Adicet Bio, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Adicet completed its merger with resTORbio on September 15, 2020. The transaction was accounted for as a reverse merger, with Former Adicet as accounting acquirer; pre-merger results therefore principally reflect Former Adicet, and post-merger results reflect the combined company. Comparisons are affected by the transaction and are not fully like-for-like.
Business context and financial performance
Adicet is a clinical-stage biotechnology company developing allogeneic “off-the-shelf” gamma delta T-cell therapies. It has no approved products and has generated no product-sales revenue; reported revenue is from its Regeneron collaboration.
| Metric | Three months ended September 30, 2020 | Three months ended September 30, 2019 | Nine months ended September 30, 2020 | Nine months ended September 30, 2019 |
|---|---|---|---|---|
| Revenue, related party | $3.0 million | $(7.0) million | $12.5 million | $(1.0) million |
| Research and development expense | $8.9 million | $6.3 million | $24.7 million | $17.2 million |
| General and administrative expense | $7.7 million | $1.8 million | $17.7 million | $6.1 million |
| Net loss | $(14.8) million | $(14.8) million | $(27.7) million | $(21.6) million |
| Net loss per share, basic and diluted | $(2.84) | $(6.87) | $(8.69) | $(10.10) |
The 2019 negative revenue reflects a cumulative revenue reversal, including a $6.6 million reversal after a Regeneron agreement amendment and revised cost estimates. 2020 revenue included a $5.0 million cumulative catch-up following a $10.0 million Regeneron milestone in June. Revenue figures are therefore sensitive to collaboration accounting and should not be read as product demand or sales growth. No meaningful product gross margin is reported.
Balance sheet at September 30, 2020: Cash and cash equivalents were $85.0 million and short-term marketable debt securities were $23.2 million, or $108.1 million combined. Restricted cash was an additional $4.5 million. Current assets were $117.4 million and current liabilities were $30.1 million. Total liabilities were $33.5 million; accumulated deficit was $97.4 million and stockholders’ equity was $116.9 million. The company had no borrowings under its term-loan facility.
Cash flow, nine months: Operating activities used $28.2 million, compared with $20.6 million in 2019. Investing activities provided $102.8 million, principally reflecting $64.1 million of cash and restricted cash acquired in the merger and $45.0 million of marketable-security maturities. Financing activities provided $0.04 million, versus $77.1 million in 2019, when preferred-stock financing was raised. Ending cash, cash equivalents and restricted cash were $89.5 million.
Material changes and unusual items
- R&D expense rose 41% in Q3 and 44% for the nine-month period, mainly from increased personnel and CRO/CMO costs as development and manufacturing work advanced.
- G&A expense rose 319% in Q3 and 191% for the nine months, driven by merger-related professional fees, public-company costs, personnel, stock compensation and former CEO transition compensation. Merger transaction costs were $2.1 million in Q3 and $7.1 million for the nine months.
- The merger converted outstanding redeemable convertible preferred stock into common stock. The acquisition added $20.7 million of goodwill, $3.5 million of in-process R&D and a $2.9 million contingent-consideration liability associated with resTORbio CVRs.
- The company recognized a $2.7 million income-tax benefit for the nine months from a CARES Act net-operating-loss carryback and related refund claim.
- Operating leases carried $33.0 million of future minimum payments; $4.5 million of restricted cash primarily collateralized lease letters of credit.
Outlook, risks and contingencies
- Management expects cash, cash equivalents and marketable securities to fund forecasted operating expenses, capital expenditures and debt service for at least 12 months from issuance of the financial statements. The company expects continued, and potentially increasing, operating losses and negative cash flows, and anticipates needing additional capital.
- The $12.0 million Pacific Western Bank facility was undrawn at quarter-end. It bears interest at the greater of 0.25% above prime or 5.00%, is secured by substantially all assets other than intellectual property, and includes financial and other covenants.
- After quarter-end, on October 22, 2020, FDA cleared the IND for ADI-001 for non-Hodgkin’s lymphoma. Management expected a first-in-human Phase 1 study to start in Q1 2021, with interim data expected in 2021; the planned study may enroll up to 80 patients. Management intended to file an IND for ADI-002 in late 2021. These are forward-looking plans, not results or guarantees.
- Key risks include clinical and regulatory uncertainty for novel cell therapies, manufacturing and third-party supplier dependence, patient enrollment and COVID-19 disruption, competition, and the need for further financing. Management reported material weaknesses in internal control over financial reporting and described remediation efforts, including adding accounting expertise and formalizing controls.
- The Regeneron collaboration is a significant source of historical revenue and carries development, payment and exclusivity terms. Adicet reported that restrictions on advancing certain gamma delta immune-cell therapies outside the collaboration applied through July 29, 2021.
- Former resTORbio stockholders received CVRs tied to potential net proceeds from third-party commercialization of RTB101 for a COVID-19-related indication; eligible clinical-trial expenses under the CVR agreement are capped at $3.0 million. Five of seven merger-related lawsuits had been dismissed as of September 30, 2020; the company accrued $0.2 million for resolution of claims.
Important facts for investors to verify
- Whether ADI-001’s planned trial start, enrollment and data milestones were achieved, and whether any subsequent safety or efficacy findings change development plans.
- Cash burn and remaining runway against management’s forecast, including expected trial, manufacturing and public-company costs and the timing or terms of any additional financing.
- Progress and economics under the Regeneron agreement, including milestone payments, revenue recognition, options, royalties and the effect of its exclusivity provisions.
- Remediation of the disclosed material weaknesses and whether controls were subsequently assessed as effective.
- Developments in the RTB101 CVR, merger-related claims and the final purchase-price allocation, which was preliminary and subject to adjustment.