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Adaptive Bio Initiates Strategic Review, Considers Separation of MRD, Immune Medicine Businesses


NEW YORK – Adaptive Biotechnologies said after the market close on Thursday that it has initiated "a review of strategic alternatives" with Goldman Sachs to reevaluate the company's minimal residual disease (MRD) and immune medicine businesses.

As it waits for the results of the review, the Seattle-based firm's executives suggested during a conference call recapping the company's third-quarter financial results that it could lead to the separation of the two business arms.

MRD and immune medicine businesses are "at disparate stages of maturity with different investment requirements, operating models, and distinct value drivers," CEO and Cofounder Chad Robins told investors. "It has become increasingly clear where each business is, and it is really the natural point to look at a separation."

"If you look at the MRD business, clonoSeq is a commercial-stage diagnostic business, it is the gold standard in MRD, but that business is all about execution," Robins further said.

Meanwhile, the immune medicine business is "much more akin to a traditional biotech business or therapeutics business," Robins pointed out. "The business takes more time, it has very high potential, but revenue at present is not the driver."

Moreover, Robins said over the last 18 months or so, the company has observed "a competition for resources and … mindshare" between the two businesses.

Robins did not disclose any concrete strategies the company may have moving forward, other than noting that the team, together with Goldman Sachs, is currently evaluating "all options that are on the table." The company plans to "provide clarity on the path forward" by early next year, he told investors.

As a result of the strategic review, Adaptive has also eliminated immune medicine business revenues from its 2023 full-year revenue guidance, which the company now expects to be in the range of $100.0 million to $105.0 million. The company previously projected its full-year 2023 revenue to be $205.0 million to $215.0 million. At the midpoint, the company was expecting its MRD and immune medicine businesses to contribute approximately 55 percent and 45 percent to revenues, respectively.

For MRD, the company continues to expect the clonoSeq test volume to grow over 50 percent for the full year versus 2022.

Meanwhile, Adaptive reported a 21 percent decline in Q3 revenues. For the three months ended Sept. 30, the company booked $37.9 million in total revenues, down from $47.8 million during the year-ago period and below the consensus Wall Street estimate of $43.0 million.

According to CFO Tycho Peterson, the overall revenue decrease was primarily driven by a 61 percent reduction in amortization from its Genentech collaboration and a 14 percent decline in MRD and immune medicine pharma services, due to the "biopharma headwinds."

Of the total Q3 revenues, 65 percent were from the company’s MRD business arm, and 35 percent were from the immune medicine business arm.

More specifically, third-quarter immune medicine revenue was $13.3 million, down 52 percent year-over-year from last year’s $27.9 million. The lower Genentech amortization drove 85 percent of the decline, Peterson said.

During the quarter, Adaptive said its immune medicine business achieved "a key milestone" with the discovery of a novel target in multiple sclerosis (MS). As a result, the firm has submitted "a couple of core patent applications" that protect the findings in MS as well as, more broadly, its "differentiated" target discovery approach in autoimmunity, management said.

Adaptive's MRD revenue for the quarter was $24.7 million, representing a 24 percent increase from $20.0 million in Q3 2022. The MRD revenue was primarily driven by the high-volume growth of clonoSeq testing, the company said. During the quarter, Adaptive's clonoSeq test volume grew 56 percent year-over-year to 15,072 tests delivered versus the 9,649 tests during the year-ago period.

Adaptive's net loss for the quarter was $50.3 million, or $.35 per share, compared to a net loss of $45.3 million, or $.32 per share, in Q3 2022. It failed to meet the analysts' average estimate of a loss per share of $.34.

The firm's Q3 R&D expenses dropped 20 percent to $28.5 million from $35.7 million in the year-ago quarter, and its SG&A expenses were $40.6 million, down 4 percent from $42.3 million a year ago.

The company expects its total 2023 operating expenses to be around $375 million.

In that regard, after completing a technical feasibility review, Peterson said, the company will be switching from the Illumina Next-Seq platform to the NovaSeq sequencer by late next year, bringing "significant savings" in material costs during 2025.

Adaptive ended the quarter with $88.7 million in cash and cash equivalents as well as $282.4 million in short-term marketable securities.