ADICET BIO, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled "Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , as supplemented by our subsequent filings with theSEC .
Overview
We are a biotechnology company discovering and developing allogeneic gamma delta T cell therapies for cancer and other diseases. We are advancing a pipeline of "off-the-shelf" gamma delta T cells, engineered with CARs and T cell receptor-like antibodies to enhance selective tumor targeting, facilitate innate and adaptive anti-tumor immune response, and improve persistence for durable activity in patients. Gamma delta cells are unique in that they may have an inherent capacity to persist following treatment, and can recognize and kill circulating tumor cells and to infiltrate and kill solid tumors. We believe that by applying our proprietary engineering and manufacturing approach to gamma delta T cells we will potentially have significant advantages over alpha beta T cell-based therapies, which are the basis of standard CAR-T cell therapies and also natural killer (NK) cell-based therapies, which are currently in development. Our proprietary engineering and manufacturing process begins with isolating and expanding gamma delta T cells from the blood of healthy donors, and results in the potential to treat up to 1,000 patients per batch depending on dosing and the CAR target with an "off-the-shelf" product that is available on demand. The potential to administer product candidates based on gamma delta T cells to patients without inducing a graft versus host immune response could mean that our products can potentially be used as "off-the-shelf" therapies. This is in contrast to products based on alpha beta T cells, which either must be manufactured for each patient from his or her own T cells, or require significant gene editing to manufacture if the T cells are derived from donors that are unrelated to the patient. Based on what we believe is the unique potential of these cells and associated modifications, we are initially developing product candidates in oncology, both for hematological malignancies and for solid tumors. InOctober 2020 , the FDA cleared our Investigational New Drug (IND) application for ADI-001, our lead product candidate, for the treatment of Non-Hodgkin's Lymphoma (NHL). InMarch 2021 , we initiated the first-in-human clinical trial to assess safety and efficacy of ADI-001 in NHL patients. The Phase 1 study for ADI-001 will enroll up to 80 late-stage non-Hodgkin's lymphoma patients at a number of cancer centers across theU.S. The study includes a dose escalation portion followed by dose expansion cohorts to explore the activity of ADI-001 in multiple subtypes of NHL. As ofNovember 10, 2021 , we have completed dosing for dose level 1 and enrollment is ongoing for dose level 2 of the Phase 1 study. We expect to announce interim clinical data from the initial dose escalation portion of this study by the end of 2021. We intend to file an IND with the FDA in the second quarter of 2022 for ADI-002, our first solid tumor product candidate, and subject to theFDA's regulatory process for review of INDs, initiate Phase 1 clinical trials of ADI-002 in the second half of 2022. Recent Developments Reverse Merger OnApril 28, 2020 ,Adicet Bio, Inc. (Former Adicet) entered into an agreement and plan of Merger with resTORbio, Inc., aDelaware corporation (resTORbio), andProject Oasis Merger Sub, Inc. , aDelaware corporation and a direct, wholly owned subsidiary of resTORbio (Merger Sub), pursuant to which, subject to the satisfaction or waiver of the conditions therein, Merger Sub agreed to merge with and into Former Adicet, with Former Adicet surviving as a wholly owned subsidiary of resTORbio and changing the name toAdicet Therapeutics, Inc. , (such transactions, the Merger). The Merger was subject to certain conditions, including the approval of resTORbio stockholders. OnSeptember 15, 2020 , we completed the Merger. In connection with the completion of the Merger, resTORbio was renamedAdicet Bio, Inc. (Adicet Bio ). Immediately prior to the Effective Time of the Merger, resTORbio effected a reverse stock split of its common stock at a ratio of 1-for-7 or the Reverse Stock Split). At the Effective Time of the Merger, each outstanding share of Former Adicet's capital stock was converted into the right to receive 0.1240 (the Exchange Ratio) shares of resTORbio common stock. 29 -------------------------------------------------------------------------------- The business combination has been accounted for as a reverse Merger in accordance with the Generally Accepted Accounting Principles inthe United States of America (U.S. GAAP or GAAP). Under this method of accounting, Former Adicet is deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Merger: (i) Former Adicet's securityholders own approximately 75% of the voting rights of the combined company (on a fully-diluted basis excluding equity incentives available for grant); (ii) Former Adicet designated a majority (five of seven) of the initial members of the Board of Directors of the combined company; and (iii) the terms of the exchange of equity interests based on the exchange ratio at the announcement of the Merger factored in an implied premium to resTORbio's stockholders. The composition of senior management of the combined company was determined to be a neutral factor in the accounting acquirer determination, as the combined company will leverage the expertise of the senior management of both companies. Accordingly, for accounting purposes, the business combination has been treated as the equivalent of Former Adicet issuing stock to acquire the net assets of resTORbio. As a result, as of the closing date of the Merger, the net assets of resTORbio have been recorded at their acquisition-date fair values in the financial statements of the combined entity and the reported operating results prior to the business combination are those of Former Adicet. Subsequent to the closing of the Merger, the reported operating results will reflect those of the combined organization. In addition, transaction costs incurred by Former Adicet in connection with the business combination have been expensed as incurred. Our common stock remained listed on theNasdaq Stock Market , with trading having commenced on a post-Merger and post-Reverse Stock Split basis and under the new name as ofSeptember 16, 2020 . The trading symbol also changed on that date from "TORC" to "ACET."
Public Offering and Concurrent Private Placement
InFebruary 2021 , the Company completed an underwritten public offering of 10,575,513 shares of the Company's common stock at a public offering price of$13.00 per share. The net proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses were approximately$128.7 million . In connection with the offering, the Company also entered into a stock purchase agreement with certain existing investors for 1,153,840 shares of our common stock for$15.0 million at a price per share equal to the public offering price, with an initial closing for certain investors held simultaneously with the closing of the offering and a subsequent closing for certain additional investors. The Company received the full proceeds from the sale and did not pay any underwriting discounts or commissions with respect to the shares of common stock that sold in the concurrent private placement. The shares sold in the private placement were not registered under the Securities Act.
Loan Agreement
OnApril 28, 2020 , we entered into a Loan and Security Agreement withPacific Western Bank for a term loan not exceeding$12.0 million (the Loan Agreement) to finance leasehold improvements for our facilities inRedwood City, CA and other purposes permitted under the Loan Agreement, with an interest rate equal to the greater of 0.25% above the Prime Rate (as defined in the Loan Agreement) or 5.00%. In connection with the entrance into the Loan Agreement, we issuedPacific Western Bank a warrant to purchase shares of our Series B redeemable convertible preferred stock (described below) at an exercise price of$1.4034 per share. Such warrant was initially exercisable for 42,753 shares of our Series B redeemable convertible preferred stock. Upon the closing of the Merger, it was exchanged for a warrant (the New PacWest Warrant) to purchase 5,301 shares of common stock at an exercise price of$11.32 per share and shall be exercisable for an additional number of shares of common stock equal to 1.00% of the aggregate original principal amount of all term loans made pursuant to the Loan Agreement (up to an aggregate maximum of 15,903 shares of common stock). The New PacWest Warrant was fully exercised inFebruary 2021 and the net issuance was 1,806 shares of common stock. Further, the Loan Agreement contains a variety of affirmative and negative covenants, including required financial reporting, limitations on certain dispositions of assets, limitations on the incurrence of additional debt and other requirements. As of the date of this Quarterly Report on Form 10-Q, we were in compliance with such covenants and had no indebtedness outstanding under the Loan Agreement. OnOctober 21, 2021 , we entered into a Fourth Amendment of the Loan Agreement (the Loan Amendment) under whichPacific Western Bank will provide one or more term loans (the Term Loans), as well as certain non-formula ancillary services (the Non-Formula Ancillary Services), which shall not exceed$5.5 million in the aggregate. The aggregate sum of the outstanding Term Loans and Non-Formula Ancillary Services shall at no time exceed$15.0 million , with each term loan to be in an amount of not less than$1.0 million . Pursuant to the Loan Amendment, the interest rate for the Terms Loans shall be set at an annual rate equal to the greater of (i) 0.25% above the Prime Rate then in effect and (ii) 4.25%. 30
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At-the-Market (ATM) Offering
OnMarch 12, 2021 , we entered into a Sales Agreement (the 2021 Sales Agreement) with JonesTrading Institutional Services (the Agent), pursuant to which we could sell, from time to time, at our option, up to an aggregate of$75.0 million of shares of our common stock, through the Agent, as our sales agent. No shares were sold under the 2021 Sales Agreement as ofSeptember 30, 2021 .
Impact of COVID-19 Pandemic
InDecember 2019 , a novel strain of coronavirus, COVID-19, was reported inChina . Since then, COVID-19 has spread globally. The spread of COVID-19 fromChina to other countries has resulted in theWorld Health Organization (WHO ) declaring the outbreak of COVID-19 as a "pandemic," or a worldwide spread of a new disease, onMarch 11, 2020 . The ongoing COVID-19 pandemic continues to evolve and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions, vaccination mandates, and other public health safety measures. Thus far we have not experienced a significant disruption or delay in our operations as it relates to the clinical development of our drug candidates. However, we anticipate that the impact of the COVID-19 pandemic may create difficulties in our clinical trials for a variety of reasons, including future regulations regarding, or the inability or unwillingness of patients to, travel to participate in clinical trials, or to participate in clinical trials that are administered in medical facilities that also treat COVID-19, potential delays in theFDA's review and approval processes and/or shortages of medical supplies that may force medical professionals to focus on non-clinical procedures, including treatment of COVID-19. The duration and ultimate impact of the ongoing COVID-19 pandemic on clinical trials generally, and on our trials particularly, is currently unknown. In addition, the spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. Further, a recession or market correction resulting from the spread of COVID-19 could materially affect our business. Possible effects may also include absenteeism in our labor workforce, unavailability of products and supplies used in operations, and a decline in value of assets held by us, including property and equipment, and marketable debt securities. Although our financial results to date have not been significantly impacted by COVID-19, we cannot at this time predict the specific extent, duration, or full impact that the ongoing COVID-19 pandemic will have on our financial condition, operations, and business plans.
Financial Operations Overview
Revenue
We have no products approved for commercial sale and do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for our product candidates, which we expect will not be for at least several years, if ever. Our revenues to date are generated from our License and Collaboration Agreement with Regeneron Pharmaceuticals, Inc. (Regeneron) and the agreement referred to as the Regeneron Agreement. The primary purpose of the Regeneron Agreement is to establish a strategic relationship to identify and validate appropriate targets and work together to develop a pipeline of engineered immune cell products (Collaboration ICPs) for the selected targets. The Regeneron Agreement provides for the following: (i) licenses to our technology, (ii) research and development services, (iii) services or obligations in connection with participation in the research committee, (iv) information sharing, and (v) manufacturing services to manufacture of Collaboration ICPs for the research programs. The Regeneron Agreement provides Regeneron an option to obtain an exclusive, royalty-bearing development and commercial license under our intellectual property to develop and commercialize the optioned Collaboration ICPs ready for an IND submission. We received a non-refundable upfront payment of$25.0 million from Regeneron upon execution of the Regeneron Agreement onJuly 29, 2016 and an aggregate of$20.0 million of additional payments for research funding from Regeneron as ofSeptember 30, 2021 . In addition, Regeneron may have to pay us additional amounts in the future consisting of up to an aggregate of$100.0 million of option exercise fees, in each case as specified in the Regeneron Agreement. Regeneron must also pay us high single digit royalties as a percentage of net sales for ICPs to targets for which it has exclusive rights and low single digit royalties as a percentage of net sales on any non-ICP product comprising a target generated by us through the use of Regeneron's proprietary mice. We must pay Regeneron mid-single to low double-digit royalties as a percentage of net sales of ICPs to targets for which we have exercised exclusive rights, and low to mid-single digit royalties as a percentage of 31 -------------------------------------------------------------------------------- net sales of targeting moieties generated from our license to use Regeneron's proprietary mice. Royalties are payable until the longer of the expiration or invalidity of the licensed patent rights or 12 years from first commercial sale. We use a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize under the Regeneron Agreement. In applying the cost-based input method of revenue recognition, we use actual costs incurred relative to budgeted costs to fulfill the combined performance obligation. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as we complete our performance obligations over the research term of five years. A cost-based input method of revenue recognition requires us to estimate costs to complete our performance obligations, which requires significant judgment to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete our performance obligations is recorded in the period in which changes are identified and amounts can be reasonably estimated.
Operating Expenses
Research and Development
Research and development expenses, which consist primarily of costs incurred in connection with the development of our product candidates, are expensed as incurred. Research and development expenses consist primarily of:
? employee related costs, including salaries, benefits and stock-based compensation expenses for research and development employees; ? costs of clinical trials; ? costs incurred under agreements with consultants, contract manufacturing organizations (CMOs) and contract research organizations (CROs); ? lab materials, supplies, and maintenance of equipment used for research and development activities; and ? allocated facility-related costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and amortization, information technology costs and general support services. We do not allocate our costs by product candidate, as a significant amount of research and development expenses are not tracked by product candidate, and we believe the allocation of such costs would be arbitrary and would not provide a meaningful assessment as we have used our employee and infrastructure resources across multiple product candidate research and development programs. We are focusing substantially all of our resources on the development of our product candidates. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our product candidates. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including: ? the scope, rate of progress and expense of clinical trials and other research and development activities; ? clinical trial results; ? uncertainties in clinical trial enrollment rate or design; ? significant and changing government regulation; ? the timing and receipt of any regulatory approvals; ? theFDA's or other regulatory authority's influence on clinical trial design; ? establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers; 32
-------------------------------------------------------------------------------- ? commercializing product candidates, if and when approved, whether alone or in collaboration with others; ? obtaining and maintaining patent and trade secret protection and regulatory exclusivity for product candidates; ? continued applicable safety profiles of the products following approval; and ? retention of key research and development personnel. A change in the outcome of any of these variables with respect to the development of a product candidate could significantly change the costs, timing and viability associated with the development of that product candidate. For example, if the FDA, or another regulatory authority, were to require us to conduct clinical trials beyond those that it currently anticipates will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our product candidates will receive regulatory approval with any certainty. We are focusing substantially all of our resources on the development of our product candidates. We expect our research and development expenses to increase substantially during the next few years, as we seek to initiate clinical trials for our product candidates, complete our clinical program, pursue regulatory approval of our product candidates and prepare for a possible commercial launch. Predicting the timing or the cost to complete our clinical program or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factorsxvb bv outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.
General and Administrative
General and administrative expenses consist principally of payroll and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for legal, consulting, accounting and tax services, allocated overhead expenses, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses. We anticipate that our general and administrative expenses will increase for the foreseeable future due to expenses related to operating as a public company, including expenses related to personnel costs, expanded infrastructure and higher consulting, legal and accounting services costs associated with complying with the applicable Nasdaq andSEC requirements, investor relations costs and director and officer insurance premiums.
Interest Income
Interest income consists primarily of interest income earned on our cash and cash equivalents and marketable debt securities.
Interest Expense
Interest expense consists primarily of the non-cash amortization of costs
incurred in connection with the term loan agreement entered into in
Other Income (Expense), Net
Other income (expense), net primarily consists of changes in the fair value of our redeemable convertible preferred stock tranche liability and redeemable convertible preferred stock warrant liability prior to their conversion to warrants to purchase common stock upon closing of the Merger.
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Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the periods indicated (in thousands, except percentages):
Three Months Ended
September 30,
2021 2020 Change % Change
Revenue - related party $ 3,429 $ 3,028 $ 401 13 %
Operating expenses
Research and development 11,926 8,942 2,984 33 %
General and administrative 5,213 7,741 (2,528 ) -33 %
Total operating expenses 17,139 16,683 456 3 %
Loss from operations (13,710 ) (13,655 ) (55 ) 0 %
Interest income 4 153 (149 ) -97 %
Interest expense (50 ) (50 ) - 0 %
Other income (expense), net (246 ) (1,224 ) 978 80 %
Loss before income tax benefit (14,002 ) (14,776 ) 774 -5 %
Income tax provision (benefit) 11 3 8 267 %
Net loss $ (14,013 ) $ (14,779 ) $ 766 -5 %
Revenue
Revenue increased by $0.4 million , or 13%, for the three months ended September
30, 2021 compared to the same period in 2020 resulting from the increase in
revenue recognized under the Regeneron Agreement. The increase was primarily due
to our increased activities under the Regeneron Agreement related to ADI-002.
Research and development
Three Months Ended September 30,
2021 2020
Payroll and personnel expenses(1) $ 4,559 $ 4,698
Costs incurred under agreements with consultants,
CMOs, and CROs 3,904 2,119
Lab materials, supplies, and maintenance of
equipment
used for research and development activities 1,203 1,312
Other research and development expenses(2) 2,260 813
Total research and development expenses $ 11,926 $ 8,942
(1) Employee related costs, including salaries, benefits, bonuses, and stock-based compensation expenses for research and development employees.
(2) Allocated facility-related costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and amortization, information technology costs and general support services.
Research and development expenses increased by$3.0 million , or 33%, during the three months endedSeptember 30, 2021 compared to the same period in 2020. The increase in research and development expenses was primarily due to a$1.4 million increase in facility and other expenses, a$1.3 million increase in CRO, consulting and other externally sponsored research expenses, and a$0.4 million increase in CMO expenses. These increases were partially offset by decreases in lab materials and supplies of$0.1 million and in personnel expenses of$0.1 million , which include salaries, benefits, and bonuses. Due to the competitive job market, we have experienced a slower than expected net growth in headcount of employees involved in research and development activities, which resulted a decrease in stock-based compensation expense of$0.2 million .
General and administrative
General and administrative expenses decreased by$2.5 million , or 33%, during the three months endedSeptember 30, 2021 as compared to the same period in 2020. The decrease in general and administrative expenses was primarily due to a decrease in professional fees of$1.7 million , which includes a$1.5 million decrease in legal fees and a$0.4 million decrease in audit fees, related to the Merger in 2020, offset by a$0.2 million increase in other professional fees including investor 34
-------------------------------------------------------------------------------- relations, IT management, and other enterprise solutions. In addition, there was a decrease of$0.8 million in payroll and personnel expenses, consisting of a decrease of stock-based compensation expense of$0.3 million and consultant fees of$0.7 million , offset by an increase in salary, bonus, and benefits of$0.2 million . Interest income Interest income decreased by$0.1 million , or 97%, during the three months endedSeptember 30, 2021 as compared to the same period in 2020, which was primarily to a decrease in marketable debt securities in 2021 and decrease in interest rates, which lowered return on investments.
Interest Expense
Interest expense was the same during the three months endedSeptember 30, 2021 as compared to the same period in 2020 due to the straight-line non-cash amortization of costs incurred in connection with the Loan Agreement entered into inApril 2020 . Other income (expense), net Other income (expense), net decreased by$1.0 million , during the three months endedSeptember 30, 2021 as compared to the same period in 2020. The decrease was primarily due to realized gain recognized in 2020 related to a change in fair value of the redeemable convertible preferred stock warrant liability prior to their conversion to warrants to purchase common stock upon closing of the Merger inSeptember 2020 . For the quarter endedSeptember 30, 2021 , we recorded$0.2 million in loss from disposals of fixed assets in theBoston office as a result of the sublease of the office space inAugust 2021 . We also recorded$55,000 in franchise taxes and incurred realized losses related to foreign exchange of approximately$6,000 .
Income tax expense
We recognized an income tax benefit of$11,000 during the three months endedSeptember 30, 2021 in comparison to$0 during the three months endedSeptember 30, 2020 . The change was due to the tax effect of the reduction in the deferred tax liability associated with the basis differences from IPR&D.
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the periods indicated (in thousands, except percentages):
Nine Months Ended September
30,
2021 2020 Change % Change
Revenue - related party $ 4,262 $ 12,493 $ (8,231 ) -66 %
Operating expenses:
Research and development 34,285 24,651 9,634 39 %
General and administrative 15,868 17,684 (1,816 ) -10 %
Total operating expenses 50,153 42,335 7,818 18 %
Loss from operations (45,891 ) (29,842 ) 16,049 54 %
Interest income 54 704 (650 ) -92 %
Interest expense (151 ) (84 ) 67 80 %
Other income (expense), net (312 ) (1,174 ) 862 -73 %Loss before income tax provision (benefit) (46,300 ) (30,396 )
(15,904 ) 52 %
Income tax provision (benefit) (114 ) (2,676 ) 2,562 -96 %
Net loss $ (46,186 ) $ (27,720 ) $ (18,466 ) 67 %
Revenue
Revenue decreased by $8.2 million , or 66%, for the nine months ended September
30, 2021 compared to the same period in 2020 resulting from the decrease in
revenue recognized under the Regeneron Agreement. This decrease in revenue was
primarily due to our achievement of a milestone under the Regeneron Agreement in
June 2020 relating to the selection of a clinical candidate for ADI-002. This
resulted in an increase in the transaction price of $10.0 million and
recognition of an
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additional cumulative catch-up of revenue of
Research and development
Nine Months Ended September 30,
2021 2020
Payroll and personnel expenses(1) $ 15,315 $ 11,295
Costs incurred under agreements with consultants,
CMOs, and CROs 9,563 7,595
Lab materials, supplies, and maintenance of
equipment
used for research and development activities 3,415 3,374
Other research and development expenses(2) 5,992 2,387
Total research and development expenses $ 34,285 $ 24,651 (1) Employee related costs, including salaries, benefits, bonuses, and stock-based compensation expenses for research and development employees.
(2) Allocated facility-related costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and amortization, information technology costs and general support services.
Research and development expenses increased by$9.6 million , or 39%, during the nine months endedSeptember 30, 2021 compared to the same period in 2020. The increase in research and development expenses was primarily due to an increase of$4.0 million in payroll and personnel expenses, which includes salaries, benefits, and bonuses due to increases in headcount of employees involved in research and development activities, as well as an increase in stock-based compensation expense of$2.1 million due to higher option grant activity. In addition, there was an increase of$3.3 million in fees incurred for CRO, consultants, and other externally sponsored research and$3.6 million increase in facility and other expenses. This increase was primarily due to ramping up of clinical development activities related to ADI-001, our first product candidate. These increases were offset by decreases in CMO expenses of$1.3 million related to ramping up of manufacturing activities in early 2020.
General and administrative
General and administrative expenses decreased by$1.8 million , or 10%, during the nine months endedSeptember 30, 2021 as compared to the same period in 2020. The decrease in general and administrative expenses was primarily due to a decrease of$5.9 million in professional fees which includes decreases of$4.6 million in legal fees and$1.7 million in audit fees, due to higher expenses related to the Merger in 2020. These decreases in professional fees were offset by an increase of$0.4 million in other professional fees consisting of investor relations, IT management, and other enterprise solutions. In addition, the decreases in general and administrative expenses were offset by a$1.2 million increase in payroll and personnel expenses, which includes salaries, benefits, bonuses, and temporary contractor fees due to higher stock-based compensation expenses of$2.5 million caused by increased option grant activity and higher salaries and benefits of$0.6 million reduced by lower temporary contractor fees of$1.9 million . Further, there was an increase of$2.9 million in facilities and other expenses, of which$1.7 million relates to rent, depreciation and equipment maintenance, and$1.2 million relates to our director and officer liability insurance.
Interest income
Interest income decreased by$0.7 million , or 92%, during the nine months endedSeptember 30, 2021 as compared to the same period in 2020, which was primarily attributable to a decrease in marketable debt securities in 2021 and decrease in interest rates, which lowered return on investments.
Interest Expense
Interest expense increased by$67,000 , during the nine months endedSeptember 30, 2021 as compared to the same period in 2020 due to the non-cash amortization of costs incurred in connection with the Loan Agreement entered into inApril 2020 . 36
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Other income (expense), net
Other income (expense), net decreased by$0.9 million , or 74%, during the nine months endedSeptember 30, 2021 as compared to the same period in 2020. The decrease was primarily due to realized gain recognized in 2020 related to a change in fair value of the redeemable convertible preferred stock warrant liability prior to their conversion to warrants to purchase common stock upon closing of the Merger inSeptember 2020 . During the nine months endedSeptember 30, 2021 , we recorded$0.2 million related to disposal of fixed assets related to the sublease of theBoston lease inAugust 2021 ,$99,000 of franchise taxes, and approximately$28,000 of realized loss due to foreign exchange.
Income tax expense
We recognized an income tax benefit of$0.1 million during the nine months endedSeptember 30, 2021 in comparison to$2.7 million during the nine months endedSeptember 30, 2020 . The reduction in benefit relates to the nature of discrete tax benefit during the nine months endedSeptember 30, 2021 , as a result of the recognition of a net operating loss carryback under the CARES Act. Income tax benefit of$0.1 million for the nine months endedSeptember 30, 2021 was due to the tax effect of the reduction in the deferred tax liability associated with the basis differences from IPR&D.
Liquidity and Capital Resources
Sources of Liquidity
Since our formation in 2014, we have funded our operations with an aggregate of$116.3 million in gross cash proceeds from the sale of redeemable convertible preferred stock and an aggregate of$45.0 million received to date from Regeneron under the Regeneron Agreement. InSeptember 2020 , following the closing of the Merger, all outstanding shares of the redeemable convertible preferred stock converted into 12,048,671 shares of common stock. We also acquired$64.1 million of cash, cash equivalents and restricted cash owned by resTORbio, as part of the Merger. InFebruary 2021 , we completed an underwritten public offering of 10,575,513 shares of our common stock at a public offering price of$13.00 per share. The aggregate gross proceeds from the offering, before deducting underwriting discounts and commissions and offering expenses were approximately$137.5 million . In connection with the offering, we also entered into a stock purchase agreement with certain existing investors for$15.0 million of shares of our common stock at a price per share equal to the public offering price, with an initial closing for certain investors held simultaneously with the closing of the offering and a subsequent closing for certain additional investors. As ofSeptember 30, 2021 , we have$192.2 million in cash and cash equivalents. We expect that the cash and cash equivalents will be sufficient to fund our forecasted operating expenses, capital expenditure requirements and debt service payments for at least the next twelve months from the issuance of these annual consolidated financial statements.
Loan Agreement
OnApril 28, 2020 , we entered into the Loan Agreement withPacific Western Bank for a term loan not exceeding$12.0 million to finance leasehold improvements for our facilities inRedwood City, CA , with an interest rate equal to the greater of 0.25% above the Prime Rate (as defined in the Loan Agreement) or 5.00%. In connection with the entrance into the Loan Agreement, we issuedPacific Western Bank a warrant to purchase shares of our Series B redeemable convertible preferred stock at an exercise price of$1.4034 per share. Such warrant was initially exercisable for 42,753 shares of our Series B redeemable convertible preferred stock. Upon the closing of the Merger, it was exchanged for a warrant to purchase 5,301 shares of common stock at an exercise price of$11.32 per share and shall be exercisable for an additional number of shares of common stock equal to 1.00% of the aggregate original principal amount of all term loans made pursuant to the Loan Agreement (up to an aggregate maximum of 15,903 shares of common stock). The New PacWest Warrant was exercised inFebruary 2021 and the net issuance was 1,806 shares of common stock. Further, the Loan Agreement contains a variety of affirmative and negative covenants, including required financial reporting, limitations on certain dispositions of assets, limitations on the incurrence of additional debt and other requirements. As ofSeptember 30, 2021 , we were in compliance with such covenants and had no indebtedness outstanding under the Loan Agreement. To date, we have not drawn any funds from the Loan Agreement. OnOctober 21, 2021 , we entered into the Loan Amendment under whichPacific Western Bank will provide one or more Term Loans, as well as Non-Formula Ancillary Services which shall not exceed$5.5 million in the aggregate. The aggregate sum of the outstanding Term Loans and Non-Formula Ancillary Services shall at no time exceed$15.0 million , with each term loan to be in an amount of not less than$1.0 million . Pursuant to the Loan Amendment, the interest rate for 37
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the Terms Loans shall be set at an annual rate equal to the greater of (i) 0.25% above the Prime Rate then in effect and (ii) 4.25%.
Public Offering and Concurrent Private Placement
InFebruary 2021 , the Company completed an underwritten public offering of 10,575,513 shares of the Company's common stock at a public offering price of$13.00 per share. The net proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses were approximately$128.7 million . In connection with the offering, the Company also entered into a stock purchase agreement with certain existing investors for 1,153,840 shares of our common stock for$15.0 million at a price per share equal to the public offering price, with an initial closing for certain investors held simultaneously with the closing of the offering and a subsequent closing for certain additional investors. The Company received the full proceeds from the sale and did not pay any underwriting discounts or commissions with respect to the shares of common stock that sold in the concurrent private placement. The shares sold in the private placement were not registered under the Securities Act.
At-the-Market (ATM) Offering
OnMarch 12, 2021 , we entered into a Sales Agreement (the 2021 Sales Agreement) with JonesTrading Institutional Services (the Agent), pursuant to which we could sell, from time to time, at our option, up to an aggregate of$75.0 million of shares of our common stock, through the Agent, as our sales agent. As ofSeptember 30, 2021 , no shares were sold under the 2021 Sales Agreement.
Future Funding Requirements
We have incurred losses since inception and have incurred losses of$14.0 million and$46.2 million for the three and nine months endedSeptember 30, 2021 , respectively, and$14.8 million and$27.7 million for the three and nine months endedSeptember 30, 2020 , respectively. As ofSeptember 30, 2021 , we had an accumulated deficit of$152.5 million . As ofSeptember 30, 2021 , we had cash and cash equivalents of$192.2 million . We believe that our cash and cash equivalents will be sufficient for us to continue as a going concern for at least 12 months from the issuance date of our financial statements as ofSeptember 30, 2021 included elsewhere in this Quarterly Report on Form 10-Q. We have based these estimates on assumptions that may prove to be wrong, and we could deplete our available capital resources sooner than we expect. Because of the risks and uncertainties associated with research, development, and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. All of our revenue to date is generated from the Regeneron Agreement, which is a collaboration and license agreement. We do not expect to generate any significant product revenue until we obtain regulatory approval of and commercialize any of our product candidates or enter into additional collaborative agreements with third parties, and we do not know when, or if, either will occur. We expect to continue to incur significant losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business. We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We may seek to raise capital through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. We anticipate that we will need to raise substantial additional capital, the requirements for which will depend on many factors, including: ? the scope, timing, rate of progress and costs of our drug discovery efforts, preclinical development activities, laboratory testing and clinical trials for our product candidates; ? the number and scope of clinical programs we decide to pursue; ? the cost, timing and outcome of preparing for and undergoing regulatory review of our product candidates; ? the scope and costs of development and commercial manufacturing activities; 38 -------------------------------------------------------------------------------- ? the cost and timing associated with commercializing our product candidates, if they receive marketing approval; ? the extent to which we acquire or in-license other product candidates and technologies; ? the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; ? our ability to establish and maintain collaborations on favorable terms, if at all; ? our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately, the sale of our products, following FDA approval; ? our implementation of operational, financial and management systems; ? the impact of the COVID-19 pandemic onU.S. and global economic conditions that may impact our ability to access capital on terms anticipated, or at all; and ? the post-Merger costs associated with being a public company. A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. Adequate funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials or we may also be required to sell or license to other rights to our product candidates in certain territories or indications that we would prefer to develop and commercialize ourselves. If we are required to enter into collaborations and other arrangements to supplement our funds, we may have to give up certain rights that limit our ability to develop and commercialize our product candidates or may have other terms that are not favorable to us or our stockholders, which could materially affect our business and financial condition.
See the section of this Quarterly Report on Form 10-Q titled "Risk Factors" for additional risks associated with our substantial capital requirements.
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