ADC Therapeutics(ADCT) - 2024 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION Financial Statements ADC Therapeutics reported Q1 2024 revenues of $18.1 million, a net loss of $46.6 million, and $234.3 million in cash, reflecting reduced operating expenses Condensed Consolidated Balance Sheets Total assets decreased to $308.0 million by Q1 2024, primarily due to lower cash, while the shareholders' deficit grew to $194.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $234,285 | $278,598 | | Total current assets | $290,206 | $336,291 | | Total assets | $307,966 | $354,782 | | Liabilities & Equity | | | | Total liabilities | $502,415 | $503,031 | | Total shareholders' (deficit) | ($194,449) | ($148,249) | Condensed Consolidated Statements of Operation Q1 2024 total revenue decreased to $18.1 million, but reduced operating expenses led to a smaller net loss of $46.6 million Q1 2024 vs. Q1 2023 Statement of Operations (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Product revenues, net | $17,848 | $18,953 | | Total revenue, net | $18,053 | $18,992 | | Total operating expense | ($51,666) | ($69,202) | | Research and development | ($25,735) | ($38,375) | | Net loss | ($46,606) | ($59,374) | | Net loss per share, basic and diluted | ($0.56) | ($0.73) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $44.1 million in Q1 2024, resulting in a $44.3 million net decrease in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($44,095) | ($15,392) | | Net cash used in investing activities | ($531) | ($1,016) | | Net cash provided by financing activities | $356 | $425 | | Net decrease in cash and cash equivalents | ($44,270) | ($15,983) | Notes to the Consolidated Financial Statements Notes detail accounting policies, going concern assessment, revenue disaggregation, debt facilities, and share-based compensation - The company concluded there is no substantial doubt about its ability to continue as a going concern for at least one year from the financial statement issuance date, based on its cash and cash equivalents of $234.3 million as of March 31, 2024[34] - Product revenue is primarily generated in the U.S., totaling $17.8 million for Q1 2024. Three major customers, McKesson, AmerisourceBergen, and Cardinal Health, accounted for 43.0%, 38.0%, and 19.0% of product revenues, respectively[69][73] - The fair value of the Deerfield warrant obligation increased significantly from $0.3 million at year-end 2023 to $3.4 million as of March 31, 2024, primarily due to an increase in the company's share price. This resulted in a $3.1 million expense recorded in 'Other, net'[57] Key Liabilities (in millions) | Liability | March 31, 2024 | | :--- | :--- | | Deferred royalty obligation | $310.0 | | Senior secured term loans | $113.2 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses ZYNLONTA's performance, pipeline progress, Q1 2024 revenue decrease to $17.8 million, and significant operating expense reductions, affirming sufficient liquidity Recent Developments Recent developments include positive LOTIS-7 trial data for ZYNLONTA, high response rates in MZL, and advancement of solid tumor ADC candidates - In the LOTIS-7 trial (Part 1), combining ZYNLONTA with glofitamab or mosunetuzumab, no dose-limiting toxicities were observed, and cytokine release syndrome (CRS) was low-grade, suggesting good combinability[102] - Initial data from a Phase 2 investigator-initiated trial in relapsed/refractory Marginal Zone Lymphoma (MZL) showed a 13/15 complete response rate among evaluable patients, indicating high efficacy[108] - The company is advancing its solid tumor pipeline with a novel exatecan-based ADC platform. Lead candidates targeting Claudin-6 and NaPi2b are in IND-enabling studies for potential use in ovarian and non-small cell lung cancer[112] Results of Operations Q1 2024 net product revenues decreased by 5.8% to $17.8 million, while total operating expenses significantly reduced by 25.3% to $51.7 million Operating Results Comparison (in thousands) | Line Item | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Product revenues, net | $17,848 | $18,953 | (5.8)% | | Research and development | ($25,735) | ($38,375) | (32.9)% | | Selling and marketing | ($11,390) | ($15,351) | (25.8)% | | General and administrative | ($12,031) | ($15,503) | (22.4)% | | Net loss | ($46,606) | ($59,374) | (21.5)% | - The decrease in R&D expenses was primarily driven by a $5.1 million reduction in spending on the Cami program, which was stopped, and a $4.2 million decrease in ZYNLONTA clinical trial costs[124][126][127] Liquidity and Capital Resources The company ended Q1 2024 with $234.3 million in cash, deemed sufficient for the next twelve months, despite increased cash usage in operations - As of March 31, 2024, the company had cash and cash equivalents of $234.3 million, which is deemed sufficient to fund operations for the next twelve months[144] - The increase in net cash used in operations in Q1 2024 compared to Q1 2023 was primarily due to the non-recurring receipt of a $50.0 million license milestone payment from Sobi in the prior-year period[149] Quantitative and Qualitative Disclosures About Market Risk The company is a smaller reporting company and is not required to provide the information for this item - As a smaller reporting company, ADC Therapeutics is not required to provide quantitative and qualitative disclosures about market risk[153] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[154] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[155] PART II: OTHER INFORMATION Legal Proceedings The company reports that it is not currently party to any legal proceedings that would be reasonably expected to have a material adverse effect on its business - As of the report date, the company is not involved in any material legal proceedings[156] Risk Factors A supplemental risk factor was added concerning investigator-initiated clinical trials, highlighting the company's lack of control over their design, administration, or data quality - A new risk factor was disclosed regarding the company's lack of control over investigator-initiated clinical trials, such as the ongoing Phase 2 trial of ZYNLONTA in MZL. This includes no control over trial design, conduct, or data quality control[157][158] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no sales of unregistered equity securities or purchases of its own equity securities during the period covered by this report - There were no sales of unregistered equity securities or issuer purchases of equity securities during the quarter[159][160] Other Information No directors or officers of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter - No directors or officers adopted or terminated any Rule 10b5-1 trading plans during the reporting period[161]