supply the sequencer reagents necessary for and currently used
in our business at or near current pricing, we may be required to purchase different reagents from Illumina or to purchase from a different reagent vendor
under terms and conditions which could be less favorable to us. Any disruption in Illumina’s operations or the suppliers of our reagents, materials or other
equipment could impact our supply chain and laboratory operations of our immune medicine platform and our ability to conduct our business and generate
revenue.
We have limited experience in marketing and selling products and services, and if we are unable to expand our direct sales and marketing force or
partner with collaborators in certain product areas and markets to adequately address our customers’ needs, our business may be adversely affected.
We have limited experience in marketing and selling our research and diagnostic products and services and no experience marketing and selling
therapeutic products and services. Accordingly, we or our collaborators may not be able to market and sell our current or future products and services
effectively enough to support our planned growth.
Our research and diagnostic sales and marketing efforts are targeted at a large and diverse market with highly specialized segments, including
department heads, laboratory directors, principal investigators, core facility directors, clinicians, payors and research scientists and pathologists at leading
academic institutions, biopharmaceutical companies, research institutions and contract research organizations. As a result, we believe it is necessary for our
sales representatives to have relevant, specialized market experience. Competition for experienced sales and marketing personnel is intense, and new
members of our sales organization may require intense training to apply their experience and expertise to our products and services. We may not be able to
attract and retain personnel or be able to build or adequately train an efficient and effective sales organization, which could negatively impact sales and
market acceptance of our clinical diagnostics and limit our revenue growth and potential profitability.
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We established a collaboration with Genentech for the research, development, marketing, promotion, distribution and sale of TCR-based cellular
therapies for the treatment of cancer. Under the Genentech Agreement, Genentech has the sole right and authority to commercialize products developed
under that agreement. It will be Genentech’s responsibility to locate, qualify and engage distribution partners, clinicians and local hospitals with industry
experience and knowledge to effectively market and sell products developed under that agreement. Genentech may not be able to engage distribution
partners, clinicians or hospitals on favorable terms, or at all. If Genentech’s sales and marketing efforts with respect to products developed under the
Genentech Agreement are not successful, we may not achieve significant market acceptance for our drug discovery services and platform, which would
materially and adversely impact our business operations.
If we or our collaborators experience any of a number of possible unforeseen events in connection with clinical trials, our or their ability to conduct
further clinical trials of, obtain regulatory clearance, authorization or approval of or commercialize future products and services or improvements to
current products and services, could be delayed or prevented.
We or our collaborators may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our or their
ability to conduct further clinical trials or obtain regulatory clearance, authorization or approval of or commercialize future products and services or
improvements to current products and services, including:
Evolving Regulatory Requirements and Policies
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the area of “precision medicine” or “personalized medicine” and its regulation may be subject to ongoing changes in terms of regulatory
requirements and governmental policies, in ways we cannot predict;
Trial Design
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Testing
regulatory authorities or ethical review boards, including IRBs, may not authorize commencement of a clinical trial or conduct a clinical
trial at a prospective trial site;
there may be delays in reaching or failure to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective
trial sites;
the FDA or other regulatory authorities may disagree with a clinical trial design or a sponsor’s interpretation of data and may change the
requirements for product clearance, authorization or approval even after they have reviewed and commented on the clinical trial design;
differences in trial design between early stage clinical trials and later-stage clinical trials may make it difficult to extrapolate the results of
earlier clinical trials to later clinical trials;
the FDA or other regulatory authorities may disagree about whether study endpoints are clinically meaningful;
the number of patients, or amount of data, required for clinical trials, or improvements to current products, may be larger than anticipated,
patient enrollment in these clinical trials may be slower than anticipated or patients may drop out of clinical trials at a higher rate than
anticipated;
changes may be made to product candidates after commencing clinical trials, which may require that previously completed stages of clinical
testing be repeated or delay later stages of testing, for example, we, or our collaborators, may pursue one or more different product
development pathways for our T cell immunotherapies;
clinical trials may fail to satisfy the applicable regulatory requirements of the FDA or other regulatory authorities responsible for oversight
of the conduct of clinical trials in other countries;
regulators may elect to impose a clinical hold, or governing IRBs, data safety monitoring board or ethics committees may elect to suspend
or terminate our clinical research or trials for various reasons, including non-compliance with regulatory requirements or a finding that the
participants are being exposed to unacceptable risks to their health or the privacy of their health information being disclosed;
the cost of clinical trials of future products and services, or improvements to current products and services, may be greater than we
anticipate;
• we may not have sufficient capacity in our laboratories to perform testing as requested or volumes requested or with the requested
turnaround times necessary for clinical trials;
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the supply or quality of materials or data necessary to conduct clinical trials of future products and services, or improvements to current
products and services, may be insufficient or inadequate;
Trial Outcomes
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the outcome of our collaborators’ preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and
interim results of a clinical trial do not necessarily predict final results;
product candidates may be associated with negative or inconclusive results in clinical trials, and we or our collaborators may decide to
deprioritize or abandon these product candidates, or regulatory authorities may require us to abandon them or impose onerous changes or
requirements, which could lead to deprioritization or abandonment;
product candidates may have undesirable side effects which could lead to serious adverse events, or other unexpected characteristics. One
or more of such effects or events could cause regulators to impose a clinical hold on the applicable trial, or cause us, our collaborators or
their investigators, IRBs or ethics committees to suspend or terminate the trial of that product candidate;
clinical trials may suggest or demonstrate that products or services are not as efficacious or safe as other similar diagnostics or therapies;
and
preclinical and clinical data are often susceptible to varying interpretations and analyses, and our products and services in development may
fail to obtain regulatory clearance, authorization or approval, even if they perform satisfactorily in preclinical studies and clinical trials.
Delays of this nature could also allow competitors to bring products to market before we or our collaborators do, potentially impairing our ability to
successfully commercialize our products and services in development and harming our business and results of operations. Any delays in the development
of our products and services or those jointly developed with our collaborators may significantly harm our business, financial condition and prospects. Many
of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory
clearance, authorization or approval of products and services in development.
We will need to develop and expand our workforce, commercial infrastructure and laboratory operations to support anticipated growth in demand for
our products and services. We may encounter difficulties in managing this and in meeting fluctuations in this demand.
We will need to expand our workforce, commercial infrastructure and laboratory operations to support anticipated growth in demand for our
products and services. If we are unable to support fluctuations in the demand for our products and services, including ensuring that we have adequate
capacity to meet increased demand as well as other customer requirements (such as turnaround time and service level), our business could suffer. As of
December 31, 2021, we had 858 full-time employees and we expect to increase the number of employees, including potential contingent employees as
needed to address demand fluctuations, and the scope of our operations as we continue to develop our clinical diagnostic products and services. As we and
our collaborators commercialize additional products and services, we will need to incorporate new equipment, implement new technology systems and
laboratory processes and hire new personnel with different qualifications. Failure to manage this growth or transition could result in turnaround time
delays, higher service costs, declining service quality, deteriorating customer service and slower responses to competitive challenges. A failure in any one
of these areas could make it difficult for us to meet market expectations for our products and services and could damage our reputation and the prospects
for our business.
To manage our anticipated expansion, we must continue to implement and improve our managerial, operational and financial systems, continue to
expand our facilities and continue to recruit and train additional qualified personnel. Also, our management and operations teams may need to divert a
disproportionate amount of their attention away from their day-to-day activities and devote a substantial amount of time to managing these development
and improvement activities.
Due to our limited resources and early stage of growth, we may not be able to effectively manage this simultaneous execution and the expansion of
our operations or recruit, train, and retain additional qualified personnel. This may result in weaknesses in our infrastructure, operational mistakes, slower
development of our products and services, missed or delayed milestone achievement, significant cost overruns, loss of business opportunities, loss of
employees and contingent workers, inability to execute on hiring plans and reduced productivity among remaining employees and contingent workers.
If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our
ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance,
and our ability to develop and commercialize our products and services and compete effectively, will depend, in part, on our ability to effectively manage
our future development and expansion.
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Our business could be adversely affected by the effects of health epidemics, including the recent COVID‑19 pandemic, in regions where we or third
parties on which we rely have significant laboratory operations, manufacturing facilities, concentrations of clinical trial sites or other business
operations. The COVID-19 pandemic could materially affect our operations, including at our headquarters in Seattle and at our offices in South San
Francisco, each subject to COVID-19 related government restrictions, as well as the business or operations of our manufacturers, contract research
organizations or other third parties with whom we conduct business.
Our business could be adversely affected by global pandemics or health epidemics in regions where we have concentrations of clinical trial sites or
other business operations, and such pandemics or epidemics could cause significant disruption in the operations of third-party manufacturers, suppliers,
general contractors and sub-contractors related to capital projects and CROs upon whom we rely. The global pandemic of COVID-19 continues to rapidly
evolve. We do not yet know the full extent of potential delays or impacts on our business, clinical trials, sales force expansion plans and other initiatives, or
the impacts to healthcare systems or the global economy as a whole.
Most of our facilities and employees are based in Seattle, Washington at our corporate headquarters, where the state government has imposed “stay
at home” restrictions designed to slow the spread of COVID-19, which have disrupted our normal operations. Similarly, San Mateo County, California had
a “shelter-in-place” order with restrictions that have disrupted our normal operations in our South San Francisco office.
With respect to our laboratory operations, we intend to rely on the measures implemented in early 2020 to reduce the risk of exposure of COVID-19
to the employees who continue to work on site as part of government-defined essential services, including the implementation of work-from-home policies
for certain employees, as well as physical distancing and contact tracing those employees who remain on site. We have also required all on-site employees
to be vaccinated, subject to applicable religious and medical exemptions. We work with a variety of materials and samples from COVID-19 patients that
could be hazardous to human health. We intend to continue to adhere to the safety measures implemented to reduce the risk of exposure to our on-site staff.
We have experienced a number of staffing and supply chain disruptions due to COVID-19 and anticipate these will continue into the future. The
effects of the stay-at-home orders or similar government orders and internal protective measures may negatively impact productivity, disrupt our business
and delay our clinical programs and corporate expansion initiatives, the magnitude of which will depend, in part, on the length and severity of the
restrictions and other limitations regarding our ability to conduct our business in the ordinary course. Confirmed positive cases, close contacts, and other
identified risks have resulted in disruptions to regular on-site staffing, and these disruptions may continue to negatively impact our research and production.
The effects of government restrictions such as the stay at home orders and our other operational safety measures may negatively impact productivity,
disrupt our business and delay our clinical programs and corporate expansion initiatives, the magnitude of which will depend, in part, on the length and
severity of the restrictions and other limitations regarding our ability to conduct our business in the ordinary course. These and similar, and perhaps more
severe, disruptions in our operations could negatively impact our business, operating results and financial condition.
Quarantines, stay at home orders and similar government orders, or the perception that such orders, shutdowns or other restrictions on business
operations could occur, whether related to COVID-19 or other infectious diseases, could impact personnel at third-party manufacturing or supplier facilities
in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain. In addition, public health measures
undertaken to combat the COVID-19 pandemic or vaccine development and distribution efforts may increase demand for equipment or supplies, which we
use in the ordinary course of our business. This increased demand has resulted in longer lead times for equipment purchases and may result in internal
conservation of supplies, which may slow production.
While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could
result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In
addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. However, these effects could
have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.
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The COVID-19 pandemic could adversely impact portions of our business that rely on research and development activities or clinical trials and delay
or disrupt our pipeline, which may adversely impact revenue.
The extent to which the COVID-19 pandemic may impact our business with respect to research and development and clinical trials will depend on
future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, vaccine
distribution, variants of the virus, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business
closures or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. As the
COVID-19 pandemic continues to spread around the globe, we will likely experience disruptions that could severely impact our business with respect to
research and development and clinical trials, including:
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delays or difficulties in enrolling patients or maintaining scheduled study visits in our clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
negative impact on interactions necessary for commercial testing, due to restricted access for industry employees;
patient and clinician avoidance of “elective” procedures that may encompass our products and services, and general reluctance of patients to
seek in-person care;
challenges in providing clinical education with respect to our novel products and services in a virtual setting, and restrictions on clinician
and provider travel;
diversion of healthcare resources, clinical staff, physicians and advanced practice providers in oncology, including hospitals serving as our
clinical trial sites, away from the conduct of clinical trials related to our non-COVID-19 related products and services;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by
federal or state governments, employers and others;
limitations in employee resources that would otherwise be focused on the conduct of our business with respect to research and development
or clinical trials, including due to illness of our employees or their families, an increase in childcare responsibilities for certain employees,
the desire of our employees to avoid close contact or contact with large groups of people or as a result of the governmental imposition of
stay at home orders or similar working restrictions;
delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;
delays in clinical sites receiving the supplies and materials needed to conduct clinical trials;
interruption in global shipping that may affect the transport of clinical trial materials;
changes in regulations as part of a response to the COVID-19 pandemic, which may require us to change the ways in which our clinical
trials are conducted, which may result in unexpected costs, or discontinuing clinical trials altogether;
delays in necessary interactions and anticipated timelines with local and federal regulators (including the FDA), ethics committees and other
important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and
refusal of the FDA to accept data from clinical trials in affected geographies outside the United States.
In addition, regulatory milestones represent a substantial part of our business strategy and are a key component of development revenue. The
disruptions set forth above may materially affect our ability to achieve regulatory milestones, resulting in delays in our clinical pipeline and a material
adverse effect on revenues.
Our efforts to discover and develop products and services related to COVID-19 may not be successful from either a platform extension or
commercialization perspective.
We are attempting to leverage our immune medicine platform to discover and develop potential antibody therapies and We are attempting to
leverage our immune medicine platform to discover and develop potential antibody therapies and diagnostics for COVID-19. Our efforts in this area are
early and continue to evolve and mature continuously as we augment our databases and pool of knowledge.
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While we believe quantifying virus-specific T cells may provide important research and diagnostic advantages because T cells appear to persist
longer and protect against severity of disease, the data upon which such belief is based is limited and our analyses are preliminary. As we continue to
collect and analyze additional data, we may find that our initial hypotheses are not applicable to new variants of the SARS-CoV-2 virus or are not
supported by a larger data set or further analysis. If our beliefs regarding the effectiveness of our current products and services related to COVID-19 are
incorrect, or if we are unable to establish a correlate of protection between the T cell response and immunity to COVID-19, that could have a material
adverse effect on the market for our products and services related to COVID-19 as well as collaborations for which a correlate of protection is a vital
element. Accordingly, our revenue, reputation, financial condition, and our stock price would be adversely impacted.
Our efforts to further develop and commercialize T-Detect COVID, neutralizing antibodies for COVID-19 or other products related to COVID-19,
including efforts by our partners or collaborators, involve a high degree of risk, and our efforts may fail for many reasons, including:
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failure of our products to be effective against new variants of COVID-19;
failure of T-Detect COVID or TruAB neutralizing antibodies to perform as expected against current strains of COVID-19 or new variants,
as well as the possibility of defects and errors;
failure to obtain a suitable partner for neutralizing antibody therapeutics or failure of our collaborators in vaccine development to bring
products to market;
lack of validation data, particularly as new variants of COVID-19 arise;
failure to demonstrate the analytical accuracy or clinical utility of existing antibody therapies and diagnostic tests;
failure to obtain the necessary regulatory approvals or clearances; or
commercial disruption caused by the development of competing products or services.
Additionally, there can be no assurances as to the commercial success of either T-Detect COVID, neutralizing antibodies, vaccines or diagnostic
tests. Our investments in the discovery and development of products and services related to COVID-19 may not be accretive to our future financial results
and if we determine that any product or service is unlikely to succeed, we may abandon them without any return on our investment.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to
fall below expectations or any guidance we may provide.
Our financial condition and operating results have varied in the past and will continue to fluctuate from quarter-to-quarter and year-to-year in the
future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include
the following, as well as other factors described elsewhere in this Annual Report on Form 10-K:
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the timing of upfront payments from our collaborators;
our ability and that of our collaborators to develop and successfully commercialize our products and services;
our ability to achieve collaboration-based milestones on currently contemplated timelines, or at all;
availability and extent of reimbursement by governmental and private payors for our products and services;
the ability of our clinical sales teams to convert physicians from using incumbent products in the market to clonoSEQ and new diagnostic
products and services we may develop, such as T-Detect COVID and other T-Detect products;
our ability to drive repeat usage of the clonoSEQ diagnostic test by physicians and get reimbursed for that repeat usage by commercial and
government payors for monitoring of MRD;
our ability to drive repeat usage of T-Detect COVID by physicians serving immunocompromised patients and get reimbursed for that usage
by commercial and government payors for determination of recent or prior infection;
the outcomes of research initiatives, clinical trials or other product development or approval processes conducted by us or our collaborators;
the level of demand for our products and services, which may vary significantly or be unknown for our newest products and services, such
as T-Detect or immunoSEQ T-MAP COVID;
our relationships, and any associated exclusivity terms, with collaborators;
our ability to manage our growth;
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our contractual or other obligations to provide resources to fund our products and services and to provide resources to our collaborations;
delays or failures in advancement of future products in clinical trials by us or our collaborators;
risks associated with the future international expansion of our business, including the potential to conduct clinical trials and commercialize
our products and services in multiple international locations;
our ability and that of our collaborators to consistently manufacture our products;
our dependence on, and the need to attract and retain, key management and other personnel;
our ability to obtain, protect and enforce our intellectual property rights;
our ability to prevent the theft or misappropriation of our intellectual property, know-how or technologies;
our ability to obtain additional capital that may be necessary to expand our business;
our ability to accurately report our financial results in a timely manner;
business interruptions such as power outages, strikes, acts of terrorism or natural disasters; and
our ability to use our net operating loss (“NOL”) carryforwards to offset future taxable income.
The cumulative effects of factors discussed above could result in large fluctuations and unpredictability in our quarterly and annual operating results.
As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an
indication of our future performance. In any particular period, our operating results could be below the expectations of securities analysts or investors,
which could cause our stock price to decline.
While as a general matter we intend to periodically report on the status of our development initiatives, including anticipated next steps, we may not
provide forward-looking guidance on the timing of those next steps. In addition, we do not control the timing of disclosure of any such milestones related
to any of our products and services that are managed by our collaborators. Any disclosure by us or our collaborators of data that is perceived as negative
may have a material adverse impact on our stock price or overall valuation. Our stock price may decline as a result of unexpected clinical trial results in one
or more of our products and services, including adverse safety events reported for any of our products or services.
We have estimated the sizes of the markets for our current and future products and services, and these markets may be smaller than we estimate.
Our estimates of the annual addressable markets for our current products and services and those under development are based on a number of
internal and third-party estimates, including, without limitation, the number of patients who have developed one or more of a broad range of cancers, the
number of individuals who are at a higher risk for developing one or more of a broad range of cancers, the number of individuals who have developed or
are at a higher risk of developing certain autoimmune disorders, the number of individuals with certain infectious diseases we or our collaborators are able
to treat through our products and services, the proportion of patients in each market whose needs can be addressed by our or our collaborators’ products and
services, the number of potential tests utilized per treatment course per patient and the assumed prices at which we can sell our current and future products
and services for markets that have not been established. While we believe our assumptions and the data underlying our estimates are reasonable, these
assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the
predictive accuracy of these underlying factors. As a result, our estimates of the annual addressable market for our current or future products and services
may prove to be incorrect. If the actual number of patients who would benefit from our products or services, the price at which we can sell future products
and services or the annual addressable market for our products or services is smaller than we have estimated, it may impair our sales growth and have an
adverse impact on our business.
If we do not compete effectively with scientific and commercial competitors, we may not be able to successfully commercialize our products and
services.
The biotechnology and pharmaceutical industries, including the fields of life sciences research, clinical diagnostics and drug discovery are intense
and highly competitive. These fields are characterized by rapidly advancing technologies and a strong emphasis on intellectual property. Given the breadth
and promise of immune medicine, we face substantial competition from many different sources, including life sciences tools, diagnostics, pharmaceutical
and biotechnology companies, academic research institutions and governmental agencies and public and private research institutions across various
components of our platform and product and service offerings. Due to the significant interest and growth in immune medicine more broadly, we expect the
intensity of the competition to increase.
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For instance, in life sciences research, immunoSEQ faces competition from a number of companies, including Thermo Fisher Scientific Inc. and
10X Genomics, Inc., among others. In clinical diagnostics, our clonoSEQ MRD test faces competition from both conventional and next-generation flow
cytometry performed either in-house by our target customers or by reference labs, as well as from labs and institutions advancing research-use-only MRD
technologies for clinical applications and commercial-stage oncology diagnostics companies extending the application of their solid tumor (ctDNA) MRD
products into the hematology MRD space. In addition, our T-cell based diagnostic, T-Detect COVID, may face competition from other manufacturers such
as Qiagen, who are seeking to commercialize T-cell testing to consumers. In drug discovery, clinical trials of immune medicines are being undertaken by a
number of industry and academic players.
Our competitors may have or obtain the knowledge necessary to generate and characterize similar data to our known data for the purpose of
identifying and developing products or services that could compete with any of our products or services. Further, immune medicine is being pursued by
several biotechnology companies as well as by large-cap biopharmaceutical companies. Many of our current or potential competitors, either alone or with
their collaboration partners, have significantly greater financial resources and expertise in research and development, manufacturing, regulatory approval
and compliance, and sales and distribution than we do.
We could be adversely affected if we do not develop our life sciences research, clinical diagnostic and drug discovery products and services, obtain
required regulatory and other clearances, authorizations or approvals, obtain or enforce patents covering our discoveries and launch our products and
services before our competitors. Moreover, our competitors may succeed in developing immunosequencing-based life sciences research, clinical
diagnostics and drug discoveries that circumvent our technologies, products or services. Our competitors may succeed in developing and commercializing
research or diagnostic products or services that are more accurate, more convenient to use or more cost-effective than our products or services or
therapeutic products that prove to be safer, more effective, more convenient to administer or more cost-effective than any therapeutic products we may
develop with our collaborators or that would render our technologies, products and services less competitive or obsolete. We expect competition to
intensify in the fields in which we are involved as technical advances in these fields occur and become more widely known. For additional information
regarding our competition, see the “Business—Competition” section of this Annual Report on Form 10-K.
The life sciences industry is subject to rapid change, which could make our immune medicine platform and related products and services that we
develop obsolete.
Our industry is characterized by rapid changes, including technological and scientific breakthroughs, frequent new product and service introductions
and enhancements and evolving industry standards, all of which could make our current and future products and services obsolete. Our future success will
depend on our ability to keep pace with the evolving needs of our customers on a timely and cost-effective basis and to pursue new market opportunities
that develop as a result of scientific and technological advances. In recent years, there have been numerous advances in technologies relating to life
sciences research and the diagnosis and treatment of cancer, infectious disease such as COVID-19, and autoimmune disorders. There have also been
advances in technologies used to computationally analyze very large amounts of biologic information. If we do not update our products and services to
reflect new scientific knowledge about immunosequencing, immunology, computational biology, software development, new disease diagnostics and
therapies or the diseases we seek to treat, our products and services could become obsolete and sales of our current products and services and any future
products and services we develop based on our immune medicine platform could decline or fail to grow as expected.
The loss of any member of our senior management team or our inability to attract and retain highly skilled scientists, clinicians and salespeople could
adversely affect our business.
Our success depends on the skills, experience and performance of key members of our senior management team, including our co-founders and
executive officers. The individual and collective efforts of these employees will be important as we continue to develop products and services based on our
immune medicine platform. The loss or incapacity of existing members of our executive management team could adversely affect our operations if we
experience difficulties in hiring qualified successors. Our executive officers have signed employment agreements with us, but their service is at-will and
may end at any point in time.
Our research and development initiatives and laboratory operations depend on our ability to attract and retain highly skilled scientists, technicians
and software engineers. We may not be able to attract or retain qualified scientists, technicians or software engineers in the future due to the competition for
qualified personnel among life sciences and technology businesses, particularly near our headquarters located in Seattle, Washington and our laboratory
facilities located in South San Francisco, California. We also face competition from universities and public and private research institutions in recruiting
and retaining highly qualified scientific personnel. We may have difficulties locating, recruiting or retaining qualified salespeople. Recruiting, training and
retention difficulties can limit our ability to support our research and development and commercialization efforts. We also employ a number of workers on
work authorization visas. We may have difficulty recruiting and retaining these workers as immigration regulations continue to change and as a result of the
backlog of processing of immigration applications at the federal level. All of our employees are at-will, which means that either we or the employee may
terminate their employment at any time.
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In addition, we rely on consultants, contractors and advisors, including scientific and clinical advisors, to assist us in formulating our research and
development, regulatory and commercialization strategy. Our consultants and advisors may provide services to other organizations and may have
commitments under consulting or advisory contracts with other entities that may limit their availability to us. The loss of the services of one or more of our
current consultants or advisors might impede the achievement of our research, development, regulatory and commercialization objectives. We have also
have flexibly grown our workforce through the use of contingent workers, temporary employees, and part-time workers. We may not be able to retain the
services of such personnel which might result in delays in the operation of our business.
If we lose the support of key thought leaders, it may be difficult to establish products and services enabled by our immune medicine platform as
industry standards, which may limit our revenue growth and ability to achieve profitability.
We have established relationships with leading oncology, hematology, immunology, autoimmunity or inflammatory disease, transplantation and
solid tumor thought leaders at premier academic and research institutions. If these key thought leaders determine that our immune medicine platform or our
current or future products or services are not clinically effective, determine that alternative technologies are more effective or elect to use internally
developed services, we could encounter significant difficulty validating our products or services, driving adoption or establishing our immune medicine
platform as an industry standard, which would limit our revenue growth and our ability to achieve profitability. In addition, negative publications or
reviews by clinicians, industry groups or other important stakeholders may negatively impact our revenue growth and ability to achieve profitability.
We depend on our information technology systems and any failure of these systems could harm our business.
We depend on information technology and telecommunications systems, including third-party cloud computing infrastructure, operating systems
and artificial intelligence platforms, for significant elements of our operations, including our laboratory information management system, clinical
immunomics database, immunoSEQ Analyzer, TCR-Antigen Map, laboratory workflow tools, customer and collaborator reporting and related functions.
We also depend on our proprietary workflow software to support new product and service launches and regulatory compliance.
We use complex software processes and pipelines to manage samples and evaluate sequencing result data. These are subject to initial design or
ongoing modifications which may result in unanticipated issues that could cause variability in patient results, leading to service disruptions or errors,
resulting in liability.
We have installed, and expect to expand, a number of enterprise software systems that affect a broad range of business processes and functional
areas, including systems handling human resources, financial controls and reporting, contract management, regulatory compliance and other infrastructure
operations. In addition to these business systems, we have installed, and intend to extend, the capabilities of both our preventative and detective security
controls by augmenting the monitoring and alerting functions, the network design and the automatic countermeasure operations of our technical systems.
These information technology and telecommunications systems support a variety of functions, including laboratory operations, test validation, sample
tracking, quality control, customer service support, billing and reimbursement, research and development activities, scientific and medical curation and
general administrative activities. In addition, our third-party billing and collections provider depends upon technology and telecommunications systems
provided by outside vendors.
In addition to the risks directly relevant to our vendors, systems, and information technology, there are risks associated with the outside vendors and
third parties with whom they subcontract. For example, our third-party billing and collections provider depends upon technology and telecommunications
systems provided by outside vendors. Subcontractors can be a vector of vulnerability, as any weaknesses in their organization’s technical and organizational
controls could affect vendor operations as well as data management, in turn impacting our own operations and ability to safeguard critical data.
Information technology and telecommunications systems are vulnerable to attack in a variety of forms and from a variety of sources, including
telecommunications or network failures, malicious human acts (such as ransomware) and natural disasters. Moreover, despite network security and back-up
measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the
precautionary measures we have taken to prevent unanticipated problems that could affect our information technology and telecommunications systems,
failures or significant downtime of these systems or those used by our collaborators or subcontractors could prevent us from conducting our comprehensive
immunosequencing analysis, clinical diagnostics and drug discovery, preparing and providing reports to researchers, clinicians and our collaborators,
billing payors, handling physician inquiries, conducting research and development activities and managing the administrative aspects of our business. Any
disruption or loss of information technology or telecommunications systems on which critical aspects of our operations depend could have an adverse
effect on our business and our reputation, and we may be unable to regain or repair our reputation in the future.
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International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing
business outside of the United States.
Because we and our collaborators currently market our products and services outside of the United States and may market future products and
services outside of the United States, if cleared, authorized or approved, our business is subject to risks associated with doing business outside of the United
States, including an increase in our expenses and diversion of our management’s attention from the development of future products and services.
Accordingly, our business and financial results in the future could be adversely affected due to a variety of factors, including:
• multiple, conflicting and changing laws and regulations such as privacy, security and data use regulations, tax laws, export and import
restrictions, economic sanctions and embargoes, employment laws, anticorruption laws, regulatory requirements, reimbursement or payor
regimes and other governmental approvals, permits and licenses;
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failure by us, our collaborators or our distributors to obtain regulatory clearance, authorization or approval for the use of our products and
services in various countries;
additional potentially relevant third-party patent rights;
complexities and difficulties in obtaining intellectual property protection and enforcing our intellectual property;
difficulties in staffing and managing foreign operations;
complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;
difficulties in negotiating favorable reimbursement negotiations with governmental authorities;
logistics and regulations associated with shipping samples, including infrastructure conditions and transportation delays;
limits in our ability to penetrate international markets if we are not able to conduct our immunosequencing or clinical diagnostic services
locally;
financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on
demand and payment for our products and services and exposure to foreign currency exchange rate fluctuations;
natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment
of trade and other business restrictions;
regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ activities that may
fall within the purview of the FCPA, its books and records provisions, or its anti-bribery provisions, or laws similar to the FCPA in other
jurisdictions in which we may now or in the future operate, such as the United Kingdom’s Bribery Act of 2010; and
anti-bribery requirements of several member states in the European Union (“EU”) and other countries, such as the United Kingdom’s
Bribery Act of 2010, that are constantly changing and require disclosure of information to which U.S. legal privilege may not extend.
Any of these factors could significantly harm our future international expansion and operations and, consequently, our revenue and results of
operations.
We may never obtain approval in the EU or in any other foreign country for any of our products or services and, even if we do, we or our collaborators
may never be able to commercialize them in any other jurisdiction, which would limit our ability to realize their full market potential.
In order to eventually market any of our current or future products and services in any particular foreign jurisdiction, we must establish and comply
with numerous and varying regulatory requirements on a jurisdiction-by-jurisdiction basis regarding quality, safety, performance and efficacy. In addition,
clinical trials or clinical investigations conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory clearance,
authorization or approval in one country does not guarantee regulatory clearance, authorization or approval in any other country. Approval processes vary
among countries and can involve additional product testing and validation and additional administrative review periods.
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Seeking foreign regulatory clearance, authorization or approval could result in difficulties and costs for us and our collaborators and require
additional preclinical studies, clinical trials or clinical investigations which could be costly and time-consuming. Regulatory requirements and ethical
approval obligations can vary widely from country to country and could delay or prevent the introduction of our products and services in those countries.
The foreign regulatory clearance, authorization or approval process involves all of the risks and uncertainties associated with FDA clearance, authorization
or approval. We currently sell our RUO kits outside of the United States and have completed a technology transfer process for research use to sites in
France, Germany, Italy, the United Kingdom, Spain, and Australia, but have no experience in obtaining regulatory clearance, authorization or approval in
international markets. If we or our collaborators fail to comply with regulatory requirements in international markets or to obtain and maintain required
regulatory clearances, authorizations or approvals in international markets, or if those approvals are delayed, our target market will be reduced and our
ability to realize the full market potential of our products and services will be unrealized.
If our laboratory facilities become damaged or inoperable or we are required to vacate our existing facilities, our ability to conduct our laboratory
processes and analysis and pursue our research and development efforts may be jeopardized.
We operate laboratory facilities located in Seattle, Washington and South San Francisco, California. Our facilities and equipment could be harmed or
rendered inoperable by natural or man-made disasters, including war, fire, earthquake, power loss, communications failure or terrorism, which may render
it difficult or impossible for us to operate our immune medicine platform for some period of time. The inability to perform our laboratory processes or to
reduce the backlog of sequences that could develop if our facilities are inoperable, for even a short period of time, or to replace or repair inventory such as
reagents or customer samples may result in the loss of customers or harm to our reputation, and we may be unable to regain those customers or repair our
reputation in the future. In addition, the expansion of our corporate headquarters, laboratory space and warehousing facilities in the Seattle, Washington
area has increased the volume of material and sample transfers between and among local facilities, increasing risk to materials and customer samples.
Furthermore, our facilities and the equipment we use to perform our research and development work could be unavailable or costly and time-
consuming to repair or replace. It would be difficult, time-consuming and expensive to rebuild our facilities, to locate and qualify new facilities or license
or transfer our proprietary technologies to a third party, particularly in light of licensure and accreditation requirements. Even in the unlikely event we are
able to find a third party with such qualifications to enable us to conduct our laboratory processes, we may be unable to negotiate commercially reasonable
terms.
We carry insurance for damage to our property and the disruption of our business, but this insurance may not cover all of the risks associated with
damage or disruption to our business, may not provide coverage in amounts sufficient to cover our potential losses and may not continue to be available to
us on acceptable terms, if at all.
We may need to raise additional capital to fund our existing operations, develop additional products and services, commercialize new products and
services or expand our operations.
Based on our current business plan, we believe our current cash, cash equivalents and marketable securities and anticipated cash flow from
operations, will be sufficient to meet our anticipated cash requirements over at least the next 12 months. If our available cash and investment balances and
anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of lower demand for our products and
services as a result of risks described herein, we may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or
another form of third-party funding or seek other debt financing.
We may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing
opportunities or for other reasons, including to:
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increase our sales and marketing efforts to drive market adoption of our life sciences research, clinical diagnostics and therapeutics;
fund development efforts for our current and future products and services;
expand our products and services into other disease indications and clinical applications;
acquire, license or invest in technologies;
acquire or invest in complementary businesses or assets; and
finance capital expenditures, such as our corporate headquarters expansion, and general and administrative expenses.
Our present and future funding requirements will depend on many factors, including:
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our ability to achieve revenue growth;
our rate of progress in establishing payor coverage and reimbursement arrangements with domestic and international commercial third-
party payors and government payors;
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the cost of expanding our laboratory operations and offerings, including our sales and marketing efforts;
our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of our immunoSEQ research
services and kits, and reimbursement for our clonoSEQ diagnostic test, T-Detect COVID and cellular therapies developed under the
Genentech Agreement;
our rate of progress in, and research and development expenses associated with, products and services in research and early development;
the effect of competing technological, product and market developments;
costs related to international expansion; and
the potential cost of and delays in product development as a result of any regulatory oversight applicable to our products and services.
The various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, dilution to our shareholders
could result. Any preferred equity securities issued also could provide for rights, preferences or privileges senior to those of holders of our common stock.
If we raise funds by issuing debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of our common
stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise
funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or products and
services or grant licenses on terms that are not favorable to us.
Our ability to use our NOL carryforwards and certain other tax attributes may be limited.
We have incurred net losses since our inception and we may never achieve or sustain profitability. Generally, losses incurred will carry forward until
such losses expire (for losses generated prior to January 1, 2018) or are used to offset future taxable income, if any. Utilization of our 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 TCJA, 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.
We may experience ownership changes in the future as a result of shifts in our stock ownership, which may be outside of our control. As a result, if
we earn net taxable income, our ability to use our pre-ownership change NOL carryforwards to offset such taxable income will be subject to limitations.
Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. As a result, even if we attain profitability, we may be
unable to use a material portion of our NOL carryforwards and other tax attributes, which could adversely affect our future cash flows.
We could be adversely affected by violations of the FCPA and other worldwide anti-bribery laws.
As we expand geographically, commercialize our products and services, and attempt to obtain required clearances, authorizations or approvals
required to offer products and services for sale, we or our collaborators may be deemed to do business outside the United States, including because
international customers may be able to order our products and services. As a result, we or our collaborators would be subject to the FCPA, which prohibits
companies and their intermediaries from making payments in violation of law to non-U.S. government officials for the purpose of obtaining or retaining
business or securing any other improper advantage. In addition, our collaborators or any third-party distributors could be deemed to be our agents and we
could be held responsible for their actions, including violations of the FCPA. Other U.S. companies in the life sciences industry have faced criminal
penalties under the FCPA for allowing their agents to deviate from appropriate practices in doing business with non-U.S. government officials. We may
also become subject to similar anti-bribery laws in the jurisdictions in which we may operate, including the United Kingdom’s Bribery Act of 2010, which
also prohibits commercial bribery and makes it a crime for companies to fail to prevent bribery. These laws are complex and far-reaching in nature, and we
may be required in the future to alter one or more of our practices to be in compliance with these laws. Accordingly, our expansion internationally will
demand a high degree of vigilance, and any violations of these laws, or allegations of such violations, could disrupt our operations, involve significant
management distraction, involve significant costs and expenses, including legal fees, and could result in a material adverse effect on our business,
prospects, financial condition or results of operations. We could also suffer severe penalties, including criminal and civil penalties, disgorgement and other
remedial measures.
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We may acquire other businesses or form joint ventures or make investments in other companies or technologies that could negatively affect our
operating results, dilute our shareholders’ ownership, increase our debt or cause us to incur significant expense.
We may pursue acquisitions of businesses and assets. We also may pursue joint ventures or investments that leverage our immune medicine platform
and industry experience to expand our offerings or distribution. We have no experience forming joint ventures and limited experience investing in or
acquiring other companies. We may not be able to find suitable joint ventures, investment or acquisition candidates, and we may not be able to complete
such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate the acquired company successfully into our
existing business, and we could assume unknown or contingent liabilities, including regulatory violations such as the FCPA or similar laws. Any future
acquisitions also could result in the incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a
material adverse effect on our financial condition, results of operations and cash flows. Integration of an acquired company also may disrupt ongoing
operations and require management resources that we would otherwise focus on developing our existing business. We may experience losses related to
investments in other companies, which could have a material negative effect on our results of operations and financial condition. We may not realize the
anticipated benefits of any acquisition, technology license, collaboration or joint venture.
To finance any acquisitions or joint ventures, we may choose to issue shares of our common stock as consideration, which would dilute the
ownership of our shareholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our common stock is low or
volatile, we may not be able to acquire other companies or fund a joint venture project using our stock as consideration.
Unfavorable U.S. or global economic conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and financial markets. A severe or prolonged
economic downturn, as result of a global pandemic or otherwise, could result in a variety of risks to our business, including weakened demand for our
products and services and our ability to raise additional capital when needed on favorable terms, if at all. A weak or declining economy could strain our
collaborators, possibly resulting in supply disruption, or cause delays in their payments to us. Any of the foregoing could harm our business and we cannot
anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
We use biological and hazardous materials that require considerable expertise and expense for handling, storage and disposal and may result in claims
against us.
We work with materials, including chemicals, biological agents and compounds and samples that could be hazardous to human health and safety or
the environment. Our operations also produce hazardous and biological waste products. Federal, state and local laws and regulations govern the use,
generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations is
expensive, and current or future environmental laws and regulations may restrict our operations. If we do not comply with applicable regulations, we may
be subject to fines and penalties.
In addition, we cannot eliminate the risk of accidental injury or contamination from these materials or wastes, which increase with the volume of
material and sample transfers and could cause an interruption of our commercialization efforts, research and development programs, and business
operations, as well as environmental damage resulting in costly cleanup and liabilities under applicable laws and regulations. Furthermore, environmental
laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot
be certain of our future compliance. While our property insurance policy provides limited coverage in the event of contamination from hazardous and
biological products and the resulting cleanup costs, we do not currently have any additional insurance coverage for legal liability for claims arising from the
handling, storage or disposal of hazardous materials. Accordingly, in the event of contamination or injury, we could be liable for damages or penalized with
fines in an amount exceeding our resources and our operations could be suspended or otherwise adversely affected.
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If we were to be sued for product liability or professional liability, we could face substantial liabilities that exceed our resources.
The marketing, sale and use of our products and services could lead to the filing of product or professional liability claims were someone to allege
that our products or services identified inaccurate, incomplete or untimely information regarding the sequence or antigen specificities of TCRs, BCRs or
antigens analyzed or the clonality characterized, or MRD or malignancy detected, or that our products or services otherwise failed to perform as designed
or intended. We could also be potentially exposed to claims relating to therapeutic failures of products commercialized under our collaborations, such as a
cellular therapy marketed by Genentech that is manufactured based on TCR-related sequences and data we provide. We may also be subject to liability for
errors in, a misunderstanding of or inappropriate reliance upon, the information we provide in the ordinary course of our business activities. A product
liability or professional liability claim could result in substantial damages and be costly and time-consuming for us to defend. Regardless of merit or
eventual outcome, product liability and professional liability claims may result in:
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decreased demand for any products, services or clinical solutions that we have developed or may develop;
loss of revenue;
substantial monetary awards to patients or their families;
significant time and costs to defend related litigation;
• withdrawal of clinical trial participants;
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the inability to commercialize any products, services or clinical solutions that we have developed or may develop; and
injury to our reputation and significant negative media attention.
We maintain product and professional liability insurance, but this insurance may not fully protect us from the financial impact of defending against
product liability or professional liability claims. Any product liability or professional liability claim brought against us, with or without merit, could
increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability lawsuit could cause current
collaborators to terminate existing agreements or potential collaborators to seek other companies, any of which could impact our results of operations.
We or our collaborators may be adversely affected by natural or man-made disasters or other business interruptions, such as cybersecurity attacks, and
our business continuity and disaster recovery plans, or those of our collaborators, may not adequately protect us from the effects of a serious disaster.
Natural and man-made disasters and other events beyond our control could severely disrupt our operations, or those of our collaborators, and have a
material adverse impact on our business, results of operations, financial condition and prospects. If a natural disaster, power outage, cybersecurity attack or
other event occurred that prevented us from using all or a significant portion of our headquarters, damaged critical infrastructure, such as our laboratory
facilities or those of our collaborators, limited our or our collaborators’ ability to access or use our respective digital information systems or that otherwise
disrupted our respective operations, it may be difficult or, in certain cases, impossible for us or our collaborators to continue our respective businesses for a
substantial period of time. The disaster recovery and business continuity plans we and our collaborators currently have in place are limited and are unlikely
to prove adequate in the event of a serious disaster or similar event. Our cybersecurity liability insurance may not cover any or all damages, depending on
the severity and extent, we or our collaborators could sustain based on any breach of our respective computer security protocols or other cybersecurity
attack, including potential liability arising out of third parties’ negatively impacted data privacy rights. We may incur substantial expenses as a result of the
limited nature of our respective disaster recovery and business continuity plans, which could have a material adverse impact on our business.
Risks Relating to Government Regulation
We conduct our business in a heavily regulated industry, and changes in regulations or violations of regulations may, directly or indirectly, reduce our
revenue, adversely affect our results of operations and financial condition and harm our business.
The life sciences industry is highly regulated, and the regulatory environment in which we and our collaborators operate may change significantly
and adversely to us in the future. Areas of the regulatory environment that may affect our ability to conduct business include, without limitation, federal
and state laws relating to:
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laboratory testing, including CLIA and state laboratory licensing laws;
the development, testing, use, distribution, promotion and advertising of research services, kits, clinical diagnostics and cellular therapies,
including certain LDTs, which are regulated by the FDA under the FDCA and the FTC;
test ordering, documentation of tests ordered, billing practices and claims payment under CMS and the HHS OIG enforcing those laws and
regulations;
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cellular therapies, medical device and in vitro diagnostic clearance, marketing authorization or approval;
laboratory anti-mark-up laws;
the handling and disposal of medical and hazardous waste;
fraud and abuse laws such as the False Claims Act, the AKS, EKRA, and the Stark Law;
• Occupational Safety and Health Administration rules and regulations;
• HIPAA and other federal and state medical data privacy and security laws;
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the Genetic Information Nondiscrimination Act (“GINA”) and similar state laws; and
coverage and restrictions on coverage and reimbursement for research services, kits, clinical diagnostics and cellular therapies and
Medicare, Medicaid, other governmental payors and private insurers reimbursement levels.
In particular, the laws, regulations and policies governing the marketing of RUO products, LDTs and clinical diagnostic tests and services are
extremely complex and are subject to interpretation by the courts and governmental agencies. Our failure to comply could lead to civil or criminal
penalties, exclusion from participation in state and federal health care programs, or prohibitions or restrictions on our laboratories’ ability to provide or
receive payment for our services. We believe that we are in material compliance with all statutory and regulatory requirements, but there is a risk that one
or more government agencies could take a contrary position, or that a private party could file suit under the qui tam provisions of the federal False Claims
Act or a similar state law. Such occurrences, regardless of their outcome, could damage our reputation and adversely affect important business relationships
with third parties, including managed care organizations, and other private third-party payors.
The insurance coverage and reimbursement status of newly approved products and services, in a new category of diagnostics and therapeutics, is
uncertain. Failure to obtain or maintain adequate coverage and reimbursement for current or future products and services could limit our ability, and
that of our collaborators, to fully commercialize our products and services and decrease our ability to generate revenue.
The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford the clinical
diagnostic tests and cellular therapeutics that we and our collaborators currently or plan to develop and sell. In addition, because our clinical diagnostics
and therapeutic products and services represent new approaches to the research, diagnosis, detection and treatment of diseases, we cannot accurately
estimate how our products and services, and those jointly created with our collaborators, would be priced, whether reimbursement could be obtained or any
potential revenue generated. Sales of our products and services will depend substantially, both domestically and internationally, on the extent to which the
costs of our products and services are paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or
reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not
available, or is available only to limited levels, we may not be able to successfully commercialize some of our products or services. Even if coverage is
provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return
on our investment in any of our products or services. If we adopt a self-pay strategy with respect to any products or services, we may experience similar
difficulties in the establishment or maintenance of sufficiently high pricing. Changes in the reimbursement landscape may occur, which are outside of our
control, and may impact the commercial viability of our products and services.
There is significant uncertainty related to the insurance coverage and reimbursement of newly cleared, authorized or approved products and
services. In the United States, many significant decisions about reimbursement for new diagnostics and medicines are typically made by CMS, an agency
within the HHS, and its contractors. CMS and its contractors decide whether and to what extent a new diagnostic or medicine will be covered and
reimbursed under Medicare. Private payors tend to follow CMS policies to a substantial degree. It is difficult to predict what CMS and its contractors will
decide with respect to reimbursement for novel products and services such as ours. Additionally, reimbursement agencies in Europe may be more
conservative than CMS. For example, a number of cancer drugs have been approved for reimbursement in the United States and have not been approved
for reimbursement, or have been approved under restricted conditions, in certain European countries.
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Outside the United States, the reimbursement process and timelines vary significantly. Certain countries, including a number of member states of the
EU, set prices and make reimbursement decisions for diagnostics and pharmaceutical products, or medicinal products, as they are commonly referred to in
the EU, with limited participation from the marketing authorization or Conformité Européene (“CE”) mark holders, or may take decisions that are
unfavorable to the authorization or CE mark holder where they have participated in the process. We cannot be sure that such prices and reimbursement
decisions will be acceptable to us or our collaborators. If the regulatory authorities in these foreign jurisdictions set prices or make reimbursement criteria
that are not commercially attractive for us or our collaborators, our revenues and the potential profitability of our products and services in those countries
would be negatively affected. An increasing number of countries are taking initiatives to attempt to control the healthcare budget by focusing cost-cutting
efforts on medicinal products, and to a lesser extent, medical devices, provided under their state-run healthcare systems. These international price control
efforts have impacted all regions of the world, but have been most prominent in the EU. Additionally, some countries require approval of the sale price of a
product before it can be marketed or mandatory discounts or profit caps may be applied. Further, after the sale price is approved, it remains subject to
review during the product lifecycle. In many countries, the pricing review period begins after marketing or product licensing approval is granted or the CE
mark is obtained. As a result, we or our collaborators might obtain marketing approval for a product or service in a particular country, but then may
experience delays in the reimbursement approval or be subject to price regulations that would delay the commercial launch of our product or service,
possibly for lengthy time periods, which could negatively impact the revenues we are able to generate from the sale of that product or service in that
particular country.
Moreover, increasing efforts by governmental and third-party payors, in the United States and abroad, to cap or reduce healthcare costs may cause
such organizations to limit both coverage and level of reimbursement for newly cleared, authorized or approved devices and medicines and, as a result, they
may not cover or provide adequate payment for our clinical diagnostics or the cellular therapies to be sold by us or our collaborators. For example, the U.S.
government introduced the Lower Drug Costs Now Act of 2019 to reduce the cost of drugs. This blueprint contains certain measures that HHS is already
working to implement. In addition, the No Surprises Act (“NSA”) took effect in January 2022. One of the goals of the NSA is to protect patients from
“surprise” medical bills resulting from gaps in coverage for services provided by out-of-network providers, such as laboratories, related to patient visits at
in-network facilities. The NSA limits the amount out-of-network laboratories may charge a patient for laboratory services ordered during an in-network
facility visit and establishes an independent dispute resolution process for determining the amount of reimbursement for the laboratory service in the event
that the laboratory and insurer cannot agree on a rate. To the extent the NSA limits the price charged for our diagnostic products or cellular therapeutics, the
commercial viability of those products may be adversely affected.
At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological
program pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and
transparency measures, which are, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect to experience pricing pressures on our clinical diagnostics and cellular therapies sold by us and our collaborators due to the trend toward
value-based pricing and coverage, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure
on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result,
increasingly high barriers are being erected to the entry of new products.
Our business could be harmed by the loss, suspension or other restriction on a license, certification or accreditation, or by the imposition of a fine or
penalties, under CLIA, its implementing regulations or other state, federal and foreign laws and regulations affecting licensure or certification, or by
future changes in these laws or regulations.
Federal law requires virtually all clinical laboratories to comply with CLIA, which generally involves becoming certified by the federal and state
government for the testing that will be performed and complying with various operational, personnel, facilities administration, quality and proficiency
testing requirements intended to ensure that testing services are accurate and reliable. CLIA certification is also a prerequisite to be eligible to bill state and
federal healthcare programs, as well as many private third-party payors, for laboratory research and clinical diagnostic testing services. As a condition of
our CLIA certification, our Seattle, Washington laboratory is subject to survey and inspection every other year, additional random inspections and surprise
inspections based on complaints received by state or federal regulators. The biennial survey and inspection is conducted by CMS, a CMS agent or, if the
laboratory holds a CLIA certificate of accreditation, a CMS-approved accreditation organization, such as CAP. Sanctions for failure to comply with CLIA
requirements, including proficiency testing violations, may include suspension, revocation or limitation of a laboratory’s CLIA certificate, which is
necessary to conduct business, as well as the imposition of significant civil, administrative or criminal sanctions against the lab, its owners and other
individuals. In addition, we are subject to regulation under certain state laws and regulations governing laboratory licensure. Some states, including
Washington, have enacted laboratory licensure and compliance laws that are more stringent than CLIA. Changes in state licensure laws that affect our
ability to offer and provide research and diagnostic products and services across state or foreign country lines could materially and adversely affect our
business. In addition, state and foreign requirements for laboratory certification may be costly or difficult to meet and could affect our ability to receive
specimens from certain states or foreign countries.
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Any sanction imposed under CLIA, its implementing regulations or state or foreign laws or regulations governing licensure, or our failure to renew
a CLIA certificate, a state or foreign license or accreditation, could have a material adverse effect on our business.
Changes in law relating to health insurance coverage and payment may adversely affect our business.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010,
the ACA was passed, which substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the
U.S. clinical diagnostic and biopharmaceutical industries. The ACA, among other things, increased the minimum Medicaid rebates owed by manufacturers
under the Medicaid Drug Rebate Program, extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual
fees and taxes on manufacturers of certain branded prescription drugs and medical devices, including laboratory kits, and promoted a new Medicare Part D
coverage gap discount program.
Some of the provisions of the ACA have been subject to judicial and Congressional challenges. It is also unclear how regulatory provisions and sub-
regulatory guidance, both of which fluctuate continually, may affect interpretation and implementation of the ACA and its practical effects on our business.
In addition, changes in the number of patients that can look to third-party payment to help afford our products and services may affect the demand for these
products and services.
We cannot predict what healthcare reform initiatives may be adopted in the future. Further federal, state and foreign legislative and regulatory
developments are likely, and we expect ongoing initiatives to increase downward pressure on drug and device pricing. Such reforms could have an adverse
effect on anticipated revenues from our products and services, including those that we jointly develop with our collaborators, and may affect our overall
financial condition and ability to develop or obtain regulatory clearance, authorization or approval for our products and services.
Inadequate funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel,
prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing
normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and clear, authorize or approve new products can be affected by a variety of factors, including government budget
and funding levels, ability to hire and retain key personnel, and statutory, regulatory and policy changes. In addition, government funding of agencies on
which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid
and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs and devices to be reviewed and cleared, authorized or
approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has
shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical employees and stop critical activities. If a
prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions,
which could have a material adverse effect on our business.
We must maintain compliance with FDA requirements for our products and services and failure to maintain compliance with FDA requirements may
prevent or delay the marketing of our products and services.
Even after we have obtained marketing authorization, as we have for clonoSEQ and T-Detect COVID under an EUA, we must comply with the
scope of that clearance, authorization or approval. Failure to comply with those limitations or the additional, extensive and ongoing post-marketing
obligations imposed by the FDA or other regulatory requirements of other regulatory agencies could result in unanticipated compliance expenditures, a
range of administrative enforcement actions, injunctions and criminal prosecution. FDA post-market obligations include, among other things, compliance
with the FDA QSR, establishing registration and device listings, labeling requirements, reporting of certain adverse events and malfunctions, and reporting
of certain recalls. In addition, circumstances may arise that cause us to recall equipment used in connection with our products and services. Such recalls
could have an adverse effect on our ability to provide those products and services, which in turn would adversely affect our financial condition. Our
collaborators will also be required to maintain FDA clearance, authorization or approval for the products and services that we jointly develop. Any failure
by us or our collaborators to maintain such clearance, authorization or approval could impair or cause a delay in our ability to profit from these
collaborations.
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Products and services offered RUO may be subject to regulatory scrutiny.
Certain of our products are currently labeled and sold for RUO and not for the diagnosis or treatment of disease. Because such products are not
intended for diagnostic use, and the products do not include clinical or diagnostic claims or provide directions for use as diagnostic products, they are not
subject to the same level of regulation by the FDA as medical devices. In particular, while the FDA regulations require that RUO products be appropriately
labeled, “For Research Use Only,” the regulations do not subject such products to the FDA’s pre- and post-market controls for medical devices. Pursuant to
FDA guidance on RUO products, a company may not make clinical or diagnostic claims about an RUO product or provide clinical directions or clinical
support services to customers of RUO products. A product labeled RUO but deemed by the FDA to be intended for clinical diagnostic use may be viewed
by the FDA as adulterated and misbranded under the FDCA and subject to FDA enforcement action. The FDA considers the totality of the circumstances
surrounding distribution and use of a product labeled as RUO, including how the product is marketed and to whom, when determining its intended use. If
the FDA were to disagree with our RUO classification or modify its approach to regulating products labeled for RUO, we could experience reduced
revenue or increased compliance and other costs, which could adversely affect our business, prospects, results of operations and financial condition. In the
event that the FDA requires marketing authorization of our RUO products in the future, the FDA may not ultimately grant any clearance, authorization or
approval requested by us in a timely manner, or at all.
Future changes in FDA enforcement discretion for LDTs could subject our operations to much more significant regulatory requirements.
In addition to offering the cleared version of clonoSEQ as a test for MRD in certain blood cancers, we also currently offer an LDT version of this
test. Further, we offer our T-Detect COVID test as an LDT. The FDA has a policy of enforcement discretion with respect to LDTs whereby the FDA does
not actively enforce its medical device regulatory requirements for such tests. However, in October 2014, the FDA issued two draft guidance documents
stating that the FDA intended to modify its policy of enforcement discretion with respect to LDTs in a risk-based manner consistent with the existing
classification of medical devices. Although the FDA halted finalization of the guidance in November 2016 to allow for further public discussion on an
appropriate oversight approach to LDTs and to give Congressional authorizing committees the opportunity to develop a legislative solution, it is unclear if
Congress or the FDA will modify the current approach to the regulation of LDTs in a way that would subject our current or future services marketed as
LDTs to the enforcement of FDA regulatory requirements. The FDA Commissioner and the Director of the Center for Devices and Radiological Health
(“CDRH”) have expressed significant concerns regarding disparities between some LDTs and in vitro diagnostics that have been reviewed, cleared,
authorized or approved by the FDA. If the FDA were to determine that T-Detect COVID and NGS MRD tests offered as LDTs are not within the policy for
LDTs for any reason, including new rules, policies or guidance, or due to changes in statute, our tests may become subject to extensive FDA requirements
or our business may otherwise be adversely affected. If the FDA were to disagree with our LDT status or modify its approach to regulating LDTs, we could
experience reduced revenue or increased costs, which could adversely affect our business, prospects, results of operations and financial condition. If
required, the regulatory marketing authorization process required to bring our current or future LDTs into compliance may involve, among other things,
successfully completing additional clinical validations and submitting to and obtaining clearance from the FDA for a premarket clearance (510(k))
submission or authorization for a de novo or approval of a PMA. Furthermore, recently introduced legislation, if passed, such as the VALID Act, could
create new or different regulatory and compliance burdens on us and could have a negative effect on our ability to develop new products, which could have
a material effect on our business. In the event that the FDA requires marketing authorization of our LDTs in the future, the FDA may not ultimately grant
any clearance, authorization or approval requested by us in a timely manner, or at all. In addition, if the FDA inspects our laboratory in relation to the
marketing of our FDA-cleared clonoSEQ test, any enforcement action the FDA takes might not be limited to the FDA-cleared clonoSEQ test and could
encompass our LDT testing service.
For each product and service we are developing that requires FDA premarket review, the FDA may not grant clearance, authorization or premarket
approval and failure to obtain necessary approvals for our future products and services would adversely affect our ability to grow our business.
Before we begin to manufacture, label and market additional clinical diagnostic products for commercial diagnostic use in the United States, we
may be required to obtain either clearance, marketing authorization or approval from the FDA, unless an exemption applies or the FDA exercises its
enforcement discretion and refrains from enforcing its requirements. For example, the FDA currently has a policy of refraining from enforcing its medical
device requirements with respect to LDTs, which the FDA considers to be a type of in vitro diagnostic test that is designed, manufactured and used within a
single properly licensed laboratory.
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The process of obtaining PMA is much more rigorous, costly, lengthy and uncertain than the 510(k) clearance process. In the PMA approval
process, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not
limited to, technical, preclinical, clinical trial, manufacturing and labeling data. Conversely, in the 510(k) clearance process, the FDA must determine that a
proposed device is “substantially equivalent” to a legally marketed “predicate” device in order for the product to be cleared for marketing. To be
“substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological
characteristics or if it has different technological characteristics as the predicate device, the proposed device must be as safe and effective as, and not raise
different questions of safety or effectiveness than, the predicate device. Clinical data is sometimes required to support substantial equivalence. For lower-
risk devices that would otherwise automatically be placed into Class III, which require a PMA because no predicate device is available and the devices do
not fall within an existing 510(k)-exempt classification, an applicant may submit a de novo request to down classify the device into Class II or Class I,
which would not require a PMA. In the de novo process, the FDA must determine that general and special controls are sufficient to provide reasonable
assurance of the safety and effectiveness of a device, which is low to moderate risk and has no predicate. In other words, the applicant must justify the
“down-classification” to Class I or II for a new product type that would otherwise automatically be placed into Class III, but is lower risk. Clinical data
may be required. For laboratory tests for which FDA clearance, authorization or approval is required, the FDA may also require data to support analytical
and clinical validity.
The 510(k), de novo and PMA processes can be expensive and lengthy and require the payment of significant fees, unless an exemption applies. The
FDA’s 510(k) clearance pathway usually takes from three to nine months from submission, but it can take longer for a novel type of product. The FDA’s de
novo classification pathway usually takes from six to 12 months, but for many applicants can take up to 18 months or more.
The process of obtaining a PMA generally takes from one to three years, or even longer, from the time the PMA is submitted to the FDA until an
approval is obtained. Any delay or failure to obtain necessary regulatory clearances, authorizations or approvals would have a material adverse effect on
our business, financial condition and prospects.
The FDA can delay, limit or deny clearance, authorization or approval of a device for many reasons, including:
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the inability to demonstrate to the satisfaction of the FDA that the products are safe or effective for their intended uses;
the disagreement of the FDA with the design, conduct or implementation of the clinical trials or the analysis or interpretation of data from
preclinical studies, analytical studies or clinical trials;
serious and unexpected adverse device effects experienced by participants in clinical trials;
the data from preclinical studies, analytical studies and clinical trials may be insufficient to support clearance, authorization or approval,
where required;
the inability to demonstrate that the clinical and other benefits of the device outweigh the risks;
an advisory committee, if convened by the FDA, may recommend against approval of a PMA or other application or may recommend that
the FDA require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution
and use restrictions, or even if an advisory committee makes a favorable recommendation, the FDA may still not approve the product;
the FDA may identify deficiencies in our marketing application;
the FDA may identify deficiencies in our or our collaborators’ manufacturing processes, facilities or analytical methods;
the potential for policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering
clinical data or regulatory filings insufficient for clearance, authorization or approval; and
the FDA or foreign regulatory authorities may audit clinical trial data and conclude that the data is not sufficiently reliable to support a
PMA.
There are numerous FDA personnel assigned to review different aspects of marketing submissions, which can present uncertainties based on their
ability to exercise judgment and discretion during the review process. During the course of review, the FDA may request or require additional data and
information, and the development and provision of these data and information may be time-consuming and expensive. The process of obtaining regulatory
clearances, authorizations or approvals to market a medical device can be costly and time-consuming, and we may not be able to obtain these clearances,
authorizations or approvals on a timely basis, or at all for our products in development. If we are unable to obtain clearance, authorization or approval for
any products for which we plan to seek clearance, authorization or approval, our business may be harmed.
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Modifications to our products with FDA clearance may require new FDA clearances, authorizations or approvals, or may require us to cease
marketing or recall the modified clinical diagnostic products or future clinical products until clearances are obtained.
Any modification to a 510(k)-cleared device that significantly affects its safety or effectiveness, or that constitutes a major change in its intended
use, could require a new 510(k) clearance, a new de novo authorization or approval of a PMA. The FDA requires every manufacturer to make this
determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether
new clearances, authorizations or approvals are necessary.
For any product approved pursuant to a PMA, we would be required to seek supplemental approval for many types of modifications to the approved
product. The FDA requires manufacturers in the first instance to determine whether a PMA supplement or other regulatory filing is needed or whether the
change may be reported via the PMA Annual Report, but may disagree with a company’s assessment.
If the FDA disagrees with our determination, which it may not review until we submit an annual report or the FDA conducts an inspection or other
inquiry, and requires us to seek new clearances, authorizations or approvals for modifications to our previously cleared, authorized or approved clinical
diagnostic products for which we have concluded new clearances, authorizations or approvals are unnecessary, we may be required to cease marketing or
distribution of these clinical diagnostic products or to recall the modified products until we obtain clearance, authorization or approval. We may also be
subject to enforcement action, including, among other things, significant regulatory fines or penalties.
Our employees, principal investigators, consultants and collaborators may engage in misconduct or other improper activities, including non-
compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, consultants and those of our collaborators. Misconduct by these parties
could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and
regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales,
marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent improper marketing,
fraud, misconduct, kickbacks, bribery, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a range of pricing,
discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also
involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our
reputation. We currently have a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct.
In addition, our code of conduct and the other precautions we take to detect and prevent this activity may not be effective in controlling unknown or
unmanaged risks or losses, or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these
laws or regulations. If any such investigations or actions are instituted against us and we are not successful in defending ourselves or asserting our rights,
those actions could result in the imposition of significant fines or other sanctions, which could have a significant impact on our business. We currently have
a compliance program in accordance with the elements of an effective program outlined by the HHS OIG, which could help mitigate damages, but cannot
prevent all misconduct. Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including
legal fees, suffer adverse publicity and reputational harm, and have the attention of management diverted in defending ourselves against any of these claims
or investigations.
If third-party payors, including private payors and government healthcare programs, do not provide coverage of, or adequate reimbursement for, our
clinical diagnostic products, our commercial success will be negatively affected.
Our revenue depends in part on achieving broad coverage and reimbursement for our diagnostic tests from payors, including both private and
government payors. Certain large private payors have issued policies that decline to cover testing methods that they regard as experimental or
investigational. Other payors may issue similar non-coverage policies. If payors do not provide coverage of, or do not provide adequate reimbursement for,
a substantial portion of the price of our diagnostic tests, we may need to seek payment from the patient where this is not precluded by law or contract,
which may adversely affect demand for our tests. Coverage determinations by a payor may depend on a number of factors, including, but not limited to, a
payor’s determination that a certain diagnostic test is appropriate, medically necessary or cost-effective. If we are unable to provide payors with sufficient
evidence of the clinical utility and validity of our diagnostic tests, they may not provide coverage, or may provide limited coverage, which will adversely
affect our revenues and our ability to succeed. To the extent that more competitors enter our markets, the availability of coverage and the reimbursement
rate for our tests and new diagnostic products may decrease as we encounter pricing pressure from our competitors.
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Each payor makes its own decision regarding coverage of our tests and the applicable payment rates, and payors may not provide adequate coverage
or reimbursement for our current or future products. Although we may contract with certain payors, working with payors through contract or otherwise to
assure reimbursement is time-consuming and costly and outcomes are uncertain. In addition, the determinations by a payor whether to cover our clinical
diagnostic product and the amount it will reimburse for them are often made on an indication-by-indication basis. In cases where there is no coverage
policy or we do not have a contracted rate for reimbursement as a participating provider, the patient is typically responsible for a greater share of the cost of
the test, which may result in further delay of our revenue, increase our collection costs or decrease the likelihood of collection. Through our Adaptive
Assist patient support program, we provide clonoSEQ diagnostic tests for reduced rates or without charge to eligible low-income patients that may result in
payors requiring us to provide evidence of eligibility of such patients to pay reduced out-of-pocket amounts.
Our claims for reimbursement from payors may be denied upon submission, and we may need to take additional steps to receive payment, such as
appealing the denials. Such appeals and other processes are time-consuming, expensive and may not result in payment. Payors may perform audits of
historically paid claims and attempt to recoup funds years after the funds were initially distributed if the payors believe the funds were paid in error or
determine that our clonoSEQ diagnostic tests or other clinical diagnostic products were medically unnecessary. In addition, similar to federal payors, state
and federal laws permit commercial payors to seek civil and criminal penalties against a manufacturer if they feel they have been defrauded. If a payor
audits our claims and issues a negative audit finding, and we are not able to overturn the audit findings through appeal, the recoupment may result in a
material adverse effect on our revenue. Additionally, in some cases commercial payors for whom we are not a participating provider may elect at any time
to review claims previously paid and determine the amount they paid was too much. In these situations, the payor will typically notify us of their decision
and then offset whatever amount they determine they overpaid against amounts they owe us on current claims. We do not have a mechanism to dispute
these retroactive adjustments and we cannot predict when, or how often, a payor might engage in these reviews.
Future Medicare payment rates are uncertain.
In January 2020, CMS revised the National Coverage Determination (“NCD”) for molecular diagnostic laboratory testing services utilizing a NGS
methodology, which includes our clinical diagnostic products, for Medicare beneficiaries with advanced cancer. CMS revised the NCD to extend specific
coverage for germline (inherited) testing. CMS stated that it is continuing to make other technical, clarifying and conforming changes in the NCD manual
and they are also clarifying the existing policy related to diagnostic tests for Somatic (Acquired) Cancer. If CMS were to make material revisions to policy,
this could potentially impact the scope of clonoSEQ coverage.
Under Medicare Part B, payment for most diagnostic laboratory tests is made under the Clinical Laboratory Fee Schedule (“CLFS”), which assigns
payment amounts to tests based on billing codes. Under the Protecting Access to Medicare Act of 2014 (“PAMA”), certain laboratories that receive the
majority of their Medicare revenue from payments made under the CLFS or Medicare’s Physician Fee Schedule are required to report to CMS every three
years, or annually for “advanced diagnostic laboratory tests,” commercial payor payment rates and volumes for tests they perform and that are assigned
specific billing codes. PAMA has special provisions relating to “advanced diagnostic laboratory tests,” as defined by the statute, and these provisions affect
the rate-setting at the time of launch and the periodicity of rate reporting and revision. Laboratories that fail to report the required payment information may
be subject to substantial civil monetary penalties. If, in the future, clonoSEQ or any of our tests are assigned a specific code we would be required to report
commercial payor payment data on those tests. Payments for tests billed under miscellaneous codes are determined by the MACs, which also have
discretion to change those payment rates.
CMS uses the data reported by laboratories to calculate a payment rate for each CLFS test, other than those coded with miscellaneous codes and
certain others, based on the volume-weighted median of the private payor rates. These rates apply for three years, except that payment rates for advanced
diagnostic laboratory tests apply for one year. If we offer tests with specific codes, this apparatus would apply. Under these circumstances, Medicare’s
payment rates would be determined by the rates we and other laboratories, if any, with tests that share the specific codes we use, obtain from commercial
payors. In that case, if we are unable to obtain and maintain adequate reimbursement rates from commercial payors, this may adversely affect our Medicare
rates.
In some circumstances, our tests may be furnished to hospital inpatients and paid by Medicare under different rules. For example, when a specimen
is obtained from a patient who is at the time classified by Medicare as a hospital inpatient, Medicare would not make a separate payment for the test and we
would have to look to the hospital for payment. We do not know how often this will occur or whether hospitals will resist paying us for our tests. In this
situation, Medicare coverage would be determined by the MAC for the jurisdiction where the hospital is located, which may not cover our tests.
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Our RUO, clinical diagnostic and therapeutic products or services, and those jointly developed with our collaborators, may in the future be subject to
product or service recalls. A recall of products or services, either voluntarily or at the direction of the FDA or another governmental authority, or the
discovery of serious safety issues with our or our collaborators’ products or services, could have a significant adverse impact on us.
The FDA has the authority to require the recall of commercialized products or services that are subject to FDA regulation. Manufacturers may,
under their own initiative, recall a product or service if any deficiency is found. The FDA requires that certain corrections and removals, including recalls
intended to reduce a health risk, be reported to the FDA within ten working days of initiating such correction or removal. For reportable corrections and
removals, companies are required to make additional periodic submissions to the FDA after initiating the recall, and often engage with the FDA on their
recall strategy prior to initiating the recall. A government-mandated or voluntary recall by us, one of our distributors or our collaborators could occur as a
result of an unacceptable health risk, component failures, failures in laboratory processes, malfunctions, manufacturing errors, design or labeling defects, or
other deficiencies and issues. Recalls of any of our commercialized products or services or those jointly developed with our collaborators would divert
managerial and financial resources and adversely affect our reputation, results of operations and financial condition. We may also be subject to liability
claims, be required to bear other costs or take other actions that may negatively impact our future sales and our ability to generate profits. Companies are
also required to maintain certain records of corrections and removals, even if these do not require reporting to the FDA. We or our collaborators may
initiate voluntary recalls involving our commercialized products or services in the future that we determine do not require FDA notification. If the FDA
disagrees with our determinations, they may require us to report those actions as recalls. A future recall announcement by us or our collaborators could
harm our reputation with customers and negatively affect our results of operations and financial condition. In addition, the FDA or other agency could take
enforcement action for failing to report the recalls when they were conducted.
If we or our collaborators initiate a recall, including a correction or removal, for one of our commercialized products or services, issue a safety alert,
or undertake a field action or recall to reduce a health risk, this could lead to increased scrutiny by the FDA, other governmental and regulatory
enforcement bodies, and our or our collaborators’ customers regarding the quality and safety of our products and services, and to negative publicity,
including FDA alerts, press releases, or administrative or judicial actions. Furthermore, the submission of these reports could be used against us by
competitors and cause customers to delay purchase decisions or cancel orders, which would harm our reputation.
Any additional commercialized products and services or any future products and services that obtain regulatory clearance, authorization, approval,
accreditation or licensure will remain subject to regulatory scrutiny and our failure to maintain our regulatory clearances, authorizations, approvals,
accreditations or licensures could adversely affect our reputation, business and results of operations.
Even if we or our collaborators obtain regulatory clearance, authorization, approval, accreditation or licensure in a jurisdiction for our products and
services, the applicable regulatory authority may still impose significant restrictions on the indicated uses or marketing of our products and services, or
impose ongoing requirements for potentially costly post-approval studies or post-market surveillance of our or our collaborators’ manufacturing and
distribution. Advertising for certain devices and labeling, including promotional labeling, for all devices must comply with FDA requirements. In addition,
device advertising and promotion may also be subject to other federal and state laws. For example, the FDA shares jurisdiction over the regulation of
device advertising with the FTC. Advertising for devices characterized as restricted by the FDA is subject to specified FDA requirements, while advertising
for non-restricted devices is regulated by the FTC.
If we or our collaborators fail to comply with applicable regulatory requirements following clearance, authorization, approval, accreditation or
licensure of any of our products and services, a regulatory agency may:
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initiate an inspection of our or our collaborators’ facilities;
issue an untitled or warning letter asserting that we or our collaborators are in violation of law;
seek an injunction or impose civil or criminal penalties or monetary fines;
suspend or withdraw regulatory clearance, authorization or approval, or revoke a license or accreditation;
suspend any ongoing clinical studies;
delay or refuse clearance, authorization or approval of a pending regulatory submission or supplement submitted by us or our collaborators;
impose restrictions on our or our collaborators’ cleared, authorized, approved, accredited or licensed products or services;
seize or recall the product or service;
partially suspend or entirely shut down our or our collaborators’ manufacturing or laboratory operations;
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issue advisories or other field actions;
impose operating restrictions;
refuse to allow us or our collaborators to enter into supply contracts, including government contracts; or
refer matters to the DOJ or other enforcement or regulatory bodies.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate
negative publicity. The occurrence of any event or penalty described above may inhibit our and our collaborators’ ability to commercialize any cleared,
authorized or approved products and services and generate revenues.
If any of our diagnostic products or services cause or contribute to a death or serious injury, or malfunction in certain ways, we will be required to
report such death, serious injury or malfunction under applicable medical device reporting regulations, and such events can result in voluntary
corrective actions or agency enforcement actions.
Under FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA information that a device has or
may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to a death or serious injury
if the malfunction of the device or one of our similar devices were to recur. If such a death, serious injury or malfunction were to occur, and we or our
collaborators are unable to demonstrate that the adverse events were caused by factors other than our or our collaborator’s products and services, regulatory
authorities could order us to cease further development of, or deny clearance, authorization or approval of, any of our or our collaborators’ products and
services for any or all targeted indications. Even if we and our collaborators are able to demonstrate that any serious adverse events are not related to our
products and services, such occurrences could affect patient recruitment or the ability of enrolled trial participants to complete the trial. Moreover, if we or
our collaborators elect, or are required, to delay, suspend or terminate any clinical trial of any product in development, the commercial prospects of such
product in development may be harmed and our ability to generate product revenues may be delayed or eliminated. Any of these occurrences may harm our
and our collaborators’ ability to identify and develop future products and services, and may significantly harm our business, financial condition, result of
operations and prospects.
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We are subject to various laws and regulations, such as healthcare fraud and abuse laws, false claim laws and health information privacy and security
laws, among others, and failure to comply with these laws and regulations may have an adverse effect on our business.
Healthcare providers, physicians, hospitals and third-party payors often play a primary role in the recommendation and prescription of any currently
marketed products and services for which we may obtain clearance, authorization or approval. Our current and future arrangements with healthcare
providers, physicians, hospitals and third-party payors, and our sales, marketing and educational activities related to our products and services, may expose
us to broadly applicable fraud and abuse and other healthcare laws and regulations at the federal and state level that may constrain our business or financial
arrangements, and the relationships through which we market, sell and distribute our products and services. In addition, our operations are also subject to
various federal and state fraud and abuse, physician payment transparency, and privacy and security laws, including, without limitation:
• The AKS, which prohibits, among other things, persons and entities, including clinical laboratories, from knowingly and willfully soliciting,
receiving, offering or paying remuneration, whether directly or indirectly, overtly or covertly, in case or in kind, to induce or reward or in
return for either the referral of an individual or the purchase, lease, order or recommendation of an item or service reimbursable, in whole or
in part, under a federal healthcare program such as Medicare or Medicaid. The AKS has been interpreted broadly to apply to, among other
things, arrangements between clinical laboratories and prescribers and purchasers of our tests. The term “remuneration” expressly includes
kickbacks, bribes or rebates and has been broadly interpreted to include anything of value, including gifts, discounts, waivers of payment,
ownership interests and any goods or services provided at less than their fair market value. There are several statutory exceptions and
regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, however, these exceptions and
safe harbors are drawn narrowly, and practices that do not fit squarely within an exception or safe harbor may be subject to scrutiny. The
failure to meet all of the requirements of a particular statutory exception or regulatory safe harbor does not make the conduct per se illegal
under the AKS. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of the facts
and circumstances to determine whether one purpose of the remuneration in the arrangement was to induce referrals or generate business
that is payable by a federal healthcare program. A violation of the AKS may be grounds for the government or a whistleblower to assert that
a claim for payment of items or services resulting from such violation constitutes a false or fraudulent claim for purposes of the False
Claims Act. Moreover, certain AKS safe harbors currently protecting rebates paid by device manufacturers to third parties and other
arrangements between device manufacturers and third parties may later be modified or repealed pursuant to a pending regulatory proposal,
which could require us to revisit or modify our business practices. Our practices may not meet all of the criteria for safe harbor protection
from AKS liability in all cases. A person or entity does not need to have actual knowledge of the AKS or specific intent to violate any AKS
provisions to have committed a violation. In addition, renumeration may not be offered or provided to beneficiaries under the vili monetary
penalty law provision prohibiting inducements to beneficiaries.
• Section 8122 of the SUPPORT Act, EKRA, which establishes an all-payor anti-kickback prohibition that extends to arrangements with
recovery homes, clinical laboratories and clinical treatment facilities. EKRA includes a number of statutory exceptions, and directs agencies
to develop further exceptions. Current EKRA exceptions in some cases reference, and in others differ from, the AKS safe harbors.
Significantly, the EKRA prohibitions apply to the soliciting or receipt of remuneration for any referrals to recovery homes, clinical
treatment facilities or clinical laboratories, whether or not related to the treatment of substance use disorders. Further, the EKRA
prohibitions cover the payment or offer of remuneration to induce a referral to, or in exchange for, an individual using the services of such
providers. EKRA creates additional risk that relationships with referral sources could be problematic.
• Federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which prohibits individuals or
entities from, among other things, knowingly presenting, or causing to be presented, claims for payment to, or approval by, the federal
government that are false, fictitious or fraudulent, or knowingly making, using or causing to be made or used a false record or statement
material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. As a result of a
modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property
presented to the federal government. The False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on
behalf of the federal government alleging violations of the False Claims Act and to share in any monetary recovery. In addition, AKS
violations implicate the False Claims Act. Conduct that results in a False Claims Act violation may also implicate various federal criminal
statutes.
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• The Criminal Health Care Fraud Statute, which imposes criminal and civil liability for knowingly and willfully executing, or attempting to
execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property
owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors, and knowingly and
willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the AKS, a person
or entity does not need to have actual knowledge or specific intent to violate the Criminal Health Care Fraud Statute.
• The Stark Law, which is directed at “self-referral,” prohibits, with certain exceptions, referrals for certain DHS, including laboratory
services, that are covered by Medicare and Medicaid by physicians who personally, or through a family member, have an investment or
ownership interest in, or a compensation arrangement with, an entity performing the tests. The prohibition also extends to payment for any
testing referred in violation of the Stark Law. Because the Stark Law is a strict liability statute, proof of specific intent to violate the law is
not a required element of a violation. Any person who engages in a scheme to circumvent the Stark Law’s referral prohibition may be fined
up to $100,000 for each such arrangement or scheme. In addition, any person who presents or causes to be presented a claim to Medicare or
Medicaid in violation of the Stark Law is subject to civil monetary penalties of up to $15,000 per bill submission, an assessment of up to
three times the amount claimed and possible exclusion from participation in federal governmental payor programs, and those claims are
considered false claims for which the parties to the arrangement may be liable under the False Claims Act. Bills submitted in violation of
the Stark Law may not be paid by Medicare or Medicaid, and any person collecting any amounts with respect to any such prohibited bill is
obligated to refund such amounts. Many states have comparable laws that are not limited to Medicare and Medicaid referrals. The Stark
Law also places an annual cap on the amount of non-monetary compensation, which consists of meal spend and educational items, that a
company can spend on a physician in the aggregate. This annual cap requires careful tracking and coordination and if it is exceeded, as long
as the amount exceeded is less than 50% of the total annual cap and is recouped from the physician within 180 calendar days or before the
end of the calendar year, it is not a violation. This “return” option may only be used once every three years with respect to the same
referring physician. We occasionally enter into financial relationships, usually compensation relationships, such as a consulting
arrangement, with physicians who refer patients for testing. If these arrangements do not meet the Stark Law’s requirements, any claims
submitted to Medicare or Medicaid could violate the law and put both the physician referral source and us at risk.
• The administrative simplification provisions of HIPAA, as amended and supplemented by HITECH, impose, among other things,
obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of protected health
information (“PHI”) held by certain healthcare providers, health plans and healthcare clearinghouses, known as covered entities, and their
respective business associates. Among other things, HITECH made certain aspects of HIPAA’s rules, notably the “HIPAA Security Rule,”
directly applicable to business associates, independent contractors or agents of covered entities that create, receive, maintain or transmit PHI
in connection with providing a function on behalf of, or a service to, a covered entity. HITECH also created four new tiers of civil monetary
penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates and gave state attorneys general
new authority to file civil actions for damages or injunctions in federal court to enforce the federal HIPAA regulation and seek attorneys’
fees and costs associated with pursuing federal civil actions. The HHS Office for Civil Rights (“OCR”) has increased its focus on
compliance and continues to train state attorneys general for enforcement purposes. The OCR has recently increased both its efforts to audit
HIPAA compliance and its level of enforcement, with one recent penalty exceeding $16 million.
• GINA, which restricts employers and health insurance companies from requiring or using the results of genetic tests in specific contexts and
does not provide a private right of action. A number of states have also adopted laws regarding genetic tests, some aligned with GINA and
some with broader applicability, including granting broader rights to individuals and imposing strict obligations on organizations to
safeguard genetic data and the results of any such testing.
• The Physician Payments Sunshine Act created under the ACA, and its implementing regulations, which requires applicable manufacturers
of covered drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the State Children’s
Health Insurance Program, with certain exceptions, to annually report to HHS information related to certain payments or other transfers of
value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of,
physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.
The Physician Payments Sunshine Act has been extended to payments and transfers of value to physician assistants, nurse practitioners and
other mid-level healthcare providers, with reporting requirements going into effect in 2022 for payments and transfers of value made to
these practitioners in 2021. In addition, certain state and local laws may impose additional transparency and healthcare compliance
requirements on medical device manufacturers, as well as certain restrictions or limits on interactions with healthcare professionals.
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• The FTCA, which the FTC interprets to require taking appropriate steps to secure consumers’ personal information and considers the
failures to do so to constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the FTCA. The FTC expects a
company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds,
the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Medical data is
considered sensitive data that merits stronger safeguards, and the FTC’s guidance for appropriately securing consumers’ personal
information is consistent with what is required by the HIPAA Security Rule. Some states, most notably Massachusetts and Nevada, also
have adopted laws requiring the implementation of security measures to protect personal information, and all 50 states and the District of
Columbia, Puerto Rico and Guam, have adopted breach notification laws.
• Analogous state laws and regulations, such as state anti-kickback, self-referral and false claims laws, which may apply to items or services
reimbursed by any third-party payor, including commercial insurers, and in some cases even in self-pay scenarios. In addition, some state
laws require life sciences companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government, or to impose transparency requirements or restrictions on marketing activities.
• Various state, federal and foreign laws and regulations govern our ability to communicate, prospect, advertise and market our products and
services through email, phone, text messages, facsimile and online methods.
Because of the breadth of these laws and the narrowness of the exceptions and safe harbors available under them, it is possible that certain of our
business activities could be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject
to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state
enforcement bodies have recently increased their scrutiny of the ongoing interactions between healthcare companies and healthcare providers, which has
led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Ensuring that business arrangements with third
parties comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource-
consuming and can divert management’s attention from our business.
If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be
subject to penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, individual imprisonment,
possible exclusion from participation in government healthcare programs, injunctions, private qui tam actions brought by individual whistleblowers in the
name of the government and the curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become
subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, any of which could adversely affect
our ability to operate our business and our results of operations.
Our collection, use and disclosure of personal information, including health and employee information, is subject to state, federal and foreign privacy
and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could result in significant
liability or reputational harm.
The privacy and security of personal information stored, maintained, received or transmitted, including electronically, is a major issue in the United
States and abroad. While we strive to comply with all applicable privacy and security laws and regulations, including, in our case, our own posted privacy
policies, legal standards for privacy, including but not limited to “unfairness” and “deception,” as enforced by the FTC and state attorneys general, these
laws and regulations continue to evolve and any failure or perceived failure to comply may result in proceedings or actions against us by government
entities or others, or could cause us to lose customers, which could have a material adverse effect on our business. Recently, there has been an increase in
public awareness of privacy issues in the wake of revelations about the data-collection activities of various government agencies and in the number of
private privacy-related lawsuits filed against companies (including a private right of action under the CCPA and other similar state laws, as described
below). Concerns about our practices with regard to the collection, use, retention, disclosure or security of personal information or other privacy-related
matters, even if unfounded and even if we are in compliance with applicable laws, could damage our reputation and harm our business. Additionally, we
receive personal information, including PHI from third parties, and if such third parties breach their representations to us regarding their compliance with
applicable privacy and security laws, we could be exposed to proceedings or actions by government agencies or others.
Numerous foreign, federal and state laws and regulations govern the collection, dissemination, use and confidentiality of personal information,
including genetic, biometric and health information, including state privacy, data security and breach notification laws, federal and state consumer
protection and employment laws, HIPAA, GINA, the GDPR and other foreign data protection laws. These laws and regulations are increasing in
complexity and number, may change frequently and sometimes conflict.
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The HIPAA privacy, security and breach notification regulations, including the expanded requirements under HITECH, establish comprehensive
federal standards with respect to the uses and disclosures of PHI by health plans, healthcare providers, including laboratories, and healthcare
clearinghouses, in addition to setting standards to protect the confidentiality, integrity and security of PHI. The regulations establish a complex regulatory
framework on a variety of subjects, including:
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the circumstances under which uses and disclosures of PHI are permitted or required without a specific authorization by the patient;
a patient’s rights to access, amend and receive an accounting of certain disclosures of PHI;
requirements to notify individuals if there is a breach of their unsecured PHI;
the contents of notices that must be provided to patients regarding our privacy practices for PHI;
administrative, technical and physical safeguards required of entities that use or receive PHI; and
the safeguarding of PHI.
Penalties for violations of these laws vary. For instance, penalties for failure to comply with a requirement of HIPAA and HITECH vary
significantly, and include civil monetary penalties of up to $58,490 per violation, which cap has been increased to account for inflation, not to exceed
approximately $1.75 million per calendar year, for each provision of HIPAA that is violated and, in certain circumstances, criminal penalties with fines up
to $250,000 per violation and imprisonment. However, a single breach can result in findings of violations of multiple provisions, leading to possible
penalties in excess of $1.75 million for violations in a calendar year. Any person who knowingly obtains or discloses PHI in violation of HIPAA may face a
criminal penalty of up to $50,000 and up to one year of imprisonment. The criminal penalties increase if the wrongful conduct involves false pretenses or
the intent to sell, transfer or use identifiable health information for commercial advantage, personal gain or malicious harm. In addition, responding to
government investigations or related third-party private rights of action regarding alleged violations of these and other laws and regulations, even if they
ultimately result in no findings of violations or no penalties imposed, can consume our resources and impact our business and, if public, harm our
reputation.
Computer networks are vulnerable to breach and unauthorized persons may in the future be able to exploit weaknesses in the security systems of our
computer networks and gain access to PHI. Additionally, we share PHI with third-party contractors, and while they are contractually obligated under
business associate agreements to safeguard and maintain the confidentiality of PHI, their indemnification of us would not insulate us from reputational
harm. Unauthorized persons may be able to gain access to PHI stored in such third-party contractors’ computer networks. Any wrongful use or disclosure
of PHI by us or our third-party contractors, including disclosure due to data theft or unauthorized access to our or our third-party contractors’ computer
networks, could subject us to fines or penalties that could adversely affect our business and results of operations. Although HIPAA and the regulations
promulgated thereunder do not provide for a private right of action, we could incur damages under state laws to private parties for the wrongful use or
disclosure of confidential health information or other private personal information.
Further, various states, such as California, New York and Massachusetts, have implemented similar privacy laws and regulations, such as the
California Confidentiality of Medical Information Act, that impose restrictive requirements regulating the use and disclosure of health information and
other personal information. These laws and regulations are not necessarily preempted by HIPAA, but they have a wider scope and afford greater protection
to individuals than HIPAA. Where state laws are more protective, we and our collaborators must comply with the stricter provisions where they apply. In
addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal
information has been misused. The interplay of federal and state laws may be subject to varying interpretations by courts and government agencies,
creating complex compliance issues for us and our customers and potentially exposing us to additional expense, adverse publicity and liability. Further, as
regulatory focus on privacy, security and data use issues continues to increase and laws and regulations concerning the protection of personal information
expand and become more complex, these potential risks to our immune medicine platform and related products and services could intensify. Changes in
laws or regulations associated with the enhanced protection of certain types of sensitive data, such as PHI, along with increased customer demand for
enhanced data security infrastructure, could greatly increase the cost of providing our products and services, decrease demand for our products and
services, reduce our revenue and subject us to additional liabilities.
We currently operate in some and may eventually operate in additional countries outside of the United States whose laws may in some cases be
more stringent than the requirements in the United States. For example, the EU has specific requirements relating to cross-border transfers of personal data
to certain jurisdictions, including to the United States. In addition, some countries have stricter consumer notice or consent requirements relating to
personal data collection, use or sharing, have more stringent requirements relating to organizations’ privacy programs and provide stronger individual
rights.
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Moreover, international privacy and data security regulations may become more complex and result in greater penalties. For instance, the GDPR
governs the collection and use of personal data of data subjects in the EU and the EEA. The GDPR applies extra-territorially under certain circumstances
and imposes stringent requirements on controllers and processors of personal data, including, for example, requirements to obtain consent or other legal
bases from individuals to process their personal data, provide robust disclosures to individuals, accommodate a set of individual data rights, provide data
security breach notifications within 72 hours after becoming aware of the breach, limit retention of personal information and apply enhanced protections to
health data and other special categories of personal data. The GDPR also applies to pseudonymized data, which is defined as “the processing of personal
data in such a way that the data can no longer be attributed to a specific data subject without the use of additional information,” and imposes additional
obligations when we contract with third-party processors in connection with the processing of any personal data. The GDPR provides that EU member
states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric or health data, which could
limit our ability to use and share personal data, could cause our costs to increase and could harm our financial condition. Failure to comply with the
requirements of the GDPR and the applicable national data protection laws of the EU member states may result in fines of up to €20 million or up to 4% of
the total worldwide annual turnover of our preceding fiscal year, whichever is higher, and other administrative penalties. Compliance with the GDPR
requires us to put in place and maintain additional policies, procedures and documentation that may not have been required under the preceding framework,
which may result in other substantial expenditures. This may be onerous and adversely affect our business, financial condition, results of operations and the
profitability of our platform of products and services. Failure to comply with the GDPR and other countries’ privacy or data security-related laws, rules or
regulations could result in material penalties imposed by regulators, affect our compliance with contracts entered into with our collaborators and other
third-party payors, and have an adverse effect on our business and financial condition. Currently, the GDPR is only applicable to us as a processor, but as
we continue to expand into the European market, the GDPR will have direct applicability to us as a controller.
The GDPR also imposes strict rules on the transfer of personal data out of the EU to the United States. These obligations may be interpreted and
applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other requirements or our practices. In addition, these rules
are consistently under scrutiny. In July 2020, the Court of Justice of the European Union (“CJEU”) invalidated the EU-US Privacy Shield, effective
immediately, one of the methods for transfers of personal data into the US. The CJEU found that under US surveillance laws, the US government has
access to personal data that does not provide Europeans with privacy protections equivalent with the level of protection required under EU law and
required companies based outside of the EU/EEA to implement additional protective measures to safeguard data from the EU/EEA. Furthering these
requirements, the European Commission published a revised set of Standard Contractual Clauses in June 2021, which replace the former Standard
Contractual Clauses on all existing transfers by December 2022 and impose additional technical and organizational measures on companies. Despite these
recent changes, there is continued uncertainty in this area given that EU supervisory authorities are increasingly fining companies based in the United
States for data transfers. In addition, given the CJEU’s findings on US surveillance laws, a future case might deem transfers to the United States based on
Standard Contractual Clauses invalid because they fail to meet that "essentially equivalent to that guaranteed within the EU" standard.
In addition to the GDPR, we continue to expand our business into several jurisdictions that have data privacy laws or begin to develop new data
privacy laws. Organizations operating in Canada and covered by the Personal Information Protection and Electronic Documents Act (“PIPEDA”), or
equivalent Canadian provincial laws, must obtain an individual’s consent when they collect, use or disclose that individual’s personal information.
Individuals have the right to access and challenge the accuracy of their personal information held by an organization, and personal information may only be
used for the purposes for which it was collected. If an organization intends to use personal information for another purpose, it must again obtain that
individual’s consent.
Because of the breadth of these data protection laws and the narrowness of their exceptions and safe harbors, it is possible that our business or data
protection policies could be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject
to rapid change in the current environment of heightened regulatory focus on data privacy and security issues. If our operations are found to be in violation
of any of the data protection laws described above or any other laws that apply to us, we may be subject to penalties, including, but not limited to, criminal,
civil and administrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from participation in government healthcare
programs, injunctions, private qui tam actions brought by individual whistleblowers in the name of the government, class action litigation and the
curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to a corrective action plan or
other agreement to resolve allegations of non-compliance with these laws, any of which could adversely affect our ability to operate our business and our
results of operations.
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In addition, the interpretation and application of consumer, health-related and data protection laws, especially with respect to genetic samples and
data, in the United States, the EU and elsewhere, are changing and are also often uncertain, contradictory and in flux. Within the United States, an
increasing number of states have been and continue to add privacy bills to their legislative calendars each year. While not all of these bills become law, they
add significant uncertainty about additional obligations or potential penalties. There are parallel activities at the federal level, with proposed rulemaking
related to the FTC Act and HIPAA underway, as well as the potential of a federal privacy law similar to the GDPR. There are similar trends at the
international level, with potential new laws, as well as interpretation of existing laws (e.g., GDPR) that may impact Adaptive’s operations. These
uncertainties are confounded by parallel changes in laws adjacent to privacy, such as those impacting machine learning and artificial intelligence or data
use, and we may incur substantial expense or experience disruption as related to compliance with these laws, which would adversely affect our ability to
conduct our business.
Security breaches, loss of data and other disruptions could compromise confidential, personal and sensitive information related to our business or
prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
In the ordinary course of our business, we and our collaborators collect and store sensitive data, including PHI, personal information, credit card and
other financial information, intellectual property and proprietary business information owned or controlled by ourselves or our customers, third-party
payors, our collaborators, government entities, insurance companies and other parties. We manage and maintain our applications and data through a
combination of on-site systems and cloud-based data centers. We utilize external security and infrastructure vendors to manage components of our data
centers. We also transmit sensitive data, including patient data, telephonically, through our website and pursuant to arrangements with multiple third-party
vendors and their subcontractors. These applications and data encompass a wide variety of critical business information, including research and
development information, patient data, commercial information and financial information. We face a number of risks related to protecting this critical
information, including loss-of-access risk, unauthorized access, use, disclosure or modification, and the risk of our inability to adequately monitor, audit
and modify our respective control over our critical information. This risk extends to the data we entrust to the third-party vendors and subcontractors that
help us manage this sensitive data or otherwise process it on our behalf.
The secure processing, storage, maintenance and transmission of this critical information are vital to our operations and business strategy, and we
devote significant resources to protecting such information. Although we take reasonable measures to protect sensitive and proprietary data from
unauthorized access, use or disclosure, no security measures can be perfect and our respective information technology and infrastructure may be vulnerable
to attacks by hackers or viruses or breached due to employee error, malfeasance or other malicious or inadvertent disruptions. Any such breach or
interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen.
Any such access, breach or other loss of information could result in legal claims or proceedings, liability under federal or state laws that protect the privacy
of personal information, such as HIPAA or HITECH, and regulatory penalties. Notice of breaches may be required to be provided to affected individuals,
the Secretary of HHS or other federal, state and foreign regulators, the media or state attorneys general. Such a notice could harm our reputation and ability
to compete. Although we have implemented security measures and formal, dedicated enterprise security programs to prevent unauthorized access to patient
and other personal data, such data is currently accessible through multiple channels and we may experience one or more data breaches. Unauthorized
access, loss or dissemination could also disrupt our operations and damage our reputation, which could adversely affect our results of operations and
financial condition.
No TCR-based cellular therapies have been approved in this new potential category of medicines and may never be approved as a result of efforts by
others or us. TCR-based cellular therapy drug discovery has substantial clinical development and regulatory risks due to the novel and unprecedented
nature of this new category of immune medicines.
As a potential new category of medicines, no TCR-based cellular therapies have been approved to date by the FDA or other regulatory agency.
Successful discovery and development of TCR-based cellular therapies by us and our collaborators is highly uncertain and depends on numerous factors,
many of which are beyond our and their control. We and our collaborators have made and will continue to make a series of business decisions and take
calculated risks to advance our development efforts and pipeline of immune-driven therapeutic product candidates, including those related to TCR-based
cellular therapies, delivery technology and manufacturing processes, which may be shown to be incorrect based on further work by us, our collaborators or
others. Our cellular therapeutics product candidates that appear promising in the early phases of development may fail to advance, experience delays in the
clinic, experience clinical holds or fail to reach the market for many reasons, including:
•
•
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discovery efforts identifying potential TCR-based cellular therapies may not be successful;
nonclinical or preclinical study results may show potential TCR-based cellular therapies to be less effective than desired or to have harmful
or problematic side effects;
clinical trials may fail to meet one or more endpoints, or results may show the TCR-based cellular therapies to be less effective than
expected or to have unacceptable side effects or toxicities;
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•
•
adverse effects relating to any one of our therapeutic product candidates or adverse effects relating to our TruTCR process may lead to
delays in or termination of one or more of our products or services;
the inability of our translational models to reduce risk or predict outcomes in humans, given that each component of our therapeutic product
candidates may have a dependent or independent effect on safety, tolerability and efficacy, and that such effects may, among other things, be
species-dependent;
• manufacturing failures or insufficient supply of current good manufacturing practices (“cGMP”) materials for future clinical trials, or higher
than expected cost, could delay or set back clinical trials or make TCR-based cellular therapies commercially unattractive;
•
•
•
•
•
our collaborators’ improvements in the manufacturing processes for this new class of potential immune medicines may not be sufficient to
satisfy the clinical or commercial demand of our jointly developed TCR-based cellular therapies or regulatory requirements for clinical
trials;
changes that we or our collaborators make to optimize manufacturing, testing or formulating of cGMP materials could impact the safety,
tolerability and efficacy of our therapeutic products in development;
pricing or reimbursement issues or other factors that delay clinical trials or make any TCR-based cellular therapies uneconomical or
noncompetitive with other immunotherapies;
failure to timely advance our or our collaborators’ therapeutic products or receive the necessary regulatory clearances, authorizations or
approvals or a delay in receiving such clearances, authorizations or approvals due to, among other reasons, slow or failure to complete
enrollment in clinical trials, withdrawal by trial participants from trials, failure to achieve trial endpoints, additional time requirements for
data analysis, data integrity issues, Biologics License Application or the equivalent application, discussions with the FDA or the European
Medicines Agency, a regulatory request for additional nonclinical or clinical data, or safety formulation or manufacturing issues may lead to
our inability to obtain sufficient funding; and
the proprietary rights of others and their competing products and services that may prevent our TCR-based cellular therapies from being
commercialized or threaten future commercialization activities.
Risks Relating to our Intellectual Property
We may not be successful in obtaining or maintaining sufficient intellectual property protection for our products, services and technologies and uses
thereof, and the scope of the intellectual property protection obtained may not be sufficiently broad.
As is the case with other companies engaged in the life sciences industry, our success depends in large part on our ability to obtain and maintain
protection of the intellectual property we may own solely and jointly with others, or license from third parties, particularly patents, in the United States and
other countries with respect to our products, services and technologies. We rely on patent protection in addition to trademark, copyright, trade secret and
other intellectual property rights protection and contractual restrictions to protect our proprietary technologies, all of which provide limited protection and
may not adequately protect our rights or enable us to gain or maintain any competitive advantage. If we fail to protect our intellectual property, third parties
may be able to compete more effectively against us. In addition, we may incur substantial litigation costs in our attempts to recover or restrict use of our
intellectual property.
To the extent our intellectual property offers inadequate protection, or is found to be invalid or unenforceable, we would be exposed to a greater risk
of direct competition. If our intellectual property does not provide adequate barriers to competition, our competitive position could be adversely affected, as
could our business.
We apply for or in-license patents covering our products and technologies and uses thereof, as we deem appropriate. However, obtaining and
enforcing patents is costly, time-consuming and complex, and we may fail to apply for patents on important products, services and technologies in a timely
fashion or at all, or we may fail to apply for patents in potentially relevant jurisdictions. We may not be able to file and prosecute all necessary or desirable
patent applications, or maintain, enforce and license any patents that may issue from such patent applications, at a reasonable cost or in a timely manner. It
is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. We
may not have the right to control the preparation, filing and prosecution of patent applications or to maintain the rights to patents licensed from third
parties. Consequently, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.
As of December 31, 2021, we own or have rights to 471 active patents and patent applications filed in the United States, Europe and elsewhere. Of
these, there are 51 pending patent applications and 420 granted patents. Our pending patent applications may not result in issued patents in a timely fashion
or at all. Even if patents are granted, they may not provide a basis for intellectual property protection of commercially viable products or services, may not
provide us with any competitive advantages, or may be challenged and invalidated by third parties. It is also possible that others will design around our
current or future patented technologies.
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Some of our patents, licensed patents or patent applications may be challenged in the future, and we may not be successful in defending any such
challenges. For example, we may be subject to a third-party pre-issuance submission of prior art to the U.S. Patent and Trademark Office (“USPTO”), or
become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights.
Any successful third-party challenge to our patents could result in patent claims being narrowed, or patents being invalidated or held unenforceable, in
whole or in part, which could lead to increased competition to our business. Conversely, we may have to challenge the patents or patent applications of
third parties. The outcome of patent litigation or other proceeding can be uncertain, and any attempt by us to enforce our patent rights against others or to
challenge the patent rights of others may not be successful, or, if successful, may take substantial time and result in substantial cost, and may divert our
efforts and attention from other aspects of our business. In addition, if the breadth or strength of protection provided by our patents and patent applications
is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future
products or services. The patent positions of biotechnology companies can be highly uncertain and involve complex legal and factual questions for which
important legal principles remain unresolved. Inconsistent policies regarding the eligibility for patent protection and the breadth of patentable claims in
such companies’ patents has emerged to date in the United States or elsewhere. Courts frequently render opinions in the biotechnology field that may affect
the patentability of certain inventions or discoveries, including opinions that may affect the patentability of methods and compositions of matter useful in
relation to immunosequencing.
The patent position of companies engaged in the development and commercialization of clinical diagnostic tests, like our clonoSEQ diagnostic test
and T-Detect products, are particularly uncertain. Various courts, including the U.S. Supreme Court, have rendered decisions that affect the eligibility and
scope of patentability of certain inventions or discoveries relating to certain diagnostic tests and related technology. These decisions state, among other
things, that a patent claim that recites an abstract idea, natural phenomenon or law of nature (for example, the relationship between particular immune
receptors and cancer) may not be patentable. Precisely what constitutes a law of nature is uncertain, and it is possible that certain aspects of our clinical
diagnostics would be considered natural laws. The evolving case law in the United States may adversely affect our ability to obtain patents or defend
patents we have obtained or have licensed and may facilitate third-party challenges to any owned or licensed patents. The laws of some foreign countries
do not protect intellectual property rights to the same extent or for the same subject matter as the laws of the United States, and we may encounter
difficulties in protecting and defending such rights in foreign jurisdictions. The legal systems of many other countries do not favor the enforcement of
patents and other intellectual property protection, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement
of our patents in such countries. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and
attention from other aspects of our business.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our products and services in all countries throughout the world would be prohibitively expensive. In
addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and we may
encounter difficulties in protecting and defending such rights in foreign jurisdictions. Consequently, we may not be able to prevent third parties from
practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United
States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own
products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United
States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent
them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal
systems of many other countries do not favor the enforcement of patents and other intellectual property protection, particularly those relating to
biotechnology, which could make it difficult for us to stop the infringement of our patents in such countries. Proceedings to enforce our patent rights in
foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our patents at risk of
being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We
may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our
efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license.
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Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to
protect our products and services.
Changes in either the patent laws or in interpretations of patent laws in the United States or other countries or regions may diminish the value of our
intellectual property. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. In addition, a third
party that files a patent application before us could be awarded a patent covering an invention of ours even if we had made the invention before it was made
by such third party. This will require us to be cognizant of the time from invention to filing of a patent application. Since patent applications in the United
States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we or our licensors were the first
to either file any patent application related to our products or services or invent any of the inventions claimed in our or our licensor’s patents or patent
applications.
Third parties may also submit prior art to the USPTO during patent prosecution to attack the validity of a patent and it is also possible in the United
States and other countries for third parties to challenge granted patents through Patent Office proceedings such as, in the United States, post-grant review,
inter partes review and derivation proceedings. In the United States, a lower evidentiary standard is imposed in USPTO proceedings compared to the
evidentiary standard in U.S. federal courts necessary to invalidate a patent claim. As such, a third party could potentially provide evidence in a USPTO
proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented
in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been
invalidated if first challenged by the third party as a defendant in a district court action. The uncertainties and costs surrounding the prosecution of our
owned or in-licensed patent applications and the enforcement or defense of our owned or in-licensed issued patents could have a material adverse effect on
our business.
Recent U.S. Supreme Court rulings have also narrowed the scope of patent protection available in certain circumstances and weakened the rights of
patent owners in certain situations, including with respect to naturally occurring biological molecules such as the immune cell receptors which are a focus
of our immune medicine platform. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events
has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the
USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce
our existing patents and patents that we might obtain in the future.
Issued patents covering our products and services could be found invalid or unenforceable if challenged.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability and some of our patents or patent applications,
including licensed patents, may be challenged, in courts or patent offices in the United States and abroad, in opposition, derivation, reexamination, inter
partes review, post-grant review or interference. Additionally, if we and our licensing partners initiate or become involved in legal proceedings against a
third party to enforce a patent covering one of our products or technologies, the defendant could counterclaim that the patent covering our product is invalid
or unenforceable. In patent litigation in the United States, counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity
challenge could be an alleged failure to meet any of several statutory requirements, including patent eligible subject matter, lack of novelty, obviousness or
non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant
information from the USPTO, or made a misleading statement, during prosecution. In addition, the United States now awards patent priority to the first
party to file a patent application, and others may submit patent claims covering our inventions prior to us. The outcome following legal assertions of
invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior
art, of which we and the patent examiner were unaware during prosecution. A successful third-party challenge to our patents could result in the
unenforceability or invalidity of such patents, which could have a material adverse impact on our business. Furthermore, if the breadth or strength of
protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us
to license, develop or commercialize current or future products and services.
We may not be aware of all third-party intellectual property rights potentially relating to our immune medicine platform, products and services.
Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other
jurisdictions are typically not published until approximately 18 months after filing or, in some cases, not until such patent applications issue as patents. We
might not have been the first to make the inventions covered by each of our pending patent applications and we might not have been the first to file patent
applications for these inventions. To determine the priority of these inventions, we may have to participate in interference proceedings, derivation
proceedings or other post-grant proceedings declared by the USPTO. The outcome of such proceedings is uncertain, and other patent applications may have
priority over our patent applications. Such proceedings could also result in substantial costs to us and divert our management’s attention and resources.
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We rely on licenses from third parties in relation to certain products and services and if we lose these licenses then we may be subjected to future
litigation.
We are a party to license agreements that grant us rights to use certain intellectual property, including patents and patent applications, typically in
certain specified fields of use. Some of those licensed rights could provide us with freedom to operate for aspects of our products and services. We may
need to obtain additional licenses from others to advance our research, development and commercialization activities.
Our success may depend in part on the ability of our licensors to obtain, maintain and enforce patent protection for our licensed intellectual property.
Our licensors may not successfully prosecute the patent applications we license. Even if patents issue in respect of these patent applications, our licensors
may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents or may pursue such
litigation less aggressively than we would. Without protection for the intellectual property we license, other companies might be able to offer substantially
identical products for sale, which could adversely affect our competitive business position and harm our business prospects.
Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and
prospects.
Moreover, disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including:
•
the scope of rights granted under the license agreement and other interpretation-related issues;
• whether, and the extent to which, our products, services, technology and processes infringe on intellectual property of the licensor that is not
subject to the licensing agreement;
•
•
•
•
our right to sublicense patent and other rights to third parties under collaborative development relationships;
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors
and us and our collaborators; and
the priority of invention of patented technology.
If we do not prevail in such disputes, we may lose any or all of our rights under such license agreements.
In addition, the agreements under which we currently license intellectual property or technology from third parties are complex and certain
provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise
could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our
financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results
of operations and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current
licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize any affected products or services,
which could have a material adverse effect on our business, financial conditions, results of operations and prospects.
Absent the license agreements, we may infringe patents subject to those agreements, and if the license agreements are terminated, we may be subject
to litigation by the licensor. Litigation could result in substantial costs to us and distract our management. If we do not prevail, we may be required to pay
damages, including treble damages, attorneys’ fees, costs and expenses and royalties or be enjoined from selling our products or services, which could
adversely affect our ability to offer products or services, our ability to continue operations and our financial condition.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to patent protection, we take steps to protect our intellectual property and proprietary technology by entering into agreements, including
confidentiality agreements, non-disclosure agreements and intellectual property assignment agreements, with our employees, consultants, collaborators,
academic institutions, life sciences research partners and, when needed, our advisers as well as other third parties. However, we cannot be certain that such
agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information
will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information
and techniques.
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For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not
be able to obtain adequate remedies for such breaches. Such agreements may not be enforceable or may not provide meaningful protection for our trade
secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to
prevent such unauthorized disclosure. If we are required to assert our rights against such party, it could result in significant cost and distraction. Monitoring
unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. If we were to
enforce a claim that a third party had illegally obtained and was using our trade secrets, it would be expensive and time-consuming, and the outcome would
be unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets.
We also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our
premises and physical and electronic security of our information technology systems. Besides the possibility that these security measures could be
breached, such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access,
provide adequate protection for our proprietary information. Our security measures may also not prevent an employee or consultant from misappropriating
our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our
interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the
outcome is unpredictable. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of
our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was
independently developed by a competitor, our competitive position could be harmed.
Certain former employees have obtained employment with companies or academic institutions that could be considered competitive with us. This
competition may be limited by contractual provisions which may or may not be enforceable by us in certain jurisdictions. In addition, we may not be aware
of such competitive employment arrangements until after our trade secrets have been disclosed to potentially competitive companies.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of
third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ, and expect to employ in the future, individuals who were previously employed at universities or other companies, including our
competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary
information or know-how of others in their work for us, we may be subject to claims that our employees, consultants or independent contractors have
inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or other third parties, or to claims that
we have improperly used or obtained such trade secrets. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in
addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. A loss of
key research personnel work product could hamper or prevent our ability to commercialize potential products and services, which could harm our business.
Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management and other
employees.
We may not be able to protect and enforce our trademarks.
We have not yet registered certain of our trademarks in all of our potential markets, although we have registered Adaptive Biotechnologies,
clonoSEQ, immunoSEQ, pairSEQ and TruTCR in the United States, the EU and a number of other countries and are seeking to register additional
trademarks, including our new corporate logos, certain slogans, T-Detect and TruAB for our antibody development program. As we apply to register our
unregistered trademarks in the United States and other countries, our applications may not be allowed for registration in a timely fashion or at all, and our
registered trademarks may not be maintained or enforced. In addition, opposition or cancellation proceedings may be filed against our trademark
applications and registrations, and our trademarks may not survive such proceedings. In certain countries outside of the United States, trademark
registration is required to enforce trademark rights. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing
them against third parties than we otherwise would.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed
patents, trade secrets or other intellectual property as an inventor or co-inventor. Ownership disputes may arise, for example, from conflicting obligations of
employees, consultants or others who are involved in developing our future products and services. Our co-founder, Dr. Harlan Robins, had dual
employment with Fred Hutch and us until June of 2019, and accordingly has had obligations to assign his rights to inventions to either Fred Hutch or us
depending on how and where the inventions were conceived, reduced to practice, developed or created. Disputes may arise in the future between Fred
Hutch and us regarding ownership of intellectual property generated by Dr. Robins’ work. Fred Hutch may claim to have ownership rights to our
intellectual property.
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Litigation may be necessary to defend against these and other claims by a third party challenging inventorship of our or our licensors’ ownership of
our owned or in-licensed patents, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying
monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important
to our product or services. Alternatively, we may need to obtain one or more additional licenses from the third party which will be time-consuming and
expensive and could result in substantial costs and diversion of resources and could have a material adverse effect on our business. Even if we are
successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the
foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
If we become involved in patent litigation or other proceedings related to a determination of rights, we could incur substantial costs and expenses,
substantial liability for damages or be required to stop our development and commercialization efforts of our products and services.
There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the
life sciences, clinical diagnostics and drug discovery industries, including patent infringement lawsuits, declaratory judgment litigation and adversarial
proceedings before the USPTO, including interferences, derivation proceedings, ex parte reexaminations, post-grant review and inter partes review, as well
as corresponding proceedings in foreign courts and foreign patent offices.
We are currently involved in appeals from Opposition Proceedings at the European Patent Office related to three of our patents: EP2364368,
EP2387627, and EP3059337. We may, in the future, become involved with litigation or actions at the USPTO or foreign patent offices with various third
parties. We expect that the number of such claims may increase as our industry expands, more patents are issued, the number of products or services
increases and the level of competition in our industry increases. Any infringement claim, regardless of its validity, could harm our business by, among other
things, resulting in time-consuming and costly litigation, diverting management’s time and attention from the development of our business, requiring the
payment of monetary damages (including treble damages, attorneys’ fees, costs and expenses) or royalty payments.
It may be necessary for us to pursue litigation or adversarial proceedings before the patent office in order to enforce our patent and proprietary rights
or to determine the scope, coverage and validity of the proprietary rights of others. The outcome of any such litigation might not be favorable to us, and
even if we were to prevail, such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our
business, operating results or financial condition.
As we move into new markets and expand our products or services offerings, incumbent participants in such markets may assert their patents and
other proprietary rights against us as a means of slowing our entry into such markets or as a means to extract substantial license and royalty payments from
us. In addition, future litigation may involve patent holding companies or other adverse patent owners who have no relevant product or service revenue and
against whom our own patents may provide little or no deterrence or protection.
Third parties may assert that we are employing their proprietary technology without authorization. Given that clinical diagnostics and drug
discovery fields are intense and highly competitive areas, there may be third-party intellectual property rights that others believe could relate to our immune
medicine platform, products and services. We have been approached on four occasions with an offer from a third-party patent owner or licensee to license
rights to us under patents relating to immune medicine. We have been contacted by Invivoscribe, Inc. regarding U.S. Pat. No. 7,785,783 on March 24,
2012; by Keygene NV regarding U.S. Pat. No. 9,453,256 on October 10, 2016; by MorphoSys AG regarding EP Patent 2243030 and U.S. Pat.
No. 9,404,929 on October 10, 2018; and by DName-iT NV regarding EP Patent 2201143 and U.S. Pat. No. 8,318,434 in December 2018. In each instance,
we have declined to pursue licenses to the patents and the matters have not been pursued further. One or more of these or other third-party patent owners or
licensees may pursue or threaten to pursue litigation against us to enforce one or more patents. It would be costly and time-consuming to defend such
claims.
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Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents
that our current or future products, technologies and services may infringe. We cannot be certain that we have identified or addressed all potentially
significant third-party patents in advance of an infringement claim being made against us. In addition, similar to what other companies in our industry have
experienced, we expect our competitors and others may have patents or may in the future obtain patents and claim that making, having made, using, selling,
offering to sell or importing our products or services infringes these patents. Defense of infringement and other claims, regardless of their merit, would
involve substantial litigation expense and would be a substantial diversion of management and employee resources from our business. Parties making
claims against us may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater
resources. Parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize and
sell products or services and could result in the award of substantial damages against us, including treble damages, attorneys’ fees, costs and expenses if we
are found to have willfully infringed. In the event of a successful claim of infringement against us, we may be required to pay damages and ongoing
royalties and obtain one or more licenses from third parties, or be prohibited from selling certain products or services. We may not be able to obtain these
licenses on acceptable or commercially reasonable terms, if at all, or these licenses may be non-exclusive, which could result in our competitors gaining
access to the same intellectual property. In addition, we could encounter delays in product or service introductions while we attempt to develop alternative
products or services to avoid infringing third-party patents or proprietary rights. Defense of any lawsuit or failure to obtain any of these licenses could
prevent us from commercializing products or services, and the prohibition of sale of any of our products or services could materially affect our business
and our ability to gain market acceptance for our products or services.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of
our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there
could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive
these results to be negative, it could have a substantial adverse effect on the price of our common stock.
In addition, our agreements with some of our customers, suppliers or other entities with whom we do business require us to defend or indemnify
these parties to the extent they become involved in infringement claims, including the types of claims described above. We could also voluntarily agree to
defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our business relationships. If we
are required or agree to defend or indemnify third parties in connection with any infringement claims, we could incur significant costs and expenses that
could adversely affect our business, operating results or financial condition.
Patent terms may be inadequate to protect our competitive position on our products and services for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years
from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even
if patents covering our products and services are obtained, once the patent life has expired, we may be open to competition from competitive products.
Given the amount of time required for the development, testing and regulatory review of new products and services, patents protecting such products and
services might expire before or shortly after such products and services are commercialized. As a result, our owned and licensed patent portfolio may not
provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Risks Relating to our Common Stock
The market price of our common stock is volatile and is likely to continue to fluctuate substantially.
The market price of our common stock has been and is likely to continue to be highly volatile and may fluctuate substantially due to many factors,
many of which are beyond our control. These factors include:
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the commencement or termination of our collaborations;
the timing of achievement of specified milestones in the development of our products and services;
introductions of new or expanded products or services or new pricing policies by us or by our competitors;
changes in the status of our regulatory clearances, authorizations, approvals or applications, or those jointly developed with our
collaborators;
• where required, the results of clinical trials of our future products and services, those jointly developed with our collaborators or those of
our competitors;
the success of competitive products or technologies;
announcements by us or our competitors of significant acquisitions, collaborators or divestitures;
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changes in governmental regulations and regulatory or legal developments in the United States and other countries;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key personnel;
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
variations in our financial results or those of companies that are perceived to be similar to us;
changes in the structure of healthcare payment systems;
• market conditions in the life sciences, clinical diagnostics or drug discovery industry;
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general economic, industry and market conditions;
sales of our securities, including sales by our directors, officers or significant shareholders;
speculation about our business in the media or the investment community; and
other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of listed companies. If the market for stock in our industry or the stock market in general experiences uneven
investor confidence, the market price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The
market price of our common stock might also decline in reaction to events that affect other companies within, or outside, our industry even if these events
do not directly affect us. Any decline in the market price of our common stock may impair our ability to raise capital through the sale of equity securities.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type
of litigation, if instituted against us, could result in substantial costs to us and divert our management’s attention and resources, which could seriously harm
our business, financial condition, results of operations and prospects.
If securities analysts do not publish research or reports about our business, or we are the subject of negative publicity, the price of our stock could
decline.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our
business. We do not control these analysts. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable
evaluations of our company or our stock, the price of our stock could decline. If one or more of these analysts cease coverage of our company or fail to
publish reports covering our company regularly, our stock may lose visibility in the market, which in turn could cause our stock price to decline. In
addition, if we are the subject of negative publicity, whether from an analyst, academic, industry group or the general or financial press, our stock price may
decline.
If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating
results could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market
price of our common stock.
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America
(“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and
accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that
are not readily apparent from other sources. If our assumptions change or if actual circumstances differ from our assumptions, our operating results may be
adversely affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in
the market price of our common stock and potentially impair our ability to raise capital through the sale of equity securities.
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Substantial future sales or perceived potential sales of our common stock or other equity securities in the public market could cause the price of our
common stock to decline significantly.
Sales of substantial amounts of our common stock or other equity securities in the public market, particularly by our directors, executive officers and
significant shareholders, including upon the expiration of any lock-up periods entered into in connection with offerings of our common stock or other
equity securities, or the perception that these sales could occur, could materially and adversely affect the price of our common stock and impair our ability
to raise capital through the sale of equity securities.
We are subject to financial reporting and other requirements for which our accounting and other management systems and resources may not be
adequately prepared.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), we are required to furnish a report by our management on our internal
control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public
accounting firm. Our compliance with Section 404 necessitates that we incur substantial accounting expense and expend significant management efforts.
We will continue to dedicate internal resources, potentially engage outside consultants, and adopt a detailed work plan to assess and document the
adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are
functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our
efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that
our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to
a loss of confidence in the reliability of our consolidated financial statements.
We are also required to maintain disclosure controls and procedures. Disclosure controls and procedures means our controls and other procedures
that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. We do not expect that our disclosure controls and
procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. We believe a control system, no matter how well-
designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Due to the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood
of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Accordingly, because of the inherent
limitations in our control system, misstatements due to error or fraud may occur and not be detected.
Provisions in our charter documents and Washington law could make an acquisition of our company more difficult and limit attempts by our
shareholders to replace or remove our current management.
Our amended and restated articles of incorporation (“Articles of Incorporation”) and our amended and restated bylaws (“Bylaws”), as well as
Washington law, contain provisions that may have the effect of deterring takeovers or delaying or preventing a change in control of us or changes in our
management that a shareholder might deem to be in his or her best interest. Our Articles of Incorporation and Bylaws contain provisions that:
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authorize “blank check” preferred stock, which could be issued by our board of directors without shareholder approval and may contain
voting, liquidation, dividend and other rights superior to our common stock;
create a classified board of directors whose members serve staggered three-year terms, with one class being elected each year by our
shareholders;
specify that special meetings of our shareholders can be called only by our board of directors, the Chairperson of our board of directors, our
chief executive officer or our president;
provide that a director may only be removed from the board of directors for cause and then only by the affirmative vote of our shareholders;
provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even if less than a quorum;
specify that only our board of directors may change the size of our board of directors;
establish an advance notice procedure for shareholder proposals to be brought before an annual meeting of our shareholders, including
proposed nominations of persons for election to our board of directors;
specify that no shareholder is permitted to cumulate votes at any election of directors;
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expressly authorize our board of directors to modify, alter or repeal our Bylaws; and
require supermajority votes of the holders of our common stock to amend specified provisions of our Articles of Incorporation and Bylaws.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management or our board of
directors.
In addition, because we are incorporated in the State of Washington, we are governed by the provisions of Chapter 23B.19 of the Washington
Business Corporation Act (“WBCA”), which prohibits certain business combinations between us and certain significant shareholders unless specified
conditions are met. These provisions may also have the effect of delaying or preventing a change in control of our company.
Any provision of our Articles of Incorporation or Bylaws or Washington law that has the effect of delaying or deterring a change in control could
limit the opportunity for our shareholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are
willing to pay for our common stock.
Our Articles of Incorporation provide that the state courts located in King County, Washington and, to the extent enforceable, the federal district courts
of the United States of America will be the exclusive forums for substantially all disputes between us and our shareholders, which could limit our
shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our Articles of Incorporation provide that, unless we consent in writing to the selection of an alternative forum, the state courts located in King
County, Washington (or, if the state courts located within King County, Washington do not have jurisdiction, the federal district court for the Western
District of Washington) shall be the sole and exclusive forum for commencing and maintaining any proceeding (1) asserting a claim based on a violation of
a duty under the laws of the State of Washington by any of our current or former directors, officers or shareholders in such capacity, (2) commenced or
maintained in the right of our corporation, (3) asserting a claim arising pursuant to any provision of the WBCA, our Articles of Incorporation or our Bylaws
(as either may be amended from time to time) or (4) asserting a claim concerning our internal affairs that is not included in clauses (1) through (3) above, in
all cases to the fullest extent permitted by law and subject to the court having personal jurisdiction over the indispensable parties named as defendants.
These provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act, or any other claim for which the federal courts
have exclusive jurisdiction.
Our Articles of Incorporation provide that the federal district courts of the United States of America will be the exclusive forum for resolving any
complaint asserting a cause of action arising under the Securities Act of 1933, as amended (“Securities Act”), subject to applicable law.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these
provisions. Our exclusive forum provision will not relieve us of our duties to comply with the federal securities laws and the rules and regulations
thereunder, and our shareholders will not be deemed to have waived our compliance with these laws, rules and regulations. These exclusive-forum
provisions may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other
employees, which may discourage lawsuits against us and our directors, officers and other employees or cause shareholders to incur additional costs to
bring claims in the forums designated in our Articles of Incorporation.
If a court were to find these exclusive-forum provisions in our Articles of Incorporation to be inapplicable or unenforceable in an action, we may
incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of operations. While the Delaware courts
have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a jurisdiction other than
those designated in the exclusive forum provision, and the provision may not be enforced by a court in that jurisdiction. It is unclear whether Washington
courts would reach a similar conclusion under Washington law. Even if we are successful in defending against these claims, litigation could result in
substantial costs and be a distraction to management and other employees.
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Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may
reduce the amount of money available to us.
Our Articles of Incorporation provide that we will indemnify our directors and officers to the fullest extent permitted by Washington law.
In addition, as permitted by Section 23B.08.510 through Section 23B.08.570 of the WBCA, our Articles of Incorporation and our indemnification
agreements that we have entered into with most of our directors and officers provide that:
• We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the
fullest extent permitted by Washington law. Washington law provides that a corporation may indemnify such person if such person acted in
good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, with respect to any criminal
proceeding, had no reasonable cause to believe such person’s conduct was unlawful;
• We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;
• We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such
directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;
• The rights conferred in our Articles of Incorporation are not exclusive, and we are authorized to enter into indemnification agreements with
our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and
• We may not retroactively amend our Articles of Incorporation provisions to reduce our indemnification obligations to directors, officers,
employees and agents.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole
source of gain.
We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our
business, and do not anticipate paying any cash dividends on our common stock for the foreseeable future. In addition, the terms of any future debt
agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the
foreseeable future.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our newly occupied corporate headquarters is located in Seattle, Washington, where we lease approximately 100,000 square feet. The lease expires
in August 2033, subject to our option to twice extend the lease for five years. Additionally, in two separate Seattle, Washington locations, we lease
approximately 65,500 square feet pursuant to a lease that expires October 2032, subject to two options to extend the lease for five years, and approximately
14,750 square feet, pursuant to a lease expiring in October 2029, subject to our ability to exercise an early termination right in 2022. All of our Seattle,
Washington locations contain office and laboratory space.
In 2021, we executed a lease to rent approximately 27,000 square feet of a warehouse in Bothell, Washington. The lease expires in October 2031,
subject to an early termination option in 2028 and an option to twice extend the lease for five years.
We also lease approximately 33,300 square feet of laboratory and office space in South San Francisco, California, pursuant to an amended lease that
expires March 2026, subject to our option to extend the lease for five years, and approximately 3,100 square feet of office space in New York City, New
York, pursuant to a lease that expires November 2025, subject to our ability to exercise an early termination right in 2023.
We may add new facilities or expand existing facilities as we add employees and scale our operations, and we believe suitable additional or
substitute space will be available as needed.
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Item 3. Legal Proceedings
From time to time, we may be subject to legal proceedings. We are not currently a party to or aware of any proceedings that we believe will have,
individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations. Regardless of outcome, litigation can
have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
Our common stock began trading on The Nasdaq Global Select Market under the symbol “ADPT” on June 27, 2019. Prior to that date, there was no
PART II
public trading market for our common stock.
Holders of Record
As of February 10, 2022, there were approximately 100 holders of record of our common stock. Because many of our shares of common stock are
held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record
holders.
Dividend Policy
We currently intend to retain all available funds and any future earnings to fund the growth and development of our business. We do not intend to
pay cash dividends to our shareholders in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board
of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board
of directors may deem relevant. Our future ability to pay cash dividends on our common stock may also be limited by the terms of any future debt
securities, preferred stock or credit facility.
Stock Performance Graph
The graph below compares the cumulative total shareholder return on our common stock with the cumulative total return on the NASDAQ
Composite Index and the NASDAQ Biotechnology Index. The graph assumes $100 was invested in our common stock at the market close on June 27,
2019, which was our initial trading day. Data for the NASDAQ Composite Index and the NASDAQ Biotechnology Index assume reinvestment of
dividends. Our offering price of our common stock in our initial public offering, which had a closing stock price of $40.30 on June 27, 2019, was $20.00
per share. The stock price performance below is based upon historical data and is not necessarily indicative of, nor intended to forecast, future performance
of our common stock.
This graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or
incorporated by reference into any filing of Adaptive Biotechnologies Corporation under the Securities Act or the Exchange Act.
Item 6. [Reserved]
Not applicable.
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Item 7. 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 our consolidated financial
statements and related notes and the other financial information appearing elsewhere in this Annual Report on Form 10-K, 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 Annual Report on Form 10-K, 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.
This section generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-
to-year comparisons between 2020 and 2019 may be found in Part II, Item 7 under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 24, 2021.
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. Our first clinical diagnostic product, clonoSEQ, is the first test authorized by the FDA for the detection and monitoring of MRD in
patients with MM, ALL and CLL and is also available as a CLIA-validated LDT for patients with other lymphoid cancers. 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.
T-Detect COVID, for which we have received EUA, is designed to confirm past SARS-CoV-2 infection, the virus that causes COVID-19, and is also
the first indication for the T-Detect product line. We expect to launch a second indication, T-Detect Lyme, during the 2022 Lyme season. In addition, we
have confirmed signals in Crohn’s disease, celiac disease, and multiple sclerosis, as well as identified new signals in ulcerative colitis and rheumatoid
arthritis.
Our therapeutic product candidates, being developed under 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.
For our life sciences research customers, we provide two categories of products and services using immunoSEQ. First, we provide
immunosequencing services, the revenue from which we record as sequencing revenue. Second, we provide certain research customers professional
support, for which we receive nonrefundable upfront or recurring payments. We may receive additional payments upon those customers achieving specified
milestones. Revenue related to these activities are recorded as development revenue.
For our clinical diagnostics customers, we sell our clonoSEQ diagnostic test and T-Detect COVID test, which include our immunosequencing
services and are thus recorded as sequencing revenue. In the future, we intend to sell other diagnostic products and services, including other indications for
T-Detect, which we also expect to record as sequencing revenue.
For our current drug discovery collaborator, Genentech, we screen, identify and characterize TCRs in support of our collaboration. We record
revenue from this collaboration as development revenue.
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Historically, we have sold immunoSEQ as a fee-for-service offering. These research offerings have comprised the majority of our revenue to date,
although our business is pursuing broader opportunities. As we continue to expand the use of our clonoSEQ diagnostic tests, develop and commercialize T-
Detect and develop and commercialize therapeutic product candidates with our drug discovery collaborator, we expect our mix of revenue to shift to
clinical products and services, which we believe will become our largest sources of revenue.
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 institutions, biopharmaceutical companies, research institutions 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.
We recognized revenue of $154.3 million and $98.4 million for the year ended December 31, 2021 and 2020, respectively. Net loss attributable to
Adaptive Biotechnologies Corporation was $207.3 million and $146.2 million for the year ended December 31, 2021 and 2020, respectively. We have
funded our operations to date principally from the sale of convertible preferred stock and common stock and, to a lesser extent, sequencing and
development revenue. As of December 31, 2021 and 2020, we had cash, cash equivalents and marketable securities of $570.2 million and $806.8 million,
respectively.
Follow-On Offering
In July 2020, we completed an underwritten public offering of our common stock in which we issued and sold 7,200,000 shares of common stock at
a public offering price of $40.00 per share. We received $271.8 million in net proceeds, after deducting underwriting discounts and net offering expenses
paid by us.
Components of Results of Operations
Revenue
We derive our revenue from two sources: (1) sequencing revenue and (2) development revenue.
Sequencing revenue. Sequencing revenue reflects the amounts generated from providing testing services through clonoSEQ to clinical and research
customers, from providing our T-Detect COVID test to clinical customers and from providing sequencing services through immunoSEQ to research
customers.
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 tests delivered to ordering physicians. Amounts paid for clonoSEQ diagnostic tests 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 results. 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 result is delivered and is based upon cumulative tests
delivered to date. Any unrecognized revenue from the initial billable test is recorded as deferred revenue and recognized either as we deliver our estimate
of the remaining tests in a patient’s treatment cycle or when the likelihood becomes remote that a patient will receive additional testing.
For our research customers, which include biopharmaceutical customers and academic institutions, delivery of the sequencing results may include
some level of professional support and analysis. Terms with biopharmaceutical customers generally include non-refundable 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.
92
Development revenue. Development revenue primarily represents regulatory or development support services that we provide to biopharmaceutical
customers who seek access to our platform to support their therapeutic development activities. We enter into collaboration and similar agreements with
these customers. These agreements may include substantial non-refundable upfront payments, which we recognize as development revenue over time as we
perform the respective services. When the agreements include sequencing activities, we separately classify those activities as sequencing revenue.
Additionally, we generate development revenue from the achievement of regulatory milestones.
During the year ended December 31, 2021, we executed an intellectual property license agreement that includes variable consideration related to
sales-based royalties. Any consideration related to such royalties will be recognized as development revenue at the later of when (i) the related sales occur
or (ii) the performance obligation to which some or all of the sales-based royalty has been allocated has been satisfied (or partially satisfied).
We expect revenue to increase over the long term, particularly as the mix of revenue migrates to clinical diagnostics and drug discovery. The pace
by which this mix migrates will be determined by the level of customer adoption and frequency of use of our products and services. 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 us or 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 and allocated facility costs associated with processing samples and professional support for our sequencing 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.
We expect cost of revenue to increase in absolute dollars as we grow our sequencing volume and make increased 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 sequencing volume increases from
improved utilization of our laboratory capacity, automation and other value engineering initiatives. If our sample volume throughput is reduced as a result
of the COVID-19 pandemic or otherwise, 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 development revenue.
We expect our research and development expenses to continue to increase in absolute dollars as we innovate and expand the application of our
platform. However, we expect research and development expenses 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.
93
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of 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 our sales and marketing expenses to increase in absolute dollars as we expand our commercial sales, marketing and business
development teams and 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 consist primarily of 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 our general and administrative expenses to continue to increase in absolute dollars as we increase headcount. Though expected to
increase in absolute dollars, we expect these expenses to decrease as a percentage of revenue in the long term as revenue increases.
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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:
2021
Year Ended December 31,
2020
2019
(in thousands, except share and per share amounts)
Statements of Operations Data:
Revenue
Sequencing revenue
Development revenue
Total revenue
Operating expenses
Cost of revenue
Research and development
Sales and marketing
General and administrative
Amortization of intangible assets
Total operating expenses
Loss from operations
Interest and other income, net
Net loss
$
78,896 $
75,448
154,344
41,439 $
56,943
98,382
49,301
142,343
95,465
74,502
1,699
363,310
(208,966)
1,668
(207,298)
19
(207,279)
—
22,530
116,072
61,358
49,536
1,703
251,199
(152,817)
6,590
(146,227)
—
(146,227)
—
(207,279) $
(146,227) $
43,519
41,552
85,071
22,274
70,705
38,453
30,332
1,698
163,462
(78,391)
9,785
(68,606)
—
(68,606)
(964)
(69,570)
(1.48) $
(1.11) $
(1.01)
140,354,915
131,216,468
69,165,315
Add: Net loss attributable to noncontrolling interest
Net loss attributable to Adaptive Biotechnologies Corporation
Fair value adjustment to Series E-1 convertible preferred stock options
Net loss attributable to Adaptive Biotechnologies Corporation common shareholders
Net loss per share attributable to Adaptive Biotechnologies Corporation common
shareholders, basic and diluted
$
$
Weighted-average shares used in computing net loss per share attributable to Adaptive
Biotechnologies Corporation common shareholders, basic and diluted
Other Financial and Operating Data:
Adjusted EBITDA(1)
$
(151,743) $
(119,584) $
(57,476)
(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, income tax (expense) benefit, depreciation and amortization and share-based compensation expenses. 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.
Comparison of the Years Ended December 31, 2021 and 2020
Revenue
(in thousands, except percentages)
Revenue
Sequencing revenue
Development revenue
Total revenue
Year Ended December 31,
Change
Percent of Revenue
2021
2020
$
%
2021
2020
$ 78,896 $
75,448
$ 154,344 $
41,439 $ 37,457
18,505
56,943
98,382 $ 55,962
90%
32
57
51%
49
100%
42%
58
100%
The $37.5 million increase in sequencing revenue was primarily attributable to a $24.3 million increase in revenue generated from
biopharmaceutical and academic customers, inclusive of a $2.9 million increase due to changes in estimates of total samples to be provided under certain of
our MRD development agreements. Additionally, there was a $13.2 million increase in revenue generated from clinical customers, inclusive of a $1.9
million increase related to Medicare reimbursements resulting from our determination that the likelihood of additional testing for specific patients was
remote and a change in our estimate of expected cumulative tests per patient for one of our covered indications.
95
Research sequencing volume increased by 42% to 32,146 sequences delivered in the year ended December 31, 2021 from 22,663 sequences
delivered in the year ended December 31, 2020. Clinical sequencing volume, excluding T-Detect COVID volume, increased by 48% to 22,516 clinical tests
delivered in the year ended December 31, 2021 from 15,186 clinical tests delivered in the year ended December 31, 2020.
The $18.5 million increase in development revenue was primarily attributable to a $9.2 million increase in revenue generated from the Genentech
Agreement and an $8.4 million increase in revenue recognized from MRD development agreements, inclusive of a $7.5 million increase in revenue
recognized upon the achievement of certain regulatory milestones by us and our customers' therapeutics.
Cost of Revenue
(in thousands, except percentages)
Cost of revenue
Year Ended December 31,
Change
Percent of Revenue
2021
2020
$ 49,301 $ 22,530 $ 26,771
$
%
2021
2020
119%
32%
23%
The $26.8 million increase in cost of revenue was primarily attributable to a $13.5 million increase in labor, overhead and facility costs and a $9.7
million increase in materials costs resulting from increased revenue sample volume. Additionally, there was a $1.6 million increase in sample collection
costs and a $1.5 million increase in shipping costs. These increases were partially offset by a $0.9 million decrease related to higher usage of our
production laboratory to process research and development samples versus revenue samples.
Research and Development
(in thousands, except percentages)
Research and development
Year Ended December 31,
Change
Percent of Revenue
2021
2020
$ 142,343 $ 116,072 $ 26,271
$
%
2021
2020
23%
92%
118%
The following table presents disaggregated research and development expenses by cost classification for the periods presented:
(in thousands)
Research and development materials and allocated production laboratory expenses
Personnel expenses
Allocable facilities and information technology expenses
Software and cloud services expenses
Depreciation and other expenses
Total
Year Ended December 31,
2021
2020
Change
$
$
51,625 $
62,874
6,363
3,344
18,137
142,343 $
50,561 $
44,969
5,277
3,521
11,744
116,072 $
1,064
17,905
1,086
(177)
6,393
26,271
The $26.3 million increase in research and development expenses was primarily attributable to a $17.9 million increase in personnel costs and a $6.4
million increase in depreciation and other expenses, which included a $2.3 million increase in consultant costs.
Sales and Marketing
(in thousands, except percentages)
Sales and marketing
Year Ended December 31,
Change
Percent of Revenue
2021
2020
$ 95,465 $ 61,358 $ 34,107
$
%
2021
2020
56%
62%
62%
The $34.1 million increase in sales and marketing expenses was primarily attributable to $23.7 million in additional personnel costs, $6.0 million in
additional marketing expenses, a $2.2 million increase in travel and customer event related expenses and a $1.2 million increase in consultant costs. Our
clonoSEQ and T-Detect marketing efforts were the largest drivers of the $6.0 million increase in marketing expenses.
96
General and Administrative
(in thousands, except percentages)
General and administrative
Year Ended December 31,
Change
Percent of Revenue
2021
2020
$ 74,502 $ 49,536 $ 24,966
$
%
2021
2020
50%
48%
50%
The $25.0 million increase in general and administrative expenses was primarily attributable to a $13.3 million increase in personnel costs, as well
as a $7.8 million increase in building, facility and depreciation related expenses. Additionally, there was a $2.3 million increase in consultant costs and a
$2.2 million increase in computer and software expenses, which were partially offset by a $2.1 million decrease in legal, accounting and tax fees.
Interest and Other Income, Net
(in thousands, except percentages)
Interest and other income, net
Year Ended December 31,
2021
2020
$
1,668 $
6,590 $
Change
$
(4,922)
%
(75)%
The $4.9 million decrease in interest and other income, net was primarily attributable to a $4.8 million decrease in net interest income and
investment amortization resulting from reductions in interest rates and related yields of a smaller portfolio.
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, income tax (expense) benefit, depreciation and amortization and share-based compensation expenses.
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;
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 non-cash 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.
In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different
industries.
97
The following is a reconciliation of net loss attributable to Adaptive Biotechnologies Corporation to Adjusted EBITDA for the periods presented (in
thousands):
Net loss attributable to Adaptive Biotechnologies Corporation
Interest and other income, net
Depreciation and amortization expense
Share-based compensation expense (1)
Adjusted EBITDA
2021
Year Ended December 31,
2020
2019
$
$
(207,279)
(1,668)
13,953
43,251
(151,743)
$
$
(146,227)
(6,590)
8,472
24,761
(119,584)
$
$
(68,606)
(9,785)
7,791
13,124
(57,476)
(1) Represents share-based compensation expense related to option and restricted stock unit awards. See Note 13 of the accompanying notes to our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details on our share-based compensation expense.
Liquidity and Capital Resources
We have incurred losses since inception and have incurred negative cash flows from operations since inception through December 31, 2018, and
again in the years ended December 31, 2020 and 2021. As of December 31, 2021, we had an accumulated deficit of $718.9 million.
We have funded our operations to date principally from the sale of convertible preferred stock and common stock and, to a lesser extent, sequencing
and development revenue. As of December 31, 2021, we had cash, cash equivalents and marketable securities of $570.2 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 commercial and marketing activities
associated with our clinical products and services, continued research and development initiatives for our pipeline candidates and drug discovery initiatives
and ongoing investments in our immune medicine platform. We also expect to make capital expenditures in the near term related to the expansion of our
laboratory space and expect to continue investing in laboratory equipment and operations 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 U.S. government debt securities and corporate bonds.
Our contractual obligations as of December 31, 2021 include operating lease obligations of $149.5 million, reflecting the minimum commitments
for our office and laboratory spaces in Seattle, Washington and South San Francisco, California, our warehouse lease in Bothell, Washington and our office
lease in New York City, New York, as well as a commitment for server space in Seattle, Washington. See Note 10 of the accompanying notes to our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information, including the timing of cash payments
related to these lease obligations. Additionally, we have minimum commitments for laboratory material suppliers, which are generally fulfilled within one
year, software and service license commitments, which are generally fulfilled within one to three years, purchase commitments for cloud data storage
through our collaboration with Microsoft and royalty commitments. Furthermore, in connection with one of our lease agreements, we have an existing
letter of credit of $2.1 million with one of our existing financial institutions.
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.
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Cash Flows
The following table summarizes our uses and sources of cash for the years ended December 31, 2021 and 2020 (in thousands):
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Operating Activities
$
Year Ended December 31,
2021
2020
$
(192,727)
181,210
27,146
(149,683)
(117,044)
293,587
Cash used in operating activities during the year ended December 31, 2021 was $192.7 million, which was primarily attributable to a net loss of
$207.3 million and a net change in operating assets and liabilities of $56.8 million, partially offset by noncash share-based compensation of $43.3 million,
noncash depreciation and amortization of $21.2 million and noncash lease expense of $7.0 million. The net change in operating assets and liabilities was
primarily due to a $57.7 million reduction in deferred revenue primarily related to revenue recognized from the Genentech Agreement, a $7.4 million
increase in accounts receivable, net and a $5.2 million increase in inventory, which were partially offset by an $8.5 million increase in operating lease
liabilities, a $3.9 million increase in accounts payable and accrued liabilities primarily related to our corporate bonus to be paid in 2022, and a $1.3 million
decrease in prepaid expenses and other assets.
Cash used in operating activities during the year ended December 31, 2020 was $149.7 million, which was primarily attributable to a net loss of
$146.2 million and a net change in our operating assets and liabilities of $40.8 million, partially offset by noncash share-based compensation of $24.8
million, noncash depreciation and amortization of $9.2 million and noncash lease expense of $3.3 million. The net change in our operating assets and
liabilities was primarily due to a $43.4 million reduction in deferred revenue primarily related to revenue recognized from the Genentech Agreement, a
$5.0 million increase in inventory, a $1.4 million increase in prepaid expenses and other current assets and a $0.9 million decrease in operating lease
liabilities. These changes were partially offset by an increase in accounts payable and accrued liabilities of $7.5 million and a reduction in accounts
receivable, net of $2.6 million.
Investing Activities
Cash provided by investing activities during the year ended December 31, 2021 was $181.2 million, which was primarily attributable to proceeds
from maturities of marketable securities of $559.5 million, partially offset by purchases of marketable securities of $316.5 million and purchases of
property and equipment of $61.7 million.
Cash used in investing activities during the year ended December 31, 2020 was $117.0 million, which was primarily attributable to purchases of
marketable securities of $695.0 million and purchases of property and equipment of $18.8 million, partially offset by proceeds from sales and maturities of
marketable securities of $596.7 million.
Financing Activities
Cash provided by financing activities during the year ended December 31, 2021 was $27.1 million, which was primarily attributable to proceeds
from the exercise of stock options.
Cash provided by financing activities during the year ended December 31, 2020 was $293.6 million, which was primarily attributable to $271.8
million in proceeds, after deducting underwriting discounts and net offering expenses paid by us, received from our underwritten public offering completed
in July 2020, as well as $21.7 million in proceeds from the exercise of stock options.
Net Operating Loss Carryforwards
Utilization of our 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 TCJA,
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.
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Critical Accounting Policies and Estimates
We have prepared our consolidated financial statements in accordance with GAAP. Our preparation of these 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
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, 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 Note 2 of the accompanying notes to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are critical to the judgments and estimates used in
the preparation of our consolidated financial statements.
Revenue Recognition
Our development and sequencing revenue arrangements may include upfront payments for the performance of services in the future, which have
both fixed and variable consideration. Non-refundable upfront fees and funding for related development services are generally considered fixed
consideration, while milestone payments are identified as variable consideration.
In determining the appropriate amount of revenue to recognize as we fulfill our obligations under these agreements, we perform the following steps
to determine the amount of revenue to be recognized: (1) identify the contract or contracts; (2) determine whether the promised goods or services are
performance obligations, including whether they are distinct in the context of the contract; (3) measure the transaction price, including the constraint on
variable consideration; (4) allocate the transaction price to the performance obligations based on estimated selling prices; and (5) recognize revenue when
(or as) we satisfy each performance obligation.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Accounting
Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Our performance obligations include sequencing services and services
associated with regulatory submission and approval processes. Significant management judgment is applied to determine (1) the measurement of the
transaction price, including the constraint on variable consideration, (2) the allocation of the transaction price to the performance obligations and (3) the
appropriate input or output based method to recognize revenue and the extent of progress to date.
We include the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is
constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent
reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint and, if necessary, adjust
our estimate of the overall transaction price.
To determine the allocation of the transaction price to the performance obligations, we apply the adjusted market assessment approach. Using this
approach, we evaluate the market in which we sell the services and estimate the price that a customer in that market would be willing to pay for those
services.
To select the measure of progress, we consider the expectations of the performance period which may be based on customer-dependent estimates of
samples or internal estimates of the performance period based on both the customer and our expected development timeframes. For our collaboration with
Genentech, we estimate the extent of progress using a proportional performance model that uses an input method based on costs incurred relative to the
total estimated costs of research and development efforts to pursue both the Shared Products and Personalized Product pathways. These estimates are based
on our internal estimates and development timeframes, which are subject to revision based on the potential outcomes for both product pathways, decisions
made by Genentech, regulatory feedback or other factors not currently known. We regularly review our expectations of the extent of progress, including
whether any variable consideration is no longer constrained, and, if any changes in estimates are made, we recognize revenue using the cumulative catch-
up method.
100
Goodwill
Goodwill represents the excess of the purchase price over the net amount of identifiable assets acquired and liabilities assumed in a business
combination measured at fair value. We assess goodwill for impairment annually on October 1 and upon any occurrence of triggering events or substantive
changes in circumstances that could indicate a potential impairment.
We evaluate goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value of our
reporting unit is less than its carrying amount. We evaluate certain qualitative factors such as macroeconomic conditions, the market and industry in which
we operate, cost factors, overall financial performance and other relevant entity-specific events to determine if there are any negative trends or events that
could indicate impairment. Key assumptions in this analysis include anticipated demand for our products and services, including industry and regulatory
changes, future revenue growth and cash flow trends. These assumptions are determined based on our historical performance and management’s forecasted
results. Management’s estimates of forecasted results are based upon assumptions believed to be reasonable, but which are inherently uncertain and
unpredictable and, as a result, actual results may differ from estimates. If we determine that it is more likely than not that the fair value of our reporting unit
is less than its carrying amount, or if we choose to bypass the qualitative assessment, we perform a quantitative goodwill impairment test. Goodwill
impairment exists when the estimated fair value of our one reporting unit is less than its carrying value. If impairment exists, the carrying value of the
goodwill is reduced to fair value through an impairment charge recorded in our consolidated statements of operations. To date, we have not recognized any
impairment of goodwill.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to market risk for changes in interest rates related primarily to our cash and cash equivalents and marketable securities. As of
December 31, 2021 and 2020, we had cash and cash equivalents of $139.1 million and $123.4 million, respectively, held primarily in cash deposits and
money market funds. As of December 31, 2021, we had short-term and long-term marketable securities of $431.1 million, held in U.S. government debt
securities and corporate bonds. As of December 31, 2020, we had short-term and long-term marketable securities of $683.4 million, held in U.S.
government debt securities and corporate bonds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the
general level of interest rates in the United States. As of December 31, 2021, a hypothetical 100 basis point increase in interest rates would have resulted in
a $4.0 million decline of the fair value of our available-for-sale securities, as compared to a $4.3 million decline as of December 31, 2020. This estimate is
based on a sensitivity model that measures market value changes when changes in interest rates occur. Such losses would only be realized if we sold the
investments prior to maturity. We do not enter into investments for trading purposes and have not used any derivative financial instruments to manage our
interest rate risk exposure.
101
Item 8. Financial Statements and Supplementary Data
Adaptive Biotechnologies Corporation
Index to Consolidated Financial Statements
As of December 31, 2021 and 2020 and
For the Years Ended December 31, 2021, 2020 and 2019
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Convertible Preferred Stock and Shareholders’ (Deficit) Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
102
103
105
106
107
108
109
110
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Adaptive Biotechnologies Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Adaptive Biotechnologies Corporation (the Company) as of December 31, 2021
and 2020, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and shareholders’ (deficit) equity and cash
flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 15, 2022 expressed
an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
103
Description of the Matter
How We Addressed the Matter in Our
Audit
Genentech Agreement
As more fully described in Note 3 of the financial statements, Genentech Agreement
revenue is estimated to be recognized over a period of seven to eight years from the
effective date. The non-refundable upfront consideration of $300.0 million is recognized
using a proportional performance model through an input method based on costs incurred
relative to the total estimated costs of research and development efforts. For the year ended
December 31, 2021, total revenue recognized was $62.0 million and the related deferred
revenue at December 31, 2021 totaled $150.1 million.
Auditing management’s estimate of the total expected research and development costs at
completion is complex and requires judgment as a result of the uncertainties of the ultimate
progression of the customized product paths, timing and path of development and
commercialization decisions, which are controlled by Genentech.
We obtained an understanding, evaluated the design, and tested the operating effectiveness
of controls over the Company’s process to evaluate the progress of the collaboration and the
likely path of future development based on significant decisions made by Genentech
communicated through the joint committees and any resulting impacts on the total costs of
research and development efforts for the collaboration.
To test the estimate of total expected research and development costs, we performed audit
procedures that included, among others, observing the quarterly meetings with accounting
and the Company collaboration managers discussing the status of the collaboration and the
future development for the customized product paths, investigating any changes to the
development path. We reviewed supporting documentation to corroborate progress and
status of the overall timeline, including meeting minutes from the joint committees.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2015
Seattle, Washington
February 15, 2022
104
Adaptive Biotechnologies Corporation
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
Assets
Current assets
Cash and cash equivalents
Short-term marketable securities (amortized cost of $214,115 and $564,036, respectively)
Accounts receivable, net
Inventory
Prepaid expenses and other current assets
Total current assets
Long-term assets
Property and equipment, net
Operating lease right-of-use assets
Long-term marketable securities (amortized cost of $218,163 and $118,429, respectively)
Restricted cash
Intangible assets, net
Goodwill
Other assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Accounts payable
Accrued liabilities
Accrued compensation and benefits
Current portion of operating lease liabilities
Current portion of deferred revenue
Total current liabilities
Long-term liabilities
Operating lease liabilities, less current portion
Deferred revenue, less current portion
Total liabilities
Commitments and contingencies (Note 11)
Shareholders’ equity
Preferred stock: $0.0001 par value, 10,000,000 shares authorized at December 31, 2021 and 2020; no
shares issued and outstanding at December 31, 2021 and 2020
Common stock: $0.0001 par value, 340,000,000 shares authorized at December 31, 2021 and 2020;
141,393,865 and 137,646,896 shares issued and outstanding at December 31, 2021 and 2020,
respectively
Additional paid-in capital
Accumulated other comprehensive (loss) gain
Accumulated deficit
Total Adaptive Biotechnologies Corporation shareholders’ equity
Noncontrolling interest
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2021
2020
139,065 $
213,996
17,409
19,263
13,015
402,748
85,262
87,678
217,145
2,138
8,526
118,972
875
923,344 $
3,307 $
9,343
15,642
5,055
80,460
113,807
106,685
98,750
319,242
123,436
564,833
10,047
14,063
14,535
726,914
39,692
99,350
118,525
2,138
10,225
118,972
598
1,116,414
3,237
13,162
11,950
3,529
73,319
105,197
104,333
163,618
373,148
—
—
14
1,324,006
(1,137)
(718,891)
603,992
110
604,102
923,344 $
14
1,253,971
893
(511,612)
743,266
—
743,266
1,116,414
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
105
Adaptive Biotechnologies Corporation
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
Revenue
Sequencing revenue
Development revenue
Total revenue
Operating expenses
Cost of revenue
Research and development
Sales and marketing
General and administrative
Amortization of intangible assets
Total operating expenses
Loss from operations
Interest and other income, net
Net loss
Add: Net loss attributable to noncontrolling interest
Net loss attributable to Adaptive Biotechnologies Corporation
Fair value adjustment to Series E-1 convertible preferred stock options
Net loss attributable to Adaptive Biotechnologies Corporation common shareholders
Net loss per share attributable to Adaptive Biotechnologies Corporation common
shareholders, basic and diluted
Weighted-average shares used in computing net loss per share attributable to Adaptive
Biotechnologies Corporation common shareholders, basic and diluted
2021
Year Ended December 31,
2020
2019
$
78,896 $
75,448
154,344
41,439 $
56,943
98,382
49,301
142,343
95,465
74,502
1,699
363,310
(208,966)
1,668
(207,298)
19
(207,279)
—
22,530
116,072
61,358
49,536
1,703
251,199
(152,817)
6,590
(146,227)
—
(146,227)
—
$
(207,279) $
(146,227) $
43,519
41,552
85,071
22,274
70,705
38,453
30,332
1,698
163,462
(78,391)
9,785
(68,606)
—
(68,606)
(964)
(69,570)
$
(1.48) $
(1.11)
$
(1.01)
140,354,915
131,216,468
69,165,315
The accompanying notes are an integral part of these consolidated financial statements.
106
Adaptive Biotechnologies Corporation
Consolidated Statements of Comprehensive Loss
(in thousands)
Net loss
Other comprehensive (loss) income:
Change in unrealized gains and losses on investments
Comprehensive loss
Add: Comprehensive loss attributable to noncontrolling interest
2021
Year Ended December 31,
2020
2019
$
(207,298) $
(146,227) $
(68,606)
(2,030)
(209,328)
19
222
(146,005)
—
778
(67,828)
—
(67,828)
Comprehensive loss attributable to Adaptive Biotechnologies Corporation
$
(209,309) $
(146,005) $
The accompanying notes are an integral part of these consolidated financial statements.
107
Adaptive Biotechnologies Corporation
Consolidated Statements of Convertible Preferred Stock and Shareholders’ (Deficit) Equity
(in thousands, except share amounts)
Convertible Preferred
Stock
Common Stock
Paid-In
Comprehensive Accumulated Noncontrolling
Additional
Accumulated
Other
Total
Shareholders’
(Deficit)
Shares
Amount
Shares
92,790,094 $ 560,858 12,841,536 $
Amount Capital
1
$
37,902
(Loss) Gain
Deficit
Interest
Equity
$
(107) $
(295,908) $
—
$
(258,112)
—
—
— 17,250,000
—
—
(93,039,737) (561,931) 93,039,737
—
—
—
—
—
—
54,792
—
2,043,767
249,643
—
109
—
—
8,310
—
964
—
2
—
9
—
—
—
—
—
—
320,848
(4,986)
561,922
2,602
9
4,413
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(964)
—
—
—
— $
—
—
—
— 125,238,142 $
—
—
—
—
—
—
12 $
13,124
—
—
935,834 $
—
778
—
671 $
—
—
(68,606)
(365,478) $
—
—
7,200,000
1
271,838
—
—
—
—
5,204,254
4,500
—
1
—
—
21,538
—
—
—
—
— 137,646,896 $
—
—
—
—
—
—
14 $ 1,253,971 $
24,761
—
—
—
54,162
—
—
—
—
3,674,057
18,750
—
—
26,484
—
—
—
—
43,251
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
— $
—
—
—
—
—
222
—
893 $
—
—
—
—
—
93
—
—
—
—
(146,227)
(511,612) $
—
—
—
—
—
—
—
—
—
—
— 141,393,865 $
300
—
—
—
—
—
14 $ 1,324,006 $
—
(2,030)
—
(1,137) $
—
—
(207,279)
(718,891) $
The accompanying notes are an integral part of these consolidated financial statements.
108
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
— $
—
—
—
320,850
(4,986)
561,931
2,602
9
4,413
—
—
(964)
13,124
778
(68,606)
571,039
271,839
93
21,539
—
24,761
222
(146,227)
743,266
—
26,484
—
—
43,251
129
—
(19)
110 $
429
(2,030)
(207,298)
604,102
Balance at December 31, 2018
Proceeds from initial public offering, net
of underwriters' discounts and
commissions
Initial public offering costs
Conversion of convertible preferred stock
to common stock
Conversion of convertible preferred stock
warrant to common stock warrant
Issuance of common stock upon exercise
of common stock warrants
Issuance of common stock for cash upon
exercise of stock options
Issuance of Series E-1 convertible
preferred stock for cash upon exercise of
Series E-1 convertible preferred stock
options at fair value
Vesting of restricted stock units
Change in redemption value for vested
Series E-1 convertible preferred stock
options
Common stock option and restricted
stock unit share-based compensation
Other comprehensive income
Net loss
Balance at December 31, 2019
Issuance of common stock upon public
offering, after deducting underwriters'
discounts and net offering costs paid by
us
Adjustments to accumulated deficit for
adoption of guidance on accounting for
leases
Issuance of common stock for cash upon
exercise of stock options
Vesting of restricted stock units
Common stock option and restricted
stock unit share-based compensation
Other comprehensive income
Net loss
Balance at December 31, 2020
Issuance of common stock upon exercise
of common stock warrant
Issuance of common stock for cash upon
exercise of stock options
Vesting of restricted stock units
Common stock option and restricted
stock unit share-based compensation
Capital contributions for Digital
Biotechnologies, Inc.
Other comprehensive loss
Net loss
Balance at December 31, 2021
Adaptive Biotechnologies Corporation
Consolidated Statements of Cash Flows
(in thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
2021
Year Ended December 31,
2020
2019
$
(207,298) $
(146,227) $
(68,606)
Depreciation expense
Noncash lease expense
Share-based compensation expense
Intangible assets amortization
Investment amortization
Fair value adjustment of convertible preferred stock warrant
Other
Changes in operating assets and liabilities:
Accounts receivable, net
Inventory
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Deferred rent
Operating lease right-of-use assets and liabilities
Deferred revenue
Other
Net cash (used in) provided by operating activities
Investing activities
Purchases of property and equipment
Purchases of marketable securities
Proceeds from sales and maturities of marketable securities
Net cash provided by (used in) investing activities
Financing activities
Proceeds from exercise of stock options
Proceeds from public offering of common stock, net of underwriting discounts and
commissions
Payment of public offering costs, net
Proceeds from issuance of common stock upon the exercise of a common stock warrant
Proceeds from initial capital contributions for Digital Biotechnologies, Inc.
Other
Net cash provided by financing activities
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Noncash investing and financing activities
Purchases of equipment included in accounts payable and accrued liabilities
Noncash additions to property through lease financing arrangements
Derecognition of lease financing arrangements upon adoption of guidance on accounting
for leases
$
$
$
$
Conversion of convertible preferred stock to common stock upon closing of initial public
offering
$
Conversion of convertible preferred stock warrant to common stock warrant upon closing
of initial public offering
$
12,254
7,028
43,251
1,699
7,233
—
(78)
(7,362)
(5,200)
1,286
3,940
—
8,522
(57,727)
(275)
(192,727)
(61,746)
(316,544)
559,500
181,210
6,769
3,266
24,761
1,703
773
—
71
2,613
(4,994)
(1,362)
7,495
—
(886)
(43,389)
(276)
(149,683)
(18,803)
(694,965)
596,724
(117,044)
6,093
—
13,124
1,698
(4,463)
2,266
359
(7,817)
(1,231)
(8,576)
6,149
78
—
266,927
(597)
205,404
(11,200)
(884,217)
413,720
(481,697)
26,717
21,748
4,055
—
—
—
429
—
27,146
15,629
125,574
141,203 $
272,160
(321)
—
—
—
293,587
26,860
98,714
125,574 $
682 $
— $
4,679 $
— $
320,850
(4,986)
9
—
(12)
319,916
43,623
55,091
98,714
773
36,607
— $
36,607 $
—
— $
— $
— $
561,931
— $
2,602
The accompanying notes are an integral part of these consolidated financial statements.
109
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements
1.
Organization and Description of Business
Adaptive Biotechnologies Corporation (“we,” “us” or “our”) is a commercial-stage company 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.
We were incorporated in the State of Washington on September 8, 2009 under the name Adaptive TCR Corporation. On December 21, 2011, we
changed our name to Adaptive Biotechnologies Corporation. We are headquartered in Seattle, Washington.
Digital Biotechnologies, Inc.
In 2021, we formed a subsidiary, Spin Technologies, Inc., to facilitate the development of a potential new early-stage sequencing technology that is
ancillary to our core business. In February 2022, the subsidiary’s name was changed to Digital Biotechnologies, Inc. We have a 70% ownership interest in
Digital Biotechnologies, Inc. All intercompany transactions and balances between us and Digital Biotechnologies, Inc. have been eliminated in
consolidation. The remaining interest, held by certain of our related parties and related family trusts, was reported as noncontrolling interest in our
consolidated financial statements.
2.
Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of Adaptive Biotechnologies Corporation, its wholly-owned subsidiary and Digital
Biotechnologies, Inc. Other shareholders’ interests in Digital Biotechnologies, Inc. are shown in the consolidated financial statements as noncontrolling
interest. All intercompany transactions and balances have been eliminated upon consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the consolidated financial statements, as well
as the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience and other relevant
assumptions that we believe to be reasonable under the circumstances. Estimates are used in several areas including, but not limited to, estimates of
progress to date for certain performance obligations and the transaction price for certain contracts with customers, share-based compensation, including the
fair value of stock, 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.
Cash and Cash Equivalents
Cash and cash equivalents are stated at fair value. Cash equivalents include only securities having an original maturity of three months or less at the
time of purchase. We limit our credit risk associated with cash and cash equivalents by placing our investments with banks that we believe are highly
creditworthy and with highly rated money market funds. Cash and cash equivalents primarily consist of bank deposits and investments in money market
funds.
Restricted Cash
We are required to maintain certain balances under lease arrangements for some of our property and facility leases. We had restricted cash of $2.1
million as of December 31, 2021 and 2020.
110
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
Investments in Marketable Securities
Marketable securities are classified as available-for-sale, consist of U.S. government debt securities and corporate bonds and are reported at fair
value. Unrealized holding gains and losses are reflected as a separate component of shareholders’ equity in accumulated other comprehensive gain (loss)
until realized. Realized gains and losses on the sale of these securities are recognized in net income or loss. The cost of marketable securities sold is based
on the specific identification method.
Concentrations of Risk
We are subject to a concentration of risk from a limited number of suppliers, or in certain cases, single suppliers for some of our laboratory
instruments and materials. This risk is managed by targeting a quantity of surplus stock.
Cash, cash equivalents and marketable securities are financial instruments that potentially subject us to concentrations of credit risk. We invest in
money market funds, U.S. government debt securities, U.S. government agency securities, commercial paper and corporate bonds with high-quality
accredited financial institutions.
Significant customers are those that represent more than 10% of our total revenue or accounts receivable, net balances for the periods and as of each
date presented, respectively. Revenue from these customers reflects their purchase of our products and services and our collaboration efforts with
Genentech.
For each significant customer, revenue as a percentage of total revenue for the periods presented and accounts receivable, net as a percentage of total
accounts receivable, net as of the dates presented were as follows:
Customer A
Customer B
Genentech, Inc. and Roche Group
* less than 10%
Accounts Receivable
Revenue
Year Ended December 31,
2020
2021
2019
Accounts Receivable, Net
December 31,
2021
2020
*%
*
41.9
*%
*
55.8
13.9%
*
42.1
*%
11.3
*
19.1%
12.2
*
Accounts receivable consists of amounts due from customers for services performed. We review our accounts receivable for credit impairment and
regularly analyze the status of significant past due receivables to determine if any will potentially be uncollectible to estimate the amount of allowance
necessary to reduce accounts receivable to its estimated net realizable value.
Additionally, we had $0.2 million and $0.9 million of unbilled receivables as of December 31, 2021 and 2020, respectively. These contract assets are
amounts that will become due for which we have an unconditional right to consideration.
Inventory
Inventory consists of laboratory materials and supplies used in lab analysis. We capitalize inventory when purchased and record expense upon order
fulfillment for servicing revenue or utilization in our research and development laboratories. Inventory is valued at the lower of cost or market on a first-
in, first-out basis. We periodically perform obsolescence assessments and write off any inventory that is no longer usable.
Property and Equipment
Property and equipment consists of computer equipment, computer software, laboratory equipment, leasehold improvements and furniture and
office equipment. Property and equipment are recorded at cost and depreciation is recognized using the straight-line method based on estimated useful life.
Maintenance and repairs are charged to expense as incurred and costs of improvements are capitalized.
Useful lives assigned to property and equipment are as follows:
Laboratory equipment
Leasehold improvements
3 years to 7 years
Shorter of estimated useful life or remaining lease
term
Computer equipment and software
Furniture and office equipment
3 years to 5 years
3 years to 10 years
111
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
We review long-lived assets for impairment whenever events or circumstances indicate the carrying amount of an asset group may not be
recoverable. Gains and losses from asset disposals and impairment losses are classified within our consolidated statements of operations in accordance with
the use of the asset.
Goodwill
Goodwill represents the excess of the purchase price over the net amount of identifiable assets acquired and liabilities assumed in a business
combination measured at fair value. We assess goodwill for impairment annually on October 1, or more frequently if events or changes in circumstances
would more likely than not reduce the fair value of our single reporting unit below its carrying value. We evaluate goodwill for impairment by first
assessing qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If we so
determine, or if we choose to bypass the qualitative assessment, we perform a quantitative goodwill impairment test. Goodwill impairment exists when the
estimated fair value of our one reporting unit is less than its carrying value. If impairment exists, the carrying value of the goodwill is reduced to fair value
through an impairment charge recorded in our consolidated statements of operations. To date, we have not recognized any impairment of goodwill.
Intangible Assets
Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the
acquisition date, which is regarded as their cost.
Intangible assets may also result from the purchase of assets and intellectual property in a transaction that does not qualify as a business
combination. Intangible assets are amortized over their estimated useful lives on a straight-line basis which approximates their usage pattern. Intangible
assets are reviewed for impairment at least annually or if indicators of potential impairment exist. We have not recognized any impairment losses on
intangible assets.
Leases
We determine if an arrangement contains a lease at inception. We have operating lease agreements for the laboratory, office and warehouse facilities
that we occupy, as well as server space. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized at the date the underlying
asset becomes available for our use and are based on the present value of the future minimum lease payments over the lease term. ROU assets also include
any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. As our leases
generally do not provide an implicit interest rate, the present value of our future minimum lease payments is determined using our incremental borrowing
rate. This rate is an estimate of the collateralized borrowing rate we would incur on our future lease payments over a similar term and is based on the
information available to us at the lease commencement date, or as of January 1, 2020 for commenced leases that existed as of our adoption of Accounting
Standards Update No. 2016-02, Leases (Topic 842) (“ASC 842”).
Certain of our leases contain options to extend or terminate the lease; lease terms are adjusted for these options only when it is reasonably certain we
will exercise these options. Our lease agreements do not contain residual value guarantees or covenants.
We have made a policy election regarding our real estate leases not to separate nonlease components from lease components, to the extent they are
fixed. Nonlease components that are not fixed are expensed as incurred as variable lease expense. Our leases for laboratory, office and warehouse facilities
typically include variable nonlease components, such as common-area maintenance costs. We have also elected not to record on our consolidated balance
sheets a lease that has a lease term of twelve months or less and does not contain a purchase option that we are reasonably certain to exercise.
Lease expense is recognized on a straight-line basis over the terms of the leases. Incentives granted under our facilities leases, including rent
holidays, are recognized as adjustments to lease expense on a straight-line basis over the terms of the leases.
Fair Value of Financial Instruments
The Financial Accounting Standards Board (“FASB”) has defined fair value as the exchange price that would be received for an asset or paid to
transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market
participants on the measurement date. The FASB established a fair value hierarchy that requires an entity to maximize the use of observable inputs, where
available, and minimize the use of unobservable inputs when measuring fair value. The hierarchy defines three levels of inputs that may be used to measure
fair value:
• Level 1: Quoted prices in active markets for identical assets or liabilities.
• Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are
not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities.
• Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
112
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
A financial instrument categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value
measurement. In certain cases, where there is limited activity or less transparency around inputs to valuation, financial instruments are classified as Level 3
within the valuation hierarchy.
Our financial instruments consist of Level 1 and Level 2 assets and have included Level 3 liabilities in the past. The carrying amounts of certain
financial instruments approximate fair value due to their short maturities. We did not have any nonfinancial assets or liabilities that were measured or
disclosed at fair value on a recurring basis as of December 31, 2021 and 2020.
Convertible Preferred Stock Warrant
We had issued a freestanding warrant to a venture capital firm to purchase 56,875 shares of Series C convertible preferred stock with an exercise
price of $2.64 in connection with a $5.0 million credit facility entered into in 2014. Immediately prior to and in connection with the completion of our
initial public offering, the convertible preferred stock warrant converted to a common stock warrant.
Prior to the conversion, the fair value of this warrant was classified as a non-current liability in the balance sheets, since the underlying convertible
preferred stock had been classified as temporary equity instead of shareholders’ deficit in accordance with authoritative guidance for the classification and
measurement of potentially redeemable securities. Upon certain change in control events that were outside of our control, including liquidation, sale or
transfer of control, holders of the convertible preferred stock may have caused its redemption. Prior to conversion, the warrant was subject to
remeasurement at each balance sheet date, with changes in estimated fair value recognized as a component of interest and other income, net on our
statements of operations. During the year ended December 31, 2019, we recognized $2.3 million of expense related to the revaluation of the convertible
preferred stock warrant liability in the interest and other income, net line item on our consolidated statements of operations.
When the convertible preferred stock warrant converted to a common stock warrant immediately prior to and in connection with the completion of
the initial public offering, the $2.6 million financial liability was reclassified to the additional paid-in capital line item on our balance sheet, thereby
concluding the need for revaluation.
Revenue Recognition
We recognize revenue in accordance with ASC Topic 606 (“ASC 606”), Revenue from Contracts with Customers. Under ASC 606, for all revenue-
generating contracts, we perform the following steps to determine the amount of revenue to be recognized: (1) identify the contract or contracts;
(2) determine whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract;
(3) measure the transaction price, including the constraint on variable consideration; (4) allocate the transaction price to the performance obligations based
on estimated selling prices; and (5) recognize revenue when (or as) we satisfy each performance obligation. The following is a summary of the application
of the respective model to each of our revenue classifications.
Overview
Our revenue is generated from immunosequencing (“sequencing”) products and services (“sequencing revenue”) and from regulatory or
development support services leveraging our immune medicine platform (“development revenue”). When revenue generating contracts have elements of
both sequencing revenue and development revenue, we classify revenue based on the nature of the performance obligation and the allocated transaction
price.
Sequencing Revenue
Sequencing revenue reflects the amounts generated from providing testing services through clonoSEQ to clinical and research customers, from
providing our T-Detect COVID test to clinical customers and from providing sequencing services through immunoSEQ to research customers.
For clinical customers, we primarily derive revenue from providing our clonoSEQ report to ordering physicians. In these transactions, we have
identified one performance obligation, the delivery of a clonoSEQ report, and we bill and receive payments from medical institutions and commercial and
government third-party payors. As payment from the respective payors may vary based on the various reimbursement rates and patient responsibilities, we
consider the transaction price to be variable and record an estimate of the transaction price, subject to the constraint for variable consideration, as revenue at
the time of delivery. The estimate of transaction price is based on historical and expected reimbursement rates with the various payors, which are monitored
in subsequent periods and adjusted as necessary based on actual collection experience.
113
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
For our clonoSEQ coverage under Medicare, we bill an episode of treatment when we deliver the first eligible test results. 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 result is delivered and is based upon cumulative tests
delivered to date. We estimate the number of tests we expect to deliver over a patient’s treatment cycle based on historical testing frequencies for patients
by indication. These estimates are subject to change as we develop more information about utilization over time. Any unrecognized revenue from the initial
billable test is recorded as deferred revenue and is recognized either as we deliver our estimate of the remaining tests in a patient’s treatment cycle or when
the likelihood becomes remote that a patient will receive additional testing.
For research customers, contracts typically include an amount billed in advance of services (“upfront”) and subsequent billings as sample results are
delivered to the customer. Upfront amounts received are recorded as deferred revenue, which we recognize as revenue upon satisfaction of performance
obligations. We have identified two typical performance obligations under the terms of our research service contracts: sequencing services and related data
analysis. We recognize revenue for both identified performance obligations as sample results are delivered to the customer. 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.
Development Revenue
We derive revenue by providing services through development agreements to biopharmaceutical customers who seek access to our immune
medicine platform technologies. We generate revenues from the delivery of professional support activities pertaining to the use of immunoSEQ and our
MRD product in the development of the respective customers’ initiatives. The transaction price for these contracts may consist of a combination of non-
refundable upfront fees, separately priced sequencing fees, progress-based milestones and regulatory milestones. The development agreements include
single or multiple performance obligations, depending on the contract. For certain contracts, we perform services to support the biopharmaceutical
customers’ regulatory submissions as part of their registrational trials. These services may include regulatory support pertaining to our technology intended
to be utilized as part of the submission, development of analytical plans for our sequencing data, participation on joint research committees and assistance
in completing a regulatory submission. Generally, these services are not distinct within the context of the contract and they are accounted for as a single
performance obligation. If agreements include sequencing activities, we separately classify those activities as sequencing revenue.
When sequencing services are separately priced customer options, we assess if a material right exists and, if not, the customer option to purchase
additional sequencing services is not considered part of the contract. Except for any non-refundable upfront fees, the other forms of compensation represent
variable consideration. Variable consideration related to progress-based and regulatory milestones is estimated using the most likely amount method, where
variable consideration is constrained until it is probable that a significant reversal of cumulative revenue recognized will not occur. Progress milestones,
such as the first sample result delivered or final patient enrollment in a customer trial, are customer dependent and are included in the transaction price
when the respective milestone is probable of occurring. Milestone payments that are not within our customers’ control, such as regulatory approvals, are
not considered probable of being achieved until those approvals are received. Determining whether regulatory milestone payments are probable is an area
that requires significant judgment. In making this assessment, we evaluate scientific, clinical, regulatory and other risks, as well as the level of effort and
investment required to achieve the respective milestone.
The primary method used to estimate standalone selling price for performance obligations is the adjusted market assessment approach. Using this
approach, we evaluate the market in which we sell our services and estimate the price that a customer in that market would be willing to pay for our
services. We recognize revenue using either an input or output measure of progress that faithfully depicts performance on a contract, depending on the
contract. The measure used is dependent on the nature of the service to be provided in each contract. Selecting the measure of progress and estimating
progress to date requires significant judgment.
During the year ended December 31, 2021, we executed an intellectual property license agreement that includes variable consideration related to
sales-based royalties. Any consideration related to such royalties will be recognized as development revenue at the later of when (i) the related sales occur
or (ii) the performance obligation to which some or all of the sales-based royalty has been allocated has been satisfied (or partially satisfied).
114
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
Contract Balances
In certain circumstances, billing may occur prior to services being performed. Upfront payments are recorded as deferred revenue, contract
liabilities. We classify deferred revenue as current for sequencing revenue, as we expect our performance obligations will be completed within the next
twelve months; however, we do not control the timing of customer provided samples. For development services, we assess the performance obligations and
recognize deferred revenue as current or non-current based upon forecasted delivery times, which are customer coordinated. In certain circumstances, the
customer project may be cancelled or terminated prior to the delivery of all related services covered by a customer’s upfront payment. In these
circumstances, we recognize revenue when sufficient evidence is obtained that a reversal of revenue is not probable.
Share-Based Compensation
Share-based compensation includes compensation expense for stock option and restricted stock unit grants to employees and non-employees. It
represents the grant date fair value of the grants and is recognized over the requisite service period of the awards, usually the vesting period, on a straight-
line basis, net of actual forfeitures. We estimate the grant date fair value of stock option grants using the Black-Scholes option-pricing model.
Advertising
Advertising costs are expensed as incurred. Advertising expenses were $22.4 million, $14.5 million and $6.6 million for the year ended December
31, 2021, 2020 and 2019, respectively.
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 and allocated facility costs associated with processing samples and professional support for our sequencing 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.
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. 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.
Research and development costs are expensed as incurred. Upfront payments for goods or services that will be used or rendered for future research and
development activities are deferred and capitalized, then are recognized as an expense as the goods are consumed or the related services are performed.
Costs to support our Genentech Agreement are also a component of our research and development expenses.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of 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.
Income Taxes
Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to the differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases,
and the operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount
expected to be realized.
Deferred tax assets and liabilities are measured at the consolidated balance sheet date using the enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in
tax rates is recognized in the period such tax rate changes are enacted. Our net deferred tax assets are fully offset by a valuation allowance, because of our
history of losses.
115
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained upon examination.
Net Loss Per Share Attributable to Adaptive Biotechnologies Corporation Common Shareholders
We calculate basic net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders by dividing net loss attributable to
Adaptive Biotechnologies Corporation common shareholders by the weighted-average number of shares of common stock outstanding for the period. The
diluted net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders is computed by giving effect to all potential dilutive
common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, common stock warrants,
stock options and nonvested restricted stock units are considered common stock equivalents but have been excluded from the calculation of diluted net loss
per share attributable to Adaptive Biotechnologies Corporation common shareholders, as their effect is anti-dilutive.
Prior to the closing of our initial public offering in July 2019 and the related conversion of our convertible preferred stock into common stock, we
calculated our basic and diluted net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders in conformity with the two-
class method required for companies with participating securities. We considered our convertible preferred stock to be participating securities. In the event
a dividend had been declared or paid on common stock, holders of convertible preferred stock would have been entitled to a share of such dividend in
proportion to the holders of common stock on an as-if converted basis. Under the two-class method, basic net loss per share attributable to Adaptive
Biotechnologies Corporation common shareholders is calculated by dividing the net loss attributable to Adaptive Biotechnologies Corporation common
shareholders by the weighted-average number of shares of common stock outstanding for the period. Net loss attributable to Adaptive Biotechnologies
Corporation common shareholders is determined by allocating undistributed earnings between common and preferred shareholders. The net loss
attributable to Adaptive Biotechnologies Corporation common shareholders was not allocated to the convertible preferred stock under the two-
class method, as the convertible preferred stock did not have a contractual obligation to share in our losses. The diluted net loss per share attributable to
Adaptive Biotechnologies Corporation common shareholders was computed by giving effect to all potential dilutive common stock equivalents outstanding
for the period determined using the treasury stock method. For purposes of this calculation, convertible preferred stock, convertible preferred stock
warrants, common stock warrants and stock options were considered common stock equivalents but were excluded from the calculation of diluted net loss
per share attributable to Adaptive Biotechnologies Corporation common shareholders, as their effect was anti-dilutive.
Segment Information
We have determined that our chief executive officer is the chief operating decision maker (“CODM”). The CODM regularly reviews operating
results and other financial information presented on a consolidated basis. While revenue is reviewed at levels lower than the consolidated entity, resource
allocation decisions are made by the CODM based on the results presented at the consolidated entity level, which is determined to be a single reporting
unit. There are no segment managers who are held accountable by the CODM for operations, operating results or planning at levels or components below
the consolidated entity. As such, the consolidated entity operates as one operating segment and represents one reportable segment. We present
disaggregated revenue from contracts with customers by type of service. See Note 3, Revenue.
3.
Revenue
We disaggregate our revenue from contracts with customers by type of service, as we believe this best depicts how the nature, amount, timing and
uncertainty of our revenue and cash flows are affected by economic factors. The following table presents our revenue disaggregated by type of products
and services for the periods presented (in thousands):
Sequencing revenue
Development revenue
Development support
Regulatory milestones
Total development revenue
Total revenue
2021
Year Ended December 31,
2020
2019
$
78,896 $
41,439 $
43,519
65,448
10,000
75,448
154,344 $
54,443
2,500
56,943
98,382 $
39,552
2,000
41,552
85,071
$
116
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
MRD Development Agreements
We have entered into agreements with biopharmaceutical customers to further develop and commercialize our MRD product and the
biopharmaceutical customers’ therapeutics. Under each of the agreements, we received or will receive non-refundable upfront payments and could receive
substantial additional payments upon reaching certain progress-based milestones or achieving certain regulatory milestones pertaining to the customers’
therapeutics and our MRD product.
Under the contracts, we identify performance obligations, which may include: (1) obligations to provide services supporting the customer’s
regulatory submission activities as they relate to our MRD product; and (2) sequencing services related to customer-provided samples for their regulatory
submissions. The transaction price allocated to the respective performance obligations is estimated using an adjusted market assessment approach for the
regulatory support services and a standalone selling price for the estimated immunosequencing services. At contract inception, we fully constrain any
consideration related to regulatory milestones, as the achievement of such milestones is subject to third-party regulatory approval and the customers’ own
submission decision-making. We recognize revenue related to the sequencing services as sequencing revenue over time using an output method based on
the proportion of sample results delivered relative to the total amount of sample results expected to be delivered, when expected to be a faithful depiction of
progress. We use the same method to recognize the regulatory support services. When an output method based on the proportion of sample results delivered
is not expected to be a faithful depiction of progress, we utilize an input method using a cost-based model based on estimates of effort completed.
We recognized $3.2 million in revenue during the year ended December 31, 2021 due to changes in estimates of total samples to be provided under
certain of our MRD development agreements for which we had previously received upfront consideration, of which $0.3 million was recognized as
development revenue in the respective period.
We earned $10.0 million, $2.5 million and $2.0 million during the year ended December 31, 2021, 2020 and 2019, respectively, upon the
achievement of certain regulatory milestones by us and our respective customers’ therapeutics. We recognized these earnings as development revenue
within the respective periods, as we determined that the amounts were consistent with our estimated standalone selling prices and the respective
performance obligations were complete.
In total, we recognized $11.8 million, $3.4 million and $3.7 million in development revenue related to our MRD development agreements during the
year ended December 31, 2021, 2020 and 2019, respectively.
As of December 31, 2021, in future periods we could receive up to an additional $333.5 million in milestone payments if certain regulatory
approvals are obtained by our customers’ therapeutics in connection with MRD data generated from our MRD product.
Genentech Collaboration Agreement
In December 2018, we entered into a worldwide collaboration and license agreement with Genentech (“Genentech Agreement”) to leverage our
capability to develop cellular therapies in oncology. Subsequent to receipt of regulatory approval in January 2019, we received a non-refundable, upfront
payment of $300.0 million in February 2019 and may be eligible to receive more than $1.8 billion over time, including payments of up to $75.0 million
upon the achievement of specified regulatory milestones, up to $300.0 million upon the achievement of specified development milestones and up to
$1,430.0 million upon the achievement of specified commercial milestones. In addition, we are separately able to receive tiered royalties at a rate ranging
from the mid-single digits to the mid-teens on aggregate worldwide net sales of products arising from the strategic collaboration, subject to certain
reductions, with aggregate minimum floors. Under the agreement, we are pursuing two product development pathways for novel T cell immunotherapies in
which Genentech intends to use TCRs screened by our immune medicine platform to engineer and manufacture cellular medicines:
• Shared Products. The shared products will use “off-the-shelf” TCRs identified against cancer antigens shared among patients (“Shared
Products”).
• Personalized Product. The personalized product will use patient-specific TCRs identified by real-time screening of TCRs against cancer
antigens in each patient (“Personalized Product”).
Under the terms of the agreement, we granted Genentech exclusive worldwide licenses to develop and commercialize TCR-based cellular therapies
in the field of oncology, including licenses to existing shared antigen data packages. Additionally, Genentech has the right to determine which product
candidates to further develop for commercialization purposes. We determined that this arrangement meets the criteria set forth in ASC Topic 808,
Collaborative Arrangements (“ASC 808”), because both parties are active participants in the activity and are exposed to significant risks and rewards
depending on the activity’s commercial failure or success. Because ASC 808 does not provide guidance on how to account for the activities under a
collaborative arrangement, we applied the guidance in ASC 606 to account for the activities related to the Genentech Agreement.
117
In applying ASC 606, we identified the following performance obligations at the inception of the agreement:
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
1. License to utilize on an exclusive basis all TCR-specific platform intellectual property to develop and commercialize any licensed products
in the field of oncology.
2. License to utilize all data and information within each shared antigen data package and any other know-how disclosed by us to Genentech
in oncology.
3. License to utilize all private antigen TCR product data in connection with research and development activities in the field of use.
4. License to existing shared antigen data packages.
5. Research and development services for shared product development, including expansion of shared antigen data packages.
6. Research and development services for private product development.
7. Obligations to participate on various joint research, development and project committees.
We determined that none of the licenses, research and development services or obligations to participate on various committees were distinct within
the context of the contract, given such rights and activities were highly interrelated and there was substantial additional research and development to further
develop the licenses. We considered factors such as the stage of development of the respective existing antigen data packages, the subsequent development
that would be required to both identify and submit a potential target for investigational new drug acceptance under both product pathways and the
variability in research and development pathways given Genentech’s control of product commercialization. Specifically, under the agreement, Genentech is
not required to pursue development or commercialization activities pertaining to both product pathways and may choose to proceed with one or the other,
as opposed to both. Accordingly, we determined that all of the identified performance obligations were attributable to one general performance obligation,
which is to further the development of our TCR-specific platform, including data packages, and continue to make our TCR identification process available
to Genentech to pursue either product pathway.
Separately, we have a responsibility to Genentech to enter into a supply and manufacturing agreement for patient-specific TCRs as it pertains to any
Personalized Product therapeutic. We determined this was an option right of Genentech should they pursue commercialization of a Personalized Product
therapy. Because of the uncertainty resulting from the early stage of development, the novel approach of our collaboration with Genentech and our rights to
future commercial milestones and royalty payments, we determined that this option right was not a material right that should be accounted for at inception.
As such, we will account for the supply and manufacturing agreement when entered into between the parties.
We determined the initial transaction price shall be made up of only the $300.0 million upfront, non-refundable payment, as all potential regulatory
and development milestone payments were probable of significant revenue reversal given their achievement was highly dependent on factors outside our
control. As a result, these payments were fully constrained and were not included in the transaction price as of December 31, 2021. We excluded the
commercial milestones and potential royalties from the transaction price, as those items relate predominantly to the license rights granted to Genentech and
will be assessed when and if such events occur.
As there are potential substantive developments necessary, which Genentech may be able to direct, we determined that we would apply a
proportional performance model to recognize revenue for our performance obligation. We measure proportional performance using an input method based
on costs incurred relative to the total estimated costs of research and development efforts to pursue both the Shared Products and Personalized Product
pathways. When any of the potential regulatory and development milestones are no longer fully constrained and included in the transaction price, such
amounts will be recognized using the cumulative catch-up method based on proportional performance at such time. We currently expect to recognize the
revenue over a period of approximately seven to eight years from the effective date. This estimate of the research and development period considers pursuit
options of development activities supporting both the Shared Products and the Personalized Product, but may be reduced or increased based on the various
activities as directed by the joint committees, decisions made by Genentech, regulatory feedback or other factors not currently known.
We recognized revenue of $62.0 million, $52.8 million and $35.1 million during the year ended December 31, 2021, 2020 and 2019, respectively,
related to the Genentech Agreement. Costs related to the Genentech Agreement are included in research and development expenses.
118
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
4.
Fair Value Measurements
The following tables set forth the fair value of financial assets as of December 31, 2021 and 2020 that were measured at fair value on a recurring
basis (in thousands):
Financial assets
Money market funds
U.S. government debt securities
Corporate bonds
Total financial assets
Financial assets
Money market funds
U.S. government debt securities
Corporate bonds
Total financial assets
Level 1
Level 2
Level 3
Total
December 31, 2021
$
131,946 $
—
—
$
131,946 $
— $
391,145
39,996
431,141 $
— $
—
—
— $
131,946
391,145
39,996
563,087
Level 1
Level 2
Level 3
Total
December 31, 2020
$
103,283 $
—
—
$
103,283 $
— $
671,777
11,581
683,358 $
— $
—
—
— $
103,283
671,777
11,581
786,641
Level 1 securities include highly liquid money market funds, for which we measure the fair value based on quoted prices in active markets for
identical assets or liabilities. Level 2 securities consist of U.S. government debt securities and corporate bonds, and are valued based on recent trades of
securities in inactive markets or on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable
market data.
5.
Investments
Available-for-sale investments consisted of the following as of December 31, 2021 and 2020 (in thousands):
Short-term marketable securities
U.S. government debt securities
Corporate bonds
Total short-term marketable securities
Long-term marketable securities
U.S. government debt securities
Corporate bonds
Total long-term marketable securities
Short-term marketable securities
U.S. government debt securities
Corporate bonds
Total short-term marketable securities
Long-term marketable securities
U.S. government debt securities
Total long-term marketable securities
Amortized Cost
Unrealized Gain
Unrealized Loss
Estimated Fair
Value
December 31, 2021
$
$
$
$
186,752 $
27,363
214,115 $
205,472 $
12,691
218,163 $
4 $
—
4 $
— $
—
— $
(109) $
(14)
(123) $
(974) $
(44)
(1,018) $
186,647
27,349
213,996
204,498
12,647
217,145
Amortized Cost
Unrealized Gain
Unrealized Loss
Estimated Fair
Value
December 31, 2020
$
$
$
$
552,539 $
11,497
564,036 $
118,429 $
118,429 $
723 $
86
809 $
98 $
98 $
(10) $
(2)
(12) $
553,252
11,581
564,833
(2) $
(2) $
118,525
118,525
All the U.S. government debt securities and corporate bonds designated as short-term marketable securities have an effective maturity date that is
equal to or less than one year from the respective consolidated balance sheet date. Those that are designated as long-term marketable securities have an
effective maturity date that is more than one year from the respective consolidated balance sheet date.
119
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
Accrued interest receivable is excluded from the amortized cost and estimated fair value of our marketable securities. Accrued interest receivable of
$1.4 million and $2.5 million were presented separately within the prepaid expenses and other current assets line item on our consolidated balance sheet as
of December 31, 2021 and 2020, respectively.
The following table presents the gross unrealized holding losses and fair value for investments in an unrealized loss position, and the length of time
individual securities have been in a continuous loss position, as of December 31, 2021 (in thousands):
U.S. government debt securities
Corporate bonds
Total available-for-sale securities
Less Than 12 Months
12 Months Or Greater
Fair Value
Unrealized Loss
Fair Value
$
$
345,014 $
32,886
377,900 $
(1,083) $
(58)
(1,141) $
Unrealized Loss
—
—
—
— $
—
— $
We periodically review our available-for-sale securities to assess for credit impairment. Some of the factors considered in assessing impairment
include the extent to which the fair value is less than the amortized cost basis, adverse conditions related to the security, an industry or geographic area,
changes to security ratings or sector credit ratings and other relevant market data.
As of December 31, 2021, we did not intend, nor were we more likely than not to be required, to sell our available-for-sale investments before the
recovery of their amortized cost basis, which may be maturity. Based on our assessment, we concluded all impairment as of December 31, 2021 to be due
to factors other than credit loss, such as changes in interest rates. A credit allowance was not recognized and the impairment of our available-for-sale
securities was recorded in other comprehensive loss.
6.
Property and Equipment, Net
Property and equipment, net as of December 31, 2021 and 2020 consisted of the following (in thousands):
Laboratory equipment
Computer equipment
Furniture and office equipment
Computer software
Construction in progress
Leasehold improvements
Property and equipment, at cost
Less: Accumulated depreciation
Property and equipment, net
December 31,
2021
2020
$
$
36,312 $
6,988
5,579
992
5,658
65,959
121,488
(36,226)
85,262 $
27,767
3,600
2,717
860
7,185
21,945
64,074
(24,382)
39,692
Depreciation expense was $12.3 million, $6.8 million and $6.1 million for the year ended December 31, 2021, 2020 and 2019, respectively.
120
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
7.
Goodwill and Intangible Assets
There have been no changes in the carrying amount of goodwill since its recognition in 2015.
Intangible assets subject to amortization as of December 31, 2021 and 2020 consisted of the following (in thousands):
Acquired developed technology
Purchased intellectual property
Balance at December 31, 2021
Acquired developed technology
Purchased intellectual property
Balance at December 31, 2020
Gross Carrying
Amount
December 31, 2021
Accumulated
Amortization
Net Carrying
Amount
20,000 $
325
20,325 $
(11,638) $
(161)
(11,799) $
8,362
164
8,526
Gross Carrying
Amount
December 31, 2020
Accumulated
Amortization
Net Carrying
Amount
20,000 $
325
20,325 $
(9,972) $
(128)
(10,100) $
10,028
197
10,225
$
$
$
$
The developed technology was acquired in connection with our acquisition of Sequenta in 2015. The remaining balance of the acquired technology
and the purchased intellectual property is expected to be amortized over the next 5.0 years.
As of December 31, 2021, expected future amortization expense for intangible assets was as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total future amortization expense
8.
Accrued Liabilities
Accrued liabilities as of December 31, 2021 and 2020 consisted of the following (in thousands):
Professional fees
Clinical and contract research organization costs
Travel and entertainment
Tax liabilities
Purchases of property and equipment
Other
Total accrued liabilities
$
$
December 31,
2021
2020
$
$
3,687 $
1,646
184
391
615
2,820
9,343 $
1,699
1,699
1,703
1,699
1,699
27
8,526
3,219
1,781
91
1,767
4,423
1,881
13,162
The accrued tax liabilities balance as of December 31, 2020 includes a $1.4 million tax withholding liability related to unsettled option exercises as
of December 31, 2020.
121
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
9.
Deferred Revenue
Deferred revenue by revenue classification as of December 31, 2021 and 2020 was as follows (in thousands):
Current deferred revenue
Sequencing
Development
Total current deferred revenue
Non-current deferred revenue
Sequencing
Development
Total non-current deferred revenue
Total current and non-current deferred revenue
December 31,
2021
2020
$
$
21,915 $
58,545
80,460
174
98,576
98,750
179,210 $
15,463
57,856
73,319
724
162,894
163,618
236,937
Deferred revenue from our Genentech Agreement represents $56.1 million and $94.0 million of the current and non-current development deferred
revenue balances, respectively, as of December 31, 2021 and $55.1 million and $157.0 million of the current and non-current development deferred
revenue balances, respectively, as of December 31, 2020. In general, we expect that the current amounts will be recognized as revenue within 12 months
and the non-current amounts will be recognized as revenue over a period of approximately five to six years from December 31, 2021. This period of time
represents an estimate of the research and development period to develop cellular therapies in oncology, which may be reduced or increased based on the
various development activities.
During the year ended December 31, 2021, we recognized $3.6 million in revenue as a result of changes in estimates of total samples to be provided
under certain of our agreements and cancelled biopharmaceutical customer sequencing contracts for which we had received upfront consideration.
Additionally, we recognized $2.5 million of sequencing revenue during the year ended December 31, 2021 related to Medicare reimbursements resulting
from our determination that the likelihood of additional testing for specific patients was remote and a change in our estimate of expected cumulative tests
per patient for one of our covered indications.
Changes in deferred revenue during the year ended December 31, 2021 were as follows (in thousands):
Deferred revenue balance at December 31, 2020
Additions to deferred revenue during the period
Revenue recognized during the period
Deferred revenue balance at December 31, 2021
122
$
$
236,937
38,062
(95,789)
179,210
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2021, $75.7 million was recognized as revenue that was included in the deferred revenue balance at December 31, 2020.
10.
Leases
We have operating lease agreements for the laboratory, office and warehouse facilities that we occupy in various locations, as well as server space.
In July 2011, we entered into a non-cancelable lease agreement with an, at the time, minority shareholder for office and laboratory space in Seattle,
Washington. The lease terms were subsequently amended multiple times, most recently in August 2019, when we expanded the existing premises to
approximately 65,500 square feet. Cash payment for rent of the expanded premises commenced January 2020, four months after the landlord delivered the
expanded premises to us for construction of certain tenant improvements, and the lease term for both the existing premises and the expanded premises ends
October 2032, subject to our option to twice extend the lease for five years. The amended lease also requires us to pay additional amounts for operating and
maintenance expenses.
In August 2019, we entered into an agreement to rent approximately 100,000 square feet in what was a to-be-constructed, new headquarters building
in Seattle, Washington. In connection with the lease, we entered into a $2.1 million letter of credit with one of our existing financial institutions. Due to our
significant involvement during the construction process of the leased building, we qualified as the deemed owner of the building under build-to-suit lease
accounting guidance that proceeded ASC 842. The resulting asset and long-term financing obligation recorded on our balance sheet as of December 31,
2019 for the cost of the building was derecognized effective January 1, 2020 upon adoption of ASC 842. The lease commenced in December 2020, when
the landlord delivered the premises to us for construction of certain tenant improvements. We occupied the new building in 2021, cash payment for rent
began in October 2021 and the lease term ends in August 2033, subject to our option to twice extend the lease for five years. In connection with this lease,
the landlord agreed to fund $20.0 million in improvements, which was subsequently reduced to $14.8 million as a result of our change requests made
during landlord construction of the building, net of an administration fee. As of December 31, 2021, we have incurred $14.9 million in certain tenant
improvement costs, of which $10.9 million has been reimbursed by the landlord. The remaining $4.0 million is presented as a reduction in the cash flows
used to measure our ROU asset and lease liabilities on our consolidated balance sheet as of December 31, 2021 and will be reimbursed by the landlord. As
of December 31, 2020, we incurred $5.2 million in certain tenant improvement costs, of which $0.7 million had been reimbursed by the landlord. The
remaining $4.5 million is presented as a reduction in the cash flows used to measure our ROU asset and lease liabilities on our consolidated balance sheet
as of December 31, 2020. The lease also requires us to pay additional amounts for operating and maintenance expenses.
In October 2019, we entered into an agreement to lease approximately 14,750 square feet in a separate Seattle, Washington location, pursuant to a
lease expiring in October 2029, which is subject to our ability to exercise an early termination right after the third year. In connection with the lease, the
landlord agreed to provide a tenant improvement allowance in the maximum amount of $0.7 million. The lease also requires us to pay additional amounts
for operating expenses.
In April 2018, we entered into a lease agreement to lease approximately 13,400 square feet in South San Francisco, California. The lease term is
through March 2026 and provides for one five-year extension option. We are responsible for our share of allocable operating expenses, tax expenses and
utilities cost during the duration of the lease term. In connection with the lease, the landlord funded agreed-upon improvements. The landlord was solely
responsible for the $2.4 million cost of such improvements. The lease agreement was amended in February 2020 to lease approximately 19,900 additional
square feet and provides for a $0.6 million tenant improvement allowance.
In December 2019, we entered into an agreement to lease approximately 3,100 square feet of office space in New York City, New York, pursuant to
a lease that expires November 2025, subject to our ability to exercise an early termination right in 2023. The lease requires us to pay certain operating
expenses.
In March 2021, we executed a lease to rent approximately 27,000 square feet of a warehouse in Bothell, Washington, which we classified as an
operating lease upon commencement during the year ended December 31, 2021. Rent obligations commenced in October 2021 and the lease expires
October 2031, subject to an early termination option after the seventh year and an option to twice extend the lease for five years. The lease requires us to
pay certain operating expenses. Furthermore, the landlord agreed to fund $1.2 million in improvements in connection with this lease.
As of December 31, 2021, we were not party to any finance leases. Our leases have remaining terms of 0.3 years to 11.7 years and include options to
extend certain of the leases up to 10.0 years and terminate certain of the leases after 3.0 years. We adjust lease terms for these options only when it is
reasonably certain we will exercise these options. As of December 31, 2021, it was reasonably certain that we would exercise our option to terminate two
of our leases after 3.0 years.
123
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
Other information related to our operating leases as of December 31, 2021 and 2020 was as follows:
Weighted-average remaining lease term (in years)
Weighted-average discount rate
December 31,
2021
2020
10.55
4.6%
11.33
4.6%
The following table reconciles our undiscounted operating lease cash flows to our operating lease liabilities as of December 31, 2021 (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total undiscounted lease payments
Less:
Imputed interest rate
Tenant improvement receivables
Total operating lease liabilities
Less: Current portion
Operating lease liabilities, less current portion
$
$
$
14,184
13,964
13,692
14,098
12,330
81,188
149,456
(32,410)
(5,306)
111,740
(5,055)
106,685
Operating lease expense was $12.4 million and $5.5 million for the year ended December 31, 2021 and 2020, respectively. Variable lease expense
for operating leases was $3.5 million and $2.6 million for the year ended December 31, 2021 and 2020, respectively. Rent expense recognized under ASC
840, Leases, inclusive of operating and maintenance costs, was $5.3 million for the year ended December 31, 2019.
Cash paid for amounts included in the measurement of lease liabilities was $8.3 million and cash received for tenant improvement allowances was
$11.5 million during the year ended December 31, 2021. Cash paid for amounts included in the measurement of lease liabilities for the year ended
December 31, 2020 was $3.2 million, net of $2.5 million of cash received for tenant improvement allowances. For the year ended December 31, 2021,
ROU assets obtained in exchange for operating lease liabilities was $5.4 million. For the year ended December 31, 2020, ROU assets obtained in exchange
for operating lease liabilities was $109.1 million, inclusive of the $33.0 million recognized from the adoption of ASC 842.
11.
Commitments and Contingencies
Legal Proceedings
We are subject to claims and assessments from time to time in the ordinary course of business. We will accrue a liability for such matters when it is
probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most
probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount
in the range is accrued. We were not party to any material legal proceedings as of December 31, 2021.
Indemnification Agreements
In the ordinary course of business, we may provide indemnification of varying scope and terms to vendors, lessors, customers and other parties with
respect to certain matters including, but not limited to, losses arising out of breach of our agreements with them or from intellectual property infringement
claims made by third parties. In addition, we have entered into indemnification agreements with members of our board of directors and certain of our
executive officers that will require us to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers.
The maximum potential amount of future payments that we could be required to make under these indemnification agreements is, in many cases, unlimited.
We have not incurred any material costs as a result of such indemnifications and are not currently aware of any indemnification claims.
124
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
12.
Shareholders’ Equity
Common Stock
Our common stock has no preferences or privileges and is not redeemable. Holders of our common stock are entitled to one vote for each share of
common stock held. The holders of record of outstanding shares of common stock shall be entitled to receive, when, as and if declared, out of funds legally
available, such cash and other dividends as may be declared from time to time.
As of December 31, 2021, we have reserved shares of common stock for the following:
Shares issuable upon the exercise of outstanding common stock options and the vesting of outstanding common restricted
stock units granted
Shares available for future grant under the 2019 Equity Incentive Plan
Shares available for future grant under the Employee Stock Purchase Plan
Total shares of common stock reserved for future issuance
13,990,175
22,299,923
2,804,298
39,094,396
Our 2019 Equity Incentive Plan (“2019 Plan”) provides for annual increases in the number of shares that may be issued under the 2019 Plan on
January 1, 2020 and on each subsequent January 1, thereafter, by a number of shares equal to the lesser of (a) 5% of the number of shares of common stock
issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our board of directors.
Furthermore, our Employee Stock Purchase Plan (“ESPP”) provides for annual increases in the number of shares available for issuance under our
ESPP on January 1, 2020 and on each January 1, thereafter, by a number of shares equal to the smallest of (a) 1% of the number of shares of common stock
issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our board of directors.
Effective January 1, 2021, our 2019 Plan reserve increased by 6,882,344 shares. Our board of directors determined not to increase the ESPP reserve
in 2021. Furthermore, our board of directors determined not to increase the 2019 Plan and ESPP reserves in 2022.
Common Stock Warrant
In 2014, we issued a warrant to purchase 56,875 shares of Series C convertible preferred stock at an exercise price of $2.64. The warrant was
exercisable for a period of seven years from the date of issuance. Immediately prior to and in connection with the completion of our initial public offering
on July 1, 2019, this convertible preferred stock warrant was converted to a warrant to purchase the same number of shares of common stock. The warrant
was exercised on February 25, 2021 through a cashless exercise, resulting in the issuance of 54,162 shares of our common stock. The impact of this
cashless exercise was immaterial to our consolidated financial statements. As of December 31, 2021, there were no outstanding warrants to purchase
common stock.
13.
Equity Incentive Plans
Sequenta 2008 Stock Plan, as amended
In connection with our acquisition of Sequenta in January 2015, we assumed Sequenta’s Equity Incentive Plan (“2008 Plan”), including all
outstanding options and shares available for future issuance under the 2008 Plan, which, prior to the completion of our initial public offering, were all
exercisable for Series E-1 convertible preferred stock. Upon completion of our initial public offering in July 2019, the outstanding options were exercisable
for common stock. No shares are available for future issuance under this plan and no equity awards are outstanding under this plan as of December 31,
2021.
Adaptive 2009 Equity Incentive Plan
We adopted an equity incentive plan in 2009 (“2009 Plan”) that provided for the issuance of incentive and nonqualified common stock options and
other share-based awards for employees, directors and consultants. Under the 2009 Plan, the option exercise price for incentive and nonqualified stock
options were not to be less than the fair market value of our common stock at the date of grant. Options granted under this plan expire no later than ten
years from the grant date and vesting was established at the time of grant. Pursuant to the terms of the 2019 Plan, any shares subject to outstanding options
originally granted under the 2009 Plan that terminate, expire or lapse for any reason without the delivery of shares to the holder thereof shall become
available for issuance pursuant to awards granted under the 2019 Plan. While no shares are available for future issuance under the 2009 Plan, it continues to
govern outstanding equity awards granted thereunder.
125
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
2019 Equity Incentive Plan
The 2019 Plan became effective immediately prior to the closing of our initial public offering in July 2019. The 2019 Plan provides for the issuance
of awards in the form of options and other share-based awards for employees, directors and consultants. Under the 2019 Plan, the option exercise price per
share shall not be less than the fair market value of a share of stock on the effective date of grant, as defined by the 2019 Plan, unless explicitly qualified
under the provisions of Section 409A or Section 424(a) of the Internal Revenue Code of 1986. Additionally, unless otherwise specified, options granted
under this plan expire no later than ten years from the grant date and vesting is established at the time of grant. Except for certain option and restricted
stock unit grants made to non-employee directors, stock options and restricted stock units granted under the 2019 Plan generally vest over a four-year
period, subject to continuous service through each applicable vesting date. As of December 31, 2021, we have authorized 29,131,628 shares of common
stock for issuance under the 2019 Plan.
Changes in shares available for grant during the year ended December 31, 2021 were as follows:
Shares available for grant at December 31, 2020
2019 Equity Incentive Plan reserve increase effective January 1, 2021
Options and restricted stock units granted
Options and restricted stock units forfeited, cancelled or expired
Shares available for grant at December 31, 2021
Stock option activity under the 2009 Plan and 2019 Plan during the year ended December 31, 2021 was as follows:
Shares Available for Grant
18,617,001
6,882,344
(4,306,265)
1,106,843
22,299,923
Options outstanding at December 31, 2020
Options granted
Options forfeited or cancelled
Options expired
Options exercised
Options outstanding at December 31, 2021
Options vested and exercisable at December 31, 2021
Shares Subject to
Outstanding Options
Weighted-Average
Exercise
Price per Share
Aggregate Intrinsic
Value
(in thousands)
14,433,560 $
3,052,025
(992,428)
(40,116)
(3,674,057)
12,778,984 $
7,281,600 $
12.82
39.39
25.90
26.56
7.21
19.72
10.99
$
$
156,105
132,537
The weighted-average remaining contractual life for options outstanding as of December 31, 2021 was 7.0 years. The weighted-average remaining
contractual life for vested and exercisable options as of December 31, 2021 was 5.7 years.
The weighted-average grant date fair value per share of options granted during the year ended December 31, 2021, 2020 and 2019 was $24.22,
$21.11 and $6.87, respectively. The total intrinsic value of options exercised during the year ended December 31, 2021, 2020 and 2019 was $156.5 million,
$190.4 million and $39.1 million, respectively.
Of the $26.7 million proceeds from exercise of stock options included on our consolidated statements of cash flows for the year ended December 31,
2021, $0.3 million related to options exercised during the year ended December 31, 2020 but settled during the year ended December 31, 2021. Of the
$21.7 million proceeds from exercise of stock options included on our consolidated statements of cash flows for the year ended December 31, 2020, $0.5
million related to options exercised during the year ended December 31, 2019 but settled during the year ended December 31, 2020.
Restricted stock unit activity under the 2019 Plan during the year ended December 31, 2021 was as follows:
Nonvested outstanding restricted stock units at December 31, 2020
Restricted stock units granted
Restricted stock units forfeited or cancelled
Restricted stock units vested
Nonvested outstanding restricted stock units at December 31, 2021
126
Restricted Stock Units
Outstanding
Weighted-Average Grant
Date
Fair Value per Share
50,000 $
1,254,240
(74,299)
(18,750)
1,211,191 $
28.10
37.98
43.20
28.10
37.41
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
The weighted-average grant date fair value per share of restricted stock units granted during the year ended December 31, 2020 and 2019 was
$28.10 and $41.63, respectively.
Grant Date Fair Value of Options and Restricted Stock Units Granted
The estimated grant date fair values of options granted during the years ended December 31, 2021, 2020 and 2019 were estimated using the Black-
Scholes option-pricing model with the following assumptions:
Fair value of common stock
Expected term (in years)
Risk-free interest rate
Expected volatility
Expected dividend yield
Year Ended December 31,
2021
$30.86 - $66.50
5.27 - 6.08
0.5% - 1.4%
67.1% - 70.0%
—
2020
$17.68 - $55.23
5.27 - 6.08
0.4% - 1.7%
70.5% - 73.3%
—
2019
$7.80 - $47.81
5.27 - 6.08
1.4% - 2.5%
64.3% - 72.9%
—
The determination of the grant date fair value of stock options using a Black-Scholes option-pricing model is affected by the fair value of our
common stock, as well as assumptions regarding a number of variables that are complex, subjective and generally require significant judgment to
determine. The valuation assumptions were determined as follows:
Fair value of common stock—Prior to the closing of our initial public offering, the fair value of our common stock was determined with input from
management using valuation methodologies which utilized certain assumptions, including probability weighting of events, volatility, time to liquidation, a
risk-free interest rate and an assumption for a discount for lack of marketability (Level 3 inputs). In determining the fair value of our common stock, the
methodologies, approaches and assumptions used to estimate the enterprise value were consistent with the American Institute of Certified Public
Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. For option grants made
after the closing of our initial public offering, the fair value of each share of common stock is based on the closing price of our common stock on the date
of grant, or other relevant determination date, as reported on The Nasdaq Global Select Market.
Expected term—The expected term of options granted to employees and non-employee directors is determined using the “simplified” method, as
illustrated in ASC Topic 718, Compensation—Stock Compensation, as we do not have sufficient exercise history to determine a better estimate of expected
term. Under this approach, the expected term is based on the midpoint between the vesting date and the end of the contractual term of the option.
Risk-free interest rate—We utilize a risk-free interest rate in the option valuation model based on U.S. Treasury zero-coupon issues with remaining
terms similar to the expected terms of the options.
Expected volatility—As we do not have sufficient trading history for our common stock, the expected volatility is based on the historical volatility
of our publicly traded industry peers utilizing a period of time consistent with our estimate of expected term.
Expected dividend yield—We do not anticipate paying any cash dividends in the foreseeable future and, therefore, use an expected dividend yield of
zero in the option valuation model.
The grant date fair value of restricted stock units granted is based on the closing price of our common stock on the date of grant, or other relevant
determination date, as reported on The Nasdaq Global Select Market.
The compensation costs related to stock options and restricted stock units for the years ended December 31, 2021, 2020 and 2019 are included on
our consolidated statements of operations as follows (in thousands):
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total share-based compensation expense
2021
Year Ended December 31,
2020
2019
$
$
$
2,100
14,061
12,312
14,778
43,251 $
$
817
8,519
6,627
8,798
24,761 $
555
3,934
3,480
5,155
13,124
As of December 31, 2021, unrecognized share-based compensation expense related to unvested stock options was $96.8 million, which is expected
to be recognized over a remaining weighted-average period of 2.9 years. Additionally, as of December 31, 2021, unrecognized share-based compensation
expense related to unvested restricted stock units was $38.3 million, which is expected to be recognized over a remaining weighted-average period of 3.4
years.
127
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
14. Microsoft Collaboration Agreement
Summary of Agreement
In December 2017, we entered into a collaboration agreement with Microsoft (“Microsoft Agreement”) to computationally derive a comprehensive
TCR antigen map for purposes of developing a universal diagnostic based on a single blood test.
Contemporaneously with the Microsoft Agreement, we entered into a separate agreement to use Microsoft’s Azure cloud services at standard
volume pricing with a minimum Azure purchase requirement of $12.0 million over the seven-year term of the Microsoft Agreement, which we expect to
meet in the ordinary course of business.
In addition, contemporaneously with entering into the Microsoft Agreement, Microsoft made a preferred stock investment of $45.0 million as a part
of our Series F-1 convertible preferred stock issuance.
Summary of Accounting
The terms of the Microsoft Agreement meet the criteria under ASC Topic 808, Collaborative Arrangements (“ASC 808”), as both parties are active
participants in the activity and are exposed to significant risks and rewards dependent on the commercial success of the activity. ASC 808 does not provide
guidance on how to account for the activities under the collaboration and we determined that Microsoft did not meet the definition of a customer under
ASC 606. Accordingly, we looked to other guidance to determine the accounting for the respective elements.
We determined that the preferred stock issuance and commitment to use Microsoft’s Azure cloud services were made at terms consistent with
market rates. All consideration received as part of the Series F-1 convertible preferred stock issuance was accounted for as part of the Series F-1 preferred
stock issuance. Since the commitment to purchase Microsoft’s Azure cloud services was at market terms and we expect to meet the commitment in the
ordinary course of business during the seven-year term, we record the expenses in the period in which the services are consumed. These costs are recorded
in our consolidated statements of operations based on the underlying activities for which they support.
The remaining elements of the agreement were highly interrelated, so we evaluated them in the aggregate to determine the appropriate accounting
application. Specifically, we determined that the transfer of license rights between the parties, our commitment to provide data and immunomics, diagnostic
and bioinformatics expertise to Microsoft and Microsoft’s commitment to provide machine learning software and related development services to us were
highly interrelated because they were necessary for the parties to perform the activities under the Microsoft Agreement and, therefore, should be evaluated
as one unit of account.
We accounted for these collaboration activities by analogy to ASC Topic 845, Nonmonetary Transactions, and determined that major uncertainties
exist about the realizability of the value that would be assigned to an asset received from or provided to Microsoft under the collaboration and, therefore,
fair value could not be reliably measured. As a result, we did not recognize any non-monetary assets or corresponding non-monetary income or expenses
pertaining to the rights provided to us or to be received by us under the Microsoft Agreement.
15.
Income Taxes
The components of loss before provision for income taxes for the periods presented are as follows (in thousands):
Domestic
Foreign
Total loss before provision for income taxes
Year Ended December 31,
2021
2020
2019
$
$
(207,314) $
(146,227) $
16
—
(207,298) $
(146,227) $
(68,606)
—
(68,606)
128
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The significant components of our deferred tax assets and liabilities as of the dates
presented are as follows (in thousands):
Deferred tax assets
Net operating losses
Tax credit carryforward
Nonqualifying stock options
Deferred rent
Operating lease liabilities
Deferred revenue
Other
Total deferred tax assets
Less: Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities
Tangible and intangible assets
ROU assets
Net deferred taxes
December 31,
2021
2020
$
$
200,363 $
31,200
18,072
—
30,401
42,481
4,345
326,862
(297,020)
29,842
(7,310)
(22,532)
— $
105,433
18,981
12,096
—
31,052
59,713
2,983
230,258
(197,527)
32,731
(5,760)
(26,971)
—
ASC Topic 740, Income Taxes, requires that the tax benefit of NOLs, temporary differences and credit carryforwards be recorded as an asset to the
extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate
sufficient taxable income within the carryforward period. Because of our history of operating losses, management believes that recognition of the deferred
tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.
The valuation allowance increased by $99.5 million and $96.6 million during the year ended December 31, 2021 and 2020, respectively.
Federal tax laws impose substantial restrictions on the utilization of NOL and credit carryforwards in the event of an ownership change, as defined
in Section 382 of the Internal Revenue Code of 1986. Accordingly, our ability to utilize these carryforwards may be limited due to such ownership changes.
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 TCJA federal
income tax law, 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. As of December 31, 2021, we had U.S. federal
NOLs of $192.5 million and U.S. federal tax credits of $33.6 million that will begin to expire in 2028. We also had $576.2 million of NOLs as of December
31, 2021 that do not expire.
The effective tax rate of our provision for income taxes differs from the federal statutory rate for the periods presented as follows:
Statutory rate
State tax, net of federal tax benefit
Stock compensation
Permanent items
Credits
Other
Change in valuation allowance
Total
Year Ended December 31,
2021
2020
2019
21.0%
8.3
14.1
(0.1)
4.7
(0.3)
(47.7)
0.0%
21.0%
13.8
25.2
(0.1)
5.7
0.5
(66.1)
0.0%
21.0%
8.1
9.8
(1.0)
6.1
0.3
(44.3)
0.0%
129
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
We account for Global Intangible Low-Taxed Income as period costs when incurred.
We recognize, in our consolidated financial statements, the effect of a tax position when it is more likely than not, based on the technical merits, that
the position will be sustained upon examination. We had unrecognized tax benefits of $6.9 million as of December 31, 2021. A reconciliation of the
beginning and ending amounts of unrecognized tax benefits for the dates presented are as follows (in thousands):
Balance at December 31, 2018
Additions in 2019
Balance at December 31, 2019
Additions in 2020
Balance at December 31, 2020
Additions in 2021
Balance at December 31, 2021
$
$
1,260
792
2,052
1,437
3,489
3,426
6,915
During the year ended December 31, 2021, 2020 and 2019, we recognized uncertain tax positions of $3.4 million, $1.4 million and $0.8 million,
respectively, related to a reduction of the research and development credit deferred tax asset. Unrecognized tax benefits may change during the next twelve
months for items that arise in the ordinary course of business. We do not expect a material change to our unrecognized tax benefits over the next twelve
months that would have an adverse effect on our operating results.
We recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We had no accrued interest or
penalties related to uncertain tax positions as of December 31, 2021 and 2020.
We file federal and certain state income tax returns, which provide varying statutes of limitations on assessments. However, because of NOL
carryforwards, substantially all tax years since inception remain open to federal and state tax examination.
16.
Net Loss Per Share Attributable to Adaptive Biotechnologies Corporation Common Shareholders
The following table sets forth the computation of the basic and diluted net loss per share attributable to Adaptive Biotechnologies Corporation
common shareholders for the years ended December 31, 2021, 2020 and 2019 (in thousands, except share and per share amounts):
Net loss attributable to Adaptive Biotechnologies Corporation
Fair value adjustment to redemption value for Series E-1 convertible preferred stock
options
Net loss attributable to Adaptive Biotechnologies Corporation common shareholders,
basic and diluted
Weighted-average shares used in computing net loss per share attributable to Adaptive
Biotechnologies Corporation common shareholders, basic and diluted
Net loss per share attributable to Adaptive Biotechnologies Corporation common
shareholders, basic and diluted
2021
Year Ended December 31,
2020
2019
$
(207,279) $
(146,227) $
(68,606)
—
—
(964)
$
(207,279) $
(146,227) $
(69,570)
140,354,915
131,216,468
69,165,315
$
(1.48) $
(1.11) $
(1.01)
130
Adaptive Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
Since we were in a loss position for all periods presented, basic net loss per share attributable to Adaptive Biotechnologies Corporation common
shareholders is the same as diluted net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, as the inclusion of all
potential shares of common stock outstanding would have been anti-dilutive. The following weighted-average common stock equivalents were excluded
from the calculation of diluted net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders for the years ended December
31, 2021, 2020 and 2019, as they had an anti-dilutive effect:
Convertible preferred stock (on as if converted basis)
Stock options issued and outstanding
Nonvested restricted stock units
Common stock warrants
Convertible preferred stock warrant
Total
17.
Retirement Plan
2021
Year Ended December 31,
2020
—
13,097,374
693,173
8,570
—
13,799,117
—
16,125,548
38,125
56,875
—
16,220,548
2019
46,104,469
17,183,546
4,952
55,961
28,204
63,377,132
We maintain a salary deferral 401(k) plan (“401(k) Plan”) covering employees who have met certain eligibility requirements.
Employees may defer up to 100% of their compensation to the 401(k) Plan, subject to federal limits. We made $2.5 million and $1.6 million
in discretionary contributions during the year ended December 31, 2021 and 2020, respectively, which are fully vested after one year of
employee service. We did not make any discretionary contributions during the year ended December 31, 2019.
131
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of December 31,
2021. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were
effective as of December 31, 2021.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f)
under the Exchange Act. Management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set
forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Based on that assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2021 to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with GAAP.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by an independent registered public
accounting firm, as stated in their report, which is included below.
Changes in Internal Control
There was not any change in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) under the Exchange Act, during
the three months ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
132
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Adaptive Biotechnologies Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Adaptive Biotechnologies Corporation’s internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, Adaptive Biotechnologies Corporation (the Company) maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the PCAOB), the
consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss,
convertible preferred stock and shareholders’ (deficit) equity and cash flows for each of the three years in the period ended December 31, 2021, and related
notes and our report dated February 15, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Inherent Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Seattle, Washington
February 15, 2022
133
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
134
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item 10 of Form 10-K will be included in our definitive proxy statement to be filed with the SEC in connection
with the solicitation of proxies for our 2022 Annual Meeting of Shareholders (“2022 Proxy Statement”) and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item 11 of Form 10-K will be included in our 2022 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 of Form 10-K, including with respect to our equity compensation plans, will be included in our 2022 Proxy
Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 of Form 10-K will be included in our 2022 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this Item 14 of Form 10-K will be included in our 2022 Proxy Statement and is incorporated herein by reference.
135
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Financial Statements
PART IV
See Index to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
(2) Financial Statement Schedules
All financial statement schedules have been omitted since the required information was not applicable or was not present in amounts
sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements or the
accompanying notes.
(3) Exhibits
The exhibits listed in the following Index to Exhibits are filed, furnished or incorporated by reference as part of this Annual Report on
Form 10-K.
Index to Exhibits
Filed/Furnished
With This
Report
Amended and Restated Articles of Incorporation
Exhibit Title
Amended and Restated Bylaws
Seventh Amended and Restated Investors' Rights Agreement
among the Registrant and certain of its shareholders, dated
May 30, 2019
Exhibit
Number
3.1
3.2
4.1
4.2
Description of Securities
10.1†
10.2†
10.3†
10.4
Strategic Collaboration and License Agreement between
Genentech, Inc. and the Registrant, dated December 19,
2018
Strategic Collaboration Agreement between Microsoft
Corporation and the Registrant, dated December 11, 2017
Master Terms & Conditions of Sale between Illumina, Inc. and
the Registrant, dated May 28, 2019
Amended and Restated Side Letter Agreement among
Viking Global Equities LP, Viking Global Equities II LP,
VGE III Portfolio Ltd., Viking Long Fund Master Ltd. and
the Registrant, dated May 8, 2019
10.5*
Form of Amended and Restated Employment Agreement
between the Registrant and certain of its executive officers
10.6*
10.7*
Form of Amended and Restated Employment Agreement
between the Registrant and each of Lance Baldo, MD and
Francis T. Lo
Form of Restated Non-Employee Director Change in
Control Agreement between the Registrant and each of its
non-employee directors
10.8*
Executive Severance Agreement between the Registrant and
Lance Baldo, MD, dated April 22, 2019
136
Incorporated by Reference
Form
8-K
8-K
S-1
File No.
001-38957
001-38957
333-231838
10-K
001-38957
S-1
333-231838
Exhibit
3.1
3.2
4.1
4.3
10.1
Filing Date
7/1/2019
7/1/2019
5/30/2019
2/26/2020
5/30/2019
S-1
333-231838
10.2
5/30/2019
S-1/A
333-231838
10.3
6/17/2019
S-1
333-231838
10.5
5/30/2019
S-1
333-231838
10.7
5/30/2019
S-1
333-231838
10.8
5/30/2019
S-1
333-231838
10.9
5/30/2019
S-1
333-231838
10.11
5/30/2019
Incorporated by Reference
Form
10-Q
File No.
Exhibit
Filing Date
001-38957
10.1
8/10/2020
S-1
333-231838
10.13
5/30/2019
10-K
001-38957
10.12
2/24/2021
S-1
333-231838
10.15
5/30/2019
10-Q
001-38957
10.12
8/13/2019
S-1/A
333-231838
10.17
6/17/2019
10-K
001-38957
10-K
001-38957
10.16
10.17
2/24/2021
2/24/2021
S-1
333-231838
10.18
5/30/2019
8-K
001-38957
10.1
8/7/2019
8-K
001-38957
10.2
8/7/2019
Exhibit
Number
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17
10.18†
10.19†
21.1
23.1
24.1
31.1
31.2
Exhibit Title
Filed/Furnished
With This
Report
Form of Executive Severance Agreement between the
Registrant and certain of its executive officers
Form of Indemnification Agreement between the Registrant
and its directors and executive officers
Adaptive Biotechnologies Corporation Non-Employee
Director Compensation Policy
Adaptive Biotechnologies Corporation 2009 Equity
Incentive Plan and form of award agreement thereunder
Adaptive Biotechnologies Corporation 2019 Equity
Incentive Plan and form of award agreement thereunder
Adaptive Biotechnologies Corporation 2019 Employee
Stock Purchase Plan
Form of Stock Option Agreement for Non-U.S Participants
Form of Restricted Stock Unit Agreement for Non-U.S
Participants
Lease Agreement between ARE-Seattle No. 11, LLC and
Adaptive TCR Corporation, dated July 21, 2011, as amended
by Amendment No. 1, dated August 26, 2011, Amendment
No. 2, dated June 30, 2014, Amendment No. 3, dated
November 5, 2015, Amendment No. 4, dated December 23,
2015, and Amendment No. 5, dated June 6, 2016
Sixth Amendment to Lease Agreement between Adaptive
Biotechnologies Corporation and ARE-Seattle No. 11, LLC,
dated August 2, 2019
Lease Agreement between Adaptive Biotechnologies
Corporation and ARE-Seattle No. 12, LLC, dated August 2,
2019
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
Power of Attorney (included on the signature page)
Certification of Principal Executive Officer pursuant to Rule
13a‑14(a) or Rule 15d‑14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Rule
13a‑14(a) or Rule 15d‑14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
137
X
X
X
X
X
Exhibit
Number
32.1
32.2
101.INS
Exhibit Title
Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
Inline XBRL Instance Document – the instance document
does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL
document.
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
Document
104
Cover Page Interactive Data File (formatted in Inline XBRL
and included in Exhibit 101)
Filed/Furnished
With This
Report
Incorporated by Reference
Form
File No.
Exhibit
Filing Date
X
X
X
X
X
X
X
X
X
* Management contract or compensation plan or arrangement.
†
Portions of this exhibit have been omitted pursuant to Item 601 of Regulation S-K promulgated under the Securities Act because the information is not
material and would be competitively harmful if publicly disclosed.
Item 16. Form 10-K Summary
Not applicable.
138
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Seattle, State of Washington, on February 15, 2022.
SIGNATURES
Adaptive Biotechnologies Corporation
By: /s/ Chad Robins
Chad Robins
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Chad Robins, his
attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file
the same, with exhibits thereto and other documents in connection therewith, with the SEC, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
/s/ Chad Robins
Chad Robins
/s/ Chad Cohen
Chad Cohen
/s/ Kyle Piskel
Kyle Piskel
/s/ Kevin Conroy
Kevin Conroy
/s/ Michelle Griffin
Michelle Griffin
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Date
February 15, 2022
Chief Financial Officer
(Principal Financial Officer)
February 15, 2022
VP, Principal Accounting Officer
(Principal Accounting Officer)
February 15, 2022
Director
February 15, 2022
Director
February 15, 2022
/s/ Robert Hershberg
Robert Hershberg, PhD, MD
Director
February 15, 2022
/s/ Peter Neupert
Peter Neupert
/s/ Katey Owen
Katey Owen, PhD
/s/ Michael Pellini
Michael Pellini, MD
/s/ Leslie Trigg
Leslie Trigg
Director
February 15, 2022
Director
February 15, 2022
Director
February 15, 2022
Director
February 15, 2022
139
List of Subsidiaries of Adaptive Biotechnologies Corporation
Subsidiary
Digital Biotechnologies, Inc.
Adaptive Biotechnologies B.V.
Jurisdiction of Organization
Delaware
Netherlands
Exhibit 21.1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-232495) pertaining to the Sequenta Inc., 2008 Stock Plan, the Adaptive
Biotechnologies Corporation 2009 Equity Incentive Plan, the Adaptive Biotechnologies Corporation 2019 Equity Incentive Plan
and the Adaptive Biotechnologies Corporation 2019 Employee Stock Purchase Plan and
(2) Registration Statement (Form S-3ASR No. 333-239854) of Adaptive Biotechnologies Corporation;
of our reports dated February 15, 2022, with respect to the consolidated financial statements of Adaptive Biotechnologies Corporation, and
the effectiveness of internal control over financial reporting of Adaptive Biotechnologies Corporation, included in this Annual Report (Form
10-K) for the year ended December 31, 2021.
/s/ Ernst & Young LLP
Seattle, Washington
February 15, 2022
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Chad Robins, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Adaptive Biotechnologies Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a)
b)
c)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 15, 2022
By:
/s/ Chad Robins
Chad Robins
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Chad Cohen, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Adaptive Biotechnologies Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a)
b)
c)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 15, 2022
By:
/s/ Chad Cohen
Chad Cohen
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Adaptive Biotechnologies Corporation (the “Company”) on Form 10-K for the fiscal year ended December 31,
2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant
to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the
Company.
Date: February 15, 2022
By:
/s/ Chad Robins
Chad Robins
Chief Executive Officer
(Principal Executive Officer)
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section
18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Adaptive Biotechnologies Corporation (the “Company”) on Form 10-K for the fiscal year ended December 31,
2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant
to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the
Company.
Date: February 15, 2022
By:
/s/ Chad Cohen
Chad Cohen
Chief Financial Officer
(Principal Financial Officer)
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section
18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.