Eoneren
In the last couple of years, Adaptive Biotechnologies (NASDAQ:ADPT) has lost 90% of its value, from a $8bn behemoth to just $894mn today. I covered it in June last year, and although I didn’t much like the company, it was still valued at a healthy $5bn. The company, I wrote, is a segment leader in certain diagnostic procedures and products. Three of these were approved – an immunosequencing platform called immunoSEQ, and two clinical diagnostics products, clonoSEQ and T-Detect. ImmunoSEQ is the global standard for immunosequencing, with large numbers of academic and industry researchers using the platform in their clinical trials. clonoSEQ is an FDA-authorized test for the detection and monitoring of Minimal residual disease (MRD) in bone marrow or blood samples. The company has a collaboration with Genentech for various cell therapy programs.
The market for these products is large, however ADPT has not been able to get to their full potential. Last year, when I covered it, the company was barely making $100mn from its assets in 2020, which is pretty disappointing for a $8bn market cap company (2020 figure). On top of that, the company then had a $230-$280mn operating expense. Thus, finances were pretty sordid.
In their corporate presentation, the company talks a lot about its drug discovery platform. I get the feeling that the company is making a move away from its core value proposition – immunosequencing and diagnostics – and refocusing investor attention to its emerging drug discovery work. Is that because the company feels there’s not a lot of future in its core business? Because if you want to really talk about drug discovery, you need to get out of the discovery stage and arrive at the clinic. Adaptive seems years away from that. Their latest stage asset is still in the discovery stage. While I can see them thinking about using their core science to get into drug development successfully, I don’t see any investment angle there right now, today.
In their recent earnings call, an analyst asked them just about this:
So can you just talk about what led to doing this now? What really changed? Was it the costing? Was it time that it was taking for R&D? Was it recognizing the commercial path is going to be a little bit more challenging?
This question boils down to their T-Detect platform, which, although theoretically successful, may be expensive to launch disease by disease, according to the company. However, their “incredibly rich” immune receptor data, generated from their research, can be put to more efficient, and higher margin use by moving into pharma – this is the takeaway I got from the company’s response.
Now, from the company’s August PR:
Adaptive Biotechnologies reiterates full year 2022 revenue to be in the range of $185 million to $195 million vs. $187.18m consensus.
Now, those are actually good numbers if you consider their much reduced market cap. With a market cap of less than $900mn, to have nearly $200mn in revenue is good; and a far cry from being a $8bn market cap company with $100mn in revenue.
Also from the last quarter:
Revenue was $43.7 million for the quarter ended June 30, 2022, representing a 13% increase from the second quarter in the prior year. Immune Medicine revenue was $22.4 million for the quarter, representing a 3% decrease from the second quarter in the prior year. MRD revenue was $21.3 million for the quarter, representing a 38% increase from the second quarter in the prior year.
It is interesting that MRD revenue is increasing whereas Immune Medicine is decreasing. Given the end of the pandemic, one would think the opposite would be the case.
In other financial development, just last month, the company announced a $250mn non-dilutive financing. They had $450mn at the end of the previous quarter, which they said gave them a 2-year cash runway.
Clonoseq, their MRD asset, also secured a positive coverage decision for Medicare in Diffuse Large B-Cell Lymphoma, the most common type of non-Hodgkin’s lymphoma. This makes it the first and only test to receive Medicare coverage for MRD and DLBCL.
At ASCO 2022, there was some data presented from a Phase III trial for newly diagnosed multiple myeloma patients. According to the company’s earnings call:
This study was designed to assess the benefit of adding transplant to frontline triple therapy followed by maintenance therapy until progression. An important result from the study showed that patients who achieved MRD negativity by clonoSEQ prior to maintenance had similar outcomes independent of transplant, and the authors state that the elimination of MRD is of increasing importance in tailoring treatment, in informing clinical care and as a treatment goal given its prognostic value for better outcomes.
Bottomline
Adaptive Biotechnologies is a revenue-generating company in a transition phase right now. The company’s valuation is down because it appears there’s not a lot of money to be made – in the near future, at least – in its existing assets. The move towards pharma may be the answer, but it is going to take a while. Until then, I see no investible angle in this company.
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