Adaptive Biotechnologies Corp Stock

Okay. It looks like we're running a couple of minutes behind, so we can quickly get started. Kallum Titchmarsh here from the life science tools and diagnostics team at Morgan Stanley. Really pleased to be joined by the team from Adaptive. We have Chad Robins, Co-Founder and CEO; and Kyle Piskel, CFO. Thank you both for being here.

Just before we get started, research disclosures, morganstanley.com/researchdisclosures because someone will tell me off if I don't call that one out.

Lots to discuss. Obviously, let's dive into. Maybe we can just start with the state of the union. I know there was also some updates today that you want to hit on out there in the market. So maybe just set the scene. What is exciting you the most right now, Chad?

Yes. Relevant today and kind of unexpected we had a major guideline update in multi myeloma. And I'm actually going to look at my notes because this came in from my team recently. But -- the NCCN multi myeloma guidelines were updated, but they now include a dedicated page for MRD testing. This is very kind of similar in parallel structure that they do in ALL guidelines, and it really -- what it does is it signals that the panel views MRD assessment is essential for management of patients of multi myeloma but kind of more specifically, the recommendations for MRD, said that MRD is recommended using an FDA-approved assay such as clonoSEQ or flow cytometry, but this is the first time that clonoSEQ is being specifically named in the NCCN guidelines. And it's actually pretty rare that a test manufacturer is named in guidelines. So we're pretty excited about that.

The second thing that's really important is that while 10^-5 minimum sensitivity is recommended, it's now stated that 10^-6 is stated as preferred. So this is huge because that's what clonoSEQ does, is 10^-6. And then it gives you all of the different points throughout the patient care continuum that clonoSEQ should be used. But the one that I want to highlight specifically is at regular intervals during maintenance and surveillance. And so kind of MRD assessments during surveillance.

This is an entirely new thing. So I'll kind of stop there. But multiple points of those guidelines are specifically kind of what we've been talking about, what we think is critical for clinicians to use on their patients for clinical decision-making to really guide interventionally, to guide treatment decisions. So we couldn't be more thrilled and frankly, surprised of how comprehensive this update was for us.

Very exciting. Yes, how could that evolution look, do you think? Obviously, it's still super early days, but any numbers you could perhaps give around that and how you think the scale-up could look more broadly in the market?

Yes. I mean it's interesting because as soon as we did this, we did this a few months ago, we had an updated TAM number, increasing the TAM by kind of $800 million. And frankly, we knew when we put it out. And that goes from 2.5 tests to 3.5 tests per patient per year. on the overall addressable market. And this, I would say, it's a very minimum kind of reinforces that. But it's also going to going to allow us to dust off some of those assumptions.

And a lot of these things work together, kind of -- it also called out peripheral blood for the first time that you could use peripheral blood in multi myeloma assessment. This was in the guidelines. And we've been talking about kind of increasing the use of peripheral blood over bone marrow in multi myeloma, all these things kind of work together to talk about more testing per patient, per year. So the net-net is I think this is a nice opportunity to look at further TAM expansion.

It sounds like I might need to revisit my model, but...

Karina and Kyle can help you on that.

Maybe just rewinding a little to Q2, strongest you've had in MRD and you obviously raised both the revenue and volume outlook for the year. What do you think the biggest source of that upside was versus your expectations through the first half of the year? And then what gives you confidence that, that momentum can continue? Just let us know what you're seeing out there in the field.

Yes. Yes. So first, I mean, clinical volumes continue to be great. We've -- we're really excited about what we're seeing and what we continue to see into this quarter. it's been really nice kind of, one of the components of clinical volume that I think was -- I don't want to say -- I -- really a surprise that we're just really excited about is, if you look at the number of clinicians that are clicking on the repeat ordering button in Flatiron, I know we'll talk more about it later.

That's just -- the serial testing has been a really nice kind of source of upside for us. And the compliance rate on that is also extremely high. Other areas of upside, our pharma business is really doing well. I mean if you look at the ODAC decision in 2024 that was codified into draft guidance earlier this year saying that you could use MRD as a primary endpoint in multi myeloma. That's not only had an impact on the myeloma business but that's also bled over to the other -- I said, bled over, no pun intended, in heme malignancies. But it's bled over to the other indications, particularly in ALL and CLL. One area that we're kind of monitoring is, if you look at our -- related to volumes is kind of our ASP. We need that increasing volume -- that increase in volume may put some short-term kind of transitory pressure on ASP.

There's a lot of ways we're solving it. We'll talk about that. But overall, I should also say we have a submission into kind of MolDX to increase the number of tests per the episode, which will kind of immediately alleviate that pressure, and we're expecting to hear back relatively soon on that. But overall, the business is in really strong shape, volumes, pharma, et cetera, everything is kind of moving up and to the right.

Great. I want to first just hit on the separation that was announced or the intent to separate. You had a strategic review a couple of years ago and you decided to keep the 2 businesses together. So I guess what changed since then and what made now the right time to pursue that separation?

Yes. The results of the strategic review a couple of years ago was to have -- to keep the business in-house, but to start having a very disciplined focus on capital allocation towards those businesses and to allow them to mature to the point where it was kind of a natural separation.

We feel like that's happened. And MRD for some of the following reasons I just mentioned, we've hit -- we've become the gold standard within the market. It's being used clinically, interventionally. It's gotten to a scale and profitability, where we want to have kind of a dedicated focus around leveraging that platform in MRD and more broadly, diagnostics.

At the same time, if you look at the immune medicine business, we've developed what I would say is one of the most important data sets in immunology, which is kind of the next iteration of AlphaFold, which is going to -- which solves protein folding. Now we're solving an in silico model of protein-protein interactions, which is T cell receptor to antigens. We can kind of double click on that, but it's the applications of that and what's happened from a macro standpoint within the industry with now because we have got this incredible data set with the advances in AI in the last 2 years since we've done that strategic review, the utility of that to true clinical applications has gone -- has really gone up.

Even to mention one of them, if you look at kind of the news coming out of Moderna and Merck and the personalized cancer vaccine, the application to that is -- so I just think the time is right to allow our MRD business and our diagnostics business to kind of be able to flourish on its own and at the same time, get a set of really focused, dedicated investors in the tech AI data space to capitalize that business. But we're doing it in such a way that kind of Adaptive shareholders are going to own a piece of and/or benefit from kind of whatever comes out of it.

Yes. And as you consider different options for separating the immune medicine business, what's your value framework there? What does that look like? And I guess how are you spending your time today through that?

Yes. I mean the first framework I have is what's going to be the best for shareholder value of Adaptive shareholders. And I see that in the context of like 1 decision could be made, okay, you've got this great data set, you can go -- you just go sell the data. That may be kind of a "short-term win," but that may not be in the best interest of -- if we're really trying to capitalize on kind of what's going on with AI and the fact that we're sitting on a data set that's proprietary and has significant moats around the business, there -- we may be -- I believe that we're kind of at the start of something that could have durable long term and potentially outsized value for our shareholders.

And that's kind of the framework we think about it. As you know, also, we hired some folks on the other side of your business at Morgan Stanley to help us kind of evaluate the potential options. We're having some really good conversations around those options. And we've committed by year-end kind of outlining what the path forward looks like.

And Kyle, maybe for those investors a bit newer to the story, could you talk through the different financial profiles of the businesses, the MRD business and the immune medicine business, I know, obviously nothing formally out there today but just directionally would be helpful.

Yes. I mean, I think starting with the MRD business, that's what we are referring to now as the core business going forward, which is healthy revenue profile with a healthy margin, and it's generating the majority of our revenue growth and has been generating the majority of our revenue growth over the last few years. I think when you step down to the operating expenses, again, most of our investment has been focused in the MRD business.

I'd say about 75% of our OpEx is dedicated to MRD. Currently, we have a segment in immune medicine, which we've been ringfencing and prudently managing the investment with the opportunity in front of us. And then there's a corporate unallocated piece. I think when you fast forward to post separation, the MRD business will absorb much of that corporate unallocated and those corporate functions. But the scale of the MRD business and the growth profile we're seeing is not going to financially hamper the MRD business. Both the capital we have on the balance sheet and the cash flows that the business is starting to generate will be sufficient enough for the entire Adaptive company to start to generate free cash flow in the fourth quarter as well as adjusted EBITDA.

Yes. Makes sense. Maybe just a little bit more on the guide for the rest of the year. When I go through kind of unit growth in Q3, Q4, consider all the top line drivers we're aware of and see momentum you had in the first part of the year, seems a little conservative. So is that -- are you seeing anything out there in the market that would imply that unit sequential unit growth takes a little step back or are you feeling very comfortable with kind of...

I think we're extremely confident in terms of what's happening in the volumes, what we're seeing in the field. The adoption rates are continuing to outpace kind of even some of our own internal expectations. And so I think as it relates to the volumes and the sequential comps, I'm comfortable with where the Street is at but I think there's opportunity to kind of drive past that.

We said 38% to 40%. We're confident in that guide, and I think there's potential upside on that front. And as Chad mentioned, even in the pharma business, we're seeing good momentum in that business, and I think that can be underappreciated in the story. Strong momentum in the pharma business and I think we'll continue to see that play out in the back half of the year.

Yes. Makes sense. And the mix shift from bone marrow to blood-based testing has been an important unlock for clonoSEQ. I believe -- I think it reached 51% of volumes in Q2. So how has that impacted the size of the market and the realistic number of tests we can be performing per patient?

Yes. I think that's related to a couple of different topics. Number one is the ability to test in the blood versus the bone marrow is obviously less invasive, also very specific -- not specific, and confined only to the community, but the community doesn't really do bone marrow testing. So we also have this whole KOL initiative for the academic medical institutions.

You've got KOLs from there going out and teaching the community that you should be using peripheral blood at least as the initial workup and then the MRD kind of follow-up testing. So we've had, along with kind of serial testing from Flatiron, there are certain indications that are only blood-based tests, but it's really that conversion. If you now see kind of multi myeloma has now gone up to 30% of testing is now done in the peripheral blood. So it's been increasing across the board, close to 48% in ALLs done in the blood. So it's the ability to serial monitor test and to test in blood to do more in the community, all those are leading to kind of the increased volumes that we're seeing across the board.

And how does that blood-based testing factor into the recent strength you've seen in the community setting? I guess, how does that also think -- when you think about your kind of ambitions from here, how does that play into it?

Yes, it's been a great driver of growth in the community setting, one of many. But if you look at it now, kind of 36% of overall volumes are coming from the community, that's up from 30% a year ago. And I wouldn't attribute that only to blood-based testing, but blood-based testing is a major factor along with kind of the serial testing button as well.

All of this is underpinned by data. Like, so what we're seeing is that instead like, in relation to, like, solid tumor, where they're now showing their data is prognostic. Our data has been prognostic for maybe over a decade but now we're showing the data sets are coming out and saying, how do you intervene on a patient clinical decision using an MRD test. So it's being used in the transplant setting, it's being used in a maintenance therapy or escalation/deescalation and then in maintenance to take a patient off of therapy. So they're using our test, making a decision on how to treat the patient. And that's what's also been responsible for driving more uptake, both in the academic medical institutions and in the community hospital setting.

And you've invested pretty heavily into the EHR integration and just making that process for the physician as seamless as possible. How much friction do you think you've removed from that ordering process? And I guess is there anything else you could do from here to make it even easier?

Yes. So first of all, it's been -- EMR integration has been amazing, but we consider it necessary but not sufficient, meaning we think it's the first step. But once you are integrated into the system, then those reps have the ability to go kind of really optimize within the account kind of the ordering profile, the whole workflow kind of process to make sure that we're kind of getting everything we can out of that, and the clinician really knows how to not only use the system, but also clinically knows kind of when to treat the patient.

One of the things I mentioned about serial testing, but I'll be more specific about it is, there's a -- in onco EMR Flatiron, there is functionality that we built in for repeat ordering where there's a series -- essentially a radio button that says you can test a patient every 3, 6, 9 or 12 months. Over 70% of clinicians are clicking on one of those buttons. And of when they click on that, 70 -- we have 3 cohorts worth of data, 3/4. 75% are in compliance. After clicking that button, the patient is coming back in and getting the test when they're supposed to get that test.

That's -- I mentioned that kind of in your first question in the opening remarks, that's been a source of kind of surprise -- upside surprise, we didn't think those numbers would be quite that high. So we're excited about it. We have a team dedicated to working these accounts to really optimize the EMR integrations. Then I'll also kind of move over to Epic.

In Epic, you can build in kind of the functionality of what's called a standing order. We've done that for our first account, which was Duke. Quarter-over-quarter growth, we saw 57% quarter-over-quarter growth in that 1 institution. Now it's not as easy where you can turn on 150 accounts at 1 time, but going 1 by 1 and getting those dedicated IT resources and the clinical mind share to be able to do that and to kind of map out the pathway as to when they wanted to test patients is something our team is very focused on because of the growth rates we're seeing.

Any color you could give on the average test number per patient today and where that could get to with time? And obviously, you've spoken to EMR integration as being one of the potential drivers, but anything else you would perhaps point to?

Well, clinical data that continues to develop across multiple indications is going to be a huge driver, blood-based testing is a huge driver, the EMR integrations, again, the focus on the community, the pathways that we're putting into their large network practices, all those things got to work together. We talked about in the TAM going from 2.5 to 3.5 test per patient per year. Again, I think we got to dust that off.

But guideline inclusion certainly is massively helpful to that as well. So it's not -- I mean, we talk about this a lot, and hopefully, this is becoming apparent because you're seeing kind of these different tactical layers going to build on each other. It's not 1 thing. These things are all kind of synergistic and work together in our multipronged strategy really across all of our indications.

I had a question here on multiple myeloma catalysts, but I think we probably [ hit on that. ] So just on CLL, what are some of the ways CLL management is being reshaped as a result of guideline changes just around MRD and serial testing?

Yes. I mean, if you look at the guidelines, it's MRD guided regimen as opposed to fixed duration kind of regimens. So really specifying in the guidelines how to use MRD. It's been a real win for us. And remember, those guidelines came out last year. And what we said was within the community hospital setting, kind of takes 9 to 12 months for the uptake of those guidelines.

And I can happily report over the last kind of 2 quarters, if you look at the growth in CLL, we're starting to see those guidelines really kick in, and we've got some really nice kind of trials around this as well that are starting to read out.

And then DLBCL and MCL becoming more meaningful contributors to growth. What needs to happen clinically and commercially for clonoSEQ to succeed in lymphoma, I guess, when we look out the next few years?

Well, one is guidelines, we need -- we have this kind of land and expand strategy within guidelines; and we've gotten guidelines in DLBCL, but we need to really expand and really strengthen kind of the wording around those guidelines.

And the second is really commercial coverage. So we have Medicare coverage on DLBCL, but very -- we need to get much stronger commercial coverage to get our ASPs up really from a commercial perspective. And the third is really getting on more pharma trials, more data, et cetera. I mean the more data that we have in those indications showing how to use, when to use throughout the patient care continuum, the more. But we're seeing nice growth in both of those. You said DLBCL and MCL, right? And then MCL, we've got really, really nice guideline inclusion. One of the areas that we're seeing in MCL is like you can make a transplant decision based on MRD status, which has been -- which is really, really nice for the patients, right? Because if you can avoid a transplant because you're MRD negative, I mean, obviously, that's a huge benefit.

Amazing. And I guess outside of the indications we've discussed, any that you think investors or the sell-side perhaps don't pay enough attention to further down the line that could be interesting?

I mean I think the opportunity in front of us, the DLBCL is a bit understated. I think what we're seeing with our ability to generate -- use our own clinical data to generate new data and insights into how the assay is being used and the clinical actionability that could come in the future is a massive opportunity for us.

We talked about CLL, we talked about myeloma. I think those are things and playbook catalysts that we'll use as we go into these other lower-penetrated indications to continue to see strong growth and strong adoption, and it's an area we're going to continue to invest in and get better at data generation and how can we provide more utility, more touch points, time points, for clinicians to use our assay.

And how are you feeling about the competitive moat? Obviously, when you see a market with good growth opportunities and more people want to come into it. But you have the data, the guidelines now. So I guess relative to perhaps a couple of years ago, how are you feeling about that competitive positioning in spite of, obviously, new entrants coming in?

I feel very strong about our competitive positioning. The 1 area that we have competition entering the market is in DLBCL with Natera's acquisition of Foresight. I said this at the time, I continue now the data is playing out and market -- our competition really isn't Natera or Foresight in DLBCL.

It's PET scans. I mean MRD is not really being -- we're 2% to 3% penetrated. The -- when Natera entering the market disproportionately benefits clonoSEQ in the short term because it's telling -- using a big pulpit to say you should be doing MRD testing in DLBCL, who's in all those doctors' offices with a great reputation and brand with clonoSEQ? So we're -- I'm not -- this isn't to say that Natera is -- they're going to take some market share in DLBCL, but it's very, very, very early on. And I do think in the long term that our technology will win the day.

We're looking for something very specific, which is rearranged immune receptor in this case, a rearranged B-cell receptor, that doesn't pseudo-randomly generate. So our specificity rounds to 100%. It's like 99.99% with an incredibly high sensitivity of 99-plus percent, right, you can't get that data if you're looking at rearranged mutations or mutations and as we will get some false positives.

Anyway, that being said, again, I have a lot of respect for Natera. They're going to take some market share. But again, this is -- and I'll just say in the other indications, it's going to be very hard to compete, especially on any disease that's cellular because, again, our specificity and sensitivity is so high. We've got a ton of competitive moats around the business. We're on every -- take myeloma, we're on every pharma trial, every KOL, we're in guidelines specified by name now. That's going to be a tough one to compete in.

Indeed. And when I think about the masses of data you're starting to generate in MRD, how are you thinking about leveraging that data to make the test smarter? And how, I guess, internally -- has the team adapted in this era of AI drug discovery to kind of shift to, I guess, commercialize it in a more meaningful way.

Yes, that's a great question. That's -- that's the entire premise of the immune medicine business, and we can maybe talk about that and take that separately. But I do think within the MRD business, we're sitting on a very valuable data asset.

Now I'll talk about it in a couple of different contexts. The first is we've invested in real-world data capabilities. I'll give you 2 examples of where we've specifically used it. Number one, is supporting our MolDx submission for increased number of time points for the episode.

Number two, we have an ASH abstract on DLBCL that's come directly from our data. So that's really -- I think we're going to continue to make significant investments in the data from that side of things. And then secondly, it's early, but there are certainly ways to monetize the data and potentially look at kind of selling this data to pharma as they look at different use cases, patient stratification for their trials, things of that nature, I think is a potential future business opportunity, again, not to get out over our skis, but you -- ahead of our skis, but you asked the question. I think there's -- I think we're going to be sitting on a treasure trove of the most comprehensive heme MRD data by far out there.

And I think that will have significant value. And then the third area, just you mentioned AI broadly, I mean, operationally, we're using AI across many areas of the business, one of a couple of -- particularly in the revenue cycle management for appeals processes, prior authorizations, letter of medical necessities, time to cash, things of this nature in our call centers, in our account ops. I think there's a lot that we're doing to just make the business better than, frankly, every business should be doing.

And just, I guess, we have 5 minutes, so maybe shifting on to immune medicine and keeping with AI, how would you describe the value of that immune medicine business in the context of AI when it comes to things like training models, increasing target discovery, efficiency, or guiding clinical trials?

Yes, I'll give you 2 examples. First of all, I think there's -- I'm going to talk -- I think there's immense value in that data as, again, the next kind of big problem in immunology that we're solving, which is moving from AlphaFold, which was generated on public data. This is proprietary own dataset. Think about like if AlphaFold was owned by 1 company, think about it from that perspective or context, number one, but like in terms of particular applications because I mentioned it earlier, but I'll highlight kind of personalized cancer vaccines, cell therapy.

But even personalized cancer vaccines, there's kind of 3 things that you need to do. You have to be able to deliver the vaccine. You have to be able to pick out the antigens that go in the vaccine constructs and then you've got to be able to monitor the vaccine. Moderna and BioNTech have figured out, number one, with mRNA. Number two, what antigens to pick, right? We don't have to guess, right? We can tell you kind of what the TCR responses to epitopes or the antigens that go into that vaccine construct. So we can essentially help design for each patient a personalized cancer vaccine, here are the antigens that should be put in the construct. Now as such, I don't want to say getting lucky, but now what they're doing is they're putting more and more antigens in hoping that kind of 1 or more of them will elicit immune response.

We can be much more efficient and effective and increase the rate of effectiveness on that vaccine by telling it, well, these are the antigens you should pick. It's really a similar exercise with TCR-based personalized cancer cell therapy. By the way, this is where we started with Genentech. We were doing really well on our side of that program. That did not shut down because they basically had an internal restructuring kind of moved away from the cell therapy, not related to Adaptive. It allowed us to essentially get off and running and building this.

The other area, and you mentioned it, but I'll highlight something specific is, in the area of target discovery and really understanding the root cause and biology of diseases by understanding what the antigen targets are that the T cell receptors are hitting. We anticipate that a publication will be coming out in the next, I'll call it, several months in a very high impact journal that we basically, with our technology we've been able to kind of unravel the mystery of what drives type 1 diabetes. It turns out that these HIPs, or hybrid insulin proteins, are kind of rearranging and these are the targets that your T cell receptors are attacking self tissue with.

And this is just the tip of the iceberg. We believe that we think that so many discoveries are going to be coming out of this ability to connect your immune response or your T cell response to clinically relevant antigens and to be able to do this kind of in silico where you can -- if you have the T cell receptor going to reverse engineer or impute what the antigen is, and vice versa. The applications of this are significant across many different disease states. So -- and but I'll say this, in the context of having had thousands of investor meetings who have said, focus -- just focus on the MRD business that I think that even if the decision was, which isn't going to be that, hey, you shut it down, don't spend any money and focus on the MRD and grow the diagnostics business.

That would be a win and what we -- the value we create, which I do believe it could be significant, could be a massive upside from there. And we've committed just to be clear on the time, we committed by year-end. Everything won't be done and separated, but we will kind of outline what the path forward is with and working in conjunction with your colleagues on that.

Amazing. Chad, Kyle, thank you so much.

Thank you.

Thank you.

Appreciate it.

Appreciate it.

Good day, and thank you for standing by. Welcome to the Adaptive Biotechnologies Second Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Karina Calzadilla, Head of Investor Relations. Please go ahead.

Thank you, Tonya, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies Second Quarter 2026 Earnings Conference Call. Earlier today, we issued a press release reporting Adaptive financial results for the second quarter. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing to the slide presentation that has been posted in the Investors section in our corporate website.

During the call, management will make projections and other forward-looking statements within the meaning of federal securities laws regarding future events and the future financial performance of the company. These statements reflect management's current perspective of the business as of today. Actual results may differ materially from today's forward-looking statements, depending on a number of factors, which are set forth in our public filings with the SEC and listed in this presentation.

In addition, non-GAAP financial measures will be discussed during the call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad Robins, our CEO and Co-Founder; and Kyle Piskel, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I'll turn the call over to Chad. Chad?

Thanks, Karina. Good afternoon, and thank you for joining us on our second quarter earnings call. Q2 was an exceptional quarter for Adaptive and a clear validation of our strategy and execution. We delivered excellent operating performance, took decisive strategic actions to unlock shareholder value and strengthened our balance sheet. Together, these accomplishments reinforce our confidence in the long-term opportunity ahead. Three achievements define the quarter.

First, our MRD business delivered one of the strongest quarters in our history. Revenue, excluding milestones, increased 49% year-over-year, driven by growth across both clinical testing and pharma. Clinical testing volume grew 43%, adding more than 3,500 tests sequentially, while pharma sequencing continued its strong momentum. We expanded MRD sequencing gross margin to 71%, up 9 percentage points from a year ago, and we increased adjusted EBITDA margin to 14%. These results demonstrate the scalability of our MRD business and its ability to generate profitable growth. Second, we announced our plan to separate our MRD and Immune Medicine business. We are evaluating strategic and structural alternatives for Immune Medicine that we believe will best position the business to pursue its growth strategy, access the capital it needs and unlock its full potential outside of Adaptive. We have retained Morgan Stanley as our adviser and continue to expect to identify our preferred path of separation by year-end.

Third, we further strengthened our balance sheet through a successful $340 million 0 coupon convertible note offering. The transaction enabled us to retire the OrbiMed agreement simplify our capital structure, increase our financial flexibility to execute our separation strategy and invest in the compelling opportunities we see in MRD. Importantly, we paired the financing with a capped call transaction and share repurchase, significantly reducing potential shareholder dilution while optimizing the economics of the financing. We ended the quarter with approximately $357 million in cash. The performance we've delivered year-to-date, combined with the momentum we're seeing across clinical and pharma, reinforces our confidence in the trajectory of the MRD business. Accordingly, we're raising our full year MRD revenue guidance to a range of $268 million to $278 million.

Kyle will provide additional details in his remarks. Now let's take a closer look at the clinical business on Slide 5, which continues to be the primary driver of MRD growth. Clinical revenue increased 53% year-over-year, driven by a 43% increase in testing volumes and a 7% increase in ASP. During the quarter, we delivered more than 36,100 clonoSEQ tests, representing 11% sequential growth. This reflects continued expansion of our ordering physician and account base, combined with deeper penetration of existing accounts and increasing adoption across the patient care continuum. Growth was broad-based across every reimbursed indication. CLL grew 16% sequentially, continuing to benefit from the 2025 NCCN guideline update.

Multiple myeloma, our largest indication representing 44% of testing volume grew 15% sequentially, driven by broader adoption of blood-based testing across both academic and community. In lymphoma, DLBCL and MCL now account for approximately 16% of total testing volume and both delivered healthy double-digit sequential growth. We also continue to make progress on pricing. U.S. ASP increased to $1,382 per test this quarter, reflecting ongoing reimbursement gains, including a recent expansion of MCL coverage with [ Concert ] as well as operational improvements from bringing key revenue cycle management functions in-house. The takeaway is clear. We're growing volumes, expanding adoption across indications and improving pricing. Those are the fundamentals that drive durable top line clinical growth.

Let's turn to Slide 6, which highlights some of the key drivers behind our clinical volume growth. What is encouraging is that each of these metrics continues to move in the right direction, supporting both broader adoption of clonoSEQ and increased testing over time. Starting with blood-based testing. because blood is less invasive and more convenient for patients, it supports more frequent MRD testing through the course of treatment. Blood-based testing grew 68% year-over-year and 14% sequentially and represented 51% of total clonoSEQ volume in Q2, exceeding half of all tests for the first time. Importantly, we're seeing increasing adoption of blood testing in both multiple myeloma and ALL, 2 indications for which physicians traditionally have relied on bone marrow testing. Blood now contributes 30% of MRD testing in multiple myeloma and 42% in ALL.

The shift towards blood also expands our opportunity in the community setting, where blood-based testing is significantly easier to integrate into routine practice. Community testing represented 36% of total clonoSEQ volume this quarter, exceeding our full year target and grew 65% year-over-year. That growth has been supported by broader adoption of updated clinical guidelines, standardized testing protocols and our EMR-enabled workflows, which are making repeat testing easier for physicians. We're also seeing encouraging progress in serial monitoring. One year after our Flatiron integration, 75% of repeat orders have been fulfilled, demonstrating that community physicians are increasingly incorporating MRD into ongoing patient management rather than using it as a onetime test.

Importantly, physician adoption continues to expand. Nearly 5,200 clinicians ordered clonoSEQ during the quarter, an increase of 40% from a year ago. We view this as another indicator that MRD testing is becoming a standard part of clinical care across a growing number of providers. These drivers are interconnected. Greater adoption of blood-based testing, continued expansion in the community, increasing physician adoption and higher rates of serial monitoring all support deeper penetration across indications and more testing per patient through the continuum of care.

Now let's turn to Slide 7 to take a look at our MRD pharma business. This was another good quarter for MRD pharma. Sequencing revenue grew 38% year-over-year, excluding milestones. Importantly, unlike the prior year, we did not recognize any milestone revenue this quarter, highlighting the continued strength of the underlying sequencing business. We ended the quarter with 189 active global clinical trials and a backlog of approximately $245 million, up 12% from a year ago. We view this backlog as an important leading indicator of future revenue and continued demand from our biopharma partners.

The quality of our portfolio continues to improve. Studies in which MRD is used as a regulated endpoint, either primary or secondary, now comprise about 60% of our active studies compared to about 40% a couple of years ago. These studies not only carry higher economic value, but they also create opportunities for future milestone payments tied to regulatory approvals.

Multiple myeloma continues to represent the largest portion of our registrational portfolio, reflecting the industry's growing use of MRD following the FDA support for MRD as an endpoint. At the same time, we're seeing encouraging expansion in both CLL and ALL with a number of registrational studies continue to grow as sponsors increasingly are incorporating MRD into their development growth programs.

Beyond the numbers, we're also seeing a shift in how MRD is being used. More studies are using MRD to guide enrollment, stratification and treatment decisions rather than simply measuring response. That generates the clinical evidence needed to support broader adoption in routine care and strengthens the connection between our biopharma and our clinical businesses.

To wrap on MRD, Slide 8 summarizes our progress against the key objectives we set for 2026. At the midpoint of the year, we've either achieved or remain on track to achieve each of them. Clinical testing volumes have exceeded our original expectations. Based on the first half performance and continued momentum, we now expect volume growth between 38% to 40% this year, which is well above our initial target of more than 30%.

The key drivers of growth are also ahead of plan. Blood-based testing and community adoption have already exceeded our full year targets, while EMR integrations continue to progress with 31 additional accounts integrated year-to-date. On pricing, we're on track to achieve our target of approximately $1,400 per test, supported by continued reimbursement progress and improved collections.

And finally, strong revenue growth, combined with ongoing operational efficiencies, keeps us on track to exceed 70% sequencing gross margin while continuing to expand adjusted EBITDA.

Overall, the business continues to perform ahead of expectations. We're expanding adoption, improving profitability and executing against the strategy we laid out at the beginning of the year. Before I turn the call over to Kyle to go over financial results and updated guidance, I'd like to provide an update on our plan to separate the Immune Medicine business and the progress we've made.

The timing for a separation is right. MRD has scaled into a profitable market-leading diagnostics business with a clear runway for durable growth. At the same time, Immune Medicine has evolved into a differentiated discovery platform built on proprietary immune data, AI and target discovery. As each business enters its next phase, each requires a different operating model, capital structure and set of investors. For Immune Medicine, we see the greatest opportunity to realize the value of its assets outside of a commercial diagnostics company. As such, Adaptive will remain focused on expanding its leadership in MRD diagnostics while identifying the best path forward for Immune Medicine to advance as an independent business. Since announcing our plans, we've taken several important steps to move the process forward.

First, as mentioned, we retained Morgan Stanley to advise us as we evaluate the strategic and structural alternatives for the Immune Medicine business. Second, Harlan Robins, my brother, is transitioning from Chief Scientific Officer role at Adaptive to a consultant role, supporting key R&D initiatives for MRD while dedicating significant time to advancing the separation of IM. Given his scientific leadership and deep knowledge of the platform, his active participation is important during this transition.

Third, we've sharpened the focus of the Immune Medicine portfolio. Following a comprehensive review, we've decided to wind down our research use-only pharma services business. While it operated around breakeven, it was not central to the assets that differentiate Immune Medicine.

Going forward, we'll focus on the platform's highest value assets and capability, which are our proprietary TCR antigen data set, our AI and machine learning digital models and our target discovery platform for autoimmune disease. We're also exploring new ways to monetize these unique assets and maximize their path forward. As an initial step, we plan to enter into a trial agreement with Harell Data Corp., an independent cloud-based marketplace founded by Harlan that enables proprietary data sets and AI models to be crowd-sourced among researchers and developers. This creates a new commercialization model where data creators can participate in the value generated as their data sets and models are used to solve scientific problems and develop new products.

Finally, we continue to make good progress on the Pfizer deal in RA, where we are sequencing patients to identify disease-specific T cell receptors to inform potential therapeutic development. This program remains an important focus of the Immune Medicine team.

In summary, in the past 1.5 months, we've established a clear separation process, sharpened the strategic focus of the business and are advancing new opportunities to realize the value of these assets. We remain on track to identify our preferred path by year-end, and we'll update you on further progress accordingly. I'll now turn the call over to Kyle. Kyle?

Thanks, Chad. I'll start on Slide 10 with our second quarter results. Total revenue was $71.6 million, an increase of 30% from the prior year, driven by continued strength in MRD, which represented 92% of total company revenue. As a reminder, amortization of the Genentech payments are excluded from all prior period comparisons. MRD revenue was $66.2 million, up 33% year-over-year. Importantly, excluding $5.5 million of milestones recognized in the second quarter of last year, the core MRD revenue grew 49%, driven by continued strength in both clinical and pharma businesses. Clinical and pharma represented 75% and 25% of MRD revenue, respectively. Immune Medicine revenue was $5.4 million, up 8% from a year ago, primarily reflecting revenue recognized as part of our target discovery agreement with Pfizer.

Turning to margins. Sequencing gross margin, which excludes MRD milestones, was 72% for the quarter, up from 64% a year ago. This reflects lower assay costs following our NovaSeq X transition, along with continued operating leverage as volumes grow. We also maintained disciplined expense management. Total operating expenses, including cost of revenue, were $87.3 million, up 4% year-over-year. The increase primarily reflects continued investment in our commercial infrastructure, including reimbursement and EMR integration initiatives, partially offset by lower R&D spending in Immune Medicine.

At the segment level, MRD adjusted EBITDA increased to $9.1 million compared to $1.9 million a year ago, reflecting the combination of strong revenue growth and continued operating leverage. Immune Medicine reported an adjusted EBITDA loss of $6.3 million, resulting in an adjusted EBITDA loss of $0.7 million for the total company. GAAP net loss for the quarter was $39.9 million, which included $26.4 million of debt extinguishment expense and interest expense related to our now settled OrbiMed financing agreement. With the repayment of OrbiMed and the completion of our 0 coupon convertible note offering going forward, we will generate net interest income from our cash and investments on hand.

Turning to Slide 11. We are raising our full year MRD revenue guidance to a range of $268 million to $278 million, up from our prior range of $260 million to $270 million. This increase reflects stronger-than-expected clinical volume and pharma sequencing performance in the second quarter as well as higher year-over-year clinical volume growth of 38% to 40% versus our prior guidance of 35% -- our guidance continues to include $9 million of MRD milestone revenue, which was all recognized in the first quarter and assumes no additional milestone revenue during the second half of the year.

At the midpoint of the guide, this implies 29% year-over-year growth or 37% growth, excluding milestones. We're narrowing our full year operating expense guidance to $350 million to $355 million versus our prior range between $350 million and $360 million, reflecting lower spend in the Immune Medicine business. As a result, we remain on track to achieve positive adjusted EBITDA and positive free cash flow for the entire company by the end of 2026. With that, I'll turn back the call to Chad.

Thanks, Kyle. This quarter demonstrates that our strategy is delivering results. We're growing revenue and expanding profitability in the MRD business, taking decisive steps to unlock the value of immune medicine and strengthening our financial position to support the opportunities ahead. We're confident in the direction of the business and look forward to updating you on our continued progress next quarter. With that, I'll turn it over to the operator for questions.

And our first question will come from the line of David Westenberg of Piper Sandler.

Again. I actually want to focus on the multiple myeloma of 15% growth sequentially. This is your biggest indication, and I don't think there's a single multiple myeloma doc out there that hasn't heard of you. So can you talk about some of the things driving that? I would guess maybe this is frequency and maybe a number of tests per patients going up. But can you just maybe talk about some of that unlock there? Because just given again that this is such an older indication, it was an impressive number. And I'd love to see how does this keep going quarter-on-quarter.

Yes, Susan.

And I apologize, I was stuck on mute here. So I think the question was focused on multiple myeloma and the growth and how we can continue that. Is that fair?

We'll see, yes.

Let me know if I don't -- if I address it. Yes, we're very pleased to see the growth in multiple myeloma this quarter. And I think it reflects the continued focus. That is our top priority indication. It's the largest contribution to our business. And it's been particularly driven in recent quarters by the continued increase in blood-based testing, which we think is a critical opportunity both to access untapped users in the community setting where bone marrows are more difficult to complete and also to increase interim surveillance testing and increase the frequency of testing in multiple myeloma across the patient care continuum.

We do believe that we will need to continue to invest in that blood testing strategy, both by developing data with our current assay and by investing in product development to continue to enhance the sensitivity we can offer in that space. And we also will need to continue to bring forward clinical actionability use cases like the ones you've seen in recent years like [ MolDX ] to show how patients can avoid transplantation, show how patients can discontinue therapy based in the maintenance setting. All of those things will continue to support, we believe, ongoing updates to the guidelines, openness to establishing testing pathways and protocols and standardize testing at the clinic and account level and we'll leverage the EMR to ensure that as our customers and the departments they're in are starting to accept and buy into these clinical actionability use cases that we can standardize those and ensure that the patients get the pull-through of the testing that their providers intend.

And I'll just add one comment on top of that, Susan, which is, David, even with a 15% quarter-on-quarter sequential growth in our largest indication, which obviously we were very pleased to see. We're now only 17% penetrated in multiple myeloma. So there's a long kind of growth runway ahead of us, especially as we continue to move to or incorporate more blood-based testing and penetrate the community.

Appreciate it. And just maybe one for Kyle. And again, the volume is really, really strong. So I don't mean to pick on the ASC is still good, 7% Europe over there. We're not quite to the 1,400. So just in the second half, can you talk about some of the stuff that you expect to be improving, the payer mix, indication mix things like that, price actions? Anything you can do to make us feel like that 1,400 is a derisked number. Congrats guys.

Yes. I appreciate the question, David. I think I'd start with we had a couple of contracts that we renegotiated in prior years that have price increases that go into effect effectively in the second half of the year. So we'll start with that. I think the second piece is as we continue to focus on kind of expanding coverage in DLBCL, MCL and getting some momentum from there and capturing some additional dollars from those coverage expansions that will help lift it.

And then finally, we've got some initiatives going on with 2 large payers, which we've been working to recontract with that we're focused on and executing in the second half of the year.

And our next question will be coming from the line of Subbu Nambi of Guggenheim.

As blood becomes a bigger share of clonoSEQ volumes and drives more serial testing per patient that you spoke about, especially in surveillance settings with coverage gaps, should reported ASP still be the KPI we anchor on? Or is per patient economics a better lens? Any sense on how per patient ASP is trending as the blood mix shifts? Even directionally, are you seeing lifetime value per patient expand even if per test ASP compresses?

Yes. Subbu, I'll take that. First, I'll say that kind of ASP and per patient economics are very, very intertwined or related. And we have an active set of dialogue going on to close the coverage gaps, particularly, as you mentioned, in our largest indication in multi myeloma. We are in a -- I'll characterize it as a productive dialogue with Medicare, with the MolDX program to expand the number of tests per episode. I think that's, in our opinion, in our assessment is going to be the quickest way to get there. And again, those conversations are going well. Keep in mind also, though, that this only applies to kind of the Medicare population, which is kind of the high 30s percent of our business.

The commercial payer coverage doesn't have a limitation on kind of the number of tests. It's just based on medical necessity. But in addition to kind of expanding the number of tests kind of per episode, we also have our second indication for recurrence monitoring, which we're working on. As you recall, last year, we got MCL and now we're working on CLL. So we can go kind of on an indication-by-indication basis. So long story short, we're going to close those coverage gaps. And it is smart to point out that ASP, you have to deal with a little bit of a chicken or the egg problem in diagnostics where you have to prove that the necessity of doing -- I'll put in this case, more than 4 tests is warranted and the clinicians are on the path to do that.

And you're trying to do that kind of before you kind of cross over that kind of 4 test threshold. But you can't get coverage until you really have the data to do that. And we do feel now that we've got kind of a sufficient amount of data kind of that warrants an expansion of the number of tests beyond it. But our main strategy is to increase the number of tests per patient over the life cycle of the patient. That is ultimately what's going to drive the growth in the future. And we absolutely have many different paths to make sure that we will get paid for that, and it will be captured in the revenue line.

Super helpful. My second question is, any sense you could give us detail on what percent of volume comes from the top group of ordering HCPs? How is that informing your strategy to go deeper versus broader to expand volumes?

Yes. So in Q2, over 5,100 HCPs ordered clonoSEQ for clinical purposes. And if I look at the concentration of volumes in that quarter, -- our top 100 or so users make up around 10% of that volume. So there is, as with many businesses, a concentration of those highest deepest adopters. Takes about 2,000 providers to get to 80% of that volume, and our use has become considerably more distributed over time, which I think is a reflection of our strategy to broaden use, particularly in the community setting where patients -- where fewer patients per provider are seen, but overall, many more than half of the patients in the heme cancer community are treated.

So I think we still have a significant opportunity to go broader. We believe that approaching half of clinicians who treat heme patients in the U.S. are currently ordering clonoSEQ, but we also have an opportunity to go much deeper even on some of those top users. There are a growing number of clinical use cases that are supported by the evidence and the guidelines. And we have increasingly the access to EMR-based tools that can help us further standardize testing and optimize frequency. We've seen success on all of those fronts. And I think it demonstrates that we can continue to focus on both and that there's a high ceiling both in terms of breadth and depth.

And our next question is coming from the line of Mark Massaro of BTIG.

My first question is on commercial payer contracting. You've done a nice job of getting more commercial payers up to your newer higher Medicare rate. I know your $1,400 ASP guide contemplated getting there this year even without negotiating higher with 2 other commercial health plans. Pardon me if I missed it, but where do you stand now with those large 2 health plans? Have you met with them? And any update there would be helpful.

Yes. I would -- we have a productive dialogue going on with both of those. I think it's just a matter of time, and hopefully, it will be in the second half of this year. And as you mentioned, it's not necessary. We've got many paths to get to the $1,400. At this point, I would just consider it maybe as upside, but we're confident in the number.

Fantastic. And then my second one is pretty basic. Obviously, you guys are firing on all cylinders and volumes with 43% growth. You raised the clonoSEQ volume guide to 38% to 40%. This one is on competitive environment. It doesn't look like there's anything of concern relative to the Natera Foresight offering. But can you just give us a sense for what you're seeing in the market? And maybe just talk about your competitive positioning?

Sure. Yes. I think overall, we are certainly seeing the presence of competition out in the field, particularly in DLBCL. That said, when we look at the impact on our growth on our customer base, we haven't yet seen any attributable impact. We do believe that we have a winning position here. We have an unparalleled technology platform. It's purpose-built for hematology patients. We have a strong evidence base, substantial real-world experience based on our head start, established reimbursement. Our customers tell us they love working with us, and we've EMR integrated with an increasing proportion of them. I think even with all of those, I would still highlight that the DLBCL market, where we're seeing most of the competition is a very early underdeveloped market.

So we really don't view it as us versus them to be able to succeed here. We benefit in the short term as awareness of MRD and the potential utility of MRD in DLBCL is increasing, and we can leverage all the moats I talked about effectively in the short term in the midst of that increased awareness. And I also think we'll benefit in the longer term as we further demonstrate the clinical performance of the enhanced version of our ctDNA assay that we launched last year, and that's one of the big areas of focus for us later this year and going forward.

[Operator Instructions] Our next question will be coming from the line of Dan Brennan of TD Cowen.

Maybe just to start with the guide, the MRD guide. So can you just walk through a little bit the pacing in the back half of the year? So the new volume guide 38% to 40% does imply still a slowdown from the low 40s growth rate this year. Is that just conservatism or comps? Obviously, a great start to the year and still a great guide. Just wondering if there's some cushion baked in there. And then it kind of implies, I think pharma steps down from Q2. So any color just on MRD pharma, which is really strong in Q2 as well?

Sure. Of course. I think we're really pleased with the growth we've delivered in the first half of this year, and we feel very comfortable with delivering on the growth that we've guided for the remainder of the year and for the full year, about 38% to 40% -- keep in mind, the midpoint of that range is the same growth we delivered last year on a percentage basis, and this, of course, would be off a much bigger base. So we think it's a prudent place to be for now given there's still half of the year to go, but we do not have any specific expectations that we will see deceleration.

In fact, quite the opposite. We are monitoring all the main growth drivers, which have trended strongly year-to-date, and I think they are very reasonably a source of further upside. We just want to remain focused in the second half of the year on all the strategic drivers that we believe can unlock that upside. And so in the clinical business, I remain quite confident in our ability to continue to deliver similar results.

On the pharma side of the business, we've had a really strong first half as well. And I think the thing to keep in mind with that business is it's lumpy. So it's dependent on the timing of trial enrollment and sample arrivals. And so we, again, will continue to be prudent in the way that we anticipate the future, but we have seen great trends coming out of that space, continued opportunity in multiple myeloma, in particular, but also in leukemias to expand the degree to which we're doing interventional studies, regulated studies that deliver significantly higher economics. And the use of MRD as an endpoint is stronger than ever in multiple myeloma. So we have many reasons to be optimistic about that business as well.

Terrific. And then maybe just a second just on the separation. Obviously, you kind of talked about it a little bit on this call. I'm just wondering maybe any update just kind of what's transpired since you announced it? You're obviously looking to separate the business as you've discussed in the past, maybe the strategic value of the stand-alone MRD business post the successful separation? Just looking for any other color, incremental information you could provide.

Yes. I mean, yes, I think that's it, right? In the sense that if you look at kind of the goalpost of an outcome, I would say, I'm going to put this in kind of funny quotes, kind of the worst outcome in terms of that we have the MRD business is kind of free and clear and separated to be able to kind of pursue its growth strategy. And like we've been talking about for the last couple of years is IM is really a call option. And I would like to kind of point you to continue to think of it as such. We're looking for an outcome there. We're evaluating the different paths with our advisers, Morgan Stanley to see kind of what the potential value maximizing path is for shareholders. We'll update you. that could take kind of several different forms. We're looking at them, and we'll provide further information kind of at the appropriate time.

And our next question will be coming from the line of Casey Woodring of JPMorgan.

I wanted to follow up on the serial testing piece. You flagged during the prepared remarks, I think it was 75% of repeat orders have been fulfilled this quarter. That number last quarter, I think, was 72%. Just kind of curious on if the updated volume guide assumes some sort of benefit from serial testing that wasn't in there before or if you're still sort of leaving that as upside to the year? And then maybe just how do we think about those numbers trending in the back half of the year?

Sure. I think the short answer is that the guide doesn't necessarily contemplate specific increases in serial testing, although that is a key area of focus for us. both in the approach we've taken to driving blood-based testing adoption and also utilization of EMR tools to increase testing consistency. The Flatiron experience, I mean, I do feel really pleased with the results we've been able to accomplish. When we first measured serial testing back in Q4, the first full quarter we had to compare, we had 60% pull-through. And now as you've noted, we've increased it to 75%. And I think we would like to be able to apply the lessons we've learned in that setting with OncoEMR customers to other settings like our Epic customers.

In fact, in Q2, we did our first ever Epic integration with a custom serial testing interface built into that. And we've been really pleased with the early results, and we'll have a lot more data on how that's going over the next 2 quarters or so. But our general approach is to continue to look for avenues to standardize the way that serial testing is delivered, the number of projects ongoing in that space, and it is a source of potential upside in the guide.

[Operator Instructions] And our next question will come from Kallum Titchmarsh from Morgan Stanley.

Maybe following up on Dan's question on the separation. I guess folks are trying to work out what the next step looks like and how the MRD business could look on its own. There's obviously still good room to run in heme. But do you think a heme-only MRD platform can be sufficient longer term? Or would you perhaps look to bolster capabilities on the solid tumor side, too? I know there's been some debate there in the past, but curious whether the separation changes that outlook.

Oh my gosh, I apologize. I'm not sure why this is cutting out. But I'll say I appreciate the question. And I think that 2 things: one, the separation; and two, we brought additional capital onto the balance sheet through the convertible debt offering that we did allows us to look at how we can leverage the platform that we've built both in terms of our capabilities, if you look at them in terms of generating the clinical evidence, our market access and the ability to get reimbursed, our revenue cycle management functions. We figure out really how to efficiently operate a lab with scalable gross margin opportunities. So we look at -- if we can deploy those core competencies and capabilities that we've built to other opportunities, it's something that we are looking at. And that means potentially in solid tumors, but also in other disease areas as well. But we -- I do want to just kind of mention that we have a very kind of disciplined approach to not only capital allocation for organically, but for inorganic growth as well. We put a set of criteria and filters on to look at things that have -- that we want to play in areas that we can win, that have tests that have high gross margin opportunities that are -- really have high sensitivity and specificity and areas that we think we can have a differentiated competitive advantage. And those are areas which we look to kind of leverage the platform we've built to continue growing the business. But I also want to mention though that I want to go back again to say there is a long growth ahead of us in the MRD heme business. So we're going to make sure that whatever -- if we do something that it is a high-growth profile and fits well into the platform.

And I am showing no further questions from our phone lines. I would now like to pass it back to the management.

Thank you very much.

Thank you. And this does conclude the program. Thank you for your participation, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Adaptive Biotechnologies First Quarter Financial Results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Karina Calzadilla, Head of Investor Relations. Please go ahead.

Thank you, Anton, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies First Quarter 2026 Earnings Conference Call. Earlier today, we issued a press release reporting Adaptive financial results for the first quarter of '26. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing to a slide presentation that has been posted to the Investors section in our corporate website.

During the call, management will make projections and other forward-looking statements within the meaning of federal securities laws regarding future events and the future financial performance of the company. These statements reflect management's current perspective of the business as of today. Actual results may differ materially from today's forward-looking statements, depending on a number of factors, which are set forth in our public filings with the SEC and listed in this presentation.

In addition, non-GAAP financial measures will be discussed during the call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad Robins, our CEO and Co-Founder; and Kyle Piskel, our Chief Financial Officer.

Additional members from management will be available for Q&A. With that, I'll turn the call over to Chad. Chad?

Thanks, Karina. Good afternoon, and thank you for joining us on our first quarter earnings call. As shown on Slide 3, we're off to a strong start to the year with accelerating momentum in MRD and disciplined execution across the company. MRD revenue grew 53% year-over-year, reflecting broad-based strength across both clinical and pharma. We also recognized our first primary endpoint milestone this quarter, a meaningful proof point for MRD's expanding role in drug development. clonoSEQ clinical volumes increased 41% year-over-year, demonstrating strong continued adoption. We also delivered meaningful margin expansion with sequencing gross margin increasing 8 percentage points year-over-year to 70%, driven by scale and operational efficiency. At the same time, we maintained strong financial discipline, reducing cash burn and ending the quarter with approximately $222 million in cash. Given the strength we're seeing in the MRD business, we are raising our full year MRD revenue guidance to a range of $260 million to $270 million.

Kyle is going to provide more detail shortly. Let's now turn to Slide 4 for a deeper look at the MRD business. Our clinical business continues to deliver strong growth with revenue up 54% year-over-year. clonoSEQ tests reached another quarterly record of almost 32,600 in Q1, up 9% sequentially.

Growth was observed in all reimbursed indications, led by DLBCL at over 19% growth versus prior quarter. Importantly, we're seeing mounting traction across the key drivers that support durable long-term adoption. Blood-based testing reached 49% of MRD volume. In multiple myeloma, a traditionally bone marrow-driven indication, the contribution of blood-based MRD increased to 29%, up 8 percentage points year-over-year. This shift is closely linked to expansion of the community setting, where a promotion of favorable guideline updates and implementation of standardized testing protocols contributed to growth rates that outpaced the rest of the business.

Community volumes grew 67% year-over-year and now represent 35% of total testing. Growth in the community business was further supported by our EMR-enabled workflows, which are driving repeat utilization. Serial monitoring orders available to Flatiron integrated accounts are widely being utilized and strong initial pull-through rates have further improved with 72% of repeat orders due are being fulfilled.

Physician engagement also continues to expand with the number of ordering clinicians growing 43% year-over-year to nearly 5,000 in Q1, underscoring increasingly broad acceptance of MRD as part of routine clinical management. Finally, we continue to see increases in pricing with U.S. ASP growth of 11% year-over-year to $1,360 per test. Importantly, I'm excited to share that clonoSEQ is now listed in the Texas Medicaid policy manual.

clonoSEQ is one of only two specific tests included in the newly developed genetic testing section and patients may receive up to six tests per year. It's great to be pioneers in bringing advanced molecular testing to some of our most vulnerable patients.

Our scale, adoption and embedded workflows support clonoSEQ's sustained growth and continue to strengthen our leadership position as the market evolves. Let's now turn to Slide 5 to discuss our Biopharma business. We delivered one of the strongest quarters to date in MRD pharma with revenue growing 53% year-over-year or 33% excluding milestones. As mentioned, we also recognized our first milestone in the U.S. tied to MRD as a primary endpoint in the CEPHEUS trial in multi myeloma. New bookings were strong, driving backlog to approximately $254 million, up 24% year-over-year. Bookings came primarily from regulated studies, including several registrational trials where MRD will be used as a primary or co-primary endpoint in both multiple myeloma and CLL.

We continue to see increasing use of MRD to guide treatment. Today, we have approximately 20 ongoing interventional studies where MRD is used for enrollment, stratification or to guide therapy decisions. As these trials read out, they directly support our commercial business. For example, data from the PERSEUS trial helped establish sustained MRD negativity as a meaningful measure of deeper response in multi myeloma, which supports broader adoption of clonoSEQ in clinical practice. The momentum we are seeing in the pharma business is likely to be further supported by evolving regulatory trends.

The FDA recently introduced a new clinical trial model that incorporates real-time data submission with early proof-of-concept studies underway, including the TrAVeRse trial in mantle cell lymphoma, where MRD-negative complete response as measured by clonoSEQ is a key endpoint. While early, this emerging model for accelerating data review will reinforce the value of MRD endpoints that are objective, quantitative and longitudinal. These dynamics are particularly relevant in regulated and registrational settings, where data quality, reproducibility and regulatory credibility are critical and where clonoSEQ is well positioned as a clinically validated MRD assay.

Taken together, the trends we are observing support a reinforcing flywheel between biopharma and clinical testing as adoption of clonoSEQ in drug development generates evidence, strengthens clinical utility and drive demand in the clinic. To wrap up on MRD, as shown on Slide 6, we are well on track to deliver against our key priorities for the year. Starting with clinical volumes. We initially guided to over 30% growth for the year. Based on our first quarter performance and continued momentum, we now expect volumes to grow to at least 35% in 2026 with potential for upside.

Importantly, the underlying drivers of growth are already nearing our full year targets. Blood-based testing is rapidly approaching our goal of over 50% contribution and community contribution is already at 35%, in line with our full year expectations.

EMR integrations continue to advance with six new Epic accounts added year-to-date and five more expected to go live in the next month. In April, we went live with Epic in another of our top 10 accounts, bringing us to seven of our top 10 now being fully integrated.

On pricing, we remain on track to achieve our target of approximately $1,400 per test in 2026, supported by recent policy expansions in CLL and DLBCL, Medicaid payment traction and commercial payer negotiations. In biopharma, we have already exceeded our goal for new registrational studies with 10 signed in the first quarter alone.

Finally, strong top line growth, combined with continued operational efficiencies positions us to achieve over 70% sequencing gross margins and expand adjusted EBITDA. Overall, our progress across these MRD priorities is a testament to our continued momentum and strengthens our confidence in our ability to meet or exceed our full year commitments.

Turning now to Slide 7. Our immune medicine programs are progressing well against our 2026 key priorities. We continue to scale our TCR antigen data set and advance our AI/ML modeling work. We now have more than 6 million functional TCR antigen pairs with data that currently spans about 50,000 antigens and 50-plus HLA types. This proprietary data set enables us to understand TCR antigen interactions and their role in cancer, virology and autoimmunity. We recently confirmed that our digital AI model outperformed the accuracy of existing public benchmarks in predicting TCR antigen binding.

We published this work in proceedings of machine learning and research and presented the machine learning for Health Symposium. Our focus this year is to further improve these models to targeted applications that could be attractive to partners seeking to leverage our data and our digital capabilities.

In parallel, we are applying our AI-enabled immune medicine platform to identify the likely disease-causing T cell receptors and their antigens in select autoimmune conditions. This quarter, we kicked off our RA target discovery partnership with Pfizer. We received over 1,000 patient samples and are on track to deliver the RA data package in the second half of 2026. As we continue to make progress on the 2026 priorities, we're advancing discussions on additional data partnerships, maintaining a disciplined approach to capital allocation and operating within our expected IM cash burn range of $15 million to $20 million for the year.

I'll now turn the call over to Kyle, who's going to walk through our financial results and updated full year guidance. Kyle?

Thanks, Chad. Starting on Slide 8 with our first quarter results. Total revenue was $70.9 million, representing 45% growth year-over-year, driven primarily by continued strength in MRD, which accounted for approximately 95% of total revenue. Of note, amortization from the Genentech payments is excluded from all prior period comparisons. MRD revenue grew 53% versus prior year to $67.1 million, with clinical and pharma contributions of 65% and 35%, respectively. Immune Medicine revenue was $3.8 million, down 26% from a year ago, primarily due to timing of sample receipts and processing. Turning to margins. Sequencing gross margin, which excludes MRD milestones, was 70% for the quarter, up from 62% a year ago. This improvement reflects reduced assay costs due to efficiencies from our NovaSeq launch in the second half of 2025 and leverage in overhead as we support higher volumes as well as favorable pricing trends across both clinical and pharma. Total operating expenses, inclusive of cost of revenue was $90.1 million, up 10% year-over-year. This increase was mainly driven by continued investment in commercial infrastructure, including EMR integrations and reimbursement as well as higher personnel-related costs.

At the segment level, MRD continues to demonstrate strong profitability with adjusted EBITDA of $12.1 million compared to a loss of $4.1 million in the prior year, reflecting the impact of revenue growth, including milestone revenue and continued operating leverage. Immune Medicine adjusted EBITDA was a loss of $10.4 million. At the total company level, adjusted EBITDA was a loss of $2.5 million. Net loss for the quarter was $20 million, including approximately $2.9 million of interest expense related to our royalty financing agreement with OrbiMed.

I'll now turn to our updated full year guidance on Slide 9. We are raising our full year MRD revenue guidance to a range of $260 million to $270 million, up from our prior range of $255 million to $265 million. This increase reflects stronger-than-expected clinical volume performance in the first quarter and continued momentum across key growth drivers. This range includes $9 million of MRD milestone revenue, which was recognized in the first quarter, and we do not anticipate additional milestone revenue for the remainder of the year. At the midpoint of the guide, this implies approximately 25% year-over-year growth or 33% growth, excluding milestones. In terms of seasonality, we continue to expect MRD revenue to be weighted approximately 45% in the first half and 55% in the second half.

We are reiterating our full year total operating expense guidance, including cost of revenue of $350 million to $360 million. This reflects continued investment in MRD growth with approximately 75% of spend allocated to MRD, approximately 20% to Immune Medicine and the remainder to corporate unallocated.

Importantly, we remain on track to achieve positive adjusted EBITDA and positive free cash flow for the full company by the end of 2026. Overall, the quarter reflects strong financial execution supported by continued revenue growth, expanding margins and operating leverage.

With that, I'll turn the call back over to Chad.

Thanks, Kyle. We're executing well across the business, and the strength we're seeing, particularly in MRD, gives us confidence in both our plan and the opportunity ahead. As we move through the year, we expect to build on this performance and drive additional upside over time.

With that, I'll turn it over to the operator for questions.

[Operator Instructions] Our first question comes from Andrew Brackmann from William Blair.

I wanted to ask on community testing. Chad, as you sort of outlined here, I think you're already at the full year target for the mix that you want coming from the community. Can you maybe sort of compare and contrast for us just the nature of the conversations that you're having with those accounts in particular, maybe today versus a year or so ago? You've just got so much sort of tailwinds from the blood mix sort of increasing and then also the EMR integration. So how have those conversations sort of evolved over the last year or so?

Andrew, I can help answer that. I think a year ago, if you had asked me this question, I would have said, well, the conversations have shifted from what is MRD? -- why should I care? Why should I do this to okay, how should I do this? What patients, which indications, which use cases, help me understand more of the practical applications. And now a year later, the conversations are increasingly shifting toward practical implementation. We are increasingly getting traction with conversations around protocols and in fact, have established testing protocols in a number of large community centers and networks.

The goal is let's standardize testing so that all our patients have access to the best care. Let's ensure our clinicians aren't forgetting about this for their heme patients who in the community may not make up the lion's share of the patients they see every day. And so that sort of practical implementation-oriented conversation is more and more of the norm, and I think a really positive sign for the degree to which MRD is now becoming really entrenched as part of the standard of care in the community at large.

That's perfect. I appreciate all that color. And then I just wanted to sort of ask on the reimbursement front. Obviously, there's a lot of noise out there with respect to CMS and the CRUSH initiative. Can you maybe just sort of remind investors how clonoSEQ is positioned from a reimbursement profile and how you see your sort of rate as durable even if there are changes to things like FX nationalization or implementation of prior authorizations?

Yes. It's Chad, Andrew. We look extensively at this question. And after kind of internal and external evaluation with outside counsel, we've determined that we're currently not subject to PAMA reporting requirements for the cycle. there's actually very specific and defined requirements for PAMA reporting. That's actually by statute and your test kind of must not only fall under the CLFS or clinical lab fee schedule, it also has to account for over 50% of your Medicare revenue. And you know that CMS publishes a list of CP codes, CPT codes that fall under the CLFS.

And frankly, the clonoSEQ episode billing structure, it's not on it. Like if we kind of double-click and go one level deeper, CMS does not identify the MolDX code that we use for billing kind of the clonoSEQ episodic rate structure as being on the CLFS list. It's worth noting kind of as you all know that the vast majority of our Medicare revenues are generated through the episode rate structure billing under the MolDX program. CMS does consider the PLA code that we use to bill Medicare for MCL recurrence monitoring as being on the CLFS.

But we have Medicare revenues under the PLA code that are under that recurrence monitoring that are well below the 50% revenue threshold kind of set for PAMA for these purposes for this kind of initial data reporting period. Kind of separately, I think there are -- we're in process of really a multipronged strategy that not only includes kind of recurrence monitoring. This goes to your kind of durability question, but we're also in productive discussion with MolDX to increase the number of tests per bundle kind of under our episode structure, and there's other things that we're looking at. So kind of this is a super high importance and kind of we're all over it.

Our next question comes from David Westenberg from Piper Sandler.

Congrats on the great job here. So I want to talk about with MRD as a primary endpoint. Congratulations on that. How should we think about different things like CDx or on the label? And how should we think about pharma basically helping to push your product because of it be on the label? And lastly, I imagine there's a lot of power in being able to find patients that are recurring. Is there any potential reimbursement or strategic monetization of maybe getting these clinical patients into clinical trials that were not able to prior to maybe clonoSEQ and its incredibly high sensitivity.

David, I appreciate those questions, and I think interesting set of topics. First of all, with regard to the primary endpoint, as you've heard Chad's prepared remarks, we're seeing increasing use of the assay in the pharma setting in terms of regulated studies. And even more beyond that, seeing use in interventional studies where MRD is being used to stop or start therapy being used to actually qualify patients that should be enrolled in the study to begin with. And that particular trend is extremely favorable for our business because, of course, we're the only FDA-cleared assay in this space. We're extremely well positioned to capture these opportunities. We're also an assay that has extremely deep sensitivity and high specificity, which is really important in the context of interventions where you don't want to be giving patients therapies they don't need, right? So the question does then come up, well, is this a companion diagnostic? Should it be incorporated into studies?

And there are now the beginnings of studies that are exploring that use case for MRD, although up until this point, the FDA has not taken the position that MRD needed to be positioned as a companion diagnostic within the regulatory context. I imagine that, that will come up as time goes on. There will be some studies for which that may be appropriate, others not. But regardless of whether MRD becomes a companion or remains a complementary diagnostic for these studies and for these therapies, it's quite clear that the pharma companies are very interested in partnering to ensure that MRD uptake is maximized to support the adoption of their therapies.

We're already having numerous conversations actively with our biopharma partners who want to better understand MRD adoption dynamics from our point of view and want to think about how we can work together to expand MRD adoption, especially in the community setting. And to your question about, I think, essentially the concept of clinical trial matching, that is potentially an application of the data that we generate, and we have done some initial exploration, and there is, I think, some level of interest potentially in that, but more work to be done to be determined whether and how we may determine to pursue that.

Got it. And if I may, I'm going to ask just one more on -- sticking with the clonoSEQ business. DLBCL grew 19% quarter-on-quarter. That's great, particularly because there's a lot of noise with competition or competitor having a lot of different presentations. Do you think that you maybe saw benefits from all of the different presentations in ASH and that would be kind of a 1-, 2-quarter, 3-quarter benefit as all these physicians saw that at ASH? Or do you think like there's a sustainability for something beyond that?

I think that the strength we saw in the DLBCL business in Q1, first of all, was very pleased to see, but also we've seen very strong growth quarter-over-quarter prior to and since the entry of competition in the space. So I'm quite confident that the growth we're seeing quarter-over-quarter is driven by the sustainable moats that we've built and also the durable advantages that we have, the brand awareness, specifically as the heme MRD test, the technology and its advantages relative to other approaches to assessing MRD and the broad real-world clinical experience that we've built along with the coverage and the customer satisfaction that we've been able to deliver. All those things, I think, have contributed to clinician confidence in utilizing clonoSEQ. And as the noise around MRD and DLBCL continues to mount, we are disproportionately benefiting from that as the market leader.

I was just going to say, David, and just remember, it's really early days for MRD and DLBCL in general.

And Susan mentioned all the reasons that we're well positioned, but we see durable growth over kind of many quarters ahead. The general sentiment is getting doctors to incorporate MRD into clinical practice as a routine kind of measure. And we're -- yes, we're benefiting from really the noise across the industry, but also, as Susan mentioned, from the fact that we have what we believe is kind of the most sensitive and specific test out there.

Yes. And David, we do intend to continue to release additional data in this space, and I think particularly at ASH, we expect that you'll have the opportunity to see another round of significant data.

Our next question comes from Mark Massaro from BTIG.

Congrats on another beat and raise. I wanted to start on the pharma backlog, which increased 24% year-over-year. And like David said, it's great to see the first primary milestone come in. So I think in prior quarters, you've sort of broken out the secondary versus primary funnel. So I'm just curious if you could just speak to with just, of course, one primary milestone in the bank, what does that look like for you guys, say, over the next couple of years? Is this something that you think can continue? And then can you just remind investors the economics of the primary endpoint compared to like a secondary endpoint?

Sure, Mark. So to start out, I think I can kind of give you an overview of how the backlog is broken out. We have about 190 active studies. And of those, 111 are either primary or secondary endpoint studies, 23 are primary and the remaining 88 are secondary. And Kyle, maybe you want to speak to the economics.

Yes. On the economic front, I mean, I think deal by deal can have its own unique differences. And I won't go into specifics. Generally, primary endpoint milestones are higher than what you've seen historically in the past, which has been the vast majority of secondary endpoint milestones. They won't all be the same dollar amounts, et cetera, but they're typically a little bit higher.

Fantastic. And then maybe at a high level, can you just maybe give us a sense, this might be for you, Chad. Like what inning do you think you are in the EHR integration? I'm just basically trying to determine what type of upside you have as we think about getting to full maturity across the EMR systems?

Yes. I mean I think one of the kind of most important things is kind of prioritizing going after our largest accounts. And now we're kind of seven out of 10 of our top largest kind of academic accounts, but the community setting, in particular, is where we're targeting kind of the large network practices on EMR integrations. Obviously, Flatiron gives you kind of certain advantages that Epic doesn't and that you could turn on a lot of accounts at one time. So we have now kind of 150-ish on the community EMR integrations. But now the real point is once you have your accounts integrated, we have a very defined strategy about targeting those accounts and the pull-through and how you optimize the EMR.

And I would say we're early on those, but -- and the accounts that we've gone and really kind of put that muscle into it, we're seeing really, really strong results. So that's really the focal point right now is to say, okay, once we're integrated, how do we go in and optimize those accounts. So I would say early, but we've got a very strong playbook in place.

Our next question comes from Subbu Nambi from Guggenheim.

You've mentioned before having preliminary discussions on increasing the Medicare bundle of tests to over four. Can you give us the latest on the progress in those conversations? Is this a late 2026 or a 2027 opportunity? And what are the steps left in that process?

Yes. Subbu, it's really hard to predict timing of kind of government contractors and agencies. So I'm not going to go out of the limit and try to do that on this call. The only thing I can tell you is that we have a very strong relationship. We continue to develop very strong evidence, and we have had very productive discussions.

That's fair, Chad. Then can you talk about your progress so far this year related to the structure of milestone payments versus transitioning pharma to a more direct pay-for-service structure? How has that been received by partners? And is there a percentage of total customer numbers you're looking to have transition as we progress throughout the year?

Yes, Subbu, it's a long process. Many of our contracts are multiyear contracts and the renegotiations come up sort of as those contracts expire. So it's going to take some amount of time, a number of years for us to even get the opportunity to revisit the existing contract structures. What I will say is that in the situations that has come up, it's been a topic of conversation every time, and we haven't -- many of those conversations are still ongoing.

That's fair. And last one for me. For Kyle, maybe for sequencing margin, what is the ceiling this year? And what will be the gross margin progression look like this full year? Should we expect sequential increases each quarter? And will the full benefit of NovaSeq transition be realized this year? And what other levers do you have for gross margins?

Yes. I appreciate the question, Subbu. I'd say as it relates to feeling, we've talked about 75% kind of being the North Star. And I think it's a fair step up into that 75% gross margin throughout the year at the end of the day. The utility of the NovaSeq X, as we continue to drive volume, that's just compound value for us. And as we can continue to improve our price point, you'll see more margin improvement throughout the year. But I think it's probably fair to just state that as a linear step-up through to about that 75% range.

Sorry to nitpicky because honestly, the volume numbers are pretty impressive.

Our next question comes from Sebastian Sandler from JPMorgan.

My first question is on pharma MRD bookings and conversion expectations. So it looks like most of the guide change is on better volumes. So I'm just wondering if you expect any of the incremental bookings you saw in 1Q to convert to revenues in 2025. I think normally, there is a 20% release rate for in-year bookings. So I'm just wondering what's baked in there and if there could be any upside to the guide from that? And I have a quick follow-up.

Yes. Great to see the bookings in Q1 and the increased backlog exiting Q1. I'd say -- as it relates to the guide, we want to kind of -- pharma is lumpy quarter-to-quarter is a great start to the year. I think we just want to be prudent here in kind of managing expectations to keep it at that 11% to 12% year-over-year growth. But that being said, as the trajectory continues and the pace of bookings and pull-through of the backlog increases, I think could provide some opportunity to lift the guide in the back half of the year or even potentially next quarter.

Okay. And then just a follow-up. It looks like EBITDA for MRD stepped up around $2 million quarter-over-quarter despite a $9 million pharma milestone. So just were there any one-offs we should be aware of? It seems like it might have just been personnel and EMR costs. And then I know you have the total Co adjusted EBITDA guide positive by the end of the year. But just wondering if you can give us any more color on incremental MRD EBITDA margins for the balance of the year and just kind of pacing there?

Sure. As it relates to the sequential movement Q4 to Q1, there is a bit of seasonality in our business in Q1 where we have some increased costs that won't recur. And then Q4 also a little bit higher on the pharma revenue versus Q1. So that's the majority of the balance of the mix. As it relates to the EBITDA improvement on the MRD business. Again, if you focus on the base business, I think it's going to have a continued growth trajectory throughout the rest of the year. I don't want to put anything firm in terms of an EBITDA margin at this point, but sufficient to say it's going to continue to grow sequentially each quarter.

Our next question comes from Dan Brennan from TD Cowen.

Maybe just starting off with the 35% volume guide, like what do you think the puts and takes would be if you guys come in above that over the back half of the year, given I think we've been accustomed to these really strong volume numbers and now you just raised the bar again.

I will answer the question, Dan. We are very pleased with the performance in Q1. I think it's a great strong start to the year, and we do feel very confident in the 35% year-over-year growth. Could it be higher? I think the answer is yes, and there is high potential for upside. We're just early in the year. So we want to see how our key growth drivers continue to play out. But that said, it's the same thing that we've been talking about in EMR integrations and whether or not we can drive increased adoption of serial testing and increased pull-through, particularly on the Flatiron system, which allows us to really standardize that ordering approach.

We've seen really good results to date from that. The blood-based testing, you saw 29% of myeloma MRDs coming in this quarter in blood, and that was a nice step-up, and we'll continue to look for that as a potential area for upside because we do see increased testing frequency where we see increased use of blood. Community use. We achieved our goal, as Chad's prepared remarks indicated for the full year in Q1, we need to maintain that. We need to continue to see disproportionate growth in that segment.

And the guidelines that we've been promoting the favorable updates that came last year have been an important component of that. So if we can continue to build and continue to implement some of the pathways that I talked about earlier, these protocols that really dictate how testing will be done in a standardized fashion in large community practices, that's another source of upside. I think the takes are simply that we believe we're in a very strong position. We have the right strategy. We have the right team. We're a market leader, but we're going to remain attentive to new existing and to new emerging competition. But I think that's just why it makes it important for us to maintain a rapid pace of growth and invest appropriately and solidify all the moats that we've been talking about.

Great. Maybe just talking about the commercial organization. Just can you just remind us kind of the plan this year, kind of where you stand now, what the targets are by year-end in terms of commercial adds? And what's the balance you're trying to strike there with driving profitability while ensuring you have enough feet on the street to kind of stay ahead of any competition that's coming or to maximize on the opportunity ahead?

Sure. The short answer is that we think that the team we have is the right team to continue to prosecute the opportunity. We have 65 sales reps in the field. They're split half and half between account managers who focus on academic institutions and diagnostic hematology specialists who focus on community practices. Our reps have manageable index values. They're calling on a reasonable number of accounts and doctors. They have acceptable amounts of travel time. So we always look at the individual territory performance and potential and potentially we shift or add territories here and there to make sure that we're capitalizing on opportunities in specific geographies.

And we will, over time, continue to look at the option of new deployment strategies that could justify additional hiring, and we're watching the market dynamics carefully in that regard. But not expecting to invest in any significant expansions this calendar year.

I'll just say kind of some of the areas that we are continuing to deploy capital and invest behind is EMR integration just discussed, reimbursement and revenue cycle management and continued data generation to kind of demonstrate clinical utility across all of our indications.

[Operator Instructions] Our next question comes from John Wilkin from Craig-Hallum.

Just one quick one for me. I wanted to dig in a little bit deeper on the sequencing side of the pharma business. I know you guys have historically talked about that business being more like a high single-digit grower, and now we're in the second straight quarter where it's grown. I think Q4 was 24% this quarter over 30%. So if you could give a little detail on what's driving that acceleration and if you think that acceleration could be sustainable through the balance of the year?

Yes, John, I appreciate the question. I think we're seeing a lot of traction in the pharma MRD space. The bookings and backlog are really the drivers of that. The pull-through is also starting to happen is just additional pharma partners want to generate data and get readouts on their trial. So I think it's an opportunity, as I mentioned in one of the Q&As earlier. I think it's an opportunity for us to continue to go after, and we're going to be beneficiaries of it. It's just -- again, we're just going to hold the guide here right now. And I do anticipate it will grow throughout the year, but it can be lumpy quarter-to-quarter.

Thank you. This concludes the question-and-answer session. Thank you for participating in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Adaptive Biotechnologies Fourth Quarter and Full Year Earnings Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Karina Calzadilla, Vice President, Investor Relations. Please go ahead.

Thank you, Daniel, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies Fourth Quarter and Full Year 2025 Earnings Conference Call. Earlier today, we issued a press release reporting Adaptive financial results for the fourth quarter and full year of '25. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing to a slide presentation that has been posted to the Investors section in our corporate website.

During the call, management will make projections and other forward-looking statements within the meaning of federal securities laws regarding future events and the future financial performance of the company. These statements reflect management's current perspective of the business as of today.

Actual results may differ materially from today's forward-looking statements depending on a number of factors, which are set forth in our public filings with the SEC and listed in this presentation. In addition, non-GAAP financial measures will be discussed during the call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad Robins, our CEO and Co-Founder, and Kyle Piskel, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I'll turn the call over to Chad. Chad?

Thanks, Karina. Good afternoon, and thank you for joining us on our fourth quarter and full year earnings call. 2025 was a remarkable year for Adaptive, marked by strong execution and meaningful progress across the business. As shown on Slide 3, in the MRD business, full year revenue grew 46% year-over-year, and we achieved profitability ahead of expectations. We also delivered several key catalysts in the year that position the business for sustained growth and continued margin expansion. These include accelerated EMR integrations, including the integration of clonoSEQ into Flatiron's Onco EMR, expanding access across the community setting. The launch of NovaSeq X+ to help scale operations and improve margins. Our first Medicare coverage for recurrence monitoring in MCL, expanding the lifetime value of each MCL Medicare patient, updates in NCCN guidelines across all reimbursed indications, which continues to deepen clinical validation and strong data generation, which was marked by an all-time high with over 90 abstracts presented at ASH, reinforcing MRD's growing role as an interventional tool in patient care.

In the Immune Medicine business, we scaled our TCR antigen data and modeling capabilities, leading to our first 2 data partnerships, and we completed a preclinical data package for our lead TCR depleting antibody program in ankylosing spondylitis. Taken together, the strong MRD execution, the continued progress in Immune Medicine and the disciplined spending across the organization drove 55% total company revenue growth and a 68% reduction in cash burn, leading to a strong cash balance of $227 million at year-end.

Let's turn to Slide 5 for a closer look at the MRD performance and future expectations, starting with clinical testing. ClonoSEQ clinical testing revenue grew 64% for full year 2025 and 59% in the fourth quarter compared to the prior year. As shown in the chart, volumes increased sequentially throughout the year, reaching a new record of 30,038 tests in the fourth quarter, up 43% year-over-year and 11% sequentially. Growth was broad-based across all reimbursed indications with DLBCL, MCL and multi myeloma driving the majority of year-over-year growth. Multiple myloma represented 44% of U.S. clonoSEQ volume followed by ALL at 30%, CLL and DLBCL, both at 9% and MCL at 5%.

Volume growth throughout the year was driven by a combination of interrelated factors, including blood-based testing, community presence, EMR integrations, clinical guideline inclusion and ongoing data generation. In the fourth quarter, blood-based testing accounted for 47% of clonoSEQ tests, up from 41% a year ago. In multi myeloma, blood-based testing reached 27%, which is a 6% -- 6-point increase year-over-year, which is particularly meaningful given the bone marrow-based nature of the disease. Community testing also continued to expand with volumes up 18% sequentially and representing approximately 33% of total tests in the quarter. We further scaled our digital footprint, completing Epic integrations in 8 accounts during the quarter, bringing the total to 173 integrated accounts, which now drive approximately 40% of ordering volume. Finally, NCCN guideline updates and continued data readouts across marketed indications supported our commercial execution.

Ordering HCPs increased 9% sequentially and 45% year-over-year in Q4, with particularly strong adoption in the community setting. Taken together, these drivers continue to increase both physician adoption and testing frequency per patient across indications.

Turning to Slide 6. In addition to volume, clinical revenue growth was also driven by continued ASP expansion. We ended the year with an average ASP in the U.S. of $1,307 per test, up 17% year-over-year, and we exited the fourth quarter at about $1,350 per test. ASP growth during the year was driven by strong execution from our reimbursement team across several initiatives. These include the successful renegotiation of 8 major payer contracts with national and regional payers, including Humana, Aetna, Horizon and multiple Blue Cross plans as well as the signing of new agreements with Anthem, Centene, Florida and LA Care. We also expanded commercial coverage policies with new coverage wins in DLBCL and in CLL. In parallel, we delivered meaningful revenue cycle management improvements, including Medicaid collections, appeals, prior authorization processes and time to cash.

These operational enhancements supported by AI-enabled workflows are driving higher paid claim rates more consistent realization and improved commercial payer cash collections year-over-year by 74%. Looking ahead, we expect these initiatives, together with 2 additional large national payer contracts, we anticipate closing this year to support our targeted average ASP of approximately $1,400 per test in 2026.

Turning to Slide 7. Our MRD pharma business had a strong year with revenue growth of 20% year-over-year, including $19.5 million in regulatory milestone revenue. Excluding milestones, pharma grew 11%, and we ended the year with approximately $210 million in backlog. Several important shifts in our pharma portfolio are worth highlighting: First, multi myeloma remains the largest driver, accounting for roughly 70% of sequencing revenue and approximately 60% of backlog; second, CLL and ALL bookings more than tripled in 2025 supported by emerging data underscoring the need for higher sensitivity MRD to differentiate therapies in both disease states as well as updated NCCN guidelines for fixed duration regimens in CLL.

Third, MRD is increasingly embedded directly into regulated interventional trials with approximately 60% of our portfolio, including MRD as an endpoint, up from about 40% in 2024. This shift has been driven by regulatory momentum including the ODAC recommendation and most recently, the subsequent FDA draft guidance supporting MRD as a primary endpoint in multi myeloma accelerated approvals.

Of note, registrational trials that incorporate MRD carry higher economic value and have a halo effect in the clinical business. Overall, we're encouraged by the expanding role of MRD across hematologic oncology trials, and we believe broader endpoint adoption, increased testing time points and the need for greater sensitivity will continue to drive MRD pharma revenue growth.

Turning to Slide 8. Our focus this year is clear: continuing driving top line growth while expanding margins building on the same durable growth drivers that powered performance in 2025. In 2026, we expect clonoSEQ test volumes to grow by more than 30% year-over-year, supported by a continued mix shift towards blood-based testing, which we expect to exceed 50% of total MRD volume, deeper penetration in the community setting, where we expect more than 35% of testing to originate, further scaling of our EMR integration effort adding approximately 40 with a focus on high to mid-volume accounts, and continued generation of clinically meaningful data across multiple indications to further expand interventional use and support the guideline evolution.

From a pricing standpoint, we expect to increase ASP to an average of about $1,400 per test based on the initiatives described earlier. In pharma, we plan to increase the number of registrational and primary endpoint studies across multi myeloma, CLL and DLBCL, leveraging growing regulatory and clinical endorsement of MRD. We also expect continued margin expansion driven by higher volumes throwing through the NovaSeq X+ and operating leverage across our production and our commercial infrastructure. We believe these priorities position MRD as a scalable, durable and increasingly profitable growth engine for Adaptive in 2026 and beyond.

Now let's turn to Slide 10 to discuss Immune Medicine. The premise of our Immune Medicine business is to generate large-scale, proprietary immune receptor data that allows us to understand how T cell receptors bind to antigens and how those interactions drive immune responses across cancer, autoimmunity and infectious diseases. Over the past year, we have continued to scale this data we now have more than 5 million paired TCRs spanning over 20,000 antigens and nearly 50 HLA types, a data set that is orders of magnitude larger than is one is publicly available. We believe this scale is sufficient to train predictive models of the adaptive immune response across diseases. In parallel, we are applying our platform to identify what we believe are likely disease-causing T cell receptors and their antigens in certain autoimmune conditions, including type 1 diabetes, celiac disease and multiple sclerosis. These insights have the potential for TCR-based target discovery to enable existing and future partners develop -- to develop immune-based therapeutics.

Turning to Slide 11, I'll briefly review our 2025 achievements and how they set us up for our 2026 strategy. First, we began to monetize our data with 2 distinct licensing deals with Pfizer. One is a data licensing agreement in which Pfizer has access to a subset of our TCR antigen training data. Pfizer will use this data to develop and train its AI and machine learning models to accelerate research and drug discovery in multiple disease area. The second licensing deal focuses on target discovery and rheumatoid arthritis or RA. Here, we are applying our IM platform and capabilities to identify the specific autoreactive T cell receptors that are highly enriched only in RA patients. Pfizer will then use these data to accelerate its research and development of potential RA therapeutic candidates.

Together, these partnerships continue to validate the strength of our differentiated platform and the value of our large-scale proprietary data. In addition, we completed a preclinical data package for our lead antibody program in ankylosing spondylitis. While potential next steps include initiating IND-enabling studies, we made the strategic decision to stop further investment in this program and instead prioritize capital toward data generation and AI modeling. These are key areas we believe leverage our core differentiation and represent the highest return on investment for Immune Medicine. Along with these key achievements, we also maintained a disciplined capital allocation, executing against our objectives while keeping annual Immune Medicine cash burn to around $30 million, as promised.

Looking ahead to 2026, we plan to continue advancing on our TCR antigen data sets and our AI/ML modeling work with a lower target net cash burn of $15 million to $20 million. We continue to focus on securing additional data partnerships, which we believe have the potential to drive meaningful long-term upside for Adaptive. Now I'm going to pass it over to Kyle, who's going to walk through the financial results and our 2026 full year guidance. Kyle?

Thanks, Chad. Turning to our financials. First, I'll cover our reported results, which include the noncash revenue recognized from the amortization of amounts previously received under our Genentech collaboration. As you know, following the termination of the collaboration in August, all remaining amortization was accelerated and recognized in the third quarter. As a result, there are no ongoing Genentech collaboration economics in our results after Q3. Total company revenue for the fourth quarter was $71.7 million and for the full year was $277 million, representing 51% and 55% year-over-year growth, respectively. Total company adjusted EBITDA was $4.1 million in the fourth quarter compared to a loss of $16.4 million a year ago.

For the full year, adjusted EBITDA was $12.2 million compared to a loss of $80.4 million in 2024. Interest expense from our royalty financing agreement with Orbimed was $3 million in Q4 and $11.8 million for the full year, while interest income was $2.1 million and $9.4 million for the same respective period. Net loss was $13.6 million for the quarter and $59.5 million for the full year.

Now turning to Slide 12. The revenue and adjusted EBITDA figures I'll discuss from here on forward are presented excluding all noncash revenue from Genentech amortization at all period shows. On this basis, fourth quarter revenue was $71.7 million, which increased 63% year-over-year with 86% contribution from MRD and 14% from Immune Medicine. MRD revenue was $61.9 million, up 54% year-over-year with clinical and pharma contributions of 67% and 33%, respectively.

ClonoSEQ test volume increased 43% to 30,038 tests, up from 20,945 in the prior year quarter. Immune Medicine revenue was $9.8 million, up from $3.8 million a year ago, driven primarily by our data licensing agreement with Pfizer. For the full year, total revenue was $235.7 million, up 42% year-over-year. MRD revenue was $21.2 -- $212 million, up 46%, including $19.5 million in milestone revenue. Excluding milestones, MRD revenue grew 45% versus 2024. Immune Medicine revenue was $23.4 million, representing a 17% increase from the prior year.

Moving down the P&L. Sequencing gross margin, which excludes MRD milestones, Genentech amortization and the licensing revenue from Pfizer, was 71% in Q4, up 12 points year-over-year and 5 points sequentially. Full year sequencing gross margin was 66%, up from 53% in 2024. Lower cost per sample were driven by production efficiencies, labor leverage and the transition to NovaSeq X+. Total operating expenses, including cost of revenue, were $84.5 million in Q4 up 4% year-over-year, primarily due to higher MRD sales and marketing investment, primarily from EMR and market access initiatives, partially offset by lower Immune Medicine R&D.

Full year operating expenses were $334.1 million, down 2% year-over-year. As shown in the segment table, MRD adjusted EBITDA was positive [ $15.2 million ] in 2025 compared to a loss of $41.2 million in 2024, driven by higher revenue. Immune Medicine adjusted EBITDA loss improved to $31 million from $37.9 million, reflecting lower operating spend and increased revenue. As a result of strong top line growth, improving efficiency and disciplined spending, we ended the year with $227 million in cash, cash equivalents and marketable securities. This amount excludes $13.1 million of cash held by digital biotechnologies.

Now turning to Slide 13 for our full year 2026 guidance. We expect full year revenue for the MRD business to be between $255 million and $265 million. This includes $8 million to $9 million in MRD milestone revenue based on our current line of sight. At the midpoint, this guidance implies 22% year-over-year growth or 30% growth excluding milestones. We expect MRD revenue to be approximately 45% weighted to the first half of the year and 55% to the second half as clinical volume and ASP growth compound with sequential clinical volume growth anticipated throughout the year.

We expect full year operating expenses, including cost of revenue to be between $350 million and $360 million, representing 6% growth year-over-year at the midpoint. This reflects merit increases in additional targeted investments in MRD sales and marketing to support continued market expansion while leveraging our existing commercial and operational infrastructure. In addition, we expect to achieve positive adjusted EBITDA and positive free cash flow for the whole company by the end of 2026. We -- of note, as in prior years, Q1 will be our highest quarterly cash utilization primarily due to annual corporate bonus payments. I am pleased and encouraged by the strong results we delivered in 2025 and look forward to providing financial updates throughout the year as we execute towards our goals. With that, I'll hand it back over to Chad.

Thanks, Kyle. To bring it all together, 2025 was an outstanding year for Adaptive on all fronts. In MRD, we achieved profitability and grew the top line by 46%, driven by strong clonoSEQ volume growth. In IM, we scaled our TCR antigen data and began executing on targeted monetization opportunities that build long-term strategic value. And importantly, we maintained our strong cash position giving us the flexibility to execute across both businesses.

Looking ahead to 2026, we're focused on continuing to fuel MRD revenue growth, expand margins and deliver company-wide profitability. We have a great playbook in place, and we're executing against it. We're encouraged by the momentum we are seeing and are confident in our ability to execute and deliver on these priorities. I'll now turn the call back over to the operator and open it up for Q&A.

[Operator Instructions]

Our first question comes from David Westenberg with Piper Sandler.

Congrats on a very strong volume quarter in Q4. So actually, I want to start with that, that sequential step up in clonoSEQ volume. Can you discuss how to think about that trend? Is there any seasonality there? And can you discuss some of the weather-related issues you might see in Q1? And one of the things I want to get at is you have a higher base now, so growing that sequentially up on a percentage basis might be a little bit more difficult, obviously, given how big your volumes are starting to get.

Sure. Thanks for the question, David. We were really pleased with the Q4 results. And certainly, I think it addressed any questions that folks had about whether there was deceleration in prior quarters. I think we like to see that Q4 number really as a testament to, I think, the long-term opportunity to grow this business at a strong rate. We are -- I think that we see seasonality at various points in the year. Typically, Q1 has been a strong quarter for us, and Q1 has been lighter just given holidays, weather, et cetera. We have seen some weather-related impacts, as you are well aware, in recent weeks, primarily on timing of sample arrival as opposed to volume, although some impacts, of course, on volume as well.

FedEx was not delivering for some number of days, hospitals and practices closed down. But good news is samples are starting to flow back in, in large volumes, and we had a very strong start to the beginning of Q1. So we remain confident in the guide for the year, I remain confident in the forecast for the quarter and that we'll show another strong sequential growth quarter-over-quarter in Q1.

And I'll just ask one more and I want to kind of ask this a little bit more directly since I think you have a really good tech and a good position in blood. So how should we think about the penetration rates in DLBCL? You have a first major advantage in a lot of the blood cancers particularly the multiple myeloma, how do you parlay that massive lead in multiple myeloma, for example, to [ DLBCL ] where your penetration of late is a little bit lower. And there is some concerns about incoming competition.

Sure. I mean, I think we've learned a lot from the myeloma experience. And as you noted, have established a really strong position there, 45% or so of our business comes from that indication and we've been able to post strong quarter-over-quarter growth repeatedly in that space, in part, thanks to the advancement of the assay in blood in addition to bone marrow. In DLBCL, I think the playbook looks similar in a lot of ways in the sense that we are starting with an underdeveloped market where people need to be convinced that MRD has a value. And that's been our major focus.

And we've seen strong results in Q4. We saw 14% quarter-over-quarter growth sequentially in DLBCL, I think, 115% versus Q4 of the prior year. But we're still, like you said, only at 3% of penetration of the patient opportunity. We do believe that increased noise in this space has potential to really help expand the market. And so we'll be continuing to focus on the things that we think are the major drivers, which are data generation with our enhanced ctDNA assay that we launched early last year further advancing the guidelines, which made some significant initial progress a year ago, broadening commercial payer coverage, which will help boost our ASPs and deepening penetration with pharma, where the interest in MRD guided trial designs in DLBCL is really ramping up.

And we'll continue to underscore the sensitivity of our assay, but also the specificity, which is really crucial both in the clinic and in interventional studies. We'll continue to rely on some of the other strengths and sort of head starts that we've built, including our reimbursement, our strong relationships with hematologists who are treating us both in the community and academia. And the data -- the head start in data that we've accomplished as other entrants come in and determine what their path forward will be.

Our next question comes from Subbu Nambi with Guggenheim.

A competitor came out with the flow cytometer pay positioning as competitive to NGS for myeloma and probably a significant price advantage. Would love to hear your thoughts on this product from both sensitivity and pricing perspective.

Sure. It's interesting to see that Quest has launched a product in the space. From our perspective, it's not particularly a new dynamic for us. There are competitors already offering next-generation flow products with similar sensitivity claims in our space. But what we know is that flow-based methods for MRDs are inherently less sensitive than clonoSEQ and they always will be for any given amount of sample material. Obviously, Quest hasn't published any data yet, but their claim that their sensitivity is comparable to clonoSEQ is hard for us to reconcile. Their stated sensitivity is [ 5x10 ] to the negative 6, which is equivalent to 1 in 200,000 with 10 milliliters of blood. And as you know, clonoSEQ can routinely achieve clinical sensitivity of 1 in 1 million, 5x higher with just 2 milliliters of blood, our validated sensitivity for our FDA label is even higher, around 1 in 1.5 million, and that's the same in both blood and marrow. So the assay that's being launched is at best 5 to 7x less sensitive in blood than clonoSEQ and I think there's 2 things to keep in mind with that.

One is the myeloma landscape is evolving in a direction that requires more sensitivity, not less. Treatments are driving really deep responses. Most patients now are negative in marrow at a depth of 100,000 and 200,000. And two, for myeloma, MRD sensitivity is especially important when you're testing in blood. The biology of myeloma is such that disease burden in blood is, on average, 100x less than in marrow. And physicians know this. So they want to use an assay in blood that's maximally sensitive. So remember, in the community, in Q4, over 60% of clonoSEQ/myeloma MRD testing was done in blood. And in that setting, we're also broadly reimbursed. 90-plus percent of patients have 0 out-of-pocket cost and we're broadly EMR integrated in the community with Flatiron and other large integrations.

So ultimately, we're talking about another next-gen flow assay that has some similar benefits as clonoSEQ, blood-based testing, turnaround time, broad availability, but with less sensitivity in a sample type where sensitivity is really key. So of course, there are a single-digit percentage of patients for whom a diagnostic marrow isn't available to run a clonoSEQ IP test. So that's a subset of patients, perhaps next-gen flow could be a backup option.

Super helpful. I have a question for Karl. I think as you think about ASP pacing this year. How should we face it just given the private figures are in advanced negotiation stage?

Yes. I mean I think at this time, it's best to think of it as a linear growth. There are some specific timing things that we've got it locked down as it relates to some of the key payer contracts, we're focused on on converting. But I think at this point, where we are in terms of the timing of the year, it's best to just think of it as a lending or growth.

Our next question comes from Dan Brennan with TD Cowen.

Maybe just first on the EBITDA guide for 2026. So I think you said EBITDA positive, maybe exiting '26. Can you just flesh it out a little bit. Is that Q3, Q4? Was that for the full year? And any help between where MRD versus immune medicine goes and kind of implicit in that, like are you making any changes to the sales force and puts into that? Is there any more sales force expansion in '26.

On the EBITDA guide, I'd say right now, it's an exit on Q4 for the entire company. MRD obviously positive adjusted EBITDA at this point, but we expect to see that continue to grow. And some of the initiatives across the business we're putting in place give us confidence to be able to achieve it across the whole company. And I'll let Susan take the field force.

Yes. Currently, we have about 65 reps in the field. They're split 50-50 between academic and community focus. And we believe this is the right number of reps for now as our territories are manageable in terms of potential. The reps are calling on the right number of accounts and HCPs. And most of the territories are reasonable size. So while I'm not saying we don't add a territory here or there opportunistically and also I will acknowledge that we will continue to evaluate new deployment strategies to address market dynamics as they evolve, which could justify additional hiring we're not anticipating in the plan for this year, any significant expansion in the sales team.

Terrific. And you rattled off a bunch of the progress you made on a lot of the volume drivers between blood community penetration and EMR. I'm just wondering, makes sense to not get ahead of yourselves, but I think blood really ramped, and I think you're only baking in a little bit of an increase in '26. Is that just because we're kind of capping out on what's realistic? Or is that -- is there a reason and some way, I think community, I think, really ramped in the fourth quarter, and it looks like you're baking in a little bit of an increase there. Just maybe speak to those 2 assumptions. And is there some reason why they wouldn't potentially increase further in '26.

Right. So I think in both cases, there is no -- we're not capping it out, and we don't believe that there is any reasons they couldn't potentially increase further, but we are sort of looking historically at what the pace has been of progress and then thinking about balancing the various drivers and sort of being prudent around what we set up as expectations at the beginning of the year. But on the blood-based testing front, we were at 47% in Q4 overall blood-based testing and 27% -- no, sorry, 45% and then 27% for myeloma specifically.

Myeloma is a really big opportunity to grow that. Additionally, if we continue to grow DLBCL and mantle cell in our lymphoma indications disproportionately to the rest of the business, we will see blood as a contribution to the total business continue to to ramp. So I think there is upside, but we are confident that we can get to above 50% in 2026. And same thing on the community side. The guide that we have is over 35% of the business coming from community. It was 31% in 2025, and we closed the year in Q4 at 33%.

So we hope to exit above 35% by the end of this year. And it will be a big area of focus, and it is a disproportionate area of investment for us. It's where our competitors are likely to focus and it's where things like the key data sets like Midas that came out multiple myeloma, helping inform the potential avoidance of transplant. That's a really big deal in the community, favorable guideline updates, guidelines matter a lot to community clinicians. So we'll continue to focus on those things. And also continue to drive new testing pathways in large community practice networks that help us standardize utilization of the assay across indications. And those things will -- again, the drivers, combined with our Flatiron integration and the serial testing that we can achieve through that, which have some potential upside in 2026.

[Operator Instructions]

Our next question comes from Mark Massaro with BTIG.

Congrats on a strong 2025. I wanted to start on gross margins. It looks like they came in at 66% sequencing for the full year, and you hope to expand that to over 70% in 2026. I guess there are a number of parts to this. And where I'm going with this is your ASPs are still rising. In fact, last month, you indicated a plan to get to 1,700 to 1,800 in ASPs by 2029. So I guess my question is, the over 70% level in 2026, my sense is that you're not fully loaded there of long term. So is there any way you could give me a sense that maybe 3, 4 years from now, you could be perhaps meaningfully above 70%? Or do you think that, that's a pretty good place to consider in the out years?

Yes, Mark, this is Chad. I'll start and then I can pass it off to Kyle, if you want to kind of double-click on anything that I'm saying. But first of all, at JPMorgan, we came out and kind of moved that number already, up from 70% to 75%. And so -- and you're absolutely right. We're not fully loaded in the sense that the transition to NovaSeq X+, if you recall, just happened in the back half of this year.

So we talked about a 5% to 8% percentage increase in the first 12 months and over a 10% increase just attributable to the NovaSeq X+ transition. So you're going to get a significant amount of additional uplift from that as you layer more samples on the same sequencing run. So that's a big one. The second, as you noticed, as you mentioned, as ASP. So as you continue kind of growing on the top line, along with better cost per sample, that margin continues to increase. So I think there's probably some even upside further from there, but we're going to, at this point, sequentially walk it up as we have from 70% to 75% but we are very confident in long-term durable high margin profile, both at the gross and the operating margin level.

That's super helpful. And then maybe just to drill into ASPs. I think you guys indicated that you exited 2025 at $1,350 a test, and you came in at $1,307 for the full year, which is up 17%. So can you maybe share why is $1,400 the right rate in 2026. That's a 7% growth. Are there any particular items you could point to that might sort of not create for a similar growth rate in '26 than '25.

Sure. Thanks for the question, Mark. Remember, in 2025, we saw a meaningful growth across a number of initiatives, but one of the biggest ones was the gap sell rate that went into effect right at the onset of the year for our Medicare business, our Medicare fee-for-service business. So that provided a decent amount of the growth in 2025. We're starting to get some traction on the commercial side as we've implemented contract rate renegotiations and new payer rates. I think as it relates to 2026, I think right now, hey, we want to be with where we are during the year. I want to be prudent around guiding around ASP. There are kind of 2 -- I'll say 2 major things we're really focused on. One is renegotiating with 2 large payers that kind of move a significant amount of our volume in upwards of 17% to 18% of our volume. And so getting those rates established at the appropriate rate is really important and the timing of that can drive variability and ultimately, the ASPs we realized for the full year.

The second piece, as Susan mentioned, we're anticipating growth in DLBCL and MCL, but to the extent that growth is even better than we thought. We've got to kind of navigate the coverage dynamics on the commercial payer front, and hopefully, we can continue to see positive coverage decisions with regards to those indications. But again, we would just want to be prudent in managing that and monitoring it over time.

Our next question comes from Sebastian Sandler with JPMorgan.

Great. Can you walk us through where you see upside to the ClonoSEQ volume guide in the year, I think it implies pretty healthy community volume growth, looks like around 50% year-on-year depending on what you assume more than 35% of total volume means. But where would you point to there being the most potential upside, whether that's NeoGenomics contribution, guidelines, incremental recurrence, monitoring coverage. Just walk us through that. I think that would be helpful to get a grasp of it.

Sure. I mean from a volume perspective, on the clinical business, I think one of the areas of upside just based on sort of early -- we're in early days and have limited experiences in terms of EMR integration. The Flatiron integration and the [ serial ] testing, which we've talked a little bit about over the last quarter or so, we're really just starting to see what the pull-through on serial testing looks like. And so far, we've been pleased to see that about 60% of serial tests are actually showing up as scheduled. And so we think there are opportunities to potentially continue to focus on that and see if we can improve it or at the very least, ensure that we continue to see strong contribution from serial testing, which could have upside to what we've forecasted and guided.

Additionally, on the EMR side, we've increased the focus on already integrated sites to what we call optimize those sites. This is things like standardizing order sets to increase testing consistency or further reducing friction and integrated workflows, which will improve order pull-through. Those kinds of initiatives are new, but the early results from pilots that we've completed have been very strong. And so I think there's a lot of promise there and source of upside. I talked about potential for upside on our anticipated contributions on blood and on the community, and those will be areas of continued focus.

The other thing is that on the ASP side, we have some key payer contracts that we're still in the process of renegotiating. So the timing of those can be a source of upside on revenue as can potentially the negotiations turning out more favorably than we think. But overall, I think we feel like this guide is very reasonable, and we are being prudent early in the year, but there are many different ways that this business can be driven and can be accelerated and all these things kind of work together. So it's one of the things that we like about this business and one of the reasons we're very confident that we can meet or exceed our goal.

Yes. And I kind of add a fine point to that because I mentioned kind of this playbook. And [indiscernible] common with all these things working together. There were 5 things last year that drove the business blood-based testing community data results -- data readouts guidelines and EMR integrations, and those are the 5 things we're reinvesting in this year, and those are the things that we are going to drive growth, not only drive growth, but also give us an opportunity to be extremely confident in our guide and hopefully outperform.

That's helpful. Maybe touching on the ASP guide for '26. It seems like $1,400 is dependent to some degree on those 2 contracts you called out. Can you give us a sense of any sort of execution risk there or whether those contracts are kind of locked down at this point? And then just if those contracts were less favorable than expected, can you quantify where ASP could land? And any sense on whether -- you said to keep ASP flat or kind of linear throughout the year, but any sense of whether this is more of a first half or a second dynamic -- first half or second half dynamic would be helpful.

Yes. I mean there's certainly some level of execution risk. Otherwise, I think we wouldn't be in the stage we're at. But we're confident in getting there in the long term, and we want to make sure we're establishing the right rate. That's really the priority with these payers. As it relates to the dynamics in terms of pacing, yes, I mean, it's probably more of a second half dynamic just given where we're at in January. But I think at the end of the day, if those things don't come in, it does represent some minor risk, but there's other levers within the business that we can pull on, but continue to grow ASP.

Yes. I mean just -- we're quite confident in the ASP guys, and we've got multiple levers to get there. One contract or another is not going to necessarily impact that we're going to get there.

And then our final question comes from Bill Bonello with Craig-Hallum Capital Group.

And I applaud you for the prudence. I'm going to go a different way here. But really -- given the pre-release, what really stood out to us were actually the comments on the IM business, which I know you don't talk about all that much, and you don't want people to get out over their skis. But clearly, the way you're positioning this is much less as a therapy development business and much more as a data and informatics business, and it was good to hear about a couple of big contracts. I know it's probably early days on this strategy, but would love to hear any thinking you have around sort of ways that you monetize this leading database that you've created and sort of ultimately how we might think about how a business like this could scale out over time.

Sure, Sharon, do you want to take that?

Yes. Thanks for the question. So as you alluded to, we're excited by the two distinct Pfizer deal, including both of which were data licensing deals, and we certainly look forward to continuing and believe that we can sort of rinse and repeat similar or even sort of differentiated additional data licensing deals. And really, this stems from the fact that we've generated this really massive differentiated data sets that certainly there's value across applying in different immunology applications and solving different immunology problems. So it's early days, but more to come as the year progresses, and we're super excited and enthusiastic in terms of where we are and where we're going.

Yes. And further, I think the Pfizer deal represented 2 types of different types of data deals. One is we're just kind of licensing data for AI modeling by pharma companies and the second, where we're using our unique set of capabilities to do target discovery work. And so there's kind of multiple different types of kind of opportunities that can provide monetization from this really a unique data set.

That's helpful. And maybe just as a follow-up, as you think of sort of how the data stands today, are there investments you need to make to sort of make it more accessible potentially to pharma clients and others and just to be able to sort of meet the kinds of demands you anticipate that they're having?

Yes, Bill, the investments we're making are [indiscernible]. Remember, there's revenue coming in from that business as well, which we consider a [ burn off offset ] to the investments that we're making. So all the investments we need to, we believe, generate kind of this robust data set are captured in that kind of $15 million to $20 million net burn of the investments that we're making this year.

Okay. I was just thinking more probably in terms of timing of when a business like this could inflect if it could.

Yes. Yes. And we'll come back at that point if there's kind of future investments to be made with a business case on a high risk-adjusted return on the capital based on what we're doing, we will come back and kind of share what the plans are at that time. I'm just -- I'm talking about for kind of the current path forward. We're looking at this as a kind of $15 million to $20 million net burn for the year for the business.

Thank you. I'm showing no further questions at this time. This concludes today's conference call. Thanks for participating, and you may now disconnect.

Great. Thanks, everyone, for joining us. I'm pleased to be joined by the Adaptive team. My name is Sebastian Sandler from Life Science Tools and Diagnostics team at JPMorgan. As usual, we'll have 20 or so minutes of presentation, followed by Q&A. And with that, I'll pass it off to Chad. Thanks, Chad.

Thank you, Sebastian, for the opportunity to present at JPMorgan once again. Happy New Year to all of you in the room, and welcome to those of you who are listening on the webcast. As a quick reminder, I will be making forward-looking statements during my presentation, and I and my team will be as well during the Q&A.

For those of you who are new to Adaptive, let me give you a quick refresher of who we are. My brother, Harlan and I founded the company 16 years ago at the Fred Hutchinson Cancer Research Institute, and we've been public since 2019. Today, we're about 620 employees. We've got more than $275 million in revenue and a strong cash position of approximately $227 million.

Adaptive was built on a simple but powerful premise that if we could read and translate the genetic source code of the adaptive immune system, T cells and B cells, we could fundamentally improve how diseases are diagnosed and understood.

So as our proprietary platform and underlying technology have continued to advance, we're today focused on two business opportunities that are underpinned by that same core foundation. The first is our minimum residual disease or MRD business, which is our commercial-stage diagnostic for patients with blood cancer, which is anchored on our clonoSEQ test.

The second is our Immune Medicine or IM business, which is focused on interpreting immune receptor data to drive insights across a broad range of immunology applications.

So I want to take a look at each one of these business outlets, starting with MRD. So we're focused on MRD in lymphoid malignancies, which represents a total global addressable market of approximately $5.5 billion, which spans both the clinical and the biopharma market opportunities.

Within clinical testing, our principal commercial focus is based in the United States. It's a market of roughly $1.8 billion. And we see a clear opportunity to expand that market over time. So this expansion is driven by increased frequency of testing across the continuum of care.

So as MRD becomes more deeply integrated into routine clinical decision-making, we believe that we can increase frequency of testing by 2.5 to 3.5 tests per patient per year. So that alone would expand the U.S. market by approximately $700 million. So it's important to understand the underlying biology that we use to capture this opportunity.

See, clonoSEQ measures MRD and the role that the MRD status plays in enabling highly specific clinically actionable MRD testing. So at its core, MRD testing is truly about separating true cancer signal from background noise. So as tests push sensitivity higher, assays that relies on signals that can be generated by error, so for example, if you're tracking a small number of mutations, inevitably start to generate false positives because the signal gets lost in the noise.

So our test in clonoSEQ largely avoids that problem by leveraging kind of that underlying biology of T and B cells. So if you -- in lymphoid malignancies, which are cancers of the immune system itself, T- or B-cell cancers, each cancer clone carries a patient-specific immune receptor DNA sequence.

Think of it essentially as a molecular barcode that is long and highly specific to that patient. At diagnosis, clonoSEQ identifies that barcode. And over time, we simply count the number of those exact sequences in the blood or bone marrow, and that is minimal residual disease testing.

But because that sequence or barcode, it's almost impossible to generate by accident. ClonoSEQ quantifies MRD with an exquisite level of high sensitivity and specificity, and we essentially have no false positives, allowing the detection of cancer cells in every 1 million healthy cells. So it's that biology-driven specificity that differentiate clonoSEQ in lymphoid malignancies.

But it's beyond the technology itself. We spent a decade building durable moats around clonoSEQ that reinforce our leadership across both clinical testing and biopharma.

First is the regulatory and clinical validation. ClonoSEQ is the only FDA-cleared MRD assay in lymphoid malignancies, reinforcing our sensitivity, reliability and reproducibility in routine clinical care. Second is performance and intellectual property, clonoSEQ delivers the deepest sensitivity backed by a strong IP position in more than 250 peer-reviewed publications.

The third is scale and access. We have coverage representing over 300 million covered lives now, which reduces friction for adoption across the care continuum. And finally, and importantly, it's workflow integration. ClonoSEQ is now integrated into EMR systems across both academic and community settings.

It's not any one of these things that drive our growth, but it's all these things that are taken together that makes it incredibly difficult to displace clonoSEQ both clinically and in the biopharma realm.

So I want to take a minute, if we look at kind of the financial evolution of the clonoSEQ business. MRD, I'm pleased to say, is now a profitable business. We achieved positive adjusted EBITDA in 2025, followed by positive cash flow. This was a super important inflection point for the business.

Revenue has scaled consistently over time with a 34% cumulative average growth rate from '21 to '25 and now surpasses $200 million. Within that, clinical revenue has grown at a 53% CAGR, reflecting strong adoption and increasing utilization.

But at the same time that we're growing the top line, we're also growing our margins. Gross margins have improved significantly. It's driven by our lab efficiencies and last year, our transition to the NovaSeq, and we've generated clear operating leverage across our entire commercial organization.

But importantly, although we've grown a lot, we see a path for continued improvement across all of these metrics into '26 and the years beyond. So now I want to -- I'll zoom into clinical testing first and the metrics that are going to continue driving this performance.

Clinical volumes have grown consistently year-over-year, delivering a 44% CAGR since 2021, driven by broader indication adoption, expanding access across the United States and EMR integrations. We've now surpassed 100,000 patients who have been tested with clonoSEQ to monitor their disease. And in 2025, over 50% of U.S. hem/oncs have used a clonoSEQ test.

Importantly, even with that momentum, penetration remains really relatively early. If you think about it, our largest indication, which is ALL, is only 35% penetrated. And all of our other indications are less than 15%, with several still in the single digits. So it's really that combination of our strong volume growth and this potential headroom is what kind of underpins the durability of our business moving forward.

So I'm going to walk through the factors that are going to contribute to our volume growth in the future. So clinical volume growth is driven by a combination of five interrelated factors that are shown on the slide. Those drivers are blood-based testing, expanding presence in the community, clinical guideline inclusion, ongoing data generation and very deep EMR penetration.

It's -- what's key is that no one single factor is driving our growth on its own. All of these factors reinforce each other, which increases our physician adoption and the testing frequency per patient across all of these indications. So I'm going to touch on each one of these growth drivers separately.

But as a matter of fact, the first two growth drivers are highly intertwined, which are blood-based testing and our increase in the community hospital setting. So as MRD increases in the blood, it becomes more accessible in the community setting, where the vast majority of testing is done in blood rather than the bone marrow. Blood testing is also less invasive and obviously easier for patients, which supports more frequent testing over time per patient.

So our focus on blood adoption has three components to it. The first is continued growth in blood-based indications like CLL, DLBCL and MCL. The second is ongoing data generation in blood, which reinforces clinical confidence. And the third is enhancing our assay in the blood, particularly in multi myeloma.

So today, about 45% of all clonoSEQ tests are already blood-based. We expect that number to increase to over 50% by year-end. Similarly, about 30% of clonoSEQ testing comes from the community setting today. We expect that to grow over the year to over 35%. So I mean, given that roughly over 60% of hem/onc patients -- sorry, hematology patients are treated in the community, increasing penetration in this setting will drive a broader adoption across all of our indications.

So the next driver is guidelines. And 2025 was really a fantastic year for us in guidelines. At a high level, these updates expand the role of MRD really from a supporting test to a test that's used as a clinical decision-making tool. So I'll just walk through a couple of them, although we had guideline updates in all five indications. But just to mention a couple.

In multi myeloma, the recommendation to obtain a clonality or ID testing at diagnosis was really strengthened this year in the guidelines. That matters a lot because it reduces the friction to completing the ID testing upfront, which is required for the downstream MRD monitoring. And it supports broader adoption, particularly as we mentioned, in the community setting.

So in CLL, MRD was elevated from a research assessment to a clinical decision-making tool with more explicit guidelines on serial testing, including assessments every 3 to 6 months. We see this as a meaningful step for clinical utility for clonoSEQ in the first time in CLL. So our medical team has been really great about actively engaging with the guideline committee, and we expect to have future guideline inclusions over this year and beyond.

And really, that brings us to the next topic, which is also interrelated, which is data generation. So data generation is a really powerful and meaningful tool for clinical adoption and 2025, again, marked an all-time high. At ASH this year, nearly 90 abstracts featured clonoSEQ data with a clear emphasis on MRD as an interventional tool. It's not just prognostic anymore, but it's actively guiding treatment decisions across indications and across the continuum of care.

So we're seeing MRD use being used to inform treatment decisions, intensity and frequency. And these decisions are included throughout the care continuum, including decisions around transplantation, consolidation therapy and in maintenance therapy.

So again, I'm not going to walk through all 90, but I'll give you a few examples to highlight kind of the practice-changing data.

So let's start again with our largest indication in multiple myeloma. The MIDAS study, it included nearly 900 patients and demonstrated that MRD-negative patients can safely forgo a transplant without compromising depth of response. So this represents one of the strongest prospective data sets supporting MRD-guided decision-making in myeloma, period.

In pediatric ALL, the [ NRAD ] study showed that patients who are MRD negative may be able to choose transplant approaches without radiation. Obviously, this is incredibly important for children and their families.

So if you take kind of all of these factors together, these data continue to strengthen clonoSEQ's role in MRD-informed patient management and drive sustained utilization over time.

So now that I've covered clinical volumes, I want to actually -- let's go to one last point, which is EMR integration, which is perhaps one of the most important factor to drive our growth.

So embedding clonoSEQ directly into EMR workflows, both across the academic and in the community settings, it materially lowers our friction and expands access and really supports repeat usage per patient. So -- but what is integration, if you look at it, what does it really deliver and how does it work?

So first is accelerated volume growth. In 2025, most integrated accounts grew roughly twice as fast as non-integrated accounts. As EMR integration becomes more widespread, we expect these to contribute more than 50% of our 2026 volume.

So second is if you think about using a test and then being part of a portal that kind of you wheel over to your -- that the physician wheels over, it has this durability and stickiness. Being embedded into the EMR makes clonoSEQ part of routine clinical care workflow, and it reduces disruption for provider turnover, and it's really a huge barrier to entry.

Third, operational efficiency. Within our 10 largest integrated Epic accounts, we've seen a reduction of about 40% in our order discrepancies, which really improves the order experience for both clinicians and for our lab in-house.

And finally, higher testing frequency. We're able to kind of preconfigure order sets now, particularly in Flatiron in the community to allow for repeat ordering of every 3, 6 or 12 months. And that makes it a lot easier to do repeat testing. And this is a number that I'm really thrilled to announce that over kind of 75% of community oncologists have placed orders using serial monitoring.

So again, now that we actually have covered all of the aspects of clinical volume growth, let's turn to the other side of the equation, which is average selling price or ASPs.

Again, brief refresher. At the start of 2025, the updated Medicare gap fill rate of $2,007 per test went into effect. That was up from $1,700 per test. So as that change kind of flowed throughout the year with continued improvement in reimbursement execution. Our average ASP reached approximately $1,310 in 2025, which represent a 17% year-over-year increase.

And I put this out now, we've talked about this before, but I'm going to reiterate that we see a clear path to $1,700 to $1,800 ASP by the year 2029. And this is really defined by a couple of different factors, which I'll again touch briefly on.

The first is policy expansion. So we're continuing to broaden our commercial coverage, particularly in CLL and in non-Hodgkin lymphoma. The second is contract negotiation and renegotiation. Kind of we're systematically updating our existing contracts, and we're closing new agreements at the updated rate. We had several wins in 2025 that will contribute to our 2026 ASP growth. And we're in a kind of late-stage negotiation with 2 large national payer contracts.

The third is this concept of recurrence monitoring. So this expands coverage beyond our single Medicare episode. In 2025, we received our first Medicare approval for recurrence monitoring in MCL, which created a clear pathway to expand this year, 2026 into CLL, followed by DLBCL. And ultimately, we expect to have recurrence monitoring in multi myeloma.

And finally, just kind of blocking and tackling, think revenue cycle management. So we've had ongoing improvements in Medicare Advantage billing and Medicaid collections, our appeals process, our prior authorization, and we've been really good on our turnaround times and it's time to cash. This is a cool area that's increasingly supported by our AI efforts.

So again, it's not one of these factors, but all these factors together support this continued ASP expansion give me a high degree of confidence in that $1,700 to $1,800 number by 2029.

So now that we covered the clinical side of the business, I want to turn kind of your attention to the MRD pharma business.

Our MRD pharma portfolio today is anchored in multi myeloma, where MRD has achieved formal acceptance as a clinical endpoint, and clonoSEQ is incorporated into most all pivotal trials. So as a result, in 2025, about 70% of our sequencing revenue and about 60% of our backlog came from multi myeloma studies. This reflects both the maturity of the indication, but also the depth of our biopharma partnerships, which we started kind of 10 years ago.

But at the same time and kind of meaningfully important, we're seeing a diversification beyond myeloma, particularly in CLL and DLBCL.

So in CLL, bookings in 2025 more than tripled year-over-year, and the pipeline continues to build. But this is supported by updated NCCN guidelines, which we talked about for fixed duration regimens and emerging data that highlights the need for higher sensitivity in MRD to differentiate between therapies.

In DLBCL, MRD remains a little bit earlier, but the pipeline opportunity is really very significant. It's increasing our companion diagnostic opportunities, and our registrational trial activities is driving demand for a standardized FDA-validated and globally deployable MRD assay. Our focus is on generating first-line post-treatment MRD data to accelerate our adoption curve.

So importantly, we've also seen our bio portfolio expanding towards registrational trials. So remember, in April 2024, following the FDA ODAC recommendation that supported MRD as a primary endpoint in myeloma for accelerated approvals, the number of clonoSEQ studies using MRD as a primary second endpoint, for the first time for us, has surpassed research-only studies. This is really, really important because this shift matters economically.

So if you think about it, for us, registrational trials, they carry a lot higher value because the average price per sample is higher and we get milestones based on the readouts of these FDA-approved drugs. So we expect this trend to continue as MRD is used more interventionally in trials across diseases and as our sponsors, the pharma companies are increasingly requiring higher sensitivity NGS assays to differentiate therapies.

So if you take all this together, kind of both across both the clinical and biopharma business, we've built a very durable MRD platform with multiple growth drivers that are now firmly in place, that will continue out into the future.

So with that foundation in place, let's look at some of our expectations for the MRD business in fiscal year 2026. First, we expect clinical testing volume to grow by more than 30% year-over-year. If you recall last year, we're kind of following the same playbook where last year, we came out with 25% plus and said circle the plus. So we do expect it to grow -- clinical volume to grow more than 30% this year.

Second, we expect fiscal year ASP of approximately $1,400, reflecting continued progress across coverage, contracting and our reimbursement execution. Third, we expect mid-single-digit millions in milestone revenue. Remember, as always, we conservatively guide on milestone revenue, given that really trials are ultimately out of our control for approvals.

And finally, we expect to see sequencing gross margins continue to improve, and we do expect to reach over 70% gross margin for fiscal 2026 that will be driven by scale and our ongoing operational efficiencies, including the NovaSeq implementation, which went live in the back half of 2025. So again, as always, we're going to provide kind of more full color, additional details on company guidance when we report our full year and audited Q4 in February.

So now that we've covered MRD, I want to switch to our other business unit, which is Immune Medicine. Again, so for those of you who are newer to Adaptive, we spent over a decade building technology and generating data to connect the adaptive immune system response to diseases.

At the center of that effort is a fundamental challenge, understanding how T-cell receptors bind to antigens and how those interactions drive the immune response against cancer, autoimmunity and infectious diseases. So this is like truly a problem that's defined by scale. There are billions of distinct T-cell receptor interacting with millions of clinically relevant antigens, which is a problem that makes it incredibly well suited for AI and machine learning.

So given our proprietary immune receptor platform and the magnitude of the data we've generated, Adaptive is uniquely positioned to address this challenge. So last year, we shared that we mapped roughly 2 million T-cell receptors to antigens. Today, that's grown to more than 5 million paired T-cell receptors, spanning over 20,000 antigens and nearly 50 HLA types, well beyond what's publicly available in all of the literature combined.

At this scale, we believe in coordination with many experts in the field that we've spoken to, that this data set is now sufficient to train predictive models of the adaptive immune response across many different diseases.

Importantly, we're also generating biological insights. So using this platform, we're identifying disease-causative T-cell receptors and their antigens in various autoimmune diseases, including type 1 diabetes, celiac disease, multiple sclerosis and enclosing spondylitis. So -- and now we're beginning to monetize that immune receptor data. The 2 recent agreements with Pfizer show two ways on how our data create value in distinct ways.

The first is data licensing. Pfizer is licensing a subset of our TCR antigen training data focused on specific HLA types to support the development of their AI machine learning models.

The second is in target discovery. In rheumatoid arthritis, Pfizer is using our immune medicine platform to identify disease-specific T cell receptors. So using these patient samples provided by Pfizer, we're applying our sequencing and immunology capabilities to identify those T cell receptors enriched in rheumatoid arthritis with the goal of informing future therapeutic development for Pfizer.

So -- and I want to kind of clearly state that these partnerships provide early validation of both the scale of our data and the strength of our platform, but ultimately don't necessarily represent the endgame. We look forward to deepening our work with Pfizer and advancing discussions with other partners that are interested in data, our mapping capabilities and our predictive models.

So like if you look at 2025, we're really quite pleased with the progress we delivered in immune medicine, but we did this with a very disciplined capital deployment and management with a cash burn of approximately $30 million.

So checking them off, during the year, we meaningfully scaled our TCR antigen data set to 5 million, as we said, paired sequences. We executed 2 data agreements with Pfizer, and we completed a preclinical data package for our lead TCR depleting antibody program in ankylosing spondylitis.

So while the next step in our antibody program would have been IND-enabling studies, we have made the decision to prioritize investment in data generation and predictive modeling, where our core expertise lies and where we see the highest return on adjusted capital.

So as we look ahead to 2026, we expect to execute on this strategy with a lower cash burn of between $15 million and $20 million while continuing to invest selectively in our TCR antigen data, which we believe represents meaningful long-term upside for Adaptive.

With that, I want to leave you with three key takeaways. The first is in MRD. We're continuing to strengthen and extend our leadership position in MRD testing for blood -- with clear momentum across volumes, ASPs and margin, our focus is on capturing market growth while we continue to expand our MRD profitability.

Second, immune medicine. Here, our priority, as I just mentioned, is advancing our immune receptor data platform and executed on targeted monetization opportunities that build long-term strategic value.

And third, and perhaps most importantly and perhaps exciting to folks in this room, is financial execution. Based on the progress we've seen around the business, we expect to achieve positive adjusted EBITDA and positive free cash flow for the entire company in the year 2026. So this obviously represents a major milestone for Adaptive, and it reflects the discipline and the durability of our model.

So with that, thanks for listening today, and I'll hand it back over to Sebastian for the Q&A.

Great. Thanks for that overview, Chad. Lots to dig into. Maybe we can start with the 4Q performance. So clonoSEQ volumes came in nicely at around 30,000 tests for the quarter. I think that's a record sequential step-up.

So maybe can you just dig into the performance seen there maybe across the different settings, so community versus academic? I'm curious how much of a role the Flatiron integration had? And then any color on blood testing and any indications that stood out would be really helpful.

Sure. Susan, do you want to take?

Sure. We were really pleased to see the Q4 performance, and I think it was really an intersection of all of the drivers that we've been focusing on for the last several years coming together in really an optimal way.

In terms of the Flatiron integration, I do think that with an additional 3 months of experience, as you remember, we launched in July, we were able to start really seeing some of the benefits of that, particularly in the serial testing element that Chad alluded to earlier. And as a result, we saw 18% quarter-over-quarter growth in the community setting. So it was an acceleration of growth in the community.

Blood-based testing also played an important role, both in expanding community use and in increasing testing frequency. We saw overall test contribution of blood-based testing increased to 47% in Q4. And in myeloma, which is a traditionally marrow-based indication, we saw it grow to 27%.

All of these factors, along with the strong guidelines updates that Chad alluded to, data generation between ASCO, ASH and other meetings and the other EMR integrations that we've done, I think, contributed to one of the best Q4s we've seen.

Just briefly, that's Susan Bobulsky, who runs our MRD business; Kyle Piskel, our CFO; and Harlan Robins, our Co-Founder and Chief Scientific Officer.

Maybe looking ahead to 2026 or not looking ahead, so nice starting out with at least 30% growth in clonoSEQ volumes. Can you walk through like what's embedded there from community versus academic? You've called out the Neo partnership as being a driver of future volumes. So maybe the latest there. And then how these -- maybe the guideline updates from 2025 could start flowing through and keep solid traction there?

You want to keep going?

Sure. So in terms of the 2026 guide, anticipating continued growth in both the community and academic settings, we do intend to further increase the contribution of community growing to 35% by the end of the year, as was noted in the presentation.

The NeoGenomics partnership, which we've been working very hard on over the last month or a year or so, has continued to generate insights through pilot work that we've done with selected accounts. We also did our first joint integration in a large community account, which contributed to some significant growth we saw there in Q4.

The next step here is to integrate insights from the pilot into our end-to-end workflow and then make a determination of when we're ready to go to a broader launch. And because we haven't made the final decision as to when we'll do that, we decided to rather than incorporate Neo into our guidance to rather treat it as upside. This will be the first time we're doing anything like this. And so we'll have more to say as we know more about timing and the full scope.

And then guidelines was the last thing you asked about, Sebastian. Guidelines, in 2026, will be largely a pull-through effort. There's a lot of education to do around the many updates that came through in '25.

And then also, we do anticipate potentially an update from the International Myeloma Working Group, which is a very influential global body. They have been working on updates for over a year and have signaled that they'll be publishing those in the near future. So keep an eye for those. I think there'll be some nice positive incorporation of MRD into treatment response criteria.

Great. Maybe sticking on the topic of educational efforts and sales and marketing, so 2025, milestone year for profitability in the MRD business. Looking ahead, how should we think about the framework for balancing profitability and top line growth? Can you talk about the operating leverage you think we could see on the business in 2026 and a cadence for maybe adjusted EBITDA margins as we progress through the year?

Kyle, do you want to take that?

Sure. Thanks for the question. As it relates to operating leverage, we continue to expect to see expanding operating leverage across the business. I think the -- while we may not hold our operating expenses flat like we have done in the last couple of years, we do expect to make additional investments to serve the existing business and to continue to grow the business, which we are very excited about, but we still expect to see significant uptake in operating leverage.

We'll get additional leverage, as we mentioned, around the sequencing margins through the NovaSeq X as we continue to add additional volume. We still think there's additional leverage in the sales and marketing line, even though we are going to make some additional investments to continue to grow and penetrate into the markets we're serving.

As it relates to adjusted EBITDA margins, we'll continue to provide some color around that in February when we give full results.

Okay. Maybe digging more into guidelines. There's a lot to cover, but I want to touch on CLL specifically since there's a nice addition there to look at MRD-guided regimens. I guess first question is, how should we think about the volume impact there in 2026?

And a company has submitted for FDA approval of the VENCLEXTA regimen with acalabrutinib. So what is the dynamic there with these guidelines coming out ahead of FDA approval? Like do you see that as a hurdle to get over? Or are you starting to see good traction there with the guideline update in place?

We're very excited about the guidelines update in CLL, particularly because it's the first time that any frequency recommendation has been incorporated. The suggestion is every 3 to 6 months during a therapy that could potentially be time limited.

The MRD-guided regimen component, as you noted, is a little in advance of a potential FDA approval of those regimens. But in academic settings, those regimens are already actively utilized, they are likely to be covered based on being included in NCCN guidelines. And the community is eagerly awaiting the opportunity to switch from a single oral forever therapy to a combination all-oral time-limited therapy.

So there's a lot of excitement and I think a lot of tailwinds coming through the treatment landscape in 2026. It will take time to educate on guidelines, but we will certainly be putting a lot of muscle behind that. And for the first time in a while, I think we feel CLL has some real opportunity to accelerate.

Great. Maybe touching on competitive dynamics in heme MRD, I think there's been a little more noise around that recently following an acquisition in the space. Adaptive has historically enjoyed limited NGS competition there. Has anything fundamentally changed in your view over the last couple of months? How do you view the competitive moat and the runway, especially as it relates to data generation?

Maybe I'll start and take kind of the broader perspective. And then, Susan, if you want to dig into any of the points, please do so.

But remember, in the area, and let's be specific, Natera acquired a company called Foresight Diagnostics. They play specifically in the area of DLBCL with a circulating tumor DNA assay. in general, in DLBCL, this is a nascent market. NGS MRD really isn't being done or it's just starting. And this represents a really large market opportunity. And so penetration of the market, we think, will disproportionately benefit Adaptive in our clonoSEQ test, right, because we have reimbursement in place.

And the biology of our test, which I alluded to or actually was pretty specific on during the presentation that we are specifically tracking the VDJ rearrangement, which leads to a very high specificity of the test and low false positive; we think that's a competitive dynamic that will play out in Adaptive's favor as data starts to emerge.

However, even without that, like I said, this is an area where kind of all boats are going to rise on the tide. But again, I think we're going to disproportionately benefit because the standard of care right now in DLBCL is actually PET scan. So they're not doing NGS MRD.

However, if you look at the competitive dynamic, what's changed and one of the reasons -- one of the many reasons, including our kind of overall financial performance, what we decided to announce early is because we had a 14% growth quarter-over-quarter and 114% growth year-over-year in DLBCL. So this is an area that we feel is extremely ripe to be able to capture -- really capture the market and over time, dominate market share.

Great. Very helpful. Maybe on ASPs and MRD. So you laid out the long-term target of $1,700 to $1,800. Maybe can you touch on which indication do you think have the most room for improvement? And then I saw you filed for recurrence monitoring coverage for CLL. So can you talk about how conversations are progressing there? And then is this embedded in the outlook for 2026 of ASPs around $1,400?

You can start?

Sure. I'll start. To clarify, we haven't filed for CLL. It's one of the objectives for 2026. But as it relates to the walk on ASPs in 2026, I think there's a couple of dynamics as it relates to indications. It's continuing to see expanded coverage on the commercial front in DLBCL and MCL. In particular, we'll see additional lift as we get to see additional coverage lift, whether that's coming from guidelines or directly from LBMs, who inform the decision of the commercial payer policy level.

The other piece, which is a dynamic that played out a lot through 2025, is recontracting efforts. We still have 2 large national payers, which Chad mentioned, who are continuing negotiations with in terms of getting a rate reset. And so that's a dynamic we're expecting to go in our favor at some point, but timing is a little difficult to predict on that. So that's kind of implicit in our guide.

And we're going to continue to see lift from some of the RCM initiatives we've put in place in 2025 that we continue to put in place in 2026 to drive ASPs forward.

Great. Maybe one more on MRD testing frequency. So I think currently, it's around 2 to 2.5 tests per patient. I think it looks like you think this could get up to 3, 3.5 tests over time. Can you talk about how this splits out by indication? Is this driven mostly by blood testing? Does that factor in recurrence monitoring? Just kind of what are the puts and takes there?

We do think there's an opportunity to increase testing frequency across all of our indications. Although to your point, it does depend to some extent on the type of sample that is typically utilized and also the aggressiveness or lack thereof of the disease.

So currently, we see the most frequent testing in ALL, which is an extremely acute disease, very serious and requires vigilance from day 1 of post diagnosis. There is an opportunity there to increase testing further based on the utilization of blood as a complement to bone marrow. And experts are increasingly rallying around that concept, and the NCCN recently incorporated that guidance to consider blood in addition to bone marrow.

On the flip side, CLL has historically been one of the least frequent testing because the disease is indolent, there wasn't as much urgency to monitoring. Although as I noted earlier, the landscape is shifting to support more frequent testing in the context of potentially time-limited and custom duration therapies driven by MRD.

Overall, we do believe that there's an opportunity to increase frequency of testing. We will be pursuing recurrence monitoring coverage across indications to support continued ASP expansion over time, particularly for Medicare patients. Our commercial payers importantly do cover single time points. So we don't have a limitation on the number of tests we can get paid for in the commercial setting.

And then I think the pharma utilization of CLL, which, as Chad noted, we saw a tripling of our bookings in 2025 versus prior year. That will be also synergistic in supporting the adoption of MRD testing in the clinic.

Great. Maybe one last one quickly on the IM business. I think a definitely shift to more focus on data licensing. You obviously announced the Pfizer agreement. Just looking ahead to 2026, could we see similar agreements with other pharma companies? Like what are you most excited about for that business looking ahead?

Harlan?

Sure. Thanks for the question. We're excited on the data side, both for potential other partnerships, but also what we're able to do in-house, which includes making progress on generating more of the training data, but also applying models to advance in our own right and then connecting them to disease. So I think both internal and external, we were hoping will be a really nice year for us.

Great. I think with that, we're out of time. Thank you to the Adaptive team, and thank you all for being here. Have a great rest of the conference.

Thanks, Sebastian.

Good day, and thank you for standing by. Welcome to the Adaptive Biotechnologies Third Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Karina Calzadilla, Head of Investor Relations. Please go ahead.

Thank you, Jacinda, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies Third Quarter 2025 Earnings Conference Call. Earlier today, we issued a press release reporting Adaptive financial results for the third quarter of 2025. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing to a slide presentation that has been posted to the Investors section in our corporate website.

During the call, management will make projections and other forward-looking statements within the meaning of federal securities laws regarding future events and the future financial performance of the company. These statements reflect management's current perspective of the business as of today. Actual results may differ materially from today's forward-looking statements, depending on a number of factors, which are set forth in our public filings with the SEC and listed also in this presentation.

In addition, non-GAAP financial measures will be discussed during the call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad Robins, our CEO and Co-Founder; and Kyle Piskel, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I'll turn the call over to Chad. Chad?

Thanks, Karina. Good afternoon, and thank you for joining us on our third quarter earnings call. I'm pleased to share another quarter of strong execution and accelerating momentum across the business. We delivered meaningful wins, sustained growth and further strengthened our financial position.

Let's now turn to Slide 3 for a summary of this quarter's highlights. The MRD business delivered major profitability milestones. This quarter, adjusted EBITDA was $7 million, reflecting strong sequential growth. Also this quarter and ahead of plan, the MRD business became cash flow positive, a significant achievement that underscores the strength and scalability of our model. MRD revenue grew 52% year-over-year, driven by robust increases in clinical volume and ASP.

This growth reflects expanding clinical utility and broader integration of MRD testing into patient care. Clinical validation continues to deepen. The NCCN guidelines were updated again this quarter, this time in CLL, incorporating MRD-guided treatment options, providing more specific direction on testing frequency and supporting clonoSEQ ID testing at diagnosis.

Operationally, we're scaling efficiently. With clonoSEQ now running on the NovaSeq X Plus, we're realizing meaningful cost efficiencies and expanding gross margins. Total company sequencing gross margin improved 10 percentage points year-over-year to 66%, and our focus on operating discipline is paying off. Operating expenses remained stable sequentially, while cash burn continued to decline. Through the first 9 months of the year, we reduced cash burn by 51% versus last year, ending the quarter with a strong cash position of $217 million. Given this performance, we are again updating our full year guidance to reflect a higher MRD revenue range, lower operating expenses and a reduced annual cash burn. Kyle is going to cover the details shortly in his prepared remarks.

Let's now turn to Slide 5 for a deeper look at the MRD business. clonoSEQ clinical revenue had impressive growth of 83% year-over-year and 18% quarter-over-quarter. We saw broad-based volume expansion across all reimbursed indications, delivering over 27,100 tests, up 38% versus prior year and up 7% sequentially. By indication, multi myeloma remained our largest contributor, accounting for 42% of U.S. clonoSEQ volume, followed by ALL at 32%, CLL at 10%, DLBCL at 9% and MCL at 5%.

This volume growth continues to align with our strategic priorities. First, blood-based testing now represents 45% of volume, achieving our full year goal ahead of plan. And in multi myeloma, blood-based contribution reached 24%, up from 21% last year. Second, community-based testing represents 31% of total clonoSEQ volume with increasing contribution from Flatiron integrated accounts. Third, NHL testing expanded to 15% of total clonoSEQ volume, led by DLBCL and MCL sequential growth. Fourth, ordering HCPs grew 38% year-over-year to more than 4,100 with sequential growth of 9% in academic centers and 12% in community practices. And finally, we tested over 19,400 unique patients in the quarter, a 41% increase year-over-year and 8% sequentially.

In addition to volume growth, we saw continued improvement in ASP with U.S. clonoSEQ ASP increasing to over $1,340 per test, reinforcing our confidence to achieve full year average ASP of $1,300 or higher. During the quarter, we achieved several policy wins, including our first large commercial payer coverage in DLBCL and 2 major payers in CLL, bringing our total CLL covered lives to over 260 million. We continue to improve cash collections and expand our reimbursement footprint with new payer contracts. Overall, all ASP metrics and contracting initiatives are trending in the right direction, positioning us well to reach our long-term ASP target of $1,700 to $1,800 per test.

Let's now turn to Slide 6 to review progress on EMR integrations. Our EMR integration efforts continue to gain momentum across both academic and community settings. These integrations are a key driver of volume growth and support 2 other important strategic initiatives. The first is to build a scalable moat around clonoSEQ, protecting against new entrants and minimizing disruption from account turnover. And the second is to maximize clonoSEQ's usage across the care continuum by directly embedding into EMR-driven workflow, which translates into more tests per patient.

Since last quarter, we've completed 11 integrations, 7 academic and 4 community with 6 of our top 10 accounts now integrated. Among accounts integrated with Flatiron last quarter, volume in these accounts grew 17% sequentially and now represent 24% of our community volume, up from 20% prelaunch. We're also leveraging integration to enable serial testing plans with many ordering providers at Flatiron integrated accounts selecting recurring testing at 3, 6 or 12-month intervals. Importantly, nearly 40% of our commercial tests this quarter came from integrated accounts, which contributes to -- which continues to outpace growth from nonintegrated accounts.

Looking ahead, we plan to further expand our EMR footprint and expect continued acceleration from integrated accounts with fewer ordering discrepancies and deeper account retention.

Let's turn to MRD Pharma on Slide 7. Our MRD Pharma business delivered a solid quarter with revenue up 11% year-over-year, including $6.5 million in milestone revenue. Multi myeloma remains the largest contributor to our biopharma portfolio at over 60% of our active trials, followed by CLL at 17% and ALL at 9%. We ended the quarter with a backlog of more than $200 million, reflecting strong partner demand and sustained program activity. clonoSEQ is most well established as an endpoint in multi myeloma, where the ODAC and CHMP votes reinforce its role in assessing treatment response and supporting accelerated approvals, particularly in the frontline setting.

The momentum is now extending to other lymphoid cancers and driving diversification across our portfolio. Endpoint qualification efforts are underway in CLL and DLBCL, which are already translating into results. 2025 CLL bookings are more than twice what they were last year. Currently, the FDA is accepting MRD as an endpoint on a case-by-case basis in other lymphoid cancers. Of our 19 ongoing primary endpoint studies, 12 are in multi myeloma, 6 are in leukemia and 1 is in MCL.

While recent agency news views on surrogate endpoints have introduced some uncertainty, we remain confident MRD will gain broader acceptance as an endpoint for accelerated approval in other lymphoid cancers. As the first and only FDA-cleared MRD assay, clonoSEQ holds a distinct and durable position to capture this market. In summary, MRD is a strong growth engine with multiple levers to increase penetration.

Now let's turn to Immune Medicine on Slide 9. Our Immune Medicine business is executing across our 3 strategic priorities. First, we continue to generate large-scale, high-quality proprietary data to develop a digital TCR antigen prediction model. We're making good progress by using our data to train and improve the accuracy of our models. As we deploy these models, we see promising results in multiple immunology applications. One of these applications included the ability to select the best TCRs to use in cancer cell therapy products in partnership with Genentech.

Earlier this quarter, we announced the conclusion of our partnership with Genentech following its internal portfolio prioritization. As a result, Adaptive is released from exclusivity and any further obligations related to this partnership. Importantly, the scientific and technical progress we've made along the way allowed us to significantly accelerate both our data generation and our AI/ML modeling capabilities across multiple use cases. We are deploying our knowledge and infrastructure that we built towards multiple high-value partnership opportunities.

Second, for our T cell depletion antibody program, we are on track to establish a preclinical data package in our lead autoimmune indication. This quarter, we selected our lead antibody candidate. This key milestone is based on robust potency and other functional characterization data that we generated this year. We've also started planning for CMC tox work, which represents a key step towards IND-enabling studies for this lead T-cell depleting antibody in autoimmunity. As we continue to execute on these 2 focused R&D priorities, we remain financially disciplined and are on track to achieve our 2025 cash burn target between $25 million and $30 million.

Now I'm going to pass it over to Kyle to walk through the financial results and updated full year guidance. Kyle?

Thanks, Chad. First, I will go over the financial results, including $33.7 million of noncash revenue recognized this quarter from the remaining amortization of payments previously received from Genentech. Total company revenue for the third quarter was $94 million, representing a 102% increase year-over-year. Total company adjusted EBITDA was $28 million compared to a loss of $14.3 million a year ago.

Interest expense from our royalty financing agreement with OrbiMed was $3 million, which was $700,000 higher than interest income. Net income from the quarter was $9.5 million. Now and as shown on Slide 10, the revenue and adjusted EBITDA figures, which I will be discussing forward are presented excluding all noncash revenue from Genentech in all periods presented.

Looking at this quarter's performance on Slide 10. MRD revenue grew 52% year-over-year to $56.8 million, with clinical and pharma contributing 67% and 33%, respectively. clonoSEQ test volume, including international, increased 38% versus last year to 27,111 tests delivered. U.S. ASP grew 28% to over $1,340, reflecting continued strength in cash collections and improved pricing through our various contracting initiatives. MRD Pharma revenue grew 11% year-over-year, inclusive of $6.5 million in milestones. Immune Medicine revenue from pharma and academic services was $3.4 million versus $5.5 million a year ago.

Turning to gross margins and expenses. Total company gross margin, again, excluding Genentech revenue, was 70%. Sequencing gross margin, which excludes MRD milestones, was 66%, up from 56% a year ago. This improvement was driven by operating leverage in the lab from higher volumes, stronger pricing across both clinical and pharma and efficiency gains from the NovaSeq X implementation.

Total operating expenses, including cost of revenue, was $83.7 million, up 6% year-over-year and flat sequentially. The year-over-year increase was primarily driven by higher SG&A expenses related to our expected EMR and reimbursement efforts and higher cost of revenue from volume growth, partially offset by lower R&D expenses.

Turning to profitability. As shown on the segment reporting table at the bottom of the slide, the MRD business delivered positive adjusted EBITDA of $7 million compared to a deficit of $6.1 million a year ago. Immune Medicine adjusted EBITDA deficit, again, excluding the Genentech revenue, was $10 million versus $8.7 million in Q3 of last year. At the total company level, adjusted EBITDA, excluding Genentech, was a loss of $5.8 million compared to a $17.8 million loss a year ago. Total company net loss for the quarter was $24.2 million, again, excluding Genentech.

Turning to our full year 2025 updated guidance on Slide 11. We are raising our full year MRD revenue guidance to a range of $202 million to $207 million, up from the prior range of $190 million to $200 million. This increase reflects stronger-than-expected clinical revenue performance in Q3 and higher MRD milestone revenue for the year. With sustained clinical volume momentum, we now expect to deliver approximately 104,000 tests for the year, exceeding our prior growth target of 35% over 2024. We also expect MRD milestone revenue between $18 million and $19 million, up from our previous $14 million to $15 million range.

Overall, this outlook implies 39% to 42% total MRD revenue growth year-over-year and 38% to 42% growth for the MRD base business, which excludes milestones at the midpoint. We are also tightening and lowering the top end of our total company operating expense guidance, including cost of revenue to $335 million to $340 million from our previous range of $335 million to $345 million. We continue to expect roughly 69% of expenses from MRD, 23% from Immune Medicine and the remainder from unallocated corporate costs.

Further, we are also narrowing and lowering our full year company cash burn guidance to $45 million to $50 million from the prior $45 million to $55 million range, driven primarily by higher MRD revenue. We expect approximately 15% cash burn from MRD, still anticipate $25 million to $30 million from Immune Medicine and the balance from unallocated corporate costs. It's encouraging to see the MRD business generate positive cash flows, achieve positive adjusted EBITDA on the base business, all while continuing meaningful top line growth. With that, I'll hand it back over to Chad.

Thanks, Kyle. Our results this year highlight the strength of our strategy and the discipline of our execution. MRD is now a profitable scaling business that is delivering consistent growth and margin expansion and Immune Medicine continues to advance key R&D programs and unlock new partnership opportunities for future growth. We're confident in our trajectory and are well positioned to finish the year strong with a solid foundation for long-term value creation. With that, I'd like to now turn the call back over to the operator and open it up for questions.

[Operator Instructions] Our first question comes from Mark Massaro at BTIG.

On the strong beat and raise. Just a question maybe to start. It looks like your MRD pharma business is becoming a little more recurring in nature than it was maybe a year ago, and it's actually starting to look linear, increasing about $1 million a quarter. I'm not expecting this to continue in a linear way. But can you just give us a sense of the $200 million you have in the backlog, how should we think about that backlog being released, say, over the next several quarters?

Thanks for the question, Mark. Thanks, Chad. Thanks for the question, Mark. So I think first, I'd just say that we are pleased with the performance of the business, and we will reiterate our anticipated revenues for the year. We think that the ODAC, the CHMP decisions in multiple myeloma as well as our strong pipeline in NHL and CNR increased accelerated progress in leukemia this year, all point to a strong potential for 2026 and beyond. We do expect -- we haven't provided guidance next year, but we do expect continuing growth in a similar range to where we've been this year. And I think the backlog, which we will recognize generally over a 5 to 7-year time frame, it is a strong backlog going into the year. And our new bookings have also been quite strong, and we expect that to continue given the role of MRD potentially as an endpoint in additional indications beyond multiple myeloma in the coming years.

Okay. That's helpful. It's great to see the 38% growth in MRD volume. I guess as -- I'm not asking for hard guidance on 2026 or anything. But based on the fact that you've got Epic integrations, not just Epic, but other EMR integrations, you've got blood increasing, you've got community penetration increasing. You're testing a lot of new patients. There are a lot of drivers that are working in your favor. Is there any reason to think that perhaps a 30% bar is something that you can perform against in 2026 in terms of MRD volume growth?

Mark, thanks for your question. As you mentioned, we're not going to specifically yet come out with 2026 guidance. I can just say all of the kind of underlying factors that you mentioned give us great confidence in the trajectory of the business in 2026 and beyond, and we will provide more specific guidance shortly.

Our next question comes from Sabu Nambi at Guggenheim.

So again, in the spirit of just trying to model on clonoSEQ ASPs, can you help us think about next year? I know your long-term target is $1,800. But as we think about next year, it appears clonoSEQ is well on track to hit your target this year. How much should ASPs continue to lift from here?

Yes, [ Subu ], I appreciate the question. Look, I won't give a firm number yet on 2026. But what I can say is with the profile of the business and $1,340 in Q3, feel confident about the exit rate that we're going to exit the year at. With the momentum around coverage and not only CLL and what we're seeing in DLBCL as well, I think we're setting our foundation up fairly strong to go into 2026 to have meaningful growth in ASP. And that's where we think we are. And again, I reiterate that $1,700 to $1,800 long-range target, and we'll continue to grow for next year.

Perfect. And another one for me. Our mature EMR integrations remaining strong, what do those run rates look like? And if still accelerating for the more mature accounts, how long before some of them actually steady off?

Sure. I can answer that question, Subu. Thanks for asking. As you've seen, our EMR integrations have continued to progress well and to drive growth across really accounts of all sizes, both academic and community. And I'll just take a moment to mention that we don't just see the benefit of growth acceleration, but also we're protecting existing business from competition, and we're increasingly finding ways to utilize tools built within the EMR to help us increase the consistency and the frequency of testing, which will have long-term value for our growth in those accounts over time.

We do see that the more mature integrated accounts do continue to grow more quickly than non-integrated accounts. That can vary to some extent based on the size of the account. As you can imagine, more well-penetrated accounts can't sustain those significant accelerations that we see post integration long term, but we see a variety of benefits in those large accounts even if they go back to sort of more stable growth rates after some time. We see that the integration helps democratize ordering. So more HCPs can place orders that reduces the impact of staff turnover. We see reduced HCP workload, which sort of eases the effort we have to put in to maintain that business, and we see -- we're strengthening our competitive moats.

So even in those largest accounts, this has long-term benefits. in general, to give you some statistics, when we look at our integrated account commercial volumes this quarter -- in Q3 versus Q2, we saw 9% quarter-over-quarter growth across the entirety of the group, whether they were mature or newer and non-integrated accounts grew 6%. So a 50% increase in the growth rate just looking across the entire group. That group is getting bigger and the number of mature accounts is getting bigger over time, but it's still relatively small. Most of our integrations are less than a year old. So we'll have more to say as this continues, but we are confident that this is a real trend and that it's something that we can continue to build on with some of those tools I mentioned that the EMR offers us to optimize testing.

Fantastic. And given we recently initiated in most of our checks, we felt the competition was nonexistent almost or there was no close competitor, maybe a distant second. So when you refer to competitive moat, could you shed light on what kind of tests truly compete with clonoSEQ?

Sure, of course. So in many of our indications, what we're really competing against is sort of lack of testing or use of traditional methods for disease burden assessments that aren't really MRD. And in those cases, we're focused primarily on educating clinicians on the clinical data, the utility, the use cases and now increasingly the guidelines, which are strongly supportive of MRD adoption. There are technologies like you're aware of, like traditional and next-generation flow that are utilized in academic institutions in-house that we have to compete against in those settings. And our data strongly supports the advantage of clonoSEQ over both traditional and next-gen flow, and you'll see some data at ASH actually that will look at that on top of many existing data sets that will continue to be favorable to clonoSEQ.

The one indication where we are seeing emerging competition is, of course, in [ diffuse large B-cell lymphoma. And competitors have entered the market. We anticipate we will continue to enter the market in the coming year. But the great news is that we're very confident in our position. We've established strong credibility. We have robust clinical experience. We've run more than 7,000 DLBCL tests in the past 12 months and had more than 900 HCPs order the test. So we're way ahead from a clinical -- from an established clinical base, and we have a number of other established advantages, commercial footprint, relationships our Medicare coverage and now our expanding commercial payer coverage, which we've just started to see really secure a foothold and the fact that we can offer universal testing for all lymphoid cancers. So even in a space where we may have more emerging competition, we do still believe we are well positioned to maintain our market-leading position.

Our next question comes from Andrew Brackmann at William Blair.

Chad, I think you called out recent guideline wins this year and even in Q3. Obviously, we saw those throughout the year. But have you seen those sorts of changes to the guidelines start to impact utilization already? Or is that still something on the come? And then I guess bigger picture here, just on the commercial front, how are those updates perhaps maybe changing the conversation that your team is having with these docs?

Yes. Maybe I'll start and just kind of -- because we have had an impressive list of guideline wins this year, maybe I'll cover them and then I'll turn it over to Susan to talk about kind of the impact that we're seeing from a clinical standpoint.

So first, I mean, there's been several meaningful guideline updates in multi myeloma, the recommendation to obtain a clonality ID assessment was really strengthened this year. And this is key for clonoSEQ to help them to reduce the barriers to the initial ID testing. It's also relevant to our education and penetration of the community, which is obviously a key driver of our growth. Also in DLBCL MRD assessment was included in the NCCN and lymphoma guidelines for the very first time. We mentioned CLL in the prepared remarks, the first time that the guidelines include a recommendation for serial MRD assessment and specified a frequency of 3 to 6 months. And also provides additional reinforcement about NGS being an alternative to flow, which Susan just mentioned.

So this is really just a great opportunity for us to educate on the data that emphasizes that clonoSEQ can detect disease that's missed by flow below a threshold of 10 to the 4. This is definitely starting. I just want to be clear, these guidelines came out this year. That's certainly a helpful call point to go in with a strong data presentation, but I'll turn it over to Susan to talk about how it's impacting the clinical uptake.

Sure. Maybe I can just give you a couple of examples. So first of all, in multiple myeloma, we've been talking a lot about the [ MIDS ] data, which allows MRD-negative patients to potentially avoid a transplant. And in that setting, we can now, with the support of the guidelines, underscore the value of the ID test at diagnosis to make sure that no patient misses that opportunity. And that opportunity is particularly valued in the community setting where patients have to leave their local doctor to go get a transplant, neither the doctor nor the patient likes that. And so there's a lot of motivation and with the support of the guidelines to say that ID test is now -- there is a stronger recommendation around doing that, it ensures that more patients are accessible to this MIDS message that we're delivering.

In CLL, where the guidelines were very recently updated. We're really just getting started, but we are exposing community doctors to some of the potential benefits of limited duration therapy, which many of them haven't experimented as much with yet, but we'll do more and more with the -- we expect upcoming approval of some of the combination regimens that are being referenced in the guidelines now. And so we can talk now about testing frequency in the context of a limited duration therapy in a much more specific way, which is what the community doctors really want. They want us to tell them when to test, who to test and the support of the guidelines just tremendously strengthens our ability to deliver that message.

Susan, maybe a follow-up there. I think in an earlier question, you referenced tools in the EMR to increase the frequency of testing and getting that scheduled maybe. Just sort of practically, what are you referencing there? And I guess, how does that drive the increased utilization here?

Sure. Yes. A couple of things that I'm referencing are things like treatment plans and order sets. So there are ways within Epic, let's say, that a clinician or a department can set up specific sets of actions that they want to take for a given type of patient at a given point in time. And we are now talking to clinicians in our integrated accounts increasingly about how clonoSEQ might be incorporated into order sets, how do guidelines, existing data, well vetted clinical trial designs support specific time points, where are there places where you might want to make decisions? Would you want to have the clonality ID incorporated into the diagnostic workup.

All of those things can be facilitated by tools that are built into Epic. Additionally, there are tools that allow you to do essentially analytics and reporting on your patient population. And so for example, very easily and Epic you can pull up a list of all the patients who are within, let's say, 1 month of the end of a frontline induction regimen in DLBCL. And you can make sure that your staff has those patients on their radar to place a clonoSEQ order when they come in. So that kind of thing is incredibly powerful. And it's really where we're -- you're going to hear us talking a lot more in 2026 about those types of things because we're shifting from just get as many accounts integrated as possible. We'll continue to do that, but now we can also look at our integrated accounts and what are all the opportunities to use those tools.

Our next question comes from Sebastian Sandler at JPMorgan.

Congrats on the quarter. My first question is on community. I think that had another solid quarter. It seems to be continuing to accelerate. Can you just help us level set where we stand in penetration into the community, which is where most of the heme cancer patients are treated? And then do you have any color on whether the sequential increase in HCPs from these practices are coming from new accounts versus existing accounts? And I think you've kept your sales force headcount relatively stable. So I'm wondering if you have any plans to expand as you penetrate further into the community setting? And I have a follow-up.

Sure. Thanks, Sebastian. Let me see if I can touch on all of those. So first of all, our community penetration, while we've made substantial headway and now have about 30% of our volume coming from community settings, we still are underpenetrated certainly relative to academic settings and have a very high ceiling in that space. We are taking, as you know, specific steps to drive growth in that setting, one of which is the recent integration with OncoEMR via Flatiron Health. And we've been really pleased with the results we've seen in the Flatiron accounts.

I'll just briefly mention that we saw 17% quarter-over-quarter growth in Q3 in our Flatiron accounts. and we're only 1 quarter into our experience, but quite a lot of interest and opt into our serial testing offering in that interface, which we'll learn more about how we can pull those tests through in the coming months. But a lot of potential that I think we can build on with the option of serial test ordering in community settings.

In terms of the HCPs, where are they coming from, we have a lot of white space in the community still. And so we are -- while it takes time to break into new accounts, we continue to see new HCPs in both new and existing accounts. In the existing accounts, integration is a big driver of bringing new HCPs on board because, again, it democratizes the ability to order. And the new accounts will continue to penetrate. There are Flatiron accounts that don't yet use clonoSEQ, and so that's a big area of focus, but outside of that segment as well.

In terms of the sales force, we've looked at this carefully, and we are comfortable with the 65 reps that we have, of which about half are focused on the community setting. What I'd say is that this is the right number of reps based on what we can see in terms of potential in each territory, the number of accounts and HCPs each rep is calling on, the amount of windshield time that the reps have. We do look carefully at our alignment, and we will occasionally add a territory or collapse the territory when we see some specific opportunity. And over time, we will consider potentially new deployment strategies that could justify additional hiring, but we're not anticipating any significant expansion in the near term.

Got it. Very helpful. And then my second question is on sequencing gross margins. So those had a nice step up. Can you give us a little more granularity on the individual drivers of that improvement? I think more of the uplift from the X transition was expected to fall more in 4Q, but I'm wondering if that benefit was accelerated and had an outsized impact in 3Q? And then any color on how we should think about sequencing gross margins exiting the year would be helpful.

Thanks, Sebastian. Yes, I appreciate the comment. Sequencing gross margin was 66%, and that was up from 64% in Q2. I'd say if you drill in a little deeper on the MRD business alone, it was up 3 percentage points and NovaSeq X contributed 2 percentage points of that. So certainly taking out the [ Lion's ] share of the improvement. We were only integrated starting at the end of July, so really 2 months of benefit. So expect it to continue. And in terms of guidance as it relates to exiting the year, we said 5 to 8 percentage points post launch, still reaffirming that. And I think we'll see a continued step-up, especially as the volume continues to grow exiting the year.

Our next question comes from William Bonello at Craig-Hallum.

I just want to circle back to the question that Andrew was asking about the EMR tools. Did I hear you right earlier in the call that you said with -- and I need to be clarified whether it was Epic or OncoEMR, but that a physician now has the ability to essentially put in an order that would cover multiple testing time periods upfront. And then if I did hear that right, maybe you can talk a little bit more about how that works, if that's available for all indications, can a practice customize? Are they -- you mentioned some time points, but I don't know if those are fixed order points or a doctor has flexibility around that? And then maybe what kind of lift do you think you might be able to get from that capability in terms of test per patient?

Sure. I'd be happy to talk more about that, William. So the serial testing option is available to our Flatiron integrated accounts. So OncoEMR offers this as an option in their interface that we've taken advantage of. And what essentially happens is when you're placing an order, you have to select from a drop-down whether you'd like a single order or a serial cadence, which can vary from 1, 3, 6 or 12 months. And so it's as simple as selecting from the dropdown. And that is universal for all OncoEMR accounts that utilize their molecular precision NPI tool, which is what we use to provide integrated test ordering. It's across all indications. It isn't customizable in the sense that it looks the same for every practice, but it is up to the HCP what cadence they select. And so we do see variability depending on whether an HCP is going to do blood or bone marrow, depending on whether they're testing in DLBCL or CLL, et cetera.

We haven't quantified the specific lift associated with this yet because, as I mentioned, we're only 3 months in, and most clinicians are selecting a 3 or 6 month cadence. And so we are just now getting to the point where we'll be able to start measuring, do we pull those orders through or do the physicians elect to delay or not send the sample. So -- but we are confident based on the early results that we will get incremental test growth from that offering, and we are looking at whether there are ways to extend it to other parts of our business beyond Flatiron.

And so if a physician, for instance, selects a 3 month cadence, does that mean that for a period of time, every 3 months, another test is being ordered? I just want to make sure I understand that.

Correct. I mean it's essentially that way, but what happens is it's like a placeholder order. So the order is scheduled into the patient's calendar within the EMR system. And then when that due date comes up, it will sort of pop up for the staff in the clinic and say this patient is due for another blood draw for a clonoSEQ test. The staff still have to take the action to make that blood draw happen before it comes to us and officially count as an order. So none of these orders are appearing in our order numbers. But if we pull them through, which we are actively working to do by putting in place reminders and field-based tactics to ensure that our clinicians are aware that these orders are coming due, we'll be able to -- we expect, pull some number of those through and be able to provide more consistent testing to patients over time.

Okay. That's really helpful. And then just a completely different question for you guys. Where are we at in terms of blood today and uptick with blood as sort of a percent of what you're seeing? And what are your thoughts on that looking forward?

Sure. So overall, we have now reached 45% of all MRD tests being performed in blood. And that was actually our goal for the year. So we're pleased to have achieved that a quarter early was to exit the year at 45% was our expectation. We are seeing increases in blood-based testing in both myeloma and ALL, which are sort of traditionally marrow-based tests. We now are at 37% of ALL tests in blood and 24% of multiple myeloma tests in blood. That's each up about 3 to 4 absolute percentage points from a year ago. And we also have increased contribution from our primarily blood-based indications, which include DLBCL, MCL and CLL. DLBCL, in particular, is driving some of the growth in blood-based testing because it's simply becoming a larger portion of our total test base.

Sure. Okay. And then if I can, just one last question. You mentioned the national contract wins and just the way the bullet points were on the slide, I wasn't totally sure if you were saying those were related, if there were 2 distinct points, are the rate increases related to just DLBCL and CLL? Or are those across all modalities? And then secondly, did we see any benefit from that this quarter? Or is that all ahead of us?

Yes, I'll start and then, Kyle, feel free to jump on. First, there's a difference between kind of coverage and potentially rate increases, although those can sometimes be combined. What I mentioned in the prepared remarks is that we were -- we obtained coverage, our first commercial payer coverage in DLBCL and that for 2 CLL coverage policies, we obtained kind of further coverage. So those will hit -- those hit now and -- but then you'll see the impact come over time, not -- those wouldn't be reflected in this quarter.

Yes, that's right. And the contracting initiatives or wins we flagged were in effect in Q3. So some of that pull through in Q3. We still think there's some room to go just from an implementation perspective with some of those payers that we're still working some of the kinks through, but we'll get there on that front.

Just to give you a good example. Remember, we discussed a major payer win in terms of contracting kind of for Anthem last quarter and the implementation of -- actually probably 2 quarters ago and the implementation happened this quarter. So you do start seeing a lift in terms of your ASP from that. So there's a lag often between contracting and implementation and kind of the rate increase and/or the rate increase.

Okay. That makes sense. And when I go back and look at it, I see it's sort of 2 distinct points, right? [ You get ] coverage policy from the 2 plus I am reading that right, though, that there were 3 national payer price increases, like you're saying those -- Kyle, you're saying [indiscernible]

Correct.

That was in effect in Q3.

Our next question comes from David Westenberg at Piper Sandler.

So I want to maybe start with the contribution margin of MRD at this point. I mean I know you're maybe not going to give the exact number, but I'm just kind of thinking about how -- as we see growth in that, we see this move to cash flow breakeven and kind of our ability to kind of pace that. And then also, just given the fact that you do have a pretty solid competitive lead in MRD in blood at this point. How are you thinking about balancing investments in sales and marketing, et cetera, to really like push on that competitive advantage, maybe clinical studies or anything else there?

Yes. Thanks, David. On the contribution margin comment, certainly, we have control to be able to manage and pace the growth as long as we continue to see and expect to see the growth. Again, this quarter was a great accomplishment to see the cash flow positivity, which gives us some confidence going forward that the business will remain cash flow positive. That being said, we may choose to make some additional investments to press the gas and grow faster, either in volumes and/or in the reimbursement environment. So I think all of those things get combined give us a little bit of control. And as the volume continues to increase, we can decide whether or not we want to reinvest in the business and what areas we want to go after.

Maybe I'll add on to that and then Susan can as well. First, I think it's worth pointing out, even though we've had great growth, there's still a long way to go in penetration in order to fully capture this kind of large and expanding total addressable market opportunity. But particularly in terms of investments, we are continuing to invest in kind of blood-based testing, both in terms of assay improvements and in terms of clinical studies, in an addition to kind of blood-based testing, I think that's a key initiative for us overall is investing in clinical studies to continue to demonstrate the clinical utility of the assay as where a doctor can use our test to kind of improve patient care across the continuum, and we'll continue to make those investments.

Got it. Just real one quick one on the guide, and apologies, I've been jumping between 3 calls here. But is there any seasonality in the Q4 MRD number? I mean I think you've had sequential growth of, I think it was 10%, 10%, 7%. I realize you can't maintain that forever. But I think the guide would kind of imply that maybe the volumes or the ASPs might be a little bit lower than what you've gotten in the quarter-over-quarter. Just wanted to see if you can remind us on the seasonality there. And yes, I'll just stop there.

Yes. Yes. As it relates to guide, certainly something we are contemplating with respect to our guidance. Obviously, the volume growth has been phenomenal, and we expect it to continue to be phenomenal. But Q4 is one of the tougher periods with the amount of holidays and ordering. So I think that factored into some of our guide. But again, longer term and into '26, we think there's strong growth ahead of us. So there's a little bit of seasonality in that growth. It doesn't mean we can't beat it, but that is factored into our guide.

Got it. Maybe I'll just squeeze in one quick one. I might be at the end of the queue anyway. So just in terms of your thoughts on outside of multiple myeloma potential to see this as a primary -- or clonoSEQ as a primary endpoint, specifically written in is clonoSEQ or NGS clonality, et cetera? And how far away are we from that? I mean I'm guessing we're seeing a lot of speeding up of clinical trials and really seeing more promising drugs coming through the pipeline because of this. When can we see that advancement to other sorts of areas like CLL, ALL non-Hodgkin lymphoma, et cetera?

Sure. As I think Chad mentioned earlier, we have -- there are active efforts ongoing for both CLL and DLBCL to establish a similar designation as the ODAC provided for myeloma for MRD as an accelerated endpoint for approval. The CLL effort is being led by a number -- a couple of KOLs and in partnership with a broad coalition of pharma partners. We are actually getting engaged in that effort as well directly. And what the leaders of that initiative have said to us is that it took 10 years for multiple myeloma. It will not take 10 years for CLL. That's because we now have a blueprint for what the FDA is looking for.

Now that said, the FDA has evolved since the time of the ODAC vote, and so there are uncertainties around that. But the data collection is advancing rapidly. And I think all the participants are confident that current administration notwithstanding, we'll see those things come to fruition much faster than they did in multiple myeloma. And I think that other indications beyond CLL and DLBCL may have reason to explore this in the future as well.

And just one point in terms of quantifying this in terms of kind of bookings, our 2025 CLL bookings are more than twice what they were last year in the MRD pharma space.

Our last question comes from Dan Brennan at TD.

Maybe just on DLBCL, I mean, the mix ticked up pretty nicely in the quarter. I know you may have addressed it a little bit, but just speak to a little bit what you're seeing there and how we might think about the opportunity there as we go into '26 in terms of the pace of progress.

Sure. Thanks for the question, Dan. Yes, we are continuing to see a nice solid uptick in the contribution of DLBCL, rising from 6% a year ago -- 3 quarters ago to 9% this quarter. It's kind of poised to overtake CLL actually as the third largest indication probably in the next quarter or 2, although we'll certainly expect the CLL business to be buoyed by the recent guidelines update.

In DLBCL, I think a couple of things contributing. Certainly, one is the noise around MRD in the space, which is not just coming from us. There is a large amount of data generation ongoing. There is a lot of interest from pharma companies and how they can utilize MRD-guided treatment to optimize outcomes in this disease state, which is curable for a subset of patients and hopefully for a growing number of patients, proportion of patients over time.

So there are several companies that are currently advancing or considering trials that will include MRD-guided elements to them in the coming years. And that will -- in addition to the interest in the clinic as it is, that will contribute, I believe, to greater use cases for MRD in the clinic.

Great. And maybe just a follow-up. I know there's a few questions on margins. But just wondering as an early read, if we think about into '26 and the investments you're making, but yet the OpEx leverage path you're on, just can you remind us how we might think about the early look on OpEx leverage as we go into '26 and what are the key puts and takes?

Yes. I mean I think we will continue to see growth in investment areas like EMR. But at this point, we're not planning any major investments. That being said, we might change our mind. But at this point, I think we're going to continue to see meaningful leverage across the business and look at opportunities to take advantage of the position we're in, in the MRD business.

The other area that I mentioned earlier, Dan, continuing to invest in kind of data generation for clinical utility studies. But overall, we're looking to continue to get leverage out of the business.

Have you guys even -- like I forget, have you commented publicly at all about OpEx leverage for '26 in terms of where consensus is or no, not yet?

Not yet. Not yet.

This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.