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What changed in Adaptive Biotechnologies Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Adaptive Biotechnologies Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+553 added−735 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-14)

Top changes in Adaptive Biotechnologies Corp's 2023 10-K

553 paragraphs added · 735 removed · 457 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

155 edited+54 added−208 removed143 unchanged
Biggest changeIt 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. 5 Our immune medicine platform performs the following key functions related to immune receptors: • 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.
Biggest changeOur immune medicine platform combines proprietary chemistry, computational biology and machine learning to generate clinical immunomics data that we use 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.
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.
Microsoft Agreement In December 2017, we entered into a strategic collaboration agreement with Microsoft (the “Microsoft Agreement”) to map TCR sequences to the antigens they bind with with the goal of developing diagnostic tests for early detection of many diseases from a single blood test.
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”).
In that respect, Congress introduced legislation to establish a framework for the 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”).
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.
For new low risk IVCTs, developers would submit a representative IVCT to the FDA for review and issuance of a technology certification for the specific IVCT reviewed and later developed test within the scope of the certification.
Several states have enacted legislation requiring medical device manufacturers to, among other things, establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales and marketing activities, and such laws may also prohibit or limit certain other sales and marketing practices.
Several states have enacted legislation requiring medical device manufacturers to, among other things, establish marketing compliance programs, file periodic reports with the state, and make periodic public disclosures on sales and marketing activities, and such laws may also prohibit or limit certain other sales and marketing practices.
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.
Vaccines Together with our partner Nykode Therapeutics, 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.
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.
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 an LDT as posing a risk to patients.
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.
We will also be entitled to receive up to $125.0 million in subsequent installments as follows: (i) $75.0 million upon our request occurring no later than September 12, 2025 (the “Second Payment”) and (ii) $50.0 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.
This law substantially changed the way healthcare is financed by both commercial and government payors, and it has significantly impacted our industry. We anticipate there will continue to be proposals by legislators at both the federal and state levels, regulators and commercial payors to reduce costs while trying to expand individual healthcare benefits.
This law substantially changed the way healthcare is financed by both commercial and government payors, and it has significantly impacted our industry. 25 We anticipate there will continue to be proposals by legislators at both the federal and state levels, regulators and commercial payors to reduce costs while trying to expand individual healthcare benefits.
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.
For more information regarding the risks related to our intellectual property, see “Risk Factors—Risks Relating 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.
T cells can destroy target cells directly, and B cells secrete antibodies, activating other parts of the immune system to destroy targets. 13 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.
T cells can destroy target cells directly, and B cells secrete antibodies, activating other parts of the immune system to destroy targets. Each T cell 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.
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 trademark portfolio is designed to protect the brands for our products and services, both current and in the pipeline. 18 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 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. • Our immune medicine platform is uniquely capable of supporting clinical products for us and our collaborators.
Our Competitive Strengths We 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. • Our immune medicine platform is uniquely capable of supporting clinical products for us and our collaborators.
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.
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 with.
These include requirements to develop and implement programs to protect workers from exposure to blood-borne pathogens by preventing or minimizing any exposure through needle stick or similar penetrating injuries. 40 U.S.
These include requirements to develop and implement programs to protect workers from exposure to blood-borne pathogens by preventing or minimizing any exposure through needle stick or similar penetrating injuries. U.S.
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.
Our immune medicine platform applies our proprietary technologies to read the diverse genetic code of a patient’s immune system and understand precisely how the immune system detects and treats disease in that patient.
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. 38 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 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. 23 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 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.
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, 2023, including U.S. Patent Nos. 9,371,558 and 10,214,770.
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.
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 a form of NHL, DLBCL.
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.
Federal, State and Foreign Fraud and Abuse Laws In the U.S., 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.
The requirements under the Directive include: • 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. • Conformity Assessment .
The requirements under the IVDD include: • 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. 20 • Conformity Assessment .
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.
We also may be eligible to receive approximately $1.8 billion over time, including payments of up to $65.0 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.
Extracted DNA quality is assessed, and rearranged immune receptors are amplified using a multiplex PCR. 3. Reaction-specific index barcode sequences for sample identification are added to the amplified receptor sequences by PCR. 4. Sequencing libraries are prepared from barcoded amplified DNA which are then sequenced by synthesis using NGS. 5.
Extracted DNA quality is assessed, and rearranged immune receptors are amplified using a multiplex polymerase chain reaction (“PCR”). 3. Reaction-specific index barcode sequences for sample identification are added to the amplified receptor sequences by PCR. 4. Sequencing libraries are prepared from barcoded amplified DNA which are then sequenced by synthesis using NGS. 5.
It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on social media channels. 42
It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on social media channels. 28
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 provide that all confidential information developed or made known during the course of an individual’s or entities’ relationship with us must be kept confidential during and after the relationship.
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.
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.
The FCPA also requires companies whose securities are listed in the United States to meet its accounting provisions, which were designed to operate in tandem with the anti-bribery provisions, require corporations covered by the provisions to (a) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (b) devise and maintain an adequate system of internal accounting controls. 39 In Europe, various countries have adopted anti-bribery laws providing for severe consequences, in the form of criminal penalties or significant fines, for individuals or companies committing a bribery offence.
The FCPA also requires companies whose securities are listed in the U.S. to meet its accounting provisions, which were designed to operate in tandem with the anti-bribery provisions, and require corporations covered by the provisions to (a) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (b) devise and maintain an adequate system of internal accounting controls. 24 In Europe, various countries have adopted anti-bribery laws providing for severe consequences, in the form of criminal penalties or significant fines, for individuals or companies committing a bribery offence.
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.
In the U.S., 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.
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. 33 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.
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 U.S. and other commercially important markets, including our company name, product and service names and other trade or service marks.
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: 1. gDNA is extracted from bone marrow. 2.
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 we perform in clonoSEQ is as follows: 1. gDNA is extracted from bone marrow. 2.
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: 14 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.
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: 5 The adaptive immune response requires millions of these unique receptors to be widely distributed and present in the blood in order to have the ability to rapidly respond to many different diseases simultaneously.
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. • Vigilance .
However, unlike the U.S., 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. • Vigilance .
With the enactment of certain amendments in 1998, the anti-bribery provisions of the FCPA now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.
With the enactment of certain amendments in 1998, the anti-bribery provisions of the FCPA now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the U.S.
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.
TCR and BCR DNA, ribonucleic acid 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, 2023, including U.S. Patent Nos. 8,628,927 and 8,236,503.
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.
The innate and adaptive immune systems both play a role in human immunity. However, the adaptive immune system alone 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.
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.
Robins with Fred Hutch led to discoveries around immunosequencing methods and tools covered by 128 patents and patent applications in the U.S. and abroad which we exclusively licensed. Our rights are for all fields of use worldwide and are sublicensable.
In addition, we have developed policies and procedures, and corresponding education and training, to effectively communicate our standards to employees as it relates to job functions and legal obligations under applicable state and federal healthcare program requirements, as well as those outside the United States.
In addition, we have developed policies and procedures, and corresponding education and training, to effectively communicate our standards to employees as it relates to job functions and legal obligations under applicable state and federal healthcare program requirements, as well as those outside the U.S.
Healthcare Reform In the United States, a number of recent legislative and regulatory changes at the federal and state levels have sought to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Affordable Care Act (“ACA”) became law.
Healthcare Reform In the U.S., a number of recent legislative and regulatory changes at the federal and state levels have sought to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Affordable Care Act (“ACA”) became law.
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.
In order to process and sequence immune receptors in samples submitted to us, 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.
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.
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.
We may therefore be constrained in our pricing strategies in markets outside of the United States. 41 For additional information on coverage and reimbursement in the United States, see “Risk Factors—Risks Relating to Government Regulation—Future Medicare payment rates are uncertain.” Our Compliance Program Our compliance program is intended to prevent and detect violations of law or our policies.
We may therefore be constrained in our pricing strategies in markets outside of the U.S. For additional information on coverage and reimbursement in the U.S., see “ Risk Factors—Risks Relating to Government Regulation—Future Medicare payment rates are uncertain. ” 26 Our Compliance Program Our compliance program is intended to prevent and detect violations of law or our policies.
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.
In the U.S., 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.
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.
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 U.S.
The requirements to obtain a CE mark are risk-based, and follow a similar classification system as in the United States.
The requirements to obtain a CE mark are risk-based, and follow a similar classification system as in the U.S.
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.
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, as summarized in the table below: In order to fully leverage the natural properties of the immune system to develop clinical products, the enormous diversity and scale of the adaptive immune system must be taken into consideration, including the ability to accurately and reliably measure the relative frequency of each disease-specific T (or B) cell in the blood.
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.
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.
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.
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 Hutchinson Cancer Research Center (“Fred Hutch”) in 2009.
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.
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. For example, we have purchased the Illumina NextSeq System, and Illumina, Inc.
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.
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.
Intellectual Property Portfolio by the Numbers As of December 31, 2022, our intellectual property portfolio consisted of the following: • 799 patent applications filed worldwide directly or in conjunction with a co-owner or licensor since 2009; • 40 pending patent applications; • 429 issued patents across our immune medicine platform; • 24 patent families directed to methods and tools useful in our immune medicine platform for non-target specific immunosequencing and research, including immunoSEQ; • 17 patent families directed to methods and tools useful in diagnosis, prognosis and disease monitoring, including clonoSEQ, T-Detect and the TCR-Antigen Map; • 12 patent families directed to methods and tools useful in drug discovery, including TruTCR, MIRA and pairSEQ; • 1 patent family directed to therapeutic antibodies; • 1 patent family directed to SARS-CoV-2 vaccines; • 3 patent families directed to gene sequencing technology; and 31 • 28 trademarks registered and pending registration worldwide.
Intellectual Property Portfolio by the Numbers As of December 31, 2023, our intellectual property portfolio consisted of the following: • More than 800 patent applications filed worldwide directly or in conjunction with a co-owner or licensor since 2009; • More than 55 pending patent applications; • More than 450 issued patents across our immune medicine platform, including more than 145 patents related to diagnostic approaches in lymphoid malignancies; • 24 patent families directed to methods and tools useful in our immune medicine platform for non-target specific immunosequencing and research; • 17 patent families directed to methods and tools useful in diagnosis, prognosis and disease monitoring, including clonoSEQ, certain diagnostic methods and the TCR-Antigen Map; • 12 patent families directed to methods and tools useful in drug discovery, including our drug discovery screening processes, MIRA and pairSEQ; • 3 patent families directed to therapeutic antibodies and novel antigen targets; • 1 patent family directed to SARS-CoV-2 vaccines; • 3 patent families directed to gene sequencing technology; and • 28 trademarks registered and pending registration worldwide.
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.
Item 1. Business Overview Throughout our history, we have advanced the field of immune medicine by harnessing the inherent biology of the adaptive immune system to transform the diagnosis and treatment of disease.
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.
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 technology was built and validated to address this need.
Combined with immunoSEQ, MIRA elucidates what potential diseases a patient’s immune system has been exposed to or is actively fighting. • 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.
MIRA is another proprietary method which enables us to elucidate in silico what potential diseases a patient’s immune system has been exposed to or is actively fighting. • Pair. pairSEQ provides 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.
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.
As of December 31, 2023, we had filed over 800 patent applications, more than 450 of which were issued and active as of that date, covering improvements in sequencing methods and new ways to leverage adaptive immune receptors for our MRD and IM business areas.
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.
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.
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.
There has also recently been an influx of state privacy and security laws that introduce similar compliance complexities, including the Washington state My Health My Data Act, the California Consumer Privacy Act in combination with the California Privacy Rights Act and associated regulations and the Colorado Privacy Act.
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.
In vitro diagnostic products (“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.
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 August 2020, we received FDA clearance for clonoSEQ, following a 510(k) submission, for CLL in bone marrow as well as blood samples. We also received FDA clearance in 2021 for ALL from blood samples, launched a NHL (DLBCL) test under CLIA as a LDT and are actively advancing validation studies in certain other NHL sub-types.
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.
Over the years since, we have secured additional payor coverage for clonoSEQ aligned with our FDA label with Medicare, national private payors and large regional plans, expanding coverage to 300 million covered lives for ALL and MM, 200 million covered lives for CLL and 70 million covered lives for DLBCL.
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.
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.
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.
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 internally focused and may also be pursued in collaboration with one or more biopharmaceutical companies.
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”).
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”). clonoSEQ is the first test authorized by the Food and Drug Administration (“FDA”) for the detection and monitoring of 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”).
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. 36 Laboratory Developed Tests in the United States The FDA has historically exercised enforcement discretion to not regulate most LDTs.
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. 21 LDTs in the U.S.
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.
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.
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.
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.
In addition, there are state breach notification laws in every state, as well as in D.C., Guam and Puerto Rico.
In addition, there are state breach notification laws in every state, as well as in the District of Columbia, Guam and Puerto Rico.
See “ Risk Factors—Risks Relating to Government Regulation—We are subject to various laws and regulations, such as healthcare fraud and abuse laws, false claim laws and health information privacy and security laws, among others, and failure to comply with these laws and regulations may have an adverse effect on our business .” Corporate Practice of Medicine in the United States Numerous states have enacted laws prohibiting business corporations, such as us, from practicing medicine and employing or engaging physicians to practice medicine, generally referred to as the prohibition against the corporate practice of medicine.
See “ Risk Factors—Risks Relating to Government Regulation—We are subject to various laws and regulations, such as healthcare fraud and abuse laws, false claim laws and health information privacy and security laws, among others, and failure to comply with these laws and regulations may have an adverse effect on our business .” Corporate Practice of Medicine in the U.S.
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.
In August 2020, the clonoSEQ label was expanded to include patients with CLL from bone marrow and blood samples. In 2022, the assay was launched as a CLIA-validated LDT 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.
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.
In contrast to the static human genome that is made up of approximately 30,000 genes, the adaptive immune repertoire of a healthy adult consists of more than 100 million different genes. This massive genetic diversity gives the immune system the ability to detect and respond to millions of different antigens associated with human disease.
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.
For autoimmune disorders, the immune system loses the ability to distinguish between 'self' and 'non-self' and mistakenly recognizes normal protein fragments (“self-antigens”) as foreign, which results in attacking otherwise healthy tissue. 4 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.
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.
However, antigens can be recognized as foreign even if they are not from a virus or pathogen. In cancer cells, tumor associated antigens (“TAAs”) are normal proteins that are aberrantly expressed in a tumor; neoantigens are mutated versions of normal proteins that are specific to the cancer and not found in healthy normal cells.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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. 6 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.
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.
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.
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.
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.
We incurred interest expense of $13.8 million and $4.2 million under the Purchase Agreement for the year ended December 31, 2023 and 2022, respectively. Processing and Manufacturing We process both clinical and research use samples in our laboratory in Seattle, Washington. Our Seattle laboratory is CLIA-certified, College of American Pathologists (“CAP”)-accredited and International Organization for Standardization (“ISO”) 13485-certified.
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.
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 U.S. We have also successfully transferred certain sequencing technology under non-exclusive licenses to multiple labs in other parts of the world.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSummary of Risk Factors Generally, the risks described below relate to the following: • our significant net losses since inception, expected net losses in the future and need for significant investments in products and services, as well as our ability to manage operating expenses in light of profitability goals; • our ability to leverage our immune medicine platform to discover, develop, and commercialize additional products and services may not be successful; • our ability to develop our TCR-Antigen Map and yield additional insights from it that are commercially viable; • our collaboration with Genentech and ability to develop and commercialize cellular therapeutics, including our ability to achieve milestones and realize the intended benefits of the collaboration; • our expected reliance on collaborators for development and clinical testing of therapeutic product candidates, which may fail at any time due to a number of possible unforeseen events; • our laboratory operations, including errors or defects in our products or services and our reliance on a limited number of suppliers, and in some cases single suppliers, for our equipment and materials, some of which include reagents or other materials that may also require additional internal validation prior to use; • our limited experience with the development and commercialization of cellular therapeutics; • market acceptance of our products and services, and our limited sales and marketing experience; • the effects of health epidemics in regions where we or third parties on which we rely have significant laboratory operations, manufacturing facilities, concentrations of clinical trial sites or other business operations; • our ability to increase our capacity, manage the evolution of our products and services, stay current in our rapidly changing industry, expand our workforce and otherwise manage our growth; • the loss of any member of our senior management team, or of the support of key opinion leaders; • the extensive regulation of our industry, including reimbursement coverage decisions; and • the validity of our patents, protection of our trade secrets and related intellectual property matters. 43 Risks Relating to Our Business We have incurred significant losses since inception, we expect to incur losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability.
Biggest changeSummary of Risk Factors Generally, the risks described below relate to the following: • our significant net losses since inception, expected net losses in the future and need for significant investments in products and services, as well as our ability to manage operating expenses in light of profitability goals; • our collaboration with Genentech and ability to develop and commercialize cellular therapeutics, including our ability to achieve milestones and realize the intended benefits of the collaboration; • our laboratory operations, including errors or defects in our products or services and our reliance on a limited number of suppliers, and in some cases single suppliers, for our equipment and materials, some of which include reagents or other materials that may also require additional internal validation prior to use; • our limited experience with the development and commercialization of therapeutic products, including cellular therapies and antibodies; • our ability to leverage our immune medicine platform to discover, develop and commercialize target antigens and therapeutic products may not be successful; • our expected and potential reliance on collaborators for development and clinical testing of therapeutic product candidates, which may fail at any time due to a number of possible unforeseen events; • market acceptance of our products and services; • our ability to increase our capacity, manage the evolution of our products and services, stay current in our rapidly changing industry and otherwise manage our growth; • the loss of any member of our senior management team, or of the support of key opinion leaders; • the extensive regulation of our industry, including reimbursement coverage decisions; • the validity of our patents, protection of our trade secrets and related intellectual property matters; and • the effects of health epidemics in regions where we or third parties on which we rely have significant laboratory operations, manufacturing facilities, concentrations of clinical trial sites or other business operations. 29 Risks Relating to Our Business We have incurred significant losses since inception, we expect to incur losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability.
We expect to make significant investments in our continued research and development of new products and services, which may not be successful. We are seeking to leverage our immune medicine platform to develop a pipeline of future disease-specific research, diagnostic and therapeutic products and services.
We expect to make significant investments in our continued research and development of new products and services, which may not be successful. We are seeking to leverage our immune medicine platform to develop a pipeline of future disease-specific research, diagnostic and therapeutic products.
We are creating new products and services, many of which are initially based on largely untested technologies. As all of our products and services progress, we or others may determine that we made product or service level scientific or technological mistakes or omissions.
We are creating new products, many of which are initially based on largely untested technologies. As all of our products and services progress, we or others may determine that we made product or service level scientific or technological mistakes or omissions.
We have limited experience in marketing and selling certain products and services, and if we are unable to expand our direct sales and marketing force or partner with collaborators in certain product areas and markets to adequately address our customers’ needs, our business may be adversely affected. We have no experience marketing and selling therapeutic products and services.
We have limited experience in marketing and selling certain products and services, and if we are unable to expand our direct sales and marketing force or partner with collaborators in certain product areas and markets to adequately address our customers’ needs, our business may be adversely affected. We have no experience marketing and selling therapeutic products.
If we or our collaborators experience any of a number of possible unforeseen events in connection with clinical trials, our or their ability to conduct further clinical trials of, obtain regulatory clearance, authorization or approval of or commercialize future products and services or improvements to current products and services, could be delayed or prevented.
If we or our collaborators experience any of a number of possible unforeseen events in connection with clinical trials, our or their ability to conduct further clinical trials of, obtain regulatory clearance, authorization or approval of or commercialize future products and services or improvements to current products, could be delayed or prevented.
If the actual number of patients who would benefit from our products or services, the price at which we can sell future products and services or the annual addressable market for our products or services is smaller than we have estimated, it may impair our sales growth and have an adverse impact on our business.
If the actual number of patients who would benefit from our products, the price at which we can sell future products and services or the annual addressable market for our products or services is smaller than we have estimated, it may impair our sales growth and have an adverse impact on our business.
Sales of our products and services will depend substantially, both domestically and internationally, on the extent to which the costs of our products and services are paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors.
Sales of our products will depend substantially, both domestically and internationally, on the extent to which the costs of our products and services are paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors.
Our revenue depends in part on achieving broad coverage and reimbursement for our diagnostic tests from payors, including both private and government payors. Certain large private payors have issued policies that decline to cover testing methods that they regard as experimental or investigational. Other payors may issue similar non-coverage policies.
Our diagnostic revenue depends in part on achieving broad coverage and reimbursement for our diagnostic tests from payors, including both private and government payors. Certain large private payors have issued policies that decline to cover testing methods that they regard as experimental or investigational. Other payors may issue similar non-coverage policies.
The legal systems of many other countries do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement of our patents in such countries.
The legal systems of many other countries do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement of our patents in such countries.
Our Articles of Incorporation and Bylaws contain provisions that: • authorize “blank check” preferred stock, which could be issued by our board of directors without shareholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock; • create a classified board of directors whose members serve staggered three-year terms, with one class being elected each year by our shareholders; • specify that special meetings of our shareholders can be called only by our board of directors, the Chairperson of our board of directors, our chief executive officer or our president; • provide that a director may only be removed from the board of directors for cause and then only by the affirmative vote of our shareholders; • provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even if less than a quorum; • specify that only our board of directors may change the size of our board of directors; • establish an advance notice procedure for shareholder proposals to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors; • specify that no shareholder is permitted to cumulate votes at any election of directors; • expressly authorize our board of directors to modify, alter or repeal our Bylaws; and • require supermajority votes of the holders of our common stock to amend specified provisions of our Articles of Incorporation and Bylaws.
Our Articles of Incorporation and Bylaws contain provisions that: • authorize “blank check” preferred stock, which could be issued by our board of directors without shareholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock; • create a classified board of directors whose members serve staggered three-year terms, with one class being elected each year by our shareholders; 70 • specify that special meetings of our shareholders can be called only by our board of directors, the Chairperson of our board of directors, our chief executive officer or our president; • provide that a director may only be removed from the board of directors for cause and then only by the affirmative vote of our shareholders; • provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even if less than a quorum; • specify that only our board of directors may change the size of our board of directors; • establish an advance notice procedure for shareholder proposals to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors; • specify that no shareholder is permitted to cumulate votes at any election of directors; • expressly authorize our board of directors to modify, alter or repeal our Bylaws; and • require supermajority votes of the holders of our common stock to amend specified provisions of our Articles of Incorporation and Bylaws.
The FDA can delay, limit or deny clearance, authorization or approval of a device for many reasons, including: • the inability to demonstrate to the satisfaction of the FDA that the products are safe or effective for their intended uses; • the disagreement of the FDA with the design, conduct or implementation of the clinical trials or the analysis or interpretation of data from preclinical studies, analytical studies or clinical trials; • serious and unexpected adverse device effects experienced by participants in clinical trials; • the data from preclinical studies, analytical studies and clinical trials may be insufficient to support clearance, authorization or approval, where required; • the inability to demonstrate that the clinical and other benefits of the device outweigh the risks; • an advisory committee, if convened by the FDA, may recommend against approval of a PMA or other application or may recommend that the FDA require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions, or even if an advisory committee makes a favorable recommendation, the FDA may still not approve the product; • the FDA may identify deficiencies in our marketing application; • the FDA may identify deficiencies in our or our collaborators’ manufacturing processes, facilities or analytical methods; • the potential for policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering clinical data or regulatory filings insufficient for clearance, authorization or approval; and • the FDA or foreign regulatory authorities may audit clinical trial data and conclude that the data is not sufficiently reliable to support a PMA. 66 There are numerous FDA personnel assigned to review different aspects of marketing submissions, which can present uncertainties based on their ability to exercise judgment and discretion during the review process.
The FDA can delay, limit or deny clearance, authorization or approval of a device for many reasons, including: • the inability to demonstrate to the satisfaction of the FDA that the products are safe or effective for their intended uses; • the disagreement of the FDA with the design, conduct or implementation of the clinical trials or the analysis or interpretation of data from preclinical studies, analytical studies or clinical trials; • serious and unexpected adverse device effects experienced by participants in clinical trials; • the data from preclinical studies, analytical studies and clinical trials may be insufficient to support clearance, authorization or approval, where required; • the inability to demonstrate that the clinical and other benefits of the device outweigh the risks; • an advisory committee, if convened by the FDA, may recommend against approval of a PMA or other application or may recommend that the FDA require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions, or even if an advisory committee makes a favorable recommendation, the FDA may still not approve the product; • the FDA may identify deficiencies in our marketing application; • the FDA may identify deficiencies in our or our collaborators’ manufacturing processes, facilities or analytical methods; • the potential for policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering clinical data or regulatory filings insufficient for clearance, authorization or approval; and • the FDA or foreign regulatory authorities may audit clinical trial data and conclude that the data is not sufficiently reliable to support a PMA. 50 There are numerous FDA personnel assigned to review different aspects of marketing submissions, which can present uncertainties based on their ability to exercise judgment and discretion during the review process.
Areas of the regulatory environment that may affect our ability to conduct business include, without limitation, federal and state laws relating to: • laboratory testing, including CLIA and state laboratory licensing laws; • the development, testing, use, distribution, promotion and advertising of research services, kits, clinical diagnostics and cellular therapies, including certain LDTs, which are regulated by the FDA under the FDCA and the FTC; • test ordering, documentation of tests ordered, billing practices and claims payment under CMS and the HHS OIG enforcing those laws and regulations; • cellular therapies, medical device and in vitro diagnostic clearance, marketing authorization or approval; • laboratory anti-mark-up laws; • the handling and disposal of medical and hazardous waste; • fraud and abuse laws such as the False Claims Act, the AKS, EKRA, and the Stark Law; • Occupational Safety and Health Administration rules and regulations; • HIPAA and other federal and state medical data privacy and security laws; • the Genetic Information Nondiscrimination Act (“GINA”) and similar state laws; and • coverage and restrictions on coverage and reimbursement for research services, kits, clinical diagnostics and cellular therapies and Medicare, Medicaid, other governmental payors and private insurers reimbursement levels.
Areas of the regulatory environment that may affect our ability to conduct business include, without limitation, federal and state laws relating to: • laboratory testing, including CLIA and state laboratory licensing laws; • the development, testing, use, distribution, promotion and advertising of research services, kits, clinical diagnostics and pharmaceutical therapies, including certain LDTs, and related services, which are regulated by the FDA under the FDCA and the FTC; • test ordering, documentation of tests ordered, billing practices and claims payment under CMS and the HHS OIG enforcing those laws and regulations; • cellular therapies, medical device and in vitro diagnostic clearance, marketing authorization or approval; • laboratory anti-mark-up laws; • the handling and disposal of medical and hazardous waste; • fraud and abuse laws such as the False Claims Act, the AKS, EKRA, and the Stark Law; • Occupational Safety and Health Administration rules and regulations; • HIPAA and other federal and state medical data privacy and security laws; • the Genetic Information Nondiscrimination Act (“GINA”) and similar state laws; and • coverage and restrictions on coverage and reimbursement for clinical diagnostics and pharmaceutical therapies and Medicare, Medicaid, other governmental payors and private insurers reimbursement levels.
We or our collaborators may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our or their ability to conduct further clinical trials or obtain regulatory clearance, authorization or approval of or commercialize future products and services or improvements to current products and services, including: Evolving Regulatory Requirements and Policies • the area of “precision medicine” or “personalized medicine” and its regulation may be subject to ongoing changes in terms of regulatory requirements and governmental policies, in ways we cannot predict; 50 Trial Design • regulatory authorities or ethical review boards, including IRBs, may not authorize commencement of a clinical trial or conduct a clinical trial at a prospective trial site; • there may be delays in reaching or failure to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites; • the FDA or other regulatory authorities may disagree with a clinical trial design or a sponsor’s interpretation of data and may change the requirements for product clearance, authorization or approval even after they have reviewed and commented on the clinical trial design; • differences in trial design between early stage clinical trials and later-stage clinical trials may make it difficult to extrapolate the results of earlier clinical trials to later clinical trials; • the FDA or other regulatory authorities may disagree about whether study endpoints are clinically meaningful; • the number of patients, or amount of data, required for clinical trials, or improvements to current products, may be larger than anticipated, patient enrollment in these clinical trials may be slower than anticipated or patients may drop out of clinical trials at a higher rate than anticipated; Testing • changes may be made to product candidates after commencing clinical trials, which may require that previously completed stages of clinical testing be repeated or delay later stages of testing, for example, we, or our collaborators, may pursue one or more different product development pathways for our T cell immunotherapies; • clinical trials may fail to satisfy the applicable regulatory requirements of the FDA or other regulatory authorities responsible for oversight of the conduct of clinical trials in other countries; • regulators may elect to impose a clinical hold, or governing IRBs, data safety monitoring board or ethics committees may elect to suspend or terminate our clinical research or trials for various reasons, including non-compliance with regulatory requirements or a finding that the participants are being exposed to unacceptable risks to their health or the privacy of their health information being disclosed; • the cost of clinical trials of future products and services, or improvements to current products and services, may be greater than we anticipate; • we may not have sufficient capacity in our laboratories to perform testing as requested or volumes requested or with the requested turnaround times necessary for clinical trials; • the supply or quality of materials or data necessary to conduct clinical trials of future products and services, or improvements to current products and services, may be insufficient or inadequate; Trial Outcomes • the outcome of our collaborators’ preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results; • product candidates may be associated with negative or inconclusive results in clinical trials, and we or our collaborators may decide to deprioritize or abandon these product candidates, or regulatory authorities may require us to abandon them or impose onerous changes or requirements, which could lead to deprioritization or abandonment; • product candidates may have undesirable side effects which could lead to serious adverse events, or other unexpected characteristics.
We or our collaborators may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our or their ability to conduct further clinical trials or obtain regulatory clearance, authorization or approval of or commercialize future products and services or improvements to current products and services, including: Evolving Regulatory Requirements and Policies • the area of “precision medicine” or “personalized medicine” and its regulation may be subject to ongoing changes in terms of regulatory requirements and governmental policies, in ways we cannot predict; Trial Design • regulatory authorities or ethical review boards, including IRBs, may not authorize commencement of a clinical trial or conduct a clinical trial at a prospective trial site; • there may be delays in reaching or failure to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites; 36 • the FDA or other regulatory authorities may disagree with a clinical trial design or a sponsor’s interpretation of data and may change the requirements for product clearance, authorization or approval even after they have reviewed and commented on the clinical trial design; • differences in trial design between early stage clinical trials and later-stage clinical trials may make it difficult to extrapolate the results of earlier clinical trials to later clinical trials; • the FDA or other regulatory authorities may disagree about whether study endpoints are clinically meaningful; • the number of patients, or amount of data, required for clinical trials, or improvements to current products, may be larger than anticipated, patient enrollment in these clinical trials may be slower than anticipated or patients may drop out of clinical trials at a higher rate than anticipated; Testing • changes may be made to product candidates after commencing clinical trials, which may require that previously completed stages of clinical testing be repeated or delay later stages of testing, for example, we, or our collaborators, may pursue one or more different product development pathways for our T cell therapeutic products; • clinical trials may fail to satisfy the applicable regulatory requirements of the FDA or other regulatory authorities responsible for oversight of the conduct of clinical trials in other countries; • regulators may elect to impose a clinical hold, or governing IRBs, data safety monitoring board or ethics committees may elect to suspend or terminate our clinical research or trials for various reasons, including non-compliance with regulatory requirements or a finding that the participants are being exposed to unacceptable risks to their health or the privacy of their health information being disclosed; • the cost of clinical trials of future products, or improvements to current products, may be greater than we anticipate; • we may not have sufficient capacity in our laboratories to perform testing as requested or volumes requested or with the requested turnaround times necessary for clinical trials; • the supply or quality of materials or data necessary to conduct clinical trials of future products, or improvements to current products, may be insufficient or inadequate; Trial Outcomes • the outcome of our collaborators’ preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results; • product candidates may be associated with negative or inconclusive results in clinical trials, and we or our collaborators may decide to deprioritize or abandon these product candidates, or regulatory authorities may require us to abandon them or impose onerous changes or requirements, which could lead to deprioritization or abandonment; • product candidates may have undesirable side effects which could lead to serious adverse events, or other unexpected characteristics.
In clinical diagnostics, our clonoSEQ MRD test faces competition from both conventional and next-generation flow cytometry performed either in-house by our target customers or by reference labs, as well as from labs and institutions advancing research-use-only MRD technologies for clinical applications and commercial-stage oncology diagnostics companies extending the application of their solid tumor (ctDNA) MRD products into the hematology MRD space.
For instance, in clinical diagnostics, our clonoSEQ MRD test faces competition from both conventional and next-generation flow cytometry performed either in-house by our target customers or by reference labs, as well as from labs and institutions advancing research-use-only MRD technologies for clinical applications and commercial-stage oncology diagnostics companies extending the application of their solid tumor (ctDNA) MRD products into the hematology MRD space.
If we or our collaborators fail to comply with applicable regulatory requirements following clearance, authorization, approval, accreditation or licensure of any of our products and services, a regulatory agency may: • initiate an inspection of our or our collaborators’ facilities; • issue an untitled or warning letter asserting that we or our collaborators are in violation of law; 69 • seek an injunction or impose civil or criminal penalties or monetary fines; • suspend or withdraw regulatory clearance, authorization or approval, or revoke a license or accreditation; • suspend any ongoing clinical studies; • delay or refuse clearance, authorization or approval of a pending regulatory submission or supplement submitted by us or our collaborators; • impose restrictions on our or our collaborators’ cleared, authorized, approved, accredited or licensed products or services; • seize or recall the product or service; • partially suspend or entirely shut down our or our collaborators’ manufacturing or laboratory operations; • issue advisories or other field actions; • impose operating restrictions; • refuse to allow us or our collaborators to enter into supply contracts, including government contracts; or • refer matters to the DOJ or other enforcement or regulatory bodies.
If we or our collaborators fail to comply with applicable regulatory requirements following clearance, authorization, approval, accreditation or licensure of any of our products and services, a regulatory agency may: • initiate an inspection of our or our collaborators’ facilities; • issue an untitled or warning letter asserting that we or our collaborators are in violation of law; • seek an injunction or impose civil or criminal penalties or monetary fines; 53 • suspend or withdraw regulatory clearance, authorization or approval, or revoke a license or accreditation; • suspend any ongoing clinical studies; • delay or refuse clearance, authorization or approval of a pending regulatory submission or supplement submitted by us or our collaborators; • impose restrictions on our or our collaborators’ cleared, authorized, approved, accredited or licensed products or services; • seize or recall the product or service; • partially suspend or entirely shut down our or our collaborators’ manufacturing or laboratory operations; • issue advisories or other field actions; • impose operating restrictions; • refuse to allow us or our collaborators to enter into supply contracts, including government contracts; or • refer matters to the DOJ or other enforcement or regulatory bodies.
If we are required or agree to defend or indemnify third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results or financial condition. 83 Patent terms may be inadequate to protect our competitive position on our products and services for an adequate amount of time.
If we are required or agree to defend or indemnify third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results or financial condition. Patent terms may be inadequate to protect our competitive position on our products and services for an adequate amount of time.
Our obligations under the Purchase Agreement could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things: • requiring the dedication of a portion of our cash flow from operations to service the Purchase Agreement obligations, which will reduce the amount of cash available for other purposes, and if our cash inflows and capital resources are insufficient to allow us to make required payments, we may have to reduce or delay additional investments in our operations or seek additional capital; • increasing our vulnerability to adverse economic and industry conditions; 85 • limiting our ability to obtain additional financing; • placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital; and • if we fail to comply with the terms of the Purchase Agreement, resulting in an event of default that is not cured or waived, the Purchasers could seek to enforce their security interest.
Our obligations under the Purchase Agreement could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things: • requiring the dedication of a portion of our cash flow from operations to service the Purchase Agreement obligations, which will reduce the amount of cash available for other purposes, and if our cash inflows and capital resources are insufficient to allow us to make required payments, we may have to reduce or delay additional investments in our operations or seek additional capital; 68 • increasing our vulnerability to adverse economic and industry conditions; • limiting our ability to obtain additional financing; • placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital; and • if we fail to comply with the terms of the Purchase Agreement, resulting in an event of default that is not cured or waived, the Purchasers could seek to enforce their security interest.
Under the terms of the Genentech Agreement, we received $300.0 million in an initial upfront payment in February 2019 and may be eligible to receive approximately $1.8 billion in additional payments over time upon achievement of specified development, regulatory and commercial milestones. In addition, Genentech will pay us royalties on sales of products commercialized under the agreement.
Under the terms of the Genentech Agreement, we received $300.0 million in an initial upfront payment in February 2019 and may be eligible to receive up to approximately $1.8 billion in additional payments over time upon achievement of specified development, regulatory and commercial milestones. In addition, Genentech will pay us royalties on sales of products commercialized under the agreement.
All of the risks relating to product and service development, regulatory clearance, authorization or approval and commercialization described herein apply to us derivatively through the activities of our collaborators. We engage in conversations with companies regarding potential collaborations on an ongoing basis. These conversations may not result in a commercial agreement.
All of the risks relating to product development, regulatory clearance, authorization or approval and commercialization described herein apply to us derivatively through the activities of our collaborators. We engage in conversations with companies regarding potential collaborations on an ongoing basis. These conversations may not result in a commercial agreement.
Such occurrences, regardless of their outcome, could damage our reputation and adversely affect important business relationships with third parties, including managed care organizations, and other private third-party payors. The insurance coverage and reimbursement status of newly approved products and services, in a new category of diagnostics and therapeutics, is uncertain.
Such occurrences, regardless of their outcome, could damage our reputation and adversely affect important business relationships with third parties, including managed care organizations, and other private third-party payors. The insurance coverage and reimbursement status of newly approved products, in a new category of diagnostics and therapeutics, is uncertain.
Our cellular therapeutics product candidates that appear promising in the early phases of development may fail to advance, experience delays in the clinic, experience clinical holds or fail to reach the market for many reasons, including: • discovery efforts identifying potential TCR-based cellular therapies may not be successful; • nonclinical or preclinical study results may show potential TCR-based cellular therapies to be less effective than desired or to have harmful or problematic side effects; • clinical trials may fail to meet one or more endpoints, or results may show the TCR-based cellular therapies to be less effective than expected or to have unacceptable side effects or toxicities; • adverse effects relating to any one of our therapeutic product candidates or adverse effects relating to our therapeutics discovery process may lead to delays in or termination of one or more of our products or services; • the inability of our translational models to reduce risk or predict outcomes in humans, given that each component of our therapeutic product candidates may have a dependent or independent effect on safety, tolerability and efficacy, and that such effects may, among other things, be species-dependent; 76 • manufacturing failures or insufficient supply of current good manufacturing practices (“cGMP”) materials for future clinical trials, or higher than expected cost, could delay or set back clinical trials or make TCR-based cellular therapies commercially unattractive; • our collaborators’ improvements in the manufacturing processes for this new class of potential immune medicines may not be sufficient to satisfy the clinical or commercial demand of our jointly developed TCR-based cellular therapies or regulatory requirements for clinical trials; • changes that we or our collaborators make to optimize manufacturing, testing or formulating of cGMP materials could impact the safety, tolerability and efficacy of our therapeutic products in development; • pricing or reimbursement issues or other factors that delay clinical trials or make any TCR-based cellular therapies uneconomical or noncompetitive with other immunotherapies; • failure to timely advance our or our collaborators’ therapeutic products or receive the necessary regulatory clearances, authorizations or approvals or a delay in receiving such clearances, authorizations or approvals due to, among other reasons, slow or failure to complete enrollment in clinical trials, withdrawal by trial participants from trials, failure to achieve trial endpoints, additional time requirements for data analysis, data integrity issues, Biologics License Application or the equivalent application, discussions with the FDA or the European Medicines Agency, a regulatory request for additional nonclinical or clinical data, or safety formulation or manufacturing issues may lead to our inability to obtain sufficient funding; and • the proprietary rights of others and their competing products and services that may prevent our TCR-based cellular therapies from being commercialized or threaten future commercialization activities. 77 Risks Relating to our Intellectual Property We may not be successful in obtaining or maintaining sufficient intellectual property protection for our products, services and technologies and uses thereof, and the scope of the intellectual property protection obtained may not be sufficiently broad.
Our cellular therapeutics product candidates that appear promising in the early phases of development may fail to advance, experience delays in the clinic, experience clinical holds or fail to reach the market for many reasons, including: • discovery efforts identifying potential TCR-based cellular therapies may not be successful; • nonclinical or preclinical study results may show potential TCR-based cellular therapies to be less effective than desired or to have harmful or problematic side effects; • clinical trials may fail to meet one or more endpoints, or results may show the TCR-based cellular therapies to be less effective than expected or to have unacceptable side effects or toxicities; • adverse effects relating to any one of our therapeutic product candidates or adverse effects relating to our therapeutics discovery process may lead to delays in or termination of one or more of our products or services; 60 • the inability of our translational models to reduce risk or predict outcomes in humans, given that each component of our therapeutic product candidates may have a dependent or independent effect on safety, tolerability and efficacy, and that such effects may, among other things, be species-dependent; • manufacturing failures or insufficient supply of current good manufacturing practices (“cGMP”) materials for future clinical trials, or higher than expected cost, could delay or set back clinical trials or make TCR-based cellular therapies commercially unattractive; • our collaborators’ improvements in the manufacturing processes for this new class of potential immune medicines may not be sufficient to satisfy the clinical or commercial demand of our jointly developed TCR-based cellular therapies or regulatory requirements for clinical trials; • changes that we or our collaborators make to optimize manufacturing, testing or formulating of cGMP materials could impact the safety, tolerability and efficacy of our therapeutic products in development; • pricing or reimbursement issues or other factors that delay clinical trials or make any TCR-based cellular therapies uneconomical or noncompetitive with other therapeutic products; • failure to timely advance our or our collaborators’ therapeutic products or receive the necessary regulatory clearances, authorizations or approvals or a delay in receiving such clearances, authorizations or approvals due to, among other reasons, slow or failure to complete enrollment in clinical trials, withdrawal by trial participants from trials, failure to achieve trial endpoints, additional time requirements for data analysis, data integrity issues, Biologics License Application or the equivalent application, discussions with the FDA or the European Medicines Agency, a regulatory request for additional nonclinical or clinical data, or safety formulation or manufacturing issues may lead to our inability to obtain sufficient funding; and • the proprietary rights of others and their competing products and services that may prevent our TCR-based cellular therapies from being commercialized or threaten future commercialization activities. 61 Risks Relating to our Intellectual Property We may not be successful in obtaining or maintaining sufficient intellectual property protection for our products, services and technologies and uses thereof, and the scope of the intellectual property protection obtained may not be sufficiently broad.
Our stock price may decline as a result of unexpected clinical trial results in one or more of our products and services, including adverse safety events reported for any of our products or services. 53 We have estimated the sizes of the markets for our current and future products and services, and these markets may be smaller than we estimate.
Our stock price may decline as a result of unexpected clinical trial results in one or more of our products, including adverse safety events reported for any of our products. We have estimated the sizes of the markets for our current and future products and services, and these markets may be smaller than we estimate.
In particular, sequencing, which is a key component of these processes, could be inefficient with higher than expected variability thereby increasing total sequencing costs and reducing the number of samples we can process in a given time period, which may negatively impact customer turnaround time.
In particular, DNA sequencing, which is a key component of these processes, could be inefficient with higher than expected variability thereby increasing total sequencing costs and reducing the number of samples we can process in a given time period, which may negatively impact customer turnaround time.
We may not be able to attract or retain qualified scientists, technicians or software engineers in the future due to the competition for qualified personnel among life sciences and technology businesses, particularly near our headquarters located in Seattle, Washington and our laboratory facilities located in South San Francisco, California.
We may not be able to attract or retain qualified scientists, technicians or software engineers in the future due to the competition for qualified personnel among life sciences and technology businesses, particularly near our facilities located in Seattle, Washington and our laboratory facilities located in South San Francisco, California.
Conduct that results in a False Claims Act violation may also implicate various federal criminal statutes. 71 • The Criminal Health Care Fraud Statute, which imposes criminal and civil liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
Conduct that results in a False Claims Act violation may also implicate various federal criminal statutes. 55 • The Criminal Health Care Fraud Statute, which imposes criminal and civil liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
Our licensors may not successfully prosecute the patent applications we license. Even if patents issue in respect of these patent applications, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents or may pursue such litigation less aggressively than we would.
Our licensor may not successfully prosecute the patent applications we license. Even if patents issue in respect of these patent applications, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents or may pursue such litigation less aggressively than we would.
Moreover, disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including: • the scope of rights granted under the license agreement and other interpretation-related issues; • whether, and the extent to which, our products, services, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; 80 • our right to sublicense patent and other rights to third parties under collaborative development relationships; • our diligence obligations under the license agreement and what activities satisfy those diligence obligations; • the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators; and • the priority of invention of patented technology.
Moreover, disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including: • the scope of rights granted under the license agreement and other interpretation-related issues; • whether, and the extent to which, our products, services, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; 64 • our right to sublicense patent and other rights to third parties under collaborative development relationships; • our diligence obligations under the license agreement and what activities satisfy those diligence obligations; • the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators; and • the priority of invention of patented technology.
The clearance, authorization or approval pathways at the FDA and other regulatory authorities are likely to involve significant time, as well as additional research, development and clinical study expenditures. The FDA or other regulatory authorities may not clear, authorize or approve any future product or service we develop.
The clearance, authorization or approval pathways at the FDA and other regulatory authorities are likely to involve significant time, as well as additional research, development and clinical study expenditures. The FDA or other regulatory authorities may not clear, authorize or approve any future product we develop.
If we are unable to support fluctuations in the demand for our products and services, including ensuring that we have adequate capacity to meet increased demand as well as other customer requirements (such as turnaround time and service level), our business could suffer.
If we are unable to support fluctuations in the demand for our products and services, including ensuring that we have adequate capacity to meet potential increased demand as well as other customer requirements (such as turnaround time and service level), our business could suffer.
Any additional commercialized products and services or any future products and services that obtain regulatory clearance, authorization, approval, accreditation or licensure will remain subject to regulatory scrutiny and our failure to maintain our regulatory clearances, authorizations, approvals, accreditations or licensures could adversely affect our reputation, business and results of operations.
Any additional commercialized products or any future products that obtain regulatory clearance, authorization, approval, accreditation or licensure will remain subject to regulatory scrutiny and our failure to maintain our regulatory clearances, authorizations, approvals, accreditations or licensures could adversely affect our reputation, business and results of operations.
Regardless of merit or eventual outcome, product liability and professional liability claims may result in: • decreased demand for any products, services or clinical solutions that we have developed or may develop; • loss of revenue; • substantial monetary awards to patients or their families; • significant time and costs to defend related litigation; • withdrawal of clinical trial participants; • the inability to commercialize any products, services or clinical solutions that we have developed or may develop; and • injury to our reputation and significant negative media attention. 59 We maintain product and professional liability insurance, but this insurance may not fully protect us from the financial impact of defending against product liability or professional liability claims.
Regardless of merit or eventual outcome, product liability and professional liability claims may result in: • decreased demand for any products, services or clinical solutions that we have developed or may develop; • loss of revenue; • substantial monetary awards to patients or their families; • significant time and costs to defend related litigation; • withdrawal of clinical trial participants; • the inability to commercialize any products, services or clinical solutions that we have developed or may develop; and • injury to our reputation and significant negative media attention. 44 We maintain product and professional liability insurance, but this insurance may not fully protect us from the financial impact of defending against product liability or professional liability claims.
If, after development, a product or service appears successful, we or our collaborators may, depending on the nature of the product or service, still need to obtain FDA and other regulatory clearances, authorizations or approvals before we can market it.
If, after development, a product or service appears successful, we or our collaborators (if any) may, depending on the nature of the product or service, still need to obtain FDA and other regulatory clearances, authorizations or approvals before we can market it.
Our future success will depend on our ability to keep pace with the evolving needs of our customers on a timely and cost-effective basis and to pursue new market opportunities that develop as a result of scientific and technological advances.
Our future success will depend on our ability to keep pace with evolving needs of our customers on a timely and cost-effective basis and to pursue new market opportunities that develop as a result of scientific and technological advances.
In addition, our assays may have quality or design errors, and we may have inadequate procedures or instrumentation to process samples, assemble our proprietary primer mixes and commercial materials, upload and analyze data, or otherwise conduct our laboratory operations.
In addition, our assays may have quality or design errors, and we may have inadequate procedures or instrumentation to process samples, assemble our proprietary primer mixes and commercial materials, upload and analyze data, or otherwise conduct our development laboratory operations.
In addition, if the FDA inspects our laboratory in relation to the marketing of our FDA-cleared clonoSEQ test, any enforcement action the FDA takes might not be limited to the FDA-cleared clonoSEQ test and could encompass our LDT testing service. 65 For each product and service we are developing that requires FDA premarket review or equivalent regulatory approval, the FDA or other regulatory authority may not grant clearance, authorization or premarket approval and failure to obtain necessary approvals for our future products and services would adversely affect our ability to grow our business.
In addition, if the FDA inspects our laboratory in relation to the marketing of our FDA-cleared clonoSEQ test, any enforcement action the FDA takes might not be limited to the FDA-cleared clonoSEQ test and could encompass our LDT testing service. 49 For each product we are developing that requires FDA premarket review or equivalent regulatory approval, the FDA or other regulatory authority may not grant clearance, authorization or premarket approval and failure to obtain necessary approvals for our future products and services would adversely affect our ability to grow our business.
Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees, suffer adverse publicity and reputational harm, and have the attention of management diverted in defending ourselves against any of these claims or investigations. 67 If third-party payors, including private payors and government healthcare programs, do not provide coverage of, or adequate reimbursement for, our clinical diagnostic products, our commercial success will be negatively affected.
Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees, suffer adverse publicity and reputational harm, and have the attention of management diverted in defending ourselves against any of these claims or investigations. 51 If third-party payors, including private payors and government healthcare programs, do not provide coverage of, or adequate reimbursement for, our clinical diagnostic products, our commercial success will be negatively affected.
These factors include: • the commencement or termination of our collaborations; • the timing of achievement of specified milestones in the development of our products and services; • introductions of new or expanded products or services or new pricing policies by us or by our competitors; • changes in the status of our regulatory clearances, authorizations, approvals or applications, or those jointly developed with our collaborators; • where required, the results of clinical trials of our future products and services, those jointly developed with our collaborators or those of our competitors; • the success of competitive products or technologies; • announcements by us or our competitors of significant acquisitions, collaborators or divestitures; • changes in governmental regulations and regulatory or legal developments in the United States and other countries; • developments or disputes concerning patent applications, issued patents or other proprietary rights; • the recruitment or departure of key personnel; • actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; • variations in our financial results or those of companies that are perceived to be similar to us; • changes in the structure of healthcare payment systems; • market conditions in the life sciences, clinical diagnostics or drug discovery industry; • general economic, industry and market conditions; • sales of our securities, including sales by our directors, officers or significant shareholders; • speculation about our business in the media or the investment community; and • other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
These factors include: • the commencement or termination of our collaborations; • the timing of achievement of specified milestones in the development of our products and services; • introductions of new or expanded products or services or new pricing policies by us or by our competitors; • changes in the status of our regulatory clearances, authorizations, approvals or applications, or those jointly developed with our collaborators; • where required, the results of clinical trials of our future products and services, those jointly developed with our collaborators or those of our competitors; • the success of competitive products or technologies; • announcements by us or our competitors of significant acquisitions, collaborators or divestitures; • changes in governmental regulations and regulatory or legal developments in the U.S. and other countries; • developments or disputes concerning patent applications, issued patents or other proprietary rights; • the recruitment or departure of key personnel; • actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; • variations in our financial results or those of companies that are perceived to be similar to us; • changes in the structure of healthcare payment systems; • market conditions in the life sciences, clinical diagnostics or drug discovery industry; • general economic, industry and market conditions; • sales of our securities, including sales by our directors, officers or significant shareholders; • speculation about our business in the media or the investment community; and • other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. 64 We must maintain compliance with marketing authorization requirements of the FDA and equivalent foreign and state regulatory authorities for our products and services whose sale is subject to their authority and failure to maintain compliance with FDA requirements may prevent or delay the marketing of our products and services.
If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. 48 We must maintain compliance with marketing authorization requirements of the FDA and equivalent foreign and state regulatory authorities for our products and services whose sale is subject to their authority and failure to maintain compliance with FDA requirements may prevent or delay the marketing of our products and services.
In addition, certain state and local laws may impose additional transparency and healthcare compliance requirements on medical device manufacturers, as well as certain restrictions or limits on interactions with healthcare professionals. 72 • The FTCA, which the FTC interprets to require taking appropriate steps to secure consumers’ personal information and considers the failures to do so to constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the FTCA.
In addition, certain state and local laws may impose additional transparency and healthcare compliance requirements on medical device manufacturers, as well as certain restrictions or limits on interactions with healthcare professionals. 56 • The FTCA, which the FTC interprets to require taking appropriate steps to secure consumers’ personal information and considers the failures to do so to constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the FTCA.
Therefore, inefficient or variable processes can cause variability in our operating results and damage our reputation. In addition, our laboratory operations could result in any number of errors or defects.
Therefore, inefficient or variable processes can cause variability in our operating results and damage our reputation. In addition, our development laboratory operations could result in any number of errors or defects.
Failure to obtain or maintain adequate coverage and reimbursement for current or future products and services could limit our ability, and that of our collaborators, to fully commercialize our products and services and decrease our ability to generate revenue.
Failure to obtain or maintain adequate coverage and reimbursement for current or future products could limit our ability, and that of our collaborators, to fully commercialize our products and decrease our ability to generate revenue.
Any of these occurrences may harm our and our collaborators’ ability to identify and develop future products and services, and may significantly harm our business, financial condition, result of operations and prospects. 70 We are subject to various laws and regulations, such as healthcare fraud and abuse laws, false claim laws and health information privacy and security laws, among others, and failure to comply with these laws and regulations may have an adverse effect on our business.
Any of these occurrences may harm our and our collaborators’ ability to identify and develop future products and services, and may significantly harm our business, financial condition, result of operations and prospects. 54 We are subject to various laws and regulations, such as healthcare fraud and abuse laws, false claim laws and health information privacy and security laws, among others, and failure to comply with these laws and regulations may have an adverse effect on our business.
As a result, increasingly high barriers are being erected to the entry of new products. 63 Our business could be harmed by the loss, suspension or other restriction on a license, certification or accreditation, or by the imposition of a fine or penalties, under CLIA, its implementing regulations or other state, federal and foreign laws and regulations affecting licensure or certification, or by future changes in these laws or regulations.
As a result, increasingly high barriers are being erected to the entry of new products. 47 Our business could be harmed by the loss, suspension or other restriction on a license, certification or accreditation, or by the imposition of a fine or penalties, under CLIA, its implementing regulations or other state, federal and foreign laws and regulations affecting licensure or certification, or by future changes in these laws or regulations.
Speculation in the industry about our existing or potential collaborations can be a catalyst for adverse speculation about us, or our products or services, which can adversely affect our reputation and our business. 47 Significant additional research and development and, in certain instances, clinical trials or validation will be required before we or our collaborators can potentially seek regulatory clearance, authorization or approval for, or commercialize any of our products or services in development.
Speculation in the industry about our existing or potential collaborations can be a catalyst for adverse speculation about us or our products, which can adversely affect our reputation and our business. 33 Significant additional research and development and, in certain instances, clinical trials or validation will be required before we or our collaborators can potentially seek regulatory clearance, authorization or approval for, or commercialize any of our products or services in development.
These laws and regulations are increasing in complexity and number, may change frequently and sometimes conflict. 73 The HIPAA privacy, security and breach notification regulations, including the expanded requirements under HITECH, establish comprehensive federal standards with respect to the uses and disclosures of PHI by health plans, healthcare providers, including laboratories, and healthcare clearinghouses, in addition to setting standards to protect the confidentiality, integrity and security of PHI.
These laws and regulations are increasing in complexity and number, may change frequently and sometimes conflict. 57 The HIPAA privacy, security and breach notification regulations, including the expanded requirements under HITECH, establish comprehensive federal standards with respect to the uses and disclosures of PHI by health plans, healthcare providers, including laboratories, and healthcare clearinghouses, in addition to setting standards to protect the confidentiality, integrity and security of PHI.
As we and our collaborators commercialize additional products and services, we will need to incorporate new equipment, implement new technology systems and laboratory processes and hire new personnel with different qualifications. Failure to manage this growth or transition could result in turnaround time delays, higher service costs, declining service quality, deteriorating customer service and slower responses to competitive challenges.
As we and our collaborators commercialize additional products and services, we may need to incorporate new equipment, implement new technology systems and laboratory processes and hire new personnel with different qualifications. Failure to manage this growth or transition could result in turnaround time delays, higher service costs, declining service quality, deteriorating customer service and slower responses to competitive challenges.
Payments for tests billed under miscellaneous codes are determined by the MACs, which also have discretion to change those payment rates. 68 CMS uses the data reported by laboratories to calculate a payment rate for each CLFS test, other than those coded with miscellaneous codes and certain others, based on the volume-weighted median of the private payor rates.
Payments for tests billed under miscellaneous codes are determined by the MACs, which also have discretion to change those payment rates. 52 CMS uses the data reported by laboratories to calculate a payment rate for each CLFS test, other than those coded with miscellaneous codes and certain others, based on the volume-weighted median of the private payor rates.
We may not realize the anticipated benefits of any acquisition, technology license, collaboration or joint venture. 58 To finance any acquisitions or joint ventures, we may choose to issue shares of our common stock as consideration, which would dilute the ownership of our shareholders. Additional funds may not be available on terms that are favorable to us, or at all.
We may not realize the anticipated benefits of any acquisition, technology license, collaboration or joint venture. 43 To finance any acquisitions or joint ventures, we may choose to issue shares of our common stock as consideration, which would dilute the ownership of our shareholders. Additional funds may not be available on terms that are favorable to us, or at all.
Some of those licensed rights could provide us with freedom to operate for aspects of our products and services. We may need to obtain additional licenses from others to advance our research, development and commercialization activities. Our success may depend in part on the ability of our licensors to obtain, maintain and enforce patent protection for our licensed intellectual property.
Some of those licensed rights could provide us with freedom to operate for aspects of our products and services. We may need to obtain additional licenses from others to advance our research, development and commercialization activities. Our success may depend in part on the ability of our licensor to obtain, maintain and enforce patent protection for our licensed intellectual property.
Based on this analysis, we do not expect to have any permanent limitations on the utilization of our federal NOLs. Under the Tax Cuts and Jobs Act, federal NOLs incurred in 2018 and future years may be carried forward indefinitely, but the deductibility of such federal NOLs is subject to an annual limitation.
Based on this analysis, we do not expect to have any permanent limitations on the utilization of our federal NOLs. Under the Tax Cuts and Jobs Act of 2017 (the “TCJA”), federal NOLs incurred in 2018 and future years may be carried forward indefinitely, but the deductibility of such federal NOLs is subject to an annual limitation.
In addition, because our clinical diagnostics and therapeutic products and services represent new approaches to the research, diagnosis, detection and treatment of diseases, we cannot accurately estimate how our products and services, and those jointly created with our collaborators, would be priced, whether reimbursement could be obtained or any potential revenue generated.
In addition, because our clinical diagnostics and some of our potential therapeutic products will represent new approaches to the research, diagnosis, detection and treatment of diseases, we cannot accurately estimate how our products and services, and those jointly created with our collaborators, would be priced, whether reimbursement could be obtained or any potential revenue generated.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the ACA was passed, which substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. clinical diagnostic and biopharmaceutical industries.
In the U.S., there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the ACA was passed, which substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. clinical diagnostic and biopharmaceutical industries.
Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We currently have a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct.
Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We currently have a code of conduct applicable to all of our employees and suppliers, but it is not always possible to identify and deter misconduct.
Product development is expensive, may take years to complete and can have uncertain outcomes. Failure can occur at any stage of the development.
Therapeutic product development is expensive, may take years to complete and can have uncertain outcomes. Failure can occur at any stage of the development.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited.
Patents have a limited lifespan. In the U.S., if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited.
As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. 84 Risks Relating to our Common Stock and Capital Structure The market price of our common stock is volatile and is likely to continue to fluctuate substantially.
As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. 67 Risks Relating to our Common Stock and Capital Structure The market price of our common stock is volatile and is likely to continue to fluctuate substantially.
These uncertainties are confounded by parallel changes in laws adjacent to privacy, such as those impacting machine learning and artificial intelligence or data use, and we may incur substantial expense or experience disruption as related to compliance with these laws, which would adversely affect our ability to conduct our business. 75 Security breaches, loss of data and other disruptions could compromise confidential, personal and sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
These uncertainties are confounded by parallel changes in laws adjacent to privacy, such as those impacting machine learning and artificial intelligence or data use, and we may incur substantial expense or experience disruption as related to compliance with these laws, which would adversely affect our ability to conduct our business. 59 Security and cybersecurity breaches, loss of data and other disruptions could compromise confidential, personal and sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or products and services or grant licenses on terms that are not favorable to us. 57 Our ability to use our NOL carryforwards and certain other tax attributes may be limited.
If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or products and services or grant licenses on terms that are not favorable to us. 42 Our ability to use our NOL carryforwards and certain other tax attributes may be limited.
In addition, we do not control the timing of disclosure of any such milestones related to any of our products and services that are managed by our collaborators. Any disclosure by us or our collaborators of data that is perceived as negative may have a material adverse impact on our stock price or overall valuation.
In addition, we do not control the timing of disclosure of any such milestones related to any of our products that are managed by our collaborators. Any disclosure by us or our collaborators of data that is perceived as negative may have a material adverse impact on our stock price or overall valuation.
We depend on information technology and telecommunications systems, including third-party cloud computing infrastructure, operating systems and artificial intelligence platforms, for significant elements of our operations, including our laboratory information management system, clinical immunomics database, immunoSEQ Analyzer, TCR-Antigen Map, laboratory workflow tools, customer and collaborator reporting and related functions.
We depend on information technology and telecommunications systems, including third-party cloud computing infrastructure, operating systems and artificial intelligence platforms, for significant elements of our operations, including our laboratory information management system, clinical immunomics database, TCR-Antigen Map, laboratory workflow tools, customer and collaborator reporting and related functions.
In addition, some countries have stricter consumer notice or consent requirements relating to personal data collection, use or sharing, have more stringent requirements relating to organizations’ privacy programs and provide stronger individual rights. 74 Moreover, international privacy and data security regulations are becoming more complex and may result in greater penalties.
In addition, some countries have stricter consumer notice or consent requirements relating to personal data collection, use or sharing, have more stringent requirements relating to organizations’ privacy programs and provide stronger individual rights. 58 Moreover, international privacy and data security regulations are becoming more complex and may result in greater penalties.
New potential products and services may fail at any stage of development or commercialization and if we determine that any of our current or future products or services are unlikely to succeed, we may abandon them without any return on our investment. If we are unsuccessful in developing additional products or services, our potential for growth may be impaired.
Because new potential products may fail at any stage of development or commercialization and if we determine that any of our current or future products are unlikely to succeed, we may abandon them without any return on our investment. If we are unsuccessful in developing additional products, our potential for growth may be impaired.
NOLs generated prior to 2018 are eligible to be carried forward up to 20 years. Based on the available objective evidence, management determined that it was more likely than not that the net deferred tax assets would not be realizable as of December 31, 2022.
NOLs generated prior to 2018 are eligible to be carried forward up to 20 years. Based on the available objective evidence, management determined that it was more likely than not that the net deferred tax assets would not be realizable as of December 31, 2023.
In the ordinary course of our business, we and our collaborators collect and store sensitive data, including PHI, personal information, credit card and other financial information, intellectual property and proprietary business information owned or controlled by ourselves or our customers, third-party payors, our collaborators, government entities, insurance companies and other parties.
In the ordinary course of our business, we and our collaborators collect and store sensitive data, including PHI, personal information, financial information, intellectual property and proprietary business information owned or controlled by ourselves or our customers, third-party payors, our collaborators, government entities, insurance companies and other parties.
As a result, our relationship with Genentech may not result in the realization of its anticipated benefits. 46 We have limited experience with the development and commercialization of cellular therapeutics, and future TCR-based cellular therapies may never be successfully developed and commercialized as part of our Genentech collaboration.
As a result, our relationship with Genentech may not result in the realization of its anticipated benefits. 32 We have limited experience with the development and commercialization of cellular therapeutics, and future TCR-based cellular therapies may never be successfully developed and commercialized as part of our Genentech collaboration.
If the FDA were to disagree with our RUO classification or modify its approach to regulating products labeled for RUO, we could experience reduced revenue or increased compliance and other costs, which could adversely affect our business, prospects, results of operations and financial condition.
If the FDA were to disagree with our RUO classification or modify its approach to regulating RUO products, we could experience reduced revenue or increased compliance and other costs, which could adversely affect our business, prospects, results of operations and financial condition.
Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us.
Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the U.S. and abroad, report financial information or data accurately or disclose unauthorized activities to us.
An interruption in our laboratory operations, kit distribution or technology transfer could occur if we encounter delays, quality issues or other difficulties in securing these sequencers, equipment, reagents or other materials, and if we cannot then obtain an acceptable substitute.
An interruption in our laboratory operations, kit distribution, technology transfer, or development activities could occur if we encounter delays, quality issues or other difficulties in securing these sequencers, equipment, reagents or other materials, and if we cannot then obtain an acceptable substitute.
Accordingly, management applied a full valuation allowance against net deferred tax assets as of December 31, 2022. We may experience ownership changes in the future as a result of shifts in our stock ownership, which may be outside of our control.
Accordingly, management applied a full valuation allowance against net deferred tax assets as of December 31, 2023. We may experience ownership changes in the future as a result of shifts in our stock ownership, which may be outside of our control.
Changes in the reimbursement landscape may occur, which are outside of our control, and may impact the commercial viability of our products and services. 62 There is significant uncertainty related to the insurance coverage and reimbursement of newly cleared, authorized or approved products and services.
Changes in the reimbursement landscape may occur, which are outside of our control, and may impact the commercial viability of our products and services. 46 There is significant uncertainty related to the insurance coverage and reimbursement of newly cleared, authorized or approved products and services.
Our business could be adversely affected by global pandemics or health epidemics in regions where we have concentrations of clinical trial sites or other business operations, and such pandemics or epidemics could cause significant disruption in the operations of third-party manufacturers, suppliers, general contractors and sub-contractors related to capital projects and CROs upon whom we rely.
Our business could be adversely affected by global pandemics or health epidemics in regions where we have concentrations of clinical trial sites or other business operations, and such pandemics or epidemics could cause significant disruption in the operations of third-party manufacturers, suppliers, general contractors and sub-contractors related to capital projects and CROs upon whom we do or will need to rely.
In addition, within the United States, an increasing number of states and the federal government are considering or have proposed adoption of new data privacy laws. While not all of these bills become law, they add significant uncertainty about additional obligations or potential penalties which we may face in conducting our business.
In addition, within the U.S., an increasing number of states and the federal government are considering or have proposed adoption of new data privacy laws. While not all of these bills become law, they add significant uncertainty about additional obligations or potential penalties which we may face in conducting our business.
The uncertainties and costs surrounding the prosecution of our owned or in-licensed patent applications and the enforcement or defense of our owned or in-licensed issued patents could have a material adverse effect on our business. 79 Recent U.S.
The uncertainties and costs surrounding the prosecution of our owned or in-licensed patent applications and the enforcement or defense of our owned or in-licensed issued patents could have a material adverse effect on our business. 63 Recent U.S.
As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. 89 Item 1B. Un resolved Staff Comments Not applicable .
As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. 72 Item 1B. Un resolved Staff Comments Not applicable .
For example, we have entered into the Genentech Agreement, with the goal of accelerating the development and commercialization of T cell therapies for the treatment of a broad range of tumor types, and the Microsoft Agreement, which provides us with access to Microsoft’s research and machine learning technologies that we are using to develop our TCR-Antigen Map.
For example, we have entered into the Genentech Agreement, with the goal of accelerating the development and commercialization of T cell therapies for the treatment of a broad range of tumor types, and the Microsoft Agreement, which has provided us with access to Microsoft’s research and machine learning technologies that we are using to develop our TCR-Antigen Map.
Prior to obtaining regulatory clearances, authorizations or approvals for the commercial sale of any new therapeutic products or services, we must demonstrate that our products and services are both safe and effective for use in each target disease indication. Clinical studies may be necessary to demonstrate that a product or service is safe and effective.
Prior to obtaining regulatory clearances, authorizations or approvals for the commercial sale of any new therapeutic products or services, we must demonstrate that our products are both safe and effective for use in each target disease indication. Clinical studies will be necessary to demonstrate that a product is safe and effective.
Moreover, increasing efforts by governmental and third-party payors, in the United States and abroad, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for newly cleared, authorized or approved devices and medicines and, as a result, they may not cover or provide adequate payment for our clinical diagnostics or the cellular therapies to be sold by us or our collaborators.
Moreover, increasing efforts by governmental and third-party payors, in the U.S. and abroad, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for newly cleared, authorized or approved devices and medicines and, as a result, they may not cover or provide adequate payment for our clinical diagnostics or the cellular therapies to be sold by us or our collaborators.
We also depend on our proprietary workflow software to support new product and service launches and regulatory compliance. 55 We use complex software processes and pipelines to manage samples and evaluate sequencing result data.
We also depend on our proprietary workflow software to support new product launches and regulatory compliance. We use complex software processes and pipelines to manage samples and evaluate sequencing result data.
Our present and future funding requirements will depend on many factors, including: • our ability to achieve revenue growth; • our rate of progress in establishing payor coverage and reimbursement arrangements with domestic and international commercial third-party payors and government payors; • the cost of expanding our laboratory operations and offerings, including our sales and marketing efforts; • our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of our immunoSEQ research services and kits, and reimbursement for our clonoSEQ diagnostic test and cellular therapies developed under the Genentech Agreement; • our rate of progress in, and research and development expenses associated with, products and services in research and early development; • the effect of competing technological, product and market developments; • costs related to international expansion; and • the potential cost of and delays in product development as a result of any regulatory oversight applicable to our products and services.
Our present and future funding requirements will depend on many factors, including: • our ability to achieve revenue growth; • our rate of continued progress in establishing payor coverage and reimbursement arrangements with domestic and international commercial third-party payors and government payors for our clonoSEQ diagnostic test; • the cost of expanding our laboratory operations and offerings, including our sales and marketing efforts; • our rate of progress in supporting the development of cellular therapies developed under the Genentech Agreement; • our rate of progress in, and research and development expenses associated with, products and services in research and early development; • the effect of competing technological, product and market developments; • costs related to international expansion; and • the potential cost of and delays in product development as a result of any regulatory oversight applicable to our products and services.
Factors relating to our business that may contribute to these fluctuations include the following, as well as other factors described elsewhere in this Annual Report on Form 10-K: • the timing of upfront payments from our collaborators; • our ability and that of our collaborators to develop and successfully commercialize our products and services; • our ability to achieve collaboration-based milestones on currently contemplated timelines, or at all; • availability and extent of reimbursement by governmental and private payors for our products and services; 52 • the ability of our clinical sales teams to convert physicians from using incumbent products in the market to clonoSEQ and new diagnostic products and services we may develop; • our ability to drive repeat usage of the clonoSEQ diagnostic test by physicians and get reimbursed for that repeat usage by commercial and government payors for monitoring of MRD; • the outcomes of research initiatives, clinical trials or other product development or approval processes conducted by us or our collaborators; • the level of demand for our products and services, which may vary significantly or be unknown for our newest products and services; • our relationships, and any associated exclusivity terms, with collaborators; • our ability to manage our growth and operating expenses; • our contractual or other obligations to provide resources to fund our products and services and to provide resources to our collaborations; • delays or failures in advancement of future products in clinical trials by us or our collaborators; • risks associated with the future international expansion of our business, including the potential to conduct clinical trials and commercialize our products and services in multiple international locations; • our ability and that of our collaborators to consistently manufacture our products; • our dependence on, and the need to attract and retain, key management and other personnel; • our ability to obtain, protect and enforce our intellectual property rights; • our ability to prevent the theft or misappropriation of our intellectual property, know-how or technologies; • our ability to obtain additional capital that may be necessary to expand our business; • our ability to accurately report our financial results in a timely manner; • business interruptions such as power outages, strikes, acts of terrorism or natural disasters; and • our ability to use our net operating loss (“NOL”) carryforwards to offset future taxable income.
Factors relating to our business that may contribute to these fluctuations include the following, as well as other factors described elsewhere in this Annual Report on Form 10-K: • the timing of upfront payments from our collaborators; • our ability and that of our collaborators to develop and successfully commercialize our products, including therapeutic products; • our ability to achieve collaboration-based milestones on currently contemplated timelines, or at all; • availability and extent of reimbursement by governmental and private payors for our products; • the ability of our clinical sales teams to continue converting physicians from using incumbent products in the market to clonoSEQ and new diagnostic products and services we may develop; • our ability to continue driving repeat usage of the clonoSEQ diagnostic test by physicians and get reimbursed for that repeat usage by commercial and government payors for monitoring of MRD; • the outcomes of research initiatives, clinical trials or other product development or approval processes conducted by us or our collaborators; • the level of demand for our products; • our relationships, and any associated exclusivity terms, with collaborators; • our ability to manage our growth and operating expenses; • our contractual or other obligations to provide resources to fund our products and services and to provide resources to our collaborations; • delays or failures in advancement of future products in clinical trials by us or our collaborators; • risks associated with any future international expansion of our business, including the potential to conduct clinical trials and commercialize our products and services in multiple international locations; • our ability and that of our collaborators to consistently manufacture our products; • our dependence on, and the need to attract and retain, key management and other personnel; • our ability to obtain, protect and enforce our intellectual property rights; • our ability to prevent the theft or misappropriation of our intellectual property, know-how or technologies; 38 • our ability to obtain additional capital that may be necessary to expand our business; • our ability to accurately report our financial results in a timely manner; • business interruptions such as power outages, strikes, acts of terrorism or natural disasters; and • our ability to use our net operating loss (“NOL”) carryforwards to offset future taxable income.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also lease approximately 3,100 square feet of office space in New York City, New York, pursuant to a lease that expires November 2025, subject to our ability to exercise an early termination right in 2023.
Biggest changeWe also lease approximately 3,100 square feet of office space in New York City, New York, pursuant to a lease that expires November 2025.
In a separate Seattle, Washington location, we lease approximately 65,500 square feet pursuant to a lease that expires October 2032, subject to two options to extend the lease for five years. Both of our Seattle, Washington locations contain office and laboratory space. We also lease approximately 27,000 square feet of a warehouse in Bothell, Washington.
In a separate Seattle, Washington location, we lease approximately 65,500 square feet pursuant to a lease that expires October 2032, subject to our option to twice extend the lease for five years. Both of our Seattle, Washington locations contain office and laboratory space. We also lease approximately 27,000 square feet of a warehouse in Bothell, Washington.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeRegardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Item 4. Mine Safe ty Disclosures Not applicable . 90 PAR T II
Biggest changeRegardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Item 4. Mine Safe ty Disclosures Not applicable . 73 PAR T II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing of Adaptive Biotechnologies Corporation under the Securities Act or the Exchange Act. Item 6. [Re served] Not applicable. 91
Biggest changeThis graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing of Adaptive Biotechnologies Corporation under the Securities Act or the Exchange Act.
Holders of Record As of February 9, 2023, there were approximately 96 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.
Holders of Record As of February 23, 2024, there were approximately 85 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeComparison of the Years Ended December 31, 2022 and 2021 Revenue Year Ended December 31, Change Percent of Revenue (in thousands, except percentages) 2022 2021 $ % 2022 2021 Immune Medicine revenue Service revenue $ 31,777 $ 24,482 $ 7,295 30 % Collaboration revenue 66,387 63,651 2,736 4 Total Immune Medicine revenue 98,164 88,133 10,031 11 53 % 57 % MRD revenue Service revenue 81,144 56,211 24,933 44 Regulatory milestone revenue 6,000 10,000 (4,000 ) (40 ) Total MRD revenue 87,144 66,211 20,933 32 47 % 43 % Total revenue $ 185,308 $ 154,344 $ 30,964 20 100 % 100 % The $10.0 million increase in Immune Medicine revenue was primarily due to a $13.6 million increase in revenue generated from our biopharmaceutical and academic customers and a $0.8 million increase in revenue generated from the Genentech Agreement due to increased collaboration expenses, which were partially offset by a $4.4 million decrease in revenue generated from our T-Detect COVID clinical customers largely related to our decision to defer commercialization of T-Detect COVID. 97 The $20.9 million increase in MRD revenue was primarily due to a $15.8 million increase in revenue generated from providing our clonoSEQ report to clinical customers and a $10.1 million increase in revenue generated from providing MRD sample testing services to biopharmaceutical customers.
Biggest changeComparison of the Years Ended December 31, 2023 and 2022 Revenue Year Ended December 31, Change Percent of Revenue (in thousands, except percentages) 2023 2022 $ % 2023 2022 Immune Medicine revenue Service revenue $ 24,959 $ 31,777 $ (6,818 ) (21)% Collaboration revenue 42,578 66,387 (23,809 ) (36 ) Total Immune Medicine revenue 67,537 98,164 (30,627 ) (31 ) 40 % 53 % MRD revenue Service revenue 102,739 81,144 21,595 27 Regulatory milestone revenue — 6,000 (6,000 ) (100 ) Total MRD revenue 102,739 87,144 15,595 18 60 % 47 % Total revenue $ 170,276 $ 185,308 $ (15,032 ) (8 ) 100 % 100 % 79 The $30.6 million decrease in Immune Medicine revenue was primarily due to a $20.2 million decrease in revenue generated from the Genentech Agreement which resulted from decreased collaboration expenses partially offset by the $8.2 million of revenue recognized in connection with the regulatory milestone achieved in May 2023.
If our sample volume throughput is reduced, cost of revenue as a percentage of total revenue may be adversely impacted due to fixed overhead costs. Research and Development Expenses Research and development expenses consist of laboratory materials costs, personnel-related expenses (including salaries, benefits and share-based compensation), equipment costs, allocated facility costs, information technology expenses and contract service expenses.
If our sample volume throughput is reduced, cost of revenue as a percentage of total revenue may be adversely impacted due to fixed overhead costs. Research and Development Expenses Research and development expenses consist of laboratory materials costs, personnel-related expenses (including salaries, benefits and share-based compensation), equipment costs, allocated facility and information technology costs and contract service expenses.
We have not historically tracked research and development expenses by specific product candidates. A component of our research and development expenses are costs supporting clinical and analytical validations to obtain regulatory approval for future clinical products and services. Additionally, the costs to support the Genentech Agreement are a component of our research and development expenses.
We have not historically tracked research and development expenses by specific product candidates. The costs to support the Genentech Agreement are a component of our research and development expenses. Additionally, a component of our research and development expenses are costs supporting clinical and analytical validations to obtain regulatory approval for future clinical products and services.
While our significant accounting policies are described in more detail in Note 2 of the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are critical to the judgments and estimates used in the preparation of our consolidated financial statements.
While our significant accounting policies are described in more detail in Note 2, Significant Accounting Policies of the accompanying notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are critical to the judgments and estimates used in the preparation of the consolidated financial statements.
Revenue Interest Liability, Net and Related Imputed Interest The revenue interest liability balance associated with the Purchase Agreement that we entered into in September 2022 with OrbiMed is presented net of unamortized issuance costs on our consolidated balance sheets. We impute our associated interest expense using the effective interest rate method.
Revenue Interest Liability, Net and Related Imputed Interest The revenue interest liability balance associated with the Purchase Agreement that we entered into in September 2022 with OrbiMed is presented net of unamortized issuance costs on the consolidated balance sheets. We impute our associated interest expense using the effective interest rate method.
Management ’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and the other financial information appearing elsewhere in this Annual Report on Form 10-K, as well as the other financial information we file with the Securities and Exchange Commission ("SEC") from time to time.
Management ’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes and the other financial information appearing elsewhere in this Annual Report on Form 10-K, as well as the other financial information we file with the Securities and Exchange Commission ( “ SEC ” ) from time to time.
With the use of clonoSEQ, we are transforming how lymphoid cancers are treated by working with providers, pharmaceutical partners and payors. Immune Medicine leverages our platform’s proprietary ability to sequence, map, pair and characterize TCRs and BCRs at scale to drive opportunities in cancer, autoimmune disorders, infectious diseases and neurodegenerative disorders.
With the use of clonoSEQ, we are transforming how lymphoid cancers are treated by working with providers, pharmaceutical partners and payors. Immune Medicine leverages our proprietary ability to sequence, map, pair and characterize TCRs and BCRs at scale to drive opportunities in cancer, autoimmune disorders, infectious diseases and neurodegenerative disorders.
Further, we believe it is helpful in highlighting trends in our operating results because it excludes items that are not indicative of our core operating performance. Adjusted EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
Further, we believe it is helpful in highlighting trends in our operating results because it excludes items that are not indicative of our core operating performance. 81 Adjusted EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
In periods where our sample estimates are reduced or a customer project is cancelled and, in either case, we have remaining related deferred revenue, we recognize revenue using a cumulative catch-up approach based on the proportion of samples delivered to date relative to the remaining samples expected to be delivered.
In periods where our sample estimates are reduced or a customer project is cancelled and, in either case, we have remaining related deferred revenue, we recognize revenue using a cumulative catch-up approach based on the proportion of samples delivered to date relative to the total samples expected to be delivered.
Key assumptions in this analysis include anticipated demand for our products and services, including industry and regulatory changes, future revenue growth and cash flow trends. These assumptions are determined based on our historical performance and management’s forecasted results.
Key assumptions in this analysis include anticipated demand for our products and services, including industry and regulatory changes, revenue growth and cash flow trends. These assumptions are determined based on our historical performance and management’s forecasted results.
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.
Our immune medicine platform applies our proprietary technologies to read the diverse genetic code of a patient’s immune system and understand precisely how the immune system detects and treats disease in that patient.
We have funded our operations to date principally from the sale of convertible preferred stock and common stock and, to a lesser extent, revenue and proceeds from the revenue interest purchase agreement.
We have funded our operations to date principally from the sale of convertible preferred stock and common stock and, to a lesser extent, revenue and proceeds from the Purchase Agreement.
We have funded our operations to date principally from the sale of convertible preferred stock and common stock, and, to a lesser extent, revenue and proceeds from the Purchase Agreement. Pursuant to the Purchase Agreement entered into with OrbiMed in September 2022, we received net cash proceeds of $124.4 million, after deducting issuance costs.
We have funded our operations to date principally from the sale of convertible preferred stock and common stock, and, to a lesser extent, revenue and proceeds from the Purchase Agreement. Pursuant to the Purchase Agreement entered into in September 2022, we received net cash proceeds of $124.4 million, after deducting issuance costs.
See Note 16 of the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details on our restructuring expense. (3) Represents share-based compensation expense related to stock option, restricted stock unit and market-based restricted stock unit awards.
See Note 16, Restructuring of the accompanying notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details on our restructuring expense. (4) Represents share-based compensation expense related to stock option, restricted stock unit and market-based restricted stock unit awards.
NOLs generated prior to 2018 are eligible to be carried forward up to 20 years. Based on the available objective evidence, management determined that it was more likely than not that the net deferred tax assets would not be realizable as of December 31, 2022.
NOLs generated prior to 2018 are eligible to be carried forward up to 20 years. Based on the available objective evidence, management determined that it was more likely than not that the net deferred tax assets would not be realizable as of December 31, 2023.
We base our estimates on historical experience and or other relevant assumptions that we believe to be reasonable under the circumstances.
We base our estimates on historical experience and other relevant assumptions that we believe to be reasonable under the circumstances.
A significant increase or decrease in or changes in timing of forecasted revenue will prospectively impact our interest expense and the time period for repayment. As of December 31, 2022, a hypothetical ten percent increase in forecasted quarterly revenue would not result in a material change in projected annual interest expense.
A significant increase or decrease in or changes in timing of forecasted revenue will prospectively impact our interest expense and the time period for repayment. As of December 31, 2023, a hypothetical ten percent increase in forecasted quarterly revenue would not result in a material change in projected annual interest expense.
Some of these activities have generated and may in the future generate revenue. We expect research and development expenses to experience decreases in the short term and to decrease as a percentage of revenue in the long term, although the percentage may fluctuate from period to period due to the timing and extent of our development and commercialization efforts.
Some of these activities have generated and may in the future generate revenue. We expect research and development expenses to decrease in the short term and to decrease as a percentage of revenue in the long term, although the percentage may fluctuate from period to period due to the timing and extent of our development and commercialization efforts.
In addition, these expenses include external costs such as advertising expenses, customer education and promotional expenses, market analysis expenses, conference fees, travel expenses and allocated facility costs. We expect sales and marketing expenses to remain relatively consistent in the short term.
In addition, these expenses include external costs such as advertising expenses, customer education and promotional expenses, market analysis expenses, conference fees, travel expenses and allocated facility and information technology costs. We expect sales and marketing expenses to remain relatively consistent in the short term.
We will also be entitled to receive up to $125.0 million in subsequent installments as follows: (i) $75.0 million upon our request occurring no later than September 12, 2025 and (ii) $50.0 million upon our request in connection with certain permitted acquisitions occurring no later than September 12, 2025, in each case subject to certain funding conditions.
We are also entitled to receive up to $125.0 million in subsequent installments as follows: (i) $75.0 million upon our request occurring no later than September 12, 2025 and (ii) $50.0 million upon our request in connection with certain permitted acquisitions occurring no later than September 12, 2025, in each case subject to certain funding conditions.
If impairment exists, the carrying value of the goodwill is reduced to fair value through an impairment charge recorded in our consolidated statements of operations. To date, we have not recognized any impairment of goodwill. 103
If impairment exists, the carrying value of the goodwill is reduced to fair value through an impairment charge recorded in the consolidated statements of operations. To date, we have not recognized any impairment of goodwill.
Other limitations include that Adjusted EBITDA does not reflect: • all expenditures or future requirements for capital expenditures or contractual commitments; • changes in our working capital needs; • interest expense, which is an ongoing element of our costs to operate; • income tax (expense) benefit, which may be a necessary element of our costs and ability to operate; • the costs of replacing the assets being depreciated and amortized, which will often have to be replaced in the future; • the noncash component of employee compensation expense; and • the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations, such as our March 2022 restructuring and reduction in workforce.
Other limitations include that Adjusted EBITDA does not reflect: • all expenditures or future requirements for capital expenditures or contractual commitments; • changes in our working capital needs; • interest expense, which is an ongoing element of our costs to operate; • income tax (expense) benefit, which may be a necessary element of our costs and ability to operate; • the costs of replacing the assets being depreciated and amortized, which will often have to be replaced in the future; • the noncash component of employee compensation expense; • right-of-use and related long-lived assets impairment costs; and • the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations, such as our March 2022 restructuring and reduction in workforce.
We disclose our clonoSEQ test volume, which includes the number of clonoSEQ reports and results we have provided to ordering physicians in the United States and international technology transfer sites. These volumes do not include sample results from our biopharmaceutical customers or academic institutions utilizing our MRD services.
We disclose our clonoSEQ test volume, which includes the number of clonoSEQ reports and results we have provided to ordering physicians in the U.S. and international technology transfer sites. These volumes do not include sample results from our biopharmaceutical customers or academic institutions utilizing our MRD services.
As projected revenues change from our initial estimates, the amount of the obligation and timing of payment is likely to change. See Note 11 of the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.
As projected revenues change from our initial estimates, the amount of the obligation and timing of payment is likely to change. See Note 11, Revenue Interest Purchase Agreement of the accompanying notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.
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, imputing interest for the Purchase Agreement, the provision for income taxes, including related reserves, and the analysis of goodwill impairment, among others.
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, imputing interest for the Purchase Agreement, the provision for income taxes, including related reserves, the analysis of goodwill impairment and the recoverability and impairment of long-lived assets, among others.
See Note 14 of the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details on our share-based compensation expense.
See Note 14, Equity Incentive Plans of the accompanying notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details on our share-based compensation expense.
We include the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur.
We include the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is not constrained to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 may be found in Part II, Item 7 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 15, 2022.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 may be found in Part II, Item 7 under the caption “ Management's Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 14, 2023.
The cornerstone of our platform and core immunosequencing product, immunoSEQ, serves as our underlying research and development engine and generates revenue from biopharmaceutical and academic customers. Leveraging our collaboration with Microsoft Corporation, we are creating the TCR-Antigen Map. We are using the TCR-Antigen Map to identify and validate disease signatures to improve the diagnosis and treatment of many diseases.
Our core research product, Adaptive Immunosequencing, serves as our underlying research and development engine and generates revenue from biopharmaceutical and academic customers. Leveraging our collaboration with Microsoft, we are creating the TCR-Antigen Map. We are using the TCR-Antigen Map to identify and validate disease signatures to improve the diagnosis and treatment of many diseases.
Our Immune Medicine revenue consists of revenue generated from (1) providing sample testing services for our commercial research product, immunoSEQ, to biopharmaceutical customers and academic institutions; (2) providing our T-Detect COVID tests to clinical customers; and (3) our collaboration agreements with Genentech and other biopharmaceutical customers in areas of drug and target discovery.
Our Immune Medicine revenue consists of revenue generated from (1) providing sample testing services for our commercial research product, Adaptive Immunosequencing, to biopharmaceutical customers and academic institutions; (2) our collaboration agreements with Genentech and other biopharmaceutical customers in areas of drug and target discovery; and (3) for prior years, providing our T-Detect COVID tests to clinical customers.
Based on this analysis, we do not expect to have any permanent limitations on the utilization of our federal NOLs. Under the Tax Cuts and Jobs Act, federal NOLs incurred in 2018 and future years may be carried forward indefinitely, but the deductibility of such federal NOLs is subject to an annual limitation.
Based on this analysis, we do not expect to have any permanent limitations on the utilization of our federal NOLs. Under the TCJA, federal NOLs incurred in 2018 and future years may be carried forward indefinitely, but the deductibility of such federal NOLs is subject to an annual limitation.
Accordingly, management applied a full valuation allowance against net deferred tax assets as of December 31, 2022. Critical Accounting Policies and Estimates We have prepared our consolidated financial statements in accordance with GAAP.
Accordingly, management applied a full valuation allowance against net deferred tax assets as of December 31, 2023. Critical Accounting Policies and Estimates We have prepared the consolidated financial statements in accordance with GAAP.
Liquidity and Capital Resources We have incurred losses since inception and have incurred negative cash flows from operations since inception through December 31, 2018, and again in the years ended December 31, 2020, 2021 and 2022. As of December 31, 2022, we had an accumulated deficit of $919.1 million.
Liquidity and Capital Resources We have incurred losses since inception and have incurred negative cash flows from operations since inception through the year ended December 31, 2018, and again in the years ended December 31, 2020, 2021, 2022 and 2023. As of December 31, 2023, we had an accumulated deficit of $1.1 billion.
For our research customers, which include biopharmaceutical customers and academic institutions for both our immunoSEQ and MRD services, delivery of the respective test results may include some level of professional support and analysis. Terms with biopharmaceutical customers generally include non-refundable payments made in advance of services ("upfront payments"), which we record as deferred revenue.
For our research customers, which include biopharmaceutical customers and academic institutions for both our Adaptive Immunosequencing and MRD services, delivery of the respective test results may include some level of professional support and analysis. Terms with biopharmaceutical customers generally include non-refundable payments made in advance of services (“upfront payments”), which we record as deferred revenue.
Any unrecognized revenue from the initial billable test is recorded as deferred revenue and recognized either as we deliver our estimate of the remaining tests in a patient’s treatment cycle or when the likelihood becomes remote that a patient will receive additional testing. We expect revenue to increase over the long term.
Any unrecognized revenue from the initial billable test is recorded as deferred revenue and recognized either as we deliver our estimate of the remaining tests in a patient’s treatment cycle or when the likelihood becomes remote that a patient will receive additional testing.
This section generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
This section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to capital preservation and liquidity. Currently, our funds are held in money market funds and marketable securities consisting of United States government debt securities, corporate bonds and commercial paper.
Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to capital preservation and liquidity. Currently, our funds are held in money market funds and marketable securities consisting of U.S. government treasury and agency securities, commercial paper and corporate bonds.
As of December 31, 2022, we had cash, cash equivalents and marketable securities of $498.2 million. We believe our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months.
As of December 31, 2023, we had cash, cash equivalents and marketable securities of $346.4 million. 82 We believe our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months.
We recognized revenue of $185.3 million and $154.3 million for the year ended December 31, 2022 and 2021, respectively. Net loss attributable to Adaptive Biotechnologies Corporation was $200.2 million and $207.3 million for the year ended December 31, 2022 and 2021, respectively.
We recognized revenue of $170.3 million and $185.3 million for the year ended December 31, 2023 and 2022, respectively. Net loss attributable to Adaptive Biotechnologies Corporation was $225.3 million and $200.2 million for the year ended December 31, 2023 and 2022, respectively.
If our available cash, cash equivalents and marketable securities balances and anticipated cash flows from operations are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing.
If our available cash, cash equivalents and marketable securities balances and anticipated cash flows are insufficient to satisfy our liquidity requirements, we may request an additional installment under the Purchase Agreement, seek to sell additional equity or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing.
Certain of our MRD revenue arrangements with biopharmaceutical customers include consideration in the form of regulatory milestones upon regulatory approval of the respective biopharmaceutical partners’ therapeutics. Such revenue is constrained from recognition until it becomes probable that such milestone will be achieved.
Certain of our MRD revenue arrangements with biopharmaceutical customers include cash consideration from the achievement of regulatory milestones of the respective biopharmaceutical customers’ therapeutics. Such revenue is constrained from recognition until it becomes probable that such milestone will be achieved.
See Note 11 of the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details on the Purchase Agreement. (2) Represents expenses recognized in conjunction with restructuring activities.
See Note 10, Leases of the accompanying notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details on our impairment expense. (3) Represents expenses recognized in conjunction with restructuring activities.
While we may experience variability in revenue in the near term, as long-term revenue from sales of our current and future products and services is expected to grow, we expect our accounts receivable and inventory balances to increase.
While we may experience variability in revenue in the near term, over the long-term we expect revenue from our current and future products and services to grow. Accordingly, we expect our accounts receivable and inventory balances to increase.
Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure that we define as net loss attributable to Adaptive Biotechnologies Corporation adjusted for interest and other income, net, interest expense, income tax (expense) benefit, depreciation and amortization expense, restructuring expense and share-based compensation expense.
Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure that we define as net loss attributable to Adaptive Biotechnologies Corporation adjusted for interest and other income, net, interest expense, income tax (expense) benefit, depreciation and amortization expense, impairment costs for right-of-use and related long-lived assets, restructuring expense and share-based compensation expense.
Cash provided by financing activities during the year ended December 31, 2021 was $27.1 million, which was primarily attributable to proceeds from the exercise of stock options.
Financing Activities Cash provided by financing activities during the year ended December 31, 2023 was $2.2 million, which was attributable to proceeds from the exercise of stock options.
We plan to utilize the existing cash, cash equivalents and marketable securities on hand primarily to fund our continued research and development initiatives for our drug discovery initiatives, our ongoing investments in our immune medicine platform, our commercial and marketing activities associated with our clinical products and services and our continued investments in streamlining our laboratory operations.
We plan to utilize the existing cash, cash equivalents and marketable securities on hand primarily to fund our continued research and development initiatives related to drug discovery, our commercial and marketing activities associated with clonoSEQ and our continued investments in streamlining our laboratory operations.
In determining the appropriate amount of revenue to recognize as we fulfill our obligations under these agreements, 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. 102 A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.
As we fulfill our obligations under these agreements, 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.
Costs associated with processing samples are recorded as expense, regardless of the timing of revenue recognition. As such, cost of revenue and related volume does not always trend in the same direction as revenue recognition and related volume.
Allocated facility costs include depreciation of laboratory equipment, as well as allocated facility occupancy and information technology costs. Costs associated with processing samples are recorded as expense, regardless of the timing of revenue recognition. As such, cost of revenue and related volume does not always trend in the same direction as revenue recognition and related volume.
General and Administrative Expenses General and administrative expenses include personnel-related expenses (including salaries, benefits and share-based compensation) for our personnel in executive, legal, finance and accounting, human resources and other administrative functions, including third-party clinical billing services. In addition, these expenses include insurance costs, external legal costs, accounting and tax service expenses, consulting fees and allocated facility costs.
General and Administrative Expenses General and administrative expenses include personnel-related expenses (including salaries, benefits and share-based compensation) for our personnel in executive, legal, finance and accounting, human resources and other administrative functions, including third-party clinical billing services.
Cash Flows The following table summarizes our uses and sources of cash for the years ended December 31, 2022 and 2021 (in thousands): Year Ended December 31, 2022 2021 Net cash used in operating activities $ (183,945 ) $ (192,727 ) Net cash provided by investing activities 2,905 181,210 Net cash provided by financing activities 132,265 27,146 Operating Activities Cash used in operating activities during the year ended December 31, 2022 was $183.9 million, which was primarily attributable to a net loss of $200.4 million and a net change in our operating assets and liabilities of $71.5 million, partially offset by noncash share-based compensation of $55.5 million, noncash depreciation and amortization of $21.7 million, noncash lease expense of $7.2 million, a research and development inventory reserve charge of $2.6 million and noncash interest expense related to the Purchase Agreement of $1.0 million.
Cash used in operating activities during the year ended December 31, 2022 was $183.9 million, which was primarily attributable to a net loss of $200.4 million and a net change in our operating assets and liabilities of $71.5 million, partially offset by noncash share-based compensation of $55.5 million, noncash depreciation and amortization of $21.7 million, noncash lease expense of $7.2 million, a research and development inventory reserve charge of $2.6 million and noncash interest expense related to the Purchase Agreement of $1.0 million.
Additionally, costs to support the Genentech Agreement are a component of our research and development expenses. 95 We expect cost of revenue to increase in absolute dollars as we grow our sample testing volume and make investments in laboratory consolidation and facilities, but the cost per sample to decrease over the long term due to the efficiencies we may gain as assay volume increases from improved utilization of our laboratory capacity, automation and other value engineering initiatives.
We expect cost of revenue to increase in absolute dollars as we grow our sample testing volume, but the cost per sample to decrease over the long term due to the efficiencies we may gain as assay volume increases from improved utilization of our laboratory capacity, automation and other value engineering initiatives.
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 Payment, Second Payment and Third Payment have been made, the applicable payment percentage applied to the Revenue Interest shall be ten percent of the quarterly Revenue Base.
If each of the First Payment, Second Payment and Third Payment have been made, the applicable payment percentage applied to the Revenue Interest shall be ten percent of the quarterly Revenue Base. Revenue Interest Payments shall be made quarterly within 45 days following the end of each fiscal quarter.
A significant increase or decrease in or changes in timing of forecasted revenue will prospectively impact our interest expense. 96 Statements of Operations Data and Other Financial and Operating Data The following table sets forth our statements of operations data and other financial and operating data for the periods presented (in thousands, except share and per share amounts): Year Ended December 31, 2022 2021 2020 Statements of Operations Data: Revenue $ 185,308 $ 154,344 $ 98,382 Operating expenses Cost of revenue 57,909 49,301 22,530 Research and development 141,756 142,343 116,072 Sales and marketing 95,603 95,465 61,358 General and administrative 88,527 74,502 49,536 Amortization of intangible assets 1,699 1,699 1,703 Total operating expenses 385,494 363,310 251,199 Loss from operations (200,186 ) (208,966 ) (152,817 ) Interest and other income, net 4,056 1,668 6,590 Interest expense (4,238 ) — — Net loss (200,368 ) (207,298 ) (146,227 ) Add: Net loss attributable to noncontrolling interest 177 19 — Net loss attributable to Adaptive Biotechnologies Corporation $ (200,191 ) $ (207,279 ) $ (146,227 ) Net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted $ (1.40 ) $ (1.48 ) $ (1.11 ) Weighted-average shares used in computing net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted 142,515,917 140,354,915 131,216,468 Other Financial and Operating Data: Adjusted EBITDA (1) $ (121,589 ) $ (151,743 ) $ (119,584 ) (1) Adjusted EBITDA is a non-GAAP financial measure that we define as net loss attributable to Adaptive Biotechnologies Corporation adjusted for interest and other income, net, interest expense, income tax (expense) benefit, depreciation and amortization expense, restructuring expense and share-based compensation expense.
A significant increase or decrease in or changes in timing of forecasted revenue will prospectively impact our interest expense. 78 Statements of Operations Data and Other Financial and Operating Data The following table sets forth our statements of operations data and other financial and operating data for the periods presented (in thousands, except share and per share amounts): Year Ended December 31, 2023 2022 2021 Statements of Operations Data: Revenue $ 170,276 $ 185,308 $ 154,344 Operating expenses Cost of revenue 75,553 57,909 49,301 Research and development 122,117 141,756 142,343 Sales and marketing 88,579 95,603 95,465 General and administrative 83,934 88,527 74,502 Amortization of intangible assets 1,699 1,699 1,699 Impairment of right-of-use and related long-lived assets 25,429 — — Total operating expenses 397,311 385,494 363,310 Loss from operations (227,035 ) (200,186 ) (208,966 ) Interest and other income, net 15,531 4,056 1,668 Interest expense (13,800 ) (4,238 ) — Net loss (225,304 ) (200,368 ) (207,298 ) Add: Net loss attributable to noncontrolling interest 54 177 19 Net loss attributable to Adaptive Biotechnologies Corporation $ (225,250 ) $ (200,191 ) $ (207,279 ) Net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted $ (1.56 ) $ (1.40 ) $ (1.48 ) Weighted-average shares used in computing net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted 144,383,294 142,515,917 140,354,915 Other Financial and Operating Data: Adjusted EBITDA (1) $ (116,413 ) $ (121,589 ) $ (151,743 ) (1) Adjusted EBITDA is a non-GAAP financial measure that we define as net loss attributable to Adaptive Biotechnologies Corporation adjusted for interest and other income, net, interest expense, income tax (expense) benefit, depreciation and amortization expense, impairment costs for right-of-use and related long-lived assets, restructuring expense and share-based compensation expense.
If there should be an ownership change, our ability to utilize our NOL carryforwards and credits could be limited. We have completed a Section 382 analysis for changes in ownership through December 31, 2020 and continue to monitor for changes that could trigger a limitation.
The annual limitation may result in the expiration of NOL carryforwards and credits before utilization. If there should be an ownership change, our ability to utilize our NOL carryforwards and credits could be limited. We have completed a Section 382 analysis for changes in ownership through June 30, 2023 and continue to monitor for changes that could trigger a limitation.
Interest and Other Income, Net Year Ended December 31, Change (in thousands, except percentages) 2022 2021 $ % Interest and other income, net $ 4,056 $ 1,668 $ 2,388 143 % The $2.4 million increase in interest and other income, net was primarily attributable to an increase in net interest income and investment amortization resulting primarily from increased interest rates and related yields of our invested cash and cash equivalents and marketable securities.
Interest and Other Income, Net Year Ended December 31, Change (in thousands, except percentages) 2023 2022 $ % Interest and other income, net $ 15,531 $ 4,056 $ 11,475 283 % The $11.5 million increase in interest and other income, net was primarily attributable to an increase in net interest income and investment amortization driven by increased interest rates and related yields of our invested cash and cash equivalents and marketable securities.
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 Payment, Second Payment and Third Payment have been made, the applicable payment percentage applied to the Revenue Interest shall be ten percent of the quarterly 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.
Cash provided by investing activities during the year ended December 31, 2021 was $181.2 million, which was primarily attributable to proceeds from maturities of marketable securities of $559.5 million, partially offset by purchases of marketable securities of $316.5 million and purchases of property and equipment of $61.7 million.
Investing Activities Cash provided by investing activities during the year ended December 31, 2023 was $129.6 million, which was primarily attributable to proceeds from maturities of marketable securities of $569.9 million, partially offset by purchases of marketable securities of $429.6 million and purchases of property and equipment of $10.7 million.
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 capture these insights in our dynamic clinical immunomics database and related antigen annotations, which are underpinned by computational biology and machine learning, and use them to develop and commercialize clinical products and services that can be tailored to the needs of individual patients.
Interest Expense Year Ended December 31, Change (in thousands, except percentages) 2022 2021 $ % Interest expense $ (4,238 ) $ — $ (4,238 ) (100)% The $4.2 million increase in interest expense was attributable to the Purchase Agreement entered into during the year ended December 31, 2022.
Interest Expense Year Ended December 31, Change (in thousands, except percentages) 2023 2022 $ % Interest expense $ (13,800 ) $ (4,238 ) $ (9,562 ) 226 % The $9.6 million increase in interest expense was attributable to the Purchase Agreement entered into in September 2022.
We regularly review our expectations of the extent of progress, including whether any variable consideration is no longer constrained, and, if any changes in estimates are made, we recognize revenue using the cumulative catch-up method.
We regularly review our expectations of the extent of progress, including whether any variable consideration is no longer constrained, and, if any changes in estimates are made, we recognize revenue using the cumulative catch-up method. For agreements where we provide our clonoSEQ report to ordering physicians, we have identified one performance obligation: the delivery of a clonoSEQ report.
See Note 10 of the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information, including the timing of cash payments related to these lease obligations. In connection with one of our lease agreements, we have an existing letter of credit of $2.1 million with one of our existing financial institutions.
See Note 10, Leases of the accompanying notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information, including the timing of cash payments related to these lease obligations.
These data inform biomarkers of drug response with the ability to accelerate our customers’ clinical development programs in four major therapeutic areas. In Drug Discovery, we use our proprietary capabilities to discover new drug targets and leverage our validated TCR and BCR discovery approaches to discover and develop TCR or antibody therapeutic assets. Drug Discovery includes the Genentech Agreement.
In Drug Discovery, we use our proprietary capabilities to discover new drug targets and leverage our validated TCR and BCR discovery approaches to discover and develop TCR or antibody therapeutic assets. Drug Discovery includes the Genentech Agreement.
In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries. 99 The following is a reconciliation of net loss attributable to Adaptive Biotechnologies Corporation, the most directly comparable GAAP financial measure, to Adjusted EBITDA for the periods presented (in thousands): Year Ended December 31, 2022 2021 2020 Net loss attributable to Adaptive Biotechnologies Corporation $ (200,191 ) $ (207,279 ) $ (146,227 ) Interest and other income, net (4,056 ) (1,668 ) (6,590 ) Interest expense (1) 4,238 — — Depreciation and amortization expense 20,920 13,953 8,472 Restructuring expense (2) 2,023 — — Share-based compensation expense (3) 55,477 43,251 24,761 Adjusted EBITDA $ (121,589 ) $ (151,743 ) $ (119,584 ) (1) Represents costs associated with our revenue interest liability and noncash interest costs associated with the amortization of the related deferred issuance costs.
The following is a reconciliation of net loss attributable to Adaptive Biotechnologies Corporation, the most directly comparable GAAP financial measure, to Adjusted EBITDA for the periods presented (in thousands): Year Ended December 31, 2023 2022 2021 Net loss attributable to Adaptive Biotechnologies Corporation $ (225,250 ) $ (200,191 ) $ (207,279 ) Interest and other income, net (15,531 ) (4,056 ) (1,668 ) Interest expense (1) 13,800 4,238 — Depreciation and amortization expense 22,231 20,920 13,953 Impairment of right-of-use and related long-lived assets (2) 25,429 — — Restructuring expense (3) — 2,023 — Share-based compensation expense (4) 62,908 55,477 43,251 Adjusted EBITDA $ (116,413 ) $ (121,589 ) $ (151,743 ) (1) Represents costs associated with our revenue interest liability and noncash interest costs associated with the amortization of the related deferred issuance costs.
We impute the related interest expense using the effective interest rate method. We calculate an effective interest rate which will amortize our related obligation to zero over the anticipated repayment period.
Interest Expense Interest expense includes costs associated with our revenue interest liability related to the Purchase Agreement and noncash interest costs associated with the amortization of the related deferred issuance costs. We impute interest expense using the effective interest rate method. We calculate an effective interest rate which will amortize our related obligation to zero over the anticipated repayment period.
Financing Activities Cash provided by financing activities during the year ended December 31, 2022 was $132.3 million, which was primarily attributable to $124.4 million in proceeds from the Purchase Agreement, net of issuance costs, as well as $7.9 million in proceeds from the exercise of stock options.
Cash provided by financing activities during the year ended December 31, 2022 was $132.3 million, which was primarily attributable to $124.4 million in proceeds from the Purchase Agreement, net of issuance costs, as well as $7.9 million in proceeds from the exercise of stock options. 84 Net Operating Loss Carryforwards Utilization of our NOL carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 and similar state provisions.
Research and Development Year Ended December 31, Change Percent of Revenue (in thousands, except percentages) 2022 2021 $ % 2022 2021 Research and development $ 141,756 $ 142,343 $ (587 ) *% 76 % 92 % * Decrease is less than 1% The following table presents disaggregated research and development expenses by cost classification for the periods presented: Year Ended December 31, (in thousands) 2022 2021 Change Research and development materials and allocated production laboratory expenses $ 43,706 $ 51,625 $ (7,919 ) Personnel expenses 68,177 62,874 5,303 Allocable facilities and information technology expenses 8,856 6,363 2,493 Software and cloud services expenses 2,678 3,344 (666 ) Depreciation and other expenses 18,339 18,137 202 Total $ 141,756 $ 142,343 $ (587 ) The $0.6 million decrease in research and development expenses was primarily attributable to a $7.9 million decrease in cost of materials and allocated production laboratory expenses, which was driven primarily by decreased investments in T-Detect and TCR-Antigen Map development activities, drug discovery and clonoSEQ.
Research and Development Year Ended December 31, Change Percent of Revenue (in thousands, except percentages) 2023 2022 $ % 2023 2022 Research and development $ 122,117 $ 141,756 $ (19,639 ) (14)% 72 % 76 % The following table presents disaggregated research and development expenses by cost classification for the periods presented: Year Ended December 31, (in thousands) 2023 2022 Change Research and development materials and allocated production laboratory expenses $ 20,243 $ 43,706 $ (23,463 ) Personnel expenses 74,385 68,177 6,208 Allocable facilities and information technology expenses 11,617 8,856 2,761 Software and cloud services expenses 3,394 2,678 716 Depreciation and other expenses 12,478 18,339 (5,861 ) Total $ 122,117 $ 141,756 $ (19,639 ) The $19.6 million decrease in research and development expenses was primarily attributable to a $23.5 million decrease in cost of materials and allocated production laboratory expenses, which was driven primarily by decreased investments in T-Detect and TCR-Antigen Map development activities, as well as decreased investments in drug discovery efforts, including collaboration efforts with Genentech.
Our first clinical diagnostic product, clonoSEQ, is the first test authorized by the Food and Drug Administration for the detection and monitoring of minimal residual disease (“MRD”) in patients with multiple myeloma, B cell acute lymphoblastic leukemia and chronic lymphocytic leukemia, and is also available as a CLIA-validated laboratory developed test for patients with other lymphoid cancers, including diffuse large B-cell lymphoma.
Our first clinical diagnostic product, clonoSEQ, is the first test authorized by the FDA for the detection and monitoring of MRD in patients with MM, B cell ALL and CLL, and is also available as a CLIA-validated laboratory developed test for patients with other lymphoid cancers, including DLBCL.
Our revenue may fluctuate from period to period due to the uncertain nature of delivery of our products and services, the achievement of milestones by our customers, timing of expenses incurred, changes in estimates of total anticipated costs related to the Genentech Agreement and other events not within our control, such as the delivery of customer samples or customer decisions to no longer pursue their development initiatives.
Our Immune Medicine revenue may fluctuate from period to period due to the timing of expenses incurred, changes in estimates of total anticipated costs related to the Genentech Agreement and other events not within our control, including the recognition of milestones under the Genentech Agreement and the timing of receipt of customer samples from our biopharmaceutical customers.
Cost of Revenue Year Ended December 31, Change Percent of Revenue (in thousands, except percentages) 2022 2021 $ % 2022 2021 Cost of revenue $ 57,909 $ 49,301 $ 8,608 17 % 31 % 32 % The $8.6 million increase in cost of revenue was primarily attributable to a $6.0 million increase in labor, overhead and facility costs, a $2.4 million increase in cost of materials related to mix to higher cost assays and a $2.0 million increase related to higher usage of our production laboratory to process revenue samples versus research and development samples.
Cost of Revenue Year Ended December 31, Change Percent of Revenue (in thousands, except percentages) 2023 2022 $ % 2023 2022 Cost of revenue $ 75,553 $ 57,909 $ 17,644 30 % 44 % 31 % The $17.6 million increase in cost of revenue was primarily attributable to an $8.6 million increase related to higher usage of our production laboratory to process revenue samples versus research and development samples, a $5.1 million increase in overhead costs largely driven by laboratory relocation and consolidation activities, a $2.8 million increase in materials cost resulting from increased revenue sample volume and a $1.2 million increase in shipping and handling expenses.
To select the measure of progress, we consider the expectations of the performance period which may be based on customer-dependent estimates of samples or internal estimates of the performance period based on both the customer and our expected development timeframes.
At the end of each subsequent reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint and, if necessary, adjust our estimate of the overall transaction price. 85 To select the measure of progress, we consider the expectations of the performance period which may be based on customer-dependent estimates of samples or internal estimates of the performance period based on both the customer and our expected development timeframes.
The net change in operating assets and liabilities was primarily due to a $57.7 million reduction in deferred revenue driven largely by revenue recognized from the Genentech Agreement, a $7.4 million increase in accounts receivable, net and a $5.2 million increase in inventory, which were partially offset by an $8.5 million increase in operating lease right-of-use assets and liabilities, a $3.9 million increase in accounts payable and accrued liabilities primarily related to our corporate bonus paid in 2022, and a $1.3 million decrease in prepaid expenses and other assets. 101 Investing Activities Cash provided by investing activities during the year ended December 31, 2022 was $2.9 million, which was primarily attributable to proceeds from maturities of marketable securities of $298.0 million, partially offset by purchases of marketable securities of $278.8 million and purchases of property and equipment of $16.3 million.
The net change in operating assets and liabilities was primarily due to a $29.3 million reduction in deferred revenue driven largely by revenue recognized from the Genentech Agreement, an $8.7 million decrease in operating lease right-of-use assets and liabilities, a $5.4 million reduction in accounts payable and accrued liabilities, a $2.8 million increase in inventory and a $1.9 million increase in prepaid expenses and other current assets driven largely by an increase in prepaid software charges.
These increases were partially offset by an $8.0 million decrease in marketing expenses driven primarily by reduced clonoSEQ, T-Detect and corporate marketing activities. 98 General and Administrative Year Ended December 31, Change Percent of Revenue (in thousands, except percentages) 2022 2021 $ % 2022 2021 General and administrative $ 88,527 $ 74,502 $ 14,025 19 % 48 % 48 % The $14.0 million increase in general and administrative expenses was primarily attributable to a $7.2 million increase in building, facility and depreciation related expenses, a $5.0 million increase in personnel costs and a $2.8 million increase in computer and software expenses.
General and Administrative Year Ended December 31, Change Percent of Revenue (in thousands, except percentages) 2023 2022 $ % 2023 2022 General and administrative $ 83,934 $ 88,527 $ (4,593 ) (5)% 49 % 48 % The $4.6 million decrease in general and administrative expenses was primarily attributable to an $8.0 million decrease in building, facility and depreciation related expenses, driven largely by office space transitions made to support laboratory consolidation activities, a $2.0 million decrease in consultant costs and a $1.6 million decrease in insurance costs.
Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued expenses, which could result in greater working capital requirements. 100 Contractual Obligations Our contractual obligations as of December 31, 2022 include operating lease obligations of $135.3 million, reflecting the minimum commitments for our office and laboratory spaces in Seattle, Washington and South San Francisco, California, our warehouse lease in Bothell, Washington and our office lease in New York City, New York.
Contractual Obligations Our contractual obligations as of December 31, 2023 include operating lease obligations of $121.3 million, which reflects the minimum commitments for our office and laboratory spaces in Seattle, Washington and South San Francisco, California and our warehouse lease in Bothell, Washington.
Sales and Marketing Year Ended December 31, Change Percent of Revenue (in thousands, except percentages) 2022 2021 $ % 2022 2021 Sales and marketing $ 95,603 $ 95,465 $ 138 *% 52 % 62 % * Increase is less than 1% The modest increase in sales and marketing expenses was primarily attributable to $6.8 million in additional personnel costs, of which $0.9 million related to our restructuring activities, as well as a $1.4 million increase in travel and customer event related expenses.
Sales and Marketing Year Ended December 31, Change Percent of Revenue (in thousands, except percentages) 2023 2022 $ % 2023 2022 Sales and marketing $ 88,579 $ 95,603 $ (7,024 ) (7)% 52 % 52 % 80 The $7.0 million decrease in sales and marketing expenses was primarily attributable to a $5.0 million decrease in marketing expenses, which was largely driven by reduced clonoSEQ marketing activities and our deferral of commercializing T-Detect, a $3.8 million decrease in personnel costs and a $1.0 million decrease in consultant costs.
A $1.8 million increase in depreciation expense and a $1.3 million decrease in collaboration and medical advisory costs were the primary drivers of the change in depreciation and other expenses.
There was also a $3.1 million decrease in consultant costs and a $2.5 million decrease in costs related to collaboration studies and clinical trials, which were the primary drivers of the $5.9 million decrease in depreciation and other expenses.
We expect general and administrative expenses to remain relatively consistent in the short term and to decrease as a percentage of revenue in the long term. Interest Expense Interest expense includes costs associated with our revenue interest liability and noncash interest costs associated with the amortization of the related deferred issuance costs.
We expect general and administrative expenses to remain relatively consistent in the short term and to decrease as a percentage of revenue in the long term. 77 Impairment of Right-of-Use and Related Long-Lived Assets Expenses Impairment of right-of-use and related long-lived assets expenses include our impairment charge for certain leased office and laboratory space, as well as impairment costs for related leasehold improvements.
Cost of Revenue Cost of revenue includes the cost of materials, personnel-related expenses (including salaries, benefits and share-based compensation), shipping and handling expenses, equipment costs, allocated facility costs associated with processing samples and professional support costs related to our service revenue activities. Allocated facility costs include depreciation of laboratory equipment, as well as allocated facility occupancy and information technology costs.
Our MRD revenue may fluctuate period to period due to the uncertain timing of receipt of our biopharmaceutical customer samples, which may cause uncertainty in the delivery of our products and services, the recognition of milestones related to regulatory approvals of our biopharmaceutical customers’ therapeutics and changes in estimates of our clinical revenue reimbursement rates. 76 Cost of Revenue Cost of revenue includes the cost of materials, personnel-related expenses (including salaries, benefits and share-based compensation), shipping and handling expenses, equipment costs, allocated facility costs associated with processing samples and professional support costs related to our service revenue activities.
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 and autoimmune disorders. Our existing and future commercial products and services are aligned to two markets which we refer to as MRD and Immune Medicine.
Our existing and future commercial products and services are aligned to two business areas which we refer to as MRD and Immune Medicine.
In 2022, we changed how we classify revenue and now present total revenue on our consolidated statements of operations included elsewhere in this Annual Report on Form 10-K. We disaggregate revenue under our Immune Medicine and MRD market opportunities in Note 3 of the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
See Note 10, Leases of the accompanying notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details regarding our impairment assessments and considerations.
This decrease was partially offset by a $5.3 million increase in personnel costs, of which $0.7 million related to our restructuring activities, and a $2.5 million increase in allocable facility expenses.
These decreases were partially offset by a $6.2 million increase in personnel costs, a $2.8 million increase in allocable facility expenses and a $0.7 million increase in software and cloud services expenses.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2022 and 2021, we had cash and cash equivalents of $90.0 million and $139.1 million, respectively, held primarily in cash deposits and money market funds. As of December 31, 2022, we had short-term marketable securities of $408.2 million, held in United States ( “U.S.” ) government debt securities, corporate bonds and commercial paper.
Biggest changeAs of December 31, 2023 and 2022, we had cash and cash equivalents of $65.1 million and $90.0 million, respectively, held primarily in cash deposits and money market funds. As of December 31, 2023, we had short-term marketable securities of $281.3 million, held in U.S. government treasury and agency securities, commercial paper and corporate bonds.
As of December 31, 2022, a hypothetical 100 basis point increase in interest rates would have resulted in a $1.5 million decline in fair value of our available-for-sale securities, as compared to a $4.0 million decline as of December 31, 2021. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.
As of December 31, 2023, a hypothetical 100 basis point increase in interest rates would have resulted in a $1.2 million decline in fair value of our available-for-sale securities, as compared to a $1.5 million decline as of December 31, 2022. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.
As of December 31, 2021, we had short-term and long-term marketable securities of $431.1 million, held in U.S. government debt securities and corporate bonds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates in the United States.
As of December 31, 2022, we had short-term marketable securities of $408.2 million, held in U.S. government treasury securities, corporate bonds and commercial paper. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates in the U.S.
We do not enter into investments for trading purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. 104
Such losses would only be realized if we sold the investments prior to maturity. We do not enter into investments for trading purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. 87
Removed
The $2.5 million year-over-year reduction in the decline of fair value in this hypothetical scenario is primarily due to the short-term nature and smaller balance of the investments held at December 31, 2022 as compared to those held at December 31, 2021. Such losses would only be realized if we sold the investments prior to maturity.

Other ADPT 10-K year-over-year comparisons