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Adaptive Biotechnologies to Keep MRD and Immune Medicine Businesses Following Strategic Review

NEW YORK – Adaptive Biotechnologies said after market close on Tuesday that it will continue to operate its minimal residual disease (MRD) and immune medicine businesses in-house but give them each more independence, concluding a strategic review with Goldman Sachs that was initiated last November.

In the meantime, the firm reported a 12 percent year-over-year increase in preliminary revenues for the first quarter of 2024, handily beating the Wall Street consensus estimate. It also announced the departure of CFO Tycho Peterson, who will be replaced by its current principal accounting officer, Kyle Piskel.

"The management team and our board concluded that the best outcome to maximize value today is to keep both businesses internally within Adaptive and to restructure with dedicated resources and separate segment reporting," Adaptive Cofounder and CEO Chad Robins told investors in a conference call. "This will provide each business with the autonomy to execute against their respective strategies and achieve inflection points to unlock their full potential."

In making this decision, Robins said the company, working with strategic advisers from Goldman Sachs, evaluated "a wide range of scenarios" regarding the two business arms, including spinning them out and splitting them, as well as mergers and acquisitions. In the end, the verdict came down to several key reasons. 

For one, Robins said Adaptive has "entertained multiple offers from key strategic players" for its MRD business but concluded that they "underestimate the current and future value" of the company’s ClonoSeq test. The company believes it has "the cash, talent, and strategy in place" to grow its MRD business internally and achieve cash-flow breakeven in the first half of 2026, he added.

Additionally, with partnerships in cancer and autoimmune therapy programs, the potential value creation from Adaptive’s immune medicine business was "validated" in various discussions with external parties during the review, Robins noted.

Lastly, by keeping both businesses under one roof, the firm can preserve its capital position, he said, allowing Adaptive to bridge the MRD business to profitability while supporting targeted investments in immune medicine.

During the Q&A portion of the call, Robins told investors that the company is "well capitalized" at this point, with over $300 million of cash on the balance sheet, and does not anticipate a need to raise additional funding in the near term. The company also has access to an additional $75 million if needed under its previous royalty financing agreement with OrbiMed.

"We were told by strategic partners the delta that we could get if we brought the business to profitability was quite significant," Robins said. "Given that we have the cash on hand and the strategy, and the business is performing well, it just made sense for us to operate, execute, put our heads down, and get to profitability."

To execute its decision to keep both units in-house but separate them internally, Robins said the company has started restructuring its workforce to align dedicated resources with the functions of each business.

Moreover, to provide more accountability and transparency on the performance of each business arm, the company will report their results separately starting with the upcoming earnings call in May, including their operating expenses, Robins noted. "We are being very prudent on the capital allocation between the businesses and trying to meter it out, as appropriate," he added.

The Seattle-based firm will continue to only provide revenue guidance for the MRD business.

Meanwhile, to offer more visibility on the performance of the immune medicine business over the next 12 to 18 months, it will focus on the continuing collaboration with Genentech, further validation of its multiple sclerosis targets, and the development of antibodies for selected autoimmune diseases.

Adaptive’s decision to maintain both the MRD and immune medicine arms arrived after the company had previously signaled a strong possibility of a split of the two businesses into independent companies.

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

At the time, he also said that over the past 18 months or so, the company had observed "a competition for resources and … mindshare" between the two businesses.

During Tuesday’s call, Robins said the company still believes the MRD and immune medicine units "will benefit from being independent of each other, and that thesis still holds."

"It's a timing issue," he said. "MRD needs to get further along the path to profitability, and the immune medicine business needs validated assets to maximize shareholder value." However, he assured investors that the company is "well down the path to achieving both of these objectives" with the new reorganization.

When asked whether Adaptive will still consider other future offerings, even though the strategic review period has ended, Robins said it "will always look at corporate development opportunities, including [mergers and acquisitions]."

"We are opportunistic, and if something comes up that we need to review and have the fiduciary duty to review, we absolutely will do that," he added.

During the call, adaptive management also provided preliminary revenue results for the first quarter of 2024. The company’s total estimated revenues were approximately $41 million to $43 million, an increase of approximately 12 percent compared to the same period in 2023 and well above the Wall Street consensus estimate of $38.2 million. MRD revenues were about $31 million to $32 million, an increase of approximately 47 percent compared to the first quarter of 2023.

In morning trading on the Nasdaq, Adaptive's stock was down 5 percent at $2.82.