ADC Therapeutics SA — FY 2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This annual filing does not provide standalone Q4 results. Financial statements are prepared under IFRS in U.S. dollars.
Business context
ADC Therapeutics is a commercial-stage biotechnology company focused on antibody-drug conjugates (ADCs). Its sole approved product is ZYNLONTA, marketed in the U.S. for relapsed or refractory large B-cell lymphoma after two or more prior systemic therapies. The FDA approval is accelerated and continued approval depends on confirmatory evidence. The European Commission granted conditional marketing authorization in December 2022. The company also has clinical- and preclinical-stage candidates, including Cami, ADCT-602, ADCT-601, ADCT-901, ADCT-212 and ADCT-701.
Financial performance and liquidity
| Metric (USD millions, except per-share data) | FY 2022 | FY 2021 | Change / note |
|---|---|---|---|
| Total revenue | 209.9 | 33.9 | Up 518.9%; includes 135.0 of license revenue |
| Net product revenue | 74.9 | 33.9 | Up 120.9%, primarily reflecting a full year of U.S. sales |
| Operating expenses | 333.5 | 295.6 | Up 12.8% |
| Operating loss | (123.6) | (261.7) | Loss narrowed 52.8% |
| Net loss | (155.8) | (230.0) | Loss narrowed 32.3% |
| Basic and diluted loss per share | (1.99) | (3.00) | |
| Cash used in operating activities | (136.8) | (233.4) | Improved with license receipts and higher product collections |
| Cash and cash equivalents at year-end | 326.4 | 466.5 | Down 140.1 |
License revenue comprised a $30 million MTPC upfront payment, a $55 million Sobi upfront payment and a $50 million Sobi European approval milestone recognized in 2022. The $50 million milestone was included in year-end accounts receivable and was received in February 2023. Product revenue is reported net of gross-to-net deductions, which increased with sales.
Research and development expense was $187.9 million, up 18.9%; selling and marketing was $69.1 million, up 6.6%; and general and administrative expense was $72.0 million, up 0.8%. Cost of product sales was $4.6 million, including $2.5 million of impairment charges related to manufacturing and inventory specification issues. Those issues were not expected to affect commercial supply. Product revenue less cost of product sales implies a 93.9% product gross contribution margin, before other commercial and operating costs; the filing does not present a consolidated gross-margin figure.
Operating margin was approximately negative 58.9% and net margin approximately negative 74.2%, calculated using total revenue. Accumulated losses were $1,080.7 million; shareholders’ equity was $88.7 million at year-end.
Debt and liquidity: The company drew $120 million under a secured term loan in August 2022; its year-end carrying value was $109.7 million. The loan matures in 2029, bears variable-rate interest (SOFR plus 7.50% for the first five years, subject to the agreement’s terms), is secured by substantially all company assets and requires at least $60 million of qualified cash, plus certain overdue payables. The HCR deferred royalty obligation was $222.3 million at year-end and is repaid through royalties on specified ZYNLONTA and Cami sales and licensing proceeds. Management stated it had resources to fund operations for at least 12 months from issuance of the statements.
Material changes versus FY 2021
- ZYNLONTA U.S. product revenue more than doubled, while the Sobi and MTPC licenses added $135 million of recognized license revenue.
- Operating and net losses narrowed, despite higher operating expenses; reported earnings also included substantial financing-related non-cash and transaction items.
- The company replaced $115 million of Deerfield convertible notes through an exchange involving cash, shares and warrants. The exchange generated a $42.1 million loss on extinguishment.
- It entered a $120 million secured term loan, reducing cash during the year as operating cash use continued.
- ZYNLONTA received conditional EU authorization; the Sobi approval milestone was recognized in 2022 and collected in 2023.
Outlook, commentary and key risks
- The filing refers to 2023 ZYNLONTA net product revenue guidance and expected operating-expense decreases in 2023 and 2024, but the provided filing text does not give clear numerical guidance values.
- Management expects near-term R&D expense to decrease in absolute terms and selling and marketing and general and administrative expenses to decline as a percentage of revenue. These expectations depend on development and commercial plans.
- LOTIS-5, the Phase 3 confirmatory study of ZYNLONTA plus rituximab, is central to maintaining the product’s accelerated approval and supporting potential use in earlier-line treatment. Trial success and continued regulatory approval are not assured.
- Management decided not to advance Cami independently and is seeking a partner. FDA feedback indicated that a randomized Phase 3 confirmatory study would need to be well underway, ideally fully enrolled, at a Cami BLA submission for accelerated approval consideration.
- Key risks include dependence on one approved product, persistent losses and potential need for additional financing; variable-rate secured debt and restrictive covenants; HCR royalties reducing future proceeds; commercial uptake, reimbursement and competition; clinical-trial outcomes and safety; and reliance on third-party manufacturers. The company reported historical ZYNLONTA manufacturing-specification issues and a past clinical hold for Cami related to Guillain-Barré syndrome; the Cami hold was lifted in 2020.
- Results include estimate-sensitive and potentially volatile items: fair-value changes in warrants and derivatives, HCR royalty-obligation remeasurement, and the Deerfield debt-extinguishment loss. The auditor identified HCR obligation accretion and product-revenue gross-to-net adjustments as critical audit matters.
Most important facts for investors to verify
- 2023 ZYNLONTA revenue guidance and the targeted operating-expense reductions, including their assumptions and progress against them.
- Current ZYNLONTA demand, gross-to-net deductions, reimbursement, commercial costs and the conversion of license milestones and receivables into cash.
- LOTIS-5 enrollment, timing and eventual results, and the regulatory implications for accelerated and conditional approvals.
- Cash runway under ongoing operating burn, debt interest and covenants, and the potential availability and terms of additional financing.
- HCR royalty payments, rate-adjustment conditions, remaining cap and sensitivity of the recorded obligation to revenue forecasts.
- Manufacturing quality and supply continuity, plus safety and efficacy updates for ZYNLONTA and the clinical pipeline.
The independent auditor issued an unqualified opinion on the IFRS financial statements and concluded internal control over financial reporting was effective as of December 31, 2022.