What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-24 compared with 2020-02-26 · 363 added, 367 removed, 624 unchanged (54% of the section changed)

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Adaptive Biotechnologies Corporation

To the Shareholders and the Board of Directors of Adaptive Biotechnologies Corporation

Opinion on the Financial Statements

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account s or disclosure s to which it relates.

Estimation of Total Expected Costs of Genentech Agreement

Description of the Matter

As more fully described in Note 3 of the financial statements, Genentech Agreement revenue is estimated to be recognized over a period of seven to eight years from the effective date.

The non-refundable upfront consideration of $300.0 million is recognized using a proportional performance model through an input method based on costs incurred relative to the total estimated costs of research and development efforts.

For the twelve months ended December 31, 2020, total revenue recorded totaled $52.8 million and related deferred revenue totaled $212.1 million.

Auditing management’s estimate related to determining the total expected research and development costs at completion is complex and requires judgment as a result of the uncertainties of the ultimate progression of the customized product paths, timing and path of development and commercialization decisions, which are controlled by Genentech.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to estimate the total costs of research and development efforts for the collaboration based on evaluating the progress of the collaboration and the likely path of future development based on significant decisions made by Genentech communicated through the joint committees.

To test the estimate of total expected research and development costs, we performed audit procedures that included, among others, observing the quarterly meetings with accounting and the Company collaboration managers discussing the status of the collaboration and the future development for the customized product paths, investigating any changes to the development path.

We reviewed supporting documentation to corroborate progress and status of the overall timeline, including meeting minutes from the joint committees.

/s/ Ernst & Young LLP

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Cash and cash equivalents

Short-term marketable securities

Short-term marketable securities (amortized cost of $ 564,036 and $ 479,791 , respectively)

Accounts receivable, net

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Property and equipment, net

Long-term marketable securities

Operating lease right-of-use assets

Long-term marketable securities (amortized cost of $ 118,429 and $ 105,263 , respectively)

Restricted cash

Intangible assets, net

Liabilities, convertible preferred stock and shareholders’ equity (deficit)

Liabilities and shareholders’ equity

Current liabilities

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Current portion of deferred rent

Current deferred revenue

Current portion of operating lease liabilities

Current portion of deferred revenue

Total current liabilities

Long-term liabilities

Convertible preferred stock warrant liability

Deferred rent liability, less current portion

Operating lease liabilities, less current portion

Financing obligation

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Commitments and contingencies (Note 11)

Convertible preferred stock:

$ 0.0001 par value, no and 93,762,517 shares authorized at

December 31, 2019 and 2018, respectively;

no and 92,790,094 shares issued and

outstanding at December 31, 2019 and 2018, respectively;

aggregate liquidation

preference of $ 0 and $ 572,866 at December 31, 2019 and 2018, respectively

Shareholders’ equity (deficit)

Shareholders’ equity

Preferred stock:

$ 0.0001 par value, 10,000,000 and no shares authorized at December

31, 2019 and 2018, respectively;

no shares issued and outstanding at December 31,

2019 and 2018

$ 0.0001 par value, 10,000,000 shares authorized at December 31, 2020

no shares issued and outstanding at December 31, 2020 and 2019

Common stock:

$ 0.0001 par value, 340,000,000 and 131,000,000 shares authorized at

$ 0.0001 par value, 340,000,000 shares authorized at December 31, 2020

137,646,896 and 125,238,142 shares issued and outstanding at

December 31, 2020 and 2019, respectively

125,238,142 and 12,841,536 shares

issued and outstanding at December 31, 2019 and 2018, respectively

Additional paid-in capital

Accumulated other comprehensive gain (loss)

Accumulated other comprehensive gain

Accumulated deficit

Total shareholders’ equity (deficit)

Total liabilities, convertible preferred stock and shareholders’ equity (deficit)

Total shareholders’ equity

Total liabilities and shareholders’ equity

The accompanying notes are an integral part of these financial statements.

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Amortization of intangible assets

Restructuring

Total operating expenses

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(in thousands, except share amounts)

Preferred Stock

Convertible Preferred Stock

Comprehensive

Shareholders’

Balance as of December 31, 2016

Adjustments to accumulated deficit for adoption of guidance on accounting for

revenue recognition

Issuance of common stock for cash upon exercise of stock options

Issuance of Series F-1 convertible preferred stock for cash, net of issuance costs

Issuance of Series E-1 convertible preferred stock for cash upon exercise of Series E-1

convertible preferred stock options at fair value

Vested Series E-1 convertible preferred stock option forfeitures

Series E-1 convertible preferred stock option share-based compensation

Adjustment to redemption value for vested Series E-1 convertible preferred stock

Change in redemption value for vested Series E-1 convertible preferred stock options

Common stock option share-based compensation

Other comprehensive loss

Balance as of December 31, 2017

Adjustments to accumulated deficit for adoption of guidance on accounting for share-

based payment transactions

Balance at December 31, 2017

Adjustments to accumulated deficit for adoption of guidance on

accounting for share-based payment transactions

Issuance of common stock for cash upon exercise of stock options

Issuance of Series E-1 convertible preferred stock for cash upon exercise of Series E-1

convertible preferred stock options at fair value

Issuance of Series E-1 convertible preferred stock for cash upon exercise

of Series E-1 convertible preferred stock options at fair value

Vested Series E-1 convertible preferred stock option forfeitures

Series E-1 convertible preferred stock option share-based compensation

Adjustment to redemption value for vested Series E-1 convertible preferred stock

Change in redemption value for vested Series E-1 convertible preferred stock options

Adjustment to redemption value for vested Series E-1 convertible

preferred stock options

Change in redemption value for vested Series E-1 convertible preferred

stock options

Common stock option share-based compensation

Other comprehensive income

Balance as of December 31, 2018

Proceeds from initial public offering, net of underwriters' discounts and commissions

Balance at December 31, 2018

Proceeds from initial public offering, net of underwriters' discounts and

Initial public offering costs

Conversion of convertible preferred stock to common stock

Conversion of convertible preferred stock warrant to common stock warrant

Conversion of convertible preferred stock warrant to common stock

Issuance of common stock upon exercise of common stock warrants

Issuance of common stock for cash upon exercise of stock options

Issuance of Series E-1 convertible preferred stock for cash upon exercise of Series E-1

convertible preferred stock options at fair value

Issuance of Series E-1 convertible preferred stock for cash upon exercise

of Series E-1 convertible preferred stock options at fair value

Vesting of restricted stock units

Change in redemption value for vested Series E-1 convertible preferred stock options

Change in redemption value for vested Series E-1 convertible preferred

stock options

Common stock option and restricted stock unit share-based compensation

Other comprehensive income

Balance as of December 31, 2019

Balance at December 31, 2019

Issuance of common stock upon public offering, after deducting

underwriters' discounts and net offering costs paid by us

Adjustments to accumulated deficit for adoption of guidance on

accounting for leases

Issuance of common stock for cash upon exercise of stock options

Vesting of restricted stock units

Common stock option and restricted stock unit share-based compensation

Other comprehensive income

Balance at December 31, 2020

The accompanying notes are an integral part of these financial statements.

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Operating activities

Adjustments to reconcile net loss to net cash provided by (used in) operating

Adjustments to reconcile net loss to net cash (used in) provided by operating

Depreciation expense

Noncash lease expense

Share-based compensation expense

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Investment amortization

Asset impairment

Loss (gain) on equipment disposals

Fair value adjustment of convertible preferred stock warrant

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Deferred rent

Operating lease liabilities

Deferred revenue

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Investing activities

Purchases of property and equipment

Proceeds from sales of equipment

Purchases of intangible assets

Purchases of marketable securities

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Financing activities

Proceeds from issuance of convertible preferred stock, net of issuance costs

Proceeds from exercise of stock options

Proceeds from initial public offering, net of underwriting discounts and

Payment of deferred initial public offering costs

Proceeds from public offering of common stock, net of underwriting discounts

and commissions

Payment of public offering costs, net

Proceeds from issuance of common stock upon the exercise of a common

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Noncash additions to property through lease financing arrangements

Derecognition of lease financing arrangements upon adoption of guidance on

accounting for leases

Conversion of convertible preferred stock to common stock upon closing of

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Organization and Description of Business

Adaptive Biotechnologies Corporation (“we,” “us” or “our”) is a commercial-stage company advancing the field of immune-driven medicine by harnessing the inherent biology of the adaptive immune system to transform the diagnosis and treatment of disease.

Adaptive Biotechnologies Corporation (“we,” “us” or “our”) is a commercial-stage company advancing the field of immune medicine by harnessing the inherent biology of the adaptive immune system to transform the diagnosis and treatment of disease.

We believe the adaptive immune system is nature’s most finely tuned diagnostic and therapeutic for most diseases, but the inability to decode it has prevented the medical community from fully leveraging its capabilities.

Our immune medicine platform is the foundation for our expanding suite of products and services.

The cornerstone of our immune medicine platform and core immunosequencing product, immunoSEQ, serves as our underlying research and development engine and generates revenue from academic and biopharmaceutical customers.

Our first clinical diagnostic product, clonoSEQ, is the first test authorized by the Food and Drug Administration (“FDA”) for the detection and monitoring of minimal residual disease (“MRD”) in patients with select blood cancers.

Our immune medicine platform applies our proprietary technologies to read the diverse genetic code of a patient’s immune system and aims to understand precisely how the immune system detects and treats disease in that patient.

We capture these insights in our dynamic clinical immunomics database, which is underpinned by computational biology and machine learning, and use them to develop and commercialize clinical products and services that we are tailoring to each individual patient.

We have commercial products and services and a robust pipeline of clinical products and services that we are designing to diagnose, monitor and enable the treatment of diseases, such as cancer, autoimmune conditions and infectious diseases.

We were incorporated in the State of Washington on September 8, 2009 under the name Adaptive TCR Corporation.

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We received $ 315.9 million in net proceeds, after deducting underwriting discounts and commissions of $ 24.1 million and offering expenses of $ 5.0 million.

Immediately prior to the completion of our initial public offering on July 1, 2019, 93,039,737 shares of convertible preferred stock then outstanding converted into an equivalent number of shares of common stock.

On July 1, 2019, in connection with the closing of our initial public offering, our amended and restated articles of incorporation, as filed with the Secretary of State of the State of Washington, and our amended and restated bylaws became effective.

Also on July 1, 2019, an initial reserve of 15,519,170 shares under our new 2019 Equity Incentive Plan (“2019 Plan”) became effective.

Follow-On Offering

In July 2020, we completed an underwritten public offering of our common stock in which we issued and sold 7,200,000 shares of common stock, including shares issued upon the exercise in full of the underwriters’ over-allotment option, at a public offering price of $ 40.00 per share.

We received $ 271.8 million in net proceeds, after deducting underwriting discounts and net offering expenses paid by us.

Significant Accounting Policies

Basis of Presentation and Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented.

The preparation of financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented.

We base our estimates on historical experience and other relevant assumptions that we believe to be reasonable under the circumstances.

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Actual results may differ materially from management’s estimates.

Reclassifications

In the accompanying balance sheets, certain prior year amounts have been reclassified to conform to the current period presentation.

Specifically, “restricted cash” and “other assets” were included together in the restricted cash and other assets line item and are now separately stated.

There was no change to total assets as a result of the reclassification.

JOBS Act Accounting Election

Effective December 31, 2020, we are no longer an “emerging growth company” within the meaning of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”).

The JOBS Act allows an emerging growth company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

Prior to December 31, 2020, we had elected to use this extended transition period and, as a result, our financial statements may not be comparable to companies that comply with public company effective dates.

We can no longer take advantage of this extended transition period.

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

Cash and Cash Equivalents

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Cash and cash equivalents primarily consist of bank deposits and investments in money market funds.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Restricted Cash

We are required to maintain certain balances under lease arrangements for our property and facility leases.

We had restricted cash of $ 2.1 million and $ 0.1 million as of December 31, 2019 and 2018, respectively.

We are required to maintain certain balances under lease arrangements for some of our property and facility leases.

We had restricted cash of $ 2.1 million as of December 31, 2020 and 2019.

Investments in Marketable Securities

Marketable securities are classified as available-for-sale and primarily consist of U.S.

government debt securities, U.S.

government agency securities, commercial paper and corporate bonds, and are reported at fair value.

Unrealized holding gains and losses are reflected as a separate component of shareholders’ equity (deficit) in accumulated other comprehensive gain (loss) until realized.

Marketable securities are classified as available-for-sale, primarily consist of U.S.

government debt securities, commercial paper and corporate bonds and are reported at fair value.

Unrealized holding gains and losses are reflected as a separate component of shareholders’ (deficit) equity in accumulated other comprehensive (loss) gain until realized.

Realized gains and losses on the sale of these securities are recognized in net income or loss.

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government agency securities, commercial paper and corporate bonds with high-quality accredited financial institutions.

Significant customers are those which represent more than 10% of our total revenue or accounts receivable, net balances for the periods and as of each balance sheet date presented, respectively.

Significant customers are those that represent more than 10% of our total revenue or accounts receivable, net balances for the periods and as of each balance sheet date presented, respectively.

Revenue from these customers reflects their purchase of our products and services and our collaboration efforts with Genentech.

For each significant customer, revenue as a percentage of total revenue for the periods presented and accounts receivable, net as a percentage of total accounts receivable, net as of the periods presented were as follows:

Accounts Receivable, Net

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Genentech, Inc.

and Roche Group

* less than 10%

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Accounts receivable consists of amounts due from customers for services performed.

We review our accounts receivable regularly by analyzing the status of significant past due receivables to determine if any receivable will potentially be uncollectible and to estimate the amount of allowance for doubtful accounts necessary to reduce accounts receivable to its estimated net realizable value.

We review our accounts receivable for credit impairment and regularly analyze the status of significant past due receivables to determine if any will potentially be uncollectible to estimate the amount of allowance necessary to reduce accounts receivable to its estimated net realizable value.

Additionally, we had $ 0.9 million and $ 2.4 million of unbilled receivables as of December 31, 2020 and 2019, respectively.

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We periodically perform obsolescence assessments and write off any inventory that is no longer usable.

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

Property and Equipment

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Maintenance and repairs are charged to expense as incurred and costs of improvements are capitalized.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Useful lives assigned to property and equipment are as follows:

Laboratory equipment

3 years to 7 years

Leasehold improvements

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Furniture and office equipment

5 to 10 years

5 years to 10 years

We review long-lived assets for impairment whenever events or circumstances indicate the carrying amount of an asset group may not be recoverable.

Gains and losses from asset disposals and impairment losses are classified within the statements of operations in accordance with the use of the asset.

Gains and losses from asset disposals and impairment losses are classified within our statements of operations in accordance with the use of the asset.

Goodwill represents the excess of the purchase price over the net amount of identifiable assets acquired and liabilities assumed in a business combination measured at fair value.

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We have no t recognized any impairment losses on intangible assets.

Restructuring

We recognize a liability for costs associated with an exit or disposal activity under a restructuring project when the plan has been finalized.

Employee termination benefits considered as post-employment benefits are accrued when the obligation is probable and estimable, such as benefits stipulated by human resource policies and practices or statutory requirements.

One-time termination benefits are recognized at the date the employee is notified.

If the employee must provide future service greater than 60 days, such benefits are recognized ratably over the future service period.

Asset impairments associated with a restructuring project are determined at the asset group level.

An impairment may be recognized for assets that are to be abandoned or are to be sold for less than net book value.

We may also recognize impairment on an asset group, which is held and used, when the carrying value is not recoverable and exceeds the asset group’s fair value.

If the sale of an asset group under a restructuring project results in proceeds that exceed the net book value of the asset group, the resulting gain is recognized within restructuring expense in the statements of operations.

On June 17, 2016, we announced that we were consolidating our South San Francisco, California laboratory operations into our Seattle, Washington location to recognize cost savings.

The transition of activities was completed in April 2017.

Operating Lease Arrangements

We have operating lease agreements for the laboratory and office facilities that we occupy.

Rent expense is recognized on a straight-line basis over the terms of the leases.

Incentives granted under our facilities leases, including rent holidays, are capitalized and are recognized as adjustments to rent expense on a straight-line basis over the terms of the leases.

Lease Financing Arrangements

Due to our significant involvement during the construction process of a leased building, we qualify as the deemed owner of the building under build-to-suit lease accounting guidance.

The cost of the related building is recorded in property and equipment, net and the offsetting lease financing obligation is recorded as a long-term financing obligation on our balance sheet.

As of December 31, 2019, $ 36.6 million of building costs have been recorded in property and equipment, net.

We determine if an arrangement contains a lease at inception.

We have operating lease agreements for the laboratory and office facilities that we occupy, as well as server space.

Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized at the date the underlying asset becomes available for our use and are based on the present value of the future minimum lease payments over the lease term.

ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received.

As our leases generally do not provide an implicit interest rate, the present value of our future minimum lease payments is determined using our incremental borrowing rate.

This rate is an estimate of the collateralized borrowing rate we would incur on our future lease payments over a similar term and is based on the information available to us at the lease commencement date, or as of January 1, 2020 for commenced leases that existed as of our adoption of the new lease standard, discussed in more detail below.

Certain of our leases contain options to extend or terminate the lease;

lease terms are adjusted for these options only when it is reasonably certain we will exercise these options.

Our lease agreements do not contain residual value guarantees or covenants.

We have made a policy election regarding our real estate leases not to separate nonlease components from lease components, to the extent they are fixed.

Nonlease components that are not fixed are expensed as incurred as variable lease expense.

Our leases for laboratory and office facilities typically include variable nonlease components, such as common-area maintenance costs.

We have also elected not to record on the balance sheet a lease that has a lease term of twelve months or less and does not contain a purchase option that we are reasonably certain to exercise.

Lease expense is recognized on a straight-line basis over the terms of the leases.

Incentives granted under our facilities leases, including rent holidays, are recognized as adjustments to lease expense on a straight-line basis over the terms of the leases.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Notes to Financial Statements (Continued)

Lease Financing Arrangements

In 2019, due to our significant involvement during the construction process of a leased building, we qualified as the deemed owner of the building under build-to-suit lease accounting guidance.

Prior to our adoption of the new lease standard, the cost of the related building was recorded in property and equipment, net and the offsetting lease financing obligation was recorded as a long-term financing obligation on our balance sheet.

As of December 31, 2019, $ 36.6 million of building costs was recorded in property and equipment, net.

Fair Value of Financial Instruments

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Upon certain change in control events that were outside of our control, including liquidation, sale or transfer of control, holders of the convertible preferred stock may have caused its redemption.

Prior to conversion, the warrant was subject to remeasurement at each balance sheet date, with changes in estimated fair value recognized as a component of interest and other income, net on the statements of operations.

During the year ended December 31, 2019, we recognized $ 2.3 million of expense related to the revaluation of the convertible preferred stock warrant liability in the interest and other income, net line item on our statements of operations.

When the convertible preferred stock warrant converted to a common stock warrant immediately prior to and in connection with the completion of the initial public offering, the $ 2.6 million financial liability was reclassified to the additional paid-in capital line item on our December 31, 2019 balance sheet, thereby concluding the need for revaluation.

When the convertible preferred stock warrant converted to a common stock warrant immediately prior to and in connection with the completion of the initial public offering, the $ 2.6 million financial liability was reclassified to the additional paid-in capital line item on our balance sheet, thereby concluding the need for revaluation.

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”), Revenue from Contracts with Customers .

We recognize revenue in accordance with ASC Topic 606 (“ASC 606”), Revenue from Contracts with Customers .

Under ASC 606, for all revenue-generating contracts, we perform the following steps to determine the amount of revenue to be recognized:

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The following is a summary of the application of the respective model to each of our revenue classifications.

Our revenue is generated from immunosequencing (“sequencing”) products and services (“sequencing revenue”) and from regulatory or development support services leveraging our immune medicine platform (“development revenue”).

When revenue generating contracts have elements of both sequencing revenue and development revenue, we allocate revenue based on the nature of the performance obligation and the allocated transaction price.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Notes to Financial Statements (Continued)

When revenue generating contracts have elements of both sequencing revenue and development revenue, we classify revenue based on the nature of the performance obligation and the allocated transaction price.

Sequencing Revenue

Sequencing revenue reflects the amounts generated from providing sequencing services and testing through our immunoSEQ and clonoSEQ products and services to our research and clinical customers, respectively.

For research customers, contracts typically include an amount billed in advance of services (“upfront”), and subsequent billings as sample results are delivered to the customer.

Upfront amounts received are recorded as deferred revenue, which we recognize as revenue upon satisfaction of performance obligations.

We have identified two typical performance obligations under the terms of our research service contracts:

sequencing services and related data analysis.

We recognize revenue for both identified performance obligations as sample results are delivered to the customer.

For other research customers who choose to purchase a research use only kit, the kits are sold on a price per kit basis with amounts payable upon delivery of the kit.

Payments received are recorded as deferred revenue.

For these customers, we have identified one performance obligation:

the delivery of sample results.

We recognize revenue as the results are delivered to the customer based on a proportion of the estimated samples that can be reported on for each kit.

For clinical customers, we derive revenues from providing our clonoSEQ test report to ordering physicians, and we bill and receive payments from commercial third-party payors and medical institutions.

Sequencing revenue reflects the amounts generated from providing sequencing services and testing through our clonoSEQ and immunoSEQ products and services to our clinical and research customers, respectively.

For clinical customers, we derive revenues from providing our clonoSEQ test report to ordering physicians, and we bill and receive payments from medical institutions and commercial and government third-party payors.

In these transactions, we have identified one performance obligation:

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The estimate of transaction price is based on historical and expected reimbursement rates with the various payors, which are monitored in subsequent periods and adjusted as necessary based on actual collection experience.

In January 2019, clonoSEQ received Medicare coverage aligned with the FDA label and National Comprehensive Cancer Network (“NCCN”) guidelines for longitudinal monitoring in multiple myeloma (“MM”) and B cell acute lymphoblastic leukemia (“ALL”).

We bill Medicare for an episode of treatment when we deliver the first eligible test results.

For our clonoSEQ coverage under Medicare, we bill an episode of treatment when we deliver the first eligible test results.

This billing contemplates all necessary tests required during a patient’s treatment cycle, which is currently estimated at approximately four tests per patient, including the initial sequence identification test.

Revenue is recognized at the time the initial billable test result is delivered and is based upon cumulative tests delivered to date.

Revenue recognition commences at the time the initial billable test result is delivered and is based upon cumulative tests delivered to date.

We estimate the number of tests we expect to deliver over a patient’s treatment cycle based on historical testing frequencies for patients by indication.

These estimates are subject to change as we develop more information about utilization over time.

During the year ended December 31, 2019, we recognized $ 1.6 million relating to the coverage policy;

$ 0.4 million of this revenue was related to tests delivered in periods prior to the year ended December 31, 2019.

Any unrecognized revenue from the initial billable test is recorded as deferred revenue and is recognized as we deliver the remaining tests in a patient’s treatment cycle.

Any unrecognized revenue from the initial billable test is recorded as deferred revenue and is recognized as we deliver the remaining tests in a patient’s treatment cycle or when it becomes remote that a patient will receive additional testing and we have not delivered our estimate of total tests.

For research customers, contracts typically include an amount billed in advance of services (“upfront”) and subsequent billings as sample results are delivered to the customer.

Upfront amounts received are recorded as deferred revenue, which we recognize as revenue upon satisfaction of performance obligations.

We have identified two typical performance obligations under the terms of our research service contracts:

sequencing services and related data analysis.

We recognize revenue for both identified performance obligations as sample results are delivered to the customer.

Development Revenue

We derive revenue by providing services through development agreements to biopharmaceutical customers who seek access to our immune medicine platform technologies.

We generate revenues from the delivery of professional support activities pertaining to the use of our proprietary immunoSEQ and clonoSEQ services in the development of the respective customers’ initiatives.

We generate revenues from the delivery of professional support activities pertaining to the use of immunoSEQ and our MRD product in the development of the respective customers’ initiatives.

The transaction price for these contracts may consist of a combination of non-refundable upfront fees, separately priced sequencing fees, progress-based milestones and regulatory milestones.

The development agreements may include single or multiple performance obligations, depending on the contract.

For certain contracts, we may perform services to support the biopharmaceutical customers’ regulatory submission as part of their registrational trials.

For certain contracts, we may perform services to support the biopharmaceutical customers’ regulatory submissions as part of their registrational trials.

These services include regulatory support pertaining to our technology intended to be utilized as part of the submission, development of analytical plans for our sequencing data, participation on joint research committees and assistance in completing a regulatory submission.

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Determining whether regulatory milestone payments are probable is an area that requires significant judgment.

In making this assessment, we evaluate scientific, clinical, regulatory and other risks that must be managed, as well as the level of effort and investment required to achieve the respective milestone.

In making this assessment, we evaluate scientific, clinical, regulatory and other risks, as well as the level of effort and investment required to achieve the respective milestone.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Notes to Financial Statements (Continued)

The primary method used to estimate standalone selling price for performance obligations is the adjusted market assessment approach.

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Selecting the measure of progress and estimating progress to date requires significant judgment.

Deferred Offering Costs

Deferred offering costs consist of fees and expenses incurred in connection with the sale of our common stock in the initial public offering , including legal, accounting, printing and other initial public offering -related costs.

Prior to the completion of our initial public offering , deferred offering costs were presented in the restricted cash and other assets line item on our balance sheets.

In connection with and as of the closing of our initial public offering , these costs were reclassified to additional paid-in capital, representing a reduction to the initial public offering proceeds.

As of December 31, 2019, $ 5.0 million of these initial public offering -related costs are included in the additional paid-in capital line item on our balance sheet.

Contract Balances

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Share-Based Compensation

Share-based compensation includes compensation expense for stock option and restricted stock unit (“RSU”) grants to employees and non-employees.

Share-based compensation includes compensation expense for stock option and restricted stock unit grants to employees and non-employees.

It represents the grant date fair value of the grants and is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of actual forfeitures.

We estimate the fair value of stock option grants using the Black-Scholes option-pricing model.

We estimate the grant date fair value of stock option grants using the Black-Scholes option-pricing model.

Advertising costs are expensed as incurred.

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Research and Development Expenses

Research and development expenses are comprised of laboratory materials costs, personnel-related expenses, allocated facility costs, information technology and contract service expenses.

Research and development expenses are comprised of laboratory materials costs, personnel-related expenses, equipment costs, allocated facility costs, information technology expenses and contract service expenses.

We also include in research and development expenses the costs associated with software development of applications to support future commercial opportunities, as well as development activities to support laboratory scaling and workflow.

Research and development costs are expensed as incurred.

Upfront payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized, then are recognized as an expense as the goods are consumed or the related services are performed.

Costs to support our Genentech Agreement are a component of our research and development activities.

Sales and Marketing Expenses

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Adaptive Biotechnologies Corporation

Notes to Financial Statements

Notes to Financial Statements (Continued)

Income taxes are accounted for under the liability method.

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Our net deferred tax assets are fully offset by a valuation allowance, because of our history of losses.

We recognize interest and penalties related to income tax matters as a component of tax expense.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained upon examination.

Net Loss Per Share Attributable to Common Shareholders

We calculate our basic and diluted net loss per share attributable to common shareholders in conformity with the two-class method required for companies with participating securities.

Prior to the conversion of our convertible preferred stock into common stock in connection with our initial public offering, we considered our convertible preferred stock to be participating securities.

In the event a dividend is declared or paid on common stock, holders of convertible preferred stock were entitled to a share of such dividend in proportion to the holders of common stock on an as-if converted basis.

We calculate basic net loss per share attributable to common shareholders by dividing the net loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding for the period.

The diluted net loss per share attributable to common shareholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period determined using the treasury stock method.

For purposes of this calculation, common stock warrants, stock options and nonvested restricted stock units are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common shareholders, as their effect is anti-dilutive.

Prior to the closing of our initial public offering in July 2019 and the related conversion of our convertible preferred stock into common stock, we calculated our basic and diluted net loss per share attributable to common shareholders in conformity with the two-class method required for companies with participating securities.

We considered our convertible preferred stock to be participating securities.

In the event a dividend had been declared or paid on common stock, holders of convertible preferred stock would have been entitled to a share of such dividend in proportion to the holders of common stock on an as-if converted basis.

Under the two-class method, basic net loss per share attributable to common shareholders is calculated by dividing the net loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding for the period.

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The net loss attributable to common shareholders was not allocated to the convertible preferred stock under the two-class method, as the convertible preferred stock did not have a contractual obligation to share in our losses.

For purposes of this calculation, convertible preferred stock, common stock warrants and stock options are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common shareholders, as their effect is anti-dilutive.

The diluted net loss per share attributable to common shareholders was computed by giving effect to all potential dilutive common stock equivalents outstanding for the period determined using the treasury stock method.

For purposes of this calculation, convertible preferred stock, convertible preferred stock warrants, common stock warrants and stock options were considered common stock equivalents but were excluded from the calculation of diluted net loss per share attributable to common shareholders, as their effect was anti-dilutive.

Segment Information

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Recently Ad opted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-09, Compensation—Stock Compensation (Topic 718), intended to simplify the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows.

This guidance also allowed for an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur.

We adopted this guidance as of January 1, 2018 and elected to account for forfeitures as they occur.

We utilized a modified retrospective transition method, recorded the cumulative impact of applying this guidance and recognized a cumulative increase to additional paid-in capital and an increase to accumulated deficit of $ 0.1 million.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles—Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment , intended to simplify the goodwill impairment test.

Under the new guidance, goodwill impairment is measured by the amount by which the carrying value of a reporting unit exceeds its fair value, without exceeding the carrying amount of goodwill allocated to that reporting unit.

This guidance is effective January 1, 2022 and is required to be adopted on a prospective basis, with early adoption permitted.

We adopted this guidance as of January 1, 2018 and the adoption did not have any impact on our financial statements.

In June 2018, the FASB issued ASU 2018-07, C ompensation—Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting , which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.

The guidance is effective for us beginning in 2019, with early adoption permitted.

We adopted the guidance effective January 1, 2019 and the adoption did not have any impact on our financial statements.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) (“ASC 842”), intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheets and disclosing key information about leasing arrangements.

We adopted the guidance effective January 1, 2020 using the optional transition method described in ASU 2018-11 , Leases (Topic 842) Targeted Improvements .

Under the optional transition method, we recognized a cumulative-effect adjustment in the period of adoption.

Prior period amounts were not adjusted and continue to be reported in accordance with the previous accounting under ASC 840, Leases (“ASC 840”).

Adaptive Biotechnologies Corporation

Notes to Financial Statements

New Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842), intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheets and disclosing key information about leasing arrangements.

This guidance is effective for us in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

We have the transition option of retrospectively adjusting prior periods presented or adopting with a cumulative adjustment to retained earnings on the date of adoption.

Although we are currently determining the incremental borrowing rate to use and evaluating the impact that adopting this guidance will have on our financial statements, we expect to recognize the right-of-use assets and related lease liabilities related to our operating leases on the balance sheets, which will be based largely on the present value of future minimum lease payments of approximately $ 54.1 million, excluding our to-be-constructed building lease.

Additionally, assuming we do not control the leased building currently being constructed at the date of adoption, we will derecognize the existing asset and liability created in accordance with build-to-suit lease accounting guidance under ASC 840, Leases .

We will then classify the lease as of the lease commencement date in accordance with the adopted guidance.

Notes to Financial Statements (Continued)

In adopting the new standard, we utilized certain practical expedients available.

These practical expedients include waiving reassessment of (1) whether any expired or existing contracts are or contain leases;

(2) lease classification of expired or existing leases;

and (3) initial direct costs for existing leases.

We also elected to use hindsight in determining the lease term and in assessing impairment of our ROU assets.

Furthermore, we have made a policy decision regarding our real estate leases not to separate nonlease components from lease components, to the extent they are fixed.

We have also elected not to record on the balance sheet a lease that has a lease term of twelve months or less and does not contain a purchase option that we are reasonably certain to exercise.

The standard had a material impact on our balance sheet as of December 31, 2020, but did not have a material impact on our statements of operations or statements of cash flows.

The most significant impact was the recognition of $ 33.0 million and $ 39.7 million of operating lease ROU assets and liabilities, respectively, and the derecognition of a $ 36.6 million asset and corresponding liability previously recorded pursuant to build-to-suit lease accounting guidance under ASC 840, which resulted in an increase to retained earnings of $ 0.1 million.

The operating lease ROU assets and liabilities recorded at adoption included the derecognition of $ 7.3 million of deferred rent recognized as of December 31, 2019, as well as a $ 0.5 million reclassification of tenant incentive receivables previously recognized in the prepaid expenses and other current assets line item on our balance sheet.

See Note 10, Leases, for additional information regarding leases.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities.

The guidance is effective for us beginning in 2020, with early adoption permitted.

Although we are currently evaluating the impact that adopting this guidance prospectively will have on our financial statements, we do not expect the adoption to have a material impact on our financial statements.

The expected credit losses are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, and the net carrying value of the financial asset is presented on the balance sheet.

The guidance also amends the previous other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account, limited to the difference between a security’s amortized cost basis and its fair value.

Furthermore, the standard update removes the distinction between whether an impairment is temporary or other-than temporary.

We adopted the guidance effective January 1, 2020 .

Given the short-term nature of our accounts receivable, the adoption as it relates to trade receivables did not have a significant impact on our financial statements.

Furthermore, impairment of available-for-sale debt securities as of the adoption date was determined to be due to factors other than credit loss;

therefore, a credit allowance was not recognized.

In August 2018, the FASB issued ASU No.

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Internal-Use Software (Subtopic 350-40) to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement.

This guidance is effective for fiscal years beginning after December 15, 2019 and early adoption of the amendments in this update are permitted.

Furthermore, it can be applied either retrospectively or prospectively.

We do not expect the adoption of this guidance to have a material impact on our financial statements.

We adopted this guidance effective January 1, 2020 on a prospective basis, and the adoption did not have any impact on our financial statements.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which eliminates certain exceptions to the guidance in Accounting Standards Codification 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

Simplifying the Accounting for Income Taxes , which eliminates certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

Among other things, this guidance also clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

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Early adoption is permitted, and the guidance is to be applied prospectively, except for certain amendments.

We do not expect the adoption of this guidance to have a material impact on our financial statements.

We early adopted the guidance on January 1, 2020 and the adoption did not have a material impact on our financial statements.

We disaggregate our revenue from contracts with customers by type of service, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

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Total revenue

Translational Development Agreements

On December 18, 2015, we entered into a translational development agreement with a biopharmaceutical customer for access to certain of our oncology immunosequencing research datasets, including full-time employee support, to accelerate the customer’s preclinical, nonclinical and clinical trial testing.

Under the initial terms of the agreement, we could be entitled to up to $ 40.0 million over a period of four years , which does not include any separately negotiated research sequencing contracts.

If the biopharmaceutical customer terminates the agreement prior to the end of the initial four-year research term for any reason other than a material uncured breach by us, then the biopharmaceutical partner has agreed to pay us $ 0.8 million.

In May 2019, the agreement was subsequently amended to reduce the services provided, which in turn reduced the fourth year of eligible payments to $ 2.3 million.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Notes to Financial Statements (Continued)

Translational Development Agreement

In December 2015, we entered into a translational development agreement with a biopharmaceutical customer for access to certain of our oncology immunosequencing research datasets, including full-time employee support, to accelerate the customer’s preclinical, nonclinical and clinical trial testing.

Under the initial terms of the agreement, we could have been entitled to up to $ 40.0 million over a period of four years , which did not include any separately negotiated research sequencing contracts.

If the biopharmaceutical customer terminated the agreement prior to the end of the initial four-year research term for any reason other than a material uncured breach by us, then the biopharmaceutical partner agreed to pay us $ 0.8 million.

In May 2019, the agreement was subsequently amended to reduce the services provided, which in turn reduced the fourth year of eligible payments to $ 2.3 million.

We identified one performance obligation under this agreement, as the services were determined to be highly interrelated.

We determined that any separately negotiated sequencing contracts are not performance obligations under the contract, as the contract did not contain any material rights related to such sequencing contracts.

For the identified performance obligation, we assessed the work to be performed over the duration of the contract and determined that it is a consistent level of support throughout the period, and therefore , revenue has been recognized on a straight - line basis over the contract term.

Revenue recognized from this translational development agreement, excluding separately negotiated research sequencing contracts, was $ 2.3 million, $ 9.3 million and $ 10.0 million during the year ended December 31, 2019, 2018 and 2017, respectively.

For the identified performance obligation, we assessed the work to be performed over the duration of the contract and determined that it was a consistent level of support throughout the period, and therefore, revenue was recognized on a straight-line basis over the contract term.

Revenue recognized from this translational development agreement, excluding separately negotiated research sequencing contracts, was $ 2.3 million and $ 9.3 million during the year ended December 31, 2019 and 2018, respectively.

MRD Development Agreements

We have entered into agreements with biopharmaceutical customers to further develop and commercialize clonoSEQ and the biopharmaceutical customers’ therapeutics.

Under each of the agreements, we received or will receive non-refundable upfront payments and could receive substantial additional payments upon reaching certain progress milestones or achievement of certain regulatory milestones pertaining to the customers’ therapeutic and our clonoSEQ test.

We have entered into agreements with biopharmaceutical customers to further develop and commercialize our MRD product and the biopharmaceutical customers’ therapeutics.

Under the contracts, we identify performance obligations, which may include:

(1) obligations to provide services supporting the customer’s regulatory submission activities as they relate to our clonoSEQ test;

and (2) sequencing services for customer-provided samples for their regulatory submissions.

(1) obligations to provide services supporting the customer’s regulatory submission activities as they relate to our MRD product;

and (2) sequencing services related to customer-provided samples for their regulatory submissions.

The transaction price allocated to the respective performance obligations is estimated using an adjusted market assessment approach for the regulatory support services and a standalone selling price for the estimated immunosequencing services.

At contract inception, we fully constrained any consideration related to the regulatory milestones, as the achievement of such milestones is subject to third-party regulatory approval and the customers’ own submission decision-making.

At contract inception, we fully constrain any consideration related to the regulatory milestones, as the achievement of such milestones is subject to third-party regulatory approval and the customers’ own submission decision-making.

We recognize revenue relating to the sequencing services as sequencing revenue over time using an output method based on the proportion of sample results delivered relative to the total amount of sample results expected to be delivered and when expected to be a faithful depiction of progress.

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When an output method based on the proportion of sample results delivered is not expected to be a faithful depiction of progress, we utilize an input method based on estimates of effort completed using a cost-based model.

We earned $ 2.0 million and $ 10.0 million during the year ended December 31, 2019 and 2018, respectively, in regulatory milestones upon the achievement of regulatory milestones by us and our respective customers’ therapeutics.

We earned $ 2.5 million, $ 2.0 million and $ 10.0 million during the year ended December 31, 2020, 2019 and 2018, respectively, upon the achievement of certain regulatory milestones by us and our respective customers’ therapeutics.

All $2.5 million, $2.0 million and $10.0 million was recognized as revenue within the respective periods, as we determined these amounts were consistent with our estimated standalone selling price and the respective performance obligations were complete.

We recognized $ 3.4 million, $ 3.7 million and $ 12.8 million in development revenue related to these contracts, inclusive of the milestones, during the year ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2019, in future periods we could receive up to an additional $ 220.0 million in milestone payments if certain regulatory approvals are obtained by our customers’ therapeutics in connection with MRD data generated from our clonoSEQ test.

As of December 31, 2020, in future periods we could receive up to an additional $ 313.5 million in milestone payments if certain regulatory approvals are obtained by our customers’ therapeutics in connection with MRD data generated from our MRD product.

Genentech Collaboration Agreement

In December 2018, we entered into a worldwide collaboration and license agreement (“Genentech Agreement”) with Genentech, Inc.

(“Genentech”) to leverage our capability to develop cellular therapies in oncology.

In December 2018, we entered into a worldwide collaboration and license agreement with Genentech (“Genentech Agreement”) to leverage our capability to develop cellular therapies in oncology.

Subsequent to receipt of regulatory approval in January 2019, we received a non-refundable, upfront payment of $ 300.0 million in February 2019 and may be eligible to receive more than $ 1.8 billion over time, including payments of up to $ 75.0 million upon the achievement of specified regulatory milestones, up to $ 300.0 million upon the achievement of specified development milestones and up to $ 1,430.0 million upon the achievement of specified commercial milestones.

In addition, we are separately able to receive tiered royalties at a rate ranging from the mid-single digits to the mid-teens on aggregate worldwide net sales of products arising from the strategic collaboration, subject to certain reductions, with aggregate minimum floors.

Under the agreement, we are pursuing two product development pathways for novel T cell immunotherapies in which Genentech intends to use T cell receptors (“TCRs”) screened by our immune medicine platform to engineer and manufacture cellular medicines:

Under the agreement, we are pursuing two product development pathways for novel T cell immunotherapies in which Genentech intends to use TCRs screened by our immune medicine platform to engineer and manufacture cellular medicines:

Shared Products.

The shared products will use “off-the-shelf” TCRs identified against cancer antigens shared among patients (“Shared Products”).

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

Personalized Product.

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We determined that this arrangement meets the criteria set forth in ASC Topic 808, Collaborative Arrangements (“ASC 808”), because both parties are active participants in the activity and are exposed to significant risks and rewards depending on the activity’s commercial failure or success.

Because ASC 808 does not provide guidance on how to account for the activities under a collaborative arrangement, we applied the guidance in ASC 606 to account for the activities related to the Genentech collaboration.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

In applying ASC 606, we identified the following performance obligations at the inception of the agreement:

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We determined this was an option right of Genentech should they pursue commercialization of a Personalized Product therapy.

Because of the uncertainty as a result of the early stage of development, the novel approach of our collaboration with Genentech and our rights to future commercial milestones and royalty payments, we determined that this option right was not a material right that should be accounted for at inception.

Because of the uncertainty resulting from the early stage of development, the novel approach of our collaboration with Genentech and our rights to future commercial milestones and royalty payments, we determined that this option right was not a material right that should be accounted for at inception.

As such, we will account for the supply and manufacturing agreement when entered into between the parties.

We determined the initial transaction price shall be made up of only the $ 300.0 million upfront, non-refundable payment, as all potential regulatory and development milestone payments were probable of significant revenue reversal since their achievement was highly dependent on factors outside our control.

We determined the initial transaction price shall be made up of only the $ 300.0 million upfront, non-refundable payment, as all potential regulatory and development milestone payments were probable of significant revenue reversal given their achievement was highly dependent on factors outside our control.

As a result, these payments were fully constrained and were not included in the transaction price as of December 31, 2020.

We excluded the commercial milestones and potential royalties from the transaction price, as those items relate predominantly to the license rights granted to Genentech and will be assessed when and if such events occur.

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

As there are potential substantive developments necessary, which Genentech may be able to direct, we determined that we would apply a proportional performance model to recognize revenue for our performance obligation.

We measure proportional performance using an input method based on costs incurred relative to the total estimated costs of research and development efforts to pursue both the Shared Product and Personalized Product pathways.

When any of the potential regulatory and development milestones are no longer fully constrained and included in the transaction price, such amounts will be recognized using the cumulative catch-up method based on proportional performance at such time.

We currently expect to recognize the revenue over a period of approximately seven to eight years from the effective date.

This estimate of the research and development period considers pursuit options of development activities supporting both the Shared Product and the Personalized Product, but may be reduced or increased based on the various activities as directed by the joint committees, decisions made by Genentech, regulatory feedback or other factors not currently known.

We recognized revenue of $ 35.1 million during the year ended December 31, 2019 related to the Genentech collaboration.

Costs related to the Genentech collaboration are included in research and development expenses.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

We recognized revenue of $ 52.8 million and $ 35.1 million during the year ended December 31, 2020 and 2019, respectively, related to the Genentech Agreement.

Costs related to the Genentech Agreement are included in research and development expenses.

Fair Value Measurements

The following tables set forth the fair value of financial assets and liabilities as of December 31, 2019 and 2018 that were measured at fair value on a recurring basis (in thousands):

The following tables set forth the fair value of financial assets as of December 31, 2020 and 2019 that were measured at fair value on a recurring basis (in thousands):

December 31, 2020

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Money market funds

Commercial paper

government debt and agency securities

government debt securities

Corporate bonds

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Commercial paper

government debt and agency securities

government debt securities

Corporate bonds

Total financial assets

Financial liabilities

Convertible preferred stock warrant liability

Total financial liabilities

Level 1 securities include highly liquid money market funds, which we measure the fair value based on quoted prices in active markets for identical assets or liabilities.

Level 1 securities include highly liquid money market funds, for which we measure the fair value based on quoted prices in active markets for identical assets or liabilities.

Level 2 securities consist of U.S.

government debt securities, U.S.

government agency securities, commercial paper and corporate bonds, and are valued based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.

Level 3 liabilities that were measured at fair value on a recurring basis consisted of a convertible preferred stock warrant liability.

The fair value of the convertible preferred stock warrant liability was last calculated as of June 30, 2019, prior to reclassification to shareholders’ equity in connection with the completion of our initial public offering on July 1, 2019.

The fair value was estimated using the Black-Scholes option-pricing model with the following inputs:

(1) a fair value estimate of $ 48.30 , (2) an expected term of 1.8 years, (3) a risk-free interest rate of 1.8 %, (4) an expected volatility of 61.1 % and (5) an expected dividend yield of zero .

As of December 31, 2018, the fair value of the convertible preferred stock warrant liability was estimated using the Black-Scholes option-pricing model with the following inputs:

December 31, 2018

Fair value estimate

Expected term (in years)

Risk-free interest rate

Expected volatility

Expected dividend yield

government debt securities, commercial paper and corporate bonds, and are valued based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Notes to Financial Statements (Continued)

Available-for-sale investments consisted of the following as of December 31, 2020 and 2019 (in thousands):

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Short-term marketable securities

Commercial paper

government debt and agency securities

government debt securities

Corporate bonds

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Long-term marketable securities

government debt and agency securities

Corporate bonds

government debt securities

Total long-term marketable securities

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Commercial paper

government debt and agency securities

government debt securities

Corporate bonds

Total short-term marketable securities

Long-term marketable securities

government debt securities

Corporate bonds

Total long-term marketable securities

All the commercial paper, U.S.

government debt and agency securities and corporate bonds designated as short-term marketable securities have an effective maturity date that is less than one year from the respective balance sheet date.

government debt securities and corporate bonds designated as short-term marketable securities have an effective maturity date that is equal to or less than one year from the respective balance sheet date.

Those that are designated as long-term marketable securities have an effective maturity date that is more than one year from the respective balance sheet date.

Accrued interest receivables are excluded from the amortized cost and estimated fair value of our marketable securities.

Accrued interest receivables of $ 2.5 million and $ 2.2 million were presented separately within the prepaid expenses and other current assets line item on our balance sheet as of December 31, 2020 and 2019, respectively.

We have made an accounting policy election to not measure an allowance for credit losses for accrued interest receivables.

The following table presents the gross unrealized holding losses and fair value for investments in an unrealized loss position and the length of time that individual securities have been in a continuous loss position as of December 31, 2020 (in thousands):

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12 Months Or Greater

government debt and agency securities

government debt securities

Corporate bonds

Total available-for-sale securities

We evaluated our securities for other-than-temporary impairment and considered the decline in market value for the securities to be primarily attributable to current economic and market conditions.

It is not more likely than not that we will be required to sell the securities, and we do not intend to do so prior to the recovery of the amortized cost basis.

Based on this analysis, these marketable securities were not considered to be other-than-temporarily impaired as of December 31, 2019.

We periodically review our available-for-sale securities to assess for credit impairment.

Some of the factors considered in assessing impairment include the extent to which the fair value is less than the amortized cost basis, adverse conditions related to the security, an industry or geographic area, changes to security ratings or sector credit ratings and other relevant market data.

As of December 31, 2020, we did not intend, nor were we more likely than not to be required, to sell our available-for-sale investments before the recovery of their amortized cost basis, which may be maturity.

Based on our assessment, we concluded all impairment as of December 31, 2020 to be due to factors other than credit loss, such as changes in interest rates.

A credit allowance was not recognized and the impairment of our available-for-sale securities was recorded in other comprehensive loss.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Notes to Financial Statements (Continued)

Property and Equipment, Net

Property and equipment as of December 31, 2019 and 2018 consisted of the following (in thousands):

Property and equipment, net as of December 31, 2020 and 2019 consisted of the following (in thousands):

Laboratory equipment

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Property and equipment, net

Depreciation expense was $ 6.1 million, $ 4.3 million and $ 4.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Depreciation expense was $ 6.8 million, $ 6.1 million and $ 4.3 million for the year ended December 31, 2020, 2019 and 2018, respectively.

Goodwill and Intangible Assets

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Balance at December 31, 2019

The developed technology was acquired in connection with our acquisition of Sequenta, Inc.

(“Sequenta”) in 2015.

The developed technology was acquired in connection with our acquisition of Sequenta in 2015.

The remaining balance of the acquired technology and the purchased intellectual property is expected to be amortized over the next 6.0 years.

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Adaptive Biotechnologies Corporation

Notes to Financial Statements

Notes to Financial Statements (Continued)

Accrued Liabilities

Accrued liabilities as of December 31, 2020 and 2019 consisted of the following (in thousands):

Accrued legal and professional fees

Accrued royalties

Accrued travel and entertainment

Accrued tax liabilities

Professional fees

Clinical and contract research organization costs

Travel and entertainment

Tax liabilities

Purchases of property and equipment

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The accrued tax liabilities balance as of December 31, 2020 includes a $ 1.4 million tax withholding liability related to unsettled option exercises as of December 31, 2020.

The accrued tax liabilities balance as of December 31, 2019 includes a $ 1.9 million tax withholding liability related to unsettled option exercises as of December 31, 2019.

Deferred Revenue

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Total current and non-current deferred revenue

Genentech deferred revenue represents $ 48.1 million and $ 216.8 million of the current and non-current development deferred revenue balances, respectively, at December 31, 2019.

In general, the current amounts will be recognized as revenue within 12 months and the non-current amounts will be recognized as revenue over a period of approximately seven to eight years .

Deferred revenue from our Genentech Agreement represents $ 55.1 million and $ 157.0 million of the current and non-current development deferred revenue balances, respectively, as of December 31, 2020 and $ 48.1 million and $ 216.8 million of the current and non-current development deferred revenue balances, respectively, as of December 31, 2019.

In general, we expect that the current amounts will be recognized as revenue within 12 months and the non-current amounts will be recognized as revenue over a period of approximately six to seven years .

This period of time represents an estimate of the research and development period to develop cellular therapies in oncology, which may be reduced or increased based on the various development activities.

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Deferred revenue balance at December 31, 2020

As of December 31, 2019, $ 8.5 million was recognized that was included in the deferred revenue balance at December 31, 2018.

As a result of cancelled customer sequencing contracts, we recognized $ 1.9 million of sequencing revenue during the year ended December 31, 2019.

Commitments and Contingencies

Operating Leases

We have entered into various non-cancelable lease agreements for our office and laboratory spaces.

As of December 31, 2020, $ 61.6 million was recognized as revenue that was included in the deferred revenue balance at December 31, 2019.

This is inclusive of $ 1.0 million of sequencing revenue recognized as a result of cancelled biopharmaceutical customer sequencing contracts and $ 0.6 million of sequencing revenue related to Medicare that was recognized due to our determination that additional testing for specific patients was remote.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Notes to Financial Statements (Continued)

We have operating lease agreements for the laboratory and office facilities that we occupy in various locations, as well as server space.

In July 2011, we entered into a non-cancelable lease agreement with an, at the time, minority shareholder for our current headquarters in Seattle, Washington.

The lease terms were subsequently amended multiple times, most recently in August 2019, when we expanded the existing premises.

Rent obligations of the expanded premises commence four months after the landlord delivers the expanded premises to us for construction of certain tenant improvements, and the lease term for both the existing premises and the expanded premises ends 142 months after the commencement date of the new lease mentioned below, subject to our option to twice extend the lease for five years.

If the new lease mentioned below does not commence, the lease term for the existing premises and the expanded premises ends March 31, 2024 .

The lease terms were subsequently amended multiple times, most recently in August 2019, when we expanded the existing premises to approximately 65,500 square feet.

Cash payment for rent of the expanded premises commenced January 2020 , four months after the landlord delivered the expanded premises to us for construction of certain tenant improvements, and the lease term for both the existing premises and the expanded premises ends October 2032, subject to our option to twice extend the lease for five years .

The amended lease also requires us to pay additional amounts for operating and maintenance expenses.

In August 2019, we entered into an operating lease to rent 100,000 square feet in a to-be-constructed building in Seattle, Washington.

Shell construction is expected to be completed in 2020.

The lease term commences on the date that the landlord delivers the premises to us for construction of certain tenant improvements.

Rent obligations commence 10 months thereafter, and the lease term ends 142 months from the date rent commences, subject to our option to twice extend the lease for five years .

The lease is cancellable under certain circumstances if the landlord fails to deliver the premises to us by May 1, 2021.

In August 2019, we entered into an agreement to rent approximately 100,000 square feet in a to-be-constructed building in Seattle, Washington.

In connection with the lease, we entered into a $ 2.1 million letter of credit with one of our existing financial institutions.

Due to our significant involvement during the construction process of the leased building, we qualified as the deemed owner of the building under build-to-suit lease accounting guidance that proceeded ASC 842.

The resulting asset and long-term financing obligation recorded on our balance sheet as of December 31, 2019 for the cost of the building was derecognized upon adoption of ASC 842.

The lease commenced in December 2020 , when the landlord delivered the premises to us for construction of certain tenant improvements.

Cash payment for rent begins in October 2021 and the lease term ends in August 2033 , subject to our option to twice extend the lease for five years .

We plan to occupy the new building in 2021, once interior construction is finished.

In connection with the lease, the landlord agreed to fund $ 20.0 million in improvements.

In connection with this lease, the landlord agreed to fund $ 20.0 million in improvements, which was subsequently reduced to $ 14.8 million as a result of our change requests made during landlord construction of the building, net of an administration fee.

As of December 31, 2020, w e have incurred $ 5.2 million in certain tenant improvement costs, of which $ 0.7 million has been reimbursed by the landlord.

The remaining $ 4.5 million is presented as a reduction in the cash flows used to measure our ROU asset and lease liabilities on our balance sheet as of December 31, 2020 and will be reimbursed by the landlord.

The lease also requires us to pay additional amounts for operating and maintenance expenses.

Furthermore, in connection with the lease, we entered into a letter of credit of $ 2.1 million with one of our existing financial institutions.

In October 2019, we entered into an agreement to lease approximately 14,750 square feet in a separate Seattle, Washington location, pursuant to a lease expiring in October 2029, which is subject to our ability to exercise an early termination right after the third year.

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The lease also requires us to pay additional amounts for operating expenses.

In October 2016, we entered into an agreement to sublease certain laboratory and office space in South San Francisco, California.

The lease commenced in October 2016 and terminated in March 2019.

The lease required us to pay additional amounts for operating and maintenance expenses.

In April 2018, we entered into a lease agreement to lease space in South San Francisco, California.

The lease term is through March 2026 and provides for one five-year option.

We will be responsible for our share of allocable operating expenses, tax expenses and utilities cost during the duration of the lease term.

In connection with the lease, the landlord funded agreed-upon improvements prior to the lease commencement date of December 12, 2018.

The landlord was solely responsible for the $ 2.4 million cost of such improvements, which we recognized as a leasehold improvement asset that depreciates beginning from the commencement date of the initial lease term, and a corresponding leasehold incentive obligation, which is amortized over the life of the lease.

As of December 31, 2019, future minimum lease payments, exclusive of operating and maintenance costs and inclusive of payments to be made under the financing obligation, were as follows (in thousands):

Total future minimum lease payments

Rent expenses, inclusive of operating and maintenance costs, were $ 5.3 million, $ 4.1 million and $ 3.7 million during the year ended December 31, 2019, 2018 and 2017, respectively.

In April 2018, we entered into a lease agreement to lease approximately 13,400 square feet in South San Francisco, California.

The lease term is through March 2026 and provides for one five-year extension option.

We are responsible for our share of allocable operating expenses, tax expenses and utilities cost during the duration of the lease term.

In connection with the lease, the landlord funded agreed-upon improvements.

The landlord was solely responsible for the $ 2.4 million cost of such improvements.

The lease agreement was amended in February 2020 to lease approximately 19,900 additional square feet and provides for a $ 0.6 million tenant improvement allowance.

In December 2019, we entered into an agreement to lease approximately 3,100 square feet of office space in New York City, New York, pursuant to a lease that expires November 2025 , subject to our ability to exercise an early termination right in 2023.

As of December 31, 2020, we were not party to any finance leases.

Our leases have remaining terms of 1.3 years to 12.7 years and include options to extend certain of the leases up to 10.0 years and terminate certain of the leases after 3.0 years.

We adjust lease terms for these options only when it is reasonably certain we will exercise these options.

As of December 31, 2020, it was reasonably certain that we would exercise our option to terminate two of our leases after 3.0 years .

Other information related to our operating leases as of December 31, 2020 was as follows:

Weighted-average remaining lease term (in years)

Weighted-average discount rate

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

The following table reconciles our undiscounted operating lease cash flows to our operating lease liabilities as of December 31, 2020 (in thousands):

Total undiscounted lease payments

Imputed interest rate

Tenant improvement receivables

Total operating lease liabilities

current portion

Operating lease liabilities, less current portion

Operating lease expense was $ 5.5 million for the year ended December 31, 2020.

Variable lease expense for operating leases was $ 2.6 million for the year ended December 31, 2020.

Rent expense recognized under ASC 840, inclusive of operating and maintenance costs, was $ 5.3 million and $ 4.1 million for the year ended December 31, 2019 and 2018, respectively.

Cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2020 was $ 3.2 million, net of $ 2.5 million of cash received for tenant improvement allowances.

For the year ended December 31, 2020, ROU assets obtained in exchange for operating lease liabilities was $ 109.1 million, inclusive of the $ 33.0 million recognized from the adoption of ASC 842.

Commitments and Contingencies

Legal Proceedings

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If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued.

We are not currently party to any material legal proceedings.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

We are not party to any material legal proceedings as of December 31, 2020.

Indemnification Agreements

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As of December 31, 2020, no shares of preferred stock were outstanding.

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

We are authorized to issue 340,000,000 shares of common stock.

Our common stock has a par value of $ 0.0001 , no preferences or privileges and is not redeemable.

Our common stock has a par value of $ 0.0001 per share, no preferences or privileges and is not redeemable.

Holders of our common stock are entitled to one vote for each share of common stock held .

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As of December 31, 2020, we had 137,646,896 shares of common stock outstanding.

We have reserved shares of common stock for the following as of December 31, 2019:

As of December 31, 2020, w e have reserved shares of common stock for the following:

Shares issuable upon the exercise of outstanding common stock options and

the vesting of outstanding common restricted stock units granted

Shares available for future grant under the 2019 Plan

Shares available for future grant under the 2019 Equity Incentive Plan

Shares available for future grant under the Employee Stock Purchase Plan

Shares to be issued upon conversion of a common stock warrant

Shares to be issued upon exercise of a common stock warrant

Total shares of common stock reserved for future issuance

Our 2019 Plan provides for annual increases in the number of shares that may be issued under the 2019 Plan on January 1, 2020 and on each subsequent January 1, thereafter, by a number of shares equal to the lesser of (a) 5 % of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our board of directors.

Furthermore, our Employee Stock Purchase Plan (“ESPP”) provides for annual increases in the number of shares available for issuance under our ESPP on January 1, 2020 and on each January 1, thereafter, by a number of shares equal to the smallest of (a) 1.0 % of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the board of directors.

On January 1, 2020, our 2019 Plan and ESPP reserves automatically increased by 6,261,907 shares and 1,252,381 shares, respectively.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Our 2019 Equity Incentive Plan (“2019 Plan”) provides for annual increases in the number of shares that may be issued under the 2019 Plan on January 1, 2020 and on each subsequent January 1, thereafter, by a number of shares equal to the lesser of (a) 5 % of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our board of directors.

Furthermore, our Employee Stock Purchase Plan (“ESPP”) provides for annual increases in the number of shares available for issuance under our ESPP on January 1, 2020 and on each January 1, thereafter, by a number of shares equal to the smallest of (a) 1 % of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our board of directors.

Effective January 1, 2020, our 2019 Plan and ESPP reserves increased by 6,261,907 shares and 1,252,381 shares, respectively.

Effective January 1, 2021, our 2019 Plan reserve increased by 6,882,344 shares.

Common Stock Warrants

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Separately, in 2014, we issued a warrant to purchase 56,875 shares of Series C convertible preferred stock at an exercise price of $ 2.64 .

The warrant was exercisable at any time for a period of seven years from the date of issuance.

Immediately prior to and in connection with the completion of our initial public offering, this convertible preferred stock warrant, which was recorded as a financial liability, was converted to a warrant to purchase the same number of shares of common stock.

Upon conversion, the financial liability was reclassified to the additional paid-in capital line item on our December 31, 2019 balance sheet.

The warrant is exercisable for a period of seven years from the date of issuance.

Immediately prior to and in connection with the completion of our initial public offering on July 1, 2019, this convertible preferred stock warrant, which was previously recorded as a financial liability, was converted to a warrant to purchase the same number of shares of common stock.

Upon conversion, the financial liability was reclassified to the additional paid-in capital line item on our balance sheet.

The warrant to purchase 56,875 shares of common stock remains outstanding as of December 31, 2020.

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In connection with our acquisition of Sequenta in January 2015, we assumed Sequenta’s Equity Incentive Plan (“2008 Plan”), including all outstanding options and shares available for future issuance under the 2008 Plan, which, prior to the completion of our initial public offering, were all exercisable for Series E-1 convertible preferred stock.

Upon completion of our initial public offering, outstanding options are now exercisable for common stock.

While no shares are available for future issuance under this plan, the 2008 Plan continues to govern outstanding equity awards granted thereunder.

Upon completion of our initial public offering in July 2019, the outstanding options were exercisable for common stock.

No shares are available for future issuance under this plan and no equity awards are outstanding under this plan as of December 31, 2020.

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

Adaptive 2009 Equity Incentive Plan

We adopted an equity incentive plan in 2009 (“2009 Plan”) that provided for the issuance of incentive and nonqualified common stock options and other share-based awards for employees, directors and consultants.

Under the 2009 Plan, the option exercise price for incentive and nonqualified stock options were not to be less than the fair market value of our common stock at the date of grant as determined by our board of directors.

Under the 2009 Plan, the option exercise price for incentive and nonqualified stock options were not to be less than the fair market value of our common stock at the date of grant.

Options granted under this plan expire no later than ten years from the grant date and vesting was established at the time of grant.

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2019 Equity Incentive Plan

The 2019 Plan was approved by our shareholders on June 13, 2019 and, pursuant to the resolutions adopted by our board of directors, became effective with an initial reserve of 15,519,170 shares immediately prior to and contingent upon the closing of our initial public offering.

The 2019 Plan was approved by our shareholders on June 13, 2019 and, pursuant to the resolutions adopted by our board of directors, became effective immediately prior to the closing of our initial public offering.

The 2019 Plan provides for the issuance of awards in the form of options and other share-based awards for employees, directors and consultants.

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As of December 31, 2020, we have authorized 22,109,217 shares of common stock for issuance under the 2019 Plan.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Changes in shares available for grant during the year ended December 31, 2020 were as follows:

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Shares available for grant at December 31, 2019

2009 Plan reserve cancelled

2019 Plan reserve established

2019 Plan reserve increase on January 1, 2020

Options and restricted stock units granted

Options and restricted stock units forfeited or cancelled

Options forfeited, cancelled or expired

Shares available for grant at December 31, 2020

Stock option activity under the 2008 Plan, 2009 Plan and 2019 Plan during the year ended December 31, 2019, 2018 and 2017 was as follows:

Stock option activity under the 2008 Plan, 2009 Plan and 2019 Plan during the year ended December 31, 2020 was as follows:

Exercise Price

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Options forfeited or cancelled

Options exercised

Options outstanding at December 31, 2017

Options granted

Options forfeited or cancelled

Options exercised

Options outstanding at December 31, 2018

Options granted

Options forfeited or cancelled

Options expired

Options exercised

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Options vested and exercisable at December 31, 2020

The weighted-average remaining contractual life for options outstanding at December 31, 2019 was 6.8 years.

The weighted-average remaining contractual life for vested and exercisable options outstanding at December 31, 2019 was 5.5 years.

The weighted-average grant date fair value of options granted was $ 6.87 , $ 4.15 and $ 4.00 during the years ended December 31, 2019, 2018 and 2017, respectively.

The total intrinsic value of options exercised was $ 39.1 million, $ 3.8 million and $ 1.3 million during the years ended December 31, 2019, 2018 and 2017, respectively.

The weighted-average remaining contractual life for options outstanding as of December 31, 2020 was 7.1 years.

The weighted-average remaining contractual life for vested and exercisable options outstanding as of December 31, 2020 was 5.9 years.

The weighted-average grant date fair value per share of options granted was $ 21.11 , $ 6.87 and $ 4.15 during the year ended December 31, 2020, 2019 and 2018, respectively.

The total intrinsic value of options exercised was $ 190.4 million, $ 39.1 million and $ 3.8 million during the year ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020, $ 0.3 million was included in the prepaid expenses and other current assets line item on our balance sheet for unsettled cash proceeds related to options exercised during the year ended December 31, 2020.

As of December 31, 2016, there were 880,487 RSUs outstanding.

During the year ended December 31, 2017, these RSUs were forfeited due to the related employee’s termination prior to the occurrence of both a service and an event condition.

During the year ended December 31, 2019, we granted 12,810 shares of RSUs at a weighted-average grant date fair value per share of $ 41.63 ;

8,310 of those shares, with a weighted-average grant date fair value per share of $ 41.63 , vested.

As of December 31, 2019, 4,500 shares of RSUs, with a weighted-average grant date fair value per share of $ 41.63 , remain nonvested and outstanding.

For valuations of RSU grants made after the closing of our initial public offering, our board of directors determines the fair value of each share of common stock based on the closing price of our common stock on the date of grant or other relevant determination date, as reported on The Nasdaq Global Select Market.

As of December 31, 2019, $ 0.5 million was included in the prepaid expenses and other current assets line item on our balance sheet for unsettled cash proceeds related to options exercised during the year ended December 31, 2019.

The $ 21.7 million proceeds from exercise of stock options on our statements of cash flows for the year ended December 31, 2020 includes this $ 0.5 million, as the related proceeds settled during the year ended December 31, 2020.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Fair V alue of O ptions G ranted

The estimated fair value of options granted during the year ended December 31, 2019, 2018 and 2017 was estimated using the Black-Scholes option-pricing model with the following assumptions:

Notes to Financial Statements (Continued)

Restricted stock unit activity under the 2019 Plan during the year ended December 31, 2020 was as follows:

Nonvested outstanding restricted stock units at December 31, 2019

Restricted stock units granted

Restricted stock units vested

Nonvested outstanding restricted stock units at December 31, 2020

The weighted-average grant date fair value per share of restricted stock units granted during the year ended December 31, 2019 was $ 41.63 .

Grant Date Fair Value of Options and Restricted Stock Units Granted

The estimated grant date fair value of options granted during the year ended December 31, 2020, 2019 and 2018 was estimated using the Black-Scholes option-pricing model with the following assumptions:

Year Ended December 31,

Grant date fair value

Fair value of common stock

$17.68 - $55.23

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Expected dividend yield

The weighted-average volatility used in the fair value calculations of options granted during the year ended December 31, 2019, 2018 and 2017 was 68.1 %, 68.1 % and 70.2 %, respectively.

The weighted-average volatility used in the grant date fair value calculations of options granted during the year ended December 31, 2020, 2019 and 2018 was 71.4 %, 68.1 % and 68.1 %, respectively.

The determination of the fair value of stock options on the date of grant using a Black-Scholes option-pricing model is affected by the estimated fair value of our common stock, as well as assumptions regarding a number of variables that are complex, subjective and generally require significant judgment to determine.

The valuation assumptions were determined as follows:

Fair value of common stock— Prior to the closing of our initial public offering, the grant date fair value of our common stock was determined by our board of directors with input from management using valuation methodologies which utilize certain assumptions, including probability weighting of events, volatility, time to liquidation, a risk-free interest rate and an assumption for a discount for lack of marketability (Level 3 inputs).

Fair value of common stock— Prior to the closing of our initial public offering, the fair value of our common stock was determined with input from management using valuation methodologies which utilized certain assumptions, including probability weighting of events, volatility, time to liquidation, a risk-free interest rate and an assumption for a discount for lack of marketability (Level 3 inputs).

In determining the fair value of our common stock, the methodologies used to estimate the enterprise value were performed using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation .

For valuations of grants made after the closing of our initial public offering, our board of directors determines the fair value of each share of common stock based on the closing price of our common stock on the date of grant or other relevant determination date, as reported on The Nasdaq Global Select Market.

For valuations of grants made after the closing of our initial public offering, the fair value of each share of common stock is based on the closing price of our common stock on the date of grant, or other relevant determination date, as reported on The Nasdaq Global Select Market.

Expected term —The expected term of options granted to employees and non-employee directors is determined using the “simplified” method, as illustrated in ASC Topic 718, Compensation—Stock Compensation , as we do not have sufficient exercise history to determine a better estimate of expected term.

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Risk-free interest rate —We utilize a risk-free interest rate in the option valuation model based on U.S.

Treasury zero-coupon issues, with remaining terms similar to the expected term of the options.

Treasury zero-coupon issues with remaining terms similar to the expected terms of the options.

Expected volatility —As we do not have sufficient trading history for our common stock, the expected volatility is based on the historical volatility of our publicly traded industry peers utilizing a period of time consistent with our estimate of the expected term.

Expected dividend yield —We do not anticipate paying any cash dividends in the foreseeable future and, therefore, use an expected dividend yield of zero in the option valuation model.

The grant date fair value of restricted stock units granted after the closing of our initial public offering is based on the closing price of our common stock on the date of grant, or other relevant determination date, as reported on The Nasdaq Global Select Market.

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

Share-based compensation expense of $ 24.8 million , $ 13.1 million and $ 11.1 million was recognized during the year ended December 31 , 20 20 , 201 9 and 201 8 , respectively .

The compensation costs related to stock options and RSUs for the year ended December 31, 2019, 2018 and 2017, respectively, are included on our statements of operations as follows (in thousands):

The compensation costs related to stock options and restricted stock units for the years ended December 31, 2020, 2019 and 2018 are included on our statements of operations as follows (in thousands):

Year Ended December 31,

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During the year ended December 31, 2018, there was one employee option modification to extend the option exercise period, which resulted in incremental stock compensation of $ 0.5 million.

The total grant date fair value of the stock options and RSUs that vested during the years ended December 31, 2019, 2018 and 2017, excluding the impact of modifications, approximated the share-based compensation expense recorded during the respective periods.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

At December 31, 2019, unrecognized share-based compensation expense related to unvested stock options was $ 33.3 million, which is expected to be recognized over a remaining weighted-average period of 2.9 years.

Additionally, at December 31, 2019, unrecognized share-based compensation expense related to unvested RSUs was $ 0.2 million, which is expected to be recognized over a remaining weighted-average period of 0.5 years.

As of December 31, 2020, unrecognized share-based compensation expense related to unvested stock options was $ 74.9 million, which is expected to be recognized over a remaining weighted-average period of 3.0 years.

Additionally, as of December 31, 2020, unrecognized share-based compensation expense related to nonvested restricted stock units was $ 1.1 million, which is expected to be recognized over a remaining weighted-average period of 3.3 years.

Microsoft Collaboration Agreement

Summary of Agreement

In December 2017, we entered into a collaboration agreement with Microsoft Corporation (“Microsoft Agreement”) to computationally derive a comprehensive TCR antigen map for purposes of developing a universal diagnostic based on a single blood test.

In December 2017, we entered into a collaboration agreement with Microsoft (“Microsoft Agreement”) to computationally derive a comprehensive TCR antigen map for purposes of developing a universal diagnostic based on a single blood test.

Contemporaneously with the Microsoft Agreement, we entered into a separate agreement to use Microsoft’s Azure cloud services at standard volume pricing with a minimum Azure consumption requirement of $ 12.0 million over the seven-year term of the Microsoft Agreement, which we expect to meet in the ordinary course of business.

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Since the commitment to use Microsoft’s Azure cloud services was at market terms and we expect to meet the commitment in the ordinary course of business during the seven-year term, we record the expenses in the period in which the services are consumed.

These costs are recorded in the statement of operations based on the underlying activities for which they support.

These costs are recorded in our statements of operations based on the underlying activities for which they support.

The remaining elements of the agreement were highly interrelated, so we evaluated them in the aggregate to determine the appropriate accounting application.

Specifically, we determined that the transfer of license rights between the parties, our commitment to provide data and immunomics, diagnostic and bioinformatics expertise to Microsoft and Microsoft’s commitment to provide machine learning software and related development services to us were highly interrelated because they were necessary for the parties to perform the activities under the Microsoft Agreement and, therefore, should be evaluated as one unit of account.

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

We accounted for these collaboration activities by analogy to ASC Topic 845, Nonmonetary Transactions , and determined that major uncertainties exist about the realizability of the value that would be assigned to an asset received from or provided to Microsoft under the collaboration and, therefore, fair value could not be reliably measured.

As a result, we did not recognize any non-monetary assets or corresponding non-monetary income or expenses pertaining to the rights provided to us or to be received by us under the Microsoft Agreement.

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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Deferred rent

Operating lease liabilities

Deferred revenue

Total deferred tax assets

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Because of our history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

The valuation allowance increased by $ 30.2 million and $ 14.0 million during the years ended December 31, 2019 and 2018, respectively.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law, making significant changes to the Internal Revenue Code, including a decrease in the federal corporate tax rate from 35 % to 21 %.

Taxpayers are required to recognize the effect of tax law changes in the period of enactment.

The re-measurement resulted in a total decrease in these net assets equal to $ 25.0 million, which was fully offset by a corresponding reduction in the valuation allowance.

By December 31, 2018, we completed our assessment of the impact of the changes due to the TCJA and the provisional amounts recorded are final.

The valuation allowance increased by $ 96.6 million and $ 30.2 million during the year ended December 31, 2020 and 2019, respectively.

In March 2020, the CARES Act was enacted and signed into law in response to COVID-19.

The CARES Act, among other things, included several significant provisions that impacted corporate taxpayers' accounting for income taxes, including modification to the utilization of net operating losses and interest expense deduction limitations.

However, none of these provisions have an impact on our tax provision.

Federal tax laws impose substantial restrictions on the utilization of net operating loss and credit carryforwards in the event of an ownership change, as defined in Section 382 of the Internal Revenue Code.

Accordingly, our ability to utilize these carryforwards may be limited due to such ownership change.

We have completed a Section 382 analysis for approximately $ 225.4 million of our federal operating losses and there are no permanent limitations on the utilization of our federal net operating losses as of December 31, 2018.

Under the newly enacted federal income tax law, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited.

Accordingly, our ability to utilize these carryforwards may be limited due to such ownership changes.

We have completed a Section 382 analysis for changes in ownership through December 31, 2018 and an analysis is ongoing for ownership changes through December 31, 2020.

Based on these analyses, we do not expect to have any permanent limitations on the utilization of our federal net operating losses.

Under the TCJA federal income tax law, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited.

Net operating losses generated prior to 2018 are eligible to be carried forward up to 20 years.

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federal net operating losses of $ 192.5 million and U.S.

federal tax credits of $ 11.0 million.

The tax credit and net operating loss carryforwards will begin to expire in 2028 .

federal tax credits of $ 18.8 million that will begin to expire in 2028 .

We also have $ 211.9 million of net operating losses that do not expire.

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

The effective tax rate of our provision for income taxes differs from the federal statutory rate for the periods presented as follows:

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Permanent items

TCJA change in federal rate

Change in valuation allowance

Adaptive Biotechnologies Corporation

Notes to Financial Statements

We recognize, in our financial statements, the effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination.

We had unrecognized tax benefits of approximately $ 2.1 million as of December 31, 2019.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits during the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands):

We had unrecognized tax benefits of $ 3.5 million as of December 31, 2020.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits during the periods presented are as follows (in thousands):

Balance at December 31, 2017

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Balance at December 31, 2020

During the year ended December 31, 2020 and 2019, we recognized uncertain tax positions of $ 1.4 million and $ 0.8 million, respectively, related to a reduction of the research and development credit deferred tax asset.

Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business.

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Net Loss Per Share

The following table sets forth the computation of the basic and diluted net loss per share attributable to common shareholders for the year ended December 31, 2019, 2018 and 2017, respectively (in thousands, except share and per share amounts):

The following table sets forth the computation of the basic and diluted net loss per share attributable to common shareholders for the periods presented (in thousands, except share and per share amounts):

Year Ended December 31,

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Net loss per share attributable to common shareholders, basic and

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

Since we were in a loss position for all periods presented, basic net loss per share attributable to common shareholders is the same as diluted net loss per share attributable to common shareholders, as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.

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Stock options issued and outstanding

Unvested restricted stock units

Nonvested restricted stock units

Common stock warrants

Convertible preferred stock warrants

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Retirement Plan

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Employees may defer up to 100 % of their compensation to the 401(k) Plan, subject to federal limits.

We made $ 1.6 million in discretionary contributions during the year ended December 31, 2020, which are fully vested after one year of employee service.

We did no t make any discretionary contributions during the years ended December 31, 2019 and 2018.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data