Adicet Bio(ACET) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's analysis of financial condition and operations Consolidated Financial Statements (Unaudited) The unaudited consolidated financial statements show increased cash and assets due to a public offering, with continued net losses driven by rising R&D expenses Consolidated Balance Sheets The balance sheets reflect a significant increase in cash and total assets primarily from financing activities Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $192,226 | $84,330 | | Total current assets | $199,025 | $100,336 | | Total assets | $257,195 | $153,835 | | Liabilities & Equity | | | | Total current liabilities | $20,032 | $22,479 | | Total liabilities | $39,971 | $44,008 | - Cash and cash equivalents significantly increased from $84.3 million at the end of 2020 to $192.2 million as of September 30, 2021, reflecting proceeds from financing activities during the period[20] Consolidated Statements of Operations and Comprehensive Loss The statements show increased R&D expenses and a higher net loss, while revenue decreased due to milestone timing Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue—related party | $3,429 | $3,028 | $4,262 | $12,493 | | Research and development | $11,926 | $8,942 | $34,285 | $24,651 | | General and administrative | $5,213 | $7,741 | $15,868 | $17,684 | | Loss from operations | $(13,710) | $(13,655) | $(45,891) | $(29,842) | | Net loss | $(14,013) | $(14,779) | $(46,186) | $(27,720) | | Net loss per share | $(0.44) | $(2.84) | $(1.54) | $(8.69) | - Research and development expenses increased to $34.3 million for the nine months ended Sep 30, 2021, up from $24.7 million in the prior year period, reflecting increased clinical development activities[23] - Revenue for the nine months ended Sep 30, 2021, decreased significantly to $4.3 million from $12.5 million in the prior year period, primarily due to the timing of milestone achievements under the Regeneron agreement[23][195] Consolidated Statements of Cash Flows Cash flows indicate significant funding from financing activities, offsetting operational cash burn and driving overall cash increase Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(37,608) | $(28,207) | | Net cash provided by investing activities | $282 | $102,769 | | Net cash provided by financing activities | $145,222 | $36 | | Net change in cash | $107,896 | $74,598 | - Financing activities provided $145.2 million in cash for the first nine months of 2021, primarily from the issuance of common stock, which was the main driver of the increase in the company's cash position[32][225] - Investing activities in the first nine months of 2020 included $64.1 million in cash acquired from the Merger with resTORbio, which was not present in 2021[32][224] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's clinical-stage progress, financial performance, and liquidity, highlighting increased R&D and a strengthened cash position - The company is developing "off-the-shelf" gamma delta T cell therapies, with its lead product candidate, ADI-001, in a Phase 1 clinical trial for Non-Hodgkin's Lymphoma (NHL) initiated in March 2021[156] - Interim clinical data from the initial dose escalation portion of the ADI-001 study is expected by the end of 2021[156] - The company plans to file an Investigational New Drug (IND) application for ADI-002, its first solid tumor candidate, in the second quarter of 2022 and initiate Phase 1 trials in the second half of 2022[156] - In February 2021, the company raised approximately $128.7 million in net proceeds from an underwritten public offering and an additional $15.0 million from a concurrent private placement[161][162] Results of Operations Operating results show increased R&D expenses and a decrease in revenue, contributing to a higher net loss Comparison of Operating Results (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue – related party | $3,429 | $3,028 | $4,262 | $12,493 | | Research and development | $11,926 | $8,942 | $34,285 | $24,651 | | General and administrative | $5,213 | $7,741 | $15,868 | $17,684 | | Net loss | $(14,013) | $(14,779) | $(46,186) | $(27,720) | - R&D expenses for the nine months ended Sep 30, 2021 increased by $9.6 million (39%) compared to the same period in 2020, driven by a $4.0 million increase in payroll/personnel costs from higher headcount, a $2.1 million increase in stock-based compensation, and increased CRO and facility expenses related to ADI-001 development[198] - G&A expenses for the nine months ended Sep 30, 2021 decreased by $1.8 million (10%) compared to the prior year period, mainly due to a $5.9 million reduction in professional fees associated with the 2020 Merger, partially offset by higher payroll, insurance, and facility costs[199] - Revenue for the nine months ended Sep 30, 2021 decreased by $8.2 million (66%) year-over-year, primarily due to a $10.0 million milestone payment in June 2020 and a $4.0 million revenue reduction in Q1 2021 from an extended performance obligation timeline[195][196] Liquidity and Capital Resources The company's cash position significantly improved due to recent financing, providing sufficient funds for the next twelve months - As of September 30, 2021, the company had $192.2 million in cash and cash equivalents[205] - The company believes its current cash and cash equivalents are sufficient to fund operations, capital expenditures, and debt service for at least the next twelve months from the report's issuance date[206][212] - The company has a loan agreement with Pacific Western Bank for up to $15.0 million, primarily for financing leasehold improvements, with no funds drawn as of September 30, 2021[206][207] - As of September 30, 2021, the company had an accumulated deficit of $152.5 million[211] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on cash equivalents, deemed immaterial due to short-term, low-risk investments - The company's main market risk stems from potential adverse changes in interest rates on its $192.2 million of cash and cash equivalents[237] - Due to the short-term maturities and low-risk profile of its cash equivalents, the company does not expect a 10% change in interest rates to materially affect its fair value or future interest income[237] Controls and Procedures Material weaknesses in internal controls were identified, leading to ineffective disclosure controls, with remediation efforts underway - Management identified material weaknesses in internal control over financial reporting during the preparation of its financial statements for the quarter ended September 30, 2021[240] - The identified weaknesses include: - Lack of sufficient accounting professionals with appropriate experience - Lack of formal accounting policies, procedures, and monitoring controls - Ineffective controls over segregation of duties - Lack of formal processes to account for complex transactions[242] - Due to these material weaknesses, the CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of September 30, 2021[243] - Remediation efforts are underway, including hiring a permanent VP Corporate Controller, implementing a new ERP system (Microsoft 365 Business Central) in January 2021, and re-evaluating and implementing additional internal controls[245] PART II. OTHER INFORMATION This section details legal proceedings, significant risk factors, and the exhibits filed with the report Legal Proceedings The company is not currently involved in any legal proceedings expected to materially impact its financial condition or operations - The company is not currently party to any legal proceedings that it expects to have a material adverse impact on its financial condition or operations[249] Risk Factors The company faces substantial risks including clinical trial uncertainties, manufacturing dependencies, financial control weaknesses, and reliance on key collaborations - The company's business is highly dependent on the success of its two lead product candidates, ADI-001 and ADI-002, which are based on novel gamma delta T cell technologies with significant development and regulatory challenges[3][259][265] - The company has a history of net losses ($152.5 million accumulated deficit as of Sep 30, 2021) and expects to incur substantial losses for the foreseeable future[254] - Adicet relies on third-party manufacturers for its product candidates, which increases risks related to supply, cost, and quality control, potentially impairing development and commercialization efforts[4][300] - Material weaknesses have been identified in the company's internal control over financial reporting, which could harm the business and negatively impact stock value[5][353] - The collaboration with Regeneron is critical; termination of the agreement or a material breach by Regeneron would materially harm the company's business and financial condition[6][357] Exhibits This section lists key exhibits filed, including corporate agreements and officer certifications - Key filed exhibits include a Sublease Agreement dated July 19, 2021, and a Fourth Amendment to the Loan and Security Agreement with Pacific Western Bank, dated October 21, 2021[486] - The report includes certifications from the Principal Executive Officer and Principal Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act[486]