ADC Therapeutics SA

Table of Contents

ADC Therapeutics SA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

1. Description of Business and Organization

ADC Therapeutics is a commercial-stage global pioneer in the field of antibody drug conjugates (“ADCs”) committed to advancing its proprietary ADC technology platform to transform the cancer treatment paradigm for patients with hematologic malignancies and solid tumors.

Since its inception, the Company has devoted its resources to developing a validated and differentiated technology platform with multiple payloads, linkers and conjugation chemistry, enabling the design of next-generation potent ADCs with an enhanced therapeutic index. The Company generates sales from its flagship product, ZYNLONTA, which is currently approved in the U.S. for the treatment of relapsed or refractory diffuse large B-cell lymphoma (“DLBCL”) in the 3L setting and has also been granted conditional approval from the European Commission and conditional approval from the China National Medical Products Administration. Additionally, the Company is seeking to expand ZYNLONTA into new indications and earlier lines of therapy while pursuing our early-stage solid tumor programs.

The Company was incorporated on June 6, 2011 under the laws of Switzerland, with its registered office located at Route de la Corniche 3B, 1066 Epalinges, Switzerland. The Company hastwo wholly-owned subsidiaries: ADC Therapeutics America, Inc. (“ADCT America”), which was incorporated in Delaware, USA on December 10, 2014 and ADC Therapeutics (UK) Ltd (“ADCT UK”), incorporated in England on December 12, 2014. The Company and itstwo subsidiaries form the ADCT Group (the “Group”). ADC Therapeutics (NL) B.V., previously a wholly-owned subsidiary of the Company, was dissolved effective October 4, 2024.

All references to “ADC Therapeutics,” “the Company", “we,” “us,” and “our” refer to ADC Therapeutics SA and its consolidated subsidiaries unless otherwise indicated.

2. Summary of Significant Accounting Policies

Basis of preparation and principles of consolidation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures in the consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to companies in the global biotechnology and pharmaceutical industries, including, but not limited to, risks of failure or unsatisfactory results of its research and development efforts and clinical studies, the need for significant capital to fund the continued development of its products and pipeline, the need to obtain and maintain marketing approval for its product and candidates, the need to successfully commercialize and gain market acceptance of any of its product candidates that obtain regulatory approval, dependence on strategic relationships with collaboration and commercialization partners and on key personnel, securing and protecting proprietary technology, compliance with government regulations, competition, and dependence on third-party service providers such as contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), other suppliers, and third-party logistics providers.

Concentrations of Risk

Foreign exchange risk

The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to British pounds, Euros and Swiss francs. Transaction exposure arises because the amount of local currency paid or received in transactions denominated in foreign currencies may vary due to changes in exchange rates. Foreign exchange risk arises from:

–forecast costs denominated in a currency other than the entity’s functional currency;

–recognized assets and liabilities denominated in a currency other than the entity's functional currency; and

–net investments in foreign operations.

Management believes that foreign exchange risk is minimal, as the Company pays invoices mainly in U.S. dollars and holds cash principally in U.S. dollars.

Interest rate risk

Interest rate risk arises from movements in interest rates which could have adverse effects on the Company's net loss or financial position. Changes in interest rates cause variations in interest income and expenses on interest-bearing assets and liabilities, and on the value of the net defined benefit pension obligation. In relation to the royalty purchase agreement with HCR, the Company is obligated to pay interest in the form of royalties in connection with certain net sales and licensing revenue. As the effective interest rate (“EIR”) on the deferred royalty obligation does not depend on market performance, the exposure to interest rate and market risk is deemed low. See Note 12, “Deferred royalty obligation” for further information. In regards to the senior secured term loans, the interest rate is variable and dependent upon market factors. The Company will update the EIR at the end of each reporting period for changes in the rate. See Note 10, "Senior secured term loan facility and warrants" for further information.

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities and from its financing activities including deposits with banks and other financial institutions. The Company’s cash and cash equivalents accounts are maintained with well established, highly rated financial institutions. The Company’s wholly-owned subsidiaries are solvent, are managed on a cost-plus service provider basis, and are supported by the Company as the parent.

To date, the Company’s only source of product revenue, which commenced during May 2021, has been sales of ZYNLONTA only in the U.S., which is sold primarily through wholesale distributors. In addition, the Company earns license revenues and royalties through its license agreements with third parties. See Note 16 “Revenue” for further information. We continuously monitor the creditworthiness of our customers and have internal policies regarding customer credit limits. When determining customer allowances for estimated credit losses, the Company analyzes accounts that are past due, the creditworthiness of its customers, current economic conditions and, when sufficient historical data becomes available, actual credit losses incurred by the Company. As of December 31, 2024, and 2023, the Company did not record an allowance for expected credit losses as it was considered immaterial.

Liquidity risk

Liquidity risk is the risk that the Company may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or can do so only on terms that are materially disadvantageous. Prudent liquidity risk management implies maintaining sufficient cash to cover working capital requirements. Cash is monitored by the Company’s management.

Funding and liquidity risks are reviewed regularly by management and the Board of Directors. The Board of Directors reviews the Company’s ongoing liquidity risks quarterly as part of the financial review process and on an ad hoc basis as necessary. To date, the Company has funded its capital requirements through capital raises, including the issuance of the Company’s common shares, the issuance of convertible loans, the issuance of term loans, partnering of its programs and royalty financings. The Company may need to raise additional capital in the future, and that such financing may not be available on acceptable terms, or at all.

Other Concentrations of Risk

We depend on single source suppliers for certain components of our inventory, and our production, warehousing and distribution operations are outsourced to third-party suppliers and CMOs where a significant portion of our inventory is located. Disruption of supply from key vendors or third-party suppliers may have a material adverse impact on our operations and financial results.

Our primary source of revenue is from sales of ZYNLONTA. Historically, we have not experienced significant credit losses on our accounts receivable and as of December 31, 2024 and 2023, allowances on receivables were not material. Four customers accounted for 100% and 96% of gross accounts receivable as of December 31, 2024, and 2023, respectively.

Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in US dollars (“$” or “USD”), which is the Company’s functional and Group’s reporting currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized within “Other, net” in the consolidated statements of operations.

Wholly-owned subsidiaries

The results and financial position of all the Company’s entities that have a functional currency different from the reporting currency are translated into the reporting currency as follows:

(i)assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

(ii)income and expenses for each consolidated statement of operations are translated at monthly average exchange rates; and

(iii)all resulting exchange differences are recognized in other comprehensive loss, under “Foreign currency translation adjustment.”

Monetary assets and liabilities are translated at exchange rates in effect at the balance sheet date while non-monetary assets and liabilities are translated at historical exchange rates. Exchange gains and losses resulting from remeasurement adjustments are recorded within general and administration costs in the consolidated statements of operations.

Foreign currency exchange rates

The following exchange rates have been used for the translation of the financial statements of ADCT UK, the functional currency of which is the British pound:

Cash and cash equivalents

Cash and cash equivalents include demand deposits held at financial institutions and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to cash.

Fair value measurements

Financial assets and liabilities are required to be measured and reported at fair value at each reporting period. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value includes:

a. Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

b. Level 2: inputs other than quoted prices that are observable for the asset or liability, either directly (for example, as prices) or indirectly (for example, derived from prices);

c. Level 3: inputs for the asset or liability that are not based on observable market data.

Accounts receivable

Trade accounts receivable represent amounts due from customers from product sales and are stated net of customer sales allowances for chargebacks, product returns and estimated credit losses. The Company’s payment terms range from 30 to 90 days. When determining customer allowances for estimated credit losses, the Company analyzes accounts that are past due, the creditworthiness of its customers, current economic conditions and, when sufficient historical data becomes available, actual credit losses incurred by the Company. As of December 31, 2024, and 2023, the Company did not record an allowance for expected credit losses as it was considered immaterial.

License revenue and royalties receivable, as well as other amounts due from the Company’s partners, are included in accounts receivable and are typically payable to us within 45 to 60 days after the end of each quarter in which they were earned.

Inventory

Inventory is stated at the lower of cost or net realizable value with costs determined on a first-in, first-out basis. Reserves for potentially excess, dated or obsolete inventories are established as a write-down to inventory and a charge to cost of product sales based on forecasted product demand estimates and the likelihood of consumption in the normal course of business, considering the expiration dates of the inventories on hand, planned production volumes and required production lead times.

Property and equipment

All property and equipment is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Depreciation is calculated using the straight-line method to reduce the cost of each asset to its residual value over its estimated useful life, as follows:

Leases

The Company recognizes operating lease right-of-use (“ROU”) assets and operating lease liabilities when the Company obtains the right to control the asset under a leasing arrangement with an initial term greater than twelve months. The Company evaluates the nature of each lease at the inception of an arrangement to determine whether it is an operating or financing lease and recognizes the operating lease ROU asset and operating lease liability based on the present value of future minimum lease payments over the expected lease term. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Company uses the incremental borrowing rate we would expect to pay to borrow on a similar collateralized basis over a similar term in order to determine the present value of our lease payments. Operating lease ROU assets are comprised of the lease liability plus any lease payments made and excludes lease incentives. Certain lease arrangements contain renewal or termination options that have been included in the determination of the lease term if the options are reasonably certain of being exercised. For contracts that contain lease and non-lease components, the Company accounts for both components as a single lease component. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

Investments in joint venture

The Company has an investment in a joint venture in which we own less than 50% and do not control the investee. The investment is accounted for using the equity method given our ability to exercise significant influence over the operating and financial decisions of the investee. The Company recognized its share of the investee’s profit or losses, other comprehensive income or losses and capital transactions as an adjustment to the carrying value of its investment in joint venture. The Company’s carrying value of its investment in a joint venture increases or decreases in relation to the Company’s proportionate share of comprehensive income or loss of the joint venture. When the Company’s share of losses of a joint venture exceeds the Company’s interest in that joint venture, the Company ceases to recognize its share of further losses. Additional losses are recognized only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the joint venture. The Company’s Investment in joint venture is assessed for impairment when events or circumstances indicate the carrying value of the investment may be impaired based on qualitative factors.

Long-lived assets

Long-lived assets by geographic area are as follows:

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, including its eventual residual value, is compared to the carrying value to determine whether impairment exists. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their estimated fair values. For the years ended December 31, 2024 and 2023, there were no material impairments of the value of long-lived assets.

Loans

Loans are initially recognized at fair value, net of transaction costs incurred. Loans are subsequently measured at amortized cost using an effective interest rate (“EIR”). Loans are presented as a financial liability in the consolidated balance sheets. Debt is classified as a current liability when due within 12 months after the end of the reporting period. The remainder of the amount is presented as a long-term liability.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance included in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”), ASC 815, Derivatives and Hedging (“ASC 815”) and Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether the warrants meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For warrants that are classified as liabilities, the Company records the fair value of the warrants at each balance sheet date and records changes in the estimated fair value as a gain or loss in Other, net.

Employee benefits

Employee Pension Plans

The Company’s wholly-owned subsidiaries operate defined benefit and defined contribution pension plans in accordance with the local conditions and practices in the countries in which they operate. Certain employees of the UK subsidiary are covered by local defined contribution plans. The defined benefit schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations. A defined contribution plan is a plan that provides an individual account for each participant and provides benefits that are based on all of the following: amounts contributed to the participant’s account by the employer or employee; investment experience; and any forfeitures allocated to the account, less any administrative expenses charged to the plan. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. However, as is the case with many Swiss pension plans, although the amount of ultimate pension benefit is not defined, certain legal obligations of the plan nevertheless create constructive obligations on the employer to pay further contributions to fund an eventual deficit. This results in the plan being accounted for as a defined benefit plan.

The liability recognized in the consolidated balance sheets in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by a third party using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity that approximate the terms of the related pension obligation.

The current service cost of the defined benefit plan is recognized in the consolidated statements of operations in employee benefit expenses, except where included in the cost of an asset, and reflects the increase in the defined benefit obligation resulting from employee service in the current year.

Past service costs, resulting from a plan amendment or curtailment, are recognized in Other comprehensive (loss) income and amortized to the consolidated statements of operations and comprehensive loss over the average remaining service period of active employees.

The net interest cost is calculated by applying the discount rate to the net balance of the present value of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expenses within research and development and general and administrative expenses in the consolidated statements of operations.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in Other comprehensive (loss) income in the period in which they arise and amortized to the consolidated statements of operations and comprehensive loss in subsequent periods using the corridor approach.

For defined contribution plans, the company pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. Once the contributions have been paid, the company has no further payment obligations. The contributions are recognized as employee benefit expenses in the consolidated statements of operations. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.

Share-based Compensation

The Company grants share-based awards. The fair value of awards expected to vest are recognized as an employee share-based compensation expense using the graded accelerated vesting method over the requisite service period of the award less actual forfeitures. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option valuation model, that requires the use of assumptions including the expected volatility of the Company’s stock price, expected term, risk-free rate and the fair value of the underlying common stock. We estimate the fair value of restricted stock units granted based on the closing market price of our common stock on the date of grant. Actual forfeitures are recognized as they occur.

Employee Stock Purchase Plan

The fair value of purchase rights granted under the employee stock purchase plan is recognized as an employee share-based compensation expense with a corresponding increase in Additional paid-in capital. The total amount to be expensed is determined by reference to the fair value of the purchase rights granted.

The total expense is recognized over the offering period, which is the period over which all of the specified vesting conditions are to be satisfied. Participants that voluntarily withdraw from the plan are accounted for as a cancellation and total share-based compensation is recorded in the period in which the participant withdraws. Terminations are accounted for as forfeitures and any share-based compensation expense is reversed in the period the participant terminates. Accumulated payroll deductions are recorded within Accrued expenses in other current liabilities until the shares are purchased by the participant at the end of the offering period.

Revenue Recognition

The Company recognizes revenue when or as control of promised goods or services is transferred to its customers in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods or services. The Company follows a five-step model: (i) identify the customer contract; (ii) identify the contract’s performance obligation; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when, or as, a performance obligation is satisfied.

Product revenue

The Company generates revenue from sales of ZYNLONTA in the U.S. for the treatment of relapsed or refractory DLBCL. 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.

GTN sales adjustments involve significant estimates and judgment after considering factors including legal interpretations of applicable laws and regulations, historical experience and drug product analogs in the absence of Company experience, payer channel mix, current contract prices under applicable programs, unbilled claims and processing time lags and inventory levels in the distribution channel. Management also uses information from external sources to identify prescription trends, patient demand, average selling prices, discarded volumes and sales return and allowance data for the Company and analog drug products. The Company’s estimates are subject to inherent limitations of estimates that rely on third-party information, as certain third-party information was itself in the form of estimates, and reflect other limitations including lags between the date as of which third-party information is generated and the date on which the Company receives third-party information. Estimates will be assessed each period and adjusted as required to revise information or actual experience. In particular, the following rebate requires a substantial degree of judgement.

Discarded Drug Rebate

The Infrastructure Investment and Jobs Act requires manufacturers of certain single-source drugs separately paid for under Medicare Part B and marketed in single-dose containers or packages to provide annual refunds (“discarded drug rebate”), if those portions of the dispensed drug that are unused and discarded exceed an applicable percentage defined by statute or regulation. The Centers for Medicare & Medicaid Services (the “CMS”) finalized regulations to implement this section on November 18, 2022, and the provision went into effect on January 1, 2023. In particular, the estimate for the discarded drug rebate requires a substantial degree of judgement.

The Company began estimating and recording a provision for the discarded drug rebate as a GTN sales adjustment beginning in the first quarter of 2023. The significant assumptions used to estimate the discarded drug rebate include legal interpretations of applicable laws and regulations, historical experience with discarded volumes and time lags in the processing of claims and invoicing from CMS. Management uses a number of factors to estimate the discarded drug rebate, including information from external sources to identify the Company’s discarded volumes and information from CMS on discarded volumes.

License arrangements

The Company recognizes revenues from license fees for intellectual property (IP) either at a point in time or over time. The Company must make an assessment as to whether such a license represents a right-to-use the IP (at a point in time) or a right to access the IP (over time). The Company recognizes revenue for a right-to-use license immediately if the licensee can begin to use and benefit from the IP upon commencement of the license term and the Company has no further obligations in the context of the IP. A license is considered a right to access the IP when the Company undertakes activities during the license term that may significantly affect the IP, which directly exposes the customer to any positive or negative effects arising from such activities. These activities do not result in the immediate transfer of a good or service to the customer. As such, revenues from the right to access the IP are recognized over time.

The Company may enter into agreements with multiple performance obligations. Performance obligations are identified and separated when the other party can benefit from the license on its own or together with other resources that are readily available, and the license is separately identifiable from other goods or services in the contract.

Transaction prices for out-license arrangements may include fixed up-front amounts as well as variable consideration such as contingent development and regulatory milestones, sales-based milestones and royalties. The most likely amount method is used to estimate contingent development and regulatory milestones because the ultimate outcomes are binary in nature. Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved. To the extent arrangements include multiple performance obligations that are distinct, the transaction price assigned to each distinct performance obligation is reflective of the relative stand-alone selling price when sold separately or estimated stand-alone selling price on the basis of comparable transactions with other customers when such goods or services are not sold separately. The residual approach is the method used to estimate a stand-alone selling price when the selling price for a good or service is highly variable or uncertain.

In determining the transaction prices for licenses of intellectual property only or when a license of intellectual property is the predominant item, both sales milestones and royalties are excluded from the variable consideration guidance and recognized at the later of when the subsequent sales transaction occurs, or the satisfaction or partial satisfaction of the performance obligation to which some or all of the royalty has been allocated.

Cost of product sales

Cost of product sales primarily includes direct and indirect costs relating to the manufacture of ZYNLONTA from third-party providers of manufacturing, distribution and logistics, and royalties to a collaboration partner based on net product sales of ZYNLONTA. Inventory amounts written down as a result of excess or obsolescence are charged to Cost of product sales.

Research and Development (“R&D”) expenses

R&D costs are expensed as incurred, and consist of salaries and benefits of employees, share-based compensation costs, fees paid to CROs and CMOs, upfront fees and achieved milestone payments associated with R&D collaboration arrangements, supplies, facilities costs and allocated overhead expenditures. Clinical study and certain research costs are recognized over the service periods specified in the contracts and adjusted as necessary based upon an ongoing review of the level of effort and costs actually incurred. The Company is required to estimate its expenses resulting from its obligation under contracts with vendors and consultants and clinical site agreements in connection with its R&D efforts. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary, and will be assessed each period and adjusted as required to reflect amounts actually incurred. Research and development costs are presented net of reimbursements from development partners.

Income taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized upon settlement. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interest and penalties related to an underpayment of income taxes are included in the income tax expense and classified with the related liability on the consolidated balance sheets. The uncertain tax position is presented as a reduction to a deferred tax asset for credit carryforward.

Loss per share

Basic loss per share is calculated by dividing the net loss attributable to shareholders by the weighted average number of common shares in issue during the year, excluding common shares owned by the Company and held as treasury shares.

Diluted loss per share adjusts the shares used in the determination of basic loss per share to take into account potentially dilutive common shares, if applicable, and the weighted average number of ordinary shares that would have been outstanding assuming the conversion of all potentially dilutive common shares (share option plans, employee stock purchase plan and outstanding warrants). The Company has incurred a loss for the years ended December 31, 2024 and 2023 and therefore potentially dilutive common shares have been excluded from the calculation of diluted loss per share because the effect would be anti-dilutive.

Contingencies

From time to time, we may become involved in claims and other legal matters arising in the ordinary course of business. We record accruals for loss contingencies to the extent that we conclude that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. Legal fees and other expenses related to litigation are expensed as incurred and included in selling, general and administrative expenses.

Reclassification

During 2024, amounts previously presented on the consolidated balance sheets as "Prepaid expenses and other current assets" are now presented individually as "Prepaid expenses" and "Other current assets". Prior period amounts have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

New accounting pronouncements which have been adopted

We adopted FASB ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, effective for fiscal years beginning in January 2024, which requires that a public entity disclose significant segment expenses regularly reviewed by the chief operating decision maker (“CODM”), including public entities with a single reportable segment. Adoption of this standard did not have a material impact on our financial results, but resulted in enhanced disclosures as included in Note 20, “Segment Reporting..”

Issued but not yet adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires the annual financial statements to include consistent categories and greater disaggregation of information in the rate reconciliation, and income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for the Company’s annual reporting periods beginning in January 2025. Adoption is either with a prospective method or a fully retrospective method of transition. Early adoption is permitted. The Company is currently evaluating the effect that adoption of ASU 2023-09 will have on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses Disclosure. The ASU requires disaggregation, in the notes to the financial statements, of certain cost and expense captions presented on the face of the Company’s interim and annual financial statements. ASU 2023-09 is effective for fiscal years beginning in January 2027 and interim periods beginning January 2028, with early adoption permitted. Adoption may be applied prospectively or retrospectively. The Company is currently evaluating the effect that adoption of ASU 2024-03 will have on its consolidated financial statements.

3. Fair value measurements

The carrying amount of Cash and cash equivalents, Accounts Receivable, net and Accounts payable is a reasonable approximation of fair value due to the short-term nature of these assets and liabilities. Financial liabilities that are not measured at fair value on a recurring basis include our senior secured term loan and deferred royalty financing obligation. The carrying value of our senior secured term loan approximates fair value as these borrowings are based on variable market rates. The fair value of our deferred royalty obligation was $312.0 million and $272.9 million as of December 31, 2024 and 2023, respectively, and is based on our current estimates of future royalties expected to be paid over the estimated life of the royalty purchase agreement which are level 3 inputs.

The Deerfield warrants, which are measured at fair value on a recurring basis, were as follows for the years ended December 31, 2024 and 2023:

Fair values must be estimated at the end of each reporting period with regard to the Deerfield warrants. The approach to valuation follows the fair value principle, and the key input factors are described for the Deerfield warrants in Note 11, "Deerfield warrants." A Black-Scholes model was used to calculate the fair values.

There were no transfers between the respective levels during the period.

4. Inventory

As of December 31, 2024 and December 31, 2023 inventory consisted of the following:

Inventory write-downs of $1,518 and $1,608 were recognizedand charged to cost of product sales in the Company’s consolidated statements of operations for the years ended December 31, 2024 and 2023, respectively.

5. Property and equipment

Property and equipment as of December 31, 2024 and December 31, 2023 consisted of the following:

Depreciation expense for the years ended December 31, 2024 and 2023 was $1,334 and $1,187, respectively.

6. Leases

The Company leases space for its corporate offices and research and development facilities under non-cancellable operating leases.

During the third quarter of 2024, the Company modified the terms of its existing lease for its office in New Jersey, USA. The existing lease contract was scheduled to expire on November 30, 2024, including an extension option for three additional years, which at inception, the Company believed was reasonably likely to be exercised. The Company extended the term by seven months commencing on December 1, 2024 and removed the three-year extension option. Accordingly, the Company remeasured its lease liability and adjusted its right-of-use asset based on the revised lease term.

On September 1, 2023, the Company modified the terms of its existing lease for its office in Switzerland. The existing lease contract was originally scheduled to expire on June 15, 2024 and has been cancelled and replaced by the new lease. The new lease also includes a reduction in the amount of office space being occupied. The modified lease commenced on September 1, 2023 and expires November 30, 2028, and includes a renewal option forfive additional years through November 2033. The Company is reasonably certain it will exercise the extension option and therefore has accounted for the modified lease as aten-year lease term.

On January 30, 2023, the Company expanded the square footage of its existing lease related to its U.K. office. The lease commenced on January 30, 2023 and expires on January 27, 2031, and includes an option to terminate early on January 26, 2026. The Company is reasonably certain it will not terminate the lease early and therefore will account for the lease using aneight-year lease term.

Non-cash operating lease ROU assets obtained in exchange for operating lease obligations were $0.6 million and $4.9 million for the years ended December 31, 2024 and 2023, respectively.

Lease costs for the years ended December 31, 2024 and 2023 are $1,942 and $2,080, respectively.

Maturities of lease liabilities are as follows:

Other supplemental information related to leases is summarized below:

7. Interest in joint venture

On December 14, 2020, the Company formed a new joint venture company, Overland ADCT BioPharma, with Overland Pharmaceuticals (“Overland”) to develop and commercialize ZYNLONTA, andthree of the Company’s ADC product candidates, ADCT-601, ADCT-602 and ADCT-901 (collectively, the “Licensed Products”), in greater China and Singapore (the “Territory”). The Company agreed to supply product to Overland ADCT BioPharma for its drug development and commercialization under a supply agreement entered into between the parties.

Under the terms of the license agreement between the Company and Overland ADCT BioPharma, the Company licensed exclusive development and commercialization rights to the Licensed Products (the “Licensed IP”) in the Territory to Overland ADCT BioPharma. Overland invested $50.0 million in Overland ADCT BioPharma, and is obligated to pay the Company potential development milestone payments related to ADCT-601, ADCT-602 and ADCT-901, for a 51% equity interest. The Company received a 49% equity interest in exchange for contribution of the Licensed IP. The Company and Overland have appointed an equal number of nominees to the board of directors of Overland ADCT BioPharma which includes the Chief Executive Officer of Overland ADCT BioPharma. Pursuant to the license agreement, the Company may also earn low to mid-single digit royalties on net sales of the Licensed Products. In addition, Overland ADCT BioPharma elected to participate in the Company’s global clinical trials. The Company also received an option, which it may exercise at its sole discretion, to exchange any or all of its equity interest in Overland ADCT BioPharma into an equity interest in Overland upon an initial public offering of Overland. Given the uncertainty of an initial public offering of Overland, the Company did not assign any value to the option.

In connection with the formation of Overland ADCT BioPharma, the Company determined the fair value of its equity interest by implying a total equity value of Overland ADCT BioPharma using Overland’s investment of $50.0 million and the fair value of the contingent milestone consideration for Overland’s 51% equity interest. The fair value of the contingent consideration was determined to be nominal due to the high uncertainty related to achieving certain conditions associated with the contingent consideration as of the closing date.

The table below provides a rollforward of the Company’s interest in Overland ADCT BioPharma as of December 31, 2024 and 2023.

The Company recognized the proportionate share of Overland ADCT BioPharma’s net loss up to the investment

carrying amount. The equity method investment in Overland ADCT Biopharma was reduced to zero during the year ended December 31, 2024 and no further losses will be recorded in the Company's consolidated financial statements as the Company has not incurred legal or constructive obligations or committed to additional funding on behalf of the joint venture. The Company will begin recognizing its share of net income only when it is greater than the cumulative net losses not recognized during the period the equity method was suspended.

8. Income taxes

For the years ended December 31, 2024 and 2023, loss before taxes consists of the following:

Income tax expense (benefit) attributable to income consists of:

Tax Rate Reconciliation

Income tax expense attributable to income was $166 and $39,106 for the years ended December 31, 2024 and 2023, respectively. The increase in pre-tax book loss in the U.S. is due to internal transfer pricing restructuring started in October 2023. The income tax expense differed from the amounts computed by applying the Swiss income tax rate of 13.66% for both periods to pretax income from continuing operations as a result of the following:

(1) For the year ended December 31, 2023 Expired net operating loss carryforward was included in Other. The prior period has been recast to conform to the current period presentation.

In the table above, the Company used ADCT SA’s statutory tax rate as the starting point for the reconciliation since it is the parent entity of the business. The rate reconciliation begins with the blended Swiss Federal and Canton tax rate, rather than solely the Swiss Federal rate, as it more accurately reflects the statutory tax obligations applicable to the Company. Given the structure of the Swiss tax system, where both federal and canton tax components contribute significantly to the overall tax rate, using a blended rate provides a more meaningful basis for reconciliation to the effective tax rate. Effective tax rate varies from the statutory tax rate primarily due to valuation allowance recorded in the current losses in Switzerland and U.S. deferred tax assets.

Deferred Tax Assets

The income tax effect of each type of temporary difference comprising the net deferred tax asset as of December 31, 2024 and 2023 is as follows:

The valuation allowance at December 31, 2024 was primarily related to Swiss NOL, Federal R&D and Orphan Drug credits, Capitalized Research & Development, and Share Based Compensation that, in the judgment of management, may not be realized. The valuation allowance increased by $7.7 million in 2024. The change in valuation allowance from 2023 was related to increases in U.S. capitalized R&D, share-based compensation, orphan drug credit deferred tax assets and Swiss NOL. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the effect of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate significant future taxable income prior to the expiration of R&D credit carryforwards in 2044.

At December 31, 2024, the Company has R&D credit for federal and state income tax purposes of $35.3 million which are available to offset partial future federal taxable income, if any, through 2044. The Company has not recognized the entire R&D carryforward due to the reasons stated above.

At December 31, 2024, the Company has Swiss Net Operating Loss Carryforwards of $1,059 million, with expiration dates ranging from 2025 to 2031. The Company has not recognized deferred tax assets on these NOLs due to the reasons stated above.

Uncertain Tax Positions

The Company recorded uncertain tax positions without interest and penalties of $7.5 million and $6.6 million as of December 31, 2024 and 2023, respectively. The increase of uncertain tax positions from tax year 2023 is related to current year positions. The uncertain tax position is recorded in the deduction of deferred tax assets.

The Company files income tax returns in Switzerland, United States, and United Kingdom. The Company remains subject to tax examinations in the following jurisdictions as of December 31, 2024:

9. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following:

10. Senior secured term loan facility and warrants

On August 15, 2022, the Company, ADCT UK and ADCT America entered into the Loan Agreement, pursuant to which the Company could borrow up to $175.0 million principal amount of secured term loans, including (i) a First Tranche and (ii) Future Tranches. On August 15, 2022, the Company borrowed $120.0 million principal amount of term loans under the Loan Agreement. The secured term loans mature on August 15, 2029 and accrue interest at an annual rate of secured overnight financing rate (SOFR) plus 7.50% per annum (with respect to SOFR loans) or a base rate plus 6.50% per annum (with respect to alternative base rate ("ABR") loans) for the first five years of the term loans, and thereafter, at an annual rate of SOFR plus 9.25% (with respect to SOFR loans) or a base rate plus 8.25% (with respect to ABR loans), in each case subject to a 1.00% per annum SOFR floor. The secured term loans require the payment of interest only through June 30, 2026 and quarterly payments of principal, interest and exit fees thereafter until the maturity date of August 15, 2029. The Company has the option to elect for the loans to be either a SOFR loan or ABR loan and has elected the First Tranche of the secured term loan to be a SOFR loan. Interest is paid on the last business day of each quarter.

The Company is obligated to pay certain exit fees upon certain prepayments and repayments of the principal amount of the term loans in an amount ranging from zero to 4.0% of the amount of the loan so paid. In addition, the Company has the right to prepay the term loans at any time subject to certain prepayment premiums applicable until August 15, 2026. The Loan Agreement also contains certain prepayment provisions, including mandatory prepayments from the proceeds from certain asset sales, casualty events and from issuances or incurrences of debt, which may also be subject to prepayment premiums if made on or prior to August 15, 2026. The obligations under the Loan Agreement are secured by substantially all of the Company's assets and those of certain of the Company's subsidiaries and are guaranteed initially by the Company's subsidiaries in the US and the UK. The Loan Agreement contains customary covenants, including a covenant to maintain a balance at the end of each quarter of at least $60.0 million in cash and cash equivalents plus an amount equal to any accounts payable that remain unpaid more than ninety days after the original invoice therefore, and negative covenants including limitations on indebtedness, liens, fundamental changes, asset sales, investments, dividends and other restricted payments and other matters customarily restricted in such agreements. In addition, the Loan Agreement contains a revenue covenant that, so long as the Company’s 30-day average market capitalization is less than $650 million, requires the Company achieve minimum levels of ZYNLONTA net sales in the United States, tested on a quarterly basis, which is subject to a customary cure right in favor of the Company that may be exercised by making certain prepayments and that, subject to certain limitations, may be exercised up to three times during the term of the Loan Agreement. The Loan Agreement also contains customary events of default, after which the term loan may become due and payable immediately, including payment defaults, material inaccuracy of representations and warranties, covenant defaults (including creation of any liens other than those that are expressly permitted), bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against the Company and its subsidiaries and change in control.

On August 15, 2022, the Company also issued to the lenders under the Loan Agreement warrants to purchase an aggregate of 527,295 common shares, which warrants have an exercise price of $8.30 per share. Each warrant is exercisable, on a cash or a cashless basis, at the option of the holder at any time on or prior to August 15, 2032. The warrants contain customary anti-dilution adjustments and will entitle holders to receive any dividends or other distributions paid on the underlying common shares prior to their expiration on an as-exercised basis. On August 15, 2022, the Company also entered into the Share Purchase Agreement with the lenders under the Loan Agreement to purchase 733,568 common shares of the Company.

The Company has accounted for the First Tranche of the senior secured term loans, the warrants and the common shares described above each as freestanding financial instruments.

The warrants are freestanding financial instruments that are indexed to the Company’s common stock and meet all other conditions for equity classification under ASC 480 and ASC 815. Accordingly, these warrants were recognized in equity and accounted for as a component of additional paid-in capital at the time of issuance.

The proceeds received were allocated to the loan, the warrants and the common shares based on the relative fair value method, resulting in a discount on the loan. The loan was recorded at $116.0 million on August 15, 2022. The loan is subsequently measured at its amortized cost. See further illustration of the allocation of proceeds in the table below:

Transaction costs were allocated to the loan, the warrants and the common shares based on the relative fair value method. Transaction costs associated to the warrants and common shares have been deducted from the respective instrument in equity, while transaction costs associated to the loan have been deducted from the loan and amortized using the effective interest method over the expected life of the loan. See further illustration of the allocation of transaction costs in table below:

As illustrated in the table above, the transaction costs of the loan (net of the transaction costs allocated to the warrant and common shares) were deducted from the loan to determine the carrying value as of August 15, 2022. The implied EIR that would be needed to increase the book value of the loan to cover all future expected outflows, taking into account the deduction of transaction costs from the initial loan balance, and based on a 360-day year for a SOFR loan, was computed at inception at 14.99%. Given the interest rate in the senior secured term loans is variable and dependent upon market factors, the Company will update the EIR at the end of each reporting period for changes in the rate. For the years ended December 31, 2024 and December 31, 2023, the Company recorded interest expense on the senior secured term loan in the amount of $16.6 million and $18.4 million, respectively, which was recorded in interest expense in the consolidated statements of operations. The EIR at December 31, 2024 was 16.12%.

The following table provides a summary of the interest expense for the Company’s senior secured term loan for the years ended December 31, 2024 and December 31, 2023:

The amount at which the senior secured term loan is presented as a liability in the consolidated balance sheets represents the net present value of all future cash outflows associated with the loan discounted at the EIR. The carrying value of the senior secured term loan is $113.6 million and $112.7 million as of December 31, 2024 and 2023, respectively.

Contractual payments due under our senior secured term loans, including exit fees are as follows (in thousands):

11. Deerfield warrants

Pursuant to the Exchange Agreement with Deerfield entered into on August 15, 2022, the Company issued warrants to purchase an aggregate of 4,412,840 common shares. The warrants consist of warrants to purchase an aggregate of 2,631,578 common shares at an exercise price of $24.70 per share and warrants to purchase an aggregate of 1,781,262 common shares at an exercise price of $28.07 per share. Each warrant is exercisable, on a cash or a cashless basis, at the option of the holder, at any time on or prior to May 19, 2025. The warrants contain customary anti-dilution adjustments and entitle holders to receive any dividends or other distributions paid on the underlying common shares prior to their expiration on an as-exercised basis. Each holder also may require the Company to repurchase the warrants for their Black Scholes-based fair value in connection with certain transformative transactions or change of control of the Company that occur prior to their expiration.

These warrants have been recognized as a warrant obligation and presented in the consolidated balance sheets as a liability given the warrants may be settled through a cash or cashless exercise by the warrant holder. The liability was initially measured at fair value and was determined to approximate the fair value of the existing embedded conversion option features immediately prior to the consummation of the Exchange Agreement as the terms of the warrants are reflective of the terms of the embedded conversion option features of the Deerfield Facility Agreement prior to the Exchange Agreement. As such, the warrant obligation was recorded at an initial fair value of $12,297 on August 15, 2022. Subsequent to issuance, the warrant obligation is remeasured to fair value at the end of each reporting period. Changes in the fair value (gains or losses) of the warrant obligation at the end of each period are recorded in the consolidated statements of operations.

During the year ended December 31, 2024 and December 31, 2023, the Company recognized income of $296 and $497, respectively, as a result of changes in the fair value of the warrant obligation. The fair value of the warrant obligation as of December 31, 2024 and December 31, 2023 was $0 and $296, respectively. The decreases in fair value of the warrant obligation from December 31, 2023 to December 31, 2024 was primarily due to decreases in the expected term and expected volatility during the period. These amounts were recorded to Other, net in the consolidated statements of operations. See Note 17, "Other income (expense)" for further information.

The Company calculated the fair value of the Deerfield warrant obligation, using the Black-Scholes option-pricing model. Key inputs for the valuation of the warrant obligation as of December 31, 2024 and December 31, 2023 were as follows:

12. Deferred royalty obligation

On August 25, 2021, the Company entered into a royalty purchase agreement with certain entities managed by HCR for up to $325.0 million. Under the terms of the agreement, the Company received gross proceeds of $225.0 million upon closing (the “First Investment Amount”) and received an additional $75.0 million during the year ended December 31, 2023 upon the first commercial sale of ZYNLONTA in the United Kingdom or any European Union country (the “Second Investment Amount”) and together with the First Investment Amount, the “Investment Amount”). Under the agreement, the Company is obligated to pay to HCR (i) a 7% royalty on the worldwide (excluding China, Hong Kong, Macau, Taiwan, Singapore and South Korea) net sales of ZYNLONTA and any product that contains ZYNLONTA and on any upfront or milestone payments the Company receives from licenses that it grants to commercialize ZYNLONTA or any product that contains ZYNLONTA in any region other than China,

Hong Kong, Macau, Taiwan, Singapore and South Korea, (ii) a 7% royalty on the worldwide net sales of Cami and any product that contains Cami and on any upfront or milestone payments the Company receives from licenses that it grants to commercialize Cami or any product that contains Cami in the United States and Europe, and (iii) outside the United States and Europe, a 7% share of any upfront or milestone payments derived from licenses that the Company grants to commercialize Cami or any product that contains Cami and, in lieu of the royalty on net sales under such licenses, a mid-teen percentage share of the net royalty the Company receives from such licenses. These royalty rates are subject to potential upward adjustment, up to a maximum of 10%, based on performance tests in 2026 and 2027. The 7% royalty rates described above are subject to adjustment to a potential high-single-digit percentage royalty rate after September 30, 2026 and/or a 10% royalty rate after September 30, 2027, if the aggregate net sales and license revenue subject to royalty obligations in the preceding twelve months do not exceed certain mid-nine-digit milestones by such dates. The Company’s aggregate royalty obligations are capped at 2.50 times the amount paid by HCR under the agreement ($750.0 million as of December 31, 2024 and December 31, 2023), or at 2.25 times the amount paid by HCR under the agreement ($675.0 million as of December 31, 2024 and December 31, 2023) if HCR receives royalty payments exceeding a mid-nine-digit amount on or prior to March 31, 2029 (the “Royalty Cap”). Once the Royalty Cap is reached, the royalty purchase agreement will terminate.

Upon the occurrence of a change in control event, the Company is obligated to pay HCR an amount equal to the Royalty Cap, less any amounts the Company previously paid to HCR. If the change in control event occurs prior to the 36-month anniversary of the closing of the royalty purchase agreement, the Company is obligated to pay HCR an amount equal to 2.0 times the amount paid by HCR, less any amounts the Company previously paid to HCR pursuant to the agreement ($574.7 million and $600.0 million as of December 31, 2024 and $580.1 million and $600.0 million as of December 31, 2023). In addition, the Company retains the right, at any time after the 27-month anniversary of the closing of the royalty purchase agreement, to terminate the remaining royalty obligations under the agreement by paying HCR an amount equal to the Royalty Cap, less any amounts the Company previously paid to HCR pursuant to the agreement (such amount, the “Buyout Amount”), provided that HCR may instead elect to receive 50% of the Buyout Amount and continue to receive 50% of the royalty payments under the agreement but with the Royalty Cap reduced to reflect the Company’s payment of 50% of the Buyout Amount. During the year ended December 31, 2021, the Company received gross proceeds of $225.0 million before deducting transaction costs of $7.0 million, all of which were paid during 2021, which resulted in net proceeds of $218.0 million. During the year ended December 31, 2023 the Company received an additional $75.0 million upon the first commercial sale of ZYNLONTA in the United Kingdom or any European Union country, which resulted in net proceeds of $73.1 million, net of transaction costs of $1.9 million.

The table below provides a rollforward of the Company’s debt obligation relating to the royalty purchase agreement.

The Company evaluated the terms of the royalty purchase agreement and concluded that the features of the investment amount are similar to those of a debt instrument. Accordingly, the Company recorded a liability relating to the initial gross proceeds received as debt less transaction costs in August 2021, and increased the liability in June 2023 for the eligible amount received as debt upon the first commercial sale of ZYNLONTA in the United Kingdom or any European Union country less transaction costs. The Company accounts for the value of the debt at amortized cost. The amounts received by the Company will be accreted to the total estimated amount of the royalty payments necessary to extinguish the Company’s obligation under the agreement, which will be recognized as interest expense recorded in Interest expense within the Company’s consolidated statements of operations. The carrying value of the debt will decrease for royalty payments made to HCR based on actual net sales and licensing revenue. The Company must periodically assess the expected payments to HCR based on its underlying revenue projections and to the extent the amount or timing of such payments is materially different than its initial estimates will record a cumulative catch-up adjustment to the deferred royalty obligation. The adjustment to the carrying amount is recognized in earnings as an adjustment to Other, net in the period in which the change in estimate occurred. The debt is classified as short-term and long-term which are recorded within Other current liabilities and Deferred royalty obligation, long-term, respectively, within the Company’s consolidated balance sheets.

To determine the accretion of the liability related to the deferred royalty obligation, the Company is required to estimate the total amount of future royalty payments and estimated timing of such payment to HCR based on the Company's revenue projections. Management uses a third party valuation firm to assist in determining the total amount of future royalty payments and estimated timing of such payment to HCR using an option pricing Monte Carlo simulation model. The amount ultimately received by the Company is accreted to the total amount of the royalty payments necessary to extinguish the Company’s obligation under the agreement, which is recorded as interest expense over the life of the royalty purchase agreement. The initial estimate of this total interest expense resulted in an EIR of 10%. As royalty payments are made to HCR, the balance of the debt obligation is effectively repaid over the life of the royalty purchase agreement. During the year ended December 31, 2024 and December 31, 2023, the Company made royalty payments to HCR of $5,384 and $8,709, respectively.

The exact amount and timing of repayment is likely to be different each reporting period as compared to those estimated based on the Company's revenue projections. A significant increase or decrease in actual net sales of ZYNLONTA compared to the Company’s revenue projections, and regulatory approval and commercialization of Cami, as well as ZYNLONTA in other indications as well as licensing revenue could change the royalty rate and royalty cap due to HCR, which could materially impact the debt obligation as well as interest expense associated with the royalty purchase agreement. Also, the Company’s total obligation to HCR can vary depending on the achievement of the sales milestones as well as the timing of a change in control event. At each reporting period, Management will assess the expected payments to HCR based on its underlying revenue projections and to the extent the amount or timing of such payments is materially different than its initial estimates it will record a cumulative catch-up adjustment.

The Company recorded a total cumulative catch-up adjustment of $11.2 million and $5.0 million recorded in Other, net for the years ended December 31, 2024 and 2023, respectively. The total cumulative catch-up adjustments were based on revised revenue forecasts used in the valuation models, which revisions were primarily attributable to updates made for the Company’s long range plans, including updated development plans, actual revenue results and the transaction costs related to the eligible amount received in June 2023. Under the cumulative catch-up method, the EIR is not revised when actual or estimated net sales differ from those estimated as of the inception of the debt obligation. Instead, the carrying amount of the debt obligation is adjusted to an amount equal to the present value of the estimated remaining future payments, discounted by using the original EIR,10%, as of the date on which the estimate changes.

13. Pension and post-retirement benefit obligations

Defined contribution plans

For U.S. employees the Company maintains a defined contribution plan under section 401(k) of the Internal Revenue Code, whereby the Company provides a matching contribution of each employee’s eligible compensation. Total Company matching contributions to this plan were $2.1 million and $2.8 million for the years ended December 31, 2024 and 2023, respectively.

Employees of the UK subsidiary are covered by local defined contribution plans. Pension costs for these plans are charged to the consolidated statements of operations when incurred and were $278 and $280 for the years ended December 31, 2024 and 2023, respectively.

Defined benefit pension plan

The pension plan for Swiss employees is a defined benefit pension plan. The Company contracted with the Swiss Life Collective BVG Foundation based in Zurich for the provision of occupational benefits. All benefits in accordance with the regulations are reinsured in their entirety with Swiss Life SA within the framework of the corresponding contract. This pension solution fully reinsures the risks of disability, death and longevity with Swiss Life. Swiss Life invests the vested pension capital and provides a 100% capital and interest guarantee. The pension plan is entitled to an annual bonus from Swiss Life comprising the effective savings, risk and cost results.

Although, as is the case with many Swiss pension plans, the amount of ultimate pension benefit is not defined, certain legal obligations of the plan create constructive obligations on the employer to pay further contributions to fund an eventual deficit; this results in the plan nevertheless being accounted for as a defined benefit plan.

In 2024, the guaranteed interest to be credited to employees' savings was 1.25% for mandatory retirement savings and 0.50% for supplementary retirement savings. The rate for converting mandatory savings to an annuity at age 65 for male employees will decrease from 5.9% in 2024 to 5.65% in 2025 and 5.40% in 2026 and for female employees age 65 will decrease from 6.0294% in 2024 to 5.8111% in 2025 and 5.5671% in 2026. The rate for converting supplementary savings to an annuity remains at 4.4855% from 2024 to 2025 for male age 65 and 4.6744% for female employees age 65 from 2024 to 2025.

The Swiss defined benefit plan scheme is valued by third-party actuaries every year using the projected unit credit method. The latest actuarial valuation was carried out as at December 31, 2024.

The movements in the projected benefit obligation and plan assets for the years ended December 31, 2024 and 2023 are as follows:

The defined benefit pension liability is recorded in Other long-term liabilities on the Company’s consolidated balance sheets. The present value of the defined benefit obligation related to 25 active employees based in Switzerland (2023:24 active employees).

The net periodic benefit cost for the years ended December 31, 2024 and 2023 is as follows:

The components of net periodic benefit cost are included inoperating expense on the consolidated statements of operations.

The principal actuarial assumptions used for accounting purposes are as follows for the years ending December 31, respectively:

Expected employer contributions for 2025 to the defined benefit plan for the year ending December 31, 2024 amounts to $675.

The weighted average duration of the defined benefit obligation is 18.7 years (2023:18.0 years).

Estimated benefit payments for the next ten years are as follows:

Plan assets

The assets are invested by the pension plan, to which many companies contribute, in a diversified portfolio that respects the requirements of the Swiss BVG. Therefore, disaggregation of the pension assets and presentation of plan assets in classes that distinguish the nature and risks of those assets is not possible. The Company’s pension plan benefits from the economies of scale and diversification of risk available through the affiliations.

Comprehensive (loss) income

The movements in “Other comprehensive (loss) income” are as follows:

Prior service cost for the years ended December 31, 2024 and 2023 includes a credit of $31 and $33, respectively, related to plan amendments.

14. Commitments and contingencies

Manufacturing Commitments

As of December 31, 2024, the Company has non-cancelable obligations under third party manufacturing agreements related to the supply of ZYNLONTA and the Company’s product candidates totaling $3.1 million, which will be paid in 2025.

Contingent liabilities

From time to time, we may be involved in various legal matters generally incidental to our business. Although the results of litigation and claims cannot be predicted with certainty, after discussion with legal counsel, we are not aware of any matters for which the likelihood of a loss is probable and reasonably estimable and which could have a material impact on our consolidated financial condition, liquidity, or results of operations.

15. Shareholders’ equity

Capital Range

The Board of Directors is authorized to increase or decrease the share capital at any time until November 11, 2029, by a maximum amount of CHF 12,106,664 (upper limit) and 8,128,510 (lower limit), by, among other things, issuing or cancelling common shares, fully paid up, with a par value of CHF 0.08 each. An increase of the share capital in partial amounts is permissible.

Conditional Share Capital

Conditional Share Capital for Financing Acquisitions and Other Purposes

The Company’s nominal share capital may be increased, including to prevent takeovers and changes in control, by a maximum aggregate amount of CHF 3,042,154 through the issuance of not more than 38,026,929 common shares, which would have to be fully paid-in, each with a par value of CHF 0.08 per share, by the exercise of option and conversion rights granted in connection with warrants, convertible bonds or similar instruments of the Company or one of its subsidiaries. Shareholders will not have pre-emptive subscription rights in such circumstances, but may have advance subscription rights to subscribe for such warrants, convertible bonds or similar instruments. The holders of warrants, convertible bonds or similar instruments are entitled to the new shares upon the occurrence of the applicable conversion feature.

Conditional Share Capital for Equity Incentive Plans

The Company’s nominal share capital may, to the exclusion of the pre-emptive subscription rights and advance subscription rights of shareholders, be increased by a maximum aggregate amount of CHF 763,799 through the issuance of not more than 9,547,482 common shares, which would have to be fully paid-in, each with a par value of CHF 0.08 per share, by the exercise of options, other rights to receive shares or conversion rights that have been granted to employees, members of the board of directors, contractors or consultants of the Company or of one of its subsidiaries or other persons providing services to the Company or to a subsidiary through one or more equity incentive plans created by the board of directors.

2024 Equity Offering

In May 2024, the Company completed an underwritten offering of equity securities in which 13,411,912 of the Company’s common shares were sold to public investors at a price of $4.90 per share and pre-funded warrants (the“2024 Pre-Funded Warrants”) to purchase 8,163,265 of the Company’s common shares were sold to public investors at a price of $4.81 per pre-funded warrant, which equals the per share 2024 Equity Offering price, less the CHF 0.08 exercise price for each pre-funded warrant (collectively, the “2024 Equity Offering”). Gross proceeds from the 2024 Equity Offering were approximately $105.0 million, and, after giving effect to $7.6 million of transaction costs related to the offering, net proceeds were approximately $97.4 million.

The 2024 Pre-Funded Warrants are exercisable, on a cash basis (or, if there is no registration statement and current prospectus covering the issuance of the shares upon exercise, then on a cashless basis), at the option of the holder after the date of issuance until the tenth anniversary of their original issuance. At any time during the last 90 days of the term, the holder may exchange the Pre-Funded Warrant for, and we will issue, a new pre-funded warrant for the number of common shares then remaining under the Pre-Funded Warrant. The Pre-Funded Warrants have certain limitations on exercise, including (i) any exercise must be for at least 50,000 common shares (or, if less, the remaining common shares available for purchase under the Pre-Funded Warrants), (ii) a holder cannot exercise for any amount that would cause such holder’s beneficial ownership of our common shares to exceed 9.99% (or 19.99% with 61-days’ notice to us), and (iii) cashless exercise is not available in certain circumstances as specified in the Pre-Funded Warrants. The warrants contain customary anti-dilution adjustments and will entitle holders to receive any dividends or other distributions paid on the underlying common shares prior to their expiration on an as-exercised basis.

Accounting for the 2024 Equity Offering and Pre-funded Warrants

The Company has accounted for the common shares and 2024 Pre-funded Warrants described above each as freestanding financial instruments.

The common shares for the underwritten offering of equity securities were (i) issued in part from the Company’s capital range and (ii) in part sourced from treasury shares. The common shares were recorded as $60.5 million to equity for the issuance of the common shares, net of transaction costs accrued and paid, and an increase in cash and cash equivalents.

The warrants are freestanding financial instruments that are indexed to the Company’s common stock and meet all other conditions for equity classification under ASC 480 and ASC 815, including the warrant holders cannot require “net cash settlement” in a circumstance outside of the Company’s control, and there is sufficient authorized and unissued shares to settle the warrants. Accordingly, these warrants are recognized as $36.9 million in equity and accounted for as a component of additional paid-in capital at the time of issuance, net of transaction costs paid, and an increase in cash and cash equivalents.

Transaction costs have been allocated to the warrants and the common shares based on the relative fair value method. Transaction costs associated to the warrants and common shares have been deducted from the respective instrument in equity.

2024 at-the-market offering program

In August 2024, we filed a prospectus relating to an at-the-market offering program, pursuant to which we may offer and sell our common shares from time to time with an aggregate offering price of $100.0 million through Jefferies LLC acting as sales agent. For the year ended December 31, 2024, we did not sell any shares under the program.

16. Revenue

The table below provides a disaggregation of revenues by type and customer location for the years ended December 31, 2024 and December 31, 2023:

(1)Europe, the Middle East and Africa

Product revenue, net

The table below provides a rollforward of the Company’s accruals related to the GTN sales adjustments for the years ended December 31, 2024 and December 31, 2023.

The table below provides the classification of the accruals related to the GTN sales adjustment included in the Company’s consolidated balance sheets as of December 31, 2024 and December 31, 2023.

Customers from which we derive more than 10% of our total product revenues are as follows:

(1)AmerisourceBergen also operates under the name Cencora

17. Other income (expense)

Interest Income

Interest income includes interest received from banks on our cash balances. Interest income was $12.3 million and $10.5 million for the years ended December 31, 2024 and December 31, 2023, respectively.

Interest Expense

The components of Interest expense for the years ended December 31, 2024 and December 31, 2023 are as follows:

Other, net

The components of other, net for the years ended December 31, 2024 and December 31, 2023 are as follows:

Cumulative catch-up adjustment, deferred royalty obligation

We periodically assess the expected payments to HCR based on our underlying revenue projections and to the extent the amount or timing of such payments is materially different than our initial estimates we will record a cumulative catch-up adjustment to the deferred royalty obligation.

18. Share-based compensation

The Company has adopted various share-based compensation plans. Under these plans the Company may at its discretion grant to the plan participants, such as directors, certain employees, and service providers awards in the form of restricted shares and restricted share units (“RSUs”), share options, share appreciation rights, performance awards and other share-based awards. The 2019 Equity Incentive Plan was adopted in November 2019 while the Conditional Share Capital Plan and the Inducement Plan were adopted in December 2023.

2019 Equity Incentive Plan

In November 2019, the Company adopted the 2019 Equity Incentive Plan. Under the 2019 Equity Incentive Plan, the Company may at its discretion grant to plan participants, such as directors, certain employees and service providers, awards in the form of restricted shares and RSUs, share options, share appreciation rights, performance awards and other share-based awards. The Company has reserved 17,741,355 common shares for future issuance under the 2019 Equity Incentive Plan (including share-based equity awards granted to date less awards forfeited). As of December 31, 2024, the Company has 4,330,311 common shares available for the future issuance of share-based equity awards.

As of December 31, 2024 and 2023, the cumulative amount recorded as a net increase to additional paid-in capital within equity on the consolidated balance sheets in respect of the 2019 Equity Incentive Plan was $160,945 and $157,906. The amounts of expense for all awards recognized for services received during the years ended December 31, 2024 and December 31, 2023 were $3,039 and $13,123, respectively.

Conditional Share Capital Plan

In December 2023, the Company adopted the Conditional Share Capital Plan. Under the Conditional Share Capital Plan, the Company may at its discretion grant to plan participants, such as directors, certain employees and service providers, awards in the form of restricted shares and RSUs, share options, share appreciation rights, performance awards and other share-based awards. The Company has reserved 8,000,000 common shares for future issuance under this plan. On December 6, 2023, the Company issued its 2024 annual equity award under the Conditional Share Capital Plan, which was approved by the Compensation Committee of the Board of Directors and by the Board of Directors for the senior management team, consisted of 5,596,166 RSUs. No share options were issued in connection with this award. Accordingly, as of December 31, 2024, the Company has 3,355,883 common shares available for the future issuance of share-based equity awards.

As of December 31, 2024 and 2023, the cumulative amount recorded as a net increase to additional paid-in capital within equity on the consolidated balance sheets in respect of the Conditional Share Capital Plan was $2,964 and $319. The amounts of expense for all awards recognized for services received during the years ended December 31, 2024 and December 31, 2023 was $3,808 and $319.

Inducement Plan

In December 2023, the Company adopted the Inducement Plan. Under the Inducement Plan, the Company may at its discretion grant to any employee who is eligible to receive an employment inducement grant in accordance with NYSE Listed Company Manual 303A.08. The maximum number of common shares in respect of which awards may be granted under the Inducement Plan is 1,000,000 common shares (including share-based equity awards granted to date, less awards forfeited), subject to adjustment in the event of certain corporate transactions or events if necessary to prevent dilution or enlargement of the benefits made available under the plan. Equity incentive awards under the Inducement Plan may be granted in the form of options, share appreciation rights, restricted shares, restricted share units, performance awards or other share-based awards but not “incentive stock options” for purposes of U.S. tax laws. As of December 31, 2024, the Company has 357,300 common shares available for the future issuance of share-based equity awards under this plan. There wereno awards issued under this plan during the year ended December 31, 2023.

As of December 31, 2024, the cumulative amount recorded as a net increase to additional paid-in capital within equity on the unaudited condensed consolidated balance sheets in respect of the Inducement Plan was $554. The amount of expense for all awards recognized for services received during the years ended December 31, 2024 was $554.

Equity Exchange Program

On March 6, 2023, the Company commenced a tender offer with employees to exchange some or all of their eligible stock options based on a pre-determined exchange ratio for new options as detailed in our Schedule TO filed March 6, 2023 with the Securities and Exchange Commission (the “Exchange Offer”), to, among other things, further align employee incentives with the current market conditions. The Exchange Offer expired on April 3, 2023 and new options were granted on April 4, 2023. Employees holding stock options to purchase 2.2 million common shares, with exercise prices ranging from $8.12 per share to $48.77 per share, participated in the Exchange Offer, and 0.9 million new options were granted based on the exchange ratios set forth in the Exchange Offer. The new options have an exercise price of $2.06 per share, which is equal to the closing price of the Company’s common shares as reported on the NYSE on April 4, 2023. The new options include additional vesting conditions. Any previously held options that were vested at the time of exchange would become fully vested on April 4, 2024. With respect to any options held that were unvested at the time of grant, a portion of the new options will vest on the first anniversary date with additional portions vesting monthly thereafter until the new options are fully vested five years after the original grant date.

Under U.S. GAAP, the incremental compensation expense of a modified award is measured as the excess of the fair value of each award of new options granted to participants in this Exchange Offer, measured as of the date the new options are granted, over the fair value of the eligible options replaced in exchange for the new options, measured immediately prior to the replacement. The Company utilized a binomial valuation model and determined there was no incremental share-based compensation expense associated with the new options granted under this Exchange Offer. The Company will continue to recognize share-based compensation expense equal to the grant date fair value of the exchanged options.

Share Options

Pursuant to the 2019 Equity Incentive Plan, the Conditional Share Capital Plan and Inducement Plan (the “Share-based Compensation Plans”) the Company may grant share options to its directors, certain employees and service providers working for the benefit of the Company at the time. The exercise price per share option is set by the Company at the fair market value of the underlying common shares on the date of grant, as determined by the Company, which is generally the closing share price of the Company’s common shares traded on the NYSE. The awards generally vest 25% on the first anniversary of the date of grant, and thereafter evenly on a monthly basis over the subsequent three years. The contractual term of each share option award granted isten years. Under the grant, the options may be settled only in common shares of the Company. Therefore, the grants of share options under the 2019 Equity Incentive Plan and Inducement Plan have been accounted for as equity-settled under US GAAP. As such, the Company records a charge for the vested portion of award grants and for partially earned but non-vested portions of award grants. This results in a front-loaded charge to the Company’s consolidated statements of operations and a corresponding increase to additional paid-in capital within equity on the consolidated balance sheets.

The expense recognized for services received during the years ended December 31, 2024 and December 31, 2023 is $2,129 and $6,530, respectively.

Movements in the number of awards outstanding under the Plans described above and their related weighted average strike prices are as follows:

Of the total awards outstanding as of December 31, 2024, there were 5,875,127 awards are vested and exercisable. As of December 31, 2024, the weighted average strike price and weighted average remaining life for vested and exercisable awards is $12.57 and 6.81 years, respectively. Awards outstanding as of December 31, 2024 have expiration dates through 2034. The weighted average grant date fair value of the awards granted during the year ended December 31, 2024 and 2023 was $2.66 and $1.53, respectively. The aggregate intrinsic value of vested and exercisable options was zero. As of December 31, 2024, the unrecognized compensation cost related to 4,822,161 unvested share options expected to vest was $8.5 million. This unrecognized cost will be recognized over an estimated weighted-average amortization period of 1.56.

The fair values of the options were determined on the date of the grant using the Black-Scholes option-pricing model using the following assumptions:

During the six months ended June 30, 2023, the expected volatility was based on the Company’s historical volatility and selected volatility determined by median values observed among other comparable public companies. Beginning in the third quarter of 2023, the Company’s expected volatility is no longer determined by values observed among other comparable companies and is now based solely on the Company’s historical volatility. The award life for options granted was based on the time interval between the date of grant and the date during theten-year life after which, when making the grant, the Company expected on average that participants would exercise their options.

The fair value of the new options granted under the Equity Exchange program was estimated at the date of grant using a binomial model with the following assumptions: Share price of $2.06, expected volatility of 77% -79%, expected risk-free interest rate of 3.29% -3.31%, expected dividends of 0% and expected term was derived based on the contractual term of the options, the expected exercise behavior and expected post-vesting forfeiture rates. The Company used a third party valuation firm to assist in calculating the fair value of the new award grants per participant.

RSUs

Pursuant to the Share-based Compensation Plans, the Company may grant RSUs to its directors, certain employees and service providers working for the benefit of the Company at the time. The awards generally vest annually over a period oftwo tothree years commencing on the first anniversary of the date of grant. The RSUs may be settled only in common shares of the Company. Therefore, the grant of RSUs under the 2019 Equity Incentive Plan and Conditional Share Capital Plan have been accounted for as equity-settled under US GAAP. As such, the Company records a charge for the vested portion of award grants and for partially earned but non-vested portions of award grants. This results in a front-loaded charge to the Company’s consolidated statements of operations and a corresponding increase to additional paid-in capital within equity on the consolidated balance sheets. The expense recognized for services received during the years ended December 31, 2024 and December 31, 2023 is $5,272 and 6,593, respectively. An amount of $1,163 was withheld for tax withholding obligations during the year ended December 31, 2024.

(1) Includes 371,524 shares withheld to cover tax withholding obligations in connection with the vesting of RSUs previously granted.

The total fair value of RSU awards vested (as measured on the date of vesting) during the years ended December 31, 2024 and December 31, 2023 was $10.0 million and $3.1 million, respectively.

Employee Stock Purchase Plan

In June 2022, the Company adopted the 2022 Employee Stock Purchase Plan (“ESPP”), which allows eligible employees to purchase designated shares of the Company's common shares at a discount, over a series of offering periods through accumulated payroll deductions. The Company generally offers the ESPP to employees twice a year with each having asix-month offering period. The first offering period is generally from January 1st through June 30th and the second offering period is from July 1st through December 31st. The grant date is the first day of each offering period.

The expense recognized related to the ESPP during the years ended December 31, 2024 and December 31, 2023 is $330 and $372, respectively.

19. Loss per share

The basic loss per share is calculated by dividing the net loss attributable to shareholders by the weighted average number of shares in issue during the period, excluding common shares owned by the Company and held as treasury shares, as follows:

For the year ended December 31, 2024 and December 31, 2023, basic and diluted loss per share are calculated on the weighted average number of shares issued and outstanding and also include the Pre-funded warrants issued in connection with the 2024 Equity Offering. The calculation excludes shares to be issued under the Share-based Compensation Plans, the Company’s Deerfield warrants and shares to be issued under the 2022 ESPP as the effect of including those shares would be anti-dilutive. See Note 10, “Senior secured term loan facility and warrants,” Note 11, “Deerfield warrants”, Note 15, “Shareholders’ Equity” and Note 18, “Share-based compensation,” for further information.

Potentially dilutive securities that were not included in the diluted per share calculations because the effect of including them would be anti-dilutive were as follows:

20. Segment Reporting

The Company is managed and operated asone reportable segment, which includes all global activities related to the development and commercialization of targeted ADC cancer therapies. The determination of a single reportable segment is consistent with the consolidated financial information regularly provided to the Company’s CODM, which is its chief executive officer. The CODM uses loss from operations and consolidated net loss for purposes of assessing performance, making operating decisions, allocating resources and planning and forecasting for future periods. The CODM allocates resources and plans for the long-term growth of the Company based on the Company's available cash resources, forecasted cash flow, and expenditures on a consolidated basis, as well as an assessment of the probability of success of its research and development activities. Resource allocation and long-term growth decisions are informed by budgeted and forecasted expense information, along with actual expenses incurred to date. The measure of segment assets is reported on the consolidated balance sheets as total assets.

The following table is the summary of the segment profit or loss information, including the significant expense categories for the years ended December 31, 2024 and 2023, respectively:

(1)Excludes share-based compensation

(2)Includes Other expense, net, Income tax expense and Equity in net losses of joint venture