ADC Therapeutics SA

The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023:

Revenue

Product Revenues, net

We generate product revenue through the sale of ZYNLONTA in the United States. Revenue is recognized when control is transferred to the customer at the net selling price, which includes reductions for gross-to-net (“GTN”) sales adjustments such as government rebates, chargebacks, distributor service fees, other rebates and administrative fees, sales returns and allowances and sales discounts. In the long term, we expect that our product revenue will increase as we execute our business strategy, although our product revenue may fluctuate from period to period based on a number of factors, including patient demand, as well as the timing, dose and duration, of patient therapy and customers’ buying patterns and gross-to-net deductions. We have expe rienced in 2023 higher GTN sales adjustments than we had previously recognized, including discarded drug and inflationary rebates. We expect to continue experiencing these level of GTN sales adjustments as a percentage of gross sales.

Product revenues, net, was $17.8 million for the three months ended March 31, 2024 as compared to $19.0 million for the three months ended March 31, 2023, a decrease of $1.1 million, or 5.8%. The decrease is attributable to higher GTN deductions, including GTN deductions due to the Infrastructure Investment and Jobs Act's requirement for manufacturers of certain single-source drugs separately paid for under Medicare Part B and marketed in single-dose containers to provide annual refunds ("discarded drug rebate") for unused drug, as well as lower volume, partially offset by a higher price.

License Revenue and Royalties

We generate license revenue and royalties from our strategic agreements for the development and commercialization of ZYNLONTA and other product candidates outside of the United States. Under these agreements, we receive upfront payments and are eligible for certain milestone payments and royalties. We are unable to predict the timing and amounts of license revenue and royalties as meeting milestones is subject to many factors outside of our control and we have limited control over our partners’ commercialization efforts.

License revenues and royalties were $205 thousand for the three months ended March 31, 2024 as compared to $39 thousand for the three months ended March 31, 2023.

Operating Expenses

Cost of Product Sales

Cost of product sales primarily includes direct and indirect costs relating to the third-party manufacture and distribution of ZYNLONTA, royalties payable to a collaboration partner based on net product sales of ZYNLONTA and inventory write-downs. We expect that cost of product sales will increase on an absolute basis as product revenue increases and as we sell through pre-approval inventory that was previously expensed prior to commercialization under U.S. GAAP. Factors such as inflation may also increase our cost of product sales as a percentage of product revenue if we are not able to increase the price at which we sell ZYNLONTA to offset such increases in our cost of product sales.

Cost of product sales were $2.5 million for the three months ended March 31, 2024 as compared to a benefit to cost of product sales of $27 thousand for the three months ended March 31, 2023. The increase is primarily attributable to a $0.6 million increase in our excess inventory reserve and a $1.1 million batch cancellation fee recognized during the three months ended March 31, 2024, as well as a $0.3 million manufacturing credit received from a contract manufacturer which was recorded as a reduction to cost of product sales for the three months ended March 31, 2023.

Research and Development Expenses

The following table summarizes our research and development expenses for our major development programs for the three months ended March 31, 2024 and 2023:

(1)Includes third-party contracting and employee expenses, as well as expense for preclinical research, storage, shipping and lab consumables that span multiple programs.

Research and development expense consists primarily of employee related expenses, including share-based compensation expense; costs for production of preclinical and clinical-stage product candidates by CMOs; fees and other costs paid to contract research organizations in connection with the performance of preclinical studies and clinical trials; costs of related facilities, materials and equipment; external costs associated with obtaining intellectual property; depreciation; and upfront fees and achieved milestone payments associated with R&D collaboration arrangements.

Our R&D expenses were $25.7 million for the three months ended March 31, 2024 as compared to $38.4 million for the three months ended March 31, 2023, a decrease of $12.6 million, or 32.9%.

ZYNLONTA

Research and development expenses for ZYNLONTA were $15.0 million for the three months ended March 31, 2024 as compared to $19.2 million for the three months ended March 31, 2023, a decrease of $4.2 million. The decrease was primarily due to lower clinical trial costs for LOTIS 3, LOTIS 6 and LOTIS 7, as well as lower professional fees related to ZYNLONTA for the three months ended March 31, 2024 as a result of productivity initiatives and portfolio prioritization.

Cami

Research and development expenses for Cami were $0.7 million for the three months ended March 31, 2024 as compared to $5.7 million for the three months ended March 31, 2023, a decrease of $5.1 million. The decrease was primarily due to our evaluation of FDA feedback and decision to stop the program.

ADCT-601

Research and development expenses for ADCT-601 were $3.3 million for the three months ended March 31, 2024 as compared to $2.0 million for the three months ended March 31, 2023, an increase of $1.4 million. The increase is primarily attributable to higher patient enrollment and progress towards the completion of the study.

ADCT-212

Research and development expenses for ADCT-212 were $0.1 million for the three months ended March 31, 2024 as compared to $2.3 million for the three months ended March 31, 2023, a decrease of $2.2 million. The decrease is primarily attributable to a decrease in expenses related to IND enabling analytical work. We have re-prioritized the R&D pipeline to focus resources on the most advanced, lower risk value-generating programs and have therefore paused investments on this preclinical program.

Preclinical product candidates and research pipeline

Research and development expenses associated with our preclinical product candidates and research pipeline were $3.7 million for the three months ended March 31, 2024 as compared to $2.4 million for the three months ended March 31, 2023, an increase of $1.3 million. The increase is primarily attributable to increased spending on our research strategy, platform and pipeline initiatives including Claudin-6, Napi2b, PSMA and ASCT2.

Share-based compensation

Share-based compensation reversals were $0.6 million for the three months ended March 31, 2024 as compared to expense of $3.1 million for the three months ended March 31, 2023, a decrease of $3.7 million. The decrease was primarily driven by fluctuations in our share price and forfeitures of awards in connection with employee terminations.

Selling and Marketing Expenses

The following table summarizes our selling and marketing expenses for the three months ended March 31, 2024 and 2023:

(1)Excludes share-based compensation expense.

Selling and marketing costs (“S&M”) are expensed as incurred and are primarily attributable to commercialization of ZYNLONTA in the United States. S&M includes employee costs and share-based compensation expense for commercial employees and external costs related to commercialization (including professional fees, communication costs and IT costs, travel expenses and depreciation of property and equipment). We expect our S&M expenses to decrease as a percentage of revenue over time as we have transitioned to being a commercial-stage public organization and implemented a new go-to-market model in 2023 to help drive growth and optimize local area influence.

Selling and marketing expenses were $11.4 million for the three months ended March 31, 2024 as compared to $15.4 million for the three months ended March 31, 2023, a decrease of $4.0 million or 25.8%. The decrease in external costs and overhead was primarily attributable to $1.5 million in lower spend on marketing and advertising expenses as a result of reduced spending initiatives within the US. The decrease in employee expenses was primarily due to lower wages and benefits of $1.1 million primarily due to decreased headcount. The decrease in share-based compensation expense of $1.3 million was primarily due to fluctuations in our share price and forfeitures of awards in connection with employee terminations.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2024 and 2023:

(1)Excludes share-based compensation expense.

General and administrative expense includes employee expenses (including share-based compensation expense) for general and administrative employees, external costs (including, in particular, professional fees, legal costs associated with maintaining patents and other intellectual property, communications costs and IT costs, facility expenses and travel expenses), general and administrative costs charged by related parties (including telecommunications costs), depreciation of property and equipment, depreciation of right-of-use assets and amortization of intangible assets.

General and administrative expenses were $12.0 million for the three months ended March 31, 2024 as compared to $15.5 million for the three months ended March 31, 2023, a decrease of $3.5 million, or 22.4%. The increase in external costs and overhead was primarily related to higher legal and audit fees of $1.4 million, partially offset by lower insurance costs of $0.5 million. The decrease in employee expenses was primarily due to lower wages and benefits of $1.5 million primarily as a result of higher compensation costs associated with the transition of certain executives during the three months ended March 31, 2023. The decrease in share-based compensation expense was primarily due to fluctuations in our share price and forfeitures of awards in connection with employee terminations.

Other Income (Expense)

Interest Income

Interest income includes interest received from banks on our cash balances. Our policy is to invest funds in a variety of capital preservation instruments, which may include all or a combination of cash and cash equivalents, short-term and long-term interest-bearing instruments, investment-grade securities, and direct or guaranteed obligations of the U.S. government.

Interest income was $2.9 million for the three months ended March 31, 2024 as compared to $2.2 million for the three months ended March 31, 2023, an increase of $0.8 million. The increase was due to higher yields received on our cash deposits during the three months ended March 31, 2024.

Interest Expense

Interest expense is primarily related to the accretion of our deferred royalty obligation with HCR and the senior secured term loan facility. Interest expense was $12.5 million for the three months ended March 31, 2024 as compared to $10.3 million for the three months ended March 31, 2023, an increase of $2.2 million, or 21.4%. The increase was related to higher accretion of our deferred royalty obligation with HCR as a result of the $73.1 million, net of transaction costs, received in June 2023 as debt upon the first commercial sale of ZYNLONTA in the United Kingdom or any European Union country.

Other, net

Other, net consists primarily of changes in the fair value (gains or losses) of the Deerfield warrant obligation; and cumulative catch-up adjustments related to our deferred royalty obligation.

Other, net for the three months ended March 31, 2024 and 2023 included the following:

Deerfield Warrant Obligation, Change in Fair Value (Expense) Income

Pursuant to an Exchange Agreement with Deerfield entered into on August 15, 2022, the Company issued warrants to Deerfield to purchase an aggregate of 4,412,840 common shares. The Deerfield warrant obligation has been recorded at its initial fair value at the time the agreement was entered into on August 15, 2022 and is remeasured to fair value at the end of each reporting period. The (expense) income of $(3.1) million and $0.6 million as a result of changes in the warrant obligation for the three months ended March 31, 2024 and 2023, respectively, was primarily due to the (increase) decrease in fair value of the underlying shares during the respective periods.

Income Tax Expense

We are subject to corporate taxation in Switzerland. We are also subject to taxation in other jurisdictions in which we operate, in particular, the United States and the United Kingdom, where our two wholly-owned subsidiaries are incorporated. We recorded an income tax expense of $0.2 million for the three months ended March 31, 2024 as compared to $0.5 million for the three months ended March 31, 2023, primarily driven by our US operations and transfer pricing model which was implemented in the fourth quarter of 2023.

Equity in Net Losses of Joint Venture

We recorded our proportionate share of Overland ADCT BioPharma’s net loss of $0.7 million and $1.4 million for the three months ended March 31, 2024 and 2023, respectively. The decrease in Overland ADCT BioPharma's net loss for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily attributable tolower R&D costs as the BLA submitted by Overland ADCT BioPharma has been accepted and granted priority review by the NMPA.

Liquidity and Capital Resources

As of March 31, 2024, we had cash and cash equivalents of $234.3 million. We believe that our current capital resources are sufficient to fund our operation and meet capital requirements for the next twelve months from the date of this report.

We plan to continue to fund our operating needs through our existing cash and cash equivalents, revenues from sales of ZYNLONTA, and potential milestone and royalty payments under our licensing agreements and additional equity financings, debt financings and/or other forms of financing, as well as funds provided by collaborations. We are actively seeking to consummate a financing transaction to extend our cash runway. We are also continuously exploring strategic collaborations, business combinations, licensing opportunities or similar strategies for clinical development and commercialization of ZYNLONTA and/or our product candidates.

Sources of Liquidity and Capital Resources

To date, we have financed our operations primarily through equity financings, convertible debt and senior secured term loan financings, and additional funds provided by collaborations and royalty financings and sales of ZYNLONTA in the United States. For a description of the Loan Agreement, HCR Agreement and other license and collaboration agreements, see “Item 1. Business - Material Contracts” in our Annual Report.

Uses of Capital Resources

Our primary uses of capital are, and we expect will continue to be, research and development expenses, selling and marketing expenses, compensation and related expenses, interest and principal payments on debt obligations and other operating expenses. We expect to incur substantial expenses as we continue to devote substantial resources to research and development and marketing and commercialization efforts, in particular to grow ZYNLONTA in the 3L+ DLBCL setting, continue to study and advance ZYNLONTA in earlier lines of therapy and in combinations to potentially expand our market opportunity and further develop our pipeline and our ADC platform. Cash used to fund operating expenses is impacted by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses, as well as the timing of collecting receivables from the sale of ZYNLONTA and paying royalties related to our deferred royalty obligation.

Cash Flows

The following table summarizes our cash flows for the three months ended March 31, 2024 and 2023:

Net Cash Used in Operating Activities

Net cash used in operating activities was $44.1 million for the three months ended March 31, 2024 as compared to $15.4 million for the three months ended March 31, 2023, an increase of $28.7 million. The increase in cash used in operating activities on a period over period basis was primarily due to the receipt of the $50.0 million in Sobi license milestone during the three months ended March 31, 2023 which was recognized in revenue in December 2022 upon approval of the Marketing Authorisation Application by the European Commission for ZYNLONTA in third-line DLBCL, partially offset by lower cash expenditures in the period related to operating expenses in advancing development of our pipeline and the commercialization of ZYNLONTA.

Net Cash Used in Investing Activities

Net cash used in investing activities was $0.5 million for the three months ended March 31, 2024 as compared to $1.0 million for the three months ended March 31, 2023, a decrease of $0.5 million. The decrease in net cash used in investing activities relates to timing of purchases of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $0.4 million for both the three months ended March 31, 2024 and 2023 and primarily related to share issuances under our employee stock purchase plan.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, and we do not currently have, any off-balance sheet arrangements.

Contractual Obligations and Commitments

There have been no material changes from the contractual obligations and commitments previously disclosed in our Annual Report.

Critical Accounting Estimates

The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our unaudited condensed consolidated financial statements. There have been no material changes to the significant accounting estimates previously disclosed in our Annual Report.

Recently Issued and Adopted Accounting Pronouncements

Refer to Note 2 to our unaudited condensed consolidated financial statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report.