Shares of Adaptive Biotechnologies Corp. rocketed in their public debut Thursday, as investors flocked to the life-sciences research company that’s looking to the immune system to cure the world’s ills.
The stock’s first trade was at $39 a share, 95% above the IPO price, at 11:12 Eastern for 2.2 million shares. The stock pared some of those gains to trade around $37 a share later in the morning.
Adaptive ADPT, +93.90% priced its IPO at $20 a share, above the expected range of between $18 and $19. The $18-to$19 estimate was already a boost from the company’s original pricing range of between $15 and $17 a share. Adaptive sold 15 million shares in its public debut to raise at least $300 million, and shares will begin trading Thursday on the Nasdaq under the symbol ADPT.
The underwriters on the deal are Goldman Sachs, J.P. Morgan, BofA Merrill Lynch, Cowen, Guggenheim Securities, William Blair and BTIG.
Adaptive, a life-sciences research and clinical diagnostics company, believes data from the immune system is the key to diagnosing and treating diseases. It is putting together a massive database of hard-to-obtain information on the immune system that it hopes researchers and clinicians will use to develop therapies. The 10-year-old company has partnerships with Microsoft Corp.MSFT, -0.10% and Roche Holding Ltd.’s RHHBY, +0.29% Genentech.
Adaptive is betting on the power of the immune system
Adaptive has figured out a way to genetically sequence T-cell and B-cell receptors, the main players of the body’s adaptive immune system. Sequencing the genome of these receptors is difficult — unlike the rest of the human genome, these genes rearrange over time. But Adaptive has found a way to do it using its powerful ImmunoSEQ platform, which uses computational biology to sequence the receptors. The company is using machine learning to try to reconstruct these receptors for therapeutic purposes. The plan is to use the data to both detect and treat diseases in the doctor’s office.
“Ultimately, this is going to be part of an ‘immunoscreen’ or annual checkup that screens your biological system — like an MRI or X-ray for your immune system,” Adaptive Chief Executive Chad Robins told MarketWatch during an interview in January. He thinks the first immune-system-based detections will happen within the next two years.
According to its prospectus, Adaptive currently has a database with information on more than 30 billion immune receptors. The company has the data rights to more than 20 billion of them.
A partnership with Microsoft and drug-development deal with Genentech
In 2017, Adaptive struck a seven-year partnership deal with Microsoft. Under the terms of the deal, Adaptive will use Microsoft’s machine learning and computational statistics resources to make a map of the interactions between diseases and the immune system, with the goal of eventually building a diagnostic product.
Under the agreement, Adaptive will retain all rights to the models and data related to the immune system maps. Adaptive must also exclusively use Microsoft’s Azure cloud services during the duration of the agreement, and any diagnostic products developed using Microsoft’s services must be hosted on Azure for the duration of the agreement, plus another five years.
In addition, Adaptive and Microsoft have granted each other “certain licenses” to each other’s intellectual property rights and have agreed to “certain defined exclusivity obligations with respect to collaborations and projects that are substantially similar to the Microsoft [a]greement,” Adaptive wrote in its prospectus.
Adaptive also disclosed that Microsoft purchased shares of the company’s F-1 convertible preferred stock when the companies entered their partnership.
In December 2018, Adaptive entered a partnership agreement with Genentech to develop, make and commercialize new T-cell therapies for a broad range of cancers. Adaptive received $300 million in an initial upfront payment in February and is eligible to receive around $1.8 billion in additional payments upon reaching certain milestones. Under the terms of the deal, Genentech will also pay Adaptive royalties on any sales of products commercialized under the agreement.
Adaptive’s business model has a pretty wide scope
Adaptive does business in three areas: Life sciences research, clinical diagnostics and drug discovery.
• Life sciences research: Adaptive offers its ImmunoSEQ platform to researchers as a fee-for-service product. The platform has been used by more than 2,000 academic researchers and more than 125 biopharmaceutical companies, according to the company’s prospectus.
• Clinical diagnostics: Adaptive has a diagnostic test called ClonoSEQ that detects and monitors the remaining number of cancer cells present in a patient’s body during and after treatment. The Food and Drug Administration has approved ClonoSEQ’s use in patients with multiple myeloma and acute lymphoblastic leukemia, and Adaptive is working on getting the test approved for use in chronic lymphocytic leukemia and non-Hodgkin lymphoma.
Adaptive is also working on developing something called ImmunoSEQ Dx, a diagnostic tool that could one day allow doctors to detect diseases early with a single blood test. The company is leveraging Microsoft’s machine learning capabilities to develop this, and said in its prospectus that it hopes to submit an FDA application for at least a few disease indications by the end of 2019.
• Drug discovery: Adaptive is working on new T-cell immunotherapies with Genentech, using data from its ImmunoSEQ platform. The company said in its prospectus that it wants to make an investigational new drug submission to the FDA by the fourth quarter of 2020.
Adaptive isn’t making money, and likely won’t soon
The company has incurred significant losses since its inception. For now, all of Adaptive’s revenue comes from its ImmunoSEQ sequencing services and ClonoSEQ testing services. The company splits its revenue into two categories: sequencing revenue and development revenue. Sequencing revenue comes from providing ImmunoSEQ sequencing services and ClonoSEQ testing services to clinical and research customers. Development revenue comes from any professional support the company provides to those customers.
Adaptive brought in $55.7 million in revenue in 2018, but heavy operating expenses — including a significant $39.2 million research and development expense — meant the company ultimately booked a net loss of $46.3 million. The company said it expects to continue to incur significant expenses and operating losses for the foreseeable future.
The proceeds from the IPO should float Adaptive for at least two years
The proceeds from the IPO should cover the development of ClonoSEQ through FDA authorization for use in patients with chronic lymphocytic leukemia and patients with non-Hodgkin lymphoma, Adaptive said in its prospectus. The IPO funds will also help seek approval for ImmunoSEQ for one clinical indication, and to getting one cell therapy through the IND submission process.
Adaptive said the proceeds, along with the cash it already has and what it expects to get from operations, will be sufficient to fund its operations through at least 24 months.
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