Adaptive Biotechnologies: A Post Earnings Assessment (NASDAQ:ADPT)

Those who cannot change their minds cannot change anything.” ― George Bernard Shaw

Today, we put Adaptive Biotechnologies Corporation (NASDAQ:ADPT) in the spotlight as this diagnostic concern recently posted fourth quarter results to close out FY2023. The stock has lost over 50% of its value over the past 12 months. In our last article on this name in July, we declined on putting any investment recommendation on the shares but did note they seemed to be getting a big closer to the ‘buy zone‘. Can the shares recover in 2024? An analysis follows below.

Company Overview:

This Seattle headquartered commercial-stage diagnostic company has developed an immune medicine platform for the diagnosis and treatment of various diseases. It has several products on the market including immunoSEQ, a core immunosequencing offering and clonoSEQ, a clinical diagnostic product for the detection and monitoring of minimal residual disease in patients with multiple myeloma, B cell acute lymphoblastic leukemia, and chronic lymphocytic leukemia.

Adaptive’s platform leverages proprietary chemistry, computational biology, and machine learning to identify and translate these adaptive immune system properties at scale, precision, and speed, which allows for the development of disease monitoring and clinical diagnostic tests, as well as the development of immunotherapeutics. The stock currently trades just under four bucks a share and sports an approximate market capitalization of $585 million.

ClonoSEQ is the primary asset within Adaptive’s Minimal Residual Disease or MRD business segment. The test is known for its accuracy and clinical utility. Adaptive benefited from the Covid pandemic as its T-Detect™ COVID test to confirm recent or prior COVID-19 infection was approved by the FDA via emergency use authorization back in early 2021. Those revenues have largely gone away as Covid had become endemic. They were a part of the Immune Medicine segment.

Fourth Quarter Results:

The company posted its Q4 numbers on February 14th. Adaptive Biotechnologies delivered a GAAP loss of 48 cents a share, 15 cents a share below expectations. Net loss for the quarter was $69.5 million, up from $40.8 million in 4Q2022. Adjusted EBITDA was a negative $24.7 million for the quarter, compared to a negative $19.6 million in the prior period a year ago.

Revenues fell some 17% on a year-over-year basis to $45.8 million, more than $2 million below the consensus estimate. MRD revenue made up $30.8 million of overall sales, which was up nine percent from the same period a year ago. For FY2023, MRD sales came to $102.7 million, a 18% improvement over FY2022. ClonoSEQ test volume rose 53% during the year and was up 49% on a year-over-year basis in the fourth quarter.

Management put initial sales guidance for FY2024 from its MRD business at $130 million to $140 million. Leadership provided no guidance for its Immune Medicine segment. They also expect full year operating expenses which includes the cost of revenue, to be between $360 million and $370 million in FY2024.

Analyst Commentary & Balance Sheet:

Since fourth quarter results posted, five analyst firms including Piper Sandler and JP Morgan have reissued Buy/Outperform ratings on the stock. Price targets proffered range from $5 to $10 a share. Both Goldman Sachs ($5 price target) and Morgan Stanley maintained Hold ratings on the stock.

Approximately eight percent of the outstanding float in the shares are currently held short. Several insiders sold nearly $3 million worth of equity collectively in 2023. There has been no insider activity in the stock so far in 2024, however. Adaptive Biotechnologies ended FY2023 with just over $345 million in cash and marketable securities on its balance sheet. Leadership has guided to an approximately quarterly cash burn of $35 million per quarter in FY2024.

Verdict:

Adaptive Biotechnologies posted a GAAP loss of $1.56 a share in FY2023 on just over $170 million of revenue. The current analyst firm consensus has the company cutting losses to $1.31 a share in FY2024 as sales tick up slightly to $175 million. They project losses of $1.06 a share in FY2025 as revenue surges 25%.

Management still has some aggressive goals to move the company towards profitability in the coming years. Management has also brought in Goldman Sachs to look at some strategic alternatives. The company also received an IND approval for its first potential cell therapy product from the FDA in the quarter.

However, until management can move Adaptive much, much closer to profitability; it is hard to find reasons to invest in the stock at this time.

The most important factor in survival is neither intelligence nor strength but adaptability.” ― Charles Darwin