Item 1. Financial Statements (Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
(unaudited)
1.
|
Organization and Description of Business
|
Adaptive Biotechnologies Corporation (“we,” “us” or “our”) is a commercial-stage company 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 them to develop and commercialize clinical products and services that we are tailoring to each individual patient. We have 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, autoimmune conditions and infectious diseases.
We were incorporated in the State of Washington on September 8, 2009 under the name Adaptive TCR Corporation. On December 21, 2011, we changed our name to Adaptive Biotechnologies Corporation. We are headquartered in Seattle, Washington.
New Sequencing Technology
In 2021, we formed a corporate subsidiary, Spin Technologies, Inc. (“SpinTech”), in order to facilitate the development of a potential new early-stage sequencing technology that is ancillary to our core business. We have a 70% ownership interest in SpinTech. All intercompany transactions and balances between us and this majority-owned subsidiary have been eliminated in consolidation. The remaining interest, held by certain of our related parties and related family trusts, was reported as noncontrolling interest in our unaudited condensed consolidated financial statements.
2.
|
Significant Accounting Policies
|
Basis of Presentation and Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience and other relevant assumptions that we believe to be reasonable under the circumstances. Estimates are used in several areas including, but not limited to, estimates of progress to date for certain performance obligations and the transaction price for certain contracts with customers, share-based compensation, the provision for income taxes, including related reserves, and goodwill, among others. These estimates generally involve complex issues and require judgments, involve the analysis of historical results and prediction of future trends, can require extended periods of time to resolve and are subject to change from period to period. Actual results may differ materially from management’s estimates.
Unaudited Interim Condensed Consolidated Financial Statements
In our opinion, the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information. These unaudited condensed consolidated financial statements include all adjustments necessary to fairly state the financial position and the results of our operations and cash flows for interim periods in accordance with GAAP. All such adjustments are of a normal, recurring nature. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 24, 2021.
Restricted Cash
We are required to maintain certain balances under lease arrangements for some of our property and facility leases. We had restricted cash of $2.1 million as of March 31, 2021 and December 31, 2020.
9
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
Leases
We determine if an arrangement contains a lease at inception. We have operating lease agreements for the laboratory and office facilities that we occupy, as well as server space. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized at the date the underlying asset becomes available for our use and are based on the present value of the future minimum lease payments over the lease term. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. As our leases generally do not provide an implicit interest rate, the present value of our future minimum lease payments is determined using our incremental borrowing rate. This rate is an estimate of the collateralized borrowing rate we would incur on our future lease payments over a similar term and is based on the information available to us at the lease commencement date, or as of January 1, 2020 for commenced leases that existed as of our adoption of the new lease standard.
Certain of our leases contain options to extend or terminate the lease; lease terms are adjusted for these options only when it is reasonably certain we will exercise these options. Our lease agreements do not contain residual value guarantees or covenants.
We have made a policy election regarding our real estate leases not to separate nonlease components from lease components, to the extent they are fixed. Nonlease components that are not fixed are expensed as incurred as variable lease expense. Our leases for laboratory and office facilities typically include variable nonlease components, such as common-area maintenance costs. We have also elected not to record on the balance sheet a lease that has a lease term of twelve months or less and does not contain a purchase option that we are reasonably certain to exercise.
Lease expense is recognized on a straight-line basis over the terms of the leases. Incentives granted under our facilities leases, including rent holidays, are recognized as adjustments to lease expense on a straight-line basis over the terms of the leases.
Concentrations of Risk
We are subject to a concentration of risk from a limited number of suppliers, or in some cases single suppliers, for some of our laboratory instruments and materials. This risk is managed by targeting a quantity of surplus stock.
Cash, cash equivalents and marketable securities are financial instruments that potentially subject us to concentrations of credit risk. We invest in money market funds, United States (“U.S.”) government debt securities, U.S. government agency securities, commercial paper and corporate bonds with high-quality accredited financial institutions.
Significant customers are those that represent more than 10% of our total revenue or accounts receivable, net balances for the periods and as of each balance sheet date presented, respectively. Revenue from these customers reflects their purchase of our products and services and our collaboration efforts with Genentech.
For each significant customer, revenue as a percentage of total revenue for the periods presented and accounts receivable, net as a percentage of total accounts receivable, net as of the dates presented were as follows:
|
|
Revenue
|
|
Accounts Receivable, Net
|
|
|
|
Three Months Ended March 31,
|
|
March 31,
|
|
December 31,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Customer A
|
|
*%
|
|
*%
|
|
*%
|
|
|
19.1
|
%
|
Customer B
|
|
10.4
|
|
*
|
|
17.8
|
|
12.2
|
|
Customer D
|
|
10.0
|
|
*
|
|
19.4
|
|
*
|
|
Customer E
|
|
*
|
|
*
|
|
17.8
|
|
*
|
|
Genentech, Inc. and Roche Group
|
|
42.1
|
|
54.4
|
|
*
|
|
*
|
|
* less than 10%
|
|
|
|
|
|
|
|
|
|
|
10
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”), Revenue from Contracts with Customers. Under ASC 606, for all revenue-generating contracts, we perform the following steps to determine the amount of revenue to be recognized: (1) identify the contract or contracts; (2) determine whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (3) measure the transaction price, including the constraint on variable consideration; (4) allocate the transaction price to the performance obligations based on estimated selling prices; and (5) recognize revenue when (or as) we satisfy each performance obligation. The following is a summary of the application of the respective model to each of our revenue classifications.
Overview
Our revenue is generated from immunosequencing (“sequencing”) products and services (“sequencing revenue”) and from regulatory or development support services leveraging our immune medicine platform (“development revenue”). When revenue generating contracts have elements of both sequencing revenue and development revenue, we classify revenue based on the nature of the performance obligation and the allocated transaction price.
Sequencing Revenue
Sequencing revenue reflects the amounts generated from providing sequencing services and testing through our clonoSEQ and immunoSEQ products and services to our clinical and research customers, respectively.
For clinical customers, we derive revenues from providing our clonoSEQ report to ordering physicians, and we bill and receive payments from medical institutions and commercial and government third-party payors. In these transactions, we have identified one performance obligation: the delivery of a clonoSEQ report. As payment from the respective payors may vary based on the various reimbursement rates and patient responsibilities, we consider the transaction price to be variable and record an estimate of the transaction price, subject to the constraint for variable consideration, as revenue at the time of delivery. The estimate of transaction price is based on historical and expected reimbursement rates with the various payors, which are monitored in subsequent periods and adjusted as necessary based on actual collection experience.
For our clonoSEQ coverage under Medicare, we bill an episode of treatment when we deliver the first eligible test results. This billing contemplates all necessary tests required during a patient’s treatment cycle, which is currently estimated at approximately four tests per patient, including the initial sequence identification test. Revenue recognition commences at the time the initial billable test result is delivered and is based upon cumulative tests delivered to date. We estimate the number of tests we expect to deliver over a patient’s treatment cycle based on historical testing frequencies for patients by indication. These estimates are subject to change as we develop more information about utilization over time. Any unrecognized revenue from the initial billable test is recorded as deferred revenue and is recognized as we deliver the remaining tests in a patient’s treatment cycle or when it becomes remote that a patient will receive additional testing and we have not delivered our estimate of total tests.
For research customers, contracts typically include an amount billed in advance of services (“upfront”) and subsequent billings as sample results are delivered to the customer. Upfront amounts received are recorded as deferred revenue, which we recognize as revenue upon satisfaction of performance obligations. We have identified two typical performance obligations under the terms of our research service contracts: sequencing services and related data analysis. We recognize revenue for both identified performance obligations as sample results are delivered to the customer.
Development Revenue
We derive revenue by providing services through development agreements to biopharmaceutical customers who seek access to our immune medicine platform technologies. We generate revenues from the delivery of professional support activities pertaining to the use of immunoSEQ and our minimal residual disease (“MRD”) product in the development of the respective customers’ initiatives. The transaction price for these contracts may consist of a combination of non-refundable upfront fees, separately priced sequencing fees, progress-based milestones and regulatory milestones. The development agreements may include single or multiple performance obligations, depending on the contract. For certain contracts, we may perform services to support the biopharmaceutical customers’ regulatory submissions as part of their registrational trials. These services include regulatory support pertaining to our technology intended to be utilized as part of the submission, development of analytical plans for our sequencing data, participation on joint research committees and assistance in completing a regulatory submission. Generally, these services are not distinct within the context of the contract and they are accounted for as a single performance obligation.
11
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
When sequencing services are separately priced customer options, we assess if a material right exists and, if not, the customer option to purchase additional sequencing services is not considered part of the contract. Except for any non-refundable upfront fees, the other forms of compensation represent variable consideration. Variable consideration related to progress-based and regulatory milestones is estimated using the most likely amount method, where variable consideration is constrained until it is probable that a significant reversal of cumulative revenue recognized will not occur. Progress milestones, such as the first sample result delivered or final patient enrollment in a customer trial, are customer dependent and are included in the transaction price when the respective milestone is probable of occurring. Milestone payments that are not within our customers’ control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. Determining whether regulatory milestone payments are probable is an area that requires significant judgment. In making this assessment, we evaluate scientific, clinical, regulatory and other risks, as well as the level of effort and investment required to achieve the respective milestone.
The primary method used to estimate standalone selling price for performance obligations is the adjusted market assessment approach. Using this approach, we evaluate the market in which we sell our services and estimate the price that a customer in that market would be willing to pay for our services. We recognize revenue using either an input or output measure of progress that faithfully depicts performance on a contract, depending on the contract. The measure used is dependent on the nature of the service to be provided in each contract. Selecting the measure of progress and estimating progress to date requires significant judgment.
Net Loss Per Share Attributable to Common Shareholders
We calculate basic net loss per share attributable to common shareholders by dividing the net loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common shareholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, common stock warrants, stock options and nonvested restricted stock units are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common shareholders, as their effect is anti-dilutive.
MRD Development Agreements
We have entered into agreements with biopharmaceutical customers to further develop and commercialize our MRD product and the biopharmaceutical customers’ therapeutics. Under each of the agreements, we received or will receive non-refundable upfront payments and could receive substantial additional payments upon reaching certain progress milestones or achieving certain regulatory milestones pertaining to the customers’ therapeutics and our MRD product.
Under the contracts, we identify performance obligations, which may include: (1) obligations to provide services supporting the customer’s regulatory submission activities as they relate to our MRD product; and (2) sequencing services related to customer-provided samples for their regulatory submissions. The transaction price allocated to the respective performance obligations is estimated using an adjusted market assessment approach for the regulatory support services and a standalone selling price for the estimated immunosequencing services. At contract inception, we fully constrain any consideration related to the regulatory milestones, as the achievement of such milestones is subject to third-party regulatory approval and the customers’ own submission decision-making. We recognize revenue relating to the sequencing services as sequencing revenue over time using an output method based on the proportion of sample results delivered relative to the total amount of sample results expected to be delivered and when expected to be a faithful depiction of progress. We use the same method to recognize the regulatory support services. When an output method based on the proportion of sample results delivered is not expected to be a faithful depiction of progress, we utilize an input method based on estimates of effort completed using a cost-based model.
We earned $7.0 million during the three months ended March 31, 2021 upon the achievement of certain regulatory milestones by our respective customers’ therapeutics, all of which was recognized as revenue within the respective period, as we determined the amounts were consistent with our estimated standalone selling prices and the respective performance obligations were complete.
We recognized $7.2 million and $0.4 million in development revenue related to these contracts, inclusive of the aforementioned milestones, during the three months ended March 31, 2021 and 2020, respectively.
As of March 31, 2021, in future periods we could receive up to an additional $306.5 million in milestone payments if certain regulatory approvals are obtained by our customers’ therapeutics in connection with MRD data generated from our MRD product.
12
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
Genentech Collaboration Agreement
In December 2018, we entered into a worldwide collaboration and license agreement with Genentech (“Genentech Agreement”) to leverage our capability to develop cellular therapies in oncology. Subsequent to receipt of regulatory approval in January 2019, we received a non-refundable, upfront payment of $300.0 million in February 2019 and may be eligible to receive more than $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 $1,430.0 million upon the achievement of specified commercial milestones. In addition, we are separately able to receive tiered royalties at a rate ranging from the mid-single digits to the mid-teens on aggregate worldwide net sales of products arising from the strategic collaboration, subject to certain reductions, with aggregate minimum floors. Under the agreement, we are pursuing two product development pathways for novel T cell immunotherapies in which Genentech intends to use T cell receptors (“TCRs”) screened by our immune medicine platform to engineer and manufacture cellular medicines:
|
•
|
Shared Products. The shared products will use “off-the-shelf” TCRs identified against cancer antigens shared among patients (“Shared Products”).
|
|
•
|
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”).
|
Under the terms of the agreement, we granted Genentech exclusive worldwide licenses to develop and commercialize TCR-based cellular therapies in the field of oncology, including licenses to existing shared antigen data packages. Additionally, Genentech has the right to determine which product candidates to further develop for commercialization purposes. We determined that this arrangement meets the criteria set forth in ASC Topic 808, Collaborative Arrangements (“ASC 808”), because both parties are active participants in the activity and are exposed to significant risks and rewards depending on the activity’s commercial failure or success. Because ASC 808 does not provide guidance on how to account for the activities under a collaborative arrangement, we applied the guidance in ASC 606 to account for the activities related to the Genentech Agreement.
In applying ASC 606, we identified the following performance obligations at the inception of the agreement:
|
1.
|
License to utilize on an exclusive basis all TCR-specific platform intellectual property to develop and commercialize any licensed products in the field of oncology.
|
|
2.
|
License to utilize all data and information within each shared antigen data package and any other know-how disclosed by us to Genentech in oncology.
|
|
3.
|
License to utilize all private antigen TCR product data in connection with research and development activities in the field of use.
|
|
4.
|
License to existing shared antigen data packages.
|
|
5.
|
Research and development services for shared product development, including expansion of shared antigen data packages.
|
|
6.
|
Research and development services for private product development.
|
|
7.
|
Obligations to participate on various joint research, development and project committees.
|
We determined that none of the licenses, research and development services or obligations to participate on various committees were distinct within the context of the contract, given such rights and activities were highly interrelated and there was substantial additional research and development to further develop the licenses. We considered factors such as the stage of development of the respective existing antigen data packages, the subsequent development that would be required to both identify and submit a potential target for investigational new drug acceptance under both product pathways and the variability in research and development pathways given Genentech’s control of product commercialization. Specifically, under the agreement, Genentech is not required to pursue development or commercialization activities pertaining to both product pathways and may choose to proceed with one or the other, as opposed to both. Accordingly, we determined that all of the identified performance obligations were attributable to one general performance obligation, which is to further the development of our TCR-specific platform, including data packages, and continue to make our TCR identification process available to Genentech to pursue either product pathway.
Separately, we have a responsibility to Genentech to enter into a supply and manufacturing agreement for patient-specific TCRs as it pertains to any Personalized Product therapeutic. We determined this was an option right of Genentech should they pursue commercialization of a Personalized Product therapy. Because of the uncertainty resulting from the early stage of development, the novel approach of our collaboration with Genentech and our rights to future commercial milestones and royalty payments, we determined that this option right was not a material right that should be accounted for at inception. As such, we will account for the supply and manufacturing agreement when entered into between the parties.
13
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
We determined the initial transaction price shall be made up of only the $300.0 million upfront, non-refundable payment, as all potential regulatory and development milestone payments were probable of significant revenue reversal given their achievement was highly dependent on factors outside our control. As a result, these payments were fully constrained and were not included in the transaction price as of March 31, 2021. We excluded the commercial milestones and potential royalties from the transaction price, as those items relate predominantly to the license rights granted to Genentech and will be assessed when and if such events occur.
As there are potential substantive developments necessary, which Genentech may be able to direct, we determined that we would apply a proportional performance model to recognize revenue for our performance obligation. We measure proportional performance using an input method based on costs incurred relative to the total estimated costs of research and development efforts to pursue both the Shared Product and Personalized Product pathways. When any of the potential regulatory and development milestones are no longer fully constrained and included in the transaction price, such amounts will be recognized using the cumulative catch-up method based on proportional performance at such time. We currently expect to recognize the revenue over a period of approximately seven to eight years from the effective date. This estimate of the research and development period considers pursuit options of development activities supporting both the Shared Product and the Personalized Product, but may be reduced or increased based on the various activities as directed by the joint committees, decisions made by Genentech, regulatory feedback or other factors not currently known.
We recognized revenue of $15.6 million and $10.9 million during the three months ended March 31, 2021 and 2020, respectively, related to the Genentech Agreement. Costs related to the Genentech Agreement are included in research and development expenses.
4.
|
Fair Value Measurements
|
The following tables set forth the fair value of financial assets as of March 31, 2021 and December 31, 2020 that were measured at fair value on a recurring basis (in thousands):
|
|
March 31, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
151,330
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
151,330
|
|
U.S. government debt securities
|
|
|
—
|
|
|
|
559,788
|
|
|
|
—
|
|
|
|
559,788
|
|
Corporate bonds
|
|
|
—
|
|
|
|
11,540
|
|
|
|
—
|
|
|
|
11,540
|
|
Total financial assets
|
|
$
|
151,330
|
|
|
$
|
571,328
|
|
|
$
|
—
|
|
|
$
|
722,658
|
|
|
|
December 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
103,283
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103,283
|
|
U.S. government debt securities
|
|
|
—
|
|
|
|
671,777
|
|
|
|
—
|
|
|
|
671,777
|
|
Corporate bonds
|
|
|
—
|
|
|
|
11,581
|
|
|
|
—
|
|
|
|
11,581
|
|
Total financial assets
|
|
$
|
103,283
|
|
|
$
|
683,358
|
|
|
$
|
—
|
|
|
$
|
786,641
|
|
Level 1 securities include highly liquid money market funds, for which we measure the fair value based on quoted prices in active markets for identical assets or liabilities. Level 2 securities consist of U.S. government debt securities and corporate bonds, and are valued based on recent trades of securities in inactive markets or on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.
14
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
Available-for-sale investments consisted of the following as of March 31, 2021 and December 31, 2020 (in thousands):
|
|
March 31, 2021
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gain
|
|
|
Unrealized
Loss
|
|
|
Estimated
Fair Value
|
|
Short-term marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government debt securities
|
|
$
|
528,522
|
|
|
$
|
578
|
|
|
$
|
—
|
|
|
$
|
529,100
|
|
Corporate bonds
|
|
|
11,494
|
|
|
|
46
|
|
|
|
—
|
|
|
|
11,540
|
|
Total short-term marketable securities
|
|
$
|
540,016
|
|
|
$
|
624
|
|
|
$
|
—
|
|
|
$
|
540,640
|
|
Long-term marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government debt securities
|
|
$
|
30,681
|
|
|
$
|
10
|
|
|
$
|
(3
|
)
|
|
$
|
30,688
|
|
Total long-term marketable securities
|
|
$
|
30,681
|
|
|
$
|
10
|
|
|
$
|
(3
|
)
|
|
$
|
30,688
|
|
|
|
December 31, 2020
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gain
|
|
|
Unrealized
Loss
|
|
|
Estimated
Fair Value
|
|
Short-term marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government debt securities
|
|
$
|
552,539
|
|
|
$
|
723
|
|
|
$
|
(10
|
)
|
|
$
|
553,252
|
|
Corporate bonds
|
|
|
11,497
|
|
|
|
86
|
|
|
|
(2
|
)
|
|
|
11,581
|
|
Total short-term marketable securities
|
|
$
|
564,036
|
|
|
$
|
809
|
|
|
$
|
(12
|
)
|
|
$
|
564,833
|
|
Long-term marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government debt securities
|
|
$
|
118,429
|
|
|
$
|
98
|
|
|
$
|
(2
|
)
|
|
$
|
118,525
|
|
Total long-term marketable securities
|
|
$
|
118,429
|
|
|
$
|
98
|
|
|
$
|
(2
|
)
|
|
$
|
118,525
|
|
All the U.S. government debt securities and corporate bonds designated as short-term marketable securities have an effective maturity date that is equal to or less than one year from the respective balance sheet date. Those that are designated as long-term marketable securities have an effective maturity date that is more than one year from the respective balance sheet date.
Accrued interest receivables are excluded from the amortized cost and estimated fair value of our marketable securities. Accrued interest receivables of $2.8 million and $2.5 million were presented separately within the prepaid expenses and other current assets line item on our unaudited condensed consolidated balance sheet as of March 31, 2021 and on our condensed consolidated balance sheet as of December 31, 2020, respectively.
The following table presents the gross unrealized holding losses and fair value for investments in an unrealized loss position, and the length of time that individual securities have been in a continuous loss position, as of March 31, 2021 (in thousands):
|
|
Less Than 12 Months
|
|
|
12 Months Or Greater
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
U.S. government debt securities
|
|
$
|
10,240
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate bonds
|
|
|
1,503
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total available-for-sale securities
|
|
$
|
11,743
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
We periodically review our available-for-sale securities to assess for credit impairment. Some of the factors considered in assessing impairment include the extent to which the fair value is less than the amortized cost basis, adverse conditions related to the security, an industry or geographic area, changes to security ratings or sector credit ratings and other relevant market data.
As of March 31, 2021, we did not intend, nor were we more likely than not to be required, to sell our available-for-sale investments before the recovery of their amortized cost basis, which may be maturity. Based on our assessment, we concluded all impairment as of March 31, 2021 to be due to factors other than credit loss, such as changes in interest rates. A credit allowance was not recognized and the impairment of our available-for-sale securities was recorded in other comprehensive loss.
15
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
6.
|
Goodwill and Intangible Assets
|
There have been no changes in the carrying amount of goodwill since its recognition in 2015.
Intangible assets subject to amortization as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):
|
|
March 31, 2021
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Acquired developed technology
|
|
$
|
20,000
|
|
|
$
|
(10,382
|
)
|
|
$
|
9,618
|
|
Purchased intellectual property
|
|
|
325
|
|
|
|
(137
|
)
|
|
|
188
|
|
Balance at March 31, 2021
|
|
$
|
20,325
|
|
|
$
|
(10,519
|
)
|
|
$
|
9,806
|
|
|
|
December 31, 2020
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Acquired developed technology
|
|
$
|
20,000
|
|
|
$
|
(9,972
|
)
|
|
$
|
10,028
|
|
Purchased intellectual property
|
|
|
325
|
|
|
|
(128
|
)
|
|
|
197
|
|
Balance at December 31, 2020
|
|
$
|
20,325
|
|
|
$
|
(10,100
|
)
|
|
$
|
10,225
|
|
The developed technology was acquired in connection with our acquisition of Sequenta, Inc. in 2015. The remaining balance of the acquired technology and the purchased intellectual property is expected to be amortized over the next 5.8 years.
As of March 31, 2021, expected future amortization expense for intangible assets was as follows (in thousands):
2021 (excluding the three months ended March 31, 2021)
|
|
$
|
1,280
|
|
2022
|
|
|
1,699
|
|
2023
|
|
|
1,699
|
|
2024
|
|
|
1,703
|
|
2025
|
|
|
1,699
|
|
Thereafter
|
|
|
1,726
|
|
Total future amortization expense
|
|
$
|
9,806
|
|
Deferred revenue by revenue classification as of March 31, 2021 and December 31, 2020 was as follows (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Current deferred revenue
|
|
|
|
|
|
|
|
|
Sequencing
|
|
$
|
17,191
|
|
|
$
|
15,463
|
|
Development
|
|
|
61,157
|
|
|
|
57,856
|
|
Total current deferred revenue
|
|
|
78,348
|
|
|
|
73,319
|
|
Non-current deferred revenue
|
|
|
|
|
|
|
|
|
Sequencing
|
|
|
662
|
|
|
|
724
|
|
Development
|
|
|
143,694
|
|
|
|
162,894
|
|
Total non-current deferred revenue
|
|
|
144,356
|
|
|
|
163,618
|
|
Total current and non-current deferred revenue
|
|
$
|
222,704
|
|
|
$
|
236,937
|
|
Deferred revenue from our Genentech Agreement represents $58.6 million and $137.9 million of the current and non-current development deferred revenue balances, respectively, as of March 31, 2021 and $55.1 million and $157.0 million of the current and non-current development deferred revenue balances, respectively, as of December 31, 2020. In general, we expect that the current amounts will be recognized as revenue within 12 months and the non-current amounts will be recognized as revenue over a period of approximately five to six years from March 31, 2021. This period of time represents an estimate of the research and development period to develop cellular therapies in oncology, which may be reduced or increased based on the various development activities.
16
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
Changes in deferred revenue during the three months ended March 31, 2021 were as follows (in thousands):
Deferred revenue balance at December 31, 2020
|
|
$
|
236,937
|
|
Additions to deferred revenue during the period
|
|
|
7,118
|
|
Revenue recognized during the period
|
|
|
(21,351
|
)
|
Deferred revenue balance at March 31, 2021
|
|
$
|
222,704
|
|
As of March 31, 2021, $19.0 million was recognized as revenue that was included in the deferred revenue balance at December 31, 2020. This is inclusive of $0.2 million of sequencing revenue recognized as a result of cancelled biopharmaceutical and research customer sequencing contracts, $0.2 million of sequencing revenue related to Medicare that was recognized due to our determination that additional testing for specific patients was remote and $0.4 million related to a change in anticipated samples to be received in connection with an MRD agreement.
We have operating lease agreements for laboratory and office facilities in Seattle, Washington, South San Francisco, California and New York City, New York, as well as server space. We previously entered into a $2.1 million letter of credit with one of our financial institutions in connection with one of our leases. As of March 31, 2021, we were not party to any finance leases. Our leases have remaining terms of 1.1 years to 12.4 years and include options to extend certain of the leases up to 10.0 years and terminate certain of the leases after 3.0 years. We adjust lease terms for these options only when it is reasonably certain we will exercise these options. As of March 31, 2021, it was reasonably certain that we would exercise our option to terminate two of our leases after 3.0 years.
Other information related to our operating leases as of March 31, 2021 was as follows:
Weighted-average remaining lease term (in years)
|
|
|
11.07
|
|
Weighted-average discount rate
|
|
|
4.6
|
%
|
The following table reconciles our undiscounted operating lease cash flows to our operating lease liabilities as of March 31, 2021 (in thousands):
2021 (excluding the three months ended March 31, 2021)
|
|
$
|
6,120
|
|
2022
|
|
|
13,554
|
|
2023
|
|
|
13,318
|
|
2024
|
|
|
13,030
|
|
2025
|
|
|
13,419
|
|
Thereafter
|
|
|
89,236
|
|
Total undiscounted lease payments
|
|
|
148,677
|
|
Less:
|
|
|
|
|
Imputed interest rate
|
|
|
(34,873
|
)
|
Tenant improvement receivables
|
|
|
(14,244
|
)
|
Total operating lease liabilities
|
|
$
|
99,560
|
|
Less: current portion
|
|
|
(4,308
|
)
|
Operating lease liabilities, less current portion
|
|
$
|
95,252
|
|
Operating lease expense was $3.1 million and $1.1 million for the three months ended March 31, 2021 and 2020, respectively. Variable lease expense for operating leases was $0.7 million and $0.5 million for the three months ended March 31, 2021 and 2020, respectively.
Cash paid for amounts included in the measurement of lease liabilities was $0.5 million, net of $1.2 million of cash received for tenant improvement allowances during the three months ended March 31, 2021. Cash paid for amounts included in the measurement of lease liabilities was $0.8 million, net of $0.3 million of cash received for tenant improvement allowances during the three months ended March 31, 2020.
17
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
Lease Not Yet Commenced
In March 2021, we entered into a lease to rent approximately 27,000 square feet of a warehouse in Bothell, Washington. Rent obligations commence six months after lease commencement and the lease expires 120 months thereafter, subject to an early termination option after the seventh year and an option to twice extend the lease for five years. This lease will be assessed for classification and a lease liability and corresponding ROU asset will be recorded upon lease commencement. Future non-cancellable undiscounted lease payments, exclusive of operating and maintenance costs, total $7.0 million. Furthermore, in connection with this lease, the landlord agreed to fund $1.2 million in improvements.
9.
|
Commitments and Contingencies
|
Legal Proceedings
We are subject to claims and assessments from time to time in the ordinary course of business. We will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. We are not party to any material legal proceedings as of March 31, 2021.
Indemnification Agreements
In the ordinary course of business, we may provide indemnification of varying scope and terms to vendors, lessors, customers and other parties with respect to certain matters including, but not limited to, losses arising out of breach of our agreements with them or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with members of our board of directors and certain of our executive officers that will require us to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments that we could be required to make under these indemnification agreements is, in many cases, unlimited. We have not incurred any material costs as a result of such indemnifications and are not currently aware of any indemnification claims.
Preferred Stock
We are authorized to issue 10,000,000 shares of preferred stock, par value $0.0001 per share. As of March 31, 2021, no shares of preferred stock were outstanding.
Common Stock
We are authorized to issue 340,000,000 shares of common stock. Our common stock has a par value of $0.0001 per share, no preferences or privileges and is not redeemable. Holders of our common stock are entitled to one vote for each share of common stock held. The holders of record of outstanding shares of common stock shall be entitled to receive, when, as and if declared, out of funds legally available, such cash and other dividends as may be declared from time to time. As of March 31, 2021, we had 139,884,698 shares of common stock outstanding.
As of March 31, 2021, we have reserved shares of common stock for the following:
Shares issuable upon the exercise of outstanding common stock options and
the vesting of outstanding common restricted stock units granted
|
|
|
14,198,533
|
|
Shares available for future grant under the 2019 Equity Incentive Plan
|
|
|
23,600,732
|
|
Shares available for future grant under the Employee Stock Purchase Plan
|
|
|
2,804,298
|
|
Total shares of common stock reserved for future issuance
|
|
|
40,603,563
|
|
Our 2019 Equity Incentive Plan (“2019 Plan”) provides for annual increases in the number of shares that may be issued under the 2019 Plan on January 1, 2020 and on each subsequent January 1, thereafter, by a number of shares equal to the lesser of (a) 5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our board of directors.
18
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
Furthermore, our Employee Stock Purchase Plan (“ESPP”) provides for annual increases in the number of shares available for issuance under our ESPP on January 1, 2020 and on each January 1, thereafter, by a number of shares equal to the smallest of (a) 1% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our board of directors.
Effective January 1, 2021, our 2019 Plan reserve increased by 6,882,344 shares. Our board of directors determined not to increase the ESPP reserve in 2021.
Common Stock Warrant
In 2014, we issued a warrant to purchase 56,875 shares of Series C convertible preferred stock at an exercise price of $2.64. The warrant was exercisable for a period of seven years from the date of issuance. Immediately prior to and in connection with the completion of our initial public offering on July 1, 2019, this convertible preferred stock warrant was converted to a warrant to purchase the same number of shares of common stock. The warrant was exercised on February 25, 2021 through a cashless exercise, resulting in the issuance of 54,162 shares of our common stock. The impact of this cashless exercise was immaterial to our unaudited condensed consolidated financial statements. As of March 31, 2021, there were no outstanding warrants to purchase common stock.
11.
|
Equity Incentive Plans
|
Adaptive 2009 Equity Incentive Plan
We adopted an equity incentive plan in 2009 (“2009 Plan”) that provided for the issuance of incentive and nonqualified common stock options and other share-based awards for employees, directors and consultants. Under the 2009 Plan, the option exercise price for incentive and nonqualified stock options were not to be less than the fair market value of our common stock at the date of grant. Options granted under this plan expire no later than ten years from the grant date and vesting was established at the time of grant. Pursuant to the terms of the 2019 Plan, any shares subject to outstanding options originally granted under the 2009 Plan that terminate, expire or lapse for any reason without the delivery of shares to the holder thereof shall become available for issuance pursuant to awards granted under the 2019 Plan. While no shares are available for future issuance under the 2009 Plan, it continues to govern outstanding equity awards granted thereunder.
2019 Equity Incentive Plan
The 2019 Plan became effective immediately prior to the closing of our initial public offering in July 2019. The 2019 Plan provides for the issuance of awards in the form of options and other share-based awards for employees, directors and consultants. Under the 2019 Plan, the option exercise price per share shall not be less than the fair market value of a share of stock on the grant date of the option, as defined by the 2019 Plan, unless explicitly qualified under the provisions of Section 409A or Section 424(a) of the Internal Revenue Code of 1986. Additionally, unless otherwise specified, options granted under this plan expire no later than ten years from the grant date and vesting is established at the time of grant. Except for certain option and restricted stock unit grants made to non-employee directors, stock options and restricted stock units granted under the 2019 Plan generally vest over a four-year period, subject to continuous service through each applicable vesting date. As of March 31, 2021, we have authorized 29,148,701 shares of common stock for issuance under the 2019 Plan.
Changes in shares available for grant during the three months ended March 31, 2021 were as follows:
|
|
Shares Available for Grant
|
|
Shares available for grant at December 31, 2020
|
|
|
18,617,001
|
|
2019 Plan reserve increase on January 1, 2021
|
|
|
6,882,344
|
|
Options and restricted stock units granted
|
|
|
(2,240,923
|
)
|
Options and restricted stock units forfeited, cancelled or expired
|
|
|
342,310
|
|
Shares available for grant at March 31, 2021
|
|
|
23,600,732
|
|
19
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
Stock option activity under the 2009 Plan and 2019 Plan during the three months ended March 31, 2021 was as follows:
|
|
Shares Subject to
Outstanding Options
|
|
|
Weighted-Average Exercise
Price per Share
|
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
Options outstanding at December 31, 2020
|
|
|
14,433,560
|
|
|
$
|
12.82
|
|
|
$
|
668,458
|
|
Options granted
|
|
|
1,635,608
|
|
|
|
45.33
|
|
|
|
|
|
Options forfeited or cancelled
|
|
|
(328,594
|
)
|
|
|
15.47
|
|
|
|
|
|
Options expired
|
|
|
(10,050
|
)
|
|
|
0.19
|
|
|
|
|
|
Options exercised
|
|
|
(2,183,640
|
)
|
|
|
6.61
|
|
|
|
|
|
Options outstanding at March 31, 2021
|
|
|
13,546,884
|
|
|
$
|
17.69
|
|
|
$
|
319,063
|
|
Options vested and exercisable at March 31, 2021
|
|
|
6,853,224
|
|
|
$
|
8.56
|
|
|
$
|
217,592
|
|
The weighted-average remaining contractual life for options outstanding as of March 31, 2021 was 7.2 years. The weighted-average remaining contractual life for vested and exercisable options outstanding as of March 31, 2021 was 5.7 years.
As of March 31, 2021, $0.5 million was included in the prepaid expenses and other current assets line item on our unaudited condensed consolidated balance sheet for unsettled cash proceeds related to options exercised during the three months ended March 31, 2021. Of the $14.2 million proceeds from exercise of stock options included on our unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2021, $0.3 million related to options exercised prior to but settled during the three months ended March 31, 2021. Of the $5.0 million proceeds from exercise of stock options included on our unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2020, $0.5 million related to options exercised prior to but settled during the three months ended March 31, 2020.
Restricted stock unit activity under the 2019 Plan during the three months ended March 31, 2021 was as follows:
|
|
Restricted Stock
Units Outstanding
|
|
|
Weighted-Average
Grant Date Fair Value per Share
|
|
Nonvested outstanding restricted stock units at December 31, 2020
|
|
|
50,000
|
|
|
$
|
28.10
|
|
Restricted stock units granted
|
|
|
605,315
|
|
|
|
44.10
|
|
Restricted stock units forfeited or cancelled
|
|
|
(3,666
|
)
|
|
|
62.40
|
|
Nonvested outstanding restricted stock units at March 31, 2021
|
|
|
651,649
|
|
|
$
|
42.77
|
|
Grant Date Fair Value of Options and Restricted Stock Units Granted
The estimated grant date fair value of options granted during the three months ended March 31, 2021 and 2020 was estimated using the Black-Scholes option-pricing model with the following assumptions:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Fair value of common stock
|
|
$43.68 - $66.50
|
|
|
$17.68 - $31.71
|
|
Expected term (in years)
|
|
5.27 - 6.08
|
|
|
5.27 - 6.08
|
|
Risk-free interest rate
|
|
0.5% - 1.1%
|
|
|
0.7% - 1.7%
|
|
Expected volatility
|
|
67.1% - 68.4%
|
|
|
70.5% - 72.1%
|
|
Expected dividend yield
|
|
|
—
|
|
|
|
—
|
|
The weighted-average volatility used in the grant date fair value calculations of options granted during the three months ended March 31, 2021 and 2020 was 68.2% and 70.7%, respectively.
20
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
The determination of the grant date fair value of stock options using a Black-Scholes option-pricing model is affected by the fair value of our common stock, as well as assumptions regarding a number of variables that are complex, subjective and generally require significant judgment to determine. The valuation assumptions were determined as follows:
Fair value of common stock—The fair value of each share of common stock is based on the closing price of our common stock on the date of grant, or other relevant determination date, as reported on The Nasdaq Global Select Market.
Expected term—The expected term of options granted to employees and non-employee directors is determined using the “simplified” method, as illustrated in ASC Topic 718, Compensation—Stock Compensation, as we do not have sufficient exercise history to determine a better estimate of expected term. Under this approach, the expected term is based on the midpoint between the vesting date and the end of the contractual term of the option.
Risk-free interest rate—We utilize a risk-free interest rate in the option valuation model based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected terms of the options.
Expected volatility—As we do not have sufficient trading history for our common stock, the expected volatility is based on the historical volatility of our publicly traded industry peers utilizing a period of time consistent with our estimate of the expected term.
Expected dividend yield—We do not anticipate paying any cash dividends in the foreseeable future and, therefore, use an expected dividend yield of zero in the option valuation model.
The grant date fair value of restricted stock units granted is based on the closing price of our common stock on the date of grant, or other relevant determination date, as reported on The Nasdaq Global Select Market.
Share-based compensation expense of $8.5 million and $4.7 million was recognized during the three months ended March 31, 2021 and 2020, respectively.
The compensation costs related to stock options and restricted stock units for the three months ended March 31, 2021 and 2020 are included on our statements of operations as follows (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cost of revenue
|
|
$
|
328
|
|
|
$
|
172
|
|
Research and development
|
|
|
2,883
|
|
|
|
1,544
|
|
Sales and marketing
|
|
|
2,495
|
|
|
|
1,157
|
|
General and administrative
|
|
|
2,778
|
|
|
|
1,802
|
|
Total share-based compensation expense
|
|
$
|
8,484
|
|
|
$
|
4,675
|
|
As of March 31, 2021, unrecognized share-based compensation expense related to unvested stock options was $109.1 million, which is expected to be recognized over a remaining weighted-average period of 3.2 years. Additionally, as of March 31, 2021, unrecognized share-based compensation expense related to unvested restricted stock units was $27.0 million, which is expected to be recognized over a remaining weighted-average period of 3.8 years.
21
Adaptive Biotechnologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(unaudited)
12.
|
Net Loss Per Share Attributable to Common Shareholders
|
The following table sets forth the computation of the basic and diluted net loss per share attributable to common shareholders for the three months ended March 31, 2021 and 2020 (in thousands, except share and per share amounts):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net loss
|
|
$
|
(40,642
|
)
|
|
$
|
(31,403
|
)
|
Weighted-average shares used in computing net loss per share
|
|
|
138,967,754
|
|
|
|
126,058,389
|
|
Net loss per share attributable to common shareholders, basic and
diluted
|
|
$
|
(0.29
|
)
|
|
$
|
(0.25
|
)
|
Since we were in a loss position for all periods presented, basic net loss per share attributable to common shareholders is the same as diluted net loss per share attributable to common shareholders, as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. The following weighted-average common stock equivalents were excluded from the calculation of diluted net loss per share attributable to common shareholders for the three months ended March 31, 2021 and 2020, as they had an anti-dilutive effect:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Stock options issued and outstanding
|
|
|
13,516,949
|
|
|
|
16,823,569
|
|
Nonvested restricted stock units
|
|
|
238,583
|
|
|
|
3,618
|
|
Common stock warrant
|
|
|
34,757
|
|
|
|
56,875
|
|
Total
|
|
|
13,790,289
|
|
|
|
16,884,062
|
|
22
Adaptive Biotechnologies Corporation