10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2022

For the transition period from _____to _____

Commission File Number: 001-38957

ADAPTIVE BIOTECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in its Charter)

1165 Eastlake Avenue EastSeattle, Washington 98109

(Address of principal executive offices) (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 TradingSymbol(s) Name of each exchange on which registered

Common stock, par value $0.0001 per share ADPT 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. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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, 2022 (the last business day of the Registrant’s most recently completed second fiscal quarter), was approximately $899,000,000.

As of February 9, 2023, the Registrant had 143,226,757 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 2023.

Table of Contents

Page

PART I 3

Item 1. Business 3

Item 1A. Risk Factors 43

Item 1B. Unresolved Staff Comments 90

Item 2. Properties 90

Item 3. Legal Proceedings 90

Item 4. Mine Safety Disclosures 90

Item 6. [Reserved] 91

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 104

Item 8. Financial Statements and Supplementary Data 105

Item 9A. Controls and Procedures 137

Item 9B. Other Information 139

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 139

Item 10. Directors, Executive Officers and Corporate Governance 140

Item 11. Executive Compensation 140

Item 14. Principal Accounting Fees and Services 140

Item 15. Exhibits, Financial Statement Schedules 141

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 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;

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the success of developing, commercializing and achieving commercial market acceptance of clonoSEQ, immunoSEQ, T cell receptor (“TCR”)-based cellular therapies, antibody-based therapeutics products and additional products and services beyond our portfolio;

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the potential for our identified research priorities to advance our proprietary immune medicine ("IM") platform or our future products and services;

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the success, cost and timing of our research and development activities, preclinical and clinical studies and, in certain instances, clinical trials and clinical validations;

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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;

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the ability and willingness of our collaborators to continue development, manufacturing, distribution and commercialization activities relating to our jointly developed products and services;

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our ability to identify research priorities and apply a risk-mitigated strategy to efficiently discover and develop products and services, including new targets in autoimmunity and neurodegenerative disorders;

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our ability to obtain and maintain regulatory approval of our products and services;

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the pricing and reimbursement of our products and services following approval where required;

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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;

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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;

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our ability to manage operating expenses;

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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;

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the rate and degree of market acceptance of our products and services;

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our financial performance;

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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;

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regulatory developments in the United States (“U.S.”) and foreign countries;

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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;

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our ability to attract and retain key scientific or management personnel;

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the impact of laws and regulations; and

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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.

PART I

Item 1. Business

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 these insights to develop and commercialize clinical products and services that we are tailoring to each individual patient. We have launched multiple 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 and autoimmune disorders. Since our inception in 2009, we have characterized over 58 billion immune receptors, established partnerships and commercial relationships with 175 biopharmaceutical companies and launched multiple 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, including diffuse large B-cell lymphoma (“DLBCL”). 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 identify and validate disease signatures to improve the diagnosis and treatment of many diseases.

In 2022, we made key strategic and operational changes, including a reorganization into two main business areas – MRD and IM. The MRD business area focuses on the use of our highly sensitive, next-generation sequencing (“NGS”) assay to measure MRD in patients with hematologic malignancies. It is comprised of our clonoSEQ clinical diagnostic test, offered to clinicians, and our clonoSEQ assay, offered to biopharmaceutical partners to advance drug development efforts (“MRD Pharma”). We believe clonoSEQ is the test of choice in MRD testing for hematologic malignancies with industry leading sensitivity. With the use of clonoSEQ, we are transforming how lymphoid cancers are treated by working with providers, pharmaceutical partners, and payors.

The IM business area leverages our platform’s proprietary ability to sequence, map, pair and characterize T cell receptors (“TCRs”) and B cell receptors (“BCRs”) at scale to drive research and clinical opportunities in our therapeutic areas of focus: cancer, autoimmune, infectious diseases, and neurodegenerative disorders. It is comprised primarily of two main growth areas: IM Pharma Services and drug discovery (“Drug Discovery”). Within IM Pharma Services, we use our core immunosequencing capabilities to deliver rich immune receptor data back to our biopharmaceutical and academic customers. These data are used to aid in understanding biomarkers of drug response which may accelerate our customers’ clinical development programs in our therapeutic areas of focus. Our portfolio is comprised of more than 140 active studies with more than 85 biopharmaceutical companies. We continue to scale the research use of our immune receptor data and to increase penetration in later stage, larger clinical trials, including more phase 3 trials. In Drug Discovery, we use our proprietary capabilities to discover new drug targets and leverage our validated TCR and BCR discovery approaches to develop TCR and/or antibody therapeutic candidates against these novel targets. Within Drug Discovery, our programs are focused on cancer and autoimmunity. These programs may be developed on our own or we may choose to work with partners. Our initial partnered pipeline includes the programs in development with Genentech, Inc. (“Genentech”) to advance TCR cellular therapies in oncology.

In addition, part of our strategy within the IM business area is to develop a diagnostic test for many diseases from a single blood test, known as T-Detect. In 2020 and 2022, we launched two diagnostic tests, T-Detect COVID and T-Detect Lyme; however, in 2022, we decided to defer further commercialization of T-Detect until we have multiple signals with strong enough data to impact physician behavior with a clear path to reimbursement.

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 $49 billion, including approximately $5 billion for product and services related to our MRD business area and approximately $44 billion for products and services related to our IM business area. 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. 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.

Selected 2022 Results

In 2022, our revenue increased by 20% to $185.3 million, including double-digit percentage increases in both our MRD and IM business areas while operating expenses were significantly leveraged as a result of streamlined operations from the reorganization into two business areas during the year. Operating expenses increased from $363.3 million during the year ended December 31, 2021 to $385.5 million during the year ended December 31, 2022, representing a moderate increase of $22.2 million compared to an increase of $112.1 million from the year ended December 31, 2020 to the year ended December 31, 2021. In addition, we strengthened our capital position through a non-dilutive financing in September 2022, from which we added $124.4 million to our balance sheet, net of expenses. As of December 31, 2022, cash, cash equivalents and marketable securities was $498.2 million.

In early 2022, we restructured around two business areas, MRD and IM, and streamlined our workforce. As part of the strategic decisions made in the restructuring, we paused sales of our first two T-Detect tests, T-Detect COVID and T-Detect Lyme. The commercialization process for individual indications required more time and higher costs than anticipated, and we therefore decided to defer commercialization for T-Detect until we have strong enough data in multiple disease states to impact physician behavior with a clear path to reimbursement. In late 2022, we announced our expected path to profitability. We estimate positive adjusted EBITDA by the end of 2025, and cash flow breakeven by the end of 2026. We estimate revenue to grow at a 20% to 30% compound annual growth rate through 2027, while our operating expenses are expected to grow at a lower rate over the same period.

MRD Highlights

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We grew clonoSEQ test volume by 51% to 36,871 tests delivered. We increased the all-time number of unique patients tested by 53% to over 33,000 patients by the end of 2022, and nearly doubled the size of our fully-trained sales team.

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We launched clonoSEQ as a CLIA-validated blood test for patients with DLBCL and secured clonoSEQ coverage with Medicare for DLBCL patients regardless of line of therapy, treatment regimen, or testing timepoint. clonoSEQ is the first and only MRD test to receive Medicare coverage in DLBCL.

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In October 2022, we entered into an agreement with Epic Systems Corporation (“Epic”) to integrate the clonoSEQ® assay into Epic’s comprehensive electronic medical record ("EMR") system to enable easier test ordering and results access.

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Our MRD Pharma revenue increased 15% from 2021, and our portfolio is continuing to expand. Our clonoSEQ assay is being used by over 60 biopharmaceutical partners and in 187 active trials, representing about 21% penetration of industry sponsored clinical trials in lymphoid cancers.

IM Highlights

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In Drug Discovery, we made significant advances in connection with our worldwide collaboration and license agreement with Genentech (the "Genentech Agreement") with respect to both the shared and personalized products. For the shared product, we delivered three TCR fully characterized data packages against validated neoantigen targets, and Genentech selected the first neoantigen TCR to advance as a potential cell therapy product. For the personalized product, we successfully completed proof of concept for the identification and characterization of patient-specific TCRs specific to each patient’s unique tumor mutations.

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We have narrowed the focus of our target and drug discovery efforts to cancer and autoimmunity. Our approach is to discover and develop TCR or antibody therapeutics to targets that T cells hit naturally. These targets are known as HLA-presented disease specific epitopes, which we are discovering and validating using our immune medicine platform. We are also developing novel drug modalities against those targets by leveraging the TCR and antibody discovery capabilities.

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In IM Pharma Services, revenue increased 67% from 2021. We also saw continued portfolio expansion across partners, disease states and study phases, with over 85 partners and more than 140 active studies utilizing immune receptor data across our therapeutic areas of focus.

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 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.

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 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.

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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.

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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.

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Characterize. Our platform 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. We also have a 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. Further, our platform supports a robust portfolio of products and services, including commercial products and services in clinical diagnostics, and we have developed products and services in both the clinical diagnostics and drug discovery areas.

Our Products and Pipeline (MRD)

The MRD business area focuses on the use of our highly sensitive, FDA-authorized NGS assay to measure MRD in patients with hematologic malignancies. It is comprised of our clonoSEQ clinical diagnostic test, offered to clinicians, and our clonoSEQ assay offered to biopharmaceutical partners to advance drug development efforts. We believe clonoSEQ is the test of choice in MRD testing for hematological malignancies with industry leading 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. With the use of clonoSEQ, we are transforming how lymphoid cancers are treated by working with biopharmaceutical partners, providers and payors. For instance, with the use of clonoSEQ we have the potential to accelerate the development of drugs in lymphoid cancers, assist physicians with critical clinical decisions, and enable treatment decisions which may lower payor cost through the discontinuation of costly drugs that are no longer needed.

clonoSEQ

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 2022, the assay was launched as a CLIA-validated test to detect MRD in blood for patients with DLBCL by measuring circulating tumor DNA (“ctDNA”), which provides patients and clinicians with a powerful blood-based prognostic tool. Our strategy is to generate additional clinical data in DLBCL and file with the FDA to support clinical adoption and increase usage by our biopharmaceutical partners. We believe clonoSEQ has broad applicability across all lymphoid malignancies, as set forth in the figure below:

1"CLIA-Validated" means tests available to order as a CLIA-validated LDT service: that use has not been cleared or approved by the FDA

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. Over the years, 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 245 million covered lives for ALL and MM, over 190 million covered lives for CLL and over 70 million covered lives for DLBCL. In November 2021, MolDX published its LCD for MRD testing. This LCD not only affirmed the importance of MRD and clonoSEQ coverage in ALL, MM and CLL in bone marrow and blood, but also provided a clear and efficient pathway for seeking expanded clonoSEQ coverage through technical assessments in Non-Hodgkin’s Lymphoma (“NHL”). In July 2022, coverage expansion continued as we secured Medicare coverage for DLBCL, the most common form of NHL. We secured clonoSEQ coverage with Medicare for DLBCL patients regardless of line of therapy, treatment regimen, or testing timepoint. clonoSEQ is the first and only MRD test to receive Medicare coverage in DLBCL.

clonoSEQ testing has been ordered by clinicians for over 33,000 unique patients and used by more than 60 biopharmaceutical companies in 187 active clinical trials, representing approximately 21% penetration of active industry sponsored clinical trials in lymphoid cancers as of December 31, 2022. 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. We have also successfully transferred the technology to seven labs in other parts of the world.

In addition, we continue to develop product improvements for clonoSEQ. In 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. In October 2022, we entered into a partnership with Epic to integrate clonoSEQ into Epic’s electronic medical record system, which we believe will enable easier test ordering and results access for the clonoSEQ test.

We have a multi-pronged strategy to deepen penetration of clonoSEQ and improve our commercial and operational infrastructure. We are focused on utilization of blood-based testing to increase the number of tests per patient; expansion into new patient populations within NHL, starting with DLBCL; and demonstration of clinical utility at multiple points along the patient continuum of care. In parallel, we continue to enhance customer experience with EMR integration and optimize payor coverage to increase ASP and improve margins.

MRD Pharma

The MRD Pharma business area focuses on offering our clonoSEQ assay to biopharmaceutical partners to advance drug development efforts. Given the broad penetration of clonoSEQ, we believe there is a significant growth opportunity for our MRD Pharma business, as we aim to replicate clonoSEQ's success in other indications, especially in DLBCL where there is significant ongoing drug development activity.

Evolving Clinical Utility Data

We believe that the value of clonoSEQ as a decision-making tool may enable clinicians to select the best patient treatment options based on MRD status. Two examples of recent expanded clinical use cases and drug development advances include:

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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.

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DETERMINATION was a phase 3 trial evaluating a regimen of Revlimid, Velcade and dexamethasone (“RVD”) or RVD plus autologous stem cell transplantation (“ASCT”) in patients with newly diagnosed MM. Post initial therapy and prior to maintenance therapy, MRD was assessed by clonoSEQ in 108 patients in the RVD-alone group and 90 patients in the RVD + ASCT group. This study demonstrated the benefit of adding transplant to frontline triple therapy, however, an important result from the study showed that patients who achieved MRD negativity by clonoSEQ prior to maintenance had similar outcomes independent of whether they received transplant. Additionally, the authors stated that MRD negativity is of increasing importance in modifying treatment, in informing clinical care, and as a treatment goal given the relationship with better outcomes.

Additional prospective studies are underway, and many have shared interim data at industry conferences. As more studies read out, we expect there may be greater adoption of MRD in clinical decision making, which could result in more patients benefiting from clonoSEQ and greater frequency of testing for each patient helped.

Our Products and Pipeline (IM)

The IM business is comprised primarily of two main growth areas: IM Pharma Services and Drug Discovery. The core of our immune medicine platform is our immunoSEQ technology. immunoSEQ utilizes multiplex, bias-controlled PCR to accurately and quantitatively sequence millions of immune receptors at high-throughput directly from DNA. Since inception, immunoSEQ has been used for research purposes by academic researchers and biopharmaceutical companies to answer translational research questions relating to the adaptive immune system, monitor response to therapies and discover new prognostic and diagnostic signals. 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. The expanding database has led to over 650 peer-reviewed publications referencing immunoSEQ and potential clinical signals to explore.

IM Pharma Services

In IM Pharma Services we use our core immunosequencing capabilities to deliver rich immune receptor data back to our biopharmaceutical customers in order to potentially accelerate their clinical development programs in our therapeutic areas of focus, which are cancer, autoimmune disorders, infectious diseases and neurodegenerative diseases. A key application of our immune receptor data is the ability to annotate T-cell signatures of disease from patient samples to understand the cellular immune response to most past and present diseases. TCRs in blood may be used to determine the genes or peptides that are being targeted by the immune system and the strength of this disease-specific immune response. Potential clinical applications of this include:

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patient selection or stratification;

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understanding the mechanism of action for drugs;

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efficacy and / or safety of drugs and monitoring; and

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understanding immunity differences between responders and non-responders.

Other key applications of immune receptor data are graphically represented below.

We believe we can achieve sustainable growth from this business as we continue to expand our portfolio in various disease states and by study phase: our data is used in preclinical, phase 1, phase 2 and phase 3 trials. We plan to continue to scale research use of TCR and BCR data and to increase penetration in later stage, larger clinical trials, including more phase 3 trials.

Drug Discovery

In Drug Discovery, we use our proprietary capabilities to discover new drug targets and develop TCR or antibody therapeutic assets to those targets in commercially attractive indications. We are focusing our drug discovery programs mainly in cancer and autoimmunity, areas where we can pursue partnerships with others or pursue development on our own.

Our proprietary TCR therapeutics discovery process characterizes TCRs against 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:

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Shared Products. The shared products will use “off-the-shelf” TCRs identified against cancer antigens shared among patients (“Shared Products”). In 2021, we completed an assessment of efficacy and safety data to enable a decision to select our lead TCR candidate. Following review of this data in 2022, Genentech selected this TCR candidate to progress as a potential therapeutic product candidate. Also, by the end of 2022, we delivered two additional TCR fully characterized data packages against validated neoantigen targets to Genentech for their consideration.

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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. During 2021 and 2022, we successfully completed proof of concept by identifying and characterizing patient specific TCRs to each patient’s unique tumor mutations. We also completed initial end-to-end test runs as a foundation for the private product process and our next steps are to complete the product prototype as we move towards IND readiness.

In addition to our partnership in oncology cell therapy with Genentech, we are expanding our efforts in autoimmunity where we believe we are uniquely positioned to make important contributions. In autoimmune disorders, disease specific antigens are not well-known and treatment protocols are largely limited to general anti-inflammatory drugs, indicating a significant opportunity to develop therapeutics in this area to restore patient immune balance. Therefore, we are leveraging our unique capabilities to identify specific targets that are causative of the disease, particularly in multiple sclerosis (“MS”) and inflammatory bowel disease (“IBD”). Our expertise is based on our ability to find HLA presented, disease specific epitopes that T cells hit naturally. We are also developing novel mechanisms against those targets by leveraging the TCR discovery capabilities we developed for Genentech and the antibody discovery capabilities we built and confirmed for COVID-19. Our next step is to generate data that enable us to continue to develop these programs, either on our own or with partners.

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.

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Our immune medicine platform is uniquely capable of supporting clinical products for us and our collaborators. 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 believe that we have a differentiated ability to perform these functions 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.

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We are well capitalized and on a path to profitability. As of December 31, 2022, we had $498.2 million in cash, cash equivalents and marketable securities. In 2022, we focused on reducing our operating expense growth rate. We estimate positive adjusted EBITDA by the end of 2025, and expect to be cash flow breakeven by the end of 2026.

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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.

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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.

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Expanding regulatory and reimbursement expertise will help inform future clinical product development. Having obtained FDA marketing authorization and expanded coverage for multiple indications of clonoSEQ from Medicare and several national private payors, as well as an EUA for T-Detect COVID in 2021 in response to the COVID-19 pandemic, 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 diagnostic and therapeutic products.

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Strong intellectual property protects our immune medicine platform and its applications. As of December 31, 2022, we had filed 799 patent applications, 470 of which had issued as of that date, covering improvements in sequencing methods and new ways to leverage adaptive immune receptors for our MRD and IM business areas.

Our Strategy

Our focus is to leverage our immune medicine platform and competitive strengths to develop transformative clinical solutions that are accessible to patients with a range of diseases.

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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 immune-based therapeutics.

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Entrench our products and services in clinical drug development with biopharmaceutical collaborators. Maintain 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.

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Leveraging foundational technology to generate revenue and address clinical diagnostic challenges in key disease states, such as autoimmune disorders, cancer, infectious diseases, and neurodegenerative disorders. We integrate proven chemistry into our own and our collaborators’ clinical products in development, avoiding the need to re-engineer new products for every clinical application. As our platform focuses on cancer, autoimmune disorders, infectious diseases, and neurodegenerative diseases, we believe we will benefit from economies of scale and drive margin improvement over time.

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Drive the commercial adoption of our validated, reimbursed and regulated clinical products. Leverage the commercial infrastructure built for clonoSEQ to submit clinical data for regulatory clearance of our products and services, expand 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 147 people with medical or doctoral degrees with expertise in biology, chemistry, bioinformatics, software, drug discovery, development and commercialization, into clinical products and services.

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:

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, Lyme disease, Crohn’s disease, celiac disease, MS and IBD.

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:

Identify and query antigens of interest which can include neoantigens, tumor-associated, viral, infectious, autoimmune or other antigens.

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.

Sort T cells by marker of interest.

Match T cell clones to specific antigens based on the presence of specific sequences in designated pools.

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

Our proprietary TCR therapeutics process 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 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.

Antibody Discovery

Our platform 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. We believe these efforts represented 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 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

clonoSEQ: Detection and Monitoring of MRD

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 available as an LDT for use across lymphoid malignancies and sample types, including those which have not been authorized by the FDA. Most notably, in 2022, the assay launched as a CLIA-validated test to detect MRD in blood for patients with DLBCL by measuring ctDNA, which provides patients and clinicians with a powerful blood-based prognostic tool.

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. 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 32 NCCN centers. 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. We believe clonoSEQ has broad applicability across all lymphoid malignancies. In 2022, we launched clonoSEQ in DLBCL, and secured clonoSEQ coverage in Medicare for DLBCL, with DLBCL patients covered regardless of line of therapy, treatment regimen, or testing timepoint. We are in active discussions with other large private national and regional payors. To further demonstrate the actionability of MRD monitoring, we launched a clinical registry in 2020 called The Watch Registry. This prospective, multicenter, observational study will include approximately 500 adult patients with lymphoid malignancies in the United States. To date, we have enrolled over 400 patients across 18 sites and expect to complete enrollment in 2023.

Among biopharmaceutical companies, we believe clonoSEQ remains the preferred commercial test for MRD monitoring in their registrational trials. clonoSEQ is now being used by more than 60 biopharmaceutical companies in 187 active 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 continue to deepen our commercial investments to expand clinical adoption of clonoSEQ and have significantly expanded the size of our fully-trained 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, which we believe will be facilitated by the recent launch of DLBCL blood testing via Streck tubes. In October 2022, we entered into a partnership with Epic to integrate clonoSEQ into Epic’s EMR system, which we believe will enable easier test ordering and results access for the clonoSEQ test.

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, and secured reimbursement for ALL in Australia in 2022.

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:

gDNA is extracted from bone marrow.

Extracted DNA quality is assessed, and rearranged immune receptors are amplified using a multiplex PCR.

Reaction-specific index barcode sequences for sample identification are added to the amplified receptor sequences by PCR.

Sequencing libraries are prepared from barcoded amplified DNA which are then sequenced by synthesis using NGS.

Raw sequence data are uploaded from the sequencing instrument to our analysis pipeline.

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.

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 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 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.

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.

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.

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.

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.

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Martinez-Lopezpublished a retrospective cohort analysis (Journal of Clinical Hematology and Oncology 2021) 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, 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, as pictured below:

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DETERMINATION was a phase 3 trial evaluating a regimen of RVD or RVD plus ASCT in patients with newly diagnosed MM. Post initial therapy and prior to maintenance therapy, MRD was assessed by clonoSEQ in 108 patients in the RVD-alone group and 90 patients in the RVD + ASCT group. This study demonstrated the benefit of adding transplant to frontline triple therapy, however, an important result from the study showed that patients who achieved MRD negativity by clonoSEQ prior to maintenance had similar outcomes independent of whether they received transplant. Additionally, the authors stated that MRD negativity is of increasing importance in modifying treatment, in informing clinical care, and as a treatment goal given the relationship with better outcomes.

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Additional follow up of the MASTER trial, presented at American Society of Hematology 2022 (abstract 3237), investigated the possibility of discontinuing maintenance therapy in patients with consecutive negative MRD results using the clonoSEQ assay. In this study, 84 patients were able to stop maintenance therapy. At a median follow-up of 24.8 months, patients with zero or one genetic mutation associated with risk had 91% and 89% progression free survival, respectively. These results provide guidance around when and for whom discontinuation of therapy is appropriate.

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:

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Increase blood-based testing in ALL, MM, CLL, and DLBCL. Testing with blood is less invasive for patients and less expensive as compared to MRD testing from bone marrow samples. Therefore, blood-based MRD testing may enable more frequent monitoring of patients over longer periods of time. Only 30% of all clonoSEQ testing is performed in blood; however, we believe continued validation of clonoSEQ in blood will increase usage, particularly by clinicians in the community setting who perform fewer bone marrow aspirations. We have nine ongoing studies focused on generating additional evidence to use peripheral blood. We have already received FDA clearance for clonoSEQ from blood samples for patients with CLL and made DLBCL blood testing available as a CLIA validated LDT via Streck tubes in 2022. We will continue to expand testing with blood to other indications over time.

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Validate clonoSEQ in additional indications and expand in NHL. 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 increased adoption 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 payor coverage is already in place for blood-based testing in ALL, MM, CLL and DLBCL. Going forward, we will continue to evaluate the optimal commercial path (FDA or CLIA) for each additional indication, with an increasing focus on NHL. NHL represents 50% of all newly diagnosed patients with lymphoid malignancies in the United States, and DLBCL represents 30% of NHL patients. DLBCL is an aggressive disease with a high relapse rate and poor diagnosis. There are no established guidelines for MRD monitoring in DLBCL and current techniques like PET CT lack specificity and require interpretation. In 2022, we obtained Medicare coverage for all DLBCL patients, approximately 75% of which are Medicare aged, regardless of line of therapy, treatment regimen, or testing timepoint. We expect to file with the FDA for DLBCL with our maturing clinical data.

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Entrench clonoSEQ in biopharmaceutical clinical trials. We believe clonoSEQ is the preferred commercial test for MRD monitoring in industry sponsored 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, highly accurate and sensitive method for MRD testing to guide clinical decisions in late-stage trials, including registrational trials, is valuable.

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Demonstrate clinical utility. We are focused on continuing to generate clinical evidence that motivates clinicians to include MRD consistently in their treatment regimens. Understanding what to do with an MRD positive or negative result is fundamental for clonoSEQ’s use. To that end, clonoSEQ is being used in 95 ongoing prospective investigator-led clinical trials, and our MRD data have been included in over 110 peer-reviewed publications. As more studies read out, we expect there will be greater adoption of MRD in clinical decision making, resulting in more patients benefiting from clonoSEQ and greater frequency of testing for each patient helped.

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Invest in commercial initiatives to increase awareness and usage in the clinic. In 2022, we completed an expansion and reorganization of our sales force. Our fully trained sales force nearly doubled in 2022, and the expanded sales force is structured in two distinct groups: key account managers and diagnostic hematology specialists. These groups serve two different customer segments with distinct sales strategies. Key account managers focus on penetrating deeper into our established institutions. Our diagnostic hematology specialist team targets driving adoption in community practice accounts. We also continue to build advocacy 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 market access by increasing 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, 2022, we secured Medicare and private payor coverage for clonoSEQ for a total of over 245 million covered lives for ALL and MM, over 190 million covered lives for CLL and over 70 million covered lives for DLBCL.

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Invest in product and customer experience improvements. 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. In October 2022, we entered into an agreement with Epic to integrate the clonoSEQ® assay into Epic’s comprehensive EMR system, which we believe will enable easier test ordering and results access.

The IM business area leverages our platform’s proprietary ability to sequence, map, pair and characterize TCRs and BCRs at scale to drive research and clinical opportunities in cancer, autoimmune, infectious diseases, and neurodegenerative disorders. The core of our immune medicine platform is our immunoSEQ technology. immunoSEQ utilizes multiplex, bias-controlled PCR to accurately and quantitatively sequence millions of immune receptors at high-throughput directly from DNA. Since inception, immunoSEQ has been used for research purposes by academic researchers and biopharmaceutical companies to answer translational research questions relating to the adaptive immune system, monitor response to therapies and discover new prognostic and diagnostic signals. 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.

IM Pharma Services

In IM Pharma Services, we use our core immunosequencing capabilities to deliver rich immune receptor data back to our biopharmaceutical and academic customers. A key application of our immune receptor data is the ability to annotate T-cell signatures of disease from patient samples to understand the cellular immune response to most past and present diseases. TCRs in blood may be used to determine which gene or peptides are being targeted by the immune system and the strength of this disease-specific immune response. Potential clinical applications of this include:

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Patient selection or stratification;

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Understanding the mechanism of action for drugs;

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Efficacy and / or safety of drugs and monitoring; and

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Understanding immunity differences between responders and non-responders.

Other key applications of immune receptor data are clone tracking, tracking TCRs and BCRs over time or between sample types, detection of clonal overlap between different samples or at different times, monitoring of changes in T-cells fraction over time or between samples, and identifying highly expanded clones and diversity of the repertoire.

Our current portfolio is comprised of more than 140 active studies with more than 85 biopharmaceutical companies. IM Pharma Services revenue grew 67% in 2022. We expect sustainable growth from this business as we continue to expand our portfolio in various disease states and by study phase: our data is used in preclinical, phase 1, phase 2 and phase 3 trials. We continue to scale research use of rich TCR and BCR data and to increase penetration in later stage, larger clinical trials, including more phase 3 trials.

Drug Discovery

In Drug Discovery, we use our proprietary capabilities to discover new drug targets and develop TCR or antibody therapeutic assets to those targets in commercially attractive indications. We are focusing our drug discovery efforts mainly on cancer and autoimmunity, and we are advancing programs to either partner or develop drug candidates on our own.

In addition to our partnership in oncology cell therapy with Genentech, we are expanding our drug discovery efforts in autoimmunity where we believe we are uniquely positioned to make important contributions. In autoimmune disorders, disease specific antigens are not well-known and treatment protocols are largely limited to general anti-inflammatory drugs, indicating a significant opportunity to develop therapeutics in this area to restore patient immune balance. Therefore, we are leveraging our unique capabilities to identify specific targets that are causative of the disease, particularly in MS and IBD. Our expertise is based on our ability to find HLA presented, disease specific epitopes that T cells hit naturally. We are also developing novel mechanisms against those targets by leveraging the TCR discovery capabilities we developed for GNE and the antibody discovery capabilities we built and confirmed for COVID-19. Our next step is to generate data that enable us to continue with these drug discovery programs either in partnership or on our own.

TCR Discovery for Cellular Therapy

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. For the shared product, we delivered three TCR fully characterized data packages against validated neoantigen targets, and Genentech selected the first neoantigen TCR to advance as a potential cell therapy product. 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.

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:

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Shared Products. In 2021, we completed an assessment of efficacy and safety data to enable a decision to select our lead TCR candidate. Following review of this data in 2022, Genentech selected this TCR candidate to progress as a potential therapeutic product candidate. Also, by the end of 2022, we delivered two additional TCR fully characterized data packages against validated neoantigen targets to Genentech for their consideration.

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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. During 2021 and 2022, we successfully completed proof of concept by identifying and characterizing patient specific TCRs to each patient’s unique tumor mutations. We also completed initial end-to-end test runs as a foundation for the private product process and our next steps are to complete the product prototype as we move towards IND readiness. We also believe our dedicated prototype lab in South San Francisco is well positioned to advance our collaboration goals with Genentech.

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.

Target Discovery

We believe we have the capacity to continuously discover new targets and develop TCR and antibody-based therapeutics against those targets. Our approach is to discover and develop TCR or antibody therapeutics to validated targets that T cells hit naturally. These targets are known as HLA-presented disease specific epitopes, which we are discovering and validating using our immune medicine platform. In autoimmune disorders, disease specific antigens are not well-known and treatment protocols are largely limited to general anti-inflammatory drugs, indicating there is a significant opportunity to develop therapeutics in this area to restore patient immune balance.

Antibody Discovery: Neutralizing Antibodies

Our antibody discovery process, similar to our TCR therapeutics 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 antibody discovery method, we identified several lead antibody candidates that strongly bind to different parts of the virus. Our growing portfolio of novel antibodies includes candidates that bind to many parts of the virus, including the classic RBD region, S1, Trimer and S2.

Importantly, our antibody discovery approach is differentiated from other groups because of its scale and throughput, which allows us to identify a much broader set of naturally-occurring, fully human antibody candidates to select the best ones for clinical development. We are leveraging and optimizing our antibody discovery capabilities against a variety of disease states, including in autoimmunity, where there is an unmet need.

T-Detect

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 small amount of antigen present, we believe we will be able to see this signal of disease much sooner than is possible with other available methods of early disease detection. Additionally, 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. 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.

To date, we have launched T-Detect for two indications, COVID and Lyme. We launched T-Detect COVID in December 2020. The 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 respiratory pathogens. In March 2021, the FDA issued an EUA for T-Detect COVID to confirm recent or prior SARS-CoV-2 infection. We believe the EUA was key to educating the FDA about the value of this new class of T-cell testing. We launched T-Detect Lyme in June 2022, primarily targeting symptomatic adult patients for early diagnosis. By making T-Detect Lyme available in our CLIA lab, we were also able to implement end-to-end and CLIA workflows. In 2022, we paused sales of both T-Detect indications. Our first two T-Detect tests represented validation of T-Detect's clinical testing capability in infectious diseases, but the cost is high to commercialize and improve signals one indication at a time through self-pay customers. Therefore, we decided to defer further commercialization until we have multiple signals with strong enough data to impact physician behavior and a clear path to reimbursement. Importantly, the underlying immune receptor data we have generated in many disease states is being leveraged to support our focused efforts on IM Pharma Services and in Drug Discovery. We continue to enhance these data as we advance our target and drug discovery efforts in cancer and autoimmune disease.

Additional Developments

In response to the COVID-19 pandemic in 2020, we collaborated with Microsoft to create the ImmuneCODE program to map the T cell response to SARS-CoV-2 across the global population. We leveraged the existing capabilities of our high throughput platform to generate T cell data from over 9,000 samples to understand the adaptive immune response to COVID-19. Another successful proof of concept for our platform is our licensing agreement with Nykode Therapeutics ASA (“Nykode”), in which virus-specific T cell epitopes identified by our platform were used to inform the design and development of SARS-CoV-2 vaccine candidates. In September 2022, Nykode announced positive clinical results from the Phase 1/2 open label, dose escalation trial of its vaccine candidate, which induced broad and strong T cell responses against both spike antigens and non-spike antigens, and it was safe and well-tolerated at all three dose levels. We believe this study demonstrates an important proof of concept for our platform to identify T cells against selected antigens to induce a powerful immune response.

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, 2022, we had 790 full-time employees of which 147 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:

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Make it happen. Individual ownership and accountability keep us moving forward.

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Innovate fearlessly. Push against boundaries and think boldly to achieve world-changing results.

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Debate openly. Value discussions inspired by different points of view.

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Work together. Demonstrate you care about the success of others. The same goes for our partners and customers—together we can achieve more.

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Follow True North. Show up with integrity and do the right thing.

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Have fun. Fun makes everything better.

We believe our employees are highly engaged, and we were recognized consecutively from 2018 to 2022 by the Puget Sound Business Journal as one of Washington State’s Best Places to Work. We were also nationally certified as a Great Place to Work in 2021 and 2022.

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 2022, 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 Asian Pacific @ Adaptive and Sustainability @ Adaptive, and in 2022, we launched the Veteran and Military Families ERG. We also brought in Neurodivergent training for Adapters. 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 2020s CEI score. We successfully executed a second year of our STEM minority mentoring partnership with University of Washington. We also announced an internship program for SPIN Girls, a transformative local program that builds leadership and provides immersive STEM experiences for high school girls.

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 post-pandemic mental health in 2022. This year also saw the winners of our annual 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 2022, we offered multiple learning solutions, including DayOne our new Adapter onboarding program, our Leader Orientation Program, our Leader of People Program, our Leader of Leaders program and our L-re:combinator Fellowship Program. 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 with our Chief Executive Officer, cultural ambassadors and fellow new Adapters.

In 2022, 172 Adapters attended leadership development programs. 71% of Adaptive’s people leaders have attended at least one leadership training course. 253 Adapters completed DayOne. In our annual employee survey, Adaptive Listens, Adapters generally judged our managerial corps as one of Adaptive’s strengths for the second year in a row, a sign that investing in their development is translating into real-world results.

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.

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, 2022, 2021 and 2020, the Genentech Agreement accounted for 33.9%, 40.2% and 53.7% 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.

Revenue Interest Purchase Agreement

In September 2022, we entered into a Revenue Interest Purchase Agreement (the "Purchase Agreement") with OrbiMed Royalty & Credit Opportunities IV, LP ("OrbiMed"), an affiliate of OrbiMed Advisors LLC, as collateral agent and administrative agent for the purchasers party thereto (the “Purchasers”). Pursuant to the Purchase Agreement, we received $124.4 million from the Purchasers (the "First Payment"), net of expenses. We will also be entitled to receive up to $125 million in subsequent installments as follows: (i) $75 million upon our request occurring no later than September 12, 2025 (the “Second Payment”) and (ii) $50 million upon our request in connection with certain permitted acquisitions occurring no later than September 12, 2025 (the “Third Payment”), in each case subject to certain funding conditions. To secure our obligations under the Purchase Agreement, we and our subsidiaries have granted OrbiMed a security interest in our core platform technology assets, subject to certain customary exclusions, as defined in the Purchase Agreement.

As consideration for such payments, the Purchasers will have a right to receive certain revenue interests (the “Revenue Interests”) from us based on a percentage (the “Applicable Payment Percentage”) of all GAAP revenue (the “Revenue Base”). If only the First Payment has been made, the Applicable Payment Percentage shall be five percent of the quarterly Revenue Base. If both the First Payment and Second Payment have been made, the Applicable Payment Percentage shall be eight percent of the quarterly Revenue Base. If each of the First, Second and Third Payments have been made, the applicable payment percentage applied to the Revenue Interest shall be ten percent of the quarterly Revenue Base. Payments in respect of the Revenue Interests shall be made quarterly within 45 days following the end of each fiscal quarter (each, a “Revenue Interest Payment”). If OrbiMed has not received Revenue Interest Payments in the aggregate equal to or greater than the sum of its invested capital (the “Cumulative Purchaser Payments”) on or prior to September 12, 2028, the revenue interest rate shall be increased to a rate which, if applied retroactively to our cumulative Revenue Base, would have resulted in Revenue Interest Payments equal to the sum of all Cumulative Purchaser Payments.

OrbiMed will be entitled to 100% of the Revenue Interest Payments until it has received a total cumulative value of 165% of the Cumulative Purchaser Payments (the “Return Cap”), unless full repayment of the amount of the Return Cap has not been made by September 12, 2032, in which case the Return Cap shall be increased to 175% of the Cumulative Purchaser Payments.

For the year ended December 31, 2022, we incurred debt issuance costs of $0.6 million and interest expense of $4.2 million under the Purchase Agreement.

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, 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 operations at our laboratories in Seattle, Washington and South San Francisco, California. These laboratories have cell sorting, tissue culture and other processing equipment.

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, 2022, we owned or controlled 470 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 granted 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, 2022, our intellectual property portfolio consisted of the following:

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799 patent applications filed worldwide directly or in conjunction with a co-owner or licensor since 2009;

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40 pending patent applications;

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429 issued patents across our immune medicine platform;

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24 patent families directed to methods and tools useful in our immune medicine platform for non-target specific immunosequencing and research, including immunoSEQ;

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17 patent families directed to methods and tools useful in diagnosis, prognosis and disease monitoring, including clonoSEQ, T-Detect and the TCR-Antigen Map;

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12 patent families directed to methods and tools useful in drug discovery, including TruTCR, MIRA and pairSEQ;

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1 patent family directed to therapeutic antibodies;

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1 patent family directed to SARS-CoV-2 vaccines;

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3 patent families directed to gene sequencing technology; and

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28 trademarks registered and pending registration worldwide.

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, 2022, 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 28 related patent applications have since been filed, many of which have been granted as of December 31, 2022, 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 112 patents have been granted in the portfolio as of December 31, 2022, 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 MRD assessment, diagnostic methods and diagnostically significant TCRs filed by us, including U.S. Patent Nos. 9,824,179 and 11,047,008. Additional patent applications are pending to TCR-based diagnostic signals in specific indications, including COVID-19.

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.

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, 2022, 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, 2022, 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, 2022, 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.

Vaccines

Together with our partner Nykode, we filed a patent application which is pending and directed to COVID-19 vaccines, the development of which was informed by our immunosequencing-based drug discovery efforts.

Therapeutic TCRs

We have a granted patent application to TCRs responsive to WT-1 antigens with potential utility in cell therapy against WT-1 related cancers. We are also pursuing a patent application to TCRs responsive to other cancer antigens which are of interest in our collaboration with Genentech.

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.

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.

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 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;

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labeling regulations, which prohibit the promotion of products for uncleared, or unapproved uses, or “off-label” uses, and impose other restrictions on labeling; and

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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:

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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.

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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.

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.

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 in combination with the California Confidential Medical Information Act and the California Privacy Rights Act, the Colorado Privacy Act and the Virginia Consumer Data Protection Act. In addition, there are state breach notification laws in every state, as well as in 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 as further detailed in our Risk Factors.

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.

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.

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 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.

ADPT US Equity

ADPT · 10-K · period ended 2022-12-31

Item 1. Business

ADPT US Equity☆

ADPT · 10-K · period ended 2022-12-31

Item 1. Business

ADPT US Equity