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 Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K 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 Annual Report on Form 10-K.
Overview
We are a clinical stage biotechnology company discovering and developing allogeneic gamma delta T cell therapies for cancer. We are advancing a pipeline of "off-the-shelf" gamma delta T cells, engineered with chimeric antigen receptors (CAR) and T cell receptor-like antibodies (TCRL), to enhance selective tumor targeting, facilitate innate and adaptive anti-tumor immune response, and improve persistence for durable activity in patients. Our approach to activate, engineer and manufacture allogeneic gamma delta T cell product candidates derived from the peripheral blood cells of unrelated donors allows us to generate new product candidates in a rapid and cost-efficient manner.
Our lead product candidate, ADI-001, a first-in-class allogeneic gamma delta T cell therapy expressing a CAR targeting CD20, is in an ongoing Phase 1 study for the treatment of Non-Hodgkin's Lymphoma (NHL). Our pipeline also includes ADI-002, an allogeneic gamma delta CAR-T cell therapy expressing a GPC3-targeted CAR and a cell intrinsic soluble form of interluiken-15 (IL-15), for the treatment of solid tumors In addition, we are engaged in discovery and preclinical stage activities directed to expansion of our pipeline of product candidates for both hematological malignancies and solid tumors.
Our proprietary engineering and manufacturing process begins with isolating and
expanding gamma delta T cells from the blood of unrelated donors, and results in
the potential to treat up to 1,000 patients per batch depending on dosing and
the CAR target. 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. In
Recent Developments
Public Offerings and Private Placement
In
In connection with the
In
89
--------------------------------------------------------------------------------
At-the-Market (ATM) Offering
On
Loan Agreement
On
As of the date of this Annual Report on Form 10-K, we were in compliance with such covenants and had no indebtedness outstanding under the Loan Agreement.
Impact of COVID-19 Pandemic
In
In response to the COVID-19 pandemic, we tasked members of our Executive
Leadership team, Human Resources, Facilities and
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
the
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. In addition, a recession or market correction resulting from the spread of COVID-19 and its variants 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.
90
--------------------------------------------------------------------------------
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
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 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.
91
--------------------------------------------------------------------------------
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;
•
the
•
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•
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 factors 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 anticipated expenses related to the Merger and future
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
and
Interest Income
Interest income consists primarily of interest income earned on our cash and cash equivalents and marketable debt securities.
92
--------------------------------------------------------------------------------
Interest Expense
Interest expense consists primarily of the non-cash amortization of costs
incurred in connection with the Loan Agreement entered into with PacWest in
Other Income (Expense), Net
In 2020, 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. In 2021, other income (expense), net primarily consists of state franchise and capital taxes not related to income.
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the periods indicated (in thousands, except percentages):
Year Ended December 31,
2021 2020 Change % Change
Revenue - related party $ 9,730 $ 17,903 $ (8,173 ) (46 )%
Operating expenses
Research and development 48,943 34,334 14,609 43 %
General and administrative 22,220 22,760 (540 ) (2 )%
Total operating expenses 71,163 57,094 14,069 25 %
Loss from operations (61,433 ) (39,191 ) (22,242 ) 57 %
Interest income 91 785 (694 ) (88 )%
Interest expense (176 ) (134 ) (42 ) 31 %
Other income (expense), net (606 ) (953 ) 347 (36 )%
Loss before income tax benefit (62,124 ) (39,493 ) (22,631 ) 57 %
Income tax expense (benefit) (125 ) (2,815 ) 2,690 *%
Net loss $ (61,999 ) $ (36,678 ) $ (25,321 ) 69 %
* Not meaningful
Revenue
Revenue decreased by
Research and development
Year Ended December 31,
2021 2020
Payroll and personnel expenses(1) $ 21,267 $ 15,490
Costs incurred under agreements with consultants,
CMOs, and CROs 14,853 11,195
Lab materials, supplies, and maintenance of equipment used for research
and development activities 4,649 4,401 Other research and development expenses(2) 8,174 3,248 Total research and development expenses$ 48,943 $ 34,334
(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.
93
--------------------------------------------------------------------------------
Research and development expenses increased by
General and administrative
General and administrative expenses decreased by
These decreases in professional fees were offset by an increase of
Further, there was an increase of
Interest income
Interest income decreased by
Interest Expense
Interest expense increased by less than
Other income (expense), net
Other income (expense), net decreased by
Income tax expense (benefit)
We recognized an income tax benefit of
Liquidity and Capital Resources
As of
Sources of Liquidity
Since our formation in 2014, we have funded our operations with an aggregate of
94
--------------------------------------------------------------------------------
convertible preferred stock converted into 12,048,671 shares of common stock. We
also acquired
In
In
Loan Agreement
On
As of the date of this Annual Report on Form 10-K, we were in compliance with such covenants and had no indebtedness outstanding under the Loan Agreement.
At-the-Market (ATM) Offering
On
Future Funding Requirements
We have incurred losses since inception and have incurred losses of
As of
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
95
--------------------------------------------------------------------------------
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;
•
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 on
•
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 Annual Report on Form 10-K titled "Risk Factors" for additional risks associated with our substantial capital requirements.
Summary Statement of Cash Flows
The following table sets forth the primary sources and uses of our cash, cash equivalents, and restricted cash for each of the periods presented below (in thousands):
Year Ended December 31,
2021 2020
Net cash provided by (used in):
Operating activities $ (51,052 ) $ (41,552 )
Investing activities (2,796 ) 115,217
Financing activities 242,685 303
Net increase in cash, cash equivalents and
restricted cash $ 188,837 $ 73,968
96--------------------------------------------------------------------------------
Cash Flows from Operating Activities
The use of cash in all periods resulted primarily from our net losses adjusted
for non-cash charges and changes in components of working capital. The increases
in cash used in operating activities for the years ended
These factors were partially offset by lower professional services costs in
2021. Non-cash charges for the year ended
We currently lease an office space in
We also have an office facility in
On
Cash Flows from Investing Activities
Net cash used in investing activities was
Net cash provided by investing activities was
Cash Flows from Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities was
97
--------------------------------------------------------------------------------
Critical Accounting Policies, Significant Judgments and Use of Estimates
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results. While our significant accounting policies are more fully described in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements:
Revenue Recognition
We earn all of our revenue in connection with our license and collaboration agreement with Regeneron, which allows Regeneron to utilize our technology and know-how to develop product candidates.
For elements of collaboration arrangements that are accounted for pursuant to ASC Topic 606, Revenue from Contracts with Customers, or ASC 606, we identify the performance obligations and allocate the total consideration we expect to receive on a relative standalone selling price basis to each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, the expected number of targets or indications expected to be pursued, discount rates and probabilities of technical and regulatory success.
We recognize revenue associated with each performance obligation as the control over the promised goods or services transfer to our collaboration partner which occurs either at a point in time or over time. If control transfers over time, revenue is recognized by using a method of measuring progress that best depicts the transfer of goods or services, for example based on actual costs incurred relative to total forecasted costs to be incurred over the period the transfer of goods or services occurs. We evaluate the measure of progress and related inputs each reporting period and any resulting adjustments to revenue are recorded on a cumulative catch-up basis. Revenue to be recognized is equal to the total transaction price multiplied by the ratio of actual expense incurred divided by total forecasted expense.
Accrued CMO, CRO, and Research and Development Expenses
We have entered into various agreements with CMOs and CROs. Our research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued and other current liabilities on the consolidated balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to CMOs and CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets on the consolidated balance sheets until the services are rendered. To date, our estimated accruals have not differed materially from the actual costs.
Stock-Based Compensation
We use a fair value-based method to account for all stock-based compensation arrangements with employees and non-employees, including stock options and restricted stock awards. Our determination of the fair value of stock options on the date of grant utilizes the Black-Scholes option pricing model. The fair value of the option granted is recognized on a straight-line basis over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period, which usually is the vesting period. For awards that have a performance condition, the Company recognizes compensation expense based on its assessment of the probability that the performance condition will be achieved, using an accelerated attribution model, over the explicit or implicit service period. We account for forfeitures as they occur. In determining fair value of the stock options granted, we use the Black-Scholes option-pricing model, which requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (expected term), the estimated volatility of our common stock price over the expected term (expected volatility), risk-free interest rate and expected dividends. Changes in the following assumptions can materially affect the estimate of fair value and ultimately how much stock-based compensation expense is recognized; and the resulting change in fair value, if any, is recognized in our consolidated statement of operations and comprehensive loss during the period the related services are rendered. These inputs are subjective and generally require significant analysis and judgment to develop. Changes in the following assumptions can materially affect the estimate of the fair value of stock-based compensation:
•
Expected Term - The expected term is calculated using the simplified method which is used when there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term.
98
--------------------------------------------------------------------------------
•
Expected Volatility - The Company has limited trading history. As such, the expected volatility was determined by examining the historical volatilities of a peer group of comparable publicly traded companies in biotechnology and pharmaceutical related industries to be representative of our expected future stock price volatility. For purposes of identifying these peer companies, we consider the industry, stage of development, size and financial leverage of potential comparable companies. For each grant, we measure historical volatility over a period equivalent to the expected term.
•
Risk-Free Interest Rate - The risk-free interest rate is based on the implied yield currently available on United States Treasury zero-coupon issues with a remaining term equivalent to the expected term of the stock award.
•
Expected Dividend Rate - We have not paid and does not anticipate paying dividends in the near future. Accordingly, we estimate the dividend yield to be zero.
Common Stock Valuations
Prior to our Merger, the estimated fair value of the common stock underlying our
stock options and stock awards was determined at each grant date by our board of
directors, with assistance from management and external appraisers. All options
to purchase shares of our common stock were intended to be exercisable at a
price per share not less than the per-share fair value of our common stock
underlying those options on the date of grant. The approach to estimate the fair
value of our common stock was consistent with the methods outlined in the
Emerging Growth Company and Smaller Reporting
In
We have elected to use the extended transition period for new or revised
accounting standards during the period in which we remain an emerging growth
company; however, we may adopt certain new or revised accounting standards
early. We will remain an emerging growth company until the earliest to occur of:
(1) the last day of the fiscal year in which we have more than
We are also a smaller reporting company meaning that the market value of our
stock held by non-affiliates is less than
Recently Issued and Adopted Accounting Pronouncements
See the section titled "Summary of Significant Accounting Policies" in Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
© Edgar Online, source
