Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 31, 2020,~~July 30, 2021, the registrant had ~~136,772,417~~140,765,849 shares of common stock, $0.0001 par value per share, outstanding.

This report contains forward-looking statements that are based on management’s beliefs and assumptions and on information currently available to management. All statements contained in this report other than statements of historical fact are forward-looking statements, which include but are not limited to, statements about:

The forward-looking statements in this report also include statements regarding our ability to develop, commercialize and achieve market acceptance of our current and planned products and services, our research and development efforts and other matters regarding our business strategies, use of capital, results of operations and financial position and plans and objectives for future operations. In some cases, you can identify forward-looking statements by the words “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. These risks, uncertainties and other factors are described under “Risk Factors,” “Management's Discussion and Analysis of Financial Condition and Results of ~~Operations,”~~Operations” and elsewhere in this report and in other documents we file with the Securities and Exchange Commission (“SEC”) from time to time. We caution you that forward-looking statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. As a result, the forward-looking statements may not prove to be accurate. The forward-looking statements in this report represent our views as of the date of this report.

We undertake no obligation to update any forward-looking statements for any reason, except as required by law.

Unless otherwise stated or the context otherwise indicates, references to “we,” “us,” “our” and similar references refer to Adaptive Biotechnologies Corporation.


	September 30, 2020			December 31, 2019			June 30, 2021			December 31, 2020
	(unaudited)						(unaudited)
Assets
Current assets
Cash and cash equivalents	$	497,076		$	96,576		$	184,186		$	123,436
Short-term marketable securities (amortized cost of $336,840 and $479,791, respectively)		338,004			480,290
Short-term marketable securities (amortized cost of $413,965 and $564,036, respectively)								414,227			564,833
Accounts receivable, net		11,858			12,676			14,174			10,047
Inventory		10,736			9,069			18,612			14,063
Prepaid expenses and other current assets		19,684			14,079			12,530			14,535
Total current assets		877,358			612,690			643,729			726,914
Long-term assets
Property and equipment, net		31,156			60,355			75,235			39,692
Operating lease right-of-use assets		37,733			—			92,067			99,350
Long-term marketable securities (amortized cost of $16,203 and $105,263, respectively)		16,466			105,435
Long-term marketable securities (amortized cost of $91,177 and $118,429, respectively)								91,131			118,525
Restricted cash		2,138			2,138			2,138			2,138
Intangible assets, net		10,653			11,928			9,383			10,225
Goodwill		118,972			118,972			118,972			118,972
Other assets		997			784			719			598
Total assets	$	1,095,473		$	912,302		$	1,033,374		$	1,116,414
Liabilities and shareholders’ equity
Current liabilities
Accounts payable	$	5,412		$	4,453		$	6,093		$	3,237
Accrued liabilities		5,346			4,371			13,539			13,162
Accrued compensation and benefits		7,913			8,124			8,630			11,950
Current portion of deferred rent		—			371
Current operating lease liabilities		3,969			—
Current deferred revenue		78,192			60,994
Current portion of operating lease liabilities								4,833			3,529
Current portion of deferred revenue								83,553			73,319
Total current liabilities		100,832			78,313			116,648			105,197
Long-term liabilities
Deferred rent liability, less current portion		—			6,918
Operating lease liabilities, less current portion		42,366			—			103,774			104,333
Financing obligation		—			36,607
Deferred revenue, less current portion		174,853			219,332			119,642			163,618
Other long-term liabilities		2,375			93
Total liabilities		320,426			341,263			340,064			373,148
Commitments and contingencies (Note 9)
Shareholders’ equity
Preferred stock: $0.0001 par value, 10,000,000 shares authorized at September 30, 2020 and December 31, 2019; 0 shares issued and outstanding at September 30, 2020 and December 31, 2019		—			—
Common stock: $0.0001 par value, 340,000,000 shares authorized at September 30, 2020 and December 31, 2019; 136,392,256 and 125,238,142 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		13			12
Preferred stock: $0.0001 par value, 10,000,000 shares authorized at June 30, 2021 and December 31, 2020; 0 shares issued and outstanding at June 30, 2021 and December 31, 2020								—			—
Common stock: $0.0001 par value, 340,000,000 shares authorized at June 30, 2021 and December 31, 2020; 140,663,755 and 137,646,896 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively								14			14
Additional paid-in capital		1,240,649			935,834			1,294,506			1,253,971
Accumulated other comprehensive gain		1,427			671			216			893
Accumulated deficit		(467,042	)		(365,478	)		(601,555	)		(511,612	)
Total Adaptive Biotechnologies Corporation shareholders’ equity								693,181			743,266
Noncontrolling interest								129			—
Total shareholders’ equity		775,047			571,039			693,310			743,266
Total liabilities and shareholders’ equity	$	1,095,473		$	912,302		$	1,033,374		$	1,116,414

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

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Revenue
Sequencing revenue	$	11,276		$	11,683		$	28,730		$	29,631		$	18,555		$	7,985		$	33,729		$	17,454
Development revenue		15,023			14,375			39,467			31,231			19,950			13,003			43,218			24,444
Total revenue		26,299			26,058			68,197			60,862			38,505			20,988			76,947			41,898
Operating expenses
Cost of revenue		6,053			5,601			16,308			16,323			10,765			4,912			20,756			10,255
Research and development		30,314			20,506			80,241			49,516			37,800			25,992			71,572			49,927
Sales and marketing		14,474			9,099			42,813			25,813			23,216			14,332			43,820			28,339
General and administrative		12,079			8,477			36,138			22,143			16,066			12,238			31,002			24,059
Amortization of intangible assets		428			428			1,275			1,270			423			423			842			847
Total operating expenses		63,348			44,111			176,775			115,065			88,270			57,897			167,992			113,427
Loss from operations		(37,049	)		(18,053	)		(108,578	)		(54,203	)		(49,765	)		(36,909	)		(91,045	)		(71,529	)
Interest and other income, net		1,018			4,103			5,805			6,208			464			1,893			1,102			4,787
Income tax (expense) benefit		(688	)		—			1,116			—
Income tax benefit														—			1,481			—			1,804
Net loss		(36,719	)		(13,950	)		(101,657	)		(47,995	)	$	(49,301	)	$	(33,535	)	$	(89,943	)	$	(64,938	)
Fair value adjustment to Series E-1 convertible preferred stock options		—			—			—			(964	)
Net loss attributable to common shareholders	$	(36,719	)	$	(13,950	)	$	(101,657	)	$	(48,959	)
Net loss per share attributable to common shareholders, basic and diluted	$	(0.27	)	$	(0.11	)	$	(0.79	)	$	(0.97	)	$	(0.35	)	$	(0.26	)	$	(0.64	)	$	(0.51	)
Weighted-average shares used in computing net loss per share attributable to common shareholders, basic and diluted		134,372,026			124,285,686			129,289,948			50,552,389			140,359,317			127,383,582			139,667,380			126,720,986

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

Condensed Consolidated Statements of ~~Convertible Preferred Stockand~~Shareholders’ ~~(Deficit)~~ Equity

Convertible Preferred Stock

Common Stock

Additional
Paid-In

Accumulated
Other
Comprehensive

Accumulated

Total
Shareholders’
(Deficit)

Shares

Amount

Shares

Amount

Capital

Gain

Deficit

Equity

Balance at June 30, 2019

93,039,737

$
561,931

13,725,381

$
1

$
46,160

$
382

$
(330,917
)

$
(284,374
)
Proceeds from initial public offering, net of
   underwriters' discounts and commissions

—

—

17,250,000

2

320,848

—

—

320,850

Initial public offering costs

—

—

—

—

(4,986
)

—

—

(4,986
)
Conversion of convertible preferred stock to common
   stock

(93,039,737
)

(561,931
)

93,039,737

9

561,922

—

—

561,931

Conversion of convertible preferred stock warrant to
   common stock warrant

—

—

—

—

2,602

—

—

2,602

Issuance of common stock upon exercise of common
   stock warrants

—

—

54,792

—

9

—

—

9

Issuance of common stock for cash upon exercise of
   stock options

—

—

246,170

—

318

—

—

318

Common stock option and restricted stock unit share-
   based compensation

—

—

—

—

3,335

—

—

3,335

Other comprehensive income

—

—

—

—

—

190

—

190

Net loss

—

—

—

—

—

—

(13,950
)

(13,950
)
Balance at September 30, 2019

—

$
—

124,316,080

$
12

$
930,208

$
572

$
(344,867
)

$
585,925

Balance at June 30, 2020

—

$
—

128,233,842

$
12

$
958,097

$
2,153

$
(430,323
)

$
529,939

Issuance of common stock upon public offering, after
   deducting underwriters' discounts and net offering
   costs payable by us

—

—

7,200,000

1

271,838

—

—

271,839

Issuance of common stock for cash upon exercise of
   stock options

—

—

958,414

—

4,244

—

—

4,244

Common stock option and restricted stock unit share-
   based compensation

—

—

—

—

6,470

—

—

6,470

Other comprehensive loss

—

—

—

—

—

(726
)

—

(726
)
Net loss

—

—

—

—

—

—

(36,719
)

(36,719
)
Balance at September 30, 2020

—

$
—

136,392,256

$
13

$
1,240,649

$
1,427

$
(467,042
)

$
775,047

	Common Stock				Additional		Accumulated Other			Accumulated			Noncontrolling		Total
	Shares		Amount		Paid-In Capital		Comprehensive Gain			Deficit			Interest		Shareholders’ Equity
Balance at March 31, 2020		126,621,829	$	12	$	945,026	$	3,313		$	(396,788	)	$	—	$	551,563
Issuance of common stock for cash upon exercise of stock options		1,609,763		—		6,698		—			—			—		6,698
Vesting of restricted stock units		2,250		—		—		—			—			—		—
Common stock option and restricted stock unit share-based compensation		—		—		6,373		—			—			—		6,373
Other comprehensive loss		—		—		—		(1,160	)		—			—		(1,160	)
Net loss		—		—		—		—			(33,535	)		—		(33,535	)
Balance at June 30, 2020		128,233,842	$	12	$	958,097	$	2,153		$	(430,323	)	$	—	$	529,939

Balance at March 31, 2021		139,884,698	$	14	$	1,277,197	$	631		$	(552,254	)	$	129	$	725,717
Issuance of common stock for cash upon exercise of stock options		766,557		—		6,060		—			—			—		6,060
Vesting of restricted stock units		12,500		—		—		—			—			—		—
Common stock option and restricted stock unit share-based compensation		—		—		11,249		—			—			—		11,249
Other comprehensive loss		—		—		—		(415	)		—			—		(415	)
Net loss		—		—		—		—			(49,301	)		—		(49,301	)
Balance at June 30, 2021		140,663,755	$	14	$	1,294,506	$	216		$	(601,555	)	$	129	$	693,310

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

Condensed Consolidated Statements of ~~Convertible Preferred Stockand~~Shareholders’ ~~(Deficit)~~ Equity (Continued)

Convertible Preferred Stock

Common Stock

Additional
Paid-In

Accumulated
Other
Comprehensive

Accumulated

Total
Shareholders’
(Deficit)

Shares

Amount

Shares

Amount

Capital

(Loss) Gain

Deficit

Equity

Balance at December 31, 2018

92,790,094

$
560,858

12,841,536

$
1

$
37,902

$
(107
)

$
(295,908
)

$
(258,112
)
Proceeds from initial public offering, net of underwriters'
   discounts and commissions

—

—

17,250,000

2

320,848

—

—

320,850

Initial public offering costs

—

—

—

—

(4,986
)

—

—

(4,986
)
Conversion of convertible preferred stock to common stock

(93,039,737
)

(561,931
)

93,039,737

9

561,922

—

—

561,931

Conversion of convertible preferred stock warrant to common
   stock warrant

—

—

—

—

2,602

—

—

2,602

Issuance of common stock upon exercise of common stock
   warrants

—

—

54,792

—

9

—

—

9

Issuance of common stock for cash upon exercise of stock
   options

—

—

1,130,015

—

2,198

—

—

2,198

Issuance of Series E-1 convertible preferred stock for cash
   upon exercise of Series E-1 convertible preferred stock
   options at fair value

249,643

109

—

—

—

—

—

—

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

—

964

—

—

—

—

(964
)

(964
)
Common stock option and restricted stock unit share-based
   compensation

—

—

—

—

9,713

—

—

9,713

Other comprehensive income

—

—

—

—

—

679

—

679

Net loss

—

—

—

—

—

—

(47,995
)

(47,995
)
Balance at September 30, 2019

—

$
—

124,316,080

$
12

$
930,208

$
572

$
(344,867
)

$
585,925

Balance at December 31, 2019

—

$
—

125,238,142

$
12

$
935,834

$
671

$
(365,478
)

$
571,039

Issuance of common stock upon public offering, after
   deducting underwriters' discounts and net offering costs
   payable by us

—

—

7,200,000

1

271,838

—

—

271,839

Adjustments to accumulated deficit for adoption of guidance
   on accounting for leases

—

—

—

—

—

—

93

93

Issuance of common stock for cash upon exercise of stock
   options

—

—

3,949,614

—

15,459

—

—

15,459

Vesting of restricted stock units

—

—

4,500

—

—

—

—

—

Common stock option and restricted stock unit share-based
   compensation

—

—

—

—

17,518

—

—

17,518

Other comprehensive income

—

—

—

—

—

756

—

756

Net loss

—

—

—

—

—

—

(101,657
)

(101,657
)
Balance at September 30, 2020

—

$
—

136,392,256

$
13

$
1,240,649

$
1,427

$
(467,042
)

$
775,047

	Common Stock				Additional		Accumulated Other			Accumulated			Noncontrolling		Total
	Shares		Amount		Paid-In Capital		Comprehensive Gain			Deficit			Interest		Shareholders’ Equity
Balance at December 31, 2019		125,238,142	$	12	$	935,834	$	671		$	(365,478	)	$	—	$	571,039
Adjustments to accumulated deficit for adoption of guidance on accounting for leases		—		—		—		—			93			—		93
Issuance of common stock for cash upon exercise of stock options		2,991,200		—		11,215		—			—			—		11,215
Vesting of restricted stock units		4,500		—		—		—			—			—		—
Common stock option and restricted stock unit share-based compensation		—		—		11,048		—			—			—		11,048
Other comprehensive income		—		—		—		1,482			—			—		1,482
Net loss		—		—		—		—			(64,938	)		—		(64,938	)
Balance at June 30, 2020		128,233,842	$	12	$	958,097	$	2,153		$	(430,323	)	$	—	$	529,939

Balance at December 31, 2020		137,646,896	$	14	$	1,253,971	$	893		$	(511,612	)	$	—	$	743,266
Issuance of common stock upon exercise of common stock warrant		54,162		—		—		—			—			—		—
Issuance of common stock for cash upon exercise of stock options		2,950,197		—		20,502		—			—			—		20,502
Vesting of restricted stock units		12,500		—		—		—			—			—		—
Common stock option and restricted stock unit share-based compensation		—		—		19,733		—			—			—		19,733
Capital contributions for Spin Technologies, Inc.		—		—		300		—			—			129		429
Other comprehensive loss		—		—		—		(677	)		—			—		(677	)
Net loss		—		—		—		—			(89,943	)		—		(89,943	)
Balance at June 30, 2021		140,663,755	$	14	$	1,294,506	$	216		$	(601,555	)	$	129	$	693,310

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

	Nine Months Ended September 30,						Six Months Ended June 30,
	2020			2019			2021			2020
Operating activities
Net loss	$	(101,657	)	$	(47,995	)	$	(89,943	)	$	(64,938	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		4,845			4,446			4,734			3,129
Noncash lease expense		2,217			—			3,489			1,344
Share-based compensation expense		17,518			9,713			19,733			11,048
Intangible assets amortization		1,275			1,270			842			847
Investment amortization		(484	)		(3,533	)		4,174			(651	)
Fair value adjustment of convertible preferred stock warrant		—			2,266
Benefit from income tax		(1,116	)		—			—			(1,804	)
Other		62			(80	)		(7	)		49
Changes in operating assets and liabilities:
Accounts receivable, net		802			(4,398	)		(4,127	)		4,746
Inventory		(1,667	)		(829	)		(4,549	)		(1,467	)
Prepaid expenses and other current assets		(3,886	)		(6,840	)		1,995			4,206
Accounts payable and accrued liabilities		30			3,131			(2,476	)		(1,891	)
Deferred rent		—			(628	)
Operating lease liabilities		(282	)		—			4,539			79
Deferred revenue		(27,281	)		276,209			(33,742	)		(17,165	)
Other		(215	)		(537	)		(120	)		(215	)
Net cash (used in) provided by operating activities		(109,839	)		232,195
Net cash used in operating activities								(95,458	)		(62,683	)
Investing activities
Purchases of property and equipment		(9,433	)		(8,784	)		(37,882	)		(5,226	)
Purchases of marketable securities		(299,786	)		(772,093	)		(96,352	)		(107,747	)
Proceeds from sales and maturities of marketable securities		532,224			252,500			269,500			433,224
Net cash provided by (used in) investing activities		223,005			(528,377	)
Net cash provided by investing activities								135,266			320,251
Financing activities
Proceeds from exercise of stock options		15,495			2,307			20,513			11,296
Proceeds from public offering of common stock, net of underwriting discounts and commissions		272,160			320,850
Payment of public offering costs, net		(321	)		(4,986	)
Proceeds from issuance of common stock upon the exercise of a common stock warrant		—			9
Other		—			(10	)
Proceeds from initial capital contributions for Spin Technologies, Inc.								429			—
Net cash provided by financing activities		287,334			318,170			20,942			11,296
Net increase in cash, cash equivalents and restricted cash		400,500			21,988			60,750			268,864
Cash, cash equivalents and restricted cash at beginning of year		98,714			55,091			125,574			98,714
Cash, cash equivalents and restricted cash at end of period	$	499,214		$	77,079		$	186,324		$	367,578
Noncash investing and financing activities
Purchases of equipment included in accounts payable and accrued liabilities	$	3,582		$	498		$	7,067		$	1,736
Conversion of convertible preferred stock to common stock upon closing of initial public offering	$	—		$	561,931
Conversion of convertible preferred stock warrant to common stock warrant upon closing of initial public offering	$	—		$	2,602
Deferred offering costs included in accounts payable and accrued liabilities							$	—		$	277
Derecognition of lease financing arrangements upon adoption of guidance on accounting for leases	$	36,607		$	—		$	—		$	36,607

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

Adaptive Biotechnologies Corporation (“we,” “us” or “our”) is a commercial-stage company advancing the field of ~~immune-driven~~immune medicine by harnessing the inherent biology of the adaptive immune system to transform the diagnosis and treatment of disease. We believe the adaptive immune system is nature’s most finely tuned diagnostic and therapeutic for most diseases, but the inability to decode it has prevented the medical community from fully leveraging its capabilities. Our immune medicine platform applies our proprietary technologies to read the diverse genetic code of a patient’s immune system and aims to understand precisely how the immune system detects and treats disease in that patient. We capture these insights in our dynamic clinical immunomics database, which is ~~the foundation for our expanding suite of~~underpinned by computational biology and machine learning, and use them to develop and commercialize clinical products and ~~services. The cornerstone~~services that we are tailoring to each individual patient. We have commercial products and services and a robust pipeline of ~~our immune medicine platform~~clinical products and ~~core immunosequencing product, immunoSEQ, serves~~services that we are designing to diagnose, monitor and enable the treatment of diseases, such as ~~our underlying research~~cancer, autoimmune conditions and development engine and generates revenue from academic and biopharmaceutical customers. Our first clinical diagnostic product, clonoSEQ, is the first test authorized by the Food and Drug Administration (“FDA”) for the detection and monitoring of minimal residual disease (“MRD”) in patients with select blood cancers.infectious diseases.

We were incorporated in the State of Washington on September 8, 2009 under the name Adaptive TCR Corporation. On December 21, 2011, we changed our name to Adaptive Biotechnologies Corporation. We are headquartered in Seattle, Washington.

~~Our registration statement on Form S-1 related~~In 2021, we formed a corporate subsidiary, Spin Technologies, Inc. (“SpinTech”), to facilitate the development of a potential new early-stage sequencing technology that is ancillary to our ~~initial public offering was declared effective on June 26, 2019~~core business. We have a 70% ownership interest in SpinTech. All intercompany transactions 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~~balances between us and this majority-owned subsidiary have been eliminated 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.

~~In July 2020, we completed an underwritten public offering~~consolidation. The remaining interest, held by certain of our ~~common stock~~related parties and related family trusts, was reported as noncontrolling interest in which we issued and sold 7,200,000 shares of common stock at a public offering price of $40.00 per share, including shares issued upon the exercise in full of the underwriters’ over-allotment option. We received $271.8 million in net proceeds, after deducting underwriting discounts and net offering expenses payable by us.our unaudited condensed consolidated financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience and other relevant assumptions that we believe to be reasonable under the circumstances. Estimates are used in several areas including, but not limited to, estimates of progress to date for certain performance obligations and the transaction price for certain contracts with customers, share-based compensation, ~~including the fair value of stock,~~ the provision for income taxes, including related reserves, and goodwill, among others. These estimates generally involve complex issues and require judgments, involve the analysis of historical results and prediction of future trends, can require extended periods of time to resolve and are subject to change from period to period. Actual results may differ materially from management’s estimates.

In our opinion, the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information. These unaudited condensed consolidated financial statements include all adjustments necessary to fairly state the financial position and the results of our operations and cash flows for interim periods in accordance with GAAP. All such adjustments ~~are~~were of a normal, recurring nature. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 filed with the SEC on February ~~26, 2020.~~

In the accompanying unaudited condensed statements of cash flows, certain prior year amounts have been reclassified to conform to the current period presentation. Specifically, the gain on equipment disposals line item and other line item were previously separately stated and are now presented together in the other line item. There was no change to net cash provided by operating activities as a result of the reclassification.24, 2021.

We are required to maintain certain balances under lease arrangements for some of our property and facility leases. We had restricted cash of $2.1 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

We determine if an arrangement contains a lease at inception. We have operating lease agreements for the laboratory, office and ~~office~~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. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. As our leases generally do not provide an implicit interest rate, the present value of our future minimum lease payments is determined using our incremental borrowing rate. This rate is an estimate of the collateralized borrowing rate we would incur on our future lease payments over a similar term and is based on the information available to us at the lease commencement date, or as of January 1, 2020 for commenced leases that existed as of our adoption of the new lease ~~standard, discussed in more detail below.~~standard.

Certain of our leases contain options to extend or terminate the lease; lease terms are adjusted for these options only when it is reasonably certain we will exercise these options. Our lease agreements do not contain residual value guarantees or covenants.

We have made a policy election regarding our real estate leases not to separate nonlease components from lease components, to the extent they are fixed. Nonlease components that are not fixed are expensed as incurred as variable lease expense. Our leases for laboratory, office and ~~office~~warehouse facilities typically include variable nonlease components, such as common-area maintenance costs. We have also elected not to record on the balance sheet a lease that has a lease term of twelve months or less and does not contain a purchase option that we are reasonably certain to exercise.

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

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

Cash, cash equivalents and marketable securities are financial instruments that potentially subject us to concentrations of credit risk. We invest in money market funds, United States (“U.S.”) government debt securities, U.S. 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. Revenue from these customers reflects their purchase of our products and services and our collaboration efforts with Genentech.

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

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”), Revenue from Contracts with Customers. Under ASC 606, for all revenue-generating contracts, we perform the following steps to determine the amount of revenue to be recognized: (1) identify the contract or contracts; (2) determine whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (3) measure the transaction price, including the constraint on variable consideration; (4) allocate the transaction price to the performance obligations based on estimated selling prices; and (5) recognize revenue when (or as) we satisfy each performance obligation. The following is a summary of the application of the respective model to each of our revenue classifications.

Our revenue is generated from immunosequencing (“sequencing”) products and services (“sequencing revenue”) and from regulatory or development support services leveraging our immune medicine platform (“development revenue”). When revenue generating contracts have elements of both sequencing revenue and development revenue, we classify revenue based on the nature of the performance obligation and the allocated transaction price.

Sequencing revenue reflects the amounts generated from providing ~~sequencing~~testing services ~~and testing~~ through ~~our~~ clonoSEQ ~~and immunoSEQ products and services~~ to ~~our~~ clinical and research customers, ~~respectively.~~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 ~~revenues~~revenue 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. 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. This billing contemplates all necessary tests required during a patient’s treatment cycle, which is currently estimated at approximately four tests per patient, including the initial sequence identification test. Revenue recognition commences at the time the initial billable test result is delivered and is based upon cumulative tests delivered to date. We estimate the number of tests we expect to deliver over a patient’s treatment cycle based on historical testing frequencies for patients by indication. These estimates are subject to change as we develop more information about utilization over time. Any unrecognized revenue from the initial billable test is recorded as deferred revenue and is recognized either as we deliver the remaining tests in a patient’s treatment ~~cycle.~~cycle or when the likelihood becomes remote that a patient will receive additional testing and we have not delivered our estimate of total tests.

For research customers, contracts typically include an amount billed in advance of services (“upfront”) and subsequent billings as sample results are delivered to the customer. Upfront amounts received are recorded as deferred revenue, which we recognize as revenue upon satisfaction of performance obligations. We have identified 2 typical performance obligations under the terms of our research service contracts: sequencing services and related data analysis. We recognize revenue for both identified performance obligations as sample results are delivered to the customer. 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.

We derive revenue by providing services through development agreements to biopharmaceutical customers who seek access to our immune medicine platform technologies. We generate revenues from the delivery of professional support activities pertaining to the use of ~~our proprietary~~ immunoSEQ and ~~clonoSEQ services~~our minimal residual disease (“MRD”) product in the development of the respective customers’ initiatives. The transaction price for these contracts may consist of a combination of non-refundable upfront fees, separately priced sequencing fees, progress-based milestones and regulatory milestones. The development agreements may include single or multiple performance obligations, depending on the contract. For certain contracts, we may perform services to support the biopharmaceutical customers’ regulatory 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. Generally, these services are not distinct within the context of the contract and they are accounted for as a single performance obligation.

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. Except for any non-refundable upfront fees, the other forms of compensation represent variable consideration. Variable consideration related to progress-based and regulatory milestones is estimated using the most likely amount method, where variable consideration is constrained until it is probable that a significant reversal of cumulative revenue recognized will not occur. Progress milestones, such as the first sample result delivered or final patient enrollment in a customer trial, are customer dependent and are included in the transaction price when the respective milestone is probable of occurring. Milestone payments that are not within our customers’ control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. Determining whether regulatory milestone payments are probable is an area that requires significant judgment. In making this assessment, we evaluate scientific, clinical, regulatory and other risks, as well as the level of effort and investment required to achieve the respective milestone.

The primary method used to estimate standalone selling price for performance obligations is the adjusted market assessment approach. Using this approach, we evaluate the market in which we sell our services and estimate the price that a customer in that market would be willing to pay for our services. We recognize revenue using either an input or output measure of progress that faithfully depicts performance on a contract, depending on the contract. The measure used is dependent on the nature of the service to be provided in each contract. Selecting the measure of progress and estimating progress to date requires significant judgment.

We calculate basic net loss per share attributable to common shareholders by dividing ~~the~~ net loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common shareholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, common stock warrants, stock options and nonvested restricted stock units are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common shareholders, as their effect is anti-dilutive.

Prior to the closing of our initial public offering in July 2019 and the related conversion of our convertible preferred stock into common stock, we calculated our basic and diluted net loss per share attributable to common shareholders in conformity with the two-class method required for companies with participating securities. We considered our convertible preferred stock to be participating securities. In the event a dividend had been declared or paid on common stock, holders of convertible preferred stock would have been entitled to a share of such dividend in proportion to the holders of common stock on an as-if converted basis. Under the two-class method, basic net loss per share attributable to common shareholders is calculated by dividing the net loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding for the period. 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, stock options and restricted stock units 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.

~~In February 2016, the Financial Accounting Standards Board (“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”).~~

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 unaudited condensed balance sheets but did not have a material impact on our unaudited condensed statements of operations or unaudited condensed 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. Refer to Note 8 of the accompanying notes to our unaudited condensed financial statements 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 unaudited condensed 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 unaudited condensed 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 unaudited condensed financial statements.

We have entered into agreements with biopharmaceutical customers to further develop and commercialize ~~clonoSEQ~~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~~achieving certain regulatory milestones pertaining to the customers’ therapeutics and our ~~clonoSEQ test.~~MRD product.

Under the contracts, we identify performance obligations, which may include: (1) obligations to provide services supporting the customer’s regulatory submission activities as they relate to our ~~clonoSEQ test;~~MRD product; and (2) sequencing services related to customer-provided samples for their regulatory submissions. The transaction price allocated to the respective performance obligations is estimated using an adjusted market assessment approach for the regulatory support services and a standalone selling price for the estimated immunosequencing services. At contract inception, we fully 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~~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, ~~and~~ 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 using a cost-based model based on estimates of effort ~~completed using a cost-based model.~~completed.

InDue 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, we recognized revenue of $2.6 million and $3.2 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020 and~~2021, respectively, of which $0.3 million was recognized as development revenue in the respective periods.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2021, we earned ~~$2.5~~$1.5 million and ~~$2.0~~$8.5 million, respectively, upon the achievement of certain regulatory milestones by ~~us and~~ our respective customers’ therapeutics. ~~All $2.5 million and $2.0 million was~~We recognized these earnings as development revenue within the respective periods, as we determined ~~these~~that the amounts were consistent with our estimated standalone selling ~~price~~prices and the respective performance obligations were complete.

In total, we recognized ~~$2.6~~$2.3 million and ~~$3.1~~$9.5 million in development revenue related to ~~these contracts~~our MRD development agreements during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, and ~~$2.3~~$0.1 million and ~~$3.1~~$0.5 million in development revenue related to our MRD development agreements during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively.

As of ~~September~~June 30, ~~2020,~~2021, in future periods we could receive up to an additional ~~$313.5~~$327.0 million in milestone payments if certain regulatory approvals are obtained by our customers’ therapeutics in connection with MRD data generated from our ~~clonoSEQ test.~~MRD product.

In December 2018, we entered into a worldwide collaboration and license agreement with Genentech (“Genentech Agreement”) ~~with Genentech~~ to leverage our capability to develop cellular therapies in oncology. Subsequent to receipt of regulatory approval in January 2019, we received a non-refundable, upfront payment of $300.0 million in February 2019 and may be eligible to receive more than $1.8 billion over time, including payments of up to $75.0 million upon the achievement of specified regulatory milestones, up to $300.0 million upon the achievement of specified development milestones and up to $1,430.0 million upon the achievement of specified commercial milestones. In addition, we are separately able to receive tiered royalties at a rate ranging from the mid-single digits to the mid-teens on aggregate worldwide net sales of products arising from the strategic collaboration, subject to certain reductions, with aggregate minimum floors. Under the agreement, we are pursuing two product development pathways for novel T cell immunotherapies in which Genentech intends to use T cell receptors (“TCRs”) screened by our immune medicine platform to engineer and manufacture cellular medicines:

Under the terms of the agreement, we granted Genentech exclusive worldwide licenses to develop and commercialize TCR-based cellular therapies in the field of oncology, including licenses to existing shared antigen data packages. Additionally, Genentech has the right to determine which product candidates to further develop for commercialization purposes. We determined that this arrangement meets the criteria set forth in ASC Topic 808, Collaborative Arrangements (“ASC 808”), because both parties are active participants in the activity and are exposed to significant risks and rewards depending on the activity’s commercial failure or success. Because ASC 808 does not provide guidance on how to account for the activities under a collaborative arrangement, we applied the guidance in ASC 606 to account for the activities related to the Genentech Agreement.

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

We determined that none of the licenses, research and development services or obligations to participate on various committees were distinct within the context of the contract, given such rights and activities were highly interrelated and there was substantial additional research and development to further develop the licenses. We considered factors such as the stage of development of the respective existing antigen data packages, the subsequent development that would be required to both identify and submit a potential target for investigational new drug acceptance under both product pathways and the variability in research and development pathways given Genentech’s control of product commercialization. Specifically, under the agreement, Genentech is not required to pursue development or commercialization activities pertaining to both product pathways and may choose to proceed with one or the other, as opposed to both. Accordingly, we determined that all of the identified performance obligations were attributable to one general performance obligation, which is to further the development of our TCR-specific platform, including data packages, and continue to make our TCR identification process available to Genentech to pursue either product pathway.

Separately, we have a responsibility to Genentech to enter into a supply and manufacturing agreement for patient-specific TCRs as it pertains to any Personalized Product therapeutic. We determined this was an option right of Genentech should they pursue commercialization of a Personalized Product therapy. Because of the uncertainty resulting from the early stage of development, the novel approach of our collaboration with Genentech and our rights to future commercial milestones and royalty payments, we determined that this option right was not a material right that should be accounted for at inception. As such, we will account for the supply and manufacturing agreement when entered into between the parties.

We determined the initial transaction price shall be made up of only the $300.0 million upfront, non-refundable payment, as all potential regulatory and development milestone payments were probable of significant revenue reversal given their achievement was highly dependent on factors outside our control. As a result, these payments were fully constrained and were not included in the transaction price as of ~~September~~June 30, ~~2020.~~2021. 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.

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~~Products 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~~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 ~~$12.3~~$17.2 million and ~~$11.4~~$12.7 million during the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$35.9~~$32.8 million and ~~$26.2~~$23.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, related to the Genentech Agreement. Costs related to the Genentech Agreement are included in research and development expenses.

The following tables set forth the fair value of financial assets as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 that were measured at fair value on a recurring basis (in thousands):

Level 1 securities include highly liquid money market funds, for which we measure the fair value based on quoted prices in active markets for identical assets or liabilities. Level 2 securities consist of U.S. government debt securities ~~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.

Available-for-sale investments consisted of the following as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):

All the ~~commercial paper,~~ U.S. government debt ~~and agency~~ securities and corporate bonds designated as short-term marketable securities have an effective maturity date that is 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 ~~receivable is~~receivables are excluded from the amortized cost and estimated fair value of our marketable securities. Accrued interest receivables of ~~$1.4~~$2.3 million and ~~$2.2~~$2.5 million were presented separately within the prepaid expenses and other current assets line item on our unaudited condensed consolidated balance sheet as of ~~September~~June 30, ~~2020~~2021 and on our condensed consolidated balance sheet as of December 31, ~~2019,~~2020, 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 ~~September~~June 30, ~~2020~~2021 (in thousands):

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

As of ~~September~~June 30, ~~2020,~~2021, we did not intend, nor were we more likely than not to be required, to sell our available-for-sale investments before the recovery of their amortized cost basis, which may be maturity. Based on our assessment, we concluded all impairment as of ~~September~~June 30, ~~2020~~2021 to be due to factors other than credit loss, such as changes in interest rates. A credit allowance was not recognized and the impairment of our available-for-sale securities was recorded in other comprehensive loss.

There have been 0 changes in the carrying amount of goodwill since its recognition in 2015.

Intangible assets subject to amortization as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following (in thousands):

The developed technology was acquired in connection with our acquisition of Sequenta, Inc. ~~(“Sequenta”)~~ in 2015. The remaining balance of the acquired technology and the purchased intellectual property is expected to be amortized over the next ~~6.3~~5.5 years.

As of ~~September~~June 30, ~~2020,~~2021, expected future amortization expense for intangible assets was as follows (in thousands):

Deferred revenue by revenue classification as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was as follows (in thousands):

Deferred revenue from our Genentech Agreement represents ~~$59.9~~$64.8 million and ~~$169.1~~$114.4 million of the current and non-current development deferred revenue balances, respectively, ~~at September~~as of June 30, ~~2020~~2021 and ~~$48.1~~$55.1 million and ~~$216.8~~$157.0 million of the current and non-current development deferred revenue balances, respectively, atas of December 31, ~~2019.~~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 five to six ~~to seven years.~~years from June 30, 2021. 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 three and six months ended June 30, 2021, we recognized $2.6 million and $3.4 million in revenue, respectively, 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 $0.5 million and $0.7 million of sequencing revenue during the three and six months ended June 30, 2021, respectively, related to Medicare reimbursements resulting from our determination that the likelihood of additional testing for specific patients was remote.

Changes in deferred revenue during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 were as follows (in thousands):

As of ~~September~~June 30, ~~2020, $41.9~~2021, $40.6 million was recognized as revenue that was included in the deferred revenue balance at December 31, ~~2019. As a result of cancelled customer sequencing contracts, we recognized $0.5 million and $0.9 million of sequencing revenue during the three and nine months ended September 30, 2020, respectively.~~2020.

We have operating lease agreements for ~~the~~ laboratory and office facilities ~~that we occupy~~ in Seattle, Washington, ~~and~~ South San Francisco, California and New York City, New York, as well as server space. ~~Our leases include an amendment to our previous~~Additionally, in March 2021, we executed a lease ~~in South San Francisco, California~~ to rent ~~19,867 additional~~approximately 27,000 square feet of a warehouse in Bothell, Washington, which ~~commenced~~we classified as an operating lease upon commencement during the ~~nine~~three months ended ~~September~~June 30, ~~2020~~2021. Rent obligations commence in October 2021 and ~~provides~~the lease expires 120 months thereafter, subject to an early termination option after the seventh year and an option to twice extend the lease for ~~a $0.6~~five years. Furthermore, the landlord agreed to fund $1.2 million ~~tenant improvement allowance.~~ in improvements in connection with this lease. For the six months ended June 30, 2021, ROU assets obtained in exchange for operating lease liabilities was $5.4 million.

As of ~~September~~June 30, ~~2020,~~2021, we were not party to any finance leases. Our leases have remaining terms of ~~1.6~~0.8 years to ~~11.8~~12.2 years and include options to extend certain of the leases for up to 10.0 years and terminate certain of the leases after as few as 3.0 years. We adjust lease terms for these options only when it is reasonably certain we will exercise these options. As of ~~September~~June 30, ~~2020,~~2021, it was reasonably certain that we would exercise our option to terminate 2 of our leases after 3.0 years.

We previously entered into a $2.1 million letter of credit with one of our financial institutions in connection with one of our leases.

Other information related to our operating leases as of ~~September~~ June 30, ~~2020~~2021 was as follows:

The following table reconciles our undiscounted operating lease cash flows to our operating lease liabilities as of ~~September~~June 30, ~~2020~~2021 (in thousands):

Operating lease expense was ~~$1.4~~$3.1 million and ~~$3.7~~$1.2 million for the three ~~and nine~~ months ended ~~September~~ June 30, 2021 and 2020, respectively, and $6.2 million and $2.3 million for the six months ended June 30, 2021 and 2020, respectively. Variable lease expense for operating leases was ~~$0.7~~$0.8 million and ~~$1.8~~$0.6 million for the three months ended June 30, 2021 and ~~nine~~2020, respectively, and $1.5 million and $1.1 million for the six months ended ~~September~~June 30, ~~2020, respectively.Rent expense recognized under ASC 840, inclusive of operating~~2021 and ~~maintenance costs, was $1.3 million and $3.6 million for the three and nine months ended~~ ~~September~~2020 ~~30, 2019,~~, respectively.

Cash paid for amounts included in the measurement of lease liabilities was $3.5 million and cash received for tenant improvement allowances was $5.4 million during the ~~nine~~six months ended ~~September~~June 30, 2021. Cash paid during the six months ended June 30, 2020 for amounts included in the measurement of lease liabilities was ~~$1.8~~$0.9 million, net of ~~$1.8~~$1.3 million of cash received for tenant improvement ~~allowances.~~allowances

In August 2019, we entered into an agreement to rent 100,000 square feet in a to-be-constructed building in Seattle, Washington. In connection with the lease, we entered into a $2.1 million letter of credit with one of our existing financial institutions. Due to our ~~significant~~ involvement during the construction process of the leased building, we qualified as the deemed owner of the building under build-to-suit lease accounting guidance that proceeded ASC 842. The resulting asset and long-term financing obligation recorded on our balance sheet for the cost of the building was derecognized upon adoption of ASC 842. As of ~~September~~ 30, 2020, we have incurred $2.4 million in certain tenant improvement costs relating to the to-be-constructed building, which are presented within the other long-term liabilities line item on our unaudited condensed balance sheet as of ~~September~~ 30, 2020. These costs will be reimbursed by the landlord. The related receivable of $2.4 million is presented within the prepaid expenses and other current assets line item on our unaudited condensed balance sheet as of ~~September~~ ~~30, 2020.~~

This lease will be assessed for classification and a lease liability and corresponding ROU asset will be recorded upon lease commencement. Future non-cancellable undiscounted lease payments total $89.8 million, payable over the lease term of 12.7 years..

We are subject to claims and assessments from time to time in the ordinary course of business. We will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. 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~~were not ~~currently~~ party to any material legal ~~proceedings.~~proceedings as of June 30, 2021.

In the ordinary course of business, we may provide indemnification of varying scope and terms to vendors, lessors, customers and other parties with respect to certain matters including, but not limited to, losses arising out of breach of our agreements with them or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with members of our board of directors and certain of our executive officers that will require us to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments that we could be required to make under these indemnification agreements is, in many cases, unlimited. We have not incurred any material costs as a result of such indemnifications and are not currently aware of any indemnification claims.

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 September 30, 2020, 0 shares of convertible preferred stock were outstanding.

We are authorized to issue 10,000,000 shares of preferred stock, par value $0.0001 per share. As of ~~September~~June 30, ~~2020,~~2021, 0 shares of preferred stock were outstanding.

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. Holders of our common stock are entitled to 1 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 ~~September~~June 30, ~~2020,~~2021, we had ~~136,392,256~~140,663,755 shares of common stock outstanding.

As of ~~September~~June 30, ~~2020,~~2021, we have reserved shares of common stock for the following:

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

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

OnEffective January 1, ~~2020,~~2021, our 2019 Plan ~~and ESPP reserves automatically~~reserve increased by ~~6,261,907 shares and 1,252,381 shares, respectively.~~6,882,344 shares. Our board of directors determined not to increase the ESPP reserve in 2021.

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 iswas 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 warrant was exercised on February 25, 2021 through a cashless exercise, resulting in the ~~financial liability~~issuance of 54,162 shares of our common stock. The impact of this cashless exercise was ~~reclassified~~immaterial to ~~the additional paid-in capital line item on~~ our unaudited condensed ~~balance sheet. The warrant~~consolidated financial statements. As of June 30, 2021, there were 0 outstanding warrants to purchase ~~56,875 shares of~~ common ~~stock remains outstanding as of September 30, 2020.~~

In connection with our acquisition of Sequenta in January 2015, we assumed Sequenta’s Equity Incentive Plan (“2008 Plan”), including all outstanding options and shares available for future issuance under the 2008 Plan, which, prior to the completion of our initial public offering, were all exercisable for Series E-1 convertible preferred stock. Upon completion of our initial public offering in July 2019, the outstanding options were exercisable for common stock. NaN shares are available for future issuance under this plan and 0 equity awards are outstanding under this plan as of September 30, 2020.

We adopted an equity incentive plan in 2009 (“2009 Plan”) that provided for the issuance of incentive and nonqualified common stock options and other share-based awards for employees, directors and consultants. Under the 2009 Plan, the option exercise price for incentive and nonqualified stock options were not to be less than the fair market value of our common stock at the date of grant. Options granted under this plan expire no later than ten years from the grant date and vesting was established at the time of grant. Pursuant to the terms of the 2019 Plan, any shares subject to outstanding options originally granted under the 2009 Plan that terminate, expire or lapse for any reason without the delivery of shares to the holder thereof shall become available for issuance pursuant to awards granted under the 2019 Plan. While 0 shares are available for future issuance under the 2009 Plan, it continues to govern outstanding equity awards granted thereunder.

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.~~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~~effective date of ~~the option,~~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 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 ~~September~~June 30, ~~2020,~~2021, we have authorized ~~22,102,754~~29,124,570 shares of common stock for issuance under the 2019 Plan.

Changes in shares available for grant during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 were as follows:

Stock option activity under the ~~2008 Plan,~~ 2009 Plan and 2019 Plan during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was as follows:

The weighted-average remaining contractual life for options outstanding ~~at September~~as of June 30, ~~2020~~2021 was ~~7.1~~7.3 years. The weighted-average remaining contractual life for vested and exercisable options ~~outstanding at September~~as of June 30, ~~2020~~2021 was ~~5.9~~6.0 years.

Of the $15.5 million proceeds from exercise of stock options included on our unaudited condensed statements of cash flows for the nine months ended September 30, 2020, $0.5 million related to options exercised prior to but settled during the nine months ended September 30, 2020. As of ~~September~~June 30, ~~2020, $0.4~~2021, $0.2 million was included in the prepaid expenses and other current assets line item on our unaudited condensed consolidated balance sheet for unsettled cash proceeds related to options ~~exercised.~~

As of December 31, 2019, 4,500 shares of restricted stock units (“RSUs”), with a weighted-average grant date fair value per share of $41.63, were nonvested and outstanding. We granted 50,000 shares of RSUs, with a weighted-average grant date fair value per share of $28.10,exercised during the ~~nine~~six months ended ~~September~~June 30, ~~2020. During~~2021. Of the ~~nine~~$20.5 million proceeds from exercise of stock options included on our unaudited condensed consolidated statements of cash flows for the six months ended ~~September~~June 30, 2021, $0.3 million related to options exercised prior to but settled during the six months ended June 30, 2021. Of the $11.3 million proceeds from exercise of stock options included on our unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2020, ~~4,500 shares of RSUs, with a weighted-average grant date fair value per share of $41.63, vested. As of September~~$0.5 million related to options exercised prior to but settled during the six months ended June 30, ~~2020, 50,000 shares of RSUs, with a weighted-average grant date fair value per share of $28.10, remained nonvested and outstanding.~~2020.

Restricted stock unit activity under the 2019 Plan during the six months ended June 30, 2021 was as follows:

Grant Date Fair Value of Options and ~~Grant Date Fair Value of~~ Restricted Stock Units Granted

The estimated grant date fair value of options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was estimated using the Black-Scholes option-pricing model with the following assumptions:

The weighted-average volatility used in the grant date fair value calculations of options granted during the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 was 68.3% and ~~2019 was 71.2% and 68.0%~~71.0%, respectively.

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

Fair value of common stock—Prior to the closing of our initial public offering, the grant date fair value of our common stock was determined 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~~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. Under this approach, the expected term is based on the midpoint between the vesting date and the end of the contractual term of the option.

Risk-free interest rate—We utilize a risk-free interest rate in the option valuation model based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected 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 0 in the option valuation model.

The grant date fair value of ~~RSUs~~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.

Share-based compensation expense of ~~$6.5~~$11.2 million and ~~$3.3~~$6.4 million was recognized during the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$17.5~~$19.7 million and ~~$9.7~~$11.0 million was recognized during the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively.

The compensation costs related to stock options and ~~RSUs~~restricted stock units for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, are included on our unaudited condensed consolidated statements of operations as follows (in thousands):

~~At September~~As of June 30, ~~2020,~~2021, unrecognized share-based compensation expense related to unvested stock options was ~~$75.5~~$103.8 million, which is expected to be recognized over a remaining weighted-average period of 3.1 years. Additionally, ~~at September~~as of June 30, ~~2020,~~2021, unrecognized share-based compensation expense related to unvested ~~RSUs~~restricted stock units was ~~$1.2~~$27.4 million, which is expected to be recognized over a remaining weighted-average period of ~~3.5~~3.6 years.

The effective tax expense was $0.7 million and the effective tax benefit was $1.1 million for the three and nine months ended September 30, 2020, respectively. There was 0 effective tax benefit for the year ended December 31, 2019.

We calculate our tax provision by applying a forecasted annual effective tax rate (“AETR”) against year-to-date pre-tax loss, and taking into account certain discrete items, primarily related to the exercise activity of stock options, in the quarter in which they occur. We recorded an income tax expense for the three months ended September 30, 2020 and an income tax benefit for the nine months ended September 30, 2020 because the discrete benefit from option exercises was greater than the year-to-date AETR tax expense. We do not expect to recognize any tax expense or benefit on a full year basis, inclusive of discrete items.

We file income tax returns in the U.S. federal jurisdiction and various U.S. state jurisdictions. Significant disputes may arise with authorities involving issues of the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws, regulations and the relevant facts. We believe our accrual for income tax liabilities is appropriate based on past experience, interpretations of tax law and judgments about potential actions by tax authorities; however, due to the complexity of the provision for income taxes, the ultimate resolution of any tax matters may result in payments greater or less than amounts accrued. Because of net operating loss carryforwards, substantially all tax years since inception remain open to federal and state tax examination.

On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) to provide emergency economic stimulus in light of the effects of COVID-19. While the CARES Act provides extensive tax changes, some of the more significant provisions include removing certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act of 2017 (“TCJA”). We are still evaluating the CARES Act, but do not anticipate a significant impact to our income tax provision.

The following table sets forth the computation of the basic and diluted net loss per share attributable to common shareholders for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively (in thousands, except share and per share amounts):

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 three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, as they had an anti-dilutive effect:

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes and the other financial information appearing elsewhere in this report, as well as the other financial information we file with the SEC from time to time. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties relating to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements.

As a result of many factors, including those factors set forth in the “Risk Factors” section of this report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are advancing the field of ~~immune-driven~~immune medicine by harnessing the inherent biology of the adaptive immune system to transform the diagnosis and treatment of disease. We believe the adaptive immune system is nature’s most finely tuned diagnostic and therapeutic for most diseases, but the inability to decode it has prevented the medical community from fully leveraging its capabilities. Our immune medicine platform applies our proprietary technologies to read the diverse genetic code of a patient’s immune system and aims to understand precisely how itthe immune system detects and treats disease in that patient. We capture these insights in our dynamic clinical immunomics database, which is underpinned by computational biology and machine learning, and use them to develop and commercialize clinical products and services that we are tailoring to each individual patient. We have ~~two~~ 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.

Our immune medicine platform is the foundation for our expanding suite of products and services. The cornerstone of our platform and core immunosequencing product, immunoSEQ, serves as our underlying research and development engine and generates revenue from ~~academic~~biopharmaceutical and ~~biopharmaceutical~~academic customers. Our first clinical diagnostic product, clonoSEQ, is the first test authorized by the ~~FDA~~Food and Drug Administration for the detection and monitoring of MRD in patients with MMmultiple myeloma (“MM”), B cell acute lymphoblastic leukemia (“ALL”) and ~~ALL~~chronic lymphocytic leukemia (“CLL”), and is ~~being validated~~also available as a CLIA-validated laboratory developed test for patients with other ~~blood~~lymphoid cancers. Leveraging our collaboration with Microsoft Corporation (“Microsoft”) to create the TCR-Antigen Map, we are also developing a clinical diagnostic product, T-Detect (previously referred to as immunoSEQ Dx), that may enable early detection of many diseases from a single blood test. We are currently running our first clinical validation study in acute Lyme disease following proof of concept in 2019. Our therapeutic product candidates, being developed under the Genentech Agreement, leverage our platform to identify specific immune cells to develop into cellular therapies in oncology.

Since our inception, we have devoted a majority of our resources to research and development activities to develop our immune medicine platform.

We are using the TCR-Antigen Map to develop research solutions and diagnostic products, such as immunoSEQ T-MAP and T-Detect. T-Detect COVID, for which we have received emergency use authorization, confirms past SARS-CoV-2 infection, the virus that causes COVID-19, and is also the first indication for the T-Detect product line. We are finalizing clinical validation of T-Detect for acute Lyme disease, have identified a clinical signal for Crohn’s disease and continue to pursue signals for other disease states, in parallel.

Our therapeutic product candidates, being developed under the Genentech Agreement, leverage our platform ~~which enables the delivery of~~to identify specific receptors on immune cells to develop into cellular therapies in oncology. We also recently extended our ~~products~~platform to identify highly potent neutralizing antibodies against SARS-CoV-2 and ~~services for life sciences research, clinical diagnostics and drug discovery customers.~~we believe this differentiated approach may be leveraged across multiple disease states.

For our life ~~science~~sciences research customers, we provide two categories of products and services using ~~immunoSEQ, our core sequencing and immunomics tracking technology.~~immunoSEQ. First, we provide immunosequencing services, the revenue from which we record as sequencing revenue. Second, we provide certain research customers professional support, for which we may receive nonrefundable upfront or recurring payments. We may receive additional payments upon those customers achieving specified milestones. ~~We record~~Revenue related to these ~~support~~ activities are recorded as development revenue.

For our clinical diagnostics customers, we sell our clonoSEQ diagnostic ~~tests,~~test and T-Detect COVID test, which include our immunosequencing services and are thus recorded as sequencing revenue. In the future, we intend to sell other ~~diagnostics~~diagnostic products and services, including other indications for T-Detect, which we also expect to record as sequencing revenue.

For our current drug discovery collaborator, Genentech, we screen, identify and characterize TCRs in support of our collaboration. We record revenue from this collaboration as development revenue.

Historically, we have sold immunoSEQ as a fee-for-service ~~offering to academic centers and biopharmaceutical customers and further deepened those relationships over time by supporting their development initiatives.~~offering. These research offerings have comprised the majority of our revenue to date, although our business is pursuing broader opportunities. As we continue to expand the use of our clonoSEQ diagnostic tests, develop and commercialize T-Detect and develop and commercialize therapeutic product candidates with our drug discovery collaborator, we expect our mix of revenue to shift to clinical products and services, which we believe will become our largest sources of revenue.

We are actively pursuing opportunities to deepen our relationships with current customers and initiate relationships with new customers. We have an experienced, specialty salesforce that is targeting department heads, laboratory directors, principal investigators, core facility directors, clinicians, payors, ~~and~~ research scientists and pathologists at leading academic institutions, biopharmaceutical companies, research institutions and contract research organizations. As MRD assessment becomes standard practice for patient management across a range of blood cancers, we believe it will be essential for clinicians and patients to have access to a highly accurate, sensitive and standardized MRD assessment tool. We are focused on establishing and maintaining collaborative relationships with payors, developing health economic evidence and building billing and patient access infrastructure to expand reimbursement coverage for our clinical diagnostics. We continue to seek expanded coverage of our clonoSEQ diagnostic test and ~~in 2019, we~~have successfully expanded coverage through contractual agreements or positive medical policies with Medicare and several of the largest national private health insurers in the United States.

We generated revenue of ~~$26.3~~$38.5 million and ~~$68.2~~$21.0 million for the three ~~and nine~~ months ended ~~September~~June 30, 2021 and 2020, respectively, and ~~$26.1~~$76.9 million and ~~$60.9~~$41.9 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2019,~~2021 and 2020, respectively. Our net losses were ~~$36.7~~$49.3 million and ~~$101.7~~$33.5 million for the three ~~and nine~~ months ended ~~September~~June 30, 2021 and 2020, respectively, and ~~$14.0~~$89.9 million and ~~$48.0~~$64.9 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2019,~~2021 and 2020, respectively. We have funded our operations to date principally from the sale of convertible preferred stock and common stock and, to a lesser extent, sequencing and development revenue. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had cash, cash equivalents and marketable securities of ~~$851.5~~$689.5 million and ~~$682.3~~$806.8 million, respectively.

In March 2020, we extended our collaboration with Microsoft to decode the adaptive immune response and pursue a diagnostic signal for COVID-19. In the second quarter of 2020, we confirmed a clinical signal for the detection of the virus that causes COVID-19, called SARS-CoV-2. We are actively exploring T-Detect’s ability to detect the TCR response to the virus and believe that quantifying virus-specific T cells may enable new diagnostic applications and inform our ability to assess immunity and response to vaccines or other drugs in development. As part of this effort, we initiated the ImmuneCODE program to collect, analyze and publicize data about the TCRs specific to SARS-CoV-2. We continue to collect samples from our own prospective study, ImmuneRACE, and participating institutions around the world that are interested in contributing. We are making all of the sequencing data publicly available in our ImmuneCODE database, which was launched in June 2020.

In August 2020, we launched immunoSEQ T-MAP COVID, a proprietary research product and data analysis service to measure the T cell immune response to vaccines being developed by third parties and track the persistence of that response over time. In November 2020, we announced plans to launch T-Detect COVID, a T cell-based clinical diagnostic product for COVID-19.

For a discussion of the risks presented by the COVID-19 pandemic, including risks to our results of operations and inherent in development of new products and services related to the pandemic, see the “Risk Factors” section of this report.

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 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 payable by us.

We derive our revenue from two sources: (1) sequencing revenue and (2) development revenue.

Sequencing revenue. 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 our clinical customers, we primarily derive revenue from providing our clonoSEQ ~~test~~ report to ordering physicians. We bill medical institutions and commercial and government payors based on tests delivered to ordering physicians. Amounts paid for clonoSEQ diagnostic tests by medical institutions and commercial and government payors vary based on respective reimbursement rates and patient responsibilities, which may differ from our targeted list price. To date, the majority of our clonoSEQ diagnostic test revenue has been received from medical institutions. We recognize clinical revenue by evaluating customer payment history, contracted reimbursement rates, if applicable, and other adjustments to estimate the amount of revenue that is collectible. ~~Until 2019, we did not have reimbursement available to us through any government payors for clonoSEQ.~~

For our clonoSEQ coverage under Medicare, we bill an episode of treatment when we deliver the first eligible test results. This billing contemplates all necessary tests required during a patient’s treatment cycle, which is currently estimated at approximately four tests per patient, including the initial sequence identification test. Revenue recognition commences at the time the initial billable test result is delivered and is based upon cumulative tests delivered to date. Any unrecognized revenue from the initial billable test is recorded as deferred revenue and recognized either as we deliver the remaining tests in a patient’s treatment ~~cycle.~~cycle or when the likelihood becomes remote that a patient will receive additional testing and we have not delivered our estimate of total tests.

For our research customers, which include biopharmaceutical customers and academic institutions, delivery of the sequencing results may include some level of professional support and analysis. Terms with biopharmaceutical customers generally include non-refundable upfront payments, which we record as deferred revenue. For all research customers, we recognize revenue as we deliver sequencing results. From time to time, we offer discounts in order to gain rights and access to certain datasets. Revenue is recognized net of these discounts and costs associated with these services are reflected in cost of revenue. 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. Development revenue primarily represents regulatory or development support services, other than sequencing revenue, that we provide to biopharmaceutical customers who seek access to our platform to support their therapeutic development activities. ~~Additionally, we generate development revenue from the achievement of regulatory milestones.~~ We enter into collaboration and similar agreements with these customers. When these agreements include sequencing activities, we separately classify those activities as sequencing revenue. These agreements may also include substantial non-refundable upfront payments, which we recognize as development revenue over time as we perform the respective services. Additionally, we generate development revenue from the achievement of regulatory milestones.

We expect revenue to increase over the long term, particularly as the mix of revenue migrates to clinical diagnostics and drug discovery. The pace by which this mix migrates will be determined by the level of customer adoption and frequency of use of our products and services. Our revenue may fluctuate from period to period due to the uncertain nature of delivery of our products and services, the achievement of milestones by us or our customers, timing of expenses incurred, changes in estimates of total anticipated costs related to our Genentech Agreement and other events not within our control, such as the delivery of customer samples or customer decisions to no longer pursue their development initiatives.

Due to the ongoing uncertainties related to the COVID-19 pandemic, we may experience variability in revenue in the near term as ~~restrictions in~~ our customers’ abilities to procure samples for their research initiatives change, as customer initiatives evolve and as clinical testing is ~~impacted. For more information, see~~impacted by the section of this report captioned “Risk Factors—The COVID-19 pandemic could adversely impact portions of our business that rely on research and development activities or clinical trials and delay or disrupt our pipeline, which may adversely impact revenue.”pandemic.

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 and allocated facility occupancy and information technology costs. Costs associated with processing samples are recorded as expense, regardless of the timing of revenue recognition. As such, cost of revenue and related volume does not always trend in the same direction as revenue recognition and related volume. Additionally, costs to support our Genentech Agreement are a component of our research and development activities.

We expect cost of revenue to increase in absolute dollars as we grow our sequencing volume and make increased investments in laboratory automation and facilities, but the cost per sample to decrease over the long term due to the efficiencies we may gain as sequencing volume increases from improved utilization of our laboratory capacity, automation and other value engineering initiatives. If our sample volume throughput is reduced as a result of the COVID-19 pandemic or otherwise, cost of revenue as a percentage of total revenue may be adversely impacted due to fixed overhead costs.

Research and development expenses consist of laboratory materials costs, personnel-related expenses, equipment costs, allocated facility costs, information technology expenses and contract service expenses. Research and development activities support further development and refinement of existing assays and products, discovery of new technologies and investments in our immune medicine platform. 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, as well as development of applications to support future commercial opportunities.~~workflow. We are currently conducting research and development activities for several products and services and we typically use our laboratory materials, personnel, facilities, information technology and other development resources across multiple development programs. Additionally, certain of these research and development activities benefit more than one of our product opportunities. We do not track research and development expenses by specific product candidates.

A component of our research and development activities is supporting clinical and analytical validations to obtain regulatory approval for future clinical products and services. Additionally, the costs to support our Genentech Agreement are a component of our research and development activities. Some of these activities have generated and may in the future generate development revenue.

We expect our research and development expenses to continue to increase in absolute dollars as we innovate and expand the application of our platform. However, we expect research and development expenses to decrease as a percentage of revenue in the long term, although the percentage may fluctuate from period to period due to the timing and extent of our development and commercialization efforts. While the pace and priorities of our research and development initiatives may continue to be impacted by the COVID-19 pandemic, we expect to continue to increase expenses in both the near and long-term to support our ongoing initiatives, which include our initiatives with respect to COVID-19.

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. 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.

We expect our sales and marketing expenses to increase in absolute dollars as we expand our commercial sales, marketing and business development teams and increase marketing activities to drive awareness and adoption of our products and services. However, we expect sales and marketing expenses to decrease as a percentage of revenue in the long term, subject to fluctuations from period to period due to the timing and magnitude of these expenses.

General and administrative expenses consist primarily of personnel-related expenses, including share-based compensation, salaries and benefits for our personnel in executive, legal, finance and accounting, human resources and other administrative functions, including third-party billing services. In addition, these expenses include insurance costs, external legal costs, accounting and tax service expenses, consulting fees and allocated facility costs.

We expect our general and administrative expenses to continue to increase in absolute dollars as we increase headcount. Though expected to increase in absolute dollars, we expect these expenses to decrease as a percentage of revenue in the long term as revenue increases.

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
	(in thousands, except share and per share amounts)												(in thousands, except share and per share amounts)
Statements of Operations Data:
Revenue
Sequencing revenue	$	11,276		$	11,683		$	28,730		$	29,631		$	18,555		$	7,985		$	33,729		$	17,454
Development revenue		15,023			14,375			39,467			31,231			19,950			13,003			43,218			24,444
Total revenue		26,299			26,058			68,197			60,862			38,505			20,988			76,947			41,898
Operating expenses
Cost of revenue		6,053			5,601			16,308			16,323			10,765			4,912			20,756			10,255
Research and development		30,314			20,506			80,241			49,516			37,800			25,992			71,572			49,927
Sales and marketing		14,474			9,099			42,813			25,813			23,216			14,332			43,820			28,339
General and administrative		12,079			8,477			36,138			22,143			16,066			12,238			31,002			24,059
Amortization of intangible assets		428			428			1,275			1,270			423			423			842			847
Total operating expenses		63,348			44,111			176,775			115,065			88,270			57,897			167,992			113,427
Loss from operations		(37,049	)		(18,053	)		(108,578	)		(54,203	)		(49,765	)		(36,909	)		(91,045	)		(71,529	)
Interest and other income, net		1,018			4,103			5,805			6,208			464			1,893			1,102			4,787
Income tax (expense) benefit		(688	)		—			1,116			—
Income tax benefit														—			1,481			—			1,804
Net loss		(36,719	)		(13,950	)		(101,657	)		(47,995	)	$	(49,301	)	$	(33,535	)	$	(89,943	)	$	(64,938	)
Fair value adjustment to Series E-1 convertible preferred stock options		—			—			—			(964	)
Net loss attributable to common shareholders	$	(36,719	)	$	(13,950	)	$	(101,657	)	$	(48,959	)
Net loss per share attributable to common shareholders, basic and diluted	$	(0.27	)	$	(0.11	)	$	(0.79	)	$	(0.97	)	$	(0.35	)	$	(0.26	)	$	(0.64	)	$	(0.51	)
Weighted-average shares used in computing net loss per share attributable to common shareholders, basic and diluted		134,372,026			124,285,686			129,289,948			50,552,389			140,359,317			127,383,582			139,667,380			126,720,986
Other Financial and Operating Data:
Adjusted EBITDA ⁽¹⁾	$	(28,435	)	$	(12,655	)	$	(84,940	)	$	(38,774	)	$	(35,611	)	$	(28,538	)	$	(65,736	)	$	(56,505	)

⁽¹⁾ Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for interest and other income, net, income tax benefit (expense) ~~benefit,~~, depreciation and amortization and share-based compensation expenses. Please refer to “Adjusted EBITDA” below for a reconciliation between Adjusted EBITDA and net loss, the most directly comparable GAAP financial measure, and a discussion about the limitations of Adjusted EBITDA.

~~Total revenue was $26.3 million for the three months ended September 30, 2020, compared to $26.1 million for the three months ended September 30, 2019, representing an increase of $0.2 million, or 1%.~~

Sequencing revenue decreased to $11.3 million for the three months ended September 30, 2020, representing a decrease of $0.4 million, or 3%. The decrease in sequencing revenue was primarily attributable to a $1.9 million decrease in revenue generated from biopharmaceutical customers, inclusive of a decrease in revenue recognized from cancelled customer projects of $0.2 million, which was partially offset by a $1.4 million increase in revenue generated from clinical customers.

The $10.6 million increase in sequencing revenue was primarily attributable to a $6.9 million increase in revenue generated from biopharmaceutical and academic customers, inclusive of a $2.3 million increase due to changes in estimates of total samples to be provided under certain of our MRD development agreements. Additionally, there was a $3.7 million increase in revenue generated from clinical customers, inclusive of a $0.5 million increase related to Medicare reimbursements resulting from our determination that the likelihood of additional testing for specific patients was remote.

Research sequencing volume ~~decreased~~increased by ~~38%~~65% to ~~6,541~~6,900 sequences delivered in the three months ended ~~September~~June 30, ~~2020~~2021 from ~~10,618~~4,185 sequences delivered in the three months ended ~~September~~June 30, 2019. A large driver of the decrease in research sequencing volume, and the related sequencing revenue, was the expiration of a translational agreement with a biopharmaceutical customer in the fourth quarter of 2019.2020. Clinical sequencing volume, excluding T-Detect COVID volume, increased by ~~58%~~75% to ~~4,023~~5,475 clinical tests delivered in the three months ended ~~September~~June 30, ~~2020~~2021 from ~~2,551~~3,136 clinical tests delivered in the three months ended ~~September~~June 30, ~~2019.~~2020.

~~Development~~The $6.9 million increase in development revenue ~~increased to $15.0 million for the three months ended September 30, 2020, representing an increase of $0.6 million, or 5%. The increase~~ was primarily attributable to a ~~$0.9~~$4.5 million increase in revenue generated from the Genentech Agreement and a ~~$0.3~~$2.2 million increase in revenue generated from MRD development agreements, ~~which were partially offset~~inclusive of $1.5 million recognized upon the achievement of certain regulatory milestones by our customer's therapeutic and a ~~$0.6~~$0.3 million ~~decrease~~increase resulting from a change in ~~revenue generated from translational~~estimate of total samples to be provided under certain of our agreements.

~~Cost of revenue was $6.1~~The $5.9 million ~~for the three months ended September 30, 2020, compared to $5.6 million for the three months ended September 30, 2019, representing an increase of $0.5 million, or approximately 8%. The~~ increase in cost of revenue was primarily attributable to ~~a $1.1~~$3.6 million ~~increase~~ in additional labor and overhead costs, ~~which was partially offset by a $0.9 million decrease related to higher usage of our production laboratory to process research and development samples versus revenue samples.~~

~~The following table presents disaggregated research and development expenses by cost classification for the periods presented:~~

Research and development expenses were $30.3 million for the three months ended September 30, 2020, compared to $20.5 million for the three months ended September 30, 2019, representing an increase of $9.8 million, or 48%. The increase was primarily attributable to a $4.3 million increase in personnel costs and a $2.8 million increase in cost of materials and allocated production laboratory expenses, which was primarily related to supporting investments in our T-Detect and TCR-Antigen Map development, as well as ~~our immune medicine platform and drug discovery efforts. A $2.0 million increase in depreciation and other expenses also contributed to the overall period-over-period increase.~~

Sales and marketing expenses were $14.5 million for the three months ended September 30, 2020, compared to $9.1 million for the three months ended September 30, 2019, representing an increase of $5.4 million, or 59%. The increase was primarily attributable to $3.8 million in additional personnel costs and a $1.7 million increase in marketing fees, which was primarily related to additional investments in both our clonoSEQ marketing efforts and our shared corporate marketing initiatives. A $0.3 million increase in consulting fees and a $0.2 million increase in computer and software expenses also contributed to the period-over-period increase, which was partially offset by a $0.7 million decrease in travel, entertainment and customer event related expenses.

General and administrative expenses were $12.1 million for the three months ended September 30, 2020, compared to $8.5 million for the three months ended September 30, 2019, representing an increase of $3.6 million, or 42%. The increase was primarily attributable to $2.3 ~~million in additional personnel costs and a $1.0 million increase in legal, accounting and tax fees.~~

Interest and other income, net was $1.0 million for the three months ended September 30, 2020, compared to $4.1 million for the three months ended September 30, 2019, representing a decrease of $3.1 million, or approximately 75%. The decrease was attributable to a decrease in net interest income and investment amortization resulting from reduced interest rates and related yields.

~~Total revenue was $68.2 million for the nine months ended September 30, 2020, compared to $60.9 million for the nine months ended September 30, 2019, representing an increase of $7.3 million, or 12%.~~

Sequencing revenue decreased to $28.7 million for the nine months ended September 30, 2020, representing a decrease of $0.9 million, or 3%. The decrease in sequencing revenue was attributable to a $5.2 million decrease in revenue generated from biopharmaceutical and academic customers, inclusive of a decrease in revenue recognized from cancelled customer projects of $0.6 million, which was partially offset by a $4.3 million increase in revenue generated from clinical customers.

Research sequencing volume decreased by 32% to 16,756 sequences delivered in the nine months ended September 30, 2020 from 24,593 sequences delivered in the nine months ended September 30, 2019. The reduction in research sequencing volume was primarily attributable to the expiration of a translational agreement with a biopharmaceutical customer in the fourth quarter of 2019, as well as trial enrollment delays and project deferrals from our biopharmaceutical and academic customers. Clinical sequencing volume increased by 54% to 10,677 clinical tests delivered in the nine months ended September 30, 2020 from 6,950 clinical tests delivered in the nine months ended September 30, 2019.

Development revenue increased to $39.5 million for the nine months ended September 30, 2020, representing an increase of $8.2 million, or 26%. The increase was primarily attributable to a $9.7 million increase in revenue generated from the Genentech Agreement, partially offset by a $1.5 million decrease in revenue generated from translational agreements.

Cost of revenue was $16.3 million for the nine months ended September 30, 2020, compared to $16.3 million for the nine months ended September 30, 2019, representing no net change. Period-over-period, there was a $3.3 million increase in labor and overhead costs, a $0.3 million increase in biopharmaceutical partner support costs and a $0.1 million increase in materials ~~cost due~~costs resulting from increased revenue sample volume. We also incurred $1.2 million in additional allocable facility expenses related to ~~product mix.~~our new headquarters under construction and $0.7 million in additional shipping costs. These increases were partially offset by a ~~$3.4~~$1.8 million decrease related to higher usage of our production laboratory to process research and development samples versus revenue samples, as well as a $0.4 million decrease in ~~material costs resulting from a decrease in revenue sample volume.~~materials cost due to product mix.

The following table presents disaggregated research and development expenses by cost classification for the periods presented:

The $11.8 million increase in research and development expenses ~~were $80.2 million for the nine months ended September 30, 2020, compared to $49.5 million for the nine months ended September 30, 2019, representing an increase of $30.7 million, or 62%. The increase~~ was primarily attributable to a ~~$12.8~~$4.3 million increase in personnel costs, ~~and an $11.4~~a $4.2 million increase in cost of materials and allocated production laboratory expenses and a $2.6 million increase in depreciation and other expenses, which included a $1.0 million increase in collaboration and medical advisory costs and a $0.6 million increase in consultant costs. The increase in cost of materials and allocated production laboratory expenses was primarily ~~related to supporting~~driven by increased investments in our T-Detect and TCR-Antigen Map development and ~~immune medicine platform, as well as our~~ drug discovery efforts. ~~A $4.2~~

The $8.9 million increase in ~~depreciation and other expenses also contributed to the overall increase.~~

~~Sales~~sales and marketing expenses ~~were $42.8 million for the nine months ended September 30, 2020, compared to $25.8 million for the nine months ended September 30, 2019, representing an increase of $17.0 million, or 66%. The increase~~ was primarily attributable to ~~$9.9~~$6.0 million in additional personnel costs, ~~and $6.8~~$1.7 million in additional marketing ~~fees, which was largely related to investments supporting our clonoSEQ marketing efforts~~expenses and ~~shared corporate marketing initiatives. A~~ $0.5 million ~~increase in computer and software expenses, $0.3 million increase in consulting fees and $0.3 million increase in advisory expenses, all of which were partially offset by a $0.9 million decrease~~ in travel ~~entertainment~~ and customer event related ~~expenses, also contributed to~~expenses. Our T-Detect marketing efforts were the ~~overall increase.~~

~~General~~The $3.8 million increase in general and administrative expenses ~~were $36.1 million for the nine months ended September 30, 2020, compared to $22.1 million for the nine months ended September 30, 2019, representing an increase of $14.0 million, or 63%. The increase~~ was primarily attributable to a ~~$7.5~~$3.2 million increase in personnel costs, as well as a ~~$3.7~~$0.5 million increase in computer and software expenses, a $0.4 million increase in building, facility and depreciation related expenses and a $0.3 million increase in consultant costs. These increases were partially offset by a $0.6 million decrease in legal, accounting and tax fees and $2.1 million increase in insurance costs, both of which were largely due to the effect of operating as a public company for the full nine months ended September 30, 2020. Additionally, there was a $0.5 million increase in computer and software costs, a $0.5 million increase in credit and collections fees and a $0.5 million increase in consultant fees. These increases were partially offset by a $1.0 million decrease in business taxes primarily resulting from the timing of the Genentech upfront payment received in February 2019 and a $0.4 million decrease in ~~travel and entertainment expenses.~~business taxes.

~~Interest~~The $1.4 million decrease in interest and other income, net was ~~$5.8 million for the nine months ended September 30, 2020, compared to $6.2 million for the nine months ended September 30, 2019, representing a decrease of $0.4 million, or 6%. The decrease was~~ primarily attributable to a ~~$2.8~~$1.2 million decrease in net interest income and investment amortization resulting from reductions in interest rates and related ~~yields,~~yields.

The $16.3 million increase in sequencing revenue was primarily attributable to an $11.8 million increase in revenue generated from biopharmaceutical and academic customers, inclusive of a $2.9 million increase due to changes in estimates of total samples to be provided under certain of our MRD development agreements and a $0.2 million decrease in revenue recognized from customer project cancellations. Additionally, there was a $4.5 million increase in revenue generated from clinical customers, inclusive of a $0.7 million increase related to Medicare reimbursements resulting from our determination that the likelihood of additional testing for specific patients was remote.

Research sequencing volume increased by 36% to 13,926 sequences delivered in the six months ended June 30, 2021 from 10,215 sequences delivered in the six months ended June 30, 2020. Clinical sequencing volume, excluding T-Detect COVID volume, increased by 54% to 10,232 clinical tests delivered in the six months ended June 30, 2021 from 6,654 clinical tests delivered in the six months ended June 30, 2020.

The $18.8 million increase in development revenue was primarily attributable to a $9.2 million increase in revenue generated from the Genentech Agreement and a $9.0 million increase in revenue generated from MRD development agreements, inclusive of $8.5 million recognized upon the achievement of certain regulatory milestones by our customers' therapeutics and a $0.3 million increase resulting from a change in estimate of total samples to be provided under certain of our agreements.

The $10.5 million increase in cost of revenue was primarily attributable to $6.0 million in additional labor and overhead costs, as well as increased revenue sample volume and product mix, which resulted in an increase in materials cost of $2.9 million and $0.5 million, respectively. We also incurred $2.5 million in additional allocable facility expenses related to our new headquarters under construction and $1.0 million in additional shipping costs. These increases were partially offset by a $2.5 million decrease related to higher usage of our production laboratory to process research and development samples versus revenue samples.

The following table presents disaggregated research and development expenses by cost classification for the ~~$2.3~~periods presented:

The $21.6 million ~~impact~~increase in research and development expenses was primarily attributable to a $9.0 million increase in personnel costs, a $6.6 million increase in cost of ~~revaluing~~materials and allocated production laboratory expenses and a ~~convertible preferred stock warrant liability~~$4.9 million increase in depreciation and other expenses, which included a $2.4 million increase in collaboration and medical advisory costs and a $0.8 million increase in consultant costs. The increase in cost of materials and allocated production laboratory expenses was primarily driven by increased investments in our drug discovery efforts and T-Detect and TCR-Antigen Map development.

The $15.5 million increase in sales and marketing expenses was primarily attributable to $12.0 million in additional personnel costs, as well as a $2.5 million increase in marketing expenses and a $0.9 million increase in consultant costs. Our T-Detect marketing efforts were the ~~nine months ended September~~ largest driver of the $2.5 million increase in marketing expenses, followed by an increase in shared corporate marketing services.

The $6.9 million increase in general and administrative expenses was primarily attributable to a $6.0 million increase in personnel costs, in addition to a $0.9 million increase in computer and software costs, a $0.8 million increase in building, facility and depreciation related expenses and a $0.5 million increase in insurance costs. These increases were partially offset by a $1.2 million decrease in legal, accounting and tax fees.

The $3.7 million decrease in interest and other income, net was primarily attributable to a $3.5 million decrease in net interest income and investment amortization resulting from reductions in interest rates and related yields.

Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for interest and other income, net, income tax benefit (expense) ~~benefit,~~, depreciation and amortization and share-based compensation expenses.

Management uses Adjusted EBITDA to evaluate the financial performance of our business and the effectiveness of our business strategies. We present Adjusted EBITDA because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry and it facilitates comparisons on a consistent basis across reporting periods. Further, we believe it is helpful in highlighting trends in our operating results because it excludes items that are not indicative of our core operating performance.

Adjusted EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. We may in the future incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. In particular, we expect to incur meaningful share-based compensation expense in the future. Other limitations include that Adjusted EBITDA does not reflect:

In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

The following is a reconciliation of our net loss to Adjusted EBITDA for the ~~three and nine months ended September 30, 2020 and 2019, respectively~~periods presented (in thousands):

⁽¹⁾ Represents share-based compensation expense related to option and ~~RSU~~restricted stock unit awards. See Note 11 of the accompanying notes to our unaudited condensed consolidated financial statements ~~appearing~~included elsewhere in this report for details on our share-based compensation expense.

We have incurred losses since inception and have incurred negative cash flows from operations ~~from~~since inception through ~~December 31, 2018, and again in~~June 30, 2021, with the ~~interim~~exception of certain 2019 periods ~~within the first nine months of 2020.~~for which we had positive cash flows from operations. As of ~~September~~June 30, ~~2020,~~2021, we had an accumulated deficit of ~~$467.0~~$601.6 million.

We have funded our operations to date principally from the sale of convertible preferred stock and common stock and, to a lesser extent, sequencing and development revenue. As of ~~September~~June 30, ~~2020,~~2021, we had cash, cash equivalents and marketable securities of ~~$851.5~~$689.5 million.

We believe our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months. We may consider raising additional capital to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons.

If our available cash, cash equivalents and marketable securities balances and anticipated cash ~~flow~~flows from operations are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our shareholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. This additional capital may not be available on reasonable terms, or at all.

We plan to utilize the existing cash, cash equivalents and marketable securities on hand primarily to fund our commercial and marketing activities associated with our clinical products and services, continued research and development initiatives for our pipeline candidates and drug discovery initiatives and ongoing investments ~~into~~in our immune medicine ~~platform and scaling~~platform. We also expect to make increased capital expenditures in the near term related to the expansion of our office and laboratory space and expect to increase investment in laboratory equipment and operations ~~with~~to support our anticipated growth. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to ~~liquidity~~capital preservation and ~~capital preservation.~~liquidity. Currently, our funds are held in money market funds and marketable securities consisting of U.S. government debt securities and corporate bonds.

There have been no material changes outside the ordinary course of business to our contractual obligations and commitments as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020. See Note 8 of the accompanying notes to our unaudited condensed consolidated financial statements included elsewhere in this report for more information regarding our contractual obligations relating to lease agreements.

While we may experience ~~reductions~~variability in ~~our~~ revenue in the near term, ~~as a result of the COVID-19 pandemic or otherwise,~~ as long-term revenue from sales of our current and future products and services is expected to grow, we expect our accounts receivable and inventory balances to increase. Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued expenses, which could result in greater working capital requirements.

The following table summarizes our uses and sources of cash for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):

Cash used in operating activities during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$109.8~~$95.5 million, which was primarily attributable to a net loss of ~~$101.7~~$89.9 million and a net change in our operating assets and liabilities of ~~$32.5~~$38.5 million, ~~and a benefit from income tax of $1.1 million, which were~~ partially offset by ~~non-cash~~noncash share-based compensation of ~~$17.5~~$19.7 million, ~~non-cash~~noncash depreciation and amortization of ~~$5.6~~$9.8 million and ~~non-cash~~noncash lease expense of ~~$2.2~~$3.5 million. The net change in our operating assets and liabilities was primarily due to a ~~$27.3~~$33.7 million reduction in deferred revenue primarily related to revenue recognized from the Genentech Agreement, an increase in inventory of $4.5 million, an increase in accounts receivable of $4.1 million and a reduction in accounts payable and accrued liabilities of $2.5 million, all of which were partially offset by an increase in operating lease liabilities of $4.5 million and reductions in prepaid expenses and other assets of $2.0 million.

Cash used in operating activities during the six months ended June 30, 2020 was $62.7 million, which was primarily attributable to a net loss of $64.9 million, a net change in our operating assets and liabilities of $11.7 million and a benefit from income tax of $1.8 million, which were partially offset by noncash share-based compensation of $11.0 million, noncash depreciation and amortization of $3.3 million and noncash lease expense of $1.3 million. The net change in our operating assets and liabilities was primarily due to a $17.2 million reduction in deferred revenue primarily related to revenue recognized from the Genentech Agreement, a ~~$3.9~~$1.9 million ~~increase~~reduction in ~~prepaid expenses~~accounts payable and ~~other current assets~~accrued liabilities and a ~~$1.7~~$1.5 million increase in inventory. These changes were partially offset by ~~a reduction~~reductions in accounts receivable, net ~~of $0.8 million.~~

~~Cash provided by operating activities during the nine months ended September 30, 2019 was $232.2 million, which was primarily attributable to a net change in our operating assets~~ and liabilities of $266.1 million, non-cash share-based compensation of $9.7 million, non-cash depreciation and amortization of $2.2 million and a $2.3 million fair value adjustment of our convertible preferred stock warrant liability caused by an increase in valuation of our common stock, partially offset by a net loss of $48.0 million. The net change in our operating assets and liabilities reflects an increase in deferred revenue of $276.2 million, primarily due to the $300.0 million upfront payment by Genentech, and an increase in accounts payable and accrued liabilities of $3.1 million, primarily due to increased headcount and growth in operating expenditures, as well as the timing of vendor payments. These increases were partially offset by an increase in accounts receivable of $4.4 million, primarily due to an increase in clinical billings, as well as an increase in sequencing revenue paid in arrears rather than upfront by biopharmaceutical customers, an increase in prepaid expenses and other current assets of ~~$6.8~~$4.7 million ~~primarily due to prepaid insurance~~ and ~~prepaid software, an increase in inventory of $0.8~~$4.2 million, ~~to support the growth in laboratory operations, reductions in deferred rent of $0.6 million due to increased rent payments and a $0.5 million security deposit.~~respectively.

Cash provided by investing activities during the ~~nine~~six months ended ~~September~~June 30, 2021 was $135.3 million, which was primarily attributable to proceeds from maturities of marketable securities of $269.5 million, partially offset by purchases of marketable securities of $96.4 million and purchases of property and equipment of $37.9 million.

Cash provided by investing activities during the six months ended June 30, 2020 was ~~$223.0~~$320.3 million, which was primarily attributable to proceeds from sales and maturities of marketable securities of ~~$532.2~~$433.2 million, partially offset by purchases of marketable securities of ~~$299.8~~$107.7 million and purchases of property and equipment of ~~$9.4~~$5.2 million.

Cash used in investing activities during the nine months ended September 30, 2019 was $528.4 million, which was primarily attributable to purchases of marketable securities of $772.1 million and purchases of property and equipment of $8.8 million, partially offset by proceeds from maturities of marketable securities of $252.5 million.

Cash provided by financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$287.3~~$20.9 million, which was primarily attributable to $271.8 million in proceeds, after deducting underwriting discounts and net offering expenses payable by us, received from our underwritten public offering completed in July 2020, as well as $15.5 million in proceeds from the exercise of stock options.

Cash provided by financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$318.2~~$11.3 million, which was ~~primarily~~ attributable to ~~proceeds from our initial public offering, net of underwriting discounts and commissions, of $320.9 million, and~~ proceeds from the exercise of stock ~~options of $2.3 million, partially offset by the payment of deferred initial public offering costs of $5.0 million.~~options.

Except for the addition of the amendment to our lease in South San Francisco, California, as set forth in Note 8 of the accompanying notes to our unaudited condensed financial statements, which resulted in additional lease obligations of $9.0 million upon execution of the lease, as of September 30, 2020, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Utilization of our ~~NOL~~net operating loss (“NOL”) carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986 (“Section 382”) and similar state provisions. The annual limitation may result in the expiration of NOL carryforwards and credits before utilization. If there should be an ownership change, our ability to utilize our NOL carryforwards and credits could be limited. We have completed a Section 382 analysis ~~and~~for changes in ownership through December 31, 2020. Based on this analysis, we do not expect to have ~~determined there are no~~any permanent limitations on the utilization of ~~approximately $225.4 million of~~ our federal ~~NOLs as of December 31, 2018. We have not updated this analysis for ownership changes subsequent to December 31, 2018.~~NOLs. Under the ~~TCJA,~~Tax Cuts and Jobs Act of 2017, federal net operating losses incurred in 2018 and future years may be carried forward indefinitely, but the deductibility of such federal NOL is subject to an annual limitation. Net operating losses generated prior to 2018 are eligible to be carried forward up to 20 years. Based on the available objective evidence, management determined that it was more likely than not that the net deferred tax assets would not be realizable as of December 31, ~~2019.~~2020. Accordingly, management applied a full valuation allowance against net deferred tax assets as of December 31, ~~2019.~~2020. In March 2020, under the newly enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES ~~Act,~~Act”), NOLs arising in tax years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five tax years preceding the tax year of the loss. Additionally, the CARES Act temporarily removes the 80% limitation, reinstating it for tax years beginning after 2020.

As However, none of ~~September 30, 2020 and December 31, 2019, we~~these provisions have ~~not had any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.~~an impact on our tax provision.

We have prepared our financial statements in accordance with GAAP. Our preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities and related disclosures at the date of the financial statements, as well as revenue and expense recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and or other relevant assumptions that we believe to be reasonable under the circumstances. Estimates are used in several areas, including, but not limited to, estimates of progress to date for certain performance obligations and transaction price for certain contracts with customers, share-based compensation, ~~including the fair value of stock,~~ the provision for income taxes, including related reserves, and goodwill, among others. These estimates generally involve complex issues and require judgments, involve the analysis of historical results and prediction of future trends, can require extended periods of time to resolve and are subject to change from period to period. Actual results may differ materially from management’s estimates.

While our significant accounting policies are described in more detail in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as well as in Note 2 of the accompanying notes to our unaudited condensed consolidated financial statements included elsewhere in this report, we believe the following accounting policies are critical to the judgments and estimates used in the preparation of our financial statements:

There have been no material changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

We are 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. We have 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 also intend to rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

We will remain an emerging growth company until December 31, 2020, when we will be deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") based on the market value of our common stock held by non-affiliates exceeding $700.0 million as of the last business day of the quarter ended June 30, 2020.

~~See Note 2 of the accompanying notes to our unaudited condensed financial statements included elsewhere in this report for more information.~~

We are exposed to market risk for changes in interest rates related primarily to our cash, ~~and~~ cash equivalents and marketable securities. As of ~~September~~June 30, ~~2020,~~2021, there have been no material changes to our market risks as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. We do not enter into investments for trading purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2020.~~2021. There was not any change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the three months ended ~~September~~June 30, ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we may be subject to legal proceedings. We are not currently a party to or aware of any proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Investing in our common stock involves a high degree of risk. We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I, Item 1A under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019. Other than the factors set forth below, there have been no material changes to the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2019.~~2020. The risk factors may be important to understanding other statements in this report and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes in ~~the “Financial Statements (Unaudited)”section of this report and with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of~~ this report. ~~Because~~The occurrence of ~~such~~any single risk ~~factors, as well as other factors affecting~~or any combination of risks could materially and adversely affect our business, operations, product pipeline, operating results, financial condition or liquidity, and ~~operating results, past financial performance should not be considered to be a reliable indicator~~consequently, the value of ~~future performance, and investors should not use historical trends to anticipate results or trends in future periods.~~our securities. Further, additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business, financial condition, operating results and prospects.

~~The COVID-19 pandemic has materially affected portions of our operations, including at our headquarters in Seattle and in our offices in South San Francisco, each subject~~There have been no material changes to ~~COVID-19 related government restrictions, and may affect~~ the ~~business or operations of our manufacturers, contract research organizations or other third parties with whom we conduct business.~~

Our business could be adversely affected by global pandemics or health epidemics in regions where we have concentrations of clinical trial sites or other business operations, and such pandemics or epidemics could cause significant disruptionrisk factors described in the ~~operations of third-party manufacturers, suppliers, general contractors and sub-contractors related to capital projects and contract research organizations upon whom we rely. For example, in~~Annual Report on Form 10-K for the year ended December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries and the World Health Organization has declared the outbreak a “pandemic.” In response to the pandemic, the U.S. government has periodically imposed restrictions on travel between the United States, Europe and certain other countries.31, 2020.

Most of our facilities and employees are based in Seattle, Washington at our corporate headquarters and are subject to a variety of restrictions designed to slow the spread of COVID-19, which have disrupted our normal operations. Similarly, our South San Francisco offices are subject to state and local restrictions that have disrupted our normal operations. With respect to our laboratory operations, we intend to continue to rely on the measures implemented in the first quarter of 2020 to reduce the risk of exposure of COVID-19 to the employees who continue to work on site, including the implementation of work-from-home policies for certain employees, as well as the implementation of shifts and zones to physically distance employees who remain on site. In addition, our laboratory staff processes samples from patients who have contracted, been exposed to, or recovered from COVID-19. We work with a variety of materials that could be hazardous to human health and intend to continue to adhere to the safety measures implemented to reduce the risk of exposure to our on-site staff. In the event of COVID-19 exposure to our employees, it is possible that all or a portion of our operations could be materially disrupted.

The effects of various government orders and our own operating policies related to COVID-19 may negatively impact productivity, disrupt our business and delay our clinical programs and corporate expansion initiatives, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations regarding our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.

Quarantines, stay-at-home orders and similar government orders, or the perception that such orders, shutdowns or other restrictions on business operations could occur, whether related to COVID-19 or other infectious diseases, could impact personnel at third-party manufacturing or supplier facilities in the United States and other countries, or the availability or cost of materials, such as reagents, which would disrupt our supply chain. With respect to our supply chain, we are experiencing longer lead times and in some cases scarcity of supplies used for COVID-19 diagnostics by other companies, which may adversely affect our sample processing and accordingly delay revenues.

The spread of COVID-19, which has caused significant worldwide economic volatility, uncertainty and disruption, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

The global pandemic of COVID-19 continues to rapidly evolve. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, clinical trials, corporate expansion plans and other initiatives, or the impacts to healthcare systems or the global economy as a whole. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.

The COVID-19 pandemic could adversely impact portions of our business that rely on research and development activities or clinical trials and delay or disrupt our pipeline, which may adversely impact revenue.

The extent to which the COVID-19 pandemic may impact our business with respect to research and development and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

As the COVID-19 pandemic continues to spread around the globe, we will likely experience disruptions that could severely impact our business with respect to research and development and clinical trials, including:

For example, we launched our ImmuneSENSE study of acute Lyme disease in July 2020. As of September 30, 2020, we had 467 participants enrolled, fewer than initially projected, and the lower enrollment may extend the expected commercial timeline for launch of an acute Lyme diagnostic test. In addition to a timeline delay, there will be incremental costs related to an extended enrollment period. ImmuneSENSE Lyme and other studies in the future may be adversely affected by delays or difficulties in enrollment and related increased costs while the COVID-19 pandemic continues.

In addition, regulatory milestones represent a substantial part of our business strategy and are a key component of development revenue. The disruptions set forth above may materially affect our ability to achieve regulatory milestones, resulting in delays in our clinical pipeline and a material adverse effect on revenues.

Due to the ongoing uncertainties related to the COVID-19 pandemic, we may also experience variability in revenue in the near term as restrictions in our customers’ abilities to procure samples for their research initiatives change, as customer initiatives evolve and as clinical testing is impacted. Additionally, if our sample volume throughput is reduced as a result of the COVID-19 pandemic or otherwise, cost of revenue as a percentage of total revenue may be adversely impacted due to fixed overhead costs.

~~Our efforts to discover and develop products and services related to COVID-19 may not be successful from either a platform extension or commercialization perspective.~~

We are seeking to leverage our immune medicine platform to discover and develop potential antibody therapies and diagnostics for COVID-19. In July 2020, we entered into an option for Amgen, Inc. to develop and commercialize any neutralizing antibodies we discover. In addition, we extended our collaboration with Microsoft to pursue a diagnostic signal for COVID-19. In August 2020, we launched immunoSEQ T-MAP COVID, a proprietary research product and data analysis service to measure the T cell immune response to vaccines being developed by third parties and track the persistence of that response over time. Our efforts in this area are early and continue to evolve and mature as we augment our databases and pool of knowledge.

Our efforts to discover, develop and commercialize these products and services, or other potential antibody therapies and diagnostics for COVID-19, involve a high degree of risk, and our efforts may fail for many reasons, including:

Additionally, the market for COVID-19 products and services is highly time-sensitive and competitive. Even if we are successful in developing effective COVID-19 antibody therapies and diagnostics and securing the regulatory approvals or clearances, we may not be able to bring them to market in a timely fashion or, conversely, be able to fulfill all existing or future demand for such products and services. Current or future antibody therapies, diagnostics or related services once brought to market may not achieve commercial success. Our investments in the discovery and development of products and services related to COVID-19 may not be accretive to our future financial results and if we determine that any product or service is unlikely to succeed, we may abandon them without any return on our investment.

On July 1, 2019, we closed our initial public offering, in which we issued and sold 17,250,000 shares of our common stock, including the full exercise of the underwriters’ over-allotment option, at a public offering price of $20.00 per share for an aggregate offering price of $345.0 million. All of the shares of common stock issued and sold in the offering were registered under the Securities Act of 1933, as amended (“Securities Act”) pursuant to a registration statement on Form S-1 (File No. 333-231838), which was declared effective by the SEC on June 26, 2019.

Cash used since the initial public offering is described elsewhere in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our periodic reports filed with the SEC. As of September 30, 2020, there has been no material change in the planned use of proceeds from our initial public offering as described in our prospectus dated June 26, 2019 filed with the SEC on June 27, 2019 in connection with our initial public offering.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Washington	27-0907024
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1551 Eastlake Avenue East, Suite 200 Seattle, Washington	98102
(Address of principal executive offices)	(Zip Code)

		Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Loss	6
	Condensed Consolidated Statements of ~~Convertible Preferred Stock and~~ Shareholders’ ~~(Deficit)~~ Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2624
Item 3.	Quantitative and Qualitative Disclosures ~~about~~About Market Risk	3834
Item 4.	Controls and Procedures	3834
PART II.	OTHER INFORMATION	3935
Item 1.	Legal Proceedings	3935
Item 1A.	Risk Factors	3935
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4135
Item 3.	Defaults Upon Senior Securities	4135
Item 4.	Mine Safety Disclosures	4235
Item 5.	Other Information	4235
Item 6.	Exhibits	4236
Signatures		4337

	Revenue				Accounts Receivable, Net		Revenue				Accounts Receivable, Net
	Three Months Ended September 30,		Nine Months Ended September 30,		September 30,	December 31,	Three Months Ended June 30,		Six Months Ended June 30,		June 30,	December 31,
	2020	2019	2020	2019	2020	2019	2021	2020	2021	2020	2021	2020
Customer A	*%	16.0%	*%	11.8%	16.4%	41.8%	*%	*%	*%	*%	*%		19.1	%
Customer B	*	10.7	*	*	*	*	*	*	*	*	15.0	12.2
Customer C	10.3	*	*	*	21.4	*
Genentech, Inc.	48.1	43.9	55.1	43.7	*	*
Genentech, Inc. and Roche Group							46.0	63.0	44.1	58.7	*	*
* less than 10%

	September 30, 2020									June 30, 2021
	Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value		Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Short-term marketable securities
U.S. government debt and agency securities	$	323,338	$	1,034	$	(2	)	$	324,370
U.S. government debt securities										$	403,968	$	257	$	—		$	404,225
Corporate bonds		13,502		134		(2	)		13,634		9,997		5		—			10,002
Total short-term marketable securities	$	336,840	$	1,168	$	(4	)	$	338,004	$	413,965	$	262	$	—		$	414,227
Long-term marketable securities
U.S. government debt and agency securities	$	16,203	$	263	$	—		$	16,466
U.S. government debt securities										$	71,328	$	—	$	(43	)	$	71,285
Corporate bonds											19,849		4		(7	)		19,846
Total long-term marketable securities	$	16,203	$	263	$	—		$	16,466	$	91,177	$	4	$	(50	)	$	91,131

	Convertible Preferred Stock						Common Stock				Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total Shareholders’ (Deficit)
	Shares			Amount			Shares		Amount		Capital			Gain			Deficit			Equity
Balance at June 30, 2019		93,039,737		$	561,931			13,725,381	$	1	$	46,160		$	382		$	(330,917	)	$	(284,374	)
Proceeds from initial public offering, net of underwriters' discounts and commissions		—			—			17,250,000		2		320,848			—			—			320,850
Initial public offering costs		—			—			—		—		(4,986	)		—			—			(4,986	)
Conversion of convertible preferred stock to common stock		(93,039,737	)		(561,931	)		93,039,737		9		561,922			—			—			561,931
Conversion of convertible preferred stock warrant to common stock warrant		—			—			—		—		2,602			—			—			2,602
Issuance of common stock upon exercise of common stock warrants		—			—			54,792		—		9			—			—			9
Issuance of common stock for cash upon exercise of stock options		—			—			246,170		—		318			—			—			318
Common stock option and restricted stock unit share- based compensation		—			—			—		—		3,335			—			—			3,335
Other comprehensive income		—			—			—		—		—			190			—			190
Net loss		—			—			—		—		—			—			(13,950	)		(13,950	)
Balance at September 30, 2019		—		$	—			124,316,080	$	12	$	930,208		$	572		$	(344,867	)	$	585,925

Balance at June 30, 2020		—		$	—			128,233,842	$	12	$	958,097		$	2,153		$	(430,323	)	$	529,939
Issuance of common stock upon public offering, after deducting underwriters' discounts and net offering costs payable by us		—			—			7,200,000		1		271,838			—			—			271,839
Issuance of common stock for cash upon exercise of stock options		—			—			958,414		—		4,244			—			—			4,244
Common stock option and restricted stock unit share- based compensation		—			—			—		—		6,470			—			—			6,470
Other comprehensive loss		—			—			—		—		—			(726	)		—			(726	)
Net loss		—			—			—		—		—			—			(36,719	)		(36,719	)
Balance at September 30, 2020		—		$	—			136,392,256	$	13	$	1,240,649		$	1,427		$	(467,042	)	$	775,047

	September 30, 2020								June 30, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Financial assets
Money market funds	$	495,115	$	—	$	—	$	495,115	$	167,762	$	—	$	—	$	167,762
U.S. government debt and agency securities		—		340,836		—		340,836
U.S. government debt securities										—		475,510		—		475,510
Corporate bonds		—		13,634		—		13,634		—		29,848		—		29,848
Total financial assets	$	495,115	$	354,470	$	—	$	849,585	$	167,762	$	505,358	$	—	$	673,120

	Less Than 12 Months					12 Months Or Greater				Less Than 12 Months					12 Months Or Greater
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. government debt and agency securities	$	75,564	$	(2	)	$	—	$	—
U.S. government debt securities										$	71,285	$	(43	)	$	—	$	—
Corporate bonds		1,522		(2	)		—		—		15,281		(7	)		—		—
Total available-for-sale securities	$	77,086	$	(4	)	$	—	$	—	$	86,566	$	(50	)	$	—	$	—

	September 30, 2020							June 30, 2021
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Acquired developed technology	$	20,000	$	(9,552	)	$	10,448	$	20,000	$	(10,797	)	$	9,203
Purchased intellectual property		325		(120	)		205		325		(145	)		180
Balance at September 30, 2020	$	20,325	$	(9,672	)	$	10,653
Balance at June 30, 2021								$	20,325	$	(10,942	)	$	9,383

2020 (excluding the nine months ended September 30, 2020)	$	428
2021		1,699
2021 (excluding the six months ended June 30, 2021)			$	857
2022		1,699		1,699
2023		1,699		1,699
2024		1,703		1,703
2025				1,699
Thereafter		3,425		1,726
Total future amortization expense	$	10,653	$	9,383

Deferred revenue balance at December 31, 2019	$	280,326
Deferred revenue balance at December 31, 2020				$	236,937
Additions to deferred revenue during the period		19,859			14,141
Revenue recognized during the period		(47,140	)		(47,883	)
Deferred revenue balance at September 30, 2020	$	253,045
Deferred revenue balance at June 30, 2021				$	203,195

Weighted-average remaining lease term (in years)			~~9.66~~10.88
Weighted-average discount rate			4.6	%

2020 (excluding the nine months ended September 30, 2020)	$	1,532
2021		6,887
2021 (excluding the six months ended June 30, 2021)				$	4,480
2022		6,886			14,184
2023		6,450			13,964
2024		5,956			13,692
2025					14,098
Thereafter		30,979			93,518
Total undiscounted lease payments		58,690			153,936
Less:
Imputed interest rate		(11,682	)		(35,112	)
Tenant improvement receivables		(673	)		(10,217	)
Total operating lease liabilities	$	46,335		$	108,607
Less: current portion		(3,969	)		(4,833	)
Operating lease liabilities, less current portion	$	42,366		$	103,774

Shares issuable upon the exercise of outstanding common stock options and the vesting of outstanding common restricted stock units granted			~~15,567,900~~13,670,774
Shares available for future grant under the 2019 Equity Incentive Plan			~~18,787,301~~23,349,434
Shares available for future grant under the Employee Stock Purchase Plan			2,804,298
~~Shares to be issued upon exercise of a common stock warrant~~			~~56,875~~
Total shares of common stock reserved for future issuance			~~37,216,374~~39,824,506

	Shares Available for Grant
Shares available for grant at December 31, ~~2019~~2020		~~15,396,254~~18,617,001
2019 Plan reserve increase on January 1, ~~2020~~2021		~~6,261,907~~6,882,344
Options and restricted stock units granted		(~~3,070,331~~2,680,086	)
Options and restricted stock units forfeited, cancelled or expired		~~199,471~~530,175
Shares available for grant at ~~September~~June 30, ~~2020~~2021		~~18,787,301~~23,349,434

	Shares Subject to Outstanding Options			Weighted- Average Exercise Price per Share		Aggregate Intrinsic Value (in thousands)		Shares Subject to Outstanding Options			Weighted-Average Exercise Price per Share		Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2019		16,646,654		$	6.14	$	398,379
Options outstanding at December 31, 2020									14,433,560		$	12.82	$	668,458
Options granted		3,020,331			31.98				1,991,825			43.37
Options forfeited or cancelled		(184,471	)		14.19				(493,858	)		21.80
Options expired		(15,000	)		0.16				(19,626	)		16.38
Options exercised		(3,949,614	)		3.91				(2,950,197	)		6.95
Options outstanding at September 30, 2020		15,517,900		$	11.65	$	573,922
Options vested and exercisable at September 30, 2020		8,604,883		$	5.97	$	367,072
Options outstanding at June 30, 2021									12,961,704		$	18.50	$	300,793
Options vested and exercisable at June 30, 2021								6,739,178			$	9.25	$	213,508

	Restricted Stock Units Outstanding			Weighted-Average Grant Date Fair Value per Share
Nonvested outstanding restricted stock units at December 31, 2020		50,000		$	28.10
Restricted stock units granted		688,261			42.93
Restricted stock units forfeited or cancelled		(16,691	)		47.79
Restricted stock units vested		(12,500	)		28.10
Nonvested outstanding restricted stock units at June 30, 2021		709,070		$	42.03

	Three Months Ended September 30,				Change						Percent of Revenue
(in thousands, except percentages)	2020		2019		$			%			2020			2019
Revenue
Sequencing revenue	$	11,276	$	11,683	$	(407	)		(3	)%		43	%		45	%
Development revenue		15,023		14,375		648			5			57			55
Total revenue	$	26,299	$	26,058	$	241			1			100	%		100	%

	Three Months Ended September 30,
(in thousands)	2020		2019		Change
Research and development materials and allocated production laboratory expenses	$	13,095	$	10,313	$	2,782
Personnel expenses		11,447		7,146		4,301
Allocable facilities and information technology expenses		1,468		900		568
Software and cloud services expenses		976		810		166
Depreciation and other expenses		3,328		1,337		1,991
Total	$	30,314	$	20,506	$	9,808

	Adaptive Biotechnologies Corporation

Date: ~~November 10, 2020~~August 4, 2021	By:	/s/ Chad Robins
		Chad Robins
		Chief Executive Officer and Director (Principal Executive Officer)

Date: ~~November 10, 2020~~August 4, 2021	By:	/s/ Chad Cohen
		Chad Cohen
		Chief Financial Officer (Principal Financial and Accounting Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company