ADC Therapeutics SA 6-K, filed Nov 7, 2023
ADC Therapeutics SA (ADCT)
6-K
2023-11-07
For: 2023-09-30
View Original
Added on
April 07, 2026
About this 6-K
ADC Therapeutics SA filed this 6-K on November 7, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2023
Commission File Number: 001-39071
(Exact name of registrant as specified in its charter)
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
| Form 20-F | ☒ | Form 40-F | ||||||||||||||||||
INCORPORATION BY REFERENCE
This Report on Form 6-K (other than Exhibit 99.3 hereto), including Exhibits 99.1 and 99.2 hereto, shall be deemed to be incorporated by reference into the registration statements on Form F-3 (Registration Nos. 333-267293, 333-267295 and 333-270570) of ADC Therapeutics SA and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ADC Therapeutics SA | ||||||||
| By: | /s/ Jose Carmona | |||||||
| Name: | Jose Carmona | |||||||
| Title: | Chief Financial Officer | |||||||
| Date: November 7, 2023 | ||||||||
EXHIBIT INDEX
| Exhibit Number | Description | ||||
| 99.1 | |||||
| 99.2 | |||||
| 99.3 | |||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
Exhibit 99.1
Unaudited IFRS Condensed Consolidated Interim Financial Statements as of and for the three and nine months ended September 30, 2023.
Condensed Consolidated Interim Balance Sheet | |||||
1
ADC Therapeutics SA
Condensed Consolidated Interim Statement of Operations
(in KUSD except for per share data)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| Note | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||
| Product revenues, net | 5 | |||||||||||||||||||||||||||||||
| License revenues and royalties | 5 | |||||||||||||||||||||||||||||||
| Total revenue | ||||||||||||||||||||||||||||||||
| Operating expense | ||||||||||||||||||||||||||||||||
| Cost of product sales | 7 | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Research and development expenses | 7 | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Selling and marketing expenses | 7 | ( | ( | ( | ( | |||||||||||||||||||||||||||
| General and administrative expenses | 7 | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Total operating expense | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||||||||
| Financial income | 8 | |||||||||||||||||||||||||||||||
| Financial expense | 8 | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Non-operating expense | 8 | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Total other expense | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Loss before taxes | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Income tax benefit | ||||||||||||||||||||||||||||||||
| Net loss | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Net loss attributable to: | ||||||||||||||||||||||||||||||||
| Owners of the parent | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Net loss per share, basic and diluted | 19 | ( | ( | ( | ( | |||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
2
ADC Therapeutics SA
Condensed Consolidated Interim Statement of Comprehensive Loss
(in KUSD)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| Note | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||
| Net Loss | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||
| Items that will not be reclassified to profit and loss | ||||||||||||||||||||||||||||||||
| Remeasurement of defined benefit pension liability | ||||||||||||||||||||||||||||||||
| Total items that will not be reclassified to profit and loss | ||||||||||||||||||||||||||||||||
| Items that may be reclassified to profit and loss | ||||||||||||||||||||||||||||||||
| Currency translation differences | ( | ( | ( | |||||||||||||||||||||||||||||
| Share of other comprehensive income (loss) in joint venture | 11 | ( | ||||||||||||||||||||||||||||||
| Total items that may be reclassified to profit and loss | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Other comprehensive (loss) income for the period | ( | ( | ( | |||||||||||||||||||||||||||||
| Total comprehensive loss for the period | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Total comprehensive loss attributable to: | ||||||||||||||||||||||||||||||||
| Owners of the parent | ( | ( | ( | ( | ||||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
3
ADC Therapeutics SA
Condensed Consolidated Interim Balance Sheet
(in KUSD)
| Note | September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||||
| Current assets | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 13 | |||||||||||||||||||||||||||||||
| Accounts receivable, net | 5 | |||||||||||||||||||||||||||||||
| Inventory | 9 | |||||||||||||||||||||||||||||||
| Other current assets | ||||||||||||||||||||||||||||||||
| Total current assets | ||||||||||||||||||||||||||||||||
| Non-current assets | ||||||||||||||||||||||||||||||||
| Property, plant and equipment | ||||||||||||||||||||||||||||||||
| Right-of-use assets | 12 | |||||||||||||||||||||||||||||||
| Intangible assets | 10 | |||||||||||||||||||||||||||||||
| Interest in joint venture | 11 | |||||||||||||||||||||||||||||||
| Deferred tax asset | ||||||||||||||||||||||||||||||||
| Other long-term assets | ||||||||||||||||||||||||||||||||
| Total non-current assets | ||||||||||||||||||||||||||||||||
| Total assets | ||||||||||||||||||||||||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||||||||||||||
| Accounts payable | ||||||||||||||||||||||||||||||||
| Other current liabilities | ||||||||||||||||||||||||||||||||
| Lease liabilities, short-term | 12 | |||||||||||||||||||||||||||||||
| Senior secured term loans, short-term | 13 | |||||||||||||||||||||||||||||||
| Total current liabilities | ||||||||||||||||||||||||||||||||
| Non-current liabilities | ||||||||||||||||||||||||||||||||
| Senior secured term loans, long-term | 13 | |||||||||||||||||||||||||||||||
| Warrant obligations | 13, 15 | |||||||||||||||||||||||||||||||
| Deferred royalty obligation, long-term | 17 | |||||||||||||||||||||||||||||||
| Deferred gain of joint venture | 11 | |||||||||||||||||||||||||||||||
| Lease liabilities, long-term | 12 | |||||||||||||||||||||||||||||||
| Other long-term liabilities | 5 | |||||||||||||||||||||||||||||||
| Total non-current liabilities | ||||||||||||||||||||||||||||||||
| Total liabilities | ||||||||||||||||||||||||||||||||
| Equity attributable to owners of the parent | ||||||||||||||||||||||||||||||||
| Share capital | ||||||||||||||||||||||||||||||||
| Share premium | ||||||||||||||||||||||||||||||||
| Treasury shares | ( | ( | ||||||||||||||||||||||||||||||
| Other reserves | 16 | |||||||||||||||||||||||||||||||
| Cumulative translation adjustments | ( | ( | ||||||||||||||||||||||||||||||
| Accumulated losses | ( | ( | ||||||||||||||||||||||||||||||
| Total equity attributable to owners of the parent | ( | |||||||||||||||||||||||||||||||
| Total liabilities and equity | ||||||||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
4
ADC Therapeutics SA
Condensed Consolidated Interim Statement of Changes in Equity
(in KUSD)
For the Three and Nine Months Ended September 30, 2023
| Note | Share Capital | Share Premium | Other Reserves | Treasury Shares | Cumulative Translation Adjustments | Accumulated Losses | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| July 1, 2023 | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Loss for the period | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Translation adjustment | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Investment in joint venture | 11 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income (loss) for the period | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Issuance of shares, 2022 Employee Stock Purchase Plan | 16 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 16 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Total transactions with owners | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Note | Share Capital | Share Premium | Other Reserves | Treasury Shares | Cumulative Translation Adjustments | Accumulated Losses | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| January 1, 2023 | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Loss for the period | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Translation adjustment | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Investment in joint venture | 11 | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Total other comprehensive (loss) income | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Total comprehensive (loss) income for the period | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Vestings of RSUs | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares, 2022 Employee Stock Purchase Plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 16 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Total transactions with owners | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
5
ADC Therapeutics SA
Condensed Consolidated Interim Statement of Changes in Equity
(in KUSD)
For the Three and Nine Months Ended September 30, 2022
| Note | Share Capital | Share Premium | Other Reserves | Treasury Shares | Cumulative Translation Adjustments | Accumulated Losses | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| July 1, 2022 | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Loss for the period | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Translation adjustment | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Total comprehensive loss for the period | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Issuance of shares to be held as treasury shares | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares, Deerfield exchange agreement, net of transaction costs | 15 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares, share purchase agreement, net of transaction costs | 15 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Vestings of RSUs | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 16 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Total transactions with owners | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Note | Share Capital | Share Premium | Other Reserves | Treasury Shares | Cumulative Translation Adjustments | Accumulated Losses | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| January 1, 2022 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Loss for the period | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Translation adjustment | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Remeasurement of defined benefit pension liability | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income (loss) for the period | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Issuance of shares to be held as treasury shares | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares, Deerfield exchange agreement, net of transaction costs | 15 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares, share purchase agreement, net of transaction costs | 15 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Vestings of RSUs | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 16 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Total transactions with owners | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
6
ADC Therapeutics SA
Condensed Consolidated Interim Statement of Cash Flows (in KUSD)
| For the Nine Months Ended September 30, | |||||||||||||||||
| Note | 2023 | 2022 | |||||||||||||||
| Cash used in operating activities | |||||||||||||||||
| Loss for the period | ( | ( | |||||||||||||||
| Adjustments for non-monetary items: | |||||||||||||||||
| Share-based compensation expense | 16 | ||||||||||||||||
| Impairments of assets | 9 | ||||||||||||||||
| Depreciation of property, plant and equipment | |||||||||||||||||
| Amortization of intangible assets | 10 | ||||||||||||||||
| Impairment of intangible assets | 10 | ||||||||||||||||
| Depreciation of right-of-use assets | 12 | ||||||||||||||||
| Share of results in joint venture | 8, 11 | ||||||||||||||||
| Deferred income taxes | ( | ( | |||||||||||||||
| Change in defined benefit pension liability | |||||||||||||||||
| Convertible loans, derivatives, change in fair value | 8, 14 | ( | |||||||||||||||
| Warrant obligations, change in fair value | 8, 13, 15 | ( | ( | ||||||||||||||
| Employee stock purchase plan deductions | |||||||||||||||||
| Financial expense (income) | 8, 13, 14, 17, 18 | ||||||||||||||||
| Loss on extinguishment | 8, 15 | ||||||||||||||||
| Exchange differences | ( | ( | |||||||||||||||
| Operating loss before working capital changes | ( | ( | |||||||||||||||
| Decrease in accounts receivable, net | |||||||||||||||||
| Increase in inventory | ( | ( | |||||||||||||||
| (Increase) decrease in other current assets | ( | ||||||||||||||||
| Increase in other long-term assets | ( | ||||||||||||||||
| Decrease in accounts payable | ( | ( | |||||||||||||||
| Increase in income taxes payable | |||||||||||||||||
| (Decrease) increase in other current liabilities | ( | ||||||||||||||||
| Increase in other long-term liabilities | |||||||||||||||||
| Cash used in operating activities | ( | ( | |||||||||||||||
| Interest paid | 13, 14 | ( | ( | ||||||||||||||
| Interest received | |||||||||||||||||
| Interest expense on lease obligations | 12 | ||||||||||||||||
| Payments made under royalty financing transaction | 17 | ( | ( | ||||||||||||||
| Tax refund/(payments) | ( | ||||||||||||||||
| Net cash used in operating activities | ( | ( | |||||||||||||||
| Cash used in investing activities | |||||||||||||||||
| Payment for purchase of property, plant and equipment | ( | ( | |||||||||||||||
| Payment for purchase of intangible assets | 10 | ( | ( | ||||||||||||||
| Refund/(payment) of deposits | ( | ||||||||||||||||
| Net cash used in investing activities | ( | ( | |||||||||||||||
| Cash provided by financing activities | |||||||||||||||||
| Proceeds from senior secured term loans, net of transaction costs | 13 | ||||||||||||||||
| Proceeds from equity issuance, net of transaction costs | |||||||||||||||||
| Convertible loans exchange | 13, 14 | ( | |||||||||||||||
| Proceeds from deferred royalty transaction | 17 | ||||||||||||||||
| Principal portion of lease obligation payments | 12 | ( | ( | ||||||||||||||
| Net cash provided by financing activities | |||||||||||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||||||||
| Exchange losses on cash and cash equivalents | ( | ||||||||||||||||
| Cash and cash equivalents at beginning of the period | |||||||||||||||||
| Cash and cash equivalents at end of the period | |||||||||||||||||
| Supplemental Non-Cash Investing Information | |||||||||||||||||
| Issuance of shares, Deerfield exchange agreement | |||||||||||||||||
| Transaction costs recorded in Accounts payable | |||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
7
ADC Therapeutics SA | ||
Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) – in KUSD except for share and per share data
1.Corporate information
ADC Therapeutics SA (the “Company” or “ADCT”) was incorporated on June 6, 2011 under the laws of Switzerland. The registered office of the Company is located at Route de la Corniche 3B, 1066 Epalinges, Switzerland. The Company controls three wholly-owned subsidiaries: ADC Therapeutics America, Inc. (“ADCT America”), which was incorporated in Delaware, USA on December 10, 2014, ADC Therapeutics (UK) Ltd (“ADCT UK”), which was incorporated in England on December 12, 2014 and ADC Therapeutics (NL) B.V. which was incorporated in the Netherlands on February 25, 2022. The Company and its three subsidiaries form the ADCT Group (the “Group”).
The Group is focused on the development and commercialization of antibody drug conjugates (“ADCs”), including research, development, human clinical trials, regulatory approval and commercialization. On April 23, 2021, the U.S. Food and Drug Administration (“FDA”) approved ZYNLONTA for the treatment of relapsed or refractory diffuse large B-cell lymphoma (“DLBCL”) and the Company commenced recognizing revenue upon the sale of ZYNLONTA during the second quarter of 2021. ADCs are drug constructs which combine monoclonal antibodies specific to particular types of cells with cytotoxic molecules or warheads which seek to kill cancer cells to which the ADC attaches. ADCs have extensive potential therapeutic applications in cancer.
These unaudited condensed consolidated interim financial statements were authorized for issue on November 7, 2023.
Going concern basis
ADCT is a commercial-stage company developing innovative therapeutics. The Group is exposed to all risks inherent in establishing and developing its business, including the substantial uncertainty that current projects will succeed. The Group’s success may also depend on its ability to:
•establish and maintain a strong patent position and protection;
•develop, gain regulatory approval and commercialize drug products;
•enter into collaborations with partners in the pharmaceutical industry;
•acquire and retain key personnel; and
•acquire additional funding to support its operations.
Since its incorporation, the Group has primarily funded its growth through capital increases and additional funds provided by research collaborations, license agreements, the issuance of the Company’s common shares, the issuance of convertible loans, the issuance of term loans and proceeds from a royalty purchase agreement. The Group does not have recourse to bank loans. As a result, the Group is not exposed to liquidity risk through requests for early repayment of loans, other than, pursuant to the senior secured term loan facility, it must maintain a balance of at least USD 60.0 million in cash and cash equivalents plus any accounts payable that are greater than ninety days old at the end of each quarter.
As of September 30, 2023, the Group’s cash and cash equivalents amounted to USD 310.4 million (December 31, 2022: USD 326.4 million).
Management believes that the Group has sufficient resources to meet its financial obligations for at least the next 12 months from the date of issuance of these unaudited condensed consolidated interim financial statements and, as a result, is presenting these unaudited condensed consolidated interim financial statements of the Group on a going concern basis.
8
2.Basis of preparation
Statement of Compliance
These unaudited condensed consolidated interim financial statements as of and for the three and nine months ended September 30, 2023 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) and should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2022.
Functional and reporting currency
These unaudited condensed consolidated interim financial statements are presented in United States Dollars (“USD” or “$”), which is the Company’s functional currency and the Group’s reporting currency.
A subsidiary of the Company, ADCT UK, has a functional currency of the British Pound (“GBP”). The following exchange rates have been used for the translation of the financial statements of ADCT UK:
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| USD / GBP | |||||||||||
| Closing rate, GBP 1 | |||||||||||
| Weighted average exchange rate, GBP 1 | |||||||||||
Basis of Consolidation
The unaudited condensed consolidated interim financial statements incorporate the financial statements of the Company and entities controlled by the Company which are the same as those contained in the audited consolidated financial statements as of and for the year ended December 31, 2022.
Use of estimates and judgements
The preparation of the unaudited condensed consolidated interim financial statements in conformity with IAS 34 requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
Estimates are based on management’s knowledge of current events and actions that the Company may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
In preparing these unaudited condensed consolidated interim financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty included those that applied to the consolidated financial statements for the year ended December 31, 2022. There have been no material changes to the use of estimates and judgements other than those described in note 3, "Significant accounting policies."
9
3.Significant accounting policies
The accounting policies applied by the Company in these unaudited condensed consolidated interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as of and for the year ended December 31, 2022 and have been applied consistently to all periods presented in these unaudited condensed consolidated interim financial statements, except for the following:
Revenue Recognition
Product Revenue
The Company generates revenue from sales of ZYNLONTA in the U.S. for the treatment of relapsed or refractory DLBCL, which was approved by the FDA on April 23, 2021 and launched shortly thereafter. Revenue is recognized when control is transferred to the customer at the net selling price, which includes reductions for gross-to-net (“GTN”) sales adjustments such as government rebates, chargebacks, distributor service fees, other rebates and administrative fees, sales returns and allowances and sales discounts.
On November 15, 2021, the Infrastructure Investment and Jobs Act was enacted, which added a requirement for manufacturers of certain single-source drugs (including biologics and biosimilars) separately paid for under Medicare Part B for at least 18 months and marketed in single-dose containers or packages (known as refundable single-dose container or single-use package drugs) to provide annual refunds if those portions of the dispensed drug that are unused and discarded exceed an applicable percentage defined by statute or regulation. The Centers for Medicare & Medicaid Services (the “CMS”) finalized regulations to implement this section on November 18, 2022, and the provision went into effect on January 1, 2023.
The Company has accounted for this annual refund (“discarded drug rebate”) as a GTN sales adjustment beginning in the first quarter of 2023. The discarded drug rebate will involve significant estimates and judgment after considering factors including legal interpretations of applicable laws and regulations, historical experience with discarded volumes and processing time lags.
The Company uses information from external sources to identify the Company’s discarded volumes and estimate the discarded drug rebate. The Company’s estimates are subject to inherent limitations of estimates that rely on third-party information and reflect other limitations including lags between the date as of which third-party information is generated and the date on which the Company receives third-party information. Estimates for the discarded drug rebate are being assessed each period and adjusted as required to revise information or actual experience.
New and amended IFRS standards
There are no new IFRS standards, amendments to standards or interpretations that are mandatory for the financial year beginning on January 1, 2023, that are relevant to the Group. New standards, amendments to standards and interpretations that are not yet effective, which have been deemed by the Group as currently not relevant, are not listed here.
10
4.Financial risk management
4.1Financial risk factors
The Group’s activities are exposed to a variety of financial risks: market risk (including changes in the Company’s share price, exposure to fluctuation in currency exchange rates and exposure to interest rate movements), credit risk and liquidity risk.
The unaudited condensed consolidated interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s consolidated financial statements as of December 31, 2022. In relation to the royalty purchase agreement with entities managed by Healthcare Royalty Management, LLC ("HCR"), the Company is obligated to pay interest in the form of royalties in connection with certain net sales and licensing revenue. As the effective interest rate ("EIR") on the deferred royalty obligation does not depend on market performance, the exposure to interest rate and market risk is deemed low. See note 17, “Deferred royalty obligation” for further information. In regards to the senior secured term loans, the interest rate is variable and dependent upon market factors. The Company will update the EIR at the end of each reporting period for changes in the rate. See note 13, "Senior secured term loan facility and warrants" for further information. A hypothetical 100 basis point increase (decrease) in the interest rate as of September 30, 2023 would have increased (decreased) the effective interest expense associated with the Company's senior secured term loan facility by KUSD 1,124 and (KUSD 1,124 ). There have been no other material changes in financial risk management since December 31, 2022.
4.2Fair value estimation
As of September 30, 2023, the carrying amount is a reasonable approximation of fair value for the following financial assets and liabilities:
•Cash and cash equivalents
•Trade accounts receivable; and
•Trade accounts payable
In the nine months ended September 30, 2023, there were no significant changes in the business or economic circumstances that affected the fair value of the Group’s financial assets and financial liabilities.
Fair values must be estimated at the end of each reporting period with regard to the senior secured term loan warrant obligation and the Deerfield warrants. The approach to valuation follows the grant date fair value principle, and the key input factors are described for the senior secured term loan facility warrant obligation in note 13, "Senior secured term loan facility and warrants" and for the Deerfield warrants in note 15, "Deerfield warrants." Commonly accepted pricing models (Black-Scholes) have been used to calculate the fair values. The valuation of the senior secured term loan facility warrant obligation and Deerfield warrants are classified as pertaining to Level 2 of the valuation hierarchy. The convertible loan derivatives previously were classified as pertaining to Level 3 of the valuation hierarchy and were extinguished on August 15, 2022. See note 14, "Convertible loans" for further information. The Company no longer has any inputs pertaining to level 3 of the valuation hierarchy set out below.
The different levels of the valuation hierarchy have been defined as follows:
(a)Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
(b)Level 2: inputs other than quoted prices that are observable for the asset or liability, either directly (for example, as prices) or indirectly (for example, derived from prices);
(c)Level 3: inputs for the asset or liability that are not based on observable market data.
There were no transfers between the respective levels during the period.
11
5.Revenue recognition
The table below provides a disaggregation of revenues by type of service and customer location for the three and nine months ended September 30, 2023 and September 30, 2022.
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in KUSD) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Types of goods and services | ||||||||||||||||||||||||||
| Product revenue, net | ||||||||||||||||||||||||||
| License revenues | ||||||||||||||||||||||||||
| Royalties | ||||||||||||||||||||||||||
| Total revenue | ||||||||||||||||||||||||||
| Customer Location | ||||||||||||||||||||||||||
| U.S. | ||||||||||||||||||||||||||
EMEA(1) | ||||||||||||||||||||||||||
| Japan | ||||||||||||||||||||||||||
| Total revenue | ||||||||||||||||||||||||||
(1) Europe, the Middle East and Africa
Product revenue, net
Product revenues, net from sales of ZYNLONTA were KUSD 14,267 and KUSD 52,417 for the three and nine months ended September 30, 2023. Product revenues, net from the sales of ZYNLONTA were KUSD 21,321 and KUSD 55,110 for the three and nine months ended September 30, 2022, respectively. The Company records its best estimate of GTN sales adjustments to which customers are likely to be entitled.
The table below provides a rollforward of the Company’s accruals related to the GTN sales adjustments for the three and nine months ended September 30, 2023 and September 30, 2022.
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in KUSD) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Beginning balance | ||||||||||||||||||||||||||
| GTN sales adjustments for current period sales | ||||||||||||||||||||||||||
| GTN sales adjustments for prior period sales | ( | ( | ( | ( | ||||||||||||||||||||||
| Credits, payments and reclassifications to Accounts payable | ( | ( | ( | ( | ||||||||||||||||||||||
| Ending balance as of September 30, | ||||||||||||||||||||||||||
The table below provides the classification of the accruals related to the GTN sales adjustment included in the Company’s unaudited condensed consolidated interim balance sheet as of September 30, 2023 and December 31, 2022.
| (in KUSD) | As of September 30, 2023 | As of December 31, 2022 | ||||||||||||
| Accounts receivable, net | ||||||||||||||
| Other current and non-current liabilities | ||||||||||||||
12
License revenues and royalties
On January 18, 2022, the Company entered into an exclusive license agreement with MTPC for the development and commercialization of ZYNLONTA for all hematologic and solid tumor indications in Japan. Under the terms of the agreement, the Company received an upfront payment of USD 30 million and may receive up to an additional USD 205 million in milestones if certain development and commercial events are achieved. The Company will also be entitled to receive royalties ranging in percentage from the high teens to the low twenties based on net sales of ZYNLONTA in Japan. MTPC will conduct clinical studies of ZYNLONTA in Japan and will have the right to participate in any global clinical studies by bearing a portion of the study costs. In addition, the Company will supply ZYNLONTA to MTPC for its drug development and commercialization under a supply agreement.
On July 8, 2022, the Company entered into exclusive license agreement with Sobi for the development and commercialization of ZYNLONTA for all hematologic and solid tumor indications outside of the U.S., greater China, Singapore and Japan. Under the terms of the agreement, the Company received an upfront payment of USD 55 million and is eligible to receive up to USD 382.5 million in regulatory and net sales-based milestones, of which USD 50 million in license revenue was recognized in December 2022 upon approval of a Marketing Authorisation Application by the European Commission for ZYNLONTA in third-line DLBCL and received in the first quarter of 2023. The Company will also receive royalties ranging in percentage from the mid-teens to the mid-twenties based on net sales of the product in Sobi’s licensed territories, subject to certain adjustments. The Company recognized KUSD 226 and KUSD 351 of revenue attributable to royalties in the Sobi licensed territories during the three and nine months ended September 30, 2023, respectively.
6.Segment information
13
7.Operating expense
The following table provides the unaudited condensed consolidated interim statement of operations classification of the Company's total operating expense:
| (in KUSD) | Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Cost of product sales | |||||||||||||||||||||||
| R&D | |||||||||||||||||||||||
External costs (1) | |||||||||||||||||||||||
Employee expenses (2) | |||||||||||||||||||||||
| R&D expense | |||||||||||||||||||||||
| S&M | |||||||||||||||||||||||
External costs (1) | |||||||||||||||||||||||
Employee expenses (2) | |||||||||||||||||||||||
| S&M expense | |||||||||||||||||||||||
| G&A | |||||||||||||||||||||||
External costs (1) | |||||||||||||||||||||||
Employee expenses (2) | |||||||||||||||||||||||
| G&A expense | |||||||||||||||||||||||
| Total operating expense | |||||||||||||||||||||||
(1) Includes depreciation expense
(2) Includes share-based compensation expense
The decrease in Cost of product sales for the three and nine months ended September 30, 2023, was primarily driven by lower impairment charges related to the manufacturing of batches that did not meet the Company's specifications.
R&D external costs decreased for the three and nine months ended September 30, 2023 as a result of the completion of the Phase 2 study in 2022 for camidanlumab tesirine (Cami) and our decision to pause the program while we evaluated FDA feedback. The Company continues to assess a potential regulatory pathway and seek a partner to continue developing this program. The Company also had higher cost sharing with our partners, lower clinical trial costs for LOTIS 3, LOTIS 6 and LOTIS 7, as well as lower professional fees related to ZYNLONTA, partially offset by higher clinical trial expenses for LOTIS 5 and LOTIS 9. In ADCT-212, the Company incurred lower manufacturing expenses related to IND-enabling work. The decrease in external costs for ADCT-901 was partially offset by an increase in clinical trial costs and expenses related to the Company's preclinical product candidates and research pipeline. Employee expense decreased for the three and nine months ended September 30, 2023 primarily due to lower share-based compensation expense driven by fluctuations in our share price, voluntary terminations as well as the workforce reduction announced and put into effect during the second quarter of 2023.
The decrease in S&M expenses for the three months ended September 30, 2023 was primarily due to lower share-based compensation expense due to the fluctuations in the Company's share price and voluntary terminations as well as lower wages and benefits. The decrease in S&M expenses for the nine months ended September 30, 2023 was primarily due to lower share-based compensation expense due to the fluctuations in the Company's share price, voluntary terminations and the commercial re-alignment announced and put into effect during the second quarter of 2023, as well as lower spend on marketing, analytics and expenses, including those expenses in the European Union relating to the commercial launch of ZYNLONTA.
14
15
8.Other income (expense)
The components of financial income for the three and nine months ended September 30, 2023 and September 30, 2022 are as follows:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
| (in KUSD) | Note | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||||||||
| Cumulative catch-up adjustment, deferred royalty obligation | 17 | |||||||||||||||||||||||||||||||
| Financial income | ||||||||||||||||||||||||||||||||
The components of financial expense for the three and nine months ended September 30, 2023 and September 30, 2022 are as follows:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
| (in KUSD) | Note | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Cumulative catch-up adjustment, deferred royalty obligation | 17 | |||||||||||||||||||||||||||||||
| Deferred royalty obligation interest expense | 17 | |||||||||||||||||||||||||||||||
| Effective interest expense on senior secured term loan facility | 13 | |||||||||||||||||||||||||||||||
| Effective interest expense on convertible loans | 14 | |||||||||||||||||||||||||||||||
| Interest expense on leasing and other | 12 | |||||||||||||||||||||||||||||||
| Financial expense | ||||||||||||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
| (in KUSD) | Note | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Convertible loans, derivatives, change in fair value (expense) income | 14 | ( | ||||||||||||||||||||||||||||||
| Loss on debt extinguishment | 14 | ( | ( | |||||||||||||||||||||||||||||
| Deerfield warrant obligation, change in fair value income | 15 | |||||||||||||||||||||||||||||||
| Senior secured term loan facility, warrants, transaction costs | 13 | ( | ( | |||||||||||||||||||||||||||||
| Senior secured term loan facility, warrants, change in fair value income | 13 | |||||||||||||||||||||||||||||||
| Share of results with joint venture | 11 | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Exchange differences gain (loss) | ( | |||||||||||||||||||||||||||||||
| R&D tax credit | ||||||||||||||||||||||||||||||||
| Non-operating expense | ( | ( | ( | ( | ||||||||||||||||||||||||||||
16
Convertible loans, derivatives, change in fair value (expense) income
Changes in derivative fair values are explained in note 14, “Convertible loans.” Pursuant to the Facility Agreement with Deerfield, the Company drew down the Deerfield First Tranche of the convertible loans amounting to USD 65.0 million on May 19, 2020. Additionally, in connection with the FDA approval of ZYNLONTA, the Company drew down the Deerfield Second Tranche of convertible loans amounting to USD 50.0 million on May 17, 2021. On August 15, 2022, pursuant to the exchange agreement with Deerfield, Deerfield exchanged USD 115.0 million aggregate principal amount of the Company's senior secured convertible notes for warrants to purchase an aggregate of 4,412,840 common shares, an aggregate of 2,390,297 common shares and cash equal to USD 117.3 million.
Deerfield warrant obligation, change in fair value income
Pursuant to an exchange agreement with Deerfield entered into on August 15, 2022, the Company issued warrants to purchase an aggregate of 4,412,840 common shares. The Deerfield warrant obligation has been recorded at its initial fair value and is remeasured to fair value at the end of each reporting period. Changes in fair value of the Deerfield warrant obligation are explained in note 15, "Deerfield warrants."
Senior secured term loan facility, warrants, change in fair value income
The Company has accounted for the First Tranche of the senior secured term loan and warrants as one hybrid financial instrument, with the USD 120.0 million proceeds separated into two components: a warrant obligation and a loan. The warrant obligation has been recorded at its initial fair value and is remeasured to fair value at the end of each reporting period. Changes in fair value of the warrant obligation are explained in note 13, "Senior secured term loan facility and warrants."
Share of results with joint venture
In connection with the formation of Overland ADCT BioPharma in December 2020, the Company recorded its proportionate share of Overland ADCT BioPharma’s comprehensive loss. See note 11, “Interest in joint venture.”
Exchange differences gain (loss)
The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to British pounds, Euros and Swiss francs. Exchange differences represent gain or (loss) based on favorable or unfavorable changes in foreign currencies.
R&D tax credit
The Company recognizes amounts received and receivable by its subsidiary, ADCT UK, under the United Kingdom’s R&D Expenditure Credit scheme (“UK R&D Credit Scheme”). The grants represent 20% of eligible expenditures for the second and third quarters of 2023 and represent 13% of eligible expenditures for the three months ended March 31, 2023. The grants represent 13% of eligible expenditures for the three and nine months ended September 30, 2022. The claims are payable through the tax system, as a refund of corporation tax or of other taxes, including income tax and social security payments deducted at source from qualifying (research) employees’ payroll and VAT. The relevant amounts have been therefore presented net in the balance sheet. As the credit is independent of ADCT UK’s taxable profit, is clearly designed to incentivize companies to invest in R&D activities and is itself taxable income, the Group has recognized the income as government grants within non-operating expense and not as a credit to income tax expense.
9.Inventory
Inventory as of September 30, 2023 and December 31, 2022 consisted of the following:
| (in KUSD) | As of September 30, 2023 | As of December 31, 2022 | ||||||||||||
| Work in process | ||||||||||||||
| Finished goods | ||||||||||||||
| Total inventory | ||||||||||||||
17
10.Intangible assets
During the nine months ended September 30, 2023, the Company did not capitalize any license fees as intangible assets. During the nine months ended September 30, 2022, the Company capitalized the following milestone payments as intangible assets:
•An amount of KUSD 500 paid upon the dosing of a specific number of patients in the first in-human clinical study related to an antibody the Company acquired from a third party to be used in research, development, manufacturing and commercialization. The amount was capitalized as an indefinite-lived intangible asset; and
• An amount of KUSD 195 paid upon the successful completion of in-vivo efficacy studies related to a license with a third party to use their specific binding proteins in the development, manufacturing and commercialization of products. The amount was capitalized as an indefinite-lived intangible asset.
During the nine months ended September 30, 2023, the Company decided to terminate three programs. Consequently, impairment charges of USD 1.9 million (corresponding to the entire carrying amount of the capitalized licenses) was recognized and charged to R&D expenses in the unaudited condensed consolidated interim statement of operations. No impairment losses were recognized during the nine months ended September 30, 2022. The Company performs an assessment at the end of each period to determine whether there is any indication that an intangible asset may be impaired. The Company identified one indicator of impairment during the nine months ended September 30, 2023. The Company evaluated further and concluded there were no impairments, other than the terminated programs.
18
The table below provides a rollforward of the Company’s intangible assets as of September 30, 2023 and 2022.
| (in KUSD) | Indefinite lived | Definite lived | |||||||||||||||||||||||||||||||||
| Cost | Licenses | Internal development costs | Internal development costs | Licenses | Software | Total | |||||||||||||||||||||||||||||
| January 1, 2023 | |||||||||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||||||||
| Disposals | ( | ( | |||||||||||||||||||||||||||||||||
| Exchange differences | |||||||||||||||||||||||||||||||||||
| September 30, 2023 | |||||||||||||||||||||||||||||||||||
| Accumulated Amortization | |||||||||||||||||||||||||||||||||||
| January 1, 2023 | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Amortization charge | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Impairment charge | ( | ( | |||||||||||||||||||||||||||||||||
| Disposals | |||||||||||||||||||||||||||||||||||
| September 30, 2023 | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Net book amount as of September 30, 2023 | |||||||||||||||||||||||||||||||||||
| Cost | |||||||||||||||||||||||||||||||||||
| January 1, 2022 | |||||||||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||||||||
| Exchange differences | ( | ( | |||||||||||||||||||||||||||||||||
| September 30, 2022 | |||||||||||||||||||||||||||||||||||
| Accumulated Amortization | |||||||||||||||||||||||||||||||||||
| January 1, 2022 | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Amortization charge | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Exchange differences | |||||||||||||||||||||||||||||||||||
| September 30, 2022 | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Net book amount as of September 30, 2022 | |||||||||||||||||||||||||||||||||||
19
11.Interest in joint venture
The Company is invested in a joint venture company, Overland ADCT BioPharma, with Overland Pharmaceuticals (“Overland”), to develop and commercialize one of the Company’s ADC products, ZYNLONTA, and three of the Company’s ADC product candidates, ADCT-601, ADCT-602 and ADCT-901, in greater China and Singapore. The table below provides a rollforward of the Company’s interest in Overland ADCT BioPharma as of September 30, 2023 and 2022, respectively.
| (in KUSD) | ||||||||
| Interest in joint venture | ||||||||
| January 1, 2023 | ||||||||
| Share of comprehensive loss in joint venture | ( | |||||||
| September 30, 2023 | ||||||||
| January 1, 2022 | ||||||||
| Share of comprehensive loss in joint venture | ( | |||||||
| September 30, 2022 | ||||||||
As of September 30, 2023, the deferred gain of USD 23.5 million arising from the Company’s contribution for its equity investment in the joint venture remained unchanged from December 31, 2022. The Company’s carrying value of its investment in a joint venture increases or decreases in relation to the Company’s proportionate share of comprehensive income or loss of the joint venture. When the Company’s share of losses of a joint venture exceeds the Company’s interest in that joint venture less the carrying value of the deferred gain described above, the Company ceases to recognize its share of further losses. Additional losses are recognized only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the joint venture.
The tables below provide summarized financial information for Overland ADCT BioPharma that is material to the Company. The following information reflects the amounts presented in the financial statements of Overland ADCT BioPharma and not the Company’s share of those amounts.
| (in KUSD) | As of | |||||||||||||||||||||||||
| Summarized Balance Sheet | September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||
| Prepaid and other current assets | ||||||||||||||||||||||||||
| Intangible assets | ||||||||||||||||||||||||||
| Total liabilities | ( | ( | ||||||||||||||||||||||||
| Net assets | ||||||||||||||||||||||||||
| Summarized Statement of Comprehensive Loss | Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Loss from operations | ||||||||||||||||||||||||||
| Other expense (income) | ( | ( | ( | |||||||||||||||||||||||
| Other comprehensive loss (income) | ( | |||||||||||||||||||||||||
| Total comprehensive loss | ||||||||||||||||||||||||||
20
12.Leases
The table below provides a rollforward of the Company's right-of-use assets as of September 30, 2023 and 2022, respectively.
| (in KUSD) | ||||||||||||||||||||
| Right-of-Use Assets | Properties (Offices) | Vehicles | Total | |||||||||||||||||
| Cost | ||||||||||||||||||||
| January 1, 2023 | ||||||||||||||||||||
| Additions | ||||||||||||||||||||
| Lease termination | ( | ( | ||||||||||||||||||
| Modification of lease terms | ( | ( | ||||||||||||||||||
| Exchange difference | ( | ( | ||||||||||||||||||
| September 30, 2023 | ||||||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||
| January 1, 2023 | ( | ( | ( | |||||||||||||||||
| Depreciation charge | ( | ( | ( | |||||||||||||||||
| Lease termination | ||||||||||||||||||||
| Modification of lease terms | ||||||||||||||||||||
| Exchange difference | ||||||||||||||||||||
| September 30, 2023 | ( | ( | ( | |||||||||||||||||
| Net book amount as of September 30, 2023 | ||||||||||||||||||||
| Cost | ||||||||||||||||||||
| January 1, 2022 | ||||||||||||||||||||
| Additions | ||||||||||||||||||||
| Exchange difference | ( | ( | ||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||
| January 1, 2022 | ( | ( | ( | |||||||||||||||||
| Depreciation charge | ( | ( | ( | |||||||||||||||||
| Exchange difference | ||||||||||||||||||||
| September 30, 2022 | ( | ( | ( | |||||||||||||||||
| Net book amount as of September 30, 2022 | ||||||||||||||||||||
On September 1, 2023, the Company modified the terms of its existing lease for its office in Switzerland. The existing lease contract was originally scheduled to expire on June 15, 2024 and has been cancelled and replaced by the new lease. The new lease also includes a reduction in the amount of office space being occupied. The modified lease commenced on September 1, 2023 and expires November 30, 2028, and includes a renewal option for five additional years through November 2033. The Company is reasonably certain it will exercise the extension option and therefore has accounted for the modified lease as a ten-year lease term. Total rent payments through November 30, 2033 are USD 1.5 million.
20
On January 30, 2023, the Company expanded the square footage of its existing lease related to its U.K. office. The lease commenced on January 30, 2023 and expires on January 27, 2031, and includes an option to terminate early on January 26, 2026. The Company is reasonably certain it will not terminate the lease early and therefore will account for the lease using an eight-year lease term. Total rent payments including service charges through January 27, 2031 are USD 7.6 million.
Depreciation of right-of-use assets have been charged to the following categories in the unaudited condensed consolidated interim statement of operations. Depreciation expense for S&M expenses was not material for any of the periods presented.
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in KUSD) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| R&D expenses | ||||||||||||||||||||||||||
| G&A expenses | ||||||||||||||||||||||||||
21
The table below provides a rollforward of the Company's lease liabilities as of September 30, 2023 and 2022, respectively.
| (in KUSD) | ||||||||||||||||||||
| Lease liabilities | Properties (Offices) | Vehicles | Total | |||||||||||||||||
| January 1, 2023 | ||||||||||||||||||||
| Additions | ||||||||||||||||||||
| Modification of lease terms | ||||||||||||||||||||
| Cash outflow (including interest) | ( | ( | ( | |||||||||||||||||
| Interest | ||||||||||||||||||||
| Exchange difference | ( | ( | ( | |||||||||||||||||
| September 30, 2023 | ||||||||||||||||||||
| January 1, 2022 | ||||||||||||||||||||
| Additions | ||||||||||||||||||||
| Cash outflow (including interest) | ( | ( | ||||||||||||||||||
| Interest | ||||||||||||||||||||
| Exchange difference | ( | ( | ( | |||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||
| September 30, 2023 | ||||||||||||||||||||
| Lease liabilities (short-term) | ||||||||||||||||||||
| Lease liabilities (long-term) | ||||||||||||||||||||
| Total lease liabilities | ||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||
| Lease liabilities (short-term) | ||||||||||||||||||||
| Lease liabilities (long-term) | ||||||||||||||||||||
| Total lease liabilities | ||||||||||||||||||||
22
13.Senior secured term loan facility and warrants
Oak Tree and Owl Rock Warrant Obligations
During the three and nine months ended September 30, 2023, the Company recognized income of KUSD 299 and KUSD 916 , respectively, as a result of changes in the fair value of the warrant obligations. During the three and nine months ended September 30, 2022, the Company recognized income of KUSD 2,543 as a result of changes in the fair value of the warrant obligations. The fair value of the warrant obligations as of September 30, 2023 and December 31, 2022 was KUSD 79 and KUSD 995 , respectively. The decreases in fair value of the warrant obligation from December 31, 2022 to September 30, 2023 and from August 15, 2022 to September 30, 2022 was primarily due to the decrease in the fair value of the underlying shares during those periods. These changes were recorded directly to Non-operating expense in the unaudited condensed consolidated interim statement of operations. See note 8, "Other income (expense)" for further information.
The Company used an independent valuation firm to assist in calculating the fair value of the warrant obligations, using the Black-Scholes option-pricing model. Key inputs for the valuation of the warrant obligations as of September 30, 2023 and December 31, 2022 were as follows:
| As of | As of | ||||||||||
| September 30, 2023 | December 31, 2022 | ||||||||||
| Exercise price in USD | |||||||||||
Share price in USD | |||||||||||
| Risk-free interest rate | % | % | |||||||||
| Expected volatility | % | % | |||||||||
| Expected term (months) | |||||||||||
| Dividend yield | |||||||||||
| Black-Scholes value in USD | |||||||||||
Senior Secured Term Loan
For the three and nine months ended September 30, 2023, the Company recorded interest expense on the senior secured term loan in the amount of KUSD 4,728 and KUSD 13,748 , respectively, and for the three and nine months ended September 30, 2022, the Company recorded interest expense on the senior secured term loan in the amount of KUSD 1,933 16.93 %. The carrying value of the senior secured term loan was USD 112.0 million as of September 30, 2023, of which USD 14.3 million and USD 97.7 million represented the short-term and long-term portion of the liability, respectively.
Pursuant to this Loan Agreement, the Company is subject to a covenant that requires it to maintain a balance at the end of each quarter of at least USD 60.0 million in cash and cash equivalents that are included on the unaudited condensed consolidated interim balance sheet plus an amount equal to any accounts payable that remain unpaid more than ninety days after the date of the original invoice. As of September 30, 2023, the Company was in compliance with this covenant.
14.Convertible loans
On April 24, 2020, the Company entered into a USD 115.0 million Facility Agreement with Deerfield, pursuant to which Deerfield extended a tranche of USD 65.0 million of convertible loans on May 19, 2020 upon completion of the Company’s initial public offering (the “Deerfield First Tranche”) and a tranche of USD 50.0 million of convertible loans on May 17, 2021 after the receipt of regulatory approval for ZYNLONTA (the “Deerfield Second Tranche”).
On August 15, 2022, pursuant to an exchange agreement with Deerfield, Deerfield exchanged USD 115.0 million aggregate principal amount of the Company's senior secured convertible notes for warrants to purchase an aggregate of 4,412,840 common shares, an aggregate of 2,390,297 common shares and cash equal to USD 117.3 million.
As a result of the exchange agreement on August 15, 2022, the Company recognized a loss on extinguishment of USD 42.1 million, which primarily consists of the difference between the aggregate principal amount and carrying value of the convertible loans, exit fee, as well as the unpaid interest payments through the maturity date.
23
Embedded conversion option derivatives
Prior to the exchange, the Company accounted for the Facility agreement as a loan and embedded conversion option features. The embedded conversion option derivative was marked-to-market while the loan was measured at its amortized cost on a quarterly basis.
The following table summarizes the changes in fair value (expense) income of the embedded conversion option derivatives during the three and nine months September 30, 2022:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||
| (in KUSD) | 2022 | 2022 | ||||||||||||
Deerfield First Tranche (1) | ( | |||||||||||||
Deerfield Second Tranche - after FDA approval (1) | ( | |||||||||||||
| Total | ( | |||||||||||||
(1) The fair value (expense) income recognized during the three and nine months ended September 30, 2022 represents the changes in fair value up until the point of exchange on August 15, 2022.
The increases (decreases) in fair value of the embedded derivatives are primarily due to increases (decreases) in the fair value of the underlying shares during the three and nine months ended September 30, 2022. These amounts were charged directly to the unaudited condensed consolidated interim statements of operations. See note 8, “Other income (expense)” for further information.
The Company used an independent valuation firm to assist in calculating the fair value of the Deerfield First Tranche and Deerfield Second Tranche of the embedded conversion option derivatives, which is based on the mean of values derived from application of the Hull and Goldman Sachs convertible bond pricing models. Key inputs for the valuations as of August 15, 2022 was as follows:
Deerfield First Tranche
| As of | ||||||||
| August 15, 2022 | ||||||||
Exercise price at | ||||||||
| Forced conversion price, in USD | ||||||||
| Share price in USD | ||||||||
| Risk-free interest rate | % | |||||||
| Expected volatility | % | |||||||
| Expected term (months) | ||||||||
| Dividend yield | ||||||||
| Recovery rate | % | |||||||
| Implied bond yield | % | |||||||
Deerfield Second Tranche
| As of | |||||||||||
| August 15, 2022 | |||||||||||
| Exercise price in USD | |||||||||||
| Forced conversion price, in USD | |||||||||||
| Share price in USD | |||||||||||
| Risk-free interest rate | % | ||||||||||
| Expected volatility | % | ||||||||||
| Expected term (months) | |||||||||||
| Dividend yield | |||||||||||
| Recovery rate | % | ||||||||||
| Implied bond yield | % | ||||||||||
24
Residual convertible loan
The following table summarizes the interest expense recorded on the convertible loan for the three and nine months ended September 30, 2022:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in KUSD) | 2022 | 2022 | ||||||||||||||||||||||||
| Deerfield First Tranche | ||||||||||||||||||||||||||
| Deerfield Second Tranche | ||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
15.Deerfield warrants
Pursuant to the exchange agreement with Deerfield entered into on August 15, 2022, the Company issued warrants to purchase an aggregate of 4,412,840 common shares. The warrants consist of warrants to purchase an aggregate of 2,631,578 common shares at an exercise price of USD 24.70 per share and warrants to purchase an aggregate of 1,781,262 common shares at an exercise price of USD 28.07 per share. Each warrant is exercisable, on a cash or a cashless basis, at the option of the holder, at any time on or prior to May 19, 2025. The warrants contain customary anti-dilution adjustments and entitle holders to receive any dividends or other distributions paid on the underlying common shares prior to their expiration on an as-exercised basis. Each holder also may require the Company to repurchase the warrants for their Black Scholes-based fair value in connection with certain transformative transactions or change of control of the Company that occur prior to their expiration.
The terms of the warrants are reflective of the terms of the embedded conversion option features of the Deerfield Facility Agreement prior to the Exchange Agreement. As a result, the fair value of the warrants was determined to approximate the fair value of the existing embedded conversion option features immediately prior to the consummation of the Exchange Agreement. As such, the warrant obligation was recorded at an initial fair value of KUSD 12,297 on August 15, 2022. Subsequent to issuance, the warrant obligation will be remeasured to fair value at the end of each reporting period.
During the three and nine months ended September 30, 2023, the Company recognized income of KUSD 140 and KUSD 776 , respectively, as a result of changes in the fair value of the warrant obligation. During the three and nine months ended September 30, 2022, the Company recognized income of KUSD 9,418 as a result of changes in the fair value of the warrant valuation. The fair value of the warrant obligation as of September 30, 2023 and December 31, 2022 was KUSD 17 and KUSD 793 , respectively. The decrease in fair value of the warrant obligation from December 31, 2022 to September 30, 2023 and from August 15, 2022 to September 30, 2022 was primarily due to the decrease in the fair value of the underlying shares during those periods. These amounts were recorded to Non-operating expense in the unaudited condensed consolidated interim statement of operations. See note 8, "Other income (expense)" for further information.
The Company used an independent valuation firm to assist in calculating the fair value of the Deerfield warrant obligation, using the Black-Scholes option-pricing model. Key inputs for the valuation of the warrant obligation as of September 30, 2023 and December 31, 2022 were as follows:
| As of | As of | ||||||||||
| September 30, 2023 | December 31, 2022 | ||||||||||
| Exercise price in USD | |||||||||||
Share price in USD | |||||||||||
| Risk-free interest rate | % | % | |||||||||
| Expected volatility | % | % | |||||||||
| Expected term (months) | |||||||||||
| Dividend yield | |||||||||||
| Black-Scholes value in USD | |||||||||||
25
16.Share-based compensation
Equity Incentive Plan 2019
In November 2019, the Company adopted the Equity Incentive Plan 2019. Under the Equity Incentive Plan 2019, the Company may at its discretion grant to plan participants, such as directors, certain employees and service providers, awards in the form of restricted shares and restricted share units (“RSUs”), share options, share appreciation rights, performance awards and other share-based awards. The Company has reserved 17,741,355 common shares for future issuance under the Equity Incentive Plan 2019 (including share-based equity awards granted to date less awards forfeited). As of September 30, 2023, the Company had 3,388,272 common shares available for the future issuance of share-based equity awards. On March 22, 2023, the Company issued its annual equity award, which was approved by the Compensation Committee of the Board of Directors and consisted of 2,026,341 share options and 538,175 RSUs. As of September 30, 2023, the Company has only granted share options, RSUs and performance awards under the Equity Incentive Plan 2019.
As of September 30, 2023, the cumulative amount recorded as an increase to Other Reserves within equity in the unaudited condensed consolidated interim balance sheet of the Equity Incentive Plan 2019 was KUSD 156,094 . The amount of expense for all awards recognized for services received during the three and nine months ended September 30, 2023 were KUSD 2,005 and KUSD 10,992 , respectively, and for the three and nine months ended September 30, 2022 were KUSD 14,565 and KUSD 42,293 , respectively. An amount of KUSD 512 was withheld for tax charges during the three months ended March 31, 2022.
Equity Exchange Program
On March 6, 2023, the Company commenced a tender offer with employees to exchange some or all of their eligible stock options based on a pre-determined exchange ratio for new options as detailed in our Schedule TO filed March 6, 2023 with the Securities and Exchange Commission (the “Exchange Offer”), to, among other things, further align employee incentives with the current market conditions. The Exchange Offer expired on April 3, 2023 and new options were granted on April 4, 2023. Employees holding stock options to purchase 2.2 million common shares, with exercise prices ranging from USD 8.12 per share to USD 48.77 per share, participated in the Exchange Offer, and 0.9 million new options were granted based on the exchange ratios set forth in the Exchange Offer. The new options have an exercise price of USD 2.06 per share, which is equal to the closing price of the Company’s common shares as reported on the NYSE on April 4, 2023. The new options include additional vesting conditions. Any previously held options that were vested at the time of exchange will fully vest on April 4, 2024. With respect to any options held that were unvested at the time of grant, a portion of the new options will vest on the first anniversary date with additional portions vesting monthly thereafter until the new options are fully vested five years after the original grant date.
Under IFRS 2, the incremental compensation expense of a modified award is measured as the excess of the fair value of each award of new options granted to participants in this Exchange Offer, measured as of the date the new options are granted, over the fair value of the eligible options replaced in exchange for the new options, measured immediately prior to the replacement. The Company utilized a binomial valuation model and determined there was no incremental share-based compensation expense associated with the new options granted under this Exchange Offer. The Company will continue to recognize share-based compensation expense equal to the grant date fair value of the exchanged options.
Share Options
Pursuant to the Equity Incentive Plan 2019, the Company may grant share options to its directors, certain employees and service providers working for the benefit of the Company at the time. The exercise price per share option is set by the Company at the fair market value of the underlying common shares on the date of grant, as determined by the Company, which is generally the closing share price of the Company’s common shares traded on the NYSE. The awards generally vest 25 three years . The contractual term of each share option award granted is ten years . Under the grant, the options may be settled only in common shares of the Company. Therefore, the grants of share options under the Equity Incentive Plan 2019 have been accounted for as equity-settled under IFRS 2. As such, the Company records a charge for the vested portion of award grants and for partially earned but non-vested portions of award grants. This results in a front-loaded charge to the
26
Company’s unaudited condensed consolidated interim statement of operations and a corresponding increase to Other Reserves within equity on the unaudited condensed consolidated interim balance sheet.
The expense recognized for services received during the three and nine months ended September 30, 2023 was KUSD 1,277 and KUSD 5,343 , respectively, and for the three and nine months ended September 30, 2022 were KUSD 8,193 and KUSD 27,158 , respectively.
The following table summarizes the share option awards outstanding as of September 30, 2023:
| Average strike price per share in USD | Number of awards | Weighted average remaining life in years | |||||||||||||||
| December 31, 2022 | |||||||||||||||||
| Granted | |||||||||||||||||
| Option Exchange - Granted | |||||||||||||||||
| Forfeited | ( | N/A | |||||||||||||||
| Option Exchange - Forfeited | ( | N/A | |||||||||||||||
| September 30, 2023 | |||||||||||||||||
Awards outstanding as of September 30, 2023 and December 31, 2022, expire through 2033 and 2032, respectively. The options granted during 2023 include the Company’s annual equity award discussed above. The grant-date fair value of the options relating to the annual equity awards was USD 1.41 per share. As of September 30, 2023, 3,789,960 awards are vested and exercisable out of the total outstanding awards of 10,782,033 common shares. The weighted average strike price and weighted average remaining life for vested and exercisable awards is USD 23.19 and 6.49 years, respectively.
The fair values of the options granted under the Equity Incentive Plan 2019 were determined on the date of the grant using the Black-Scholes option-pricing model. The Company used an independent valuation firm to assist in calculating the fair value of the award grants per participant.
The fair values of the options granted under the Equity Incentive Plan 2019 during the three and nine months ended September 30, 2023 were determined on the date of the grant using the following assumptions:
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Share price, in USD | |||||||||||||||||||||||
| Strike price, in USD | |||||||||||||||||||||||
| Expected volatility, in % | |||||||||||||||||||||||
| Award life, in years | |||||||||||||||||||||||
| Expected dividends | |||||||||||||||||||||||
| Risk-free interest rate, in % | |||||||||||||||||||||||
The expected volatility was based on the Company’s historical volatility and selected volatility determined by median values observed among other comparable public companies. Beginning in the third quarter of 2023, the Company's expected volatility is no longer determined by values observed among other comparable companies. The award life is based on the time interval between the date of grant and the date during the ten-year life after which, when making the grant, the Company expected on average that participants would exercise their options.
The fair value of the new options granted under the Equity Exchange program was estimated at the date of grant using a binomial model with the following assumptions: Share price of USD 2.06 , expected volatility of 77 % - 79 %, expected risk-free interest rate of 3.29 % - 3.31 %, expected dividends of 0 % and expected term was derived based on the contractual term of the options, the expected exercise behavior and expected post-vesting forfeiture rates. The Company used an independent valuation firm to assist in calculating the fair value of the new award grants per participant.
27
RSUs
Pursuant to the Equity Incentive Plan 2019, the Company may grant RSUs to its directors, certain employees and service providers working for the benefit of the Company at the time. The awards generally vest annually over a period of three years commencing on the first anniversary of the date of grant. The RSUs may be settled only in common shares of the Company. Therefore, the grants of RSUs under the Equity Incentive Plan 2019 have been accounted for as equity-settled under IFRS 2. As such, the Company records a charge for the vested portion of award grants and for partially earned but non-vested portions of award grants. This results in a front-loaded charge to the Company’s unaudited condensed consolidated interim statement of operations and a corresponding increase to Other Reserves within equity on the unaudited condensed consolidated interim balance sheet.
The expense recognized for services received during the three and nine months ended September 30, 2023 was KUSD 728 and KUSD 5,649 , respectively, and for the three and nine months ended September 30, 2022 were KUSD 6,372 and KUSD 15,135 , respectively.
| Number of awards | Weighted average grant date fair value | ||||||||||
| December 31, 2022 | |||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| September 30, 2023 | |||||||||||
The RSUs granted during 2023 include the annual equity award on March 22, 2023 discussed above which had a grant date fair value of USD 1.99 .
Share-based Compensation Reserves
The movement in the Share-based Compensation Reserves (included in Other reserves within equity) is as follows:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in KUSD) | September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||||||||
| Equity Incentive Plan 2019 - Share Options | |||||||||||||||||||||||
| Equity Incentive Plan 2019 - RSUs | |||||||||||||||||||||||
| ESPP Expense | |||||||||||||||||||||||
| Tax and social charge deductions - Incentive Plan 2019 | ( | ||||||||||||||||||||||
| Total | |||||||||||||||||||||||
28
17.Deferred royalty obligation
On August 25, 2021, the Company entered into a royalty purchase agreement with HCR for up to USD 325.0 million of which the Company received gross proceeds of USD 225.0 million during 2021 and received an additional USD 75.0 million in June 2023 upon the first commercial sale of ZYNLONTA in the United Kingdom or any European Union country.
The table below provides a rollforward of the Company’s debt obligation relating to the royalty purchase agreement.
| (in KUSD) | ||||||||
| January 1, 2022 | ||||||||
| Less: royalty payments | ||||||||
| Plus: interest expense | ||||||||
| Less: cumulative catch-up adjustment, Financial income | ||||||||
| December 31, 2022 | ||||||||
| Plus: Additional proceeds from the sale of future royalties | ||||||||
| Less: Transaction costs | ||||||||
| Less: royalty payments | ||||||||
| Plus: interest expense | ||||||||
| Plus: cumulative catch-up adjustment, Financial expense | ||||||||
| September 30, 2023 | ||||||||
The Company recorded a liability relating to the initial gross proceeds received less transaction costs in August 2021 and increased the liability in June 2023 for the eligible amount received upon the first commercial sale of ZYNLONTA in the United Kingdom or any European Union country less transaction costs. To determine the accretion of the liability related to the deferred royalty obligation, the Company is required to estimate the total amount of future royalty payments and estimated timing of such payment to HCR based on the Company's revenue projections. Based on the Company's initial revenue projections, the Company used an independent valuation firm to assist in determining the total amount of future royalty payments and estimated timing of such payment to HCR using an option pricing Monte Carlo simulation model. The amount ultimately received by the Company will be accreted to the total amount of the royalty payments necessary to extinguish the Company’s obligation under the agreement, which will be recorded as interest expense over the life of the royalty purchase agreement. The estimate of this total interest expense resulted in an EIR of 10 %. As royalty payments are made to HCR, the balance of the debt obligation will be effectively repaid over the life of the royalty purchase agreement.
Based on the Company's periodic review, the exact amount and timing of repayment is likely to be different each reporting period as compared to those estimated based on the Company's initial revenue projections. A significant increase or decrease in actual net sales of ZYNLONTA compared to the Company’s revenue projections, and regulatory approval and commercialization of Cami, as well as ZYNLONTA in other indications as well as licensing revenue could change the royalty rate and royalty cap due to HCR, which could materially impact the debt obligation as well as interest expense associated with the royalty purchase agreement. Also, the Company’s total obligation to HCR can vary depending on the achievement of the sales milestones as well as the timing of a change in control event. The Company will periodically assess the expected payments to HCR based on its underlying revenue projections and to the extent the amount or timing of such payments is materially different than its initial estimates it will record a cumulative catch-up adjustment.
Based on the Company's 2023 updated development plans, and the transaction costs related to the eligible amount received in June 2023, the Company updated the valuation model during the second quarter of 2023. In addition, the Company reflected in the model the actual sales results for the third quarter of 2023. These updates resulted in a cumulative catch-up adjustment of USD 4.9 million recorded as Financial expense within the unaudited condensed consolidated interim statement of operations for the nine months ended September 30, 2023. Under the cumulative catch-up method, the EIR is not revised when actual or estimated net sales differ from those estimated as of the inception of the debt obligation. Instead, the carrying amount of the debt obligation is adjusted to an amount equal to the present value of the estimated remaining future payments, discounted by using the original EIR, 10%, as of the date on which the estimate changes.
29
18.Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. The Company has identified the following related parties and related transactions.
A.T. Holdings II Sàrl (“AT Holdings II”) is a shareholder in the Company. AT Holdings II is in turn ultimately wholly owned by Auven Therapeutics Holdings, L.P. (“ATH”), a limited partnership registered in the British Virgin Islands. ATH’s General Partner is Auven Therapeutics General L.P., which itself is a limited partnership whose General Partner is Auven Therapeutics GP Ltd. The manager of ATH is Auven Therapeutics Management L.L.L.P. (“ATM”). As a result, ATH is considered a related party.
Based on the Company’s contribution and equity interest in Overland ADCT BioPharma, certain of the Company’s employees serve on its board of directors. As a result, Overland ADCT BioPharma is considered a related party.
Services provided by the Company to related parties
As contemplated by the license agreement with Overland ADCT BioPharma, Overland ADCT BioPharma has elected to participate in certain of the Company’s global clinical trials, in exchange for which it reimburses the Company for a portion of the cost of those trials. Overland ADCT BioPharma also reimburses the Company for certain expenses in connection with technology transfer and assistance of clinical personnel. During the three and nine months ended September 30, 2023, the Company incurred KUSD 642 and KUSD 2,952 , respectively, of clinical trial and service costs to be reimbursed by Overland ADCT BioPharma, which is recorded as a reduction of R&D expenses in the Company’s unaudited condensed consolidated interim statement of operations (three and nine months ended September 30, 2022: KUSD 818 and KUSD 2,014 , respectively).
Related party balances
The Company had a related party receivable balance with Overland ADCT BioPharma of KUSD 2,123 and KUSD 805 as of September 30, 2023 and December 31, 2022, respectively. There was KUSD 20 in trade accounts payable with related parties as of December 31, 2022. There were no trade accounts payable with related parties as of September 30, 2023.
Key management compensation
The compensation of key management is shown below:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in KUSD) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Salaries and other short-term employee costs | |||||||||||||||||||||||
| Pension costs | |||||||||||||||||||||||
| Share-based compensation expense | |||||||||||||||||||||||
| Other compensation | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
30
19.Loss per share
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in KUSD, except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Loss attributable to owners | ( | ( | ( | ( | |||||||||||||||||||
Weighted average number of shares outstanding | |||||||||||||||||||||||
| Basic and diluted loss per share | ( | ( | ( | ( | |||||||||||||||||||
For the three and nine months ended September 30, 2023, basic and diluted loss per share are calculated on the weighted average number of shares issued and outstanding and exclude shares to be issued under the Equity Incentive Plan 2019, 2022 ESPP and the Company’s warrant agreements, as the effect of including those shares would be anti-dilutive. For the three and nine months ended September 30, 2022, basic and diluted loss per share are calculated on the weighted average number of shares issued and outstanding and exclude shares to be issued under the 2019 Equity Incentive Plan and the Company's warrant obligations as the effect of including those shares would be anti-dilutive. See note 16, “Share-based compensation expense,” note 13, “Senior secured term loan facility and warrants,” note 15, “Deerfield warrants” and note 14, “Convertible loans” for further information.
Potentially dilutive securities that were not included in the diluted per share calculations because the effect of including them would be anti-dilutive were as follows:
| As of September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Equity Incentive Plan 2019 - Share Options | |||||||||||||||||||||||
| Equity Incentive Plan 2019 - RSUs | |||||||||||||||||||||||
| Outstanding warrants | |||||||||||||||||||||||
20.Events after the reporting date
31
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management’s discussion and analysis is designed to provide you with a narrative explanation of our financial condition and results of operations. You should read this discussion and analysis in conjunction with our unaudited condensed consolidated interim financial statements, including the notes thereto, as of and for the three and nine months ended September 30, 2023 included as Exhibit 99.1 to the Report on Form 6-K to which this discussion and analysis is included as Exhibit 99.2. You should also read this discussion and analysis in conjunction with our audited consolidated financial statements, including the notes thereto, included in our Annual Report on Form 20-F for the year ended December 31, 2022.
Our unaudited condensed consolidated interim financial statements were prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Our audited consolidated financial statements were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). None of our financial statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The terms “dollar,” “USD” or “$” refer to U.S. dollars and the term “Swiss franc” and “CHF” refer to the legal currency of Switzerland, unless otherwise indicated. We have made rounding adjustments to some of the figures included in this discussion. Accordingly, any numerical discrepancies in any table between totals and sums of the amounts listed are due to rounding.
Unless otherwise indicated or the context otherwise requires, all references in this discussion and analysis to “ADC Therapeutics” or “ADCT,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to ADC Therapeutics SA and its consolidated subsidiaries.
Overview
We are a fully-integrated commercial-stage biotechnology company helping to improve the lives of those affected by cancer with our next-generation, targeted antibody drug conjugates (“ADCs”). Our flagship product, ZYNLONTA® (loncastuximab tesirine or Lonca) received accelerated approval from the FDA on April 23, 2021, and launched commercially in the U.S. shortly thereafter, for the treatment of adult patients with relapsed or refractory large B-cell lymphoma after two or more lines of systemic therapy, including diffuse large B-cell lymphoma (“DLBCL”) not otherwise specified, DLBCL arising from low-grade lymphoma, and also high-grade B-cell lymphoma. Our objective is to establish ZYNLONTA as the third line+ DLBCL standard of care while exploring ZYNLONTA in earlier lines of therapy and in combinations to expand our market opportunity.
We have a strong validated technology platform including our highly potent pyrrolobenzodiazepine (PBD) technology and are advancing this proprietary PBD-based ADC technology to transform the treatment paradigm for patients with hematologic malignancies and solid tumors. Additionally, we have a growing toolbox of different components allowing us to work on next-generation ADC products. By leveraging our R&D strengths, our disciplined approach to target selection and our preclinical and clinical development strategy, we have created a diverse portfolio and research pipeline. Our clinical-stage PBD-based pipeline consists of two company-sponsored candidates, ADCT-901 (KAAG1) and ADCT-601 (mipasetamab uzoptirine) (AXL), as well as one clinical-stage candidate, ADCT-602 (CD22), which is being developed in collaboration with a partner. We are also committed to broadening our ADC platform by expanding new antibody constructs and payloads and advancing our differentiated next-generation assets.
Cautionary Statement Regarding Forward-Looking Statements
This discussion contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “would”, “expect”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “seem”, “seek”, “future”, “continue”, or “appear” or the negative of these terms or similar expressions, although not all forward-looking statements contain these identifying words. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, achievements or prospects to be materially different from any future results, performance, achievements or prospects expressed in or implied by such forward-looking statements. Factors that may cause such differences include, but are not limited to: the ability of the Company to cure the deficiency and to regain compliance with
1
NYSE listing standards and for the Company's common shares to remain listed on the NYSE; the success of the Company’s updated corporate strategy including operating efficiencies, capital deployment and portfolio prioritization; the Company’s ability to achieve the decrease in total operating expenses for 2023 and 2024, the expected cash runway into the middle of 2025, the effectiveness of the new commercial go-to-market strategy, competition from new technologies, the Company’s ability to grow ZYNLONTA revenue in the United States; Swedish Orphan Biovitrum AB (Sobi) ability to successfully commercialize ZYNLONTA in the European Economic Area and market acceptance, adequate reimbursement coverage, and future revenue from the same; approval by the NMPA of the BLA for ZYNLONTA in China submitted by Overland ADCT BioPharma and future revenue from the same, our strategic partners’, including Mitsubishi Tanabe Pharma Corporation, ability to obtain regulatory approval for ZYNLONTA in foreign jurisdictions, and the timing and amount of future revenue and payments to us from such partnerships; the Company’s ability to market its products in compliance with applicable laws and regulations; the Company’s expectations regarding the impact of the Infrastructure Investment and Jobs Act; the timing and results of the Company’s or its partners’ research projects or clinical trials including LOTIS 5 and 7, ADCT 901, 601 and 602, the impact, if any, from discontinuation of the LOTIS-9 study, actions by the FDA or foreign regulatory authorities with respect to the Company’s products or product candidates, the timing and outcome of regulatory submissions for the Company’s products or product candidates; the ability to complete clinical trials on expected timelines, if at all and the results of the same; projected revenue and expenses; the Company’s indebtedness, including Healthcare Royalty Management and Blue Owl and Oaktree facilities, and the restrictions imposed on the Company’s activities by such indebtedness, the ability to repay such indebtedness and the significant cash required to service such indebtedness; and the Company’s ability to obtain financial and other resources for its research, development, clinical, and commercial activities. Additional information concerning these and other factors that may cause actual results to differ materially from those anticipated in the forward-looking statements is contained in the “Risk Factors” section of the Company's Annual Report on Form 20-F and in the Company's other periodic reports and filings with the Securities and Exchange Commission.
The Company cautions investors not to place undue reliance on the forward-looking statements contained in this document. The Company undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this filing, except as required by law.
Recent Developments
Updated Corporate Strategy
During the third quarter of 2023, the Company fully rolled out the new commercial strategy, advanced our prioritized pipeline programs and continued to drive operating efficiencies. Following a comprehensive assessment conducted by the leadership team of the status of the business and the evolving market in the second quarter of 2023, the Company adjusted its corporate strategy to optimize operations and prioritize potential key value drivers:
•Implemented a new go-to-market model to help drive growth and optimize local area influence. The restructuring and the resulting disruptions that continued into the third quarter were necessary to fully capture the potential longer-term value of ZYNLONTA.
•Re-prioritized R&D pipeline to focus resources on the most advanced, lower risk value-generating programs:
◦The LOTIS-5, LOTIS-9 and LOTIS-7 studies which, if successful and support future regulatory approvals, have the potential to significantly increase ZYNLONTA’s market opportunity in earlier lines of therapy and with multiple combination partners.
◦Continuation of clinical-stage programs: ADCT-601 targeting AXL, ADCT-901 targeting KAAG1, ADCT-602 targeting CD22.
◦Halted investments in its two preclinical programs ADCT-212 targeting PSMA and ADCT-701 targeting DLK1.
•Increased efficiencies through a workforce reduction driven primarily by functions affected by the portfolio prioritization and back-office efficiencies, while maintaining the customer-facing footprint. Along with decreasing additional operating expenses, this will allow the Company to re-deploy capital in programs with the highest value-generating potential.
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Portfolio Updates
ZYNLONTA
•The Company’s partner Sobi completed the first European commercial sale of ZYNLONTA with the launch in
Germany in the second quarter of 2023. The first commercial sale in the European Union triggered a USD 75 million
milestone payment to the Company from HealthCare Royalty Partners under the royalty purchase agreement.
• The pivotal Phase 2 clinical trial in China, led by Overland ADCT BioPharma, achieved its primary objective and
demonstrated efficacy and safety data consistent with prior clinical trial results. Based on these positive results,
Overland ADCT BioPharma submitted its marketing authorization application to the China National Medical Products
Administration ("NMPA") seeking an indication for relapsed or refractory DLBCL after two or more lines of systemic
therapy. The Biologics License Application ("BLA") submitted by Overland ADCT BioPharma was accepted for filing
and granted priority review by the NMPA.
•The Company's partner Mitsubishi Tanabe Pharma Corporation ("MTPC") initiated the Phase 1/2 trial bridging study for ZYNLONTA. MTPC also joined the confirmatory Phase 3 LOTIS-5 study of ZYNLONTA in combination with rituximab in second-line or later, transplant ineligible DLBCL patients in Japan.
•The Company announced its plan to discontinue the Phase 2 LOTIS-9 trial studying ZYNLONTA in combination with
rituximab in unfit or frail patients with previously untreated DLBCL. The FDA placed a partial clinical hold on the
trial for new patient enrollment but will allow patients already on therapy who are deriving clinical benefit to remain
on therapy after being reconsented. Following completion of treatment of any reconsenting patients, the Company will
conduct the necessary steps to terminate the trial.
• The LOTIS-5 Independent Data Monitoring Committee reviewed unblinded data at a regularly scheduled
meeting in late July 2023 and noted that the study should proceed as planned. They also recognized that the LOTIS-9 and LOTIS-5 trials target very different patient populations.
•At the Eleventh Annual Meeting of the Society of Hematologic Oncology in September, updated safety run-in results from the confirmatory LOTIS-5 Phase 3 trial in combination with rituximab were presented and demonstrated an 80% overall response rate, a 50% complete response rate and median duration of response of 8.0 months with no new safety signals.
•The LOTIS-7 trial of ZYNLONTA in combination with bispecifics glofitamab or mosunetuzumab for the treatment of patients with DLBCL, follicular lymphoma and marginal zone lymphoma is actively enrolling patients.
•An American Society of Hematology abstract from the University of Miami investigator-initiated trial exploring ZYNLONTA in combination with rituximab in high-risk relapsed or refractory follicular lymphoma indicated that the combination was well tolerated with a 95% overall response rate at week 12 and at week 21, an 86% metabolic complete response rate.
Pipeline
•ADCT-601 (targeting AXL): Dose escalation in patients with non-small cell lung cancer and sarcoma is proceeding. The maximum tolerated dose has not yet been reached, and the immunohistochemistry ("IHC") assay is under final validation. Based on preclinical data, a pancreatic cancer cohort is being added with an enriched patient population.
•ADCT-901 (targeting KAAG1): Dose escalation is proceeding, and the IHC assay is under final validation.
•ADCT-602 (targeting CD22): Dose escalation and expansion in the Phase 1 trial in collaboration with MD Anderson Cancer Center is progressing and additional clinical trial sites are being added to accelerate enrollment.
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Results of Operations
Comparison of the Three Months Ended September 30, 2023 and 2022
The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| in KUSD | 2023 | 2022 | Change | % Change | ||||||||||||||||||||||
| Product revenues, net | 14,267 | 21,321 | (7,054) | (33.1) | % | |||||||||||||||||||||
| License revenues and royalties | 226 | 55,000 | (54,774) | (99.6) | % | |||||||||||||||||||||
| Total revenue | 14,493 | 76,321 | (61,828) | (81.0) | % | |||||||||||||||||||||
| Operating expense | ||||||||||||||||||||||||||
| Cost of product sales | (366) | (1,295) | 929 | (71.7) | % | |||||||||||||||||||||
| Research and development expenses | (28,440) | (41,676) | 13,236 | (31.8) | % | |||||||||||||||||||||
| Selling and marketing expenses | (13,730) | (16,847) | 3,117 | (18.5) | % | |||||||||||||||||||||
| General and administrative expenses | (9,361) | (19,617) | 10,256 | (52.3) | % | |||||||||||||||||||||
| Total operating expense | (51,897) | (79,435) | 27,538 | (34.7) | % | |||||||||||||||||||||
| Loss from operations | (37,404) | (3,114) | (34,290) | 1101.2 | % | |||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||
| Financial income | 3,140 | 273 | 2,867 | 1050.2 | % | |||||||||||||||||||||
| Financial expense | (12,942) | (11,356) | (1,586) | 14.0 | % | |||||||||||||||||||||
| Non-operating expense | (687) | (37,122) | 36,435 | (98.1) | % | |||||||||||||||||||||
| Total other expense | (10,489) | (48,205) | 37,716 | (78.2) | % | |||||||||||||||||||||
| Loss before taxes | (47,893) | (51,319) | 3,426 | (6.7) | % | |||||||||||||||||||||
| Income tax benefit | 86 | 711 | (625) | (87.9) | % | |||||||||||||||||||||
| Net loss | (47,807) | (50,608) | 2,801 | (5.5) | % | |||||||||||||||||||||
Revenue
Product revenues, net
Product revenue, net, which is generated from sales of ZYNLONTA in the U.S., decreased to USD 14.3 million for the three months ended September 30, 2023 from USD 21.3 million for the three months ended September 30, 2022, a decrease of USD 7.1 million or 33.1%. The decrease is attributable to lower sales volume, which was impacted by the extended period of disruption following the restructuring of the Company's commercial organization, increased competition and higher gross-to-net deductions due to the Group Purchasing Organization ("GPO") contracting and the Infrastructure Investment and Jobs Act’s requirement for manufacturers of certain single-source drugs separately paid for under Medicare Part B and marketed in single-dose containers to provide annual refunds ("discarded drug rebate") for unused drug. This decrease was partially offset by an increase in price.
License revenues and royalties
License revenues and royalties for the three months ended September 30, 2023 amounted to KUSD 226 and is attributable to royalties recognized under our exclusive license agreement with Sobi. During July 2022, we entered into an exclusive license agreement with Sobi for the development and commercialization of ZYNLONTA for all hematologic and solid tumor indications outside of the U.S., greater China, Singapore and Japan. Under the terms of the agreement, the Company received an upfront payment of USD 55 million, which was recorded as license revenue within the unaudited condensed consolidated interim statement of operations.
See note 5, "Revenue recognition" to the unaudited condensed consolidated interim financial statements for further information.
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Cost of sales
Cost of product sales primarily consist of direct and indirect costs relating to the manufacture of ZYNLONTA from third-party providers of manufacturing, distribution and logistics services, intangible asset amortization expense, impairment charges, royalties paid to a collaboration partner based on net product sales of ZYNLONTA and inventory written down amounts. Cost of product sales decreased to USD 0.4 million for the three months ended September 30, 2023 from USD 1.3 million for the three months ended September 30, 2022, a decrease of USD 0.9 million or 71.7%, primarily due to lower impairment charges related to the manufacturing of batches that did not meet our specifications.
R&D expenses
The following table summarizes our R&D expenses for our major development programs for the three months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | ||||||||||||||||||||
| in KUSD | 2023 | 2022 1 | Change | |||||||||||||||||
| ZYNLONTA | 17,109 | 15,961 | 1,148 | |||||||||||||||||
| Cami | 637 | 7,662 | (7,025) | |||||||||||||||||
| ADCT-602 | 423 | 298 | 125 | |||||||||||||||||
| ADCT-601 | 2,235 | 1,668 | 567 | |||||||||||||||||
| ADCT-901 | 1,617 | 1,263 | 354 | |||||||||||||||||
| ADCT-212 | 349 | 5,501 | (5,152) | |||||||||||||||||
| Preclinical product candidates and research pipeline | 2,878 | 2,522 | 356 | |||||||||||||||||
Not allocated to specific programs(2) | 3,035 | 2,492 | 543 | |||||||||||||||||
| Share-based compensation expense | 157 | 4,309 | (4,152) | |||||||||||||||||
| R&D expenses | 28,440 | 41,676 | (13,236) | |||||||||||||||||
1 Prior to September 30, 2022, certain R&D costs were not allocated to specific programs. Prior periods have been recast to conform to the current period presentation.
2 Includes third-party contracting and employee expenses, as well as expenses for preclinical research, storage, shipping and lab consumables that span multiple programs.
Our R&D expense may vary substantially from period to period according to the status of our R&D activities. The
timing of expenses are impacted by the commencement of clinical trials and enrollment of patients in clinical trials. In addition, R&D expense may fluctuate based on the status of regulatory approval of our drug candidates.
Our R&D expenses decreased to USD 28.4 million for the three months ended September 30, 2023 from USD 41.7 million for the three months ended September 30, 2022, a decrease of USD 13.2 million, or 31.8%.
The increase in R&D expenses related to ZYNLONTA was due to an increase in clinical trial expenses related to LOTIS 5 and LOTIS 9, partially offset by a decrease in manufacturing costs and lower clinical trial costs for LOTIS 3, LOTIS 6 and LOTIS 7 and professional fees.
The decrease in R&D expenses related to Cami was primarily due to completion of the Phase 2 study in 2022 and our decision to pause the program while we evaluated FDA feedback, while continuing to assess a potential regulatory pathway and seeking a partner to continue developing this program.
The decrease in R&D expenses related to ADCT-212 was primarily due to a decrease in expenses related to IND enabling analytical work during the three months ended September 30, 2023. We have re-prioritized the R&D pipeline to focus resources on the most advanced, lower risk value-generating programs and have therefore paused investments on this preclinical program.
The decrease in share-based compensation expense was driven by fluctuations in our share price and voluntary terminations during the three months ended September 30, 2023.
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S&M expenses
The following table summarizes our S&M expenses for the three months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | |||||||||||||||||
| in KUSD | 2023 | 2022 | Change | ||||||||||||||
External costs 1 | 8,035 | 8,236 | (201) | ||||||||||||||
Employee expense 2 | 5,695 | 8,611 | (2,916) | ||||||||||||||
| S&M expenses | 13,730 | 16,847 | (3,117) | ||||||||||||||
1 Includes depreciation expense for Property, plant and equipment. All other depreciation expense was not material.
2 Includes share-based compensation expense.
Our S&M expenses decreased to USD 13.7 million for the three months ended September 30, 2023 from USD 16.8 million for the three months ended September 30, 2022, a decrease of USD 3.1 million, or 18.5%. This decrease was primarily due to lower share-based compensation expense of USD 1.7 million due to fluctuations in our share price and voluntary terminations during the three months ended September 30, 2023, as well as lower wages and benefits of USD 1.0 million.
We expect our S&M expenses to continue to decrease as a percentage of revenue in the near-term as we implement cost reduction efforts through our new corporate strategy to help further reduce operating expenses.
G&A expenses
The following table summarizes our G&A expenses for the three months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | |||||||||||||||||
| in KUSD | 2023 | 2022 | Change | ||||||||||||||
External costs 1 | 3,907 | 5,020 | (1,113) | ||||||||||||||
Employee expense 2 | 5,454 | 14,597 | (9,143) | ||||||||||||||
| G&A expenses | 9,361 | 19,617 | (10,256) | ||||||||||||||
1 Includes depreciation expense
2 Includes share-based compensation expense
Our G&A expenses decreased to USD 9.4 million for the three months ended September 30, 2023 from USD 19.6 million for the three months ended September 30, 2022, a decrease of USD 10.3 million, or 52.3%. Employee expense for the three months ended September 30, 2023 decreased primarily as a result of lower share-based compensation expense of USD 6.6 million due to fluctuations in our share price and voluntary terminations during the three months ended September 30, 2023, as well as lower wages and benefits of USD 1.5 million. External costs decreased primarily due to lower insurance and IT costs of USD 1.0 million.
We expect our G&A expenses to continue to decrease as a percentage of revenue in the near-term as we implement cost reduction efforts through our new corporate strategy to help further reduce operating expenses.
Other income (expense)
The following table summarizes our other income (expense) for the three months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | ||||||||||||||||||||
| in KUSD | 2023 | 2022 | Change | |||||||||||||||||
| Financial income | 3,140 | 273 | 2,867 | |||||||||||||||||
| Financial expense | (12,942) | (11,356) | (1,586) | |||||||||||||||||
| Non-operating expense | (687) | (37,122) | 36,435 | |||||||||||||||||
| Total other expense | (10,489) | (48,205) | 37,716 | |||||||||||||||||
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Financial income
Our financial income for the three months ended September 30, 2023 was USD 3.1 million as compared to KUSD 273 for the three months ended September 30, 2022, an increase of USD 2.9 million. The increase was primarily due to higher interest income for the three months ended September 30, 2023 due to higher yields received on our cash deposits.
Financial expense
Our financial expense increased to USD 12.9 million for the three months ended September 30, 2023 from USD 11.4 million for the three months ended September 30, 2022, an increase of USD 1.6 million, or 14.0%. The increase was primarily due to USD 3.7 million of higher interest expense related to the accretion of our deferred royalty obligation with HCR, senior secured term loans and convertible loans, partially offset by a USD 2.2 million cumulative catch-up adjustment recognized in financial expense during the three months ended September 30, 2022 related to the deferred royalty obligation with HCR.
Non-operating expense
Notable items in non-operating expense impacting the results of operations for the three months ended September 30, 2023 and 2022 included:
| Three Months Ended September 30, | |||||||||||||||||||||||
| in KUSD | P&L Classification | 2023 | 2022 | Change | |||||||||||||||||||
| Fair value adjustment of Facility Agreement derivatives | Non-operating expense | — | 4,660 | (4,660) | |||||||||||||||||||
| Loss on debt extinguishment | Non-operating expense | — | 42,114 | (42,114) | |||||||||||||||||||
| Fair value adjustment of senior secured term loan warrant obligation | Non-operating income | 299 | 2,543 | (2,244) | |||||||||||||||||||
| Fair value adjustment of Deerfield warrant obligation | Non-operating income | 140 | 9,418 | (9,278) | |||||||||||||||||||
| Share of Overland ADCT BioPharma net loss | Non-operating expense | 1,409 | 2,130 | (721) | |||||||||||||||||||
Convertible loans, derivatives, change in fair value income
The change in fair value of the convertible loans derivatives was recognized as expense of USD 4.7 million for the three months ended September 30, 2022. The increase in fair value of the embedded derivatives was primarily due to increases in the fair value of the underlying shares during the period. The loan was exchanged on August 15, 2022. As a result, no income or expense was recognized during the three months ended September 30, 2023. Our accounting is explained further in note 14, "Convertible loan" to the unaudited condensed consolidated interim financial statements.
Loss on debt extinguishment
As a result of the exchange agreement, the Company recognized a loss on extinguishment of USD 42.1 million for the three months ended September 30, 2022, which primarily consists of the difference between the aggregate principal amount and carrying value of the convertible loans, exit fee, as well as the unpaid interest payments through the maturity date.
Senior secured term loans and warrants
The Company has accounted for the first tranche of the senior secured term loan and warrants as one hybrid financial instrument, with the USD 120.0 million proceeds separated into two components: a warrant obligation and a loan. The warrant obligation has been recorded at its initial fair value at the time the agreement was entered into on August 15, 2022 and is remeasured to fair value on a quarterly basis. The loan is presented as a liability and represents the net present value of all future cash flows associated with the loan discounted at its EIR. The income of USD 0.3 million and USD 2.5 million as a result of changes in the warrant obligation for the three months ended September 30, 2023 and 2022, respectively, was primarily due to the decrease in fair value of the underlying shares during the respective periods. Our accounting for these
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changes in the fair value of our warrant obligation is explained in note 13, "Senior secured term loan facility and warrants" to the unaudited condensed consolidated interim financial statements.
Deerfield warrant obligation, change in fair value income
Pursuant to an exchange agreement with Deerfield entered into on August 15, 2022, the Company issued warrants to Deerfield to purchase an aggregate of 4,412,840 common shares. The Deerfield warrant obligation has been recorded at its initial fair value at the time the agreement was entered into on August 15, 2022 and is remeasured to fair value on a quarterly basis. The income of USD 0.1 million and USD 9.4 million as a result of changes in the warrant obligation for the three months ended September 30, 2023 and 2022, respectively, was primarily due to the decrease in fair value of the underlying shares during the respective periods. Changes in fair value of the Deerfield warrant obligation are explained in note 15, "Deerfield warrants" to the unaudited condensed consolidated interim financial statements.
Share of Results with Joint Venture
We recorded our proportionate share of Overland ADCT BioPharma’s net loss of USD 1.4 million and USD 2.1 million for the three months ended September 30, 2023 and 2022, respectively. The decrease in Overland ADCT BioPharma's net loss for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 was primarily attributable to lower R&D costs as the BLA submitted by Overland ADCT BioPharma has been accepted and granted priority review by the NMPA. See note 11, “Interest in joint venture” within the notes to the unaudited condensed consolidated interim financial statements for further details.
Income tax benefit
We recorded an income tax benefit of USD 0.1 million for the three months ended September 30, 2023 as compared to USD 0.7 million for the three months ended September 30, 2022.
We are subject to corporate taxation in Switzerland. We are also subject to taxation in other jurisdictions in which we operate, in particular, the United States and the United Kingdom, where our two wholly-owned subsidiaries are incorporated. We are entitled under Swiss laws to carry forward any losses incurred for a period of seven years, which could be used to offset future taxable income. We are also entitled under U.S. tax law to carry forward R&D tax credits for a period of up to 20 years, which could be used to offset future taxable income.
The income tax benefit recorded for the three months ended September 30, 2023 is significantly less than the loss before taxes effected at the blended statutory rate due to the fact that we do not recognize current or deferred income taxes in connection with our Swiss operations. We do not expect to be able to realize the benefit of our tax loss carryforwards for Swiss corporate income tax purposes, and, therefore, we have not recognized deferred tax assets in our financial statements. Further, we do not generate or pay current income taxes in Switzerland.
Our income tax benefit recorded during the three months ended September 30, 2023, as well as the three months ended September 30, 2022, is driven by our U.S. operations. Generally, current income tax is recorded primarily due to our internal arrangements to reimburse our foreign subsidiaries in the U.S. and the United Kingdom for the services they render to our parent company in Switzerland. Commercial sales in the U.S. also contributed to the current period income tax expense. Ultimately, the net profit at each subsidiary is subject to local income tax. During the three months ended September 30, 2023, with respect to our U.S. operations, current income tax expense of USD 0.3 million was recorded and offset by deferred income tax benefit of USD 0.6 million.
In estimating future taxable income to assess the realizability of deferred tax assets, management develops assumptions including the amount of future net revenue and pre-tax operating income and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying business. Management notes that its projections of future taxable profits rely on currently enacted law and are subject to revision if the U.S. legislates new tax law. As such, changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. We record the effect of a tax rate or law change on our deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on our financial condition, results of operations or cash flows.
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Comparison of the Nine Months Ended September 30, 2023 and 2022
The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022:
For the Nine Months Ended September 30, | |||||||||||||||||||||||
| in KUSD | 2023 | 2022 | Change | % Change | |||||||||||||||||||
| Product revenues, net | 52,417 | 55,110 | (2,693) | (4.9) | % | ||||||||||||||||||
| License revenues and royalties | 351 | 85,000 | (84,649) | (99.6) | % | ||||||||||||||||||
| Total revenue | 52,768 | 140,110 | (87,342) | (62.3) | % | ||||||||||||||||||
| Operating expense | |||||||||||||||||||||||
| Cost of product sales | (2,275) | (4,090) | 1,815 | (44.4) | % | ||||||||||||||||||
| Research and development expenses | (99,864) | (139,165) | 39,301 | (28.2) | % | ||||||||||||||||||
| Selling and marketing expenses | (43,537) | (52,876) | 9,339 | (17.7) | % | ||||||||||||||||||
| General and administrative expenses | (35,857) | (56,868) | 21,011 | (36.9) | % | ||||||||||||||||||
| Total operating expense | (181,533) | (252,999) | 71,466 | (28.2) | % | ||||||||||||||||||
| Loss from operations | (128,765) | (112,889) | (15,876) | 14.1 | % | ||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Financial income | 7,250 | 18,597 | (11,347) | (61.0) | % | ||||||||||||||||||
| Financial expense | (38,650) | (29,374) | (9,276) | 31.6 | % | ||||||||||||||||||
| Non-operating expense | (1,143) | (10,805) | 9,662 | (89.4) | % | ||||||||||||||||||
| Total other expense | (32,543) | (21,582) | (10,961) | 50.8 | % | ||||||||||||||||||
| Loss before taxes | (161,308) | (134,471) | (26,837) | 20.0 | % | ||||||||||||||||||
| Income tax benefit | 6,958 | 2,828 | 4,130 | 146.0 | % | ||||||||||||||||||
| Net loss | (154,350) | (131,643) | (22,707) | 17.2 | % | ||||||||||||||||||
Revenue
Product revenues, net
Product revenue, net, which is generated from sales of ZYNLONTA in the U.S. decreased to USD 52.4 million for the nine months ended September 30, 2023, from USD 55.1 million for the nine months ended September 30, 2022, a decrease of USD 2.7 million. This decrease is primarily due to higher gross-to-net deductions due to the Group Purchasing Organization ("GPO") contracting and the Infrastructure Investment and Jobs Act's requirement for manufacturers of certain single-source drugs separately paid for under Medicare Part B and marketed in single-dose containers to provide annual refunds ("discarded drug rebate") for unused drug, partially offset by price increases and higher sales volumes as we continue to commercialize ZYNLONTA.
License revenues and royalties
License revenues and royalties for the nine months ended September 30, 2023 amounted to KUSD 351 and is attributable to royalties recognized under our exclusive license agreement with Sobi. On January 18, 2022, we entered into an exclusive license agreement with MTPC for the development and commercialization of ZYNLONTA for all hematologic and solid tumor indications in Japan. Under the terms of the agreement, we received an upfront payment of USD 30 million. During July 2022, we entered into an exclusive license agreement with Sobi for the development and commercialization of ZYNLONTA for all hematologic and solid tumor indications outside of the U.S., greater China, Singapore and Japan. Under the terms of the agreement, the Company received an upfront payment of USD 55 million. Both of these items were recorded as license revenue within the unaudited condensed consolidated interim statement of operations during the nine months ended September 30, 2022. See note 5, "Revenue recognition" to the unaudited condensed consolidated interim financial statements for further information.
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Cost of sales
Cost of product sales primarily consist of direct and indirect costs relating to the manufacture of ZYNLONTA from third-party providers of manufacturing, distribution and logistics services, intangible asset amortization expense, impairment charges, royalties paid to a collaboration partner based on net product sales of ZYNLONTA and inventory written down amounts. Cost of product sales decreased to USD 2.3 million for the nine months ended September 30, 2023 from USD 4.1 million for the nine months ended September 30, 2022, a decrease of USD 1.8 million primarily associated with lower impairment charges related to the manufacturing of batches that did not meet our specifications.
R&D expenses
The following table summarizes our R&D expenses for our major development programs for the nine months ended September 30, 2023 and 2022:
| Nine Months Ended September 30, | |||||||||||||||||
| in KUSD | 2023 | 2022 1 | Change | ||||||||||||||
| ZYNLONTA | 52,960 | 56,983 | (4,023) | ||||||||||||||
| Cami | 9,710 | 26,258 | (16,548) | ||||||||||||||
| ADCT-602 | 1,244 | 890 | 354 | ||||||||||||||
| ADCT-601 | 6,830 | 6,135 | 695 | ||||||||||||||
| ADCT-901 | 5,525 | 3,987 | 1,538 | ||||||||||||||
| ADCT-212 | 4,749 | 15,069 | (10,320) | ||||||||||||||
| Preclinical product candidates and research pipeline | 8,680 | 8,458 | 222 | ||||||||||||||
Not allocated to specific programs(2) | 6,968 | 7,288 | (320) | ||||||||||||||
| Share-based compensation | 3,198 | 14,097 | (10,899) | ||||||||||||||
| R&D expenses | 99,864 | 139,165 | (39,301) | ||||||||||||||
1 Prior to September 30, 2022, certain R&D costs were not allocated to specific programs. Prior periods have been recast to conform to the current period presentation.
2 Includes third-party contracting and employee expenses, as well as expense for preclinical research, storage, shipping and lab consumables that span multiple programs.
Our R&D expense may vary substantially from period to period according to the status of our R&D activities. The
timing of expenses are impacted by the commencement of clinical trials and enrollment of patients in clinical trials. In addition, R&D expense may fluctuate based on the status of regulatory approval of our drug candidates.
Our R&D expenses decreased to USD 99.9 million for the nine months ended September 30, 2023 from USD 139.2 million for the nine months ended September 30, 2022, a decrease of USD 39.3 million, or 28.2%.
The decrease in R&D expenses related to ZYNLONTA was due to higher cost sharing with our partners in clinical trial costs primarily resulting from the Sobi license agreement executed in July 2022. We also had lower clinical trial costs for LOTIS 3, LOTIS 6 and LOTIS 7, as well as lower professional fees related to ZYNLONTA, partially offset by higher clinical trial expenses for LOTIS 5 and LOTIS 9 for the nine months ended September 30, 2023.
The decrease in R&D expenses related to Cami was primarily due to completion of the Phase 2 study in 2022 and our decision to pause the program while we evaluated FDA feedback, while continuing to assess a potential regulatory pathway and seeking a partner to continue developing this program.
The increase in R&D expenses related to ADCT-901 was primarily due to increased clinical trial expenses that resulted from increased enrollment and ongoing treatment and monitoring of currently enrolled and completed patients.
The decrease in R&D expenses related to ADCT-212 was primarily due to a decrease in expenses related to IND enabling analytical work during the nine months ended September 30, 2023. We have re-prioritized the R&D pipeline to focus resources on the most advanced, lower risk value-generating programs and have therefore paused investments on this preclinical program.
The decrease in share-based compensation expense was driven by fluctuations in our share price, voluntary terminations and the workforce reduction announced and put into effect during the second quarter of 2023.
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S&M expenses
The following table summarizes our S&M expenses for the nine months ended September 30, 2023 and 2022:
| Nine Months Ended September 30, | |||||||||||||||||
| in KUSD | 2023 | 2022 | Change | ||||||||||||||
External costs 1 | 23,724 | 26,406 | (2,682) | ||||||||||||||
Employee expense 2 | 19,813 | 26,470 | (6,657) | ||||||||||||||
| S&M expenses | 43,537 | 52,876 | (9,339) | ||||||||||||||
1 Includes depreciation expense for Property, plant and equipment. All other depreciation expense was not material.
2 Includes share-based compensation expense.
Our S&M expenses decreased to USD 43.5 million for the nine months ended September 30, 2023 from USD 52.9 million for the nine months ended September 30, 2022, a decrease of USD 9.3 million, or 17.7%. The decrease was primarily due to lower share-based compensation expense of USD 5.3 million due to fluctuations in our share price, voluntary terminations and the commercial re-alignment announced and put into effect during the second quarter of 2023 as well as lower wages and benefits of USD 1.4 million. The decrease was also attributable to USD 2.7 million in lower spend on marketing, analytics and expenses, including those expenses in the European Union relating to the commercial launch of ZYNLONTA.
We expect our S&M expenses to continue to decrease as a percentage of revenue in the near-term as we implement cost reduction efforts through our new corporate strategy to help further reduce operating expenses.
G&A expenses
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2023 and 2022:
| Nine Months Ended September 30, | |||||||||||||||||
| in KUSD | 2023 | 2022 | Change | ||||||||||||||
External costs 1 | 13,326 | 18,539 | (5,213) | ||||||||||||||
Employee expense 2 | 22,531 | 38,329 | (15,798) | ||||||||||||||
| G&A expenses | 35,857 | 56,868 | (21,011) | ||||||||||||||
1 Includes depreciation expense
2 Includes share-based compensation expense
Our G&A expenses decreased to USD 35.9 million for the nine months ended September 30, 2023 from USD 56.9 million for the nine months ended September 30, 2022, a decrease of USD 21.0 million, or 36.9%. Employee expense for the nine months ended September 30, 2023 decreased primarily as a result of lower share-based compensation expense of USD 14.8 million due to fluctuations in our share price, the transition of a board member, voluntary terminations and the workforce reductions announced and put into effect during the second quarter of 2023 as well as lower temporary help and recruiting of USD 0.7 million. External costs incurred during the nine months ended September 30, 2023 decreased primarily due to lower insurance and IT costs of USD 3.1 million, as well as lower professional fees of USD 1.7 million, which primarily includes fees associated with the license agreement entered into with MTPC.
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Other income (expense)
The following table summarizes our other income and expense for the nine months ended September 30, 2023 and 2022:
| Nine Months Ended September 30, | |||||||||||||||||
| in KUSD | 2023 | 2022 | Change | ||||||||||||||
| Other income (expense) | |||||||||||||||||
| Financial income | 7,250 | 18,597 | (11,347) | ||||||||||||||
| Financial expense | (38,650) | (29,374) | (9,276) | ||||||||||||||
| Non-operating expense | (1,143) | (10,805) | 9,662 | ||||||||||||||
| Total other expense | (32,543) | (21,582) | (10,961) | ||||||||||||||
Financial income
Our financial income for the nine months ended September 30, 2023 was USD 7.3 million as compared to USD 18.6 million for the nine months ended September 30, 2022, a decrease of USD 11.3 million, or 61.0%. The decrease was primarily related to a USD 18.3 million cumulative catch-up adjustment associated with the deferred royalty obligation with HCR during the nine months ended September 30, 2022 due to revised revenue forecasts used in the valuation model, which revisions were primarily attributable to updates made for the Company’s 2022 strategic planning decisions, including updated development plans, partially offset by higher interest income of USD 6.9 million for the nine months ended September 30, 2023 due to higher yields received on our cash deposits.
Financial expense
We had financial expense of USD 38.7 million for the nine months ended September 30, 2023 compared to USD 29.4 million of financial expense for the nine months ended September 30, 2022, an increase in financial expense of USD 9.3 million. The increase was primarily related to higher interest expense of USD 6.4 million related to the accretion of our deferred royalty obligation with HCR, senior secured term loans and convertible loans as well as a higher cumulative catch-up adjustment of USD 2.6 million associated with the deferred royalty obligation with HCR due to revised revenue forecasts used in the valuation model, which revisions were primarily attributable to the Company’s 2023 updated development plans.
Non-operating expense
Notable items other than revenue from product sales and license revenue impacting the results of operations for the nine months ended September 30, 2023 and 2022 included:
| Nine Months Ended September 30, | |||||||||||||||||||||||
| in KUSD | P&L Classification | 2023 | 2022 | Change | |||||||||||||||||||
| Fair value adjustment of Facility Agreement derivatives | Non-operating income | — | 25,650 | (25,650) | |||||||||||||||||||
| Loss on debt extinguishment | Non-operating expense | — | 42,114 | (42,114) | |||||||||||||||||||
| Fair value adjustment of senior secured term loan warrant obligation | Non-operating income | 916 | 2,543 | (1,627) | |||||||||||||||||||
| Fair value adjustment of Deerfield warrant obligation | Non-operating income | 776 | 9,418 | (8,642) | |||||||||||||||||||
| Share of Overland ADCT BioPharma net loss | Non-operating expense | 3,539 | 6,549 | (3,010) | |||||||||||||||||||
Convertible loans, derivatives, change in fair value income
The change in fair value of the convertible loans derivatives was recognized as income of USD 25.7 million for the nine months ended September 30, 2022. The decreases in fair values of the embedded derivatives were primarily due to decreases in the fair value of the underlying shares during the period. The loan was exchanged on August 15, 2022. As a result, no income
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or expense was recognized during the nine months ended September 30, 2023. Our accounting is explained further in note 14, "Convertible loan" to the unaudited condensed consolidated interim financial statements.
Loss on debt extinguishment
As a result of the exchange agreement, the Company recognized a loss on extinguishment of USD 42.1 million for the nine months ended September 30, 2022, which primarily consists of the difference between the aggregate principal amount and carrying value of the convertible loans, exit fee, as well as the unpaid interest payments through the maturity date.
Senior secured term loans and warrants
The Company has accounted for the first tranche of the senior secured term loan and warrants as one hybrid financial instrument, with the USD 120.0 million proceeds separated into two components: a warrant obligation and a loan. The warrant obligation has been recorded at its initial fair value at the time the agreement was entered into on August 15, 2022 and is remeasured to fair value on a quarterly basis. The loan is presented as a liability and represents the net present value of all future cash flows associated with the loan discounted at its EIR. The income of USD 0.9 million and USD 2.5 million as a result of changes in the warrant obligation for the nine months ended September 30, 2023 and 2022, respectively, was primarily due to the decrease in fair value of the underlying shares during the respective periods. Our accounting for these changes in the fair value of our warrant obligation is explained in note 13, "Senior secured term loan facility and warrants" to the unaudited condensed consolidated interim financial statements.
Deerfield warrant obligation, change in fair value income
Pursuant to an exchange agreement with Deerfield entered into on August 15, 2022, the Company issued warrants to Deerfield to purchase an aggregate of 4,412,840 common shares. The Deerfield warrant obligation has been recorded at its initial fair value at the time the agreement was entered into on August 15, 2022 and is remeasured to fair value on a quarterly basis. The income of USD 0.8 million and USD 9.4 million as a result of changes in the warrant obligation for nine months ended September 30, 2023 and 2022, respectively, was primarily due to the decrease in fair value of the underlying shares during the respective periods. Changes in fair value of the Deerfield warrant obligation are explained in note 15, "Deerfield warrants" to the unaudited condensed consolidated interim financial statements.
Share of Results with Joint Venture
We recorded our proportionate share of Overland ADCT BioPharma’s net loss of USD 3.5 million and USD 6.5 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease in Overland ADCT BioPharma's net loss for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily attributable to lower R&D costs as the BLA submitted by Overland ADCT BioPharma has been accepted and granted priority review by the NMPA, as well as lower share-based compensation expense as a result of a workforce reduction in the second quarter of 2023. We also recorded a USD 0.6 million true-up during the nine months ended September 30, 2023 to align our proportionate share of Overland ADCT BioPharma's share-based compensation expense, which was lower than our estimate for the year ended December 31, 2022. See note 11, “Interest in joint venture” within the notes to the unaudited condensed consolidated interim financial statements for further details.
Income tax benefit
We recorded an income tax benefit of USD 7.0 million for the nine months ended September 30, 2023 as compared to income tax benefit of USD 2.8 million for the nine months ended September 30, 2022.
We are subject to corporate taxation in Switzerland. We are also subject to taxation in other jurisdictions in which we operate, in particular, the United States and the United Kingdom, where our two wholly-owned subsidiaries are incorporated. We are entitled under Swiss laws to carry forward any losses incurred for a period of seven years, which could be used to offset future taxable income. We are also entitled under U.S. tax law to carry forward R&D tax credits for a period of up to 20 years, which could be used to offset future taxable income.
The income tax benefit recorded for the nine months ended September 30, 2023 is significantly less than the loss before taxes effected at the blended statutory rate due to the fact that we do not recognize current or deferred income taxes in connection with our Swiss operations. We do not expect to be able to realize the benefit of our tax loss carryforwards for Swiss corporate income tax purposes, and, therefore, we have not recognized deferred tax assets in our financial statements. Further, we do not generate or pay current income taxes in Switzerland.
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Our income tax benefit recorded during the nine months ended September 30, 2023 is driven by our U.S. operations. Our income tax benefit associated with our US operations of USD 7.3 million recorded during the nine months ended September 30, 2023 was driven by USD 5.4 million of deferred income tax benefit in connection with return-to-provision adjustments on our 2022 U.S. income tax returns (filed during this quarter). Generally, current income tax is recorded primarily due to our internal arrangements to reimburse our foreign subsidiaries in the U.S. and the United Kingdom for the services they render to our parent company in Switzerland. Commercial sales in the U.S. also contributed to the current period income tax expense. Ultimately, the net profit at each subsidiary is subject to local income tax. During the nine months ended September 30, 2023, with respect to our U.S. operations, a deferred tax benefit of USD 8.6 million was recorded and partially offset by current income tax expense of USD 1.3 million.
Comparatively, our income tax benefit of USD 2.8 million recorded during the nine months ended September 30, 2022 was driven by USD 7.6 million of deferred income tax benefit recorded in connection with the recognition of deferred tax assets associated with our U.S. operations on the basis of our projections of future taxable income, partially offset by the current income tax expense of USD 4.7 million.
In estimating future taxable income to assess the realizability of deferred tax assets, management develops assumptions including the amount of future net revenue and pre-tax operating income and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying business. Management notes that its projections of future taxable profits rely on currently enacted law and are subject to revision if the U.S. legislates new tax law. As such, changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. We record the effect of a tax rate or law change on our deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on our financial condition, results of operations or cash flows.
Liquidity and Capital Resources
As of September 30, 2023, we had cash and cash equivalents of USD 310.4 million. We also have an at-the-market (“ATM”) offering program, pursuant to which we may sell our common shares with an aggregate offering price of up to USD 150.0 million. There have been no shares sold under the ATM program to date. We plan to continue to fund our operating needs through our existing cash and cash equivalents, revenues from the sale of ZYNLONTA, potential milestone and royalty payments under our licensing agreements and additional equity financings, debt financings and/or other forms of financing, as well as funds provided by collaborations. We are also continuously engaged in discussions to establish value-maximizing strategic collaborations, business combinations, acquisitions, dispositions, licensing opportunities and similar transactions to further the clinical development and commercialization of ZYNLONTA and/or our product candidates.
Our primary uses of capital are, and we expect will continue to be, R&D expenses, S&M expenses, compensation and related expenses, interest and principal payments on debt obligations and other operating expenses. We expect to incur substantial expenses as we continue to devote substantial resources to research and development and marketing and commercialization efforts, in particular to establish ZYNLONTA as the 3L+ diffuse large B cell lymphoma (“DLBCL”) standard of care, continue to study and advance ZYNLONTA in earlier lines of therapy and in combinations to potentially expand our market opportunity and further develop our clinical-stage PBD-based pipeline and our ADC platform. Cash used to fund operating expenses is impacted by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses, as well as the timing of collecting receivables from the sale of ZYNLONTA and paying royalties related to our deferred royalty obligation.
Cash Flows
Comparison of the Nine Months Ended September 30, 2023 and 2022
The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022:
| (in KUSD) | Nine months ended September 30, | ||||||||||||||||
| Net cash (used in) provided by: | 2023 | 2022 | Change | ||||||||||||||
| Operating activities | (85,613) | (84,697) | (916) | ||||||||||||||
| Investing activities | (2,689) | (2,391) | (298) | ||||||||||||||
| Financing activities | 72,236 | 1,855 | 70,381 | ||||||||||||||
| Net change in cash and cash equivalents | (16,066) | (85,233) | 69,167 | ||||||||||||||
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Net cash used in operating activities
Net cash used in operating activities increased to USD 85.6 million for the nine months ended September 30, 2023 from USD 84.7 million for the nine months ended September 30, 2022, an increase of USD 0.9 million, or 1.1%. Lower cash inflows from revenues during the nine months ended September 30, 2023 were partially offset by tax refunds received.
Net cash used in investing activities
Net cash used in investing activities increased to USD 2.7 million for the nine months ended September 30, 2023 from USD 2.4 million for the nine months ended September 30, 2022, an increase of USD 0.3 million, or 12.5%. Net cash used in investing activities was consistent period over period and primarily relates to purchases of property, plant and equipment and intangible assets.
Net cash provided by financing activities
Net cash provided by financing activities was USD 72.2 million for the nine months ended September 30, 2023 and primarily related to the proceeds received under the deferred royalty obligation with HCR upon the first commercial sale of ZYNLONTA in the United Kingdom or any European Union country. For the nine months ended September 30, 2022, we drew down USD 120.0 million principal amount of term loans under the Loan Agreement prior to transaction costs paid of USD 5.5 million during the three months ended September 30, 2022. In addition, we received USD 6.1 million of proceeds, net of transaction costs paid during the three months ended September 30, 2022, from the issuance of shares under the share purchase agreement. Additionally, we exchanged our senior secured convertible notes pursuant to the exchange agreement with Deerfield, resulting in USD 118.1 million (including exit fees and transaction costs) being used. See note 13, "Senior secured term loan facility and warrants", note 14, "Convertible loans" and note 15, "Deerfield warrants" to the unaudited condensed consolidated interim financial statements for further information.
Operating Capital Requirements
As of September 30, 2023, we had cash and cash equivalents of USD 310.4 million. Based on our current business plan, we believe that our existing cash and cash equivalents, forecasted revenue from ZYNLONTA and receipt of forecasted royalty and milestone payments under our license agreements will enable us to meet our financial obligations for at least the next 12 months from the date of issuance of these unaudited condensed consolidated interim financial statements. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, which are outlined in our Annual Report on Form 20-F for the year ended December 31, 2022 and our subsequent filings with the Securities Exchange Commission ("SEC"), as well as actual versus forecast demand for ZYNLONTA and amounts that we receive under our license and collaboration agreements. In addition, we may seek to raise additional capital through debt and equity financings, license agreements and other arrangements and combinations thereof that we believe are in our best interest.
Off-Balance Sheet Arrangements
As of September 30, 2023 and during the periods presented, we did not have, and we do not currently have, any off-balance sheet arrangements.
Quantitative and Qualitative Disclosures about Market Risk
During the periods presented, there were no significant changes to our quantitative and qualitative disclosures about market risk from those described in the section in our Annual Report on Form 20-F for the year ended December 31, 2022 titled “Item 11. Quantitative and Qualitative Disclosures About Market Risk” with the exception of a hypothetical 100 basis point increase (decrease) in our interest rate as of September 30, 2023. A hypothetical 100 basis point increase (decrease) in the interest rate as of September 30, 2023 would have increased (decreased) the effective interest associated with our senior secured term loan facility by KUSD 1,124 and (KUSD 1,124).
Critical Accounting Policies and Significant Judgments and Estimates
In preparing the unaudited condensed consolidated interim financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty included those that applied to the consolidated financial statements for the year ended December 31, 2022. There have been no material changes to
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the significant accounting policies other than those described in note 3, "Significant accounting policies" to our unaudited condensed consolidated interim financial statements.
Recent Accounting Pronouncements
See note 3, “Significant accounting policies”, to our unaudited condensed consolidated interim financial statements for a description of recent accounting pronouncements applicable to our unaudited condensed consolidated interim financial statements.
Risk Factors
We are providing the following information to supplement the risk factors described in our Annual Report on Form 20-F for the year ended December 31, 2022, filed with the SEC on March 15, 2023:
Our common shares may be delisted from the New York Stock Exchange (“NYSE”).
To maintain the listing of our common shares on the NYSE, we are required to satisfy various continued listing criteria, including with respect to trading price and market capitalization. On October 10, 2023, we received a notice from the NYSE that we were not in compliance with the continued listing minimum price criteria set forth in Section 802.01C of the NYSE Listed Company Manual, which requires listed companies to maintain an average closing share price of at least $1.00 over a consecutive 30 trading-day period. See our Report on Form 6-K filed with the SEC on November 7, 2023 relating to our receipt of the noncompliance notice from the NYSE. Although the notice has no immediate impact on the listing of our common shares, there can no assurance that we will be able to cure this deficiency within the period provided by the NYSE or that we will be able to maintain compliance with other continued listing standards. If we are not able to regain compliance with the NYSE’s continued listing standards, our common shares will be delisted from the NYSE, which would have an adverse effect on our stock price, our ability to raise capital through the sale of our common shares, the liquidity of our common shares, investors’ ability to obtain quotations for our common shares and investors’ ability to trade our common shares. Furthermore, if our common shares are delisted from the NYSE, there can be no assurance that we will be able to list our common shares on the NYSE or any other stock exchange in the future. If needed, we expect to seek to take actions to restore our compliance with NYSE’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock or prevent our common stock from dropping below the NYSE minimum bid price requirement in the future.
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Exhibit 99.3
ADC Therapeutics Reports Third Quarter 2023 Financial Results and Provides Business Updates
3Q 2023 ZYNLONTA®1 net sales of $14.3 million reflect disruption following restructuring of commercial organization, increased competition and higher gross-to-net deductions
Operating expenses decreased 23%2 year-over-year due to portfolio prioritization and operational efficiencies; Expected cash runway into mid-2025
Prioritized pipeline progressing with initial data readouts from LOTIS-7 and studies of ADCT-601 targeting AXL and ADCT-901 targeting KAAG1 expected in 1H 2024
Company to host conference call today at 8:30 a.m. EST
Lausanne, Switzerland, November 7, 2023 – ADC Therapeutics SA (NYSE: ADCT) today reported financial results for the third quarter 2023 and provided business updates.
“During the third quarter, we fully rolled out the new commercial strategy, advanced our prioritized pipeline programs and continued to drive operating efficiencies,” said Ameet Mallik, Chief Executive Officer of ADC Therapeutics. “We are confident that restructuring the commercial model and the resulting disruptions that continued into the third quarter were necessary to fully capture the potential longer-term value of ZYNLONTA® and we expect to see growth in the coming quarters in an increasingly competitive environment. We have a clear roadmap in place as we approach several potential value-generating catalysts in 2024, including data readouts for the LOTIS-7 trial of ZYNLONTA in combination with bispecifics, ADCT-601 targeting AXL, ADCT-901 targeting KAAG1 and ADCT-602 targeting CD22.”
Recent Highlights and Developments
ZYNLONTA® (loncastuximab tesirine-lpyl)
•ZYNLONTA generated net sales of $14.3 million in the third quarter of 2023, representing a 33.1% decrease over the third quarter of 2022. The decline was attributable to an extended period of disruption following the restructuring of the commercial model, increased competition and higher gross-to-net sales deductions. This was partially offset by a slight increase in price.
•At the Eleventh Annual Meeting of the Society of Hematologic Oncology (SOHO 2023) in September, updated safety run-in results from the confirmatory LOTIS-5 Phase 3 trial in combination with rituximab were presented and demonstrated an 80% overall response rate, a 50% complete response rate and median duration of response of 8.0 months with no new safety signals.
•The LOTIS-7 trial of ZYNLONTA in combination with bispecifics glofitamab or mosunetuzumab for the treatment of patients with diffuse large B-cell lymphoma (DLBCL), follicular lymphoma (FL) and marginal zone lymphoma (MZL) is actively enrolling patients.
•The Company’s partner Mitsubishi Tanabe Pharma Corporation (MTPC) joined the confirmatory Phase 3 LOTIS-5 study of ZYNLONTA in combination with rituximab in second-line or later, transplant ineligible DLBCL patients in Japan.
•An American Society of Hematology (ASH) abstract from the University of Miami investigator-initiated trial exploring ZYNLONTA in combination with rituximab in high-risk relapsed or refractory follicular lymphoma indicated that the combination was well tolerated with a 95% overall response rate at week 12 and at week 21, an 86% metabolic complete response rate.
(1) loncastuximab tesirine-lpyl; (2) on a non-IFRS basis or 35% on an IFRS basis including stock-based compensation expense. See reconciliation of IFRS measures to non-IFRS measures in accompanying financial tables
Pipeline
•ADCT-601 (targeting AXL): Dose escalation in patients with non-small cell lung cancer (NSCLC) and sarcoma is proceeding. The maximum tolerated dose has not yet been reached, and the immunohistochemistry (IHC) assay is under final validation. Based on preclinical data, a pancreatic cancer cohort is being added with an enriched patient population.
•ADCT-901 (targeting KAAG1): Dose escalation is proceeding, and the IHC assay is under final validation.
•ADCT-602 (targeting CD22): Dose escalation and expansion in the Phase 1 trial in collaboration with MD Anderson Cancer is progressing and additional clinical trial sites are being added to accelerate enrollment.
Guidance
The Company maintains the following guidance based on its current business plan:
•Continued decrease in total operating expenses expected in full year 2023 and 2024 as compared to 2022
•Expected cash runway into the middle of 2025
Upcoming Expected Milestones
ZYNLONTA
•Complete enrollment of the Phase 3 LOTIS-5 study in 2024
•Initial safety and efficacy data from the LOTIS-7 study in 1H 2024
Pipeline
ADCT-601 (targeting AXL)
•Initial data from Phase 1 study in 1H 2024
ADCT-901 (targeting KAAG1)
•Initial data from Phase 1 study in 1H 2024
ADCT-602 (targeting CD22)
•Additional data from Phase 1 study in 1H 2024
Third Quarter 2023 Financial Results
Cash and Cash Equivalents
Cash and cash equivalents were $310.4 million as of September 30, 2023, compared to $326.4 million as of December 31, 2022. The Company continues to expect its cash runway to extend into the middle of 2025.
Product Revenues
Net product revenues were $14.3 million for the quarter ended September 30, 2023, compared to $21.3 million for the same quarter in 2022. Net product revenues are for U.S. sales of ZYNLONTA. The decrease of $7.1 million for the quarter was primarily due to lower sales volume, which was impacted by the extended period of disruption following restructuring of the commercial organization, increased competition, as well as higher gross-to-net deductions, partially offset by a slightly higher price.
License Revenues and Royalties
License revenues and royalties were $0.2 million for the quarter ended September 30, 2023, compared to $55.0 million for the same quarter in 2022. During July 2022, the Company entered into an exclusive license agreement with Sobi for the development and commercialization of ZYNLONTA for all hematologic and solid tumor indications outside of the U.S., greater China, Singapore and Japan. Under the terms of the agreement, the Company received an upfront payment of $55.0 million during the quarter ended September 30, 2022.
Research and Development (R&D) Expenses
R&D expenses were $28.4 million for the quarter ended September 30, 2023, compared to $41.7 million for the same quarter in 2022. R&D expenses decreased due to less investment in camidanlumab tesirine (Cami), as well as productivity initiatives and focused investment toward prioritized development programs. The decrease in R&D expenses related to Cami was primarily due to completion of the Phase 2 study in 2022 and the Company’s decision to pause the program while it evaluated FDA feedback, while continuing to assess a potential regulatory pathway and seeking a partner to continue developing this program. R&D expenses in the third quarter of 2023 also decreased due to lower share-based compensation expense as a result of fluctuations in the share price and award forfeitures in connection with voluntary terminations.
Selling and Marketing (S&M) Expenses
S&M expenses were $13.7 million for the quarter ended September 30, 2023, compared to $16.8 million for the same quarter in 2022. The decrease in S&M expenses for the quarter was primarily due to lower share-based compensation expense resulting from fluctuations in the share price and award forfeitures in connection with voluntary terminations as well as lower wages and benefits.
General & Administrative Expenses
G&A expenses were $9.4 million for the quarter ended September 30, 2023, compared to $19.6 million for the same quarter in 2022. G&A expenses decreased during the third quarter of 2023 primarily due to lower share-based compensation expense due to fluctuations in the share price and award forfeitures in connection with voluntary terminations, as well as lower wages and benefits.
Net Loss and Adjusted Net Loss
Net loss was $47.8 million, or a net loss of $0.58 per basic and diluted share, for the quarter ended September 30, 2023. This compares to a net loss of $50.6 million, or a net loss of $0.65 per basic and diluted share, for the same quarter in 2022. The decrease in net loss for the quarter ended September 30, 2023, as compared to the same quarter in 2022, was attributable to a non-cash loss related to the extinguishment of our convertible loans and derivatives during the third quarter of 2022 in connection with restructuring of existing loans, as well as lower operating expenses during the third quarter of 2023 which included lower non-cash charges related to share-based compensation. The decrease in net loss was partially offset by lower revenues during the third quarter of 2023.
Adjusted net loss was $33.8 million, or an adjusted net loss of $0.41 per basic and diluted share, for the quarter ended September 30, 2023. This compares to adjusted net income of $10.3 million, or adjusted net income of $0.13 per basic and diluted share, for the same quarter in 2022. The increase in adjusted net loss is primarily driven by lower revenues during the third quarter of 2023, partially offset by lower operating expenses.
Conference Call Details
ADC Therapeutics management will host a conference call and live audio webcast to discuss third quarter 2023 financial results and provide a company update today at 8:30 a.m. Eastern Time. To access the conference call, please register here. Registrants will receive the dial-in number and unique PIN. It is recommended that you join 10 minutes before the event, though you may pre-register at any time. A live webcast of the call will be available under “Events & Presentations” in the Investors section of the ADC Therapeutics website at ir.adctherapeutics.com. The archived webcast will be available for 30 days following the call.
About ZYNLONTA® (loncastuximab tesirine-lpyl)
ZYNLONTA® is a CD19-directed antibody drug conjugate (ADC). Once bound to a CD19-expressing cell, ZYNLONTA is internalized by the cell, where enzymes release a pyrrolobenzodiazepine (PBD) payload. The potent payload binds to DNA minor groove with little distortion, remaining less visible to DNA repair mechanisms. This ultimately results in cell cycle arrest and tumor cell death.
The U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA) have approved ZYNLONTA (loncastuximab tesirine-lpyl) for the treatment of adult patients with relapsed or refractory (r/r) large B-cell lymphoma after two or more lines of systemic therapy, including diffuse large B-cell lymphoma (DLBCL) not otherwise specified (NOS), DLBCL arising from low-grade lymphoma and also high-grade B-cell lymphoma. The trial included a broad spectrum of heavily pre-treated patients (median three prior lines of therapy) with difficult-to-treat disease, including patients who did not respond to first-line therapy, patients refractory to all prior lines of therapy, patients with double/triple hit genetics and patients who had stem cell transplant and CAR-T therapy prior to their treatment with ZYNLONTA. This indication is approved by the FDA under accelerated approval and in the European Union under conditional approval based on overall response rate and continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial. Please see full prescribing information including important safety information about ZYNLONTA at www.ZYNLONTA.com.
ZYNLONTA is also being evaluated as a therapeutic option in combination studies in other B-cell malignancies and earlier lines of therapy.
About ADC Therapeutics
ADC Therapeutics (NYSE: ADCT) is a commercial-stage global leader and pioneer in the field of antibody drug conjugates (ADCs). The Company is advancing its proprietary ADC technology to transform the treatment paradigm for patients with hematologic malignancies and solid tumors.
ADC Therapeutics’ CD19-directed ADC ZYNLONTA (loncastuximab tesirine-lpyl) received accelerated approval by the FDA and conditional approval from the European Commission for the treatment of relapsed or refractory diffuse large B-cell lymphoma after two or more lines of systemic therapy. ZYNLONTA is also in development in combination with other agents and in earlier lines of therapy. In addition to ZYNLONTA, ADC Therapeutics has multiple ADCs in ongoing clinical and preclinical development.
ADC Therapeutics is based in Lausanne (Biopôle), Switzerland and has operations in London, the San Francisco Bay Area and New Jersey. For more information, please visit https://adctherapeutics.com/ and follow the Company on LinkedIn.
ZYNLONTA® is a registered trademark of ADC Therapeutics SA.
Use of Non-IFRS Financial Measures
In addition to financial information prepared in accordance with IFRS, this document also contains certain non-IFRS financial measures based on management’s view of performance including:
•Adjusted total operating expenses
•Adjusted net loss
•Adjusted net loss per share
Management uses such measures internally when monitoring and evaluating our operational performance, generating future operating plans and making strategic decisions regarding the allocation of capital. We believe that these adjusted financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and facilitate operating performance comparability across both past and future reporting periods. These non-IFRS measures have limitations as financial measures and should be considered in addition to, and not in isolation or as a substitute for, the information prepared in accordance with IFRS. When preparing these supplemental non-IFRS measures, management typically excludes certain IFRS items that management does not believe are indicative of our ongoing operating performance. Furthermore, management does not consider these IFRS items to be normal, recurring cash operating expenses; however, these items may not meet the IFRS definition of unusual or non-recurring items. Since non-IFRS financial measures do not have standardized definitions and meanings, they may differ from the non-IFRS financial measures used by other companies, which reduces their usefulness as comparative financial measures. Because of these limitations, you should consider these adjusted financial measures alongside other IFRS financial measures.
The following items are excluded from adjusted net loss and adjusted net loss per share:
Shared-Based Compensation Expense: We exclude share-based compensation expense from our adjusted financial measures because share-based compensation expense, which is non-cash, fluctuates from period to period based on factors that are not within our control, such as our stock price on the dates share-based grants are issued. Share-based compensation expense has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy.
Certain Other Items: We exclude certain other significant items that we believe do not represent the performance of our business, from our adjusted financial measures. Such items are evaluated by management on an individual basis based on both quantitative and qualitative aspects of their nature. While not all-inclusive, examples of certain other significant items excluded from our adjusted financial measures would be: changes in the fair value of derivatives and warrant obligations and the effective interest expense associated with the Facility Agreement with Deerfield and the senior secured term loan facility and the effective interest expense and cumulative catch-up adjustments associated with the deferred royalty obligation under the royalty purchase agreement with HealthCare Royalty Partners.
See the attached Reconciliation of IFRS Measures to Non-IFRS Measures for explanations of the amounts excluded and included to arrive at the non-IFRS financial measures.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases you can identify
forward-looking statements by terminology such as “may”, “will”, “should”, “would”, “expect”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “seem”, “seek”, “future”, “continue”, or “appear” or the negative of these terms or similar expressions, although not all forward-looking statements contain these identifying words. Forward-looking statements are subject to certain risks and uncertainties that can cause actual results to differ materially from those described. Factors that may cause such differences include, but are not limited to: the ability of the Company to cure the deficiency and regain compliance with NYSE listing standards and for the Company’s common shares to remain listed on the NYSE; the success of the Company’s updated corporate strategy including operating efficiencies, capital deployment and portfolio prioritization; the Company’s ability to achieve the decrease in total operating expenses for 2023 and 2024, the expected cash runway into the middle of 2025, the effectiveness of the new commercial go-to-market strategy, competition from new technologies, the Company’s ability to grow ZYNLONTA® revenue in the United States; Swedish Orphan Biovitrum AB (Sobi®) ability to successfully commercialize ZYNLONTA® in the European Economic Area and market acceptance, adequate reimbursement coverage, and future revenue from the same; approval by the NMPA of the BLA for ZYNLONTA® in China submitted by Overland ADCT BioPharma and future revenue from the same, our strategic partners’, including Mitsubishi Tanabe Pharma Corporation, ability to obtain regulatory approval for ZYNLONTA® in foreign jurisdictions, and the timing and amount of future revenue and payments to us from such partnerships; the Company’s ability to market its products in compliance with applicable laws and regulations; the Company’s expectations regarding the impact of the Infrastructure Investment and Jobs Act; the timing and results of the Company’s or its partners’ research projects or clinical trials including LOTIS 5 and 7, ADCT 901, 601 and 602, the impact, if any, from discontinuation of the LOTIS-9 study, actions by the FDA or foreign regulatory authorities with respect to the Company’s products or product candidates, the timing and outcome of regulatory submissions for the Company’s products or product candidates; the ability to complete clinical trials on expected timelines, if at all and the results of the same; projected revenue and expenses; the Company’s indebtedness, including Healthcare Royalty Management and Blue Owl and Oaktree facilities, and the restrictions imposed on the Company’s activities by such indebtedness, the ability to repay such indebtedness and the significant cash required to service such indebtedness; and the Company’s ability to obtain financial and other resources for its research, development, clinical, and commercial activities. Additional information concerning these and other factors that may cause actual results to differ materially from those anticipated in the forward-looking statements is contained in the “Risk Factors” section of the Company's Annual Report on Form 20-F and in the Company's other periodic reports and filings with the Securities and Exchange Commission. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, achievements or prospects to be materially different from any future results, performance, achievements or prospects expressed in or implied by such forward-looking statements. The Company cautions investors not to place undue reliance on the forward-looking statements contained in this document. The Company undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this press release, except as required by law.
ADC Therapeutics SA
Condensed Consolidated Interim Statement of Operations (Unaudited)
(in KUSD except for per share data)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Product revenues, net | 14,267 | 21,321 | 52,417 | 55,110 | ||||||||||||||||||||||
| License revenues and royalties | 226 | 55,000 | 351 | 85,000 | ||||||||||||||||||||||
| Total revenue | 14,493 | 76,321 | 52,768 | 140,110 | ||||||||||||||||||||||
| Operating expense | ||||||||||||||||||||||||||
| Cost of product sales | (366) | (1,295) | (2,275) | (4,090) | ||||||||||||||||||||||
| Research and development expenses | (28,440) | (41,676) | (99,864) | (139,165) | ||||||||||||||||||||||
| Selling and marketing expenses | (13,730) | (16,847) | (43,537) | (52,876) | ||||||||||||||||||||||
| General and administrative expenses | (9,361) | (19,617) | (35,857) | (56,868) | ||||||||||||||||||||||
| Total operating expense | (51,897) | (79,435) | (181,533) | (252,999) | ||||||||||||||||||||||
| Loss from operations | (37,404) | (3,114) | (128,765) | (112,889) | ||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||
| Financial income | 3,140 | 273 | 7,250 | 18,597 | ||||||||||||||||||||||
| Financial expense | (12,942) | (11,356) | (38,650) | (29,374) | ||||||||||||||||||||||
| Non-operating expense | (687) | (37,122) | (1,143) | (10,805) | ||||||||||||||||||||||
| Total other expense | (10,489) | (48,205) | (32,543) | (21,582) | ||||||||||||||||||||||
| Loss before taxes | (47,893) | (51,319) | (161,308) | (134,471) | ||||||||||||||||||||||
| Income tax benefit | 86 | 711 | 6,958 | 2,828 | ||||||||||||||||||||||
| Net loss | (47,807) | (50,608) | (154,350) | (131,643) | ||||||||||||||||||||||
| Net loss attributable to: | ||||||||||||||||||||||||||
| Owners of the parent | (47,807) | (50,608) | (154,350) | (131,643) | ||||||||||||||||||||||
| Net loss per share, basic and diluted | (0.58) | (0.65) | (1.89) | (1.70) | ||||||||||||||||||||||
ADC Therapeutics SA
Condensed Consolidated Interim Balance Sheet (Unaudited)
(in KUSD)
| September 30, 2023 | December 31, 2022 | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | 310,407 | 326,441 | ||||||||||||
| Accounts receivable, net | 21,180 | 72,971 | ||||||||||||
| Inventory | 22,728 | 18,564 | ||||||||||||
| Other current assets | 21,283 | 28,039 | ||||||||||||
| Total current assets | 375,598 | 446,015 | ||||||||||||
| Non-current assets | ||||||||||||||
| Property, plant and equipment | 5,260 | 3,261 | ||||||||||||
| Right-of-use assets | 10,272 | 6,720 | ||||||||||||
| Intangible assets | 12,358 | 14,360 | ||||||||||||
| Interest in joint venture | 26,989 | 31,152 | ||||||||||||
| Deferred tax asset | 35,400 | 26,757 | ||||||||||||
| Other long-term assets | 1,023 | 903 | ||||||||||||
| Total non-current assets | 91,302 | 83,153 | ||||||||||||
| Total assets | 466,900 | 529,168 | ||||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||
| Current liabilities | ||||||||||||||
| Accounts payable | 8,977 | 12,351 | ||||||||||||
| Other current liabilities | 53,483 | 73,035 | ||||||||||||
| Lease liabilities, short-term | 1,417 | 1,097 | ||||||||||||
| Senior secured term loans, short-term | 14,329 | 12,474 | ||||||||||||
| Total current liabilities | 78,206 | 98,957 | ||||||||||||
| Non-current liabilities | ||||||||||||||
| Senior secured term loans, long-term | 97,707 | 97,240 | ||||||||||||
| Warrant obligations | 96 | 1,788 | ||||||||||||
| Deferred royalty obligation, long-term | 305,266 | 212,353 | ||||||||||||
| Deferred gain of joint venture | 23,539 | 23,539 | ||||||||||||
| Lease liabilities, long-term | 10,076 | 6,564 | ||||||||||||
| Other long-term liabilities | 6,191 | — | ||||||||||||
| Total non-current liabilities | 442,875 | 341,484 | ||||||||||||
| Total liabilities | 521,081 | 440,441 | ||||||||||||
| Equity attributable to owners of the parent | ||||||||||||||
| Share capital | 7,312 | 7,312 | ||||||||||||
| Share premium | 1,008,088 | 1,007,452 | ||||||||||||
| Treasury shares | (541) | (679) | ||||||||||||
| Other reserves | 166,334 | 155,683 | ||||||||||||
| Cumulative translation adjustments | (339) | (356) | ||||||||||||
| Accumulated losses | (1,235,035) | (1,080,685) | ||||||||||||
| Total equity attributable to owners of the parent | (54,181) | 88,727 | ||||||||||||
| Total liabilities and equity | 466,900 | 529,168 | ||||||||||||
ADC Therapeutics SA
Reconciliation of IFRS Measures to Non-IFRS Measures (Unaudited)
(in KUSD except for share and per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| in KUSD | 2023 | 2022 | Change | % Change | 2023 | 2022 | Change | % Change | |||||||||||||||||||||||||||||||||||||||
| Total operating expense | (51,897) | (79,435) | 27,538 | (35) | % | (181,533) | (252,999) | 71,466 | (28) | % | |||||||||||||||||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense (i) | 2,083 | 14,565 | (12,482) | (86) | % | 11,275 | 42,293 | (31,018) | (73) | % | |||||||||||||||||||||||||||||||||||||
| Adjusted total operating expenses | (49,814) | (64,870) | 15,056 | (23) | % | (170,258) | (210,706) | 40,448 | (19) | % | |||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| in KUSD (except for share and per share data) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Net loss | (47,807) | (50,608) | (154,350) | (131,643) | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Share-based compensation expense (i) | 2,083 | 14,565 | 11,275 | 42,293 | |||||||||||||||||||
| Convertible loans, derivatives, change in fair value expense (income) (ii) | — | 4,660 | — | (25,650) | |||||||||||||||||||
| Loss on extinguishment (iii) | — | 42,114 | — | 42,114 | |||||||||||||||||||
| Senior secured term loans, warrants, change in fair value income (ii) | (299) | (2,543) | (916) | (2,543) | |||||||||||||||||||
| Effective interest expense on convertible loans (iv) | — | 1,536 | — | 7,684 | |||||||||||||||||||
| Deerfield warrants obligation, change in fair value income (ii) | (140) | (9,418) | (776) | (9,418) | |||||||||||||||||||
| Senior secured term loan facility, warrants, transaction costs (v) | — | 245 | — | 245 | |||||||||||||||||||
| Effective interest expense on senior secured term loan facility (iv) | 4,728 | 1,933 | 13,748 | 1,933 | |||||||||||||||||||
| Deferred royalty obligation interest expense (vi) | 8,087 | 5,669 | 19,662 | 17,356 | |||||||||||||||||||
| Deferred royalty obligation cumulative catch-up adjustment (income) expense (vi) | (437) | 2,175 | 4,851 | (16,113) | |||||||||||||||||||
| Adjusted net (loss) income | (33,785) | 10,328 | (106,506) | (73,742) | |||||||||||||||||||
| Net loss per share, basic and diluted | (0.58) | (0.65) | (1.89) | (1.70) | |||||||||||||||||||
| Adjustment to net loss per share, basic and diluted | 0.17 | 0.78 | 0.58 | 0.75 | |||||||||||||||||||
| Adjusted net (loss) income per share, basic and diluted | (0.41) | 0.13 | (1.31) | (0.95) | |||||||||||||||||||
| Weighted average shares outstanding, basic and diluted | 82,256,847 | 78,372,680 | 81,516,563 | 77,374,388 | |||||||||||||||||||
(i)Share-based compensation expense represents the cost of equity awards issued to our directors, management and employees. The fair value of awards is computed at the time the award is granted, including any market and other performance conditions, and is recognized over the vesting period of the award by a charge to the income statement and a corresponding increase in other reserves within equity. These accounting entries have no cash impact.
(ii)Change in the fair value of the convertible loan derivatives, senior secured term loan facility warrants and the Deerfield warrant obligation results from the valuation at the end of each accounting period. There are several inputs to these valuations, but those most likely to result in significant changes to the valuations are changes in the value of the underlying instrument (i.e., changes in the price of our common shares) and changes in expected volatility in that price. These accounting entries have no cash impact.
(iii)As a result of the exchange agreement entered into on August 15, 2022, the Company recognized a loss on extinguishment which primarily consists of the difference between the aggregate principal amount and carrying amount of the convertible loans and exit fee as well as the unpaid interest payments through the maturity date.
(iv)Effective interest expense on convertible loans and senior secured term loans relates to the increase in the value of our loans in accordance with the amortized cost method.
(v)The transaction costs allocated to the senior secured term loan facility warrant obligation represent actual costs. We do not believe that these costs reflect the performance of our ongoing business.
(vi)Deferred royalty obligation interest expense relates to the accretion expense on our deferred royalty obligation pursuant to the royalty purchase agreement with HCR and cumulative catch-up adjustment (income) expense relates to changes in the expected payments to HCR based on a periodic assessment of our underlying revenue projections.
CONTACTS:
Investors
Eugenia Litz
Eugenia Litz
ADC Therapeutics
Eugenia.Litz@adctherapeutics.com
+44 7879 627205
+1 908-723-2350
Media
Nicole Riley
ADC Therapeutics
Nicole.Riley@adctherapeutics.com
+1 862-926-9040