Satya Nadella, CEO of Microsoft
Justin Solomon | CNBC
In late 2017, Microsoft invested in an experimental health-care company called Adaptive Biotechnologies, hoping to put its advanced cloud technology to work in life sciences while also making money as a significant shareholder.
As of Thursday, Microsoft appears poised to do both.
Adaptive, which is developing what it calls an “immune medicine platform” to change how we treat various diseases, soared in its public market debut. The stock doubled during intra-day trading on Thursday, closing at $40.30 after the company sold shares Wednesday night at $20 a piece. The pop means the value of Microsoft’s $45 million investment at $10.67 a share has almost quadrupled.
As the world’s most valuable public company, with a market cap over $1 trillion, Microsoft has many ways to generate profits. Start-up investments represent one avenue, though the software maker has been far less active than many other large tech companies like Alphabet, which has multiple venture groups for early and late-stage deals, and Salesforce, which has been a big investor in cloud software and recently launched specific funds in in Canada, Japan and Australia.
With Adaptive, there’s much more at stake for Microsoft than just an investment in the biggest biotech IPO of 2019 so far. Microsoft’s Azure unit, which is second in the cloud infrastructure market behind Amazon Web Services, gets to test out its artificial intelligence tools in an industry that promises to be highly lucrative in the coming years as more emerging health-related companies turn to software in the cloud for heavy workloads. According to Orbis Research, the global immunology market will grow to $74.1 billion in 2022 from $57.7 billion in 2015.
Adaptive has agreed to spend a minimum of $12 million on Azure over seven years, according to its IPO prospectus, and Microsoft is the exclusive provider of cloud services during that period.
“We believe deeply in the potential for this partnership with Adaptive and have made a substantial financial investment in the company,” Peter Lee, Microsoft’s corporate vice president of AI and research, wrote in a blog post when the agreement was announced. “We have also begun a major research and development collaboration that involves Adaptive’s scientists working closely with our top researchers to use Adaptive’s innovative sequencing technology and Microsoft’s large-scale machine learning and cloud computing capabilities to make deep reading of the immune system a reality.”
Competition in health
Adaptive mentions Microsoft 74 times in its prospectus. Ultimately, the two companies aim to develop a single blood test for early detection of many diseases, including cancers and autoimmune disorders. Adaptive’s competitors include Bristol-Myers Squibb, GlaxoSmithKline, Qiagen and Thermo Fisher Scientific. Chief Technical Officer Sean Nolan previously worked at Microsoft, where he led the HealthVault team that focused on software for storing people’s health data.
Microsoft’s investment in Adaptive came months after it identified health care as a focal point. In April, the company hired Gregory Moore as corporate vice president of health technology and alliances. Moore was previously running Google’s cloud health-care efforts and before that worked at the health system Geisinger.
AWS is also making a push in the market, offering tools for genomics research as well as biotech companies, health-care providers and insurers.
Brothers Chad and Harlan Robins founded Seattle-based Adaptive in 2009. The company had 346 employees at the end of March. Adaptive raised $300 million in the IPO, topping the amount brought in by Cortexyme, Personalis, Prevail Therapeutics and other biotech companies that have debuted this year.
Microsoft has had other investment wins. The company inherited a stake in software start-up Confluent through its $27 billion acquisition of LinkedIn in 2016, and the value of that investment has since increased dramatically. And earlier this week Microsoft co-founder Bill Gates said that buying part of Facebook before the social media company went public was “a super-successful investment.”