ADC Therapeutics SA — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 6, 2024. ADC Therapeutics is a commercial-stage oncology company focused on antibody-drug conjugates. Its marketed product is ZYNLONTA, approved in the U.S. for certain relapsed or refractory DLBCL patients and conditionally authorized in Europe.
Financial highlights
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $18.1 million | $19.0 million; down 4.9% |
| Product revenue, net | $17.8 million | $19.0 million; down 5.8% |
| Operating loss | $33.6 million | $50.2 million |
| Net loss | $46.6 million | $59.4 million |
| Net loss per share, diluted | $0.56 | $0.73 |
| Operating cash used | $44.1 million | $15.4 million |
| Cash and cash equivalents | $234.3 million at March 31 | $278.6 million at December 31, 2023 |
| Senior secured term loan | $113.2 million carrying value | $112.7 million at December 31, 2023 |
| Deferred royalty obligation | $310.0 million on balance sheet | $303.6 million at December 31, 2023 |
Operating expenses fell 25.3% to $51.7 million, primarily reflecting lower R&D, selling and marketing, and general and administrative expenses. Cost of product sales was $2.5 million, versus a $27,000 benefit in Q1 2023; Q1 2024 included inventory reserve and manufacturing batch-cancellation costs. Interest expense rose 21.4% to $12.5 million, largely due to accretion on the HCR royalty financing. A $3.1 million fair-value loss on Deerfield warrants contributed to other expense. The filing does not provide a clear gross-margin percentage.
Total liabilities were $502.4 million versus total assets of $308.0 million, leaving a shareholders’ deficit of $194.4 million. Contractual payments on the secured term loans, including exit fees, total $124.7 million. Operating cash outflow increased year over year; management attributes much of the comparison to a $50 million Sobi milestone cash receipt in Q1 2023. Investing cash outflow was $0.5 million and financing cash inflow was $0.4 million in Q1 2024.
Material changes and business developments
- Net product revenue declined on higher gross-to-net deductions, including discarded-drug rebates, and lower volume, partly offset by higher price. Management expects elevated gross-to-net deductions to continue.
- R&D expense decreased 32.9%. Spending on ZYNLONTA, Cami, and ADCT-212 was lower; Cami spending fell following the decision to stop the program, and investment in ADCT-212 was paused as the pipeline was reprioritized. ADCT-601 and preclinical research spending increased.
- Selling and marketing expense declined 25.8%, reflecting reduced marketing spend and headcount; G&A expense declined 22.4%.
- After quarter-end, the company reported LOTIS-7 dose escalation had cleared three dose levels and dose expansion had begun. Early combination-arm observations included responses and mostly low-grade CRS, but the study remains early-stage and reported adverse events included serious events.
- After quarter-end, an investigator-initiated MZL study reported responses in 14 of 15 evaluable patients (13 complete and one partial response). The company does not control such trials or independently control the quality and timing of their data.
- The company highlighted preclinical ADC programs targeting Claudin-6 and NaPi2b in IND-enabling work, with PSMA and ASCT2 at candidate-selection stage.
Liquidity, outlook and risks
Management said existing resources were sufficient to fund operations and meet capital requirements for the next 12 months from the report date, and concluded there was no substantial doubt about going concern within one year of issuance. It also said it was actively seeking a financing transaction to extend runway and exploring collaborations and other strategic options. The filing provides no numerical revenue or earnings guidance. Key risks include continuing losses and need for additional capital; debt and restrictive loan covenants; the HCR royalty arrangement, which reduces cash generated from ZYNLONTA sales and licensing; clinical, regulatory, manufacturing, reimbursement, and commercialization uncertainty; and reliance on third parties. The company reported no material litigation exposure, no off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- Cash runway assumptions and the status, terms, and dilution implications of the financing transaction management is pursuing.
- ZYNLONTA demand, gross-to-net deductions, distributor purchasing patterns, and customer concentration: McKesson, AmerisourceBergen, and Cardinal Health represented 43%, 38%, and 19% of Q1 2024 product revenue, respectively.
- Whether LOTIS-7 and investigator-initiated MZL findings are confirmed in larger, controlled datasets and support a regulatory strategy.
- The size and economics of the HCR royalty obligation and its effect on future product-sale and licensing cash flows. The balance sheet reports $310.0 million, while the note rollforward reports a March 31 liability balance of $316.2 million; the filing text does not clearly reconcile the difference.
- Loan covenants, future debt payments, and the $124.7 million of stated contractual loan payments, including exit fees.