Psychs, life science, tools, and diagnostics analyst at Goldman Sachs. This morning, I have the pleasure of welcoming Chad Robins, Co-Founder and CEO of Adaptive Biotechnologies. Chad, thanks very much for being here. Really appreciate it. Thanks, Matt, for having us. Appreciate it. Let's just maybe start with a quick recap of some of the progress you've made to start this year. You had a really strong Q1, volume growth, margin expansion, growth across the portfolio. Maybe give us some of the highlights and maybe talk a little bit about what you see as the most important piece of the Adaptive story for the balance of the year. Yeah, yeah. I mean, first, I want to kind of reiterate that. I mean, Q1 was probably the best quarter, certainly from an MRD perspective in Adaptive's history, really firing on all cylinders. Just cover that first. Clinical volumes are doing great. As you are well aware, first quarter, we started off the year saying we're going to do 25%+ in volume growth. We increased that number to 30%. Our ASPs are looking really, really strong. We're executing towards that $1,300 average for the year, and we're confident in that. We had a great milestone, $4.5 million on the pharma side. Our EMR integrations are going really well. On the cost side, everything's on track. We'll talk about later, I'm sure, the NovaSeq X transformation. All that being said, I mean, things are just looking good already for the second quarter, as much as I can say. On top of that, you've got this really nice call option for upside in the immune medicine business, which we'll kind of talk about some of the things we're doing. I guess, taking it together, I couldn't be more pleased with the progress that we're making on all fronts. Got it. Maybe let's pick off a few of those comments you make. I think they're all really important points. First, just on the EMR integrations. Diagnostic companies talk about them all the time. There's some level of like 10% uplift that everyone kind of references, but you've got a lot coming in the back half of this year. Maybe, even though it's still in the early stages, just kind of remind us of what you believe the benefit you're going to see there from an uplift, either in volumes or maybe depth of relationships, and how much of a tailwind these integrations could be for the remainder of this year. Sure. Matt, maybe I'll start with what we've done so far and what we're seeing, and then we can do some extrapolation. So far, we've integrated 33 accounts. Six of our top 10 accounts have been integrated, the largest being MD Anderson, which was integrated in October of last year. We saw kind of 14% quarter-over-quarter growth two years in a row, or sorry, two quarters in a row for our largest account. In the first quarter of this year, we integrated Stanford, UT Southwestern. We just integrated City of Hope. Very large accounts. We are expecting that by the end of the year, 50% of our order volume will come through EMR integration. We're seeing in some of, as a metric zone, some of our smaller accounts that have been integrated for a year, we're seeing kind of a 30% lift. It's really nice. I want to caution a little bit smaller versus larger accounts. Overall, EMR integration, we believe, will really continue to drive this volume increase. Flatiron is coming in the second half of this year. As you know, or I'll just make sure for sake of clarity, EMR integrations on Epic really focus on the academic medical center, where Flatiron and the OncoEMR system is being pushed out to the community. That is coming in the second half. I'll say this, while we haven't exactly attributed volume growth directly to that Flatiron and EMR integrations per se, it's the combination of factors, including EMR integration, which makes us confident that we're going to hit the volume numbers that we put out. Maybe talk about just a few of those factors of driving volume growth that'll help you get to that 30% growth target this year outside of EMRs. Yeah, sure. One is, I just mentioned the community, but community is incredibly important. 60% of patients are treated in the community. We have significant efforts to kind of continue expanding into the community. Blood-based testing is incredibly important in terms of increasing the number of frequency of time points per patient. Data generation, we continue. That really underpins everything that we do, continue to demonstrate how a clinician can make a decision on a patient using our test. That's another key metric. EMR integration is also on the Epic side. We mentioned Flatiron, but those are continuing to expand as well. Just efforts really across the board. The other thing is, I'm sure we'll get into, but we've got new indications. I mean, we have had growth in all of our indications, but it's great to see we launched MCL promotionally with Medicare coverage. That's for first quarter launch, seeing really nice numbers there. Diffuse large B-cell lymphoma, we had a really nice update to the assay, which has taken hold, and we've got a nice uplift in DLBCL. Really, it's this combination of kind of many different factors. Like I said, right now, they're all green. Got it. Yeah, my next question is about drivers of growth in DLBCL and MCL. You just kind of addressed that. But maybe drilling down on MCL. Sure. Let's talk a little bit about the recent surveillance coverage you've gotten for that indication, what it means, what it could kind of represent to volume growth in that indication. Also, could we start seeing surveillance coverage in other indications? What is your sort of view on that progress? Yeah. Just to, I'll go right in there. I'll just mention for MCL, one of the reasons it has been successful is it really had great data on whether or not to transplant. Again, when we talk about clinical use case, doctors are only going to use it if they know how to use it, why to use it, and it has your true utility. That is why we were seeing that in MCL. Secondarily, to your point, we're thrilled to get our first recurrence monitoring coverage. What that, and just to lay this out in kind of simple terms, a patient is treated and goes through different MRD assessments to determine the disease burden during treatment. When a patient is in remission, that patient is kind of off that episode of care kind of bundling that we get from Medicare. In order to increase or to add to the number of time points a patient can be tested, we got what's called surveillance monitoring. When a patient is in remission, you can, by medical necessity, treat the patient. Now, what we've estimated is that 70% of MCL patients will go into remission and that they'll be tested for two to three years, call it two time points, two to potentially three time points a year. Net, net, I mean, we came up with about a $15,000 per lifetime value of each MCL patient. Now, to temper that a little bit, MCL is one of our smaller indications, represents 5% of the volume. To go to your bigger question, what does this mean for the business, is I think it provides a nice template for us moving forward in other indications. Now, we have not yet submitted yet in other indications. We are generating data in other indications. The first will, it really is kind of these treatment-free. So there's certain indications like multiple myeloma and ALL, essentially monitoring in a treatment-free setting. Although it's kind of interesting because we are working towards that. Like for example, in the master study in multiple myeloma, these could very well work in conjunction where you use MRD negativity at subsequent points to determine a patient truly is in remission. A patient would then, sorry, a clinician would then take a patient off of therapy. A patient would be in remission and then come back. So it's really, but we will most likely kind of start in kind of the DLBCL and CLL phases before we get to multiple myeloma and ALL. All part of the long-term plan, all part of kind of the continued TAM expansion for heme MRD. Got it. On DLBCL and MCL, they're both blood-based indications, and they're helping kind of drive the shift towards blood that you've seen in Q1 in particular. Your push for blood-based testing kind of spans across the portfolio. Can you maybe talk about the progress you're seeing in that initiative and any potential benefits to testing frequency? I mean, you kind of addressed that a little bit. Just as you kind of move to blood across the portfolio, what kind of benefits should we see there in terms of potential volumes? Yeah, I mean, ultimately, right, a blood-based test is much less invasive. In some settings, it's the technology and more of the biology calls only for blood-based testing, like DLBCL and CLL. In others, we call it more of a complementary test. For example, in multiple myeloma, certainly in the academic medical center, and both for multiple myeloma and ALL, it's used as a complementary test to bone marrow in between bone marrow draws. In the community setting, though, this is where you don't do bone marrow testing. It's become incredibly important to be able to do a blood-based kind of multiple myeloma test. I will say we had great data, kind of a host of top KOLs in ALL earlier this year published on blood-based testing in ALL over PCR and flow cytometry as the test to do. That's taken hold. We've used that to promote, and it's gone very, very well. Our increase in blood-based testing for ALL has gone from kind of 23%-3 7%. In multiple myeloma, blood-based testing has remained at 21%. But remember, we've grown quite a bit. On a nominal to 40% growth in multiple myeloma. On a nominal basis, you're looking at pretty significant blood-based growth. It really is a focus and a long-term focus of ours to move as much as we can to blood-based testing. Got it. Just following the increased Medicare rate for clonoSEQ at the beginning of this year, what progress are you making in updating contracts, signing new contracts with commercial payers at that new higher rate? Like how is that progress going? Honestly, it's going great. We've had some key wins, key payer contracting wins both for recontracting and new contracts. To point to a few, some of the hard ones like Anthem, some of the Blues, Humana, the key blue states, Humana all have either contracted new contracts or recontracted. We've had a bunch of recontracted at or close to the Medicare rate. That's something that we protect preciously is to make sure that we're not discounting, to make sure we're keeping the value and the price of the test high. It's been really good. It's a huge effort of ours. It's something I'm personally very involved with with both the government and our commercial payers on a weekly basis. Okay. You talked a little bit about what drivers are pushing you towards that $1,300 ASP target for the year. Just thinking a little bit longer term on ASPs, how high can they get over the longer term as you kind of reduce no-pays? Like what's sort of the ultimate goal, do you think, in the ceiling for ASPs? Yeah, I mean, I'll just put out where we're at right now. Remember, kind of historically, we have said, hey, we can get to an ASP of $1,700. We actually raised that number to $1,800 based on the new gap fill pricing and kind of what we're seeing. I think right now we're comfortable with that number. I'll also reiterate kind of executing towards that, executing towards that $1,300 for this year on an average. Got it. And then just moving over to some of the milestones, you had talked about the $4.5 million in milestone payments in the first quarter. And you also talked about the funnel building following the ODAC decision. Like how should we think about milestone contribution in coming years? And how does that change to try to shift towards more a fee-for-service-based model? Yeah, I mean, look, milestones are a little bit of a double-edged sword. On the one hand, they're great. It's great cash. It comes in at 100% margin. On the flip side, they're hard to predict timing. It is kind of hard to model out. That being said, we've made a concerted effort to see if we can, and by the way, it's not just us. I mean, pharma companies do not love them either. They kind of sign these deals, and then we send them an invoice like, hey, you owe us $4.5 million. They're like, wait, whose budget is that coming from? I mean, they're game too to renegotiate these contracts when they come to. It is all not going to happen overnight. We have been successful in some new contracting and some renegotiation of existing contracts to more of a higher dollar for a fee-for-service contract. You are just kind of a higher margin, more predictable revenue stream from that. What was the second question? Did I answer that? No, you did about the shift towards fee-based service. Yeah. One of the things that's been topical from a policy standpoint is the recent appointment of Vinay Prasad, head of CBER. He's been in the past outspoken against MRD as a primary endpoint. Do you see any risk of slowdown in adoption due to this change in leadership? Have you had any discussions, educate, awareness, things like that? Yeah, I mean, look, we're always monitoring our business and evaluating the situation. A couple of things to point out. One is he is over CBER. So a lot of the drugs that we are involved with that have grown primary endpoint milestones are not going through CBER, going through other areas. That is something to point out. The second thing is he came from UCSF. I mean, one of our largest growing accounts in clonoSEQ is UCSF. Third, just overwhelming evidence, not just in adoption from the clinical community, the pharma community. Again, I'm not, of course, of course, it's something that's like interesting choice. We're going to work with him and continue to educate. By the way, he is knowledgeable and a fan of MRD. I want to be a little bit careful. It's just in terms of kind of an endpoint. That being said, we'll continue to kind of work with our pharma and also convert some of these over to fee-for-service deals that aren't subject to milestones. A lot of work going on there. Got it. And then kind of the other side of that, have you seen any impact from your pharma customers and their willingness to start up new trials in light of uncertainty surrounding the new administration? Again, while we are monitoring it, the answer is no. I mean, we have not seen a slowdown. We are being cautious. If you remember when we raised our guidance in the first quarter, we did not touch our pharma guidance because of the potential impact from political environment, et cetera. I think we are being prudent on it. The reality is MRD, yeah, maybe there are some slight forces against, but there are so many tailwinds that it's, and the utility of it for pharma companies developing drugs, they get it and they have been working with us for a long time. Now they are putting us on their new indications, et cetera. Okay. Maybe moving to the partnership that you struck with NeoGenomics. I believe you're working towards a phase I launch in the second half of this year. One, how is progress going there? And what benefits could you see from the combined offering, particularly in the community setting? You've already talked about some of the efforts you're doing in the community setting, but this obviously gives you better access to that setting as well. Maybe talk about one, the progress you're having on launching, and two, what benefits could you see from this? Yeah. First of all, it's going really well. Maybe setting the stage here. They're heavily inundated in the community. We're not in 60% of the accounts that they're in. The leverage that we're going to get being put on kind of the compass and chart test is, we believe, we're pretty excited about that. One of the main benefits is the sample collection. When they're doing a diagnostic workup and they're getting a sample, for MRD, we'd have to go do what's called pathology retrieval and go find the sample. In this case, we don't have to find the sample because we already have, they already have the sample. That's where we're seeing kind of this huge benefit. I mean, look, we started working together in earnest four months ago. We obviously announced the partnership. We got the governance in place. We both have had experience in kind of lab partnerships. We want to make sure operationally that all the pipes are connected and that everything works and that we probably could go faster, but I do not think I want to make sure we get this right. Just to be clear, we will launch in some accounts and kind of pilot kind of third and fourth quarter. We are really expecting when you see kind of that volume growth, and we will talk about profiles and everything else, but that will become really in year two and year three of the partnership and beyond if we extend the partnership. Call it a 2026, 2027 kind of uplift from volume from NeoGenomics. Okay. And just sticking to the community setting, you saw over 40% growth there in Q1. Maybe talk about any commercial initiatives that are driving that strong growth and what you guys are doing to continue the momentum there. Sure. It really breaks down to kind of three key initiatives. The first is national strategic accounts. We are focused on the accounts that matter. If you look at the community, there's these kind of network accounts that have a large portion of the treating clinicians that are in these accounts. We have reorganized from a geographic model to a leader of those national accounts so that we're implementing kind of these playbooks for these national accounts. It has been that mentorship and that kind of cross-pollination to say, okay, we're going to basically put the SWAT team to go after these key accounts. That has been incredibly impactful. The second, we have done, we've focused a lot of our marketing budget and I would say our intellectual budget, if you will, on peer-to-peer education. We have peer-to-peer programming where academic KOLs are going in and doing programming to educate the community oncologists. Because remember, it's a little bit different of a treatment paradigm. The community oncologist, that doctor wants to know, okay, what do I do with this? How do I treat the patient? We've not only educated in doing this programming, we also simplified the messaging around that. The third pillar of this, which we've already talked about, but you have to, when you say, hey, what's the option for the community, it's Flatiron. I mean, Flatiron is going live in the second half, we said the second half of this year, more to come on that. Those three things, plus we already mentioned NeoGenomics, which will come into play next year. It's really those four things. I mean, I just can't stress the importance of the community. Also, just getting that workflow into the community is just key. Got it. Before I move on to immune medicine, any questions from the audience? Great. Moving to immune medicine, you have the work with Genentech in the cell therapy space. You're also working to generate preclinical data in your lead autoimmune indication. Maybe give us an update on the progress for both of these projects. Yeah, just we'll start with Genentech. Obviously, the idea is to do kind of personalized cell therapy. In this case, we're moving it to what we're calling a digital TCR strategy where we can, instead of physically sequencing the tumor and then doing our assay to pair up the T-cell receptors that are responding to the tumor, we've been generating these massive data sets that's going to allow us to do this essentially in vitro. Like we're going to be at this in silico model where we can essentially sequence a tumor and know what TCRs are going to bind to that tumor, hand those over to Genentech and have them put those back in. That data is accelerating. It's looking really great. Why are we doing that? We're trying to reduce turnaround time and reduce cost to make a real viable product. That's been going great. This is interesting. This is kind of building on David Baker and the guy from Google who won the Nobel Prize for AlphaFold 2. This is kind of really the next big problem in biology is kind of this protein-protein interaction of T-cell receptor to antigen binding. We are at the forefront of this generating massive amounts of data. I think as a side, probably has some interesting applications outside of this partnership for another discussion. That is what is going on with that. Secondly, what I will call our in-house program, our strategy is pretty simple to explain, which is we have been able to identify the autoreactive T-cell receptors in certain autoimmune diseases. They have certain families that we are blocking with an antibody. So called V-beta families or V-alpha families that are kind of the offending T-cell receptors in certain autoimmune disorders. We are developing, as we mentioned, we have identified our lead asset. We are developing a preclinical package based on that. I think there is interesting optionality of what we do with that program. Again, stay tuned. This is super exciting. In general, how we have framed this business is, hey, this is a pretty low-cost call option for a high-value opportunity because we have really figured out how to ring-fence the burn around it. I think that has kind of resonated. Got it. I'll ask you the unfair question of, so you've guided and ring-fenced that cash burn to about $25 million-$30 million per year. How do you balance sort of that lower level of spend versus historical with continuing to advance the programs and move them forward? How do you calibrate the right balance of spend to make sure that you're focusing a lot on MRD, but at the same time, you're also realizing potential opportunities here? Yeah, no, it's a good and fair question. I mean, the first thing to recognize though is that we actually have some revenue coming in from that business. And it's actually pretty high-margin revenue. So that $25 milion-$30 million from immune medicine kind of bakes in kind of the revenue from that business. Although we obviously don't guide to it, we do report on it. So kind of that's a net number. I will tell you this, we in no way, shape, or form won't invest in MRD. Anything we need to invest in MRD, we have the capital to invest in MRD. We have the capital to get to profitability. There's nothing that we're going to do to jeopardize it. And then kind of the second point is we really phase gate our investments. So it's based on kind of what it is that we're seeing. If there is something that we see that makes us confident that we can invest more money, we will continue to do so. If not, I think Adaptive, and it has taken some time, and we have made, of course, over our lifetime, we have not all done this perfectly, but I think we have demonstrated an ability to cut programs when we saw that they were not going to have a positive ROI in a timeframe that made sense to our shareholder base. Yeah, that is how we think about it. Got it. That's very helpful. Maybe moving to sort of the financials and path to profitability. You touched a little bit on the transition to NovaSeq X from your NextSeq instruments. And that is expected to be a pretty major driver of margin improvements. I think you've called out five to eight percentage points in the first 12 months. Kind of what gives you, one, the confidence of that margin uplift and two, a seamless transition as well? It's not easy to be kind of making this transition over. Yeah. First of all, this has been a multi-year project. We've had really dedicated leaders from a technical standpoint, from an asset standpoint, from a software standpoint, from an operations standpoint. Really kind of this team scrum approach that has very carefully managed step by step this process. What I can say is the same thing I just mentioned with phase gate with capital. There are phase gates for every step of the way when you look at different metrics to make sure that you're on track. The good news I can say is the data is looking beautiful. We've got concordance data that's looking really good, really good. The final step is just kind of finishing off the software pipeline. We committed to kind of a second half of year launch. We're on time, on track. We're confident in our ability to deliver it. Yeah, I mean, the margin profile, what's going to drive it is volume. We can put more samples, a lot more on each flow cell. I also should say we're still going to be smart about it. We're going to keep some NextSeqs around as backup. We're going to do a phased implementation where we're doing clinical first and then doing pharma. There's a whole bunch of things that we're doing to say, hey, it's a big deal, right? Why are we doing it? Because 10% gross margin improvements at scale, we get 5%-8% in the first 12 months. We do think that number is going to be double digits. I mean, and look, I mean, we talk about kind of the long-term margin profile. That's one of the things that's going to get us there. Got it. Yeah, and I want to touch on that a little bit. Before we get there, maybe from an OpEx perspective, you guys have done a really good job leveraging your existing Salesforce and driving the growth that you have experienced. Is there any need for expansion headcount or any other commercial investments as you continue to grow? Like how do you feel you are from a commercial side? Honestly, I feel we're pretty good. I mean, like we've got 65 reps in the field right now, roughly split, well, not about 50/50. So 50 focused on academic medical centers. There are key account managers. 50 focused, there are DHSs focused on the community. Not to say we're going to add here and there. We're going to continue to look at kind of geographic optimization. There may be new selling strategies and things like that. If you look at kind of the windshield time and all the metrics we kind of track by account and kind of benchmark against our peers as to kind of what kind of optimal number of accounts and clinicians per rep, we're tracking pretty good. I mean, what we have done, we talk about leverage. Like Neo is a great example of leverage, right? I mean, we're leveraging a couple hundred person Salesforce to be able to get ID sample in the door with pretty limited financial investment. Over time, once we're in those accounts, partnership kind of, we'll see where it goes. Right now, we feel pretty good about the profile in the field. Got it. Maybe a similar question from R&D perspective. What areas do you see as attractive to invest in? Do you expect to increase the spend above that $80 milion-$90 million range in the coming years? I mean, it'll scale with sales, I understand that. Just from sort of a percentage of sales basis, how are you thinking about it? Yeah, I mean, just to be clear, that $80 million-$90 million spend on R&D is for the whole co. And more of the spend in R&D goes to IM than MRD. However, I do want to point out that we will continue looking at R&D for assay enhancements, for blood-based testing, for new indications, things like that. I mean, NovaSeq was a, and things roll off over time. I mean, NovaSeq was a big R&D project. Also remember, at Adaptive, we put software in our R&D budget as well. Yeah, so net-net, I mean, look, we're kind of looking at kind of what continues. We have, I believe, several years of really strong top-line growth because of all the initiatives that I talked about. But as a team, as a board, we continue to look at, okay, what's going to continue that growth into the future? How are we going to continue kind of leveraging our position in MRD, leveraging our position in hematology to continue to increase our TAM and our opportunity? Got it. As you approach adjusted EBITDA profitability in MRD, how are you thinking about the longer-term margin profile of that business specifically? Let's strip out IM and just talk about MRD. Yeah, I mean, that's very clear to me. I think we're going to be at 70%+ gross margins. And let's focus on the plus here in 20%+ EBITDA margins. Where that can go to is how much we continue to drive and execute on the business. But I think we can really focus on the plus in that 20%. And like to continue that top-line growth that we've been achieving over the last couple of years. Got it. And then just maybe to finish up, are there any important data readouts or catalysts that we should be looking for? Maybe like as you kind of talk to investors, what are some of the things that we should be looking out for over the balance of this year? Yeah, so first of all, a lot of our major data readouts are at ASH. That being said, we had great data at ASCO. The MITUS-3 study, which is 791 patients, showed that you could use MRD interventionally to guide therapy decisions, in particular the decisions of whether or not to transplant. That is an 800-patient study. For quadruplet therapy, there were four studies, CEPHEUS, PERSEUS, ISKIA. I forgot the name of the other. Four different studies for Dara, Isatuximab, that basically said that the depth and sensitivity of response is super important to measure using MRD based on a prognostic value. I mean, there is data all next week at EHA, Venetostop. There is going to be another interim readout of that saying that you can, for CLL, you can take patients off of Venetoclax. I mean, for us, there is data that is just generating. It is constant. It comes in. The ones that are really interventional and show true clinical utility, and we can just go to the community and say, here's what to do with it. These are the key ones. That's also why you're seeing some of the growth and some of those indications. Based on kind of this land and expand strategy, where okay, you go in with a use case, they do it at that time point. They know the workflow. They understand how to read the report. Then they're like, wow, why aren't I doing this across the patient care continuum? It's so easy and makes so much sense. All I'm doing is counting cancer cells. Who wouldn't? Why, as a doctor or a patient, you wouldn't want to know how many cancer cells are left in your body both during and after treatment? Of course you would. That's how kind of we think about the business in simple terms. Got it. And with that, we're out of time. Chad, thank you so much. Thanks, Matt. It was great. Appreciate it.