ADC Therapeutics(ADCT) - 2022 Q1 - Quarterly Report

Financial Statements Condensed Consolidated Interim Statement of Operations Q1 2022 reported $46.5 million total revenues and a $16.7 million net loss, a significant improvement from prior year due to new revenue streams Q1 2022 Statement of Operations Highlights (in Thousand USD) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total Revenue | 46,498 | — | | Product revenues, net | 16,498 | — | | License revenue | 30,000 | — | | Total Operating Expense | (86,862) | (70,665) | | Research and development | (48,952) | (39,172) | | Selling and marketing | (18,370) | (13,911) | | General and administrative | (19,011) | (17,582) | | Loss from Operations | (40,364) | (70,665) | | Net Loss | (16,661) | (51,527) | | Net Loss Per Share | (0.22) | (0.67) | Condensed Consolidated Interim Statement of Comprehensive Loss Total comprehensive loss for Q1 2022 was $16.8 million, a substantial improvement from $51.5 million in Q1 2021 Q1 Comprehensive Loss Summary (in Thousand USD) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Loss | (16,661) | (51,527) | | Other comprehensive (loss) income | (158) | 36 | | Total Comprehensive Loss | (16,819) | (51,491) | Condensed Consolidated Interim Balance Sheet As of March 31, 2022, total assets were $581.9 million and total liabilities $419.2 million, with equity at $162.7 million Balance Sheet Summary (in Thousand USD) | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | 430,874 | 466,544 | | Total current assets | 487,710 | 525,182 | | Total Assets | 581,886 | 617,972 | | Total current liabilities | 70,774 | 73,935 | | Total Liabilities | 419,219 | 451,884 | | Total Equity | 162,667 | 166,088 | Condensed Consolidated Interim Statement of Changes in Equity Total equity decreased from $166.1 million to $162.7 million by March 31, 2022, driven by net loss and share-based compensation Q1 2022 Equity Reconciliation (in Thousand USD) | Description | Amount | | :--- | :--- | | Equity at January 1, 2022 | 166,088 | | Net loss for the period | (16,661) | | Other comprehensive loss | (158) | | Share-based compensation expense | 13,398 | | Equity at March 31, 2022 | 162,667 | Condensed Consolidated Interim Statement of Cash Flows Q1 2022 saw a net cash outflow of $35.6 million, ending with $430.9 million cash, primarily from $33.9 million used in operations Q1 Cash Flow Summary (in Thousand USD) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | (33,882) | (55,149) | | Net cash used in investing activities | (1,448) | (657) | | Net cash from financing activities | (258) | (297) | | Net decrease in cash | (35,588) | (56,103) | | Cash at beginning of period | 466,544 | 439,195 | | Cash at end of period | 430,874 | 383,122 | Notes to the Condensed Consolidated Interim Financial Statements Note 1. Corporate information ADC Therapeutics SA, a commercial-stage biotech with FDA-approved ZYNLONTA, maintains sufficient resources to operate as a going concern - The Group is focused on the development and commercialization of antibody drug conjugates (ADCs), with its product ZYNLONTA receiving FDA approval on April 23, 2021[18] - As of March 31, 2022, the Group held cash and cash equivalents of $430.9 million, which management believes is sufficient to cover operating costs for at least the next 12 months, supporting the going concern basis of the financial statements[21] - The company is actively monitoring the impact of the COVID-19 pandemic on its operations, but has concluded there is no material uncertainty regarding its ability to continue as a going concern[22][23] Note 2. Basis of preparation These unaudited interim financial statements are prepared under IAS 34, with USD as the functional and reporting currency - The financial statements are prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (IAS 34)[24] - The Group's reporting and functional currency is the United States Dollar (USD)[25] Note 3. Significant accounting policies Accounting policies are consistent with 2021, except for new license revenue recognition policies for 'right-to-use' versus 'right-to-access' IP - The accounting policies are consistent with those in the 2021 annual financial statements, except for the adoption of new policies for License Revenue Recognition[32] - A new license agreement with Mitsubishi Tanabe Pharma Corporation (MTPC) for ZYNLONTA in Japan, executed on January 18, 2022, necessitated the new revenue recognition policy[33] - Revenue from intellectual property (IP) licenses is recognized at a point in time if it's a 'right-to-use' the IP, or over time if it's a 'right to access' the IP[34] Note 4. Financial risk management Financial risk management, including market, credit, and liquidity risks, remains unchanged since 2021, with Level 3 fair value measurement for convertible loan derivatives - The Group is exposed to market risk, credit risk, and liquidity risk, with no material changes in its risk management approach since December 31, 2021[39][40] - The embedded derivative conversion feature of the convertible loans is a Level 3 financial instrument, meaning its fair value is determined using inputs not based on observable market data[42][43] - A hypothetical 10% increase in selected volatility as of March 31, 2022, would increase the fair value of the derivatives for the first and second tranches of convertible loans by $1.266 million and $0.857 million, respectively[45][46] Note 5. Revenue recognition Q1 2022 revenue included $16.5 million from ZYNLONTA product sales and $30 million in license revenue from the MTPC agreement - Product revenues, net were $16.498 million for the three months ended March 31, 2022, from sales of ZYNLONTA in the U.S.[47] - On January 18, 2022, the company entered an exclusive license agreement with MTPC for ZYNLONTA in Japan, receiving an upfront payment of $30 million, which was recognized as license revenue[52] - The upfront license fee from MTPC was recognized immediately as MTPC can use and benefit from the IP and the company has no further performance obligation with respect to the IP[53] Note 6. Segment information The company operates as a single business unit, managed by one team, and is considered to have one operating segment - The company is managed and operated as one business and accordingly views its business as one operating segment[55] Note 7. Operating expense Total operating expenses for Q1 2022 increased to $86.9 million, driven by higher R&D, S&M for ZYNLONTA launch, and G&A expenses Operating Expense Breakdown (in Thousand USD) | Expense Category | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Cost of product sales | 529 | — | | R&D expenses | 48,952 | 39,172 | | S&M expenses | 18,370 | 13,911 | | G&A expenses | 19,011 | 17,582 | | Total operating expense | 86,862 | 70,665 | - The increase in R&D expense was driven by higher headcount, share-based compensation, expanded clinical trials for ZYNLONTA, and advancing the Cami program[59] - S&M expenses increased due to professional fees for the ZYNLONTA commercial launch, while G&A expenses rose from fees associated with the MTPC license agreement[60] Note 8. Non-operating income (expense) Non-operating income for Q1 2022 was $13.4 million, primarily from a $15.9 million gain on convertible loan derivatives Non-operating Income Breakdown (in Thousand USD) | Item | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Convertible loans, derivatives, change in fair value | 15,855 | 21,169 | | Share of results with joint venture | (2,502) | (527) | | Exchange differences gain | 81 | 394 | | R&D tax credit | 8 | 194 | | Total Non-operating income | 13,442 | 21,230 | Note 9. Cash and cash equivalents The company must maintain a minimum cash and cash equivalents balance of $50 million at each quarter-end - The company is subject to a covenant from its Facility Agreement to maintain a cash and cash equivalents balance of at least $50 million at the end of each quarter[66] Note 10. Inventory Total inventory as of March 31, 2022, was $11.8 million, with a $0.361 million impairment reversal recognized as a gain in R&D expenses Inventory Breakdown (in Thousand USD) | Category | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Work in process | 11,257 | 10,562 | | Finished goods | 581 | 560 | | Total inventory | 11,838 | 11,122 | - The company reversed $0.361 million of previously recorded inventory impairment charges, which was recorded as a gain to R&D expenses[69] Note 11. Intangible assets Net book value of intangible assets was $13.9 million as of March 31, 2022, including capitalized ZYNLONTA development costs - The company began capitalizing internal development costs for ZYNLONTA as an intangible asset upon receiving FDA approval in the U.S.[71] - In Q1 2022, the company capitalized a milestone payment of $0.195 million related to a license for specific binding proteins[72] Intangible Assets Net Book Value (in Thousand USD) | Date | Net Book Amount | | :--- | :--- | | March 31, 2022 | 13,851 | | March 31, 2021 | 10,147 | Note 12. Interest in joint venture Interest in the Overland ADCT BioPharma joint venture decreased to $38.7 million due to the company's $2.5 million share of net loss - The company formed the Overland ADCT BioPharma joint venture to develop and commercialize its ADC products in greater China and Singapore[77] Investment in Joint Venture Rollforward (in Thousand USD) | Description | Amount | | :--- | :--- | | Balance at Dec 31, 2021 | 41,236 | | Share of results in joint venture | (2,502) | | Balance at Mar 31, 2022 | 38,734 | Note 13. Leases As of March 31, 2022, right-of-use assets were $6.7 million and total lease liabilities were $7.6 million Lease Assets and Liabilities (in Thousand USD) as of March 31, 2022 | Item | Amount | | :--- | :--- | | Right-of-Use Assets (Net) | 6,726 | | Lease Liabilities (Short-term) | 981 | | Lease Liabilities (Long-term) | 6,614 | | Total Lease Liabilities | 7,595 | Note 14. Convertible loans The $115 million Deerfield convertible loan facility generated $15.9 million non-cash income in Q1 2022 due to decreased embedded derivative fair value - The company has a $115 million Facility Agreement with Deerfield, disbursed in a $65 million first tranche and a $50 million second tranche[88] - In Q1 2022, the company recognized income of $9.518 million from the change in fair value of the first tranche's embedded derivative, primarily due to a decrease in the underlying share price[93] - For the second tranche, the company recognized income of $6.337 million in Q1 2022 from the change in fair value of its embedded derivative, also due to the lower share price[104] Note 15. Share-based compensation Share-based compensation expense for Q1 2022 was $13.4 million, comprising $10.5 million for share options and $3.4 million for RSUs Share-based Compensation Expense (in Thousand USD) | Category | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Share Options | 10,515 | 12,692 | | RSUs | 3,395 | 1,259 | | Tax Deductions | (512) | — | | Total | 13,398 | 13,951 | - On March 7, 2022, the company issued its annual equity award, consisting of 1,867,076 share options and 570,340 RSUs[110] Note 16. Deferred royalty obligation The HCR royalty purchase agreement, a long-term debt, had a carrying value of $212.1 million as of March 31, 2022, with a $18.3 million cumulative catch-up adjustment - The company has a royalty purchase agreement with HCR for up to $325.0 million, which is accounted for as a deferred royalty obligation (debt)[122] - Due to updated strategic planning and development plans, the company's valuation model was updated, resulting in a cumulative catch-up adjustment of $18.288 million recorded as Financial income for Q1 2022[127] Deferred Royalty Obligation Rollforward (in Thousand USD) | Description | Amount | | :--- | :--- | | Balance at Dec 31, 2021 | 225,477 | | Payments made | (1,191) | | Interest expense | 6,142 | | Cumulative catch-up adjustment (income) | (18,288) | | Balance at Mar 31, 2022 | 212,140 | Note 17. Related parties Related party transactions with Overland ADCT BioPharma in Q1 2022 included $0.320 million in reimbursable clinical trial costs and a $1.0 million receivable - Overland ADCT BioPharma reimburses the company for a portion of global clinical trial costs and for clinical supply, totaling $0.365 million in Q1 2022, which reduced R&D expenses[130][131] - The company had a related party receivable balance with Overland ADCT BioPharma of $1.031 million as of March 31, 2022[132] Key Management Compensation (in Thousand USD) | Category | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Salaries and other short-term costs | 2,144 | 2,032 | | Share-based compensation expense | 5,574 | 5,217 | | Total | 7,861 | 7,396 | Note 18. Loss per share Basic and diluted loss per share for Q1 2022 was ($0.22), a significant improvement from ($0.67) in Q1 2021 Loss Per Share Calculation | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Loss attributable to owners (KUSD) | (16,661) | (51,527) | | Weighted average shares outstanding | 76,821,726 | 76,721,667 | | Basic and diluted loss per share | (0.22) | (0.67) | - Potentially dilutive securities totaling 12,386,490 shares were excluded from the diluted EPS calculation for Q1 2022 because their effect would be anti-dilutive[136][137] Note 19. Events after the reporting date No subsequent events requiring disclosure were identified after March 31, 2022, through May 9, 2022 - There were no subsequent events requiring disclosure in the financial statements for the period after March 31, 2022, through May 9, 2022[138]