Adicet Bio(ACET) - 2020 Q2 - Quarterly Report

markdown PART I. FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The unaudited financial statements for the period ended June 30, 2020, reflect a significant reduction in operating losses compared to the prior year, driven by decreased research and development expenses following the discontinuation of a key clinical trial. The balance sheet shows a decline in assets due to cash consumption, while the company's overall financial position is heavily influenced by a pending merger with Adicet Bio, Inc. and a recent workforce reduction [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2020, the company's total assets decreased to $74.3 million from $93.9 million at year-end 2019, primarily due to the use of cash and the maturation of all marketable securities. Total liabilities also saw a significant reduction to $3.6 million from $12.2 million, mainly from settling accounts payable and accrued liabilities. Consequently, total stockholders' equity declined to $70.7 million from $81.7 million Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2020 (in millions) | December 31, 2019 (in millions) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $70.9 | $33.8 | | Marketable securities | $0 | $57.7 | | Total current assets | $73.7 | $93.3 | | **Total assets** | **$74.3** | **$93.9** | | **Liabilities & Equity** | | | | Total current liabilities | $3.6 | $12.2 | | **Total liabilities** | **$3.6** | **$12.2** | | **Total stockholders' equity** | **$70.7** | **$81.7** | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company reported a significantly lower net loss for both the three and six months ended June 30, 2020, compared to the same periods in 2019. The net loss for the second quarter was $5.6 million, down from $18.3 million year-over-year, primarily due to a substantial decrease in Research and Development expenses from $16.6 million to $1.8 million. General and Administrative expenses saw a moderate increase Statement of Operations Summary (in millions) | Metric | Three Months Ended June 30, 2020 (in millions) | Three Months Ended June 30, 2019 (in millions) | Six Months Ended June 30, 2020 (in millions) | Six Months Ended June 30, 2019 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $1.8 | $16.6 | $6.6 | $25.4 | | General and administrative | $3.9 | $2.6 | $6.4 | $5.5 | | **Total operating expenses** | **$5.7** | **$19.2** | **$13.0** | **$30.9** | | Loss from operations | ($5.7) | ($19.2) | ($13.0) | ($30.9) | | **Net loss** | **($5.6)** | **($18.3)** | **($12.6)** | **($29.4)** | | Net loss per share | ($0.15) | ($0.51) | ($0.35) | ($0.91) | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity decreased from $81.7 million at December 31, 2019, to $70.7 million at June 30, 2020. The decline was primarily driven by the net loss of $12.6 million for the six-month period, which was partially offset by $1.7 million in stock-based compensation expense - The accumulated deficit grew from **($154.1) million** at the end of 2019 to **($166.8) million** by June 30, 2020, reflecting the ongoing net losses[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2020, net cash used in operating activities was $20.4 million, a decrease from $26.2 million in the prior-year period. The company generated $57.5 million from investing activities through the maturity of marketable securities, a reversal from the $9.7 million used in 2019. Financing activities were minimal in 2020, in contrast to 2019 when the company raised $50.4 million from stock offerings. This resulted in a net increase in cash of $37.1 million Cash Flow Summary (in millions) | Activity | Six Months Ended June 30, 2020 (in millions) | Six Months Ended June 30, 2019 (in millions) | | :--- | :--- | :--- | | Net cash used in operating activities | ($20.4) | ($26.2) | | Net cash provided by (used in) investing activities | $57.5 | ($9.7) | | Net cash (used in) provided by financing activities | ($0.002) | $50.4 | | **Net increase in cash** | **$37.1** | **$14.5** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes provide critical context to the financial statements, highlighting the company's strategic pivot. Key events include the failure of the PROTECTOR 1 Phase 3 study in November 2019, leading to the discontinuation of RTB101 development for respiratory illness. This triggered a workforce reduction and a search for strategic alternatives, culminating in a merger agreement with Adicet Bio, Inc. in April 2020. The notes also detail license agreements, stock compensation plans, and litigation related to the pending merger - In November 2019, the company announced that its PROTECTOR 1 Phase 3 study of RTB101 did not meet its primary endpoint, leading to the cessation of its development for clinically symptomatic respiratory illness[21](index=21&type=chunk) - On April 28, 2020, resTORbio entered into a merger agreement with Adicet Bio, Inc., under which Adicet will become a wholly-owned subsidiary. The company's future operations are highly dependent on the success of this merger[23](index=23&type=chunk)[24](index=24&type=chunk) - Following the Phase 3 study failure, the company implemented a restructuring plan, reducing its workforce by **10 employees** in late 2019 and early 2020. As of June 30, 2020, all related restructuring charges had been paid[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) - The company is facing **seven putative class action lawsuits** related to the proposed merger with Adicet, alleging that the proxy statement contains material misrepresentations and/or omissions[66](index=66&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's strategic shift following the failure of the PROTECTOR 1 Phase 3 study, which led to halting development of RTB101 for respiratory illness and Parkinson's disease. The company initiated a review of strategic alternatives, resulting in the pending merger with Adicet Bio. A new clinical trial for RTB101 as a COVID-19 prophylaxis was initiated. The financial analysis shows a significant decrease in R&D expenses, while G&A expenses rose due to merger-related costs. The company's liquidity of $70.9 million in cash is deemed sufficient for near-term operations, but future success is contingent on the merger - Following the failure of its Phase 3 study for respiratory illness, the company stopped that program and a Phase 1b/2a trial in Parkinson's disease. It has since pivoted to study RTB101 for COVID-19 prophylaxis in older adults[81](index=81&type=chunk)[82](index=82&type=chunk) - In February 2020, the company hired JMP Securities to explore strategic alternatives, leading to the merger agreement with Adicet Bio, Inc. on April 28, 2020. The transaction is expected to close in the second half of 2020[85](index=85&type=chunk)[86](index=86&type=chunk) Comparison of Operating Expenses (in millions) | Expense Category | Three Months Ended June 30, 2020 (in millions) | Three Months Ended June 30, 2019 (in millions) | Six Months Ended June 30, 2020 (in millions) | Six Months Ended June 30, 2019 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Research & Development | $1.8 | $16.6 | $6.6 | $25.4 | | General & Administrative | $3.9 | $2.6 | $6.4 | $5.5 | - The decrease in R&D expenses was due to the cessation of major clinical trials. The increase in G&A expenses was primarily driven by professional services fees related to the pending merger with Adicet[107](index=107&type=chunk)[108](index=108&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure stems from potential changes in interest rates, which could affect interest income on its $70.9 million of cash and cash equivalents. The company also has minor exposure to foreign currency fluctuations from contracts with global research and manufacturing organizations, but it does not currently engage in hedging activities. Inflation is not considered to have a material effect on operations - The main market risk is interest rate risk on the company's cash and cash equivalents of **$70.9 million**[129](index=129&type=chunk) - The company is subject to some foreign currency risk through its global contracts but does not hedge this exposure[130](index=130&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation as of June 30, 2020, the company's management, including the Chief Executive Officer and principal financial officer, concluded that the disclosure controls and procedures were effective at a reasonable assurance level. There were no material changes in the company's internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[132](index=132&type=chunk)[134](index=134&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[135](index=135&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) The company is currently involved in multiple lawsuits filed by purported stockholders in connection with the proposed merger with Adicet Bio, Inc. These actions, including a putative class action, generally allege that the company's proxy statement filed with the SEC contains material misrepresentations and omissions regarding the merger process and financial analyses. The lawsuits seek to enjoin the merger and claim damages - Multiple stockholder lawsuits, including the 'Merger Actions', have been filed against the company, its directors, and Adicet concerning the proposed merger[138](index=138&type=chunk) - The lawsuits allege violations of the Exchange Act, claiming the proxy statement misrepresents or omits material information related to financial projections, analyses by JMP Securities, and the merger process[138](index=138&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, with a primary focus on the pending merger with Adicet and the COVID-19 pandemic. Key risks include the potential failure to complete the merger, which could harm the stock price and business, and may result in a $6.1 million termination fee. The pendency of the merger creates uncertainty that could disrupt business and employee retention. Other risks include litigation related to the merger, the possibility that the Contingent Value Rights (CVRs) issued to stockholders will expire worthless, and potential business disruptions from the COVID-19 pandemic affecting clinical trials and operations - There is a significant risk that the merger with Adicet may not be completed, which could adversely affect the company's stock price and operations. A termination fee of **$6.1 million** may be payable to Adicet under certain circumstances[140](index=140&type=chunk)[144](index=144&type=chunk) - The company faces lawsuits arising from the proposed merger, which could delay or prevent its consummation and divert management's attention[158](index=158&type=chunk)[159](index=159&type=chunk) - The Contingent Value Rights (CVRs) to be issued to stockholders are contingent on the successful commercialization of RTB101 for a COVID-19 indication and may expire without any payment[162](index=162&type=chunk)[163](index=163&type=chunk) - The COVID-19 pandemic poses a risk of business interruption, potentially delaying clinical trial enrollment and disrupting operations due to factors like healthcare resource diversion and travel restrictions[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=33&type=section&id=Other%20Items%20(Items%202%2C%203%2C%204%2C%205%2C%206)) The company reported no unregistered sales of equity securities, defaults upon senior securities, or mine safety disclosures for the period. No other material information was disclosed under Item 5. Item 6 provides an index of the exhibits filed with this Quarterly Report on Form 10-Q - Items 2, 3, 4, and 5 are noted as 'Not applicable' or have no information to report[171](index=171&type=chunk)