In 2017, Microsoft struck a deal with Seattle-based Adaptive Biotechnologies to develop a blood test with the promise of diagnosing dozens of diseases at once, and as part of the agreement, pledged to invest an undisclosed amount in the company.
Adaptive filed to go public today, and the IPO documents reveal new information about the biotech’s deal with one of the world’s most valuable companies. That includes the disclosure that Microsoft invested $45 million in Adaptive as part of a “preferred stock investment,” when the blood test deal was finalized in late 2017.
Adaptive committed to spending a minimum of $12 million on Azure cloud services over the lifetime of the seven-year deal. Adaptive will host each of the diagnostic products that come out of the deal on Azure throughout the term of the agreement and for another five years after that.
The project aims to take hold of the body’s own diagnostic powers by mapping the immune system’s response to toxins and foreign substances. Adaptive uses technology called next-generation sequencing to read the genes of T-cells and B-cells to build an immune profile made up of billions of data points. Microsoft is putting its artificial intelligence clout behind the data Adaptive has gathered to build a blood test that learns how to connect the dots between the genetic markers on immune cells and diseases.
In January, the companies said the AI system they built is up and running and will initially focus on diagnosing type 1 diabetes, celiac disease, ovarian cancer, pancreatic cancer and Lyme disease. Unlike current diagnostics, which look for one specific disease, the test could screen for broad swaths of diseases at once. Adaptive CEO Chad Robins compared the project to an X-ray machine in a 2017 interview with GeekWire.
“An X-ray machine can be used to diagnose a broken wrist but it can also be used to diagnose a broken leg,” he said. In the same way, the test could be used to diagnose diseases as different as pancreatic cancer and multiple sclerosis, an autoimmune disease.
Adaptive will submit its first diagnostic tests to the U.S. Food and Drug Administration this year for review in 2020, according to the filing.
Adaptive is seeking to raise $230 million in its IPO. In the documents, it called the deal with Microsoft, as well as a $300 million pact with Genentech that could net additional payments of $1.8 billion, a strength of the company.
“Our collaborations with industry-defining leaders such as Genentech and Microsoft validate our unique approach to advancing the promise of immune-driven medicine,” Adapative wrote in IPO documents. “We will continue to seek opportunities to optimize our ever-growing clinical immunomics database to drive product development and commercial success and facilitate efficient use of capital.”
However, there are also serious risks associated with these deals. Adaptive cautioned that the partnership with Microsoft is in its early stages, and the “computations and algorithmic-based methods are largely untested.” It may take longer than expected for the companies to figure out how to accelerate the immune system mapping process with machine learning, which might make the project not viable commercially.
There’s still some unknowns about the project. An attachment to the IPO filing detailing the agreement redacted details about the problem the two companies want to solve and how they are going to go about it. Also left out of the agreement is information about the project roadmap, which extends out 10 years in the document.
Desney Tan, general manager for Microsoft Healthcare, and Jonathan Carlson, senior director of immunomics, are the project managers on the initiative for Microsoft. Co-founder Harlan Robins and CTO Sean Nolan are leading the project for Adaptive.
Microsoft isn’t typically thought of as a healthcare company, but it has large divisions focused on various parts of the industry. Its biotech and life sciences division focuses primarily on genomics and digitizing the healthcare system.
Speaking at the 2018 GeekWire Summit, Tan said the combined team, which at the time was between 40 and 50 employees, spends a lot of time traveling between Microsoft’s headquarters in Redmond, Wash., and the Adaptive office in Seattle.
“We really integrated ourselves as a single team,” Tan said. “We’ve got offices in each others’ facilities … The teams function about as tightly as any team can even though we live in two separate organizations.”
Adaptive had offers on the table from a number of tech companies that wanted to work on the project. Chad Robins applauded the buy-in from Microsoft senior leadership — Adaptive executives presented their work and spoke with Bill Gates and Satya Nadella — their knowledge about the science and creative methods for applying machine learning.
For Microsoft, the decision to work with Adaptive was pretty simple.
“These guys are going to change the world, and we’re thrilled to be a part of it,” Tan said at the Summit.