What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-15 compared with 2021-02-24 · 307 added, 357 removed, 630 unchanged (51% of the section changed)

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Adaptive Biotechnologies Corporation

Index to Financial Statements

Index to Consolidated Financial Statements

As of December 31, 2021 and 2020 and

For the Years Ended December 31, 2021, 2020 and 2019

Report of Independent Registered Public Accounting Firm

Balance Sheets

Statements of Operations

Statements of Comprehensive Loss

Statements of Convertible Preferred Stock and Shareholders’ (Deficit) Equity

Statements of Cash Flows

Notes to Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Convertible Preferred Stock and Shareholders’ (Deficit) Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

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Opinion on the Financial Statements

We have audited the accompanying balance sheets of Adaptive Biotechnologies Corporation (the Company) as of December 31, 2020 and 2019, the related statements of operations, comprehensive loss , convertible preferred stock and shareholders' (deficit) equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of Adaptive Biotechnologies Corporation (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and shareholders’ (deficit) equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

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(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

Genentech Agreement

Description of the Matter

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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.

For the year ended December 31, 2021, total revenue recognized was $62.0 million and the related deferred revenue at December 31, 2021 totaled $150.1 million.

Auditing management’s estimate of 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.

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

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.

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Adaptive Biotechnologies Corporation

Balance Sheets

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

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Accrued compensation and benefits

Current portion of deferred rent

Current portion of operating lease liabilities

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Long-term liabilities

Deferred rent liability, less current portion

Operating lease liabilities, less current portion

Financing obligation

Deferred revenue, less current portion

Other long-term liabilities

Total liabilities

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Preferred stock:

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

$ 0.0001 par value, 10,000,000 shares authorized at December 31, 2021 and 2020;

no shares issued and outstanding at December 31, 2021 and 2020

Common stock:

$ 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

$ 0.0001 par value, 340,000,000 shares authorized at December 31, 2021 and 2020;

141,393,865 and 137,646,896 shares issued and outstanding at December 31, 2021 and 2020, respectively

Additional paid-in capital

Accumulated other comprehensive gain

Accumulated other comprehensive (loss) gain

Accumulated deficit

Total Adaptive Biotechnologies Corporation shareholders’ equity

Noncontrolling interest

Total shareholders’ equity

Total liabilities and shareholders’ equity

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

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

Adaptive Biotechnologies Corporation

Statements of Operations

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

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Interest and other income, net

Net loss attributable to noncontrolling interest

Net loss attributable to Adaptive Biotechnologies Corporation

Fair value adjustment to Series E-1 convertible preferred stock options

Net loss attributable to common shareholders

Net loss per share attributable to common shareholders, basic and diluted

Weighted-average shares used in computing net loss per share attributable

to common shareholders, basic and diluted

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

Net loss attributable to Adaptive Biotechnologies Corporation common shareholders

Net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted

Weighted-average shares used in computing net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted

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

Adaptive Biotechnologies Corporation

Statements of Comprehensive Loss

Consolidated Statements of Comprehensive Loss

(in thousands)

Year Ended December 31,

Change in unrealized gain (loss) on investments

Other comprehensive (loss) income:

Change in unrealized gains and losses on investments

Comprehensive loss

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

Comprehensive loss attributable to noncontrolling interest

Comprehensive loss attributable to Adaptive Biotechnologies Corporation

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

Adaptive Biotechnologies Corporation

Statements of Convertible Preferred Stock and Shareholders’ ( Deficit) Equity

Consolidated Statements of Convertible Preferred Stock and Shareholders’ ( Deficit) Equity

(in thousands, except share amounts)

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Comprehensive

Noncontrolling

Shareholders’

Balance at December 31, 2018

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

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 options

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

stock options

Common stock option share-based compensation

Other comprehensive income

Balance at December 31, 2018

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

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

Initial public offering costs

Conversion of convertible preferred stock to common stock

Conversion of convertible preferred stock warrant to common stock

Conversion of convertible preferred stock warrant to common stock warrant

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

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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 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

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Balance at December 31, 2020

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

Issuance of common stock upon exercise of common stock warrant

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

Capital contributions for Digital Biotechnologies, Inc.

Other comprehensive loss

Balance at December 31, 2021

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

Adaptive Biotechnologies Corporation

Statements of Cash Flows

Consolidated Statements of Cash Flows

(in thousands)

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Operating activities

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

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

Depreciation expense

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Deferred rent

Operating lease liabilities

Operating lease right-of-use assets and liabilities

Deferred revenue

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Proceeds from sales and maturities of marketable securities

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities

Financing activities

Proceeds from exercise of stock options

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

and commissions

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

stock warrant

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

Proceeds from initial capital contributions for Digital Biotechnologies, Inc.

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of year

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Purchases of equipment included in accounts payable and accrued liabilities

Landlord-funded leasehold improvements

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

initial public offering

Conversion of convertible preferred stock warrant to common stock warrant

upon closing of initial public offering

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

Derecognition of lease financing arrangements upon adoption of guidance on accounting for leases

Conversion of convertible preferred stock to common stock upon closing of initial public offering

Conversion of convertible preferred stock warrant to common stock warrant upon closing of initial public offering

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

Adaptive Biotechnologies Corporation

Notes to Financial Statements

Notes to Consolidated Financial Statements

Organization and Description of Business

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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 are headquartered in Seattle, Washington.

Initial Public Offering

Our registration statement on Form S-1 related to our initial public offering was declared effective on June 26, 2019 and our common stock began trading on the Nasdaq Global Select Market on June 27, 2019.

On July 1, 2019, we completed our initial public offering in which we issued and sold 17,250,000 shares of common stock, including shares issued upon the exercise in full of the underwriters’ over-allotment option, at a public offering price of $ 20.00 per share.

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.

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.

Digital Biotechnologies, Inc.

In 2021, we formed a subsidiary, Spin Technologies, Inc., to facilitate the development of a potential new early-stage sequencing technology that is ancillary to our core business.

In February 2022, the subsidiary’s name was changed to Digital Biotechnologies, Inc.

We have a 70 % ownership interest in Digital Biotechnologies, Inc.

All intercompany transactions and balances between us and Digital Biotechnologies, Inc.

have been eliminated in consolidation.

The remaining interest, held by certain of our related parties and related family trusts, was reported as noncontrolling interest in our consolidated financial statements.

Significant Accounting Policies

Basis of Presentation and Use of Estimates

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.

Basis of Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of Adaptive Biotechnologies Corporation, its wholly-owned subsidiary and Digital Biotechnologies, Inc.

Other shareholders’ interests in Digital Biotechnologies, Inc.

are shown in the consolidated financial statements as noncontrolling interest.

All intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of consolidated 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 consolidated 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.

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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We had restricted cash of $ 2.1 million as of December 31, 2021 and 2020.

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

Investments in Marketable Securities

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.

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

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

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

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

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Concentrations of Risk

We are subject to a concentration of risk from a limited number of suppliers, or in some cases, single suppliers for some of our laboratory instruments and materials.

We are subject to a concentration of risk from a limited number of suppliers, or in certain cases, single suppliers for some of our laboratory instruments and materials.

This risk is managed by targeting a quantity of surplus stock.

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

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.

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 date presented, respectively.

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

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Additionally, we had $ 0.2 million and $ 0.9 million of unbilled receivables as of December 31, 2021 and 2020, respectively.

The unbilled receivables are amounts that will become due for which we have an unconditional right to consideration.

These contract assets are amounts that will become due for which we have an unconditional right to consideration.

Inventory consists of laboratory materials and supplies used in lab analysis.

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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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Computer equipment and software

3 years to 5 years

Furniture and office equipment

3 years to 10 years

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

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 our statements of operations in accordance with the use of the asset.

Gains and losses from asset disposals and impairment losses are classified within our consolidated 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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Goodwill impairment exists when the estimated fair value of our one reporting unit is less than its carrying value.

If impairment exists, the carrying value of the goodwill is reduced to fair value through an impairment charge recorded in our statements of operations.

If impairment exists, the carrying value of the goodwill is reduced to fair value through an impairment charge recorded in our consolidated statements of operations.

To date, we have no t recognized any impairment of goodwill.

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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.

We have operating lease agreements for the laboratory, office and warehouse 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.

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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.

2016-02, Leases (Topic 842) (“ASC 842”) .

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

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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.

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

We have also elected not to record on our consolidated balance sheets 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 (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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Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

A financial instrument categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Our financial instruments consist of Level 1 and Level 2 assets and has included Level 3 liabilities in the past.

In certain cases, where there is limited activity or less transparency around inputs to valuation, financial instruments are classified as Level 3 within the valuation hierarchy.

Our financial instruments consist of Level 1 and Level 2 assets and have included Level 3 liabilities in the past.

The carrying amounts of certain financial instruments approximate fair value due to their short maturities.

We did not have any nonfinancial assets or liabilities that were measured or disclosed at fair value on a recurring basis as of December 31, 2020 or 2019.

Convertible Preferred Stock Warrant Liability

We did not have any nonfinancial assets or liabilities that were measured or disclosed at fair value on a recurring basis as of December 31, 2021 and 2020.

Convertible Preferred Stock Warrant

We had issued a freestanding warrant to a venture capital firm to purchase 56,875 shares of Series C convertible preferred stock with an exercise price of $ 2.64 in connection with a $ 5.0 million credit facility entered into in 2014.

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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 our 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 balance sheet, thereby concluding the need for revaluation.

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

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

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”).

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Sequencing Revenue

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:

the delivery of a clonoSEQ report.

Sequencing revenue reflects the amounts generated from providing testing services through clonoSEQ to clinical and research customers, from providing our T-Detect COVID test to clinical customers and from providing sequencing services through immunoSEQ to research customers.

For clinical customers, we primarily derive revenue from providing our clonoSEQ report to ordering physicians.

In these transactions, we have identified one performance obligation, the delivery of a clonoSEQ report, and we bill and receive payments from medical institutions and commercial and government third-party payors.

As payment from the respective payors may vary based on the various reimbursement rates and patient responsibilities, we consider the transaction price to be variable and record an estimate of the transaction price, subject to the constraint for variable consideration, as revenue at the time of delivery.

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.

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

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

For our clonoSEQ coverag e 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.

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

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.

Any unrecognized revenue from the initial billable test is recorded as deferred revenue and is recognized either as we deliver our estimate of the remaining tests in a patient’s treatment cycle or when the likelihood becomes remote that a patient will receive additional testing .

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.

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

In periods where our sample estimates are reduced or a customer project is cancelled and, in either case, we have remaining related deferred revenue, we recognize revenue using a cumulative catch-up approach based on the proportion of samples delivered to date relative to the remaining samples expected to be delivered.

Development Revenue

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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 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.

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

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

These services may 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.

Generally, these services are not distinct within the context of the contract and they are accounted for as a single performance obligation.

If agreements include sequencing activities, we separately classify those activities as sequencing revenue.

When sequencing services are separately priced customer options, we assess if a material right exists and, if not, the customer option to purchase additional sequencing services is not considered part of the contract.

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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 (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.

During the year ended December 31, 2021, we executed an intellectual property license agreement that includes variable consideration related to sales-based royalties.

Any consideration related to such royalties will be recognized as development revenue at the later of when (i) the related sales occur or (ii) the performance obligation to which some or all of the sales-based royalty has been allocated has been satisfied (or partially satisfied).

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

Contract Balances

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Cost of Revenue

Cost of revenue includes the cost of materials, personnel-related expenses (comprised of salaries, benefits and share-based compensation), shipping and handling, equipment and allocated facility costs associated with processing samples and professional support for our sequencing revenue.

Allocated facility costs include depreciation of laboratory equipment, allocated facility occupancy and information technology costs.

Cost of revenue includes the cost of materials, personnel-related expenses (including salaries, benefits and share-based compensation), shipping and handling expenses, equipment costs and allocated facility costs associated with processing samples and professional support for our sequencing revenue activities.

Allocated facility costs include depreciation of laboratory equipment, as well as allocated facility occupancy and information technology costs.

Costs associated with processing samples are recorded as expense, regardless of the timing of revenue recognition.

Research and Development 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.

Research and development expenses consist 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.

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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.

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

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel-related expenses for commercial sales, account management, marketing, reimbursement, medical education and business development personnel that support commercialization of our platform products.

Sales and marketing expenses consist primarily of personnel-related expenses for commercial sales, product and account management, marketing, reimbursement, medical education and business development personnel that support commercialization of our platform products.

In addition, these expenses include external costs such as advertising expenses, customer education and promotional expenses, market analysis expenses, conference fees, travel expenses and allocated facility costs.

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

Income taxes are accounted for under the liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and the operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and the operating loss and tax credit carryforwards.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Deferred tax assets and liabilities are measured at the balance sheet date using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Deferred tax assets and liabilities are measured at the consolidated balance sheet date using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in the period such tax rate changes are enacted.

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

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

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 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.

Net Loss Per Share Attributable to Adaptive Biotechnologies Corporation Common Shareholders

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

The diluted net loss per share attributable to Adaptive Biotechnologies Corporation 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 Adaptive Biotechnologies Corporation 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 Adaptive Biotechnologies Corporation 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.

Net loss attributable to common shareholders is determined by allocating undistributed earnings between common and preferred shareholders.

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.

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.

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

Net loss attributable to Adaptive Biotechnologies Corporation common shareholders is determined by allocating undistributed earnings between common and preferred shareholders.

The net loss attributable to Adaptive Biotechnologies Corporation 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.

The diluted net loss per share attributable to Adaptive Biotechnologies Corporation 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 Adaptive Biotechnologies Corporation common shareholders, as their effect was anti-dilutive.

Segment Information

We have determined that our chief executive officer is the chief operating decision maker (“CODM”).

The CODM reviews financial information presented on a regular basis at the entity level.

Resource allocation decisions are made by the CODM based on the results at the entity level, which is determined to be a single reporting unit.

There are no segment managers who are held accountable by the CODM for operations, operating results or planning for levels or components below the entity.

As such, we have concluded that we operate as one segment.

The CODM regularly reviews operating results and other financial information presented on a consolidated basis.

While revenue is reviewed at levels lower than the consolidated entity, resource allocation decisions are made by the CODM based on the results presented at the consolidated entity level, which is determined to be a single reporting unit.

There are no segment managers who are held accountable by the CODM for operations, operating results or planning at levels or components below the consolidated entity.

As such, the consolidated entity operates as one operating segment and represents one reportable segment.

We present disaggregated revenue from contracts with customers by type of service.

See Note 3, Revenue.

Recently Ad opted Accounting Pronouncements

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 (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.

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.

2018-15, Intangibles—Goodwill and Other:

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

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 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.

This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

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

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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Adaptive Biotechnologies Corporation

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 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.

Notes to Consolidated Financial Statements (Continued)

MRD Development Agreements

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

Under each of the agreements, we received or will receive non-refundable upfront payments and could receive substantial additional payments upon reaching certain progress-based milestones or achieving certain regulatory milestones pertaining to the customers’ therapeutics and our MRD product.

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

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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 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.

At contract inception, we fully constrain any consideration related to 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 related 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, when expected to be a faithful depiction of progress.

We use the same method to recognize the regulatory support services.

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.

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 using a cost-based model based on estimates of effort completed.

We recognized $ 3.2 million in revenue during the year ended December 31, 2021 due to changes in estimates of total samples to be provided under certain of our MRD development agreements for which we had previously received upfront consideration, of which $ 0.3 million was recognized as development revenue in the respective period.

We earned $ 10.0 million, $ 2.5 million and $ 2.0 million during the year ended December 31, 2021, 2020 and 2019, 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.

We recognized these earnings as development revenue within the respective periods, as we determined that the amounts were consistent with our estimated standalone selling prices and the respective performance obligations were complete.

In total, we recognized $ 11.8 million, $ 3.4 million and $ 3.7 million in development revenue related to our MRD development agreements during the year ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021, in future periods we could receive up to an additional $ 333.5 million in milestone payments if certain regulatory approvals are obtained by our customers’ therapeutics in connection with MRD data generated from our MRD product.

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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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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 Agreement.

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

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

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

This estimate of the research and development period considers pursuit options of development activities supporting both the Shared Products 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 $ 62.0 million, $ 52.8 million and $ 35.1 million during the year ended December 31, 2021, 2020 and 2019, respectively, related to the Genentech Agreement.

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

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

Fair Value Measurements

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Money market funds

Commercial paper

government debt securities

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Level 2 securities consist of U.S.

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 (Continued)

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

Available-for-sale investments consisted of the following as of December 31, 2021 and 2020 (in thousands):

December 31, 2021

Amortized Cost

Unrealized Gain

Unrealized Loss

Estimated Fair Value

Short-term marketable securities

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government debt securities

Corporate bonds

Total long-term marketable securities

December 31, 2020

Amortized Cost

Unrealized Gain

Unrealized Loss

Estimated Fair Value

Short-term marketable securities

Commercial paper

government debt securities

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government debt securities

Corporate bonds

Total long-term marketable securities

All the commercial paper, U.S.

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):

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

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

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

Accrued interest receivable of $ 1.4 million and $ 2.5 million were presented separately within the prepaid expenses and other current assets line item on our consolidated balance sheet as of December 31, 2021 and 2020, respectively.

The following table presents the gross unrealized holding losses and fair value for investments in an unrealized loss position, and the length of time individual securities have been in a continuous loss position, as of December 31, 2021 (in thousands):

Less Than 12 Months

12 Months Or Greater

Unrealized Loss

government debt securities

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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 (Continued)

Property and Equipment, Net

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Leasehold improvements

Build-to-suit asset cost

Property and equipment, at cost

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Depreciation expense was $ 12.3 million, $ 6.8 million and $ 6.1 million for the year ended December 31, 2021, 2020 and 2019, respectively.

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

Goodwill and Intangible Assets

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December 31, 2021

Gross Carrying

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Acquired developed technology

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December 31, 2020

Gross Carrying

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Acquired developed technology

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Total future amortization expense

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

Accrued Liabilities

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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.

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

Deferred Revenue

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Deferred revenue from our Genentech Agreement represents $ 56.1 million and $ 94.0 million of the current and non-current development deferred revenue balances, respectively, as of December 31, 2021 and $ 55.1 million and $ 157.0 million of the current and non-current development deferred revenue balances, respectively, as of December 31, 2020.

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.

During the year ended December 31, 2021, we recognized $ 3.6 million in revenue as a result of changes in estimates of total samples to be provided under certain of our agreements and cancelled biopharmaceutical customer sequencing contracts for which we had received upfront consideration.

Additionally, we recognized $ 2.5 million of sequencing revenue during the year ended December 31, 2021 related to Medicare reimbursements resulting from our determination that the likelihood of additional testing for specific patients was remote and a change in our estimate of expected cumulative tests per patient for one of our covered indications.

Changes in deferred revenue during the year ended December 31, 2021 were as follows (in thousands):

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Deferred revenue balance at December 31, 2021

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 (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.

Notes to Consolidated Financial Statements (Continued)

As of December 3 1 , 20 2 1 , $ 75.7 million was recognized as revenue that was included in the deferred revenue balance at December 31, 20 20 .

We have operating lease agreements for the laboratory, office and warehouse 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 office and laboratory space in Seattle, Washington.

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.

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

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 August 2019, we entered into an agreement to rent approximately 100,000 square feet in what was a to-be-constructed, new headquarters 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 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 effective January 1, 2020 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.

We occupied the new building in 2021, cash payment for rent began in October 2021 and the lease term ends in August 2033 , subject to our option to twice extend the lease for five years .

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.

As of December 31, 2021, we have incurred $ 14.9 million in certain tenant improvement costs, of which $ 10.9 million has been reimbursed by the landlord.

The remaining $ 4.0 million is presented as a reduction in the cash flows used to measure our ROU asset and lease liabilities on our consolidated balance sheet as of December 31, 2021 and will be reimbursed by the landlord.

As of December 31, 2020, w e incurred $ 5.2 million in certain tenant improvement costs, of which $ 0.7 million had 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 consolidated balance sheet as of December 31, 2020.

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

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.

In connection with the lease, the landlord has agreed to provide a tenant improvement allowance in the maximum amount of $ 0.7 million.

In connection with the lease, the landlord agreed to provide a tenant improvement allowance in the maximum amount of $ 0.7 million.

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

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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.

The lease requires us to pay certain operating expenses.

In March 2021, we executed a lease to rent approximately 27,000 square feet of a warehouse in Bothell, Washington, which we classified as an operating lease upon commencement during the year ended December 31, 2021.

Rent obligations commenced in October 2021 and the lease expires October 2031 , subject to an early termination option after the seventh year and an option to twice extend the lease for five years .

The lease requires us to pay certain operating expenses.

Furthermore, the landlord agreed to fund $ 1.2 million in improvements in connection with this lease.

As of December 31, 2021, we were not party to any finance leases.

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As of December 31, 2021, 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:

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

Other information related to our operating leases as of December 31, 2021 and 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, 2021 (in thousands):

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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.

Operating lease expense was $ 12.4 million and $ 5.5 million for the year ended December 31, 2021 and 2020, respectively.

Variable lease expense for operating leases was $ 3.5 million and $ 2.6 million for the year ended December 31, 2021 and 2020, respectively.

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

Cash paid for amounts included in the measurement of lease liabilities was $ 8.3 million and cash received for tenant improvement allowances was $ 11.5 million during the year ended December 31, 2021.

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, 2021, ROU assets obtained in exchange for operating lease liabilities was $ 5.4 million.

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.

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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 party to any material legal proceedings as of December 31, 2020.

We were not party to any material legal proceedings as of December 31, 2021.

Indemnification Agreements

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We have not incurred any material costs as a result of such indemnifications and are not currently aware of any indemnification claims.

Shareholders’ Equity

Convertible Preferred Stock

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.

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

Preferred Stock

We are authorized to issue 10,000,000 shares of preferred stock, par value $ 0.0001 per share.

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 per share, no preferences or privileges and is not redeemable.

Notes to Consolidated Financial Statements (Continued)

Shareholders’ Equity

Our common stock has 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 .

The holders of record of outstanding shares of common stock shall be entitled to receive, when, as and if declared, out of funds legally available, such cash and other dividends as may be declared from time to time.

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

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

As of December 31, 2021, we 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 Equity Incentive Plan

Shares available for future grant under the Employee Stock Purchase Plan

Shares to be issued upon exercise of a common stock warrant

Total shares of common stock reserved for future issuance

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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

In connection with two transactions in 2012 and 2013, we granted warrants to purchase up to 55,032 shares of common stock.

These warrants were exercisable at any time for a period of ten years from the date of issuance at a weighted-average exercise price of $ 0.37 , except in the case of a warrant to purchase 20,000 shares of common stock at an exercise price of $ 0.45 per share that would have expired if unexercised prior to the closing of our initial public offering.

On July 1, 2019, we issued 54,792 shares of common stock through both a cash and cashless exercise of the warrants.

The impact of these exercises was immaterial to the financial statements.

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 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.

Our board of directors determined not to increase the ESPP reserve in 2021.

Furthermore, our board of directors determined not to increase the 2019 Plan and ESPP reserves in 2022.

Common Stock Warrant

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 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 was converted to a warrant to purchase the same number of shares of common stock.

The warrant was exercised on February 25, 2021 through a cashless exercise, resulting in the issuance of 54,162 shares of our common stock.

The impact of this cashless exercise was immaterial to our consolidated financial statements.

As of December 31, 2021, there were no outstanding warrants to purchase common stock.

Equity Incentive Plans

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No shares are available for future issuance under this plan and no equity awards are outstanding under this plan as of December 31, 2021.

Adaptive Biotechnologies Corporation

Notes to Financial Statements (Continued)

Adaptive 2009 Equity Incentive Plan

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While no shares are available for future issuance under the 2009 Plan, it continues to govern outstanding equity awards granted thereunder.

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

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 immediately prior to the closing of our initial public offering.

The 2019 Plan became effective immediately prior to the closing of our initial public offering in July 2019.

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

Under the 2019 Plan, the option exercise price per share shall not be less than the fair market value of a share of stock on the grant date of the option, as defined by the 2019 Plan, unless explicitly qualified under the provisions of Section 409A or Section 424(a) of the Internal Revenue Code of 1986.

Under the 2019 Plan, the option exercise price per share shall not be less than the fair market value of a share of stock on the effective date of grant, as defined by the 2019 Plan, unless explicitly qualified under the provisions of Section 409A or Section 424(a) of the Internal Revenue Code of 1986.

Additionally, unless otherwise specified, options granted under this plan expire no later than ten years from the grant date and vesting is established at the time of grant.

Except for certain option grants made to non-employee directors, stock options granted under the 2019 Plan generally vest over a four-year period, subject to continuous service through each applicable vesting date.

Except for certain option and restricted stock unit grants made to non-employee directors, stock options and restricted stock units granted under the 2019 Plan generally vest over a four-year period, subject to continuous service through each applicable vesting date.

As of December 31, 2021, we have authorized 29,131,628 shares of common stock for issuance under the 2019 Plan.

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Shares available for grant at December 31, 2020

2019 Plan reserve increase on January 1, 2020

2019 Equity Incentive Plan reserve increase effective January 1, 2021

Options and restricted stock units granted

Options forfeited, cancelled or expired

Options and restricted stock units forfeited, cancelled or expired

Shares available for grant at December 31, 2021

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

Exercise Price

Intrinsic Value

Stock option activity under the 2009 Plan and 2019 Plan during the year ended December 31, 2021 was as follows:

Shares Subject to

Outstanding Options

Weighted-Average Exercise

Price per Share

Aggregate Intrinsic Value

(in thousands)

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The weighted-average remaining contractual life for options outstanding as of December 31, 2021 was 7.0 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, 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 (Continued)

The weighted-average remaining contractual life for vested and exercisable options as of December 31, 2021 was 5.7 years.

The weighted-average grant date fair value per share of options granted during the year ended December 31, 2021, 2020 and 2019 was $ 24.22 , $ 21.11 and $ 6.87 , respectively.

The total intrinsic value of options exercised during the year ended December 31, 2021, 2020 and 2019 was $ 156.5 million, $ 190.4 million and $ 39.1 million, respectively.

Of the $ 26.7 million proceeds from exercise of stock options included on our consolidated statements of cash flows for the year ended December 31, 2021, $ 0.3 million related to options exercised during the year ended December 31, 2020 but settled during the year ended December 31, 2021.

Of the $ 21.7 million proceeds from exercise of stock options included on our consolidated statements of cash flows for the year ended December 31, 2020, $ 0.5 million related to options exercised during the year ended December 31, 2019 but settled during the year ended December 31, 2020.

Restricted stock unit activity under the 2019 Plan during the year ended December 31, 2021 was as follows:

Restricted Stock Units

Weighted-Average Grant Date

Fair Value per Share

Nonvested outstanding restricted stock units at December 31, 2020

Restricted stock units granted

Restricted stock units forfeited or cancelled

Restricted stock units vested

Nonvested outstanding restricted stock units at December 31, 2021

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

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

The weighted-average grant date fair value per share of restricted stock units granted during the year ended December 31, 2020 and 2019 was $ 28.10 and $ 41.63 , respectively.

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:

The estimated grant date fair values of options granted during the years ended December 31, 2021, 2020 and 2019 were estimated using the Black-Scholes option-pricing model with the following assumptions:

Year Ended December 31,

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$17.68 - $55.23

$7.80 - $47.81

Expected term (in years)

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Expected dividend yield

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 determination of the grant date fair value of stock options using a Black-Scholes option-pricing model is affected by the 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 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, 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.

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

For option 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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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 restricted stock units for the years ended December 31, 2020, 2019 and 2018 are included on our statements of operations as follows (in thousands):

The grant date fair value of restricted stock units granted 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.

The compensation costs related to stock options and restricted stock units for the years ended December 31, 2021, 2020 and 2019 are included on our consolidated statements of operations as follows (in thousands):

Year Ended December 31,

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Sales and marketing

General and administration

General and administrative

Total share-based compensation expense

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.

As of December 31, 2021, unrecognized share-based compensation expense related to unvested stock options was $ 96.8 million, which is expected to be recognized over a remaining weighted-average period of 2.9 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.

Additionally, as of December 31, 2021, unrecognized share-based compensation expense related to unvested restricted stock units was $ 38.3 million, which is expected to be recognized over a remaining weighted-average period of 3.4 years.

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

Microsoft Collaboration Agreement

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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.

In addition, contemporaneously with entering into the Microsoft Agreement, Microsoft made a preferred stock investment of approximately $ 45.0 million as a part of our Series F-1 convertible preferred stock issuance.

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 purchase 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.

In addition, contemporaneously with entering into the Microsoft Agreement, Microsoft made a preferred stock investment of $ 45.0 million as a part of our Series F-1 convertible preferred stock issuance.

Summary of Accounting

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All consideration received as part of the Series F-1 convertible preferred stock issuance was accounted for as part of the Series F-1 preferred stock issuance.

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 our statements of operations based on the underlying activities for which they support.

Since the commitment to purchase 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 our consolidated 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.

The components of loss before provision for income taxes for the periods presented are as follows (in thousands):

Year Ended December 31,

Total loss before provision for income taxes

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

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.

The significant components of our deferred tax assets and liabilities for the periods presented are as follows (in thousands):

The significant components of our deferred tax assets and liabilities as of the dates presented are as follows (in thousands):

Deferred tax assets

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Tax credit carryforward

Non qualifying stock options

Nonqualifying stock options

Deferred rent

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Net deferred taxes

ASC Topic 740, Income Taxes , requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period.

ASC Topic 740, Income Taxes , requires that the tax benefit of NOLs, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period.

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 $ 99.5 million and $ 96.6 million during the year ended December 31, 2021 and 2020, 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.

Federal tax laws impose substantial restrictions on the utilization of NOL and credit carryforwards in the event of an ownership change, as defined in Section 382 of the Internal Revenue Code of 1986.

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.

We have completed a Section 382 analysis for changes in ownership through December 31, 2020 and continue to monitor for changes that could trigger a limitation.

Based on this analysis, we do not expect to have any permanent limitations on the utilization of our federal NOLs.

Under the TCJA federal income tax law, federal NOLs incurred in 2018 and future years may be carried forward indefinitely, but the deductibility of such federal NOLs is subject to an annual limitation.

NOLs generated prior to 2018 are eligible to be carried forward up to 20 years.

As of December 31, 2021, we had U.S.

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

federal NOLs of $ 192.5 million and U.S.

federal tax credits of $ 33.6 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)

We also had $ 576.2 million of NOLs as of December 31, 2021 that do not expire.

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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Statutory rate

State tax, net of federal tax benefit

Stock compensation

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Change in valuation allowance

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.

Adaptive Biotechnologies Corporation

Notes to Consolidated Financial Statements (Continued)

We account for Global Intangible Low-Taxed Income as period costs when incurred.

We recognize, in our consolidated 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 $ 6.9 million as of December 31, 2021.

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

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

Balance at December 31, 2018

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Balance at December 31, 2021

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.

During the year ended December 31, 2021, 2020 and 2019, we recognized uncertain tax positions of $ 3.4 million, $ 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.

We do not anticipate a material change to our unrecognized tax benefits over the next twelve months that would have an adverse effect on our operating results.

We do not expect a material change to our unrecognized tax benefits over the next twelve months that would have an adverse effect on our operating results.

We recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

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We file federal and certain state income tax returns, which provide varying statutes of limitations on assessments.

However, because of net operating loss carryforwards, substantially all tax years since inception remain open to federal and state tax examination.

Net Loss Per Share Attributable to Common Shareholders

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 periods presented (in thousands, except share and per share amounts):

However, because of NOL carryforwards, substantially all tax years since inception remain open to federal and state tax examination.

Net Loss Per Share Attributable to Adaptive Biotechnologies Corporation Common Shareholders

The following table sets forth the computation of the basic and diluted net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders for the years ended December 31, 2021, 2020 and 2019 (in thousands, except share and per share amounts):

Year Ended December 31,

Fair value adjustments to redemption value for Series E-1

convertible preferred stock options

Net loss attributable to common shareholders, basic and diluted

Weighted-average shares used in computing net loss per share

Net loss per share attributable to common shareholders, basic and

Net loss attributable to Adaptive Biotechnologies Corporation

Fair value adjustment to redemption value for Series E-1 convertible preferred stock options

Net loss attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted

Weighted-average shares used in computing net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted

Net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders, basic and diluted

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.

The following weighted-average common stock equivalents were excluded from the calculation of diluted net loss per share attributable to common shareholders for the year ended December 31, 2020, 2019 and 2018, respectively, as they had an anti-dilutive effect:

Notes to Consolidated Financial Statements (Continued)

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

The following weighted-average common stock equivalents were excluded from the calculation of diluted net loss per share attributable to Adaptive Biotechnologies Corporation common shareholders for the years ended December 31, 2021, 2020 and 2019, as they had an anti-dilutive effect:

Year Ended December 31,

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Common stock warrants

Convertible preferred stock warrants

Convertible preferred stock warrant

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.

We made $ 2.5 million and $ 1.6 million in discretionary contributions during the year ended December 31, 2021 and 2020, respectively, which are fully vested after one year of employee service.

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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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