ADC Therapeutics SA — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; this annual filing reports full-year results, not standalone Q4 results. Financial statements are in U.S. dollars and prepared under IFRS. ADC Therapeutics is a Swiss clinical-stage oncology biotechnology company developing antibody-drug conjugates (ADCs); it had no approved products or product-sale revenue in 2020.
Financial performance and liquidity
| Metric (USD millions, except per-share data) | 2020 | 2019 |
|---|---|---|
| Product revenue | None | None |
| Contract revenue | 0.0 | 2.3 |
| Research and development expense | 142.0 | 107.5 |
| Selling and marketing expense | 22.1 | 0.0 |
| General and administrative expense | 55.1 | 14.2 |
| Operating loss | (219.3) | (119.4) |
| Net loss | (246.3) | (116.5) |
| Basic and diluted loss per share | (3.77) | (2.36) |
| Cash and cash equivalents at year-end | 439.2 | 115.6 |
| Net cash used in operating activities | 168.7 | 121.6 |
Margins are not meaningful given the absence of product sales. Management said available financial resources were sufficient to fund projected operating requirements for at least 12 months from issuance of the statements. Current assets were $450.5 million and current liabilities were $40.4 million at year-end.
Operating cash use increased as R&D, public-company and launch-preparation spending grew. Financing activities provided $495.0 million, principally from the May IPO (net proceeds $244.2 million), September follow-on offering (net proceeds $188.9 million) and initial $65.0 million convertible-loan draw (net proceeds $61.3 million). Cash increased $323.4 million during the year.
The Deerfield Facility Agreement provides $115 million of senior secured convertible financing in two tranches. The first $65 million was drawn; the further $50 million is tied to Loncastuximab tesirine (Lonca) regulatory approval and other conditions, and the commitment expires if conditions are not met by December 31, 2021. The drawn loan’s principal is due in May 2025; it bears 5.95% stated interest, with an approximately 23% implied effective rate under IFRS. Year-end balance-sheet amounts included $38.4 million of loan liabilities and $73.2 million of derivative liabilities. The facility requires at least $50 million in cash and imposes significant operating and financing restrictions.
Material changes and unusual items
- Net loss more than doubled year over year, from $116.5 million to $246.3 million, while operating loss rose $99.9 million. R&D spending increased 32% as Lonca and camidanlumab tesirine (Cami) programs advanced; new selling and marketing spending reflected planned commercialization.
- G&A rose sharply, including substantial share-based compensation. Total share-based compensation expense was $42.9 million, compared with $1.1 million in 2019.
- Non-cash fair-value losses on the first-tranche and second-tranche convertible-loan derivatives totaled $45.4 million; transaction costs related to the first-tranche derivative added $1.6 million of expense.
- The Overland ADCT BioPharma joint venture contributed $24.4 million to reported share of results, including a $24.5 million gain on contributed intellectual property, partly offset by the Company’s share of the joint venture’s initial loss. The $23.5 million deferred gain is not yet recognized in earnings.
- Contract revenue fell to zero after the remaining MEDI3726 collaboration upfront payment was recognized in 2019. The Company continued to report no product revenue.
Business, outlook and principal risks
Lonca is the lead candidate for relapsed or refractory diffuse large B-cell lymphoma (DLBCL). The FDA accepted its BLA and granted priority review in November 2020, with a PDUFA target date of May 21, 2021. The Company intended to launch in the United States in 2021 if approved. A confirmatory Phase 3 trial of Lonca plus rituximab is underway. A 145-patient Phase 2 trial reported a 48.3% overall response rate and 24.8% complete response rate; these are clinical results, not commercial outcomes.
Cami is being studied for relapsed or refractory Hodgkin lymphoma (HL). The pivotal Phase 2 trial enrolled 117 patients; interim data as of August 24, 2020 showed an 83.0% overall response rate and 38.3% complete response rate in 47 evaluable patients. The Company expected further results in the first half of 2021. Cami’s development carries a notable safety risk: three patients in the trial had reported Guillain–Barré syndrome or radiculopathy. The FDA’s partial clinical hold, imposed in April 2020, was lifted in July 2020. Further holds or safety findings remain possible.
Other priorities included advancing Lonca in additional indications and combinations, developing ADCT-602 and ADCT-601, and progressing preclinical programs. In December 2020, the Company formed a 49%-owned joint venture with Overland for development and commercialization of four candidates in Greater China and Singapore; Overland invested $50 million in the venture. The Company also reported more than $350 million of potential future collaboration milestone payments, conditional on development and commercial achievements and not recorded as balance-sheet liabilities.
- Commercial and regulatory uncertainty: BLA acceptance and priority review do not assure approval. Additional trials, labeling limits or post-approval confirmatory studies could delay or constrain commercialization.
- Clinical and technical risk: The PBD-based ADC approach is unproven in approved products. Serious adverse events, trial delays, patient recruitment challenges and reliance on third-party manufacturers and CROs could impair programs.
- Funding and dilution: The Company expects ongoing losses and may seek further financing. Debt covenants, secured intellectual property, derivative valuation volatility, conversion dilution and repayment obligations could limit flexibility.
- COVID-19: The Company reported no material impact on the main Lonca trial or overall clinical enrollment, but did note start-up delays at some sites and temporary UK laboratory capacity constraints. Future effects remained uncertain.
- Financial reporting controls: Prior share-based compensation errors led to restatements and material weaknesses. Management reported remediation by year-end 2020; no auditor attestation on internal controls was included under applicable transition exemptions.
Investor verification points
- Verify the FDA decision and any post-approval requirements for Lonca, and the status and design of its confirmatory trial.
- Review updated Cami efficacy and safety data, especially autoimmune neurotoxicity incidence and any regulatory restrictions.
- Assess cash burn against the stated runway, the $50 million minimum cash covenant, the second-tranche conditions and the convertible notes’ conversion and repayment terms.
- Separate recurring operating costs and cash flows from non-cash derivative remeasurements, share-based compensation and the Overland contribution gain.
- Track commercialization readiness, manufacturing supply, payer access and actual launch economics; the filing provides no product revenue or profitability evidence.
- Review subsequent disclosures on internal-control remediation and any new material weaknesses or restatements.