Adagio(IVVD) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Provides the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) Presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed explanatory notes Condensed Consolidated Balance Sheets Presents the company's financial position as of June 30, 2022, and December 31, 2021, showing a decrease in total assets and stockholders' equity, primarily driven by a reduction in cash and cash equivalents and an increase in accumulated deficit | Metric (in thousands) | June 30, 2022 | December 31, 2021 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $474,885 | $542,224 | $(67,339) | | Marketable securities | $— | $49,194 | $(49,194) | | Total current assets | $481,361 | $616,711 | $(135,350) | | Total assets | $484,612 | $620,091 | $(135,479) | | Total current liabilities | $67,883 | $62,060 | $5,823 | | Total liabilities | $69,773 | $62,072 | $7,701 | | Accumulated deficit | $(443,765) | $(292,109) | $(151,656) | | Total stockholders' equity (deficit) | $414,839 | $558,019 | $(143,180) | Condensed Consolidated Statements of Operations and Comprehensive Loss Details the company's financial performance for the three and six months ended June 30, 2022, and 2021, showing increased net losses driven by higher research and development expenses and selling, general, and administrative expenses | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Research and development | $37,129 | $35,067 | $129,164 | $69,204 | | Acquired in-process research and development | $— | $2,500 | $— | $3,500 | | Selling, general and administrative | $14,620 | $7,124 | $23,324 | $10,695 | | Total operating expenses | $51,749 | $44,691 | $152,488 | $83,399 | | Net loss | $(50,990) | $(44,673) | $(151,656) | $(83,373) | | Net loss per share (basic and diluted) | $(0.47) | $(178.86) | $(1.40) | $(663.94) | Condensed Consolidated Statement of Convertible Preferred Stock and Stockholders' Equity (Deficit) This statement outlines the changes in convertible preferred stock and stockholders' equity (deficit) for various periods, reflecting stock-based compensation, net losses, and the conversion of preferred stock into common stock following the IPO | Metric (in thousands) | Balances at December 31, 2021 | Balances at June 30, 2022 | Change | | :-------------------- | :---------------------------- | :------------------------ | :----- | | Additional paid-in capital | $850,125 | $858,593 | $8,468 | | Accumulated deficit | $(292,109) | $(443,765) | $(151,656) | | Total stockholders' equity (deficit) | $558,019 | $414,839 | $(143,180) | - The company's accumulated deficit increased by $151.6 million from December 31, 2021, to June 30, 2022, reflecting ongoing net losses[23] Condensed Consolidated Statements of Cash Flows This section presents the cash flow activities for the six months ended June 30, 2022, and 2021, highlighting significant cash usage in operating activities and a net decrease in cash and cash equivalents in 2022, contrasting with a net increase in 2021 due to IPO proceeds | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Change | | :-------------------- | :----------------------------- | :----------------------------- | :----- | | Net cash used in operating activities | $(116,441) | $(57,311) | $(59,130) | | Net cash provided by investing activities | $48,983 | $— | $48,983 | | Net cash provided by financing activities | $119 | $334,832 | $(334,713) | | Net (decrease) increase in cash and cash equivalents | $(67,339) | $277,521 | $(344,860) | | Cash and cash equivalents at end of period | $474,885 | $392,509 | $82,376 | - Operating cash outflow significantly increased by $59.1 million in the first six months of 2022 compared to the same period in 2021, primarily due to higher net loss[25][210][211] Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations and disclosures for financial statements, covering business, accounting policies, financial instruments, agreements, equity, and related party dealings 1. Nature of the Business and Basis of Presentation Adagio Therapeutics, a clinical-stage biopharmaceutical company, paused adintrevimab's EUA due to Omicron efficacy issues and is developing new antibody therapies, facing significant losses and funding needs - Adagio Therapeutics is a clinical-stage biopharmaceutical company focused on infectious diseases, with its lead product candidate, adintrevimab, for COVID-19[28] - The company paused the Emergency Use Authorization (EUA) submission for adintrevimab due to its markedly reduced neutralization activity against Omicron BA.2, BA.4, and BA.5 sublineages[28] - Adagio plans to advance a combination of proprietary antibodies into clinical trials in Q1 2023 for COVID-19 prevention and treatment, targeting all SARS-CoV-2 variants of concern, including Omicron sublineages[29] Financial Status | Financial Status | As of June 30, 2022 | For Six Months Ended June 30, 2022 | | :--------------- | :------------------ | :--------------------------------- | | Accumulated Deficit | $443.8 million | N/A | | Net Loss | N/A | $151.7 million | | Cash & Cash Equivalents | $474.9 million | N/A | - The company expects existing cash and cash equivalents to fund operations for at least 12 months from the issuance date of the interim financial statements[35] 2. Summary of Significant Accounting Policies Details significant accounting policies, including ASC 842 adoption for leases, and the company's status as an emerging growth company with an extended transition period - Effective January 1, 2022, the company adopted ASU No. 2016-02, Leases (Topic 842), using a modified retrospective approach[43][54] Impact of ASC 842 Adoption (in thousands) | Metric (in thousands) | December 31, 2021 | Impact of Adoption | January 1, 2022 | | :-------------------- | :---------------- | :----------------- | :-------------- | | Operating lease right-of-use asset | $— | $1,728 | $1,728 | | Operating lease liability, current | $— | $308 | $308 | | Operating lease liability, non-current | $— | $1,426 | $1,426 | - The adoption of ASC 842 had no impact on the company's results of operations and cash flows from operations[54] - The company qualifies as an "emerging growth company" and has elected the extended transition period for complying with new or revised accounting standards[53][221] 3. Marketable Securities This section reports that the company did not hold any available-for-sale marketable securities as of June 30, 2022, a change from December 31, 2021, when it held U.S. Treasury securities - The company did not hold any available-for-sale marketable securities as of June 30, 2022[57] U.S. Treasury Securities (in thousands) | Metric (in thousands) | December 31, 2021 | | :-------------------- | :---------------- | | U.S. Treasury securities (Fair Value) | $49,194 | 4. Fair Value Measurements Details fair value hierarchy for assets and liabilities, classifying money market funds as Level 1, with no U.S. Treasury securities held as of June 30, 2022 Fair Value of Financial Assets (in thousands) | Asset (in thousands) | June 30, 2022 (Level 1) | December 31, 2021 (Level 1) | | :------------------- | :---------------------- | :-------------------------- | | Money market funds | $473,995 | $541,220 | | U.S. Treasury securities | $— | $49,194 | - Money market funds are valued based on quoted market prices, representing a Level 1 measurement within the fair value hierarchy[62] 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets significantly decreased from $25.3 million at December 31, 2021, to $6.5 million at June 30, 2022, primarily due to a reduction in prepaid external research, development, and manufacturing costs Prepaid Expenses and Other Current Assets (in thousands) | Metric (in thousands) | June 30, 2022 | December 31, 2021 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Prepaid external research, development and manufacturing costs | $4,392 | $20,582 | $(16,190) | | Prepaid insurance | $456 | $3,190 | $(2,734) | | Prepaid compensation and other | $1,628 | $1,521 | $107 | | Total prepaid expenses and other current assets | $6,476 | $25,293 | $(18,817) | 6. Accrued Expenses Accrued expenses decreased slightly from $56.3 million at December 31, 2021, to $52.6 million at June 30, 2022, mainly due to a reduction in accrued external research, development, and manufacturing costs Accrued Expenses (in thousands) | Metric (in thousands) | June 30, 2022 | December 31, 2021 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Accrued external research, development and manufacturing costs | $44,919 | $48,590 | $(3,671) | | Accrued professional and consultant fees | $4,142 | $2,155 | $1,987 | | Accrued employee compensation | $3,443 | $4,945 | $(1,502) | | Other | $120 | $587 | $(467) | | Total accrued expenses | $52,624 | $56,277 | $(3,653) | 7. License and Collaboration Agreements Details various license and collaboration agreements, outlining terms, milestone payments, royalties, and their financial impact on research and development expenses - Under the Adimab Assignment Agreement, the company acquired rights to coronavirus-specific antibodies and related intellectual property, issuing 5,000,000 shares of Series A preferred stock to Adimab[66][70] - The company recognized $0.2 million and $0.5 million in R&D expense for services from Adimab under the Assignment Agreement for the three and six months ended June 30, 2022, respectively[69] - The Adimab Collaboration Agreement involves quarterly fees of $1.3 million (recognized as R&D expense) and potential milestone payments up to $18.0 million per product[77][78][79] - The Research Collaboration and License Agreement with TSRI was terminated in April 2022, with $0.8 million and $1.7 million in R&D expense recognized for services during the three and six months ended June 30, 2022, respectively[87][88] 8. Commitments and Contingencies Outlines contractual obligations, including operating lease commitments and a significant $107.8 million reduction in WuXi manufacturing purchase obligations to $51.6 million - In June 2022, the company entered into a two-year noncancelable agreement for dedicated laboratory and office space in Newton, Massachusetts, with monthly rental payments of $0.7 million per year[90] Lease Costs (in thousands) | Lease Cost (in thousands) | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :------------------------ | :------------------------------- | :----------------------------- | | Operating lease cost | $161 | $266 | | Variable lease cost | $8 | $16 | | Total lease cost | $169 | $282 | - In April 2022, the total volume of contractually binding drug substance and drug product batches under the Commercial Manufacturing Agreement with WuXi was reduced by $107.8 million, from $159.4 million to $51.6 million[95] - The company received a low eight-figure credit to offset future services rendered by WuXi, with $13.8 million of previously paid deposits for cancelled batches applied to accrued expenses[96][98] 9. Convertible Preferred Stock This section details the issuance of Series A, B, and C convertible preferred stock, including Adimab's participation. All outstanding preferred stock converted into 84,722,420 shares of common stock upon the closing of the company's IPO in August 2021 - Adimab participated in Series B and Series C Preferred Stock financings, purchasing shares for $2.5 million and $10.0 million, respectively[105][107][144] - Upon the closing of the IPO in August 2021, all outstanding convertible preferred stock converted into 84,722,420 shares of common stock[111][122] 10. Common Stock Describes common stock activities, including repurchases, authorized share increases, and the impact of the July 2021 stock split and August 2021 IPO, which generated $327.5 million net - In July 2021, the company effected a five-for-one stock split of its common stock and proportional adjustment to preferred stock conversion ratios[121] - The IPO in August 2021 resulted in the issuance of 20,930,000 shares of common stock and generated approximately $327.5 million in net proceeds[122] - The company repurchased 1,158,089 and 992,648 shares of unvested restricted common stock in February and June 2022, respectively, due to termination of service[119] 11. Stock-Based Compensation Details stock-based compensation plans, including equity incentive and employee stock purchase plans, providing information on option activity, valuation, and recognized expenses - The 2021 Equity Incentive Plan authorized 43,085,402 shares for issuance as of June 30, 2022, including 23,149,318 shares reserved for future issuance[128] Stock-Based Compensation Expense (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Research and development | $3,382 | $1,152 | $6,535 | $1,431 | | Selling, general and administrative | $2,979 | $2,190 | $1,809 | $2,498 | | Total stock-based compensation expense | $6,361 | $3,342 | $8,344 | $3,929 | - Total unrecognized stock-based compensation expense was $86.4 million as of June 30, 2022, to be recognized over a weighted-average period of 3.0 years[138] - In February 2022, the resignation of the former CEO resulted in a $4.6 million reversal of selling, general and administrative stock-based compensation expense[137] 12. Income Taxes The company recorded no income tax benefits for net operating losses or research and development tax credits for the reported periods due to uncertainty of realizing future benefits - The company recorded no income tax benefits for net operating losses or research and development tax credits for the three and six months ended June 30, 2022 and 2021[140] 13. Defined Contribution Plan The company maintains a 401(k) Plan for eligible employees, making non-elective contributions of 3% of eligible participants' compensation Company Contributions to 401(k) Plan (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Company contributions to 401(k) Plan | $0.2 | $0.1 | $0.4 | $0.2 | 14. Net Loss per Share This section presents the basic and diluted net loss per share attributable to common stockholders, noting that potential dilutive securities were excluded as their effect would be anti-dilutive Net Loss per Share | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss per share (basic and diluted) | $(0.47) | $(178.86) | $(1.40) | $(663.94) | | Weighted-average common shares outstanding | 108,166,890 | 249,769 | 108,019,051 | 125,574 | - Potential dilutive securities were excluded from diluted net loss per share calculation as their effect would be anti-dilutive[143] 15. Related Party Transactions This section details transactions with Adimab, a principal stockholder, including its participation in preferred stock financings, milestone payments, and R&D service fees under the Adimab Assignment and Collaboration Agreements - Adimab, a principal stockholder, purchased $2.5 million and $10.0 million in Series B and Series C Preferred Stock, respectively[144] Related Party R&D Expenses (in thousands) | Expense (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :--------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | IPR&D expense (Adimab Assignment) | $— | $2,500 | $— | $3,500 | | R&D expense (Adimab Assignment services) | $0.2 | $0.2 | $0.5 | $0.4 | | R&D expense (Adimab Collaboration quarterly fee) | $1.3 | $— | $2.6 | $— | | R&D expense (Adimab Collaboration services) | $0.6 | $— | $1.0 | $— | | R&D expense (drug delivery fee) | $0.2 | $— | $0.2 | $— | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, COVID-19 impact, operating expenses, and liquidity, highlighting significant losses, reliance on third parties, and future funding needs - The company has not generated any revenue from product sales or other sources since inception[178] - Research and development expenses are expensed as incurred and primarily consist of external costs for CDMOs, CROs, and consultants for non-clinical, preclinical, and clinical trials of product candidates, especially adintrevimab[179][180] - Acquired in-process research and development (IPR&D) expenses include upfront costs and contingent milestone payments for acquiring rights to Adimab's antibodies, expensed due to no alternative future use[185] - Selling, general and administrative expenses are expected to increase due to business expansion, increased headcount, and costs associated with operating as a public company, including commercialization efforts and intellectual property protection[187] Overview Adagio Therapeutics, a clinical-stage biopharmaceutical company, paused adintrevimab's EUA due to Omicron efficacy issues, is developing new antibody therapies, and faces significant losses and funding needs - Adagio Therapeutics is a clinical-stage biopharmaceutical company developing adintrevimab for COVID-19 prevention and treatment, believing COVID-19 will become an endemic disease[158] - Adintrevimab demonstrated statistically significant efficacy in pre-Omicron populations for prevention (71-75% risk reduction) and treatment (66% reduction in hospitalization/death)[162] - The company paused EUA submission for adintrevimab due to markedly reduced neutralization activity against Omicron BA.2, BA.4, and BA.5 sublineages[163] - Adagio plans to advance a combination of proprietary antibodies targeting all SARS-CoV-2 VOCs, including Omicron sublineages, into clinical trials in Q1 2023[165] Financial Status | Financial Status | As of June 30, 2022 | For Six Months Ended June 30, 2022 | | :--------------- | :------------------ | :--------------------------------- | | Accumulated Deficit | $443.8 million | N/A | | Net Loss | N/A | $151.7 million | Impact of COVID-19 on Our Operations COVID-19 significantly impacts operations, affecting clinical trials, regulatory authorization, and commercialization, with new variants and vaccine availability creating ongoing uncertainties - The COVID-19 pandemic, including the emergence of variants and vaccine availability, directly affects clinical trial design, enrollment, regulatory authorization, and commercialization of Adagio's product candidates[175][176] - The company has experienced some delays and disruptions in development activities due to the COVID-19 pandemic, with ongoing uncertainty regarding its ultimate impact on business, financial condition, and product development timelines[177] Components of Our Results of Operations Outlines key financial components: no revenue, expensed R&D (primarily adintrevimab), acquired IPR&D, SG&A (personnel, public company costs), other income (interest), and no income tax benefits Revenue The company has not generated any revenue from product sales, government supply contracts, or other sources since its inception. Future revenue generation is contingent on successful development, regulatory approval, and commercialization of product candidates - The company has not generated any revenue from product sales, government supply contracts, or any other sources since inception[178] Research and Development Expenses R&D expenses are significant, expensed as incurred, primarily for external preclinical and clinical development of adintrevimab, and are expected to increase with pipeline advancement - Research and development expenses are expensed as incurred and primarily consist of external costs for CDMOs, CROs, and consultants for non-clinical, preclinical, and clinical trials[179][180] - The company's primary R&D focus since inception has been the development of adintrevimab[180] - R&D expenses are expected to increase substantially as adintrevimab progresses through clinical development and additional antibody candidates advance into trials[182] Acquired In-Process Research and Development Expenses Acquired in-process research and development (IPR&D) expenses include upfront costs and contingent milestone payments for acquiring rights to Adimab's antibodies, which are expensed because they have no alternative future use - Acquired IPR&D expenses consist of upfront costs and contingent milestone payments for acquiring rights to Adimab's antibodies, expensed due to having no alternative future use[185] Selling, General and Administrative Expenses SG&A expenses cover personnel, professional fees, and administrative costs, projected to increase with business expansion, headcount, and public company operations, including commercialization - Selling, general and administrative expenses primarily cover personnel-related costs, professional and consultant fees, and other administrative functions[186] - These expenses are expected to increase due to business expansion, increased headcount, potential commercialization efforts, and costs associated with operating as a public company[187] Other Income (Expense), Net Other income (expense), net, primarily consists of interest income from cash, cash equivalents, and marketable securities, with amounts varying based on investment balances and market interest rates - Other income (expense), net, primarily consists of interest income from cash, cash equivalents, and marketable securities[189] Income Taxes The company has not recorded any income tax expense or benefits for net operating losses or research and development tax credits since inception, due to the uncertainty of realizing future benefits - The company has not recorded any income tax expense or benefits for net operating losses or research and development tax credits since inception due to uncertainty of realization[190] Results of Operations This section provides a detailed comparison of the company's financial results for the three and six months ended June 30, 2022, versus 2021, highlighting changes in research and development, acquired IPR&D, selling, general and administrative expenses, and other income Comparison of the three months ended June 30, 2022 and 2021 Net loss increased to $51.0 million in Q2 2022 from $44.7 million in Q2 2021, driven by higher SG&A and R&D expenses, offset by no acquired IPR&D | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Research and development | $37,129 | $35,067 | $2,062 | | Acquired in-process research and development | $— | $2,500 | $(2,500) | | Selling, general and administrative | $14,620 | $7,124 | $7,496 | | Total operating expenses | $51,749 | $44,691 | $7,058 | | Net loss | $(50,990) | $(44,673) | $(6,317) | Research and Development Expenses Research and development expenses increased by $2.0 million to $37.1 million for the three months ended June 30, 2022, primarily due to higher personnel-related costs and external discovery-related expenses, partially offset by a decrease in direct costs for the adintrevimab program | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Direct, external R&D (Adintrevimab) | $23,213 | $28,031 | $(4,818) | | Personnel-related costs | $9,197 | $5,340 | $3,857 | | External discovery-related and other costs | $4,719 | $1,696 | $3,023 | | Total R&D expenses | $37,129 | $35,067 | $2,062 | - Decrease in direct adintrevimab costs was mainly due to a $5.1 million reduction in contract manufacturing and research expenses, partially offset by a $0.6 million increase in clinical trial monitoring activities[192] - Increase in external discovery-related costs was primarily due to a $1.3 million quarterly fee under the Adimab Collaboration Agreement and $0.8 million for services under Adimab agreements[192] Acquired In-Process Research and Development Expenses No acquired IPR&D expense was recognized for the three months ended June 30, 2022, compared to $2.5 million in the prior year, which was a milestone payment under the Adimab Assignment Agreement - No acquired IPR&D expense was recognized for the three months ended June 30, 2022[193] - Acquired IPR&D expenses of $2.5 million in Q2 2021 were due to a milestone payment under the Adimab Assignment Agreement for a Phase 2 clinical trial[194] Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $7.5 million to $14.6 million for the three months ended June 30, 2022, primarily driven by higher professional and consultant fees and increased personnel-related costs due to hiring for public company operations | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Personnel-related costs | $5,784 | $4,054 | $1,730 | | Professional and consultant fees | $8,245 | $2,949 | $5,296 | | Other | $591 | $121 | $470 | | Total SG&A expenses | $14,620 | $7,124 | $7,496 | - The increase in professional services and consultant fees was primarily due to costs incurred as the company began operating as a public company, including corporate governance, D&O insurance, and audit fees[200] Other Income (Expense), Net Other income (expense), net, increased to $0.8 million for the three months ended June 30, 2022, from less than $0.1 million in the prior year, primarily due to higher interest earned on invested cash balances | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Other income (expense), net | $759 | $18 | $741 | Comparison of the six months ended June 30, 2022 and 2021 Net loss significantly increased to $151.7 million in H1 2022 from $83.4 million in H1 2021, driven by higher R&D and SG&A expenses, offset by no acquired IPR&D | Metric (in thousands) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Research and development | $129,164 | $69,204 | $59,960 | | Acquired in-process research and development | $— | $3,500 | $(3,500) | | Selling, general and administrative | $23,324 | $10,695 | $12,629 | | Total operating expenses | $152,488 | $83,399 | $69,089 | | Net loss | $(151,656) | $(83,373) | $(68,283) | Research and Development Expenses R&D expenses increased by $60.0 million to $129.2 million in H1 2022, driven by higher adintrevimab program costs, personnel, and external discovery-related expenses | Metric (in thousands) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Direct, external R&D (Adintrevimab) | $100,796 | $58,683 | $42,113 | | Personnel-related costs | $18,709 | $7,601 | $11,108 | | External discovery-related and other costs | $9,659 | $2,920 | $6,739 | | Total R&D expenses | $129,164 | $69,204 | $59,960 | - The $42.1 million increase in direct adintrevimab costs was driven by $28.5 million in contract manufacturing and research expenses and $14.4 million in clinical trial expenses[201] - The $6.7 million increase in external discovery-related costs included a $2.6 million quarterly fee under the Adimab Collaboration Agreement and $1.4 million for services under Adimab agreements[202] Acquired In-Process Research and Development Expenses No acquired IPR&D expense was recognized for the six months ended June 30, 2022, compared to $3.5 million in the prior year, which included milestone payments for Phase 1 and Phase 2 clinical trials under the Adimab Assignment Agreement - No acquired IPR&D expense was recognized for the six months ended June 30, 2022[203] - Acquired IPR&D expenses of $3.5 million in H1 2021 included $1.0 million for a Phase 1 milestone and $2.5 million for a Phase 2 milestone under the Adimab Assignment Agreement[204] Selling, General and Administrative Expenses SG&A expenses increased by $12.6 million to $23.3 million for the six months ended June 30, 2022, primarily due to a $10.0 million increase in professional and consultant fees related to public company operations and a $1.9 million increase in personnel-related costs, partially offset by a reversal of stock-based compensation expense | Metric (in thousands) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Personnel-related costs | $7,426 | $5,549 | $1,877 | | Professional and consultant fees | $14,906 | $4,918 | $9,988 | | Other | $992 | $228 | $764 | | Total SG&A expenses | $23,324 | $10,695 | $12,629 | - The $10.0 million increase in professional services and consultant fees was primarily due to costs incurred as the company began operating as a public company[207] - Personnel-related costs increased by $1.9 million, partially offset by a reversal of stock-based compensation expense due to the former CEO's resignation[207] Other Income (Expense), Net Other income (expense), net, increased to $0.8 million for the six months ended June 30, 2022, from less than $0.1 million in the prior year, primarily due to higher interest earned on invested cash balances | Metric (in thousands) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Other income (expense), net | $832 | $26 | $806 | Liquidity and Capital Resources The company, with $474.9 million cash, projects funding into Q2 2024 but anticipates needing substantial additional capital through equity, debt, or collaborations due to ongoing losses - The company has financed operations with $464.7 million from preferred stock sales and $327.5 million net proceeds from its August 2021 IPO[207] Cash and Cash Equivalents (in thousands) | Metric (in thousands) | June 30, 2022 | | :-------------------- | :------------ | | Cash and cash equivalents | $474,900 | - The company believes existing cash and cash equivalents will fund operating expenses and capital expenditure requirements into the second quarter of 2024[215] - Substantial additional funding will be required through equity offerings, government/private grants, debt financings, or collaborations to support continuing operations and growth strategy[216] Sources of Liquidity The company financed operations through $464.7 million in preferred stock sales and $327.5 million net IPO proceeds, holding $474.9 million cash as of June 30, 2022 - The company has financed operations with $464.7 million from preferred stock sales and $327.5 million net proceeds from its August 2021 IPO[207] Cash and Cash Equivalents (in thousands) | Metric (in thousands) | June 30, 2022 | | :-------------------- | :------------ | | Cash and cash equivalents | $474,900 | Cash Flows H1 2022 saw $116.4 million cash used in operations, $49.0 million provided by investing, and $0.1 million from financing, a significant decrease from 2021 | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Change | | :-------------------- | :----------------------------- | :----------------------------- | :----- | | Net cash used in operating activities | $(116,441) | $(57,311) | $(59,130) | | Net cash provided by investing activities | $48,983 | $— | $48,983 | | Net cash provided by financing activities | $119 | $334,832 | $(334,713) | - Operating cash usage increased by $59.1 million in H1 2022, primarily due to a higher net loss of $151.7 million[210] - Investing activities provided $49.0 million in H1 2022 from marketable securities maturities, compared to no activity in H1 2021[212] Funding Requirements Funding needs are substantial, dependent on product development and commercialization, with current resources projected into Q2 2024, necessitating additional capital through equity, debt, or collaborations - The company's funding requirements depend on the progress of adintrevimab and other product candidates, scope of R&D, manufacturing, regulatory approvals, and commercialization efforts[214][238] - Existing cash and cash equivalents are expected to fund operations into Q2 2024, but additional capital will be needed[215][238] - Future funding may come from equity offerings, government/private grants, debt financings, or collaborations, which could lead to stockholder dilution or restrictive covenants[216][240] Contractual Obligations and Commitments Q2 2022 saw material changes to contractual obligations, including a $107.8 million reduction in WuXi manufacturing obligations to $51.6 million and a new two-year office/lab lease - In April 2022, the total volume of contractually binding drug substance and drug product batches under the Commercial Manufacturing Agreement was reduced by $107.8 million to $51.6 million[217] - The company received a low eight-figure credit to offset future services from WuXi[217] - In June 2022, a new two-year noncancelable agreement for laboratory and office space was entered into, with base rent charges of $0.7 million per year[217] Critical Accounting Policies and Significant Judgments and Estimates The company's financial statements require management to make estimates and assumptions, particularly for research and development expenses. There have been no significant changes to critical accounting policies from the 2021 Form 10-K, except for the adoption of ASC 842 for leases - The preparation of financial statements requires significant estimates and assumptions, particularly for research and development expenses[218] - No significant changes to critical accounting policies and estimates from the 2021 Form 10-K, except for the adoption of ASC 842 for leases[219] Recently Issued Accounting Pronouncements This section refers to Note 2 of the condensed consolidated financial statements for a description of recently issued accounting pronouncements that may impact the company's financial position, results of operations, and cash flows - A description of recently issued accounting pronouncements is provided in Note 2 to the condensed consolidated financial statements[220] Emerging Growth Company Status The company qualifies as an "emerging growth company" under the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards, allowing it to adopt standards at the same time as private companies - The company is an "emerging growth company" and has elected the extended transition period for complying with new or revised accounting standards[221] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Adagio Therapeutics, Inc. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Adagio Therapeutics, Inc. is not required to provide quantitative and qualitative disclosures about market risk[223] Item 4. Controls and Procedures Management, including CEO and CFO, concluded disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures As of June 30, 2022, the company's management, with the participation of the CEO and CFO, concluded that its disclosure controls and procedures were effective at the reasonable assurance level - As of June 30, 2022, the company's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level[224] Changes in Internal Control over Financial Reporting No material changes in the company's internal control over financial reporting occurred during the period covered by this Quarterly Report on Form 10-Q - No material changes in internal control over financial reporting occurred during the period covered by this report[225] PART II. OTHER INFORMATION Provides additional information including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings, though it may become involved in litigation arising in the ordinary course of business - The company is not currently a party to any material legal proceedings[228] Item 1A. Risk Factors Outlines significant risks impacting business, financial condition, and operations, covering financial position, product development, manufacturing, commercialization, intellectual property, and regulatory compliance Risks Related to our Financial Position and Capital Needs The company faces significant ongoing losses and requires substantial additional funding beyond Q2 2024, risking dilution or restrictive covenants with future financing - The company has incurred significant losses since inception, with a net loss of $151.7 million for the six months ended June 30, 2022, and an accumulated deficit of $443.8 million[230] - The company expects to incur significant expenses and operating losses for the foreseeable future as it advances product candidates and builds commercial infrastructure[230][231] - Existing cash and cash equivalents ($474.9 million as of June 30, 2022) are expected to fund operations into Q2 2024, but substantial additional funding will be needed[238] - Raising additional capital may cause dilution to stockholders, restrict operations, or require relinquishing rights to technologies or product candidates[240] Risks Related to the Development of our Product Candidates Significant product development risks include adintrevimab's reduced efficacy against Omicron variants, early-stage pipeline uncertainty, potential clinical trial delays, and challenges in market acceptance and regulatory approval - The company paused EUA submission for adintrevimab due to markedly reduced neutralization activity against Omicron BA.2, BA.4, and BA.5 sublineages[243] - All product candidates are in clinical and preclinical development, with no products approved for commercial sale, leading to high risk of failure and uncertainty in generating revenue[244][245] - Clinical trials are expensive, time-consuming, and have uncertain outcomes, with potential for delays due to patient enrollment issues, regulatory disagreements, or adverse events[260][261][265] - The ongoing COVID-19 pandemic and emergence of new variants pose risks to clinical trial design, enrollment, regulatory authorization, and commercialization[301][306] Risks Related to the Manufacturing of our Product Candidates Manufacturing monoclonal antibody therapies is complex, relying on third-party CDMOs like WuXi, posing risks of supply chain issues, cGMP compliance, quality control, regulatory inspections, and geopolitical factors - Manufacturing monoclonal antibody therapies is complex, difficult, and subject to strict cGMP requirements, posing risks of delays due to production problems or raw material shortages[315][316] - The company relies on third-party CDMOs, including WuXi (China-based), for manufacturing, testing, labeling, packaging, and storage of product candidates, increasing dependence and exposure to foreign regulatory and trade risks[322][326] - Any failure by the company or its CDMOs to comply with cGMP or pass regulatory inspections could lead to sanctions, delays, or suspension of clinical trials or commercial supply[316][318][319] Risks Related to the Commercialization of Our Product Candidates Commercialization success is uncertain due to market acceptance, intense competition, reimbursement challenges, infrastructure needs, and risks from off-label use, product liability, and cybersecurity breaches - Even if approved, product candidates may fail to achieve market acceptance due to competition, pricing, convenience, or labeling restrictions[338][339] - The company faces significant competition from other biotechnology and pharmaceutical companies developing COVID-19 therapeutics and vaccines, many with greater resources[349][350] - Success depends on obtaining and maintaining coverage and adequate reimbursement from third-party payors, which is uncertain and subject to cost-containment efforts[361][364] - The company is subject to various privacy and data security laws (e.g., GDPR, CCPA) and faces risks from computer system failures, cyberattacks, or data breaches, which could harm its reputation and operations[370][376][377] Risks Related to Our Intellectual Property Success relies on uncertain patent protection, facing challenges to validity and high prosecution costs, while trade secret reliance risks disclosure or independent development by competitors - The company's success depends on obtaining and maintaining patent and other intellectual property protection, but there is no assurance that patent applications will issue or provide sufficient competitive advantage[397][398] - Patents may be challenged in courts or patent offices, potentially leading to invalidation, narrow interpretation, or unenforceability, which would harm commercialization efforts[400][401] - Reliance on trade secret protection is vulnerable to disclosure, misappropriation, or independent development by competitors, which could harm the company's competitive position[403][405] - The company is party to the Adimab Assignment Agreement, and its business is reliant on the licensed intellectual property; termination due to breach would materially and adversely affect its prospects[410][411] Risks Related to Legal and Regulatory Compliance Matters Operations are subject to extensive healthcare fraud and abuse laws; non-compliance risks significant penalties, and ongoing regulatory oversight or healthcare reforms could negatively impact the business - The company's relationships with healthcare providers and payors are subject to federal and state healthcare fraud and abuse laws, false claims laws, and other regulations (e.g., Anti-Kickback Statute, False Claims Act, HIPAA, Physician Payments Sunshine Act)[452][454] - Non-compliance with these laws could result in significant penalties, including civil, criminal, and administrative sanctions, exclusion from healthcare programs, and reputational harm[455] - Even with regulatory approval, product candidates will be subject to ongoing oversight, potentially leading to additional costs, post-marketing studies, or restrictions on marketing and labeling[457][458] - Healthcare legislative and regulatory reforms, including those related to drug pricing and the ACA, may negatively impact the company's business and profitability[464][468][469] Risks Related to Employee Matters and Managing Our Growth Future success depends on attracting and retaining qualified personnel and managing growth, while potential conflicts of interest with Adimab and employee misconduct pose risks - The company's future success is highly dependent on retaining key executives and attracting, retaining, and motivating qualified scientific, clinical, manufacturing, and sales/marketing personnel[472][473] - Directors, officers, and key employees may have actual or potential conflicts of interest due to affiliations with Adimab, which owns a significant percentage of the company's common stock[474][476] - The company may encounter difficulties managing growth, including implementing and improving systems, expanding facilities, and recruiting/training personnel[478] - The company is exposed to risks of employee misconduct, including fraudulent conduct or non-compliance with regulatory standards, which could lead to significant penalties and reputational harm[479] Risks Related to Ownership of Our Common Stock and Our Status as a Public Company Common stock price volatility is influenced by clinical trials, regulatory decisions, and market conditions; reduced disclosure as an "emerging growth company" may deter investors, and concentrated ownership limits new investor influence - The trading price of the company's common stock has been volatile and may continue to be influenced by clinical trial results, regulatory decisions, and market conditions[482][483] - The company previously identified and remediated a material weakness in internal control over financial reporting, but future weaknesses could impact financial reporting accuracy[486][488] - As an "emerging growth company" and "smaller reporting company," the company benefits from reduced disclosure requirements, which may make its common stock less attractive to some investors[502][504] - Concentration of ownership among executive officers, directors, and principal stockholders (Adimab owns ~24.3%) may prevent new investors from influencing significant corporate decisions[476][500] General Risk Factors As a public company, Adagio faces increased compliance costs, potential NOL limitations, FCPA risks, and disruptions from government agencies and global economic/geopolitical conditions - As a public company, the company incurs significant legal, accounting, and compliance expenses, and faces increased demands on management[510] - The company's ability to use net operating losses (NOLs) and tax credit carryforwards to offset future taxable income may be limited by Section 382 ownership changes and changes in tax laws (e.g., R&D amortization)[512][513][514] - The company's business activities are subject to the FCPA and similar anti-bribery laws, with violations potentially leading to fines, sanctions, and reputational damage[515] - Disruptions at government agencies (FDA, SEC) due to funding shortages or global health concerns, and unfavorable global economic/geopolitical conditions (e.g., Russia-Ukraine conflict), could adversely affect the business[517][519][520] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the use of $327.5 million net IPO proceeds and reports on issuer purchases of equity securities, specifically repurchases of unvested restricted common stock Use of Proceeds The company's IPO, which closed on August 10, 2021, generated approximately $327.5 million in net proceeds after deducting underwriting discounts and offering expenses. There has been no material change in the planned use of these proceeds - The IPO, which closed on August 10, 2021, generated approximately $327.5 million in net proceeds[522] - No material change in the planned use of IPO proceeds as described in the prospectus[523] Purchases of Equity Securities by the Issuer and Affiliated Purchasers During June 2022, the company repurchased 992,648 shares of unvested restricted common stock at an average price of $0.002 per share, related to the exercise of repurchase rights upon cessation of employment Equity Securities Purchased | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----- | :------------------------------- | :--------------------------- | | June 1, 2022 to June 30, 2022 | 992,648 | $0.002 | - Shares were repurchased upon the early exercise of employee stock options in connection with the exercise of repurchase rights due to termination of service[524] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including corporate governance documents, employment agreements, and officer certifications - The section lists all exhibits filed with the Form 10-Q, including corporate documents, employment agreements, and officer certifications[526] Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q, signed by David Hering, Chief Executive Officer, and Jane Pritchett Henderson, Chief Financial Officer, on August 15, 2022 - The report is signed by David Hering, Chief Executive Officer, and Jane Pritchett Henderson, Chief Financial Officer, on August 15, 2022[531]