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6-K Filing
ADC Therapeutics (ADCT) 6-KCurrent report (foreign)
Filed: 18 Aug 20, 7:19am
Exhibit 99.1
Unaudited IFRS Condensed Consolidated Interim Financial Statements as of and for the three and six months ended June 30, 2020
Condensed Consolidated Interim Statement of Income | 2 |
Condensed Consolidated Interim Statement of Comprehensive Income | 3 |
Condensed Consolidated Interim Balance Sheet | 4 |
Condensed Consolidated Interim Statement of Changes in Equity | 5-6 |
Condensed Consolidated Interim Statement of Cash Flows | 7 |
Notes to the Condensed Consolidated Interim Financial Statements | 8-23 |
1
ADC Therapeutics SA
Condensed Consolidated Interim Statement of Income
(in KUSD except for share and per share data)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||
Note | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
Contract revenue | 6 | - | 1,962 | - | 2,340 | |||||||||||||
Operating expense | ||||||||||||||||||
Research and development | 7 | (25,950 | ) | (21,760 | ) | (61,325 | ) | (46,572 | ) | |||||||||
General and administrative | 8 | (18,999 | ) | (4,089 | ) | (27,509 | ) | (6,592 | ) | |||||||||
Total operating expense | (44,949 | ) | (25,849 | ) | (88,834 | ) | (53,164 | ) | ||||||||||
Loss from operations | (44,949 | ) | (23,887 | ) | (88,834 | ) | (50,824 | ) | ||||||||||
Other income (expense) | ||||||||||||||||||
Other income | 130 | - | 278 | - | ||||||||||||||
Convertible loans, derivatives, increase in fair value | 11 | (79,261 | ) | - | (79,261 | ) | - | |||||||||||
Convertible loans, first tranche, derivative, transaction costs | 11 | (1,571 | ) | - | (1,571 | ) | - | |||||||||||
Financial income | 195 | 659 | 569 | 1,306 | ||||||||||||||
Financial expense | (897 | ) | (36 | ) | (939 | ) | (73 | ) | ||||||||||
Exchange differences | (100 | ) | 10 | (71 | ) | (68 | ) | |||||||||||
Total other income (expense) | (81,504 | ) | 633 | (80,995 | ) | 1,165 | ||||||||||||
Loss before taxes | (126,453 | ) | (23,254 | ) | (169,829 | ) | (49,659 | ) | ||||||||||
Income tax expense | (104 | ) | (94 | ) | (204 | ) | (199 | ) | ||||||||||
Net loss | (126,557 | ) | (23,348 | ) | (170,033 | ) | (49,858 | ) | ||||||||||
Net loss attributable to: | ||||||||||||||||||
Owners of the parent | (126,557 | ) | (23,348 | ) | (170,033 | ) | (49,858 | ) | ||||||||||
Net loss per share, basic and diluted | 15 | (2.01 | ) | (0.49 | ) | (2.97 | ) | (1.05 | ) |
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
2
ADC Therapeutics SA
Condensed Consolidated Interim Statement of Comprehensive Income
(in KUSD)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net Loss | (126,557 | ) | (23,348 | ) | (170,033 | ) | (49,858 | ) | ||||||||
Other comprehensive income | ||||||||||||||||
Items that will not be reclassified to profit and loss | ||||||||||||||||
Remeasurements of defined benefit plan | - | (16 | ) | - | (7 | ) | ||||||||||
Total items that will not be reclassified to profit and loss | - | (16 | ) | - | (7 | ) | ||||||||||
Items that may be reclassified to profit and loss | ||||||||||||||||
Currency translation differences | (13 | ) | (42 | ) | (215 | ) | (8 | ) | ||||||||
Total items that may be reclassified to profit and loss | (13 | ) | (42 | ) | (215 | ) | (8 | ) | ||||||||
Other comprehensive loss for the period | (13 | ) | (58 | ) | (215 | ) | (15 | ) | ||||||||
Total comprehensive loss for the period | (126,570 | ) | (23,406 | ) | (170,248 | ) | (49,873 | ) | ||||||||
Total comprehensive loss attributable to: | ||||||||||||||||
Owners of the parent | (126,570 | ) | (23,406 | ) | (170,248 | ) | (49,873 | ) |
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
3
ADC Therapeutics SA
Condensed Consolidated Interim Balance Sheet
(in KUSD)
June 30, | December 31, | |||||||||
Note | 2020 | 2019 | ||||||||
ASSETS | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | 9 | 348,593 | 115,551 | |||||||
Other current assets | 10,532 | 7,055 | ||||||||
Total current assets | 359,125 | 122,606 | ||||||||
Non-current assets | ||||||||||
Property, plant and equipment | 1,260 | 1,376 | ||||||||
Right-of-use assets | 4,248 | 4,898 | ||||||||
Intangible assets | 10 | 8,825 | 8,434 | |||||||
Other long-term assets | 384 | 368 | ||||||||
Total non-current assets | 14,717 | 15,076 | ||||||||
Total assets | 373,842 | 137,682 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||
Current liabilities | ||||||||||
Accounts payable | 6,797 | 3,329 | ||||||||
Other current liabilities | 20,211 | 15,430 | ||||||||
Lease liabilities, short-term | 1,099 | 1,132 | ||||||||
Current income tax payable | 148 | 52 | ||||||||
Convertible loans, short-term | 11 | 3,113 | - | |||||||
Total current liabilities | 31,368 | 19,943 | ||||||||
Non-current liabilities | ||||||||||
Convertible loans, long-term | 11 | 32,855 | - | |||||||
Convertible loans, derivatives | 11 | 107,058 | - | |||||||
Lease liabilities, long-term | 3,334 | 3,899 | ||||||||
Defined benefit pension liabilities | 2,925 | 2,684 | ||||||||
Total non-current liabilities | 146,172 | 6,583 | ||||||||
Total liabilities | 177,540 | 26,526 | ||||||||
Equity attributable to owners of the parent | ||||||||||
Share capital | 13 | 5,795 | 4,361 | |||||||
Share premium | 13 | 792,605 | 549,922 | |||||||
Treasury shares | 13 | (4 | ) | (100 | ) | |||||
Other reserves | 16,654 | 5,473 | ||||||||
Cummulative translation adjustment | (146 | ) | 69 | |||||||
Accumulated losses | (618,602 | ) | (448,569 | ) | ||||||
Total equity attributable to owners of the parent | 196,302 | 111,156 | ||||||||
Total liabilities and equity | 373,842 | 137,682 |
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
4
ADC Therapeutics SA
Condensed Consolidated Interim Statement of Changes in Equity
(in KUSD)
For the three and six months ended June 30, 2019 | ||||||||||||||||||||||||||||||||
Share | Share | Other | Shares to | Cummulative Translation | Accumulated | Total | ||||||||||||||||||||||||||
Note | Capital | Premium | Reserves | be issued | Adjustments | Losses | Equity | |||||||||||||||||||||||||
January 1, 2019 | 401 | 452,268 | 5,702 | - | (43 | ) | (332,085 | ) | 126,243 | |||||||||||||||||||||||
Loss for the period | - | - | - | - | - | (26,510 | ) | (26,510 | ) | |||||||||||||||||||||||
Translation adjustment | - | - | - | - | 34 | - | 34 | |||||||||||||||||||||||||
Remeasurement of defined benefit pension liability | - | - | 9 | - | - | - | 9 | |||||||||||||||||||||||||
Total other comprehensive income / (loss) | - | - | 9 | - | 34 | - | 43 | |||||||||||||||||||||||||
Total comprehensive income / (loss) for the period | - | - | 9 | - | 34 | (26,510 | ) | (26,467 | ) | |||||||||||||||||||||||
Issuance of share capital | 13 | 1 | - | - | - | - | - | 1 | ||||||||||||||||||||||||
Transaction costs | 13 | - | (19 | ) | - | - | - | - | (19 | ) | ||||||||||||||||||||||
Share-based compensation expense | 12 | - | - | 84 | - | - | - | 84 | ||||||||||||||||||||||||
Total transactions with owners | 1 | (19 | ) | 84 | - | - | - | 66 | ||||||||||||||||||||||||
March 31, 2019 | 402 | 452,249 | 5,795 | - | (9 | ) | (358,595 | ) | 99,842 | |||||||||||||||||||||||
Loss for the period | - | - | - | - | - | (23,348 | ) | (23,348 | ) | |||||||||||||||||||||||
Translation adjustment | - | - | - | - | (42 | ) | - | (42 | ) | |||||||||||||||||||||||
Remeasurement of defined benefit pension liability | - | - | (16 | ) | - | - | - | (16 | ) | |||||||||||||||||||||||
Total other comprehensive loss | - | - | (16 | ) | - | (42 | ) | - | (58 | ) | ||||||||||||||||||||||
Total comprehensive loss for the period | - | - | (16 | ) | - | (42 | ) | (23,348 | ) | (23,406 | ) | |||||||||||||||||||||
Issuance of share capital | 13 | 22 | 76,277 | - | 26,950 | - | - | 103,249 | ||||||||||||||||||||||||
Transaction costs | 13 | - | (1,443 | ) | - | (309 | ) | - | - | (1,752 | ) | |||||||||||||||||||||
Share-based compensation expense | 12 | - | - | 56 | - | - | - | 56 | ||||||||||||||||||||||||
Total transactions with owners | 22 | 74,834 | 56 | 26,641 | - | - | 101,553 | |||||||||||||||||||||||||
June 30, 2019 | 424 | 527,083 | 5,835 | 26,641 | (51 | ) | (381,943 | ) | 177,989 |
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
5
ADC Therapeutics SA
Condensed Consolidated Interim Statement of Changes in Equity
(in KUSD)
For the three and six months ended June 30, 2020 | ||||||||||||||||||||||||||||||||
Share | Share | Other | Treasury | Cummulative Translation | Accumulated | Total | ||||||||||||||||||||||||||
Note | Capital | Premium | Reserves | Shares | Adjustments | Losses | Equity | |||||||||||||||||||||||||
January 1, 2020 | 4,361 | 549,922 | 5,473 | (100 | ) | 69 | (448,569 | ) | 111,156 | |||||||||||||||||||||||
Loss for the period | - | - | - | - | - | (43,476 | ) | (43,476 | ) | |||||||||||||||||||||||
Translation adjustment | - | - | - | - | (202 | ) | - | (202 | ) | |||||||||||||||||||||||
Total other comprehensive loss | - | - | - | - | (202 | ) | - | (202 | ) | |||||||||||||||||||||||
Total comprehensive loss for the period | - | - | - | - | (202 | ) | (43,476 | ) | (43,678 | ) | ||||||||||||||||||||||
Share-based compensation expense | 12 | - | - | 3,790 | - | - | - | 3,790 | ||||||||||||||||||||||||
Total transactions with owners | - | - | 3,790 | - | - | - | 3,790 | |||||||||||||||||||||||||
March 31, 2020 | 4,361 | 549,922 | 9,263 | (100 | ) | (133 | ) | (492,045 | ) | 71,268 | ||||||||||||||||||||||
Loss for the period | - | - | - | - | - | (126,557 | ) | (126,557 | ) | |||||||||||||||||||||||
Translation adjustment | - | - | - | - | (13 | ) | - | (13 | ) | |||||||||||||||||||||||
Total other comprehensive loss | - | - | - | - | (13 | ) | - | (13 | ) | |||||||||||||||||||||||
Total comprehensive loss for the period | - | - | - | - | (13 | ) | (126,557 | ) | (126,570 | ) | ||||||||||||||||||||||
Shares surrended to redeem share purchase plan promissory notes | 13 | - | 11,208 | - | (11,208 | ) | - | - | - | |||||||||||||||||||||||
Issuance of shares through capitalization of reserves | 13 | 393 | (393 | ) | - | - | - | - | - | |||||||||||||||||||||||
Issuance of shares to be held as treasury shares | 13 | 34 | - | - | (34 | ) | - | - | - | |||||||||||||||||||||||
Grant of shares to settle 2014 incentive plan awards | 13 | - | (29 | ) | - | 29 | - | - | - | |||||||||||||||||||||||
Issuance of shares at initial public offering | 13 | 1,007 | 231,661 | - | - | - | - | 232,668 | ||||||||||||||||||||||||
Sale of shares under greenshoe option | 13 | - | 23,591 | - | 11,309 | - | - | 34,900 | ||||||||||||||||||||||||
Transaction costs, initial public offering and greenshoe option | 13 | - | (23,355 | ) | - | - | - | - | (23,355 | ) | ||||||||||||||||||||||
Share-based compensation expense | 12 | - | - | 7,391 | - | - | - | 7,391 | ||||||||||||||||||||||||
Total transactions with owners | 1,434 | 242,683 | 7,391 | 96 | - | - | 251,604 | |||||||||||||||||||||||||
June 30, 2020 | 5,795 | 792,605 | 16,654 | (4 | ) | (146 | ) | (618,602 | ) | 196,302 |
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
6
ADC Therapeutics SA
Condensed Consolidated Interim Statement of Cash Flows
(in KUSD)
For the Six Months Ended June 30, | ||||||||||||
Note | 2020 | 2019 | ||||||||||
Cash used in operating activities | ||||||||||||
Loss for the period | (170,033 | ) | (49,858 | ) | ||||||||
Adjustments for non-monetary items: | ||||||||||||
Share-based compensation expense | 12 | 11,181 | 140 | |||||||||
Depreciation of property, plant and equipment | 294 | 269 | ||||||||||
Amortization of intangible assets | 17 | 13 | ||||||||||
Depreciation of right-of-use assets | 569 | 513 | ||||||||||
Change in defined benefit pension liability | 189 | 158 | ||||||||||
Convertible loans, derivatives, increase in fair value | 11 | 79,261 | - | |||||||||
Financial income | (569 | ) | (852 | ) | ||||||||
Interest expense on convertible loans | 11 | 868 | - | |||||||||
Exchange differences | - | (2 | ) | |||||||||
Income taxes | 204 | 199 | ||||||||||
Changes in assets and liabilities: | ||||||||||||
Decrease in trade accounts receivable | - | 182 | ||||||||||
(Increase) in other current assets | (3,569 | ) | (277 | ) | ||||||||
(Decrease) in contract liability | 6 | - | (2,340 | ) | ||||||||
Increase / (Decrease) in accounts payable | 3,468 | (5,579 | ) | |||||||||
Increase in other liabilities | 4,781 | 906 | ||||||||||
Cash used in operating activities | (73,339 | ) | (56,528 | ) | ||||||||
Interest received | 588 | 970 | ||||||||||
Interest expense on lease obligations | 61 | 73 | ||||||||||
Tax refunded (paid) | 2 | (203 | ) | |||||||||
Net cash used in operating activities | (72,688 | ) | (55,688 | ) | ||||||||
Cash used in investing activities | ||||||||||||
Payment for purchase of property, plant and equipment | (226 | ) | (150 | ) | ||||||||
Payment for purchase of intangible assets | 10 | (408 | ) | (1,757 | ) | |||||||
Net cash used in investing activities | (634 | ) | (1,907 | ) | ||||||||
Cash from financing activities | ||||||||||||
Proceeds from capital contributions, net of transaction costs | - | 74,838 | ||||||||||
Proceeds from public offering of common shares, net of underwriting fees and other transaction costs | 13 | 244,213 | - | |||||||||
Proceeds from convertible loans, net | 11 | 62,896 | - | |||||||||
Proceeds from shares to be issued, net of transaction costs | - | 26,641 | ||||||||||
Principal payments of lease obligations | (615 | ) | (548 | ) | ||||||||
Net cash from financing activities | 306,494 | 100,931 | ||||||||||
Net increase in cash and cash equivalents | 233,172 | 43,336 | ||||||||||
Exchange gain / (losses) on cash and cash equivalents | (130 | ) | 13 | |||||||||
Cash and cash equivalents at beginning of the period | 115,551 | 138,807 | ||||||||||
Cash and cash equivalents at end of the period | 348,593 | 182,156 |
The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
7
ADC Therapeutics SA
Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) – in KUSD except for share and per share data
1. | Corporate information |
ADC Therapeutics SA (the “Company” or “ADCT”) was incorporated on June 6, 2011 under the laws of Switzerland. The registered office of the Company is located at Route de la Corniche 3B, 1066 Epalinges, Switzerland. The Company controls two 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”), which was incorporated in England on December 12, 2014. The Company and its two subsidiaries form the ADCT Group (the “Group”).
The Group is focused on the development of antibody drug conjugates, including research, development, human clinical trials, regulatory approval and commercialization. Antibody drug conjugates (“ADCs”) are drug constructs which combine monoclonal antibodies specific to particular types of cells with cytotoxic molecules or warheads which seek to kill any cancer cell to which the ADC attaches. ADCs have extensive potential therapeutic applications in cancer.
These unaudited condensed consolidated interim financial statements were authorized for issue by the Board of Directors on August 12, 2020.
Initial Public Offering (IPO)
On May 19, 2020, the Company completed an IPO on the New York Stock Exchange in which it issued and sold an aggregate of 14,082,475 common shares at USD 19.00 per share, which included 1,836,844 common shares issued and sold pursuant to the underwriters’ exercise in full of their option to purchase additional common shares. The gross proceeds from the IPO were USD 267.6 million, and net proceeds were USD 248.9 million after deducting underwriting discounts and commissions and before deducting fees and expenses payable by the Company. The IPO resulted in a gross increase of USD 255.3 million in the Company’s share premium account prior to transaction costs associated with the IPO share issuance of USD 4.7 million and underwriting discounts and commissions of USD 18.7 million, both of which were charged directly against the Company’s share premium account. Further details are contained in note 13, “Share capital, share premium and treasury shares”.
Going concern basis
ADC Therapeutics SA is a late-clinical-stage company developing innovative therapeutics. The Group is exposed to all risks inherent in establishing and developing its business, including the substantial uncertainty that current projects will succeed. The Group’s success may also depend on its ability to:
· | establish and maintain a strong patent position and protection; |
· | enter into collaborations with partners in the pharmaceutical industry; |
· | acquire and retain key personnel; and |
· | acquire additional funding to support its operations. |
Since its incorporation, the Group has primarily funded its growth through capital increases and additional funds provided by research collaborations and, in the most recent quarter, by a public offering and the issuance of convertible loans (see note 11, “Convertible loans”). The Group does not have recourse to bank loans. As a result, the Group is not exposed to liquidity risk through requests for early repayment of loans, other than, pursuant to the convertible loans, it must maintain a balance of at least USD 50 million in cash and cash equivalents at the end of each quarter.
As at June 30, 2020, the Group’s cash and cash equivalents amounted to USD 348.6 million (December 31, 2019: USD 115.6 million).
8
The Board of Directors believes that the Group has sufficient financial resources to cover its operating costs for at least the next 12 months from the date of issuance of these unaudited condensed consolidated interim financial statements and, as a result, is presenting these unaudited condensed consolidated interim financial statements of the Group on a going concern basis.
COVID – 19
On March 11, 2020, the World Health Organization declared the outbreak of the coronavirus disease (“COVID-19”) caused by a novel strain of coronavirus as a pandemic, which continues to spread throughout the United States, the European Union, Switzerland, the United Kingdom and around the world. Since then, COVID-19 has continued to spread, impacting the economies of most countries around the world. The Company’s operations, similar to those of other life sciences companies, have been impacted by the COVID-19 pandemic. As the Company advances its clinical programs, it is in close contact with its principal investigators and clinical sites, which are located in jurisdictions affected by the COVID-19 pandemic, and is assessing the impact of the COVID-19 pandemic on its clinical trials, expected timelines and costs on an ongoing basis. In light of recent developments relating to the COVID-19 pandemic, the primary focus of healthcare providers and hospitals is currently on fighting the novel coronavirus. In addition, in response to the spread of COVID-19, the Company has modified its business practices, including restricting employee travel, developing social distancing plans for its employees and cancelling physical participation in meetings, events and conferences. In addition, certain of the Company’s clinical trials have experienced delays or suspensions in patient enrollment as a result of the COVID-19 pandemic. This partial disruption, even temporary, may severely impact the Company’s operations and overall business by delaying the progress of its clinical trials and preclinical studies. As the COVID-19 pandemic continues to evolve, the Company believes the extent of the impact to its operations, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the pandemic, the pandemic’s impact on the U.S. and global economies and the timing, scope and effectiveness of national and local governmental responses to the pandemic, especially in areas where the conditions have recently worsened. Those primary drivers are beyond the Company’s knowledge and control, and as a result, at this time the ultimate impact on the Company's results of operations, cash-flows and financial position in 2020 and thereafter cannot be reasonably predicted. Furthermore, the impact to the Company’s businesses, operating results, cash flows, liquidity and financial condition may be further impacted if the current circumstances continue to exist for a prolonged period of time. However, on the basis of the risk mitigation measures undertaken, the Company has concluded that there is no material uncertainty that may cast a significant doubt upon the Company’s ability to continue as a going concern.
2. | Basis of preparation |
Statement of Compliance
These unaudited condensed consolidated interim financial statements as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) and should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2019.
Functional and reporting currency
These unaudited condensed consolidated interim financial statements are presented in United States Dollars (“USD”), which is the Company’s functional currency and the Group’s reporting currency.
A subsidiary of the Company, ADCT UK, has a functional currency of the British Pound (“GBP”). The following exchange rates have been used for the translation of the financial statements of ADCT UK:
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
USD / GBP | ||||||||
Closing rate, GBP 1 | 1.23272 | 1.26898 | ||||||
Weighted average exchange rate, GBP 1 | 1.23277 | 1.29507 |
9
Basis of Consolidation
The unaudited condensed consolidated interim financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
The consolidated entities include:
Ownership Interest | ||||||||
June 30, 2020 | June 30, 2019 | |||||||
ADC Therapeutics America, Inc. (“ADCT America”) | 100 | % | 100 | % | ||||
ADC Therapeutics (UK) Ltd (“ADCT UK”) | 100 | % | 100 | % |
Use of estimates and judgements
The preparation of the unaudited condensed consolidated interim financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
Estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
In preparing these unaudited condensed consolidated interim financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty included those that applied to the consolidated financial statements for the year ended December 31, 2019.
In addition, significant judgements were required in implementing the Company’s accounting policy for the convertible loans, as set out in note 3, “Significant accounting policies”. In particular, significant judgement was required in deciding whether the conversion option derivative embedded in the notes was of a liability or equity nature, in selecting the appropriate models to value the derivatives arising from the first and second tranches of the convertible notes and in identifying the appropriate key assumptions as inputs to the selected models. Details of the models and assumptions are set out in note 11, “Convertible loans”.
Share split and share consolidation
As explained in note 13, “Share capital, share premium and treasury shares”, on September 19, 2019, the Company effected a one to 15,625 share split of its outstanding shares and, on April 24, 2020, the Company effected a five to four share consolidation of its outstanding shares. Accordingly, all share and per share amounts for all periods presented in these unaudited condensed consolidated interim financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the share split and share consolidation.
3. | Significant accounting policies |
The accounting policies applied by the Company in these unaudited condensed consolidated interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as of and for the year ended December 31, 2019 and have been applied consistently to all periods presented in these unaudited condensed consolidated interim financial statements, except as disclosed below.
Convertible loans
The Company entered into a USD 115 million Facility Agreement (see note 11, “Convertible loans”) on April 24, 2020, pursuant to which the counterparty agreed to extend senior secured convertible term loans to the Company in two separate disbursements:
10
(i) | an initial disbursement of convertible loans in the amount of USD 65 million upon the completion of the IPO, and satisfaction of certain other conditions (the “first tranche”) and |
(ii) | a subsequent disbursement of convertible loans amounting to USD 50 million upon the receipt of regulatory approval for a specified product candidate, and satisfaction of certain other conditions (the “second tranche”). |
Accounting for the first tranche
On May 19, 2020 ADCT received convertible loans in the amount of USD 65 million upon completion of the IPO. These convertible loans have been recognized as a hybrid financial instrument and accounted for as two separate components: (i) a loan and (ii) an embedded conversion option derivative.
(i) | The embedded conversion option derivative has been initially measured at fair value and is subsequently remeasured to fair value at each reporting date. Under IAS 32, this derivative could have been classified as a component of equity only if in all cases the contract would be settled by the Company delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or debt redemption. However, the agreement foresees, in the event of a major transaction, the payment of “make-whole” amounts that would have to be computed in the light of the circumstances and are therefore not fixed. As a result, the derivative is presented in the balance sheet as a liability and classified as non-equity in accordance with IFRS 9. Changes in the fair value (gains or losses) of the derivative at the end of each period are recorded in the consolidated statement of income. |
(ii) | The convertible loan’s initial fair value is the residual amount of the consideration received, net of attributable costs, after separating out the fair value of the embedded conversion option derivative. The loan is subsequently measured at its amortized cost in accordance with IFRS 9. It is presented in the unaudited condensed consolidated interim balance sheet as a financial liability. |
Expenses and fees payable upon the issuance of the convertible loans have been allocated pro rata to the above two components. The share of expenses allocated to the embedded conversion option derivative has been charged directly to the unaudited condensed consolidated interim statement of income, while the share of expenses allocated to the residual convertible loan has been deducted from the loan.
Accounting for the second tranche
The Company is obligated to draw down the second tranche in the amount of USD 50 million upon receipt of regulatory approval for a specified drug candidate. This obligation has been accounted for as a derivative, and presented in the unaudited condensed consolidated interim balance sheet as a financial liability with changes in its fair value being recorded directly in the unaudited condensed consolidated interim statement of income at the end of each accounting period.
New and amended IFRS standards
There are no new IFRS standards, amendments to standards or interpretations that are mandatory for the financial year beginning on January 1, 2020, that are relevant to the Group and that have had any impact in the interim periods. New standards, amendments to standards and interpretations that are not yet effective, which have been deemed by the Group as currently not relevant, are not listed here.
Income tax expense
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.
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4. | Financial risk management |
4.1 | Financial risk factors |
The Group’s activities are exposed to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk.
The unaudited condensed consolidated interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s consolidated financial statements as at December 31, 2019.
There have been no changes in financial risk management since year-end, except with regard to the issuance of the convertible loans, as set out in note 11, “Convertible loans”, in connection with liquidity risk. Under the related agreement, the Company is subject to a covenant that requires it to maintain a balance of at least USD 50 million in cash and cash equivalents at the end of each quarter.
4.2 | Fair value estimation |
At June 30, 2020, the carrying amount is a reasonable approximation of fair value for the following financial assets and liabilities:
· | Cash and cash equivalents |
· | Trade accounts payable |
In the six months ended June 30, 2020, there were no significant changes in the business or economic circumstances that affected the fair value of the Group’s financial assets and financial liabilities.
Fair values have to be estimated on an ongoing basis with regard to awards under the ADC Therapeutics SA 2019 Equity Incentive Plan (the “Equity Incentive Plan 2019”), with regard to the convertible loan conversion option derivative related to the first tranche of the convertible loans and with regard to the derivative arising from the obligation related to the second tranche of the convertible loans. The approach to valuation and the key input factors are described for the share-based compensation awards in note 12, “Share-based compensation” and for the convertible loan derivatives in note 11, “Convertible loans”.
Commonly accepted pricing models (Hull and Goldman Sachs) have been used to calculate the fair value of the convertible loan derivatives. The valuation of the embedded derivative in the first tranche is classified as pertaining to level 2 of the valuation hierarchy set out below and the valuation of the derivative relating to the second tranche is classified as pertaining to level 3 of the valuation hierarchy set out below.
The different levels of the valuation hierarchy have been defined as follows:
(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.
There were no transfers between the respective levels during the period.
5. | Segment information |
Management considers the Group to have only a single segment: R&D. This is consistent with the way that information is reported internally within the Group for the purpose of allocating resources and assessing performance.
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6. | Contract Revenue |
Contract revenue represents the amortization of upfront payments received under license and collaboration contracts in order to finance the research and development that is the subject of those contracts as well as associated milestone payments. In 2013, the Company entered into a license and joint collaboration agreement which was subsequently discontinued in June 2019. As a result of the discontinuance of this joint development program, the remaining balance of the non-refundable upfront payment (consisting of deferred revenue and presented as a contract liability) received under the related license and collaboration agreement was recognized in the first half of 2019 as contract revenue and no additional contracts giving rise to current contract revenue have been entered into by the Company.
The movement in deferred contract revenue, for the three months ended June 30, 2020 and 2019, previously presented under current liabilities, is shown below:
Three months ended | ||||||||
in KUSD | 2020 | 2019 | ||||||
April 1, | - | 1,962 | ||||||
Recognized as contract revenue | - | (1,962 | ) | |||||
June 30, | - | - |
The movement in deferred contract revenue, for the six months ended June 30, 2020 and 2019, previously presented under current liabilities, is shown below:
Six months ended | ||||||||
in KUSD | 2020 | 2019 | ||||||
January 1, | - | 2,340 | ||||||
Recognized as contract revenue | - | (2,340 | ) | |||||
June 30, | - | - |
7. | Research and development expense |
The following table summarizes research and development expense for the three months ended June 30, 2020 and 2019:
Three months ended June 30, | ||||||||
in KUSD | 2020 | 2019 | ||||||
External costs 1 | 16,161 | 16,415 | ||||||
Employee expense 2 | 9,789 | 5,345 | ||||||
Research and development expense | 25,950 | 21,760 |
1 Includes depreciation expense | |||
2 Includes share-based compensation expense |
The following table summarizes research and development expense for the six months ended June 30, 2020 and 2019:
Six months ended June 30, | ||||||||
in KUSD | 2020 | 2019 | ||||||
External costs 1 | 42,300 | 36,041 | ||||||
Employee expense 2 | 19,025 | 10,531 | ||||||
Research and development expense | 61,325 | 46,572 |
1 Includes depreciation expense | |||
2 Includes share-based compensation expense |
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The increases in employee expense in the three and six months ended June 30, 2020 are due to an increased number of research and development employees and to increased share-based compensation expense.
8. | General and administrative expense |
The following table summarizes general and administrative expense for the three months ended June 30, 2020 and 2019:
Three months ended June 30, | ||||||||
in KUSD | 2020 | 2019 | ||||||
External costs 1 | 4,421 | 2,843 | ||||||
Employee expense 2 | 14,578 | 1,246 | ||||||
General and administrative expense | 18,999 | 4,089 | ||||||
1 Includes depreciation expense | ||||||||
2 Includes share-based compensation expense |
The following table summarizes general and administrative expense for the six months ended June 30, 2020 and 2019:
Six months ended June 30, | ||||||||
in KUSD | 2020 | 2019 | ||||||
External costs 1 | 8,401 | 4,062 | ||||||
Employee expense 2 | 19,108 | 2,530 | ||||||
General and administrative expense | 27,509 | 6,592 | ||||||
1 Includes depreciation expense | ||||||||
2 Includes share-based compensation expense |
The increase in external costs was due in particular to pre-launch commercial activities and to costs and professional fees, partially offset by savings in travel costs due to COVID-19.
The increase in employee expense was primarily due to increased share-based compensation expense and an increased number of general and administrative employees, reflecting principally the recruitment of employees for the Company’s commercial organization.
Employee expense for the three and six months ended June 30, 2020 includes share-based compensation expense relating to the ADC Therapeutics Incentive Plan dated May 1, 2014 and Amended and Restated as of October 1, 2015 (the “Incentive Plan 2014”) and the ADC Therapeutics Ltd 2016 Share Purchase Plan (the “Share Purchase Plan 2016”), both of which terminated upon the effectiveness of the registration statement for the IPO, with all awards vesting as of that date and with all outstanding charges relating to those plans, which were being amortized over the vesting period, being recognized at that moment. The amounts of expense recognized for these plans in the three and six months ended June 30, 2020 were KUSD 6,490 (2019: KUSD 56) and KUSD 7,548 (2019: KUSD 140).
9. | Cash and cash equivalents |
Pursuant to the Facility Agreement entered into on April 24, 2020 (see note 11, “Convertible loans”), the Company is subject to a covenant that requires it to maintain a balance of at least USD 50 million in cash and cash equivalents at the end of each quarter, and such amounts are included in cash and cash equivalents on the unaudited condensed consolidated interim balance sheet.
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10. | Intangible Assets |
Licenses are amortized over their useful lives, which are determined on the basis of the expected pattern of consumption of the expected future economic benefits embodied in the licenses and which therefore commence only once the necessary regulatory and marketing approval has been received for the product candidates to which they relate. To date, the Group has not received any regulatory and marketing approval for any of its product candidates. Consequently, the Group did not recognize any amortization expense of licenses.
During the six months ended June 30, 2020, the Company capitalized the following license payments:
· | An amount of KUSD 250 relating to a license agreement with a third party to acquire an antibody to be used in research, development, manufacturing and commercialization was capitalized as intangible assets. |
· | An amount of KUSD 125 relating to a license agreement with a third party to use their technology to generate antibody-drug conjugates for up to five antibodies was capitalized as intangible assets. |
11. | Convertible Loans |
Facility agreement
On April 24, 2020, ADCT entered into a USD 115 million Facility Agreement with Deerfield Partners, L.P. and certain of its affiliates (“Deerfield”). Pursuant to such agreement, Deerfield agreed to extend senior secured convertible term loans to the Company in two separate disbursements:
(i) | an initial disbursement of convertible loans in the amount of USD 65 million upon the completion of the IPO, and satisfaction of certain other conditions (the “first tranche”) and |
(ii) | a subsequent disbursement of convertible loans amounting to USD 50 million upon the receipt of regulatory approval for a specified product candidate, loncastuximab tesirine (“Lonca” and previously known as ADCT-402), and satisfaction of certain other conditions (the “second tranche”). |
The outstanding principal amount of the convertible loans is due to be repaid in full on the fifth anniversary of the date on which the first tranche was funded being May 19, 2020. However, any conversion of the convertible loans into common shares shall be deemed a repayment of the principal amount of the convertible loans so converted.
The convertible loans bear interest at a rate of 5.95% per annum, based on a 360-day year, with interest payable quarterly in arrears commencing July 1, 2020.
Upon any payment of the convertible loans or conversion of the convertible notes, whether upon redemption or at maturity or at any other time, the Company will be required to pay an exit charge equal to 2.0% of the amount of the loans so paid or converted.
The Company’s obligations under the Facility Agreement are guaranteed by the Company’s wholly-owned subsidiaries and secured by a perfected, first-priority security interest in substantially all of the Company’s and its wholly-owned subsidiaries’ personal property, including its intellectual property and the equity ownership interests directly and indirectly held by the Company in its wholly-owned subsidiaries.
Each convertible loan extended under the Facility Agreement is evidenced by a convertible note. The holder of each of the first tranche of convertible notes is entitled to convert the principal amount of convertible loans evidenced thereby, at its option, into the Company’s common shares at any time at a conversion price per share equal to 130% of the IPO share price, which was USD 19.
The conversion price for the second tranche of convertible notes is the lesser of (i) 150% of the IPO price and (ii) 120% of the average of the volume-weighted average prices of the Company’s common shares on each of the 15 trading days immediately prior to the disbursement date of the second tranche of convertible
15
loans, but in no event less than a floor equal to 81% of the IPO price. If the conversion price of the second tranche of convertible notes is less than the floor price but for the application of the floor, the counterparty will not be obligated to extend the second tranche of convertible loans.
Upon the occurrence of a major transaction, as defined below, the holders of the convertible notes may elect to require the Company to redeem all or any portion of the notes for an amount equal to the principal amount thereof (in addition to accrued and unpaid interest, the make-whole amount and the exit charge) or alternatively the holder may elect to require the Company to convert the unredeemed portion and, in addition, receive a number of additional common shares determined as set forth in the convertible notes (in addition to accrued and unpaid interest and the exit charge). In the case of a successor major transaction, as defined below, the Company may elect to require redemption of any portion of the convertible notes that the holder does not elect to convert in connection with such transaction.
Major transactions include (i) mergers and similar transactions as a result of which the holders of common shares before the transaction no longer hold a majority of the common shares after the transaction or the common shares are changed into the securities of another entity, (ii) sales of assets exceeding 50% of the Company’s enterprise value, (iii) any person or group acquiring beneficial ownership of more than 50% of the Company’s common shares or (iv) the delisting of the Company’s common shares, subject in each case to the more detailed provisions contained in the convertible notes. Successor major transactions include any major transaction in which the Company’s common shares are converted into the right to receive cash, securities of another entity and/or other assets, and any asset sale major transaction in which the Company distributes assets to its shareholders.
The Company will have the right to force conversions of the convertible notes on and after the one-year anniversary of the date on which it has received regulatory approval of Lonca if each of the following is greater than 275% of the conversion price (among other conditions specified in the convertible notes): (1) the volume weighted average price of the common shares on at least 20 trading days during any period of 30 consecutive trading days, (2) the volume weighted average price of the common shares on the last trading day of such period and (3) the closing price of the common shares on the last trading day of such period. The Company will have the right to force conversions of the convertible notes on and after the three-year anniversary of the date on which it has received regulatory approval of Lonca if the same conditions above are satisfied, except that the applicable price described in the preceding sentence need only be greater than 175% of the conversion price.
The Company is obligated to draw down the second tranche upon receipt of regulatory approval for Lonca. If the Company has not received the regulatory approval on or prior to December 31, 2021, the second tranche will automatically terminate on such date.
The Facility Agreement contains various covenants, including a requirement to retain USD 50 million in cash and cash equivalents as of the end of each fiscal quarter.
Bifurcation of first tranche
The first tranche of convertible loans amounting to USD 65 million issued on May 19, 2020 has been accounted for as comprising two components: an embedded conversion option derivative and a loan, as explained in note 3, “Significant accounting policies”.
Valuation of derivative embedded in first tranche
The Company has used an independent valuation firm to assist in calculating the fair value of the embedded conversion option derivative, which is based on the mean of values derived from application of the Hull and Goldman Sachs convertible bond pricing models. Key inputs for the valuations as of June 30, 2020 and April 24, 2020 were as follows:
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As of | ||||||||
June 30, 2020 | April 24, 2020 | |||||||
Exercise price, in USD | 24.70 | 22.10 | ||||||
Forced conversion price, in USD | 67.93 | 60.78 | ||||||
Share price in USD | 46.81 | 17.00 | ||||||
Risk-free interest rate | 0.3 | % | 0.4 | % | ||||
Expected volatility | 75 | % | 82 | % | ||||
Expected term | 58 months | 61 months | ||||||
Dividend yield | - | - | ||||||
Recovery rate | 5 | % | 5 | % | ||||
Implied bond yield | 17.1 | % | 21.0 | % |
On the basis of the valuation of the conversion option derivative at April 24, 2020, the USD 65 million amount of the convertible loans was accounted for on inception as follows:
in KUSD | Embedded derivative | Residual loan | Total | |||||||||
Gross proceeds | 27,797 | 37,203 | 65,000 | |||||||||
Less: transaction costs | (1,571 | ) | (2,102 | ) | (3,673 | ) | ||||||
Net | 26,226 | 35,101 | 61,327 |
The transaction costs of the embedded derivative were charged directly to the unaudited condensed consolidated interim statement of income.
On the basis of the valuation of the conversion feature at June 30, 2020, the movement in the value of the embedded derivative was:
in KUSD | ||||
Liability related to embedded derivative as of April 24, 2020 | 27,797 | |||
Increase in fair value of embedded derivative | 57,450 | |||
Liability related to embedded derivative as of June 30, 2020 | 85,247 |
The increase in fair value of the embedded derivative is primarily due to the increase in the fair value of the underlying shares from April 24, 2020 to June 30, 2020.
Accounting for residual loan of first tranche
As illustrated in the table above and in accordance with IFRS 9, the transaction costs of the residual convertible loan (net of the value of the embedded derivative) were deducted from the loan to arrive at the deemed net present value as of May 19, 2020 of all future cash outflows associated with the loan. The implied effective interest rate that would be needed to increase the book value of the loan to cover all future outflows, taking into account the deduction of transaction costs from the initial loan balance and based on a 365 day year, was computed at inception at 23% and will be applied over the life of the loan.
For both the three and six months ended June 30, 2020, the Company recorded interest expense related to the interest payable on the residual convertible loan (net of the value of the embedded conversion option derivative) in the amount of KUSD 868, based on the implied effective interest rate.
The amount at which the convertible loan is presented as a liability in the unaudited condensed consolidated interim balance sheet represents the net present value of all future cash outflows associated with the loan discounted at the implied effective interest rate. The net present value of those cash outflows occurring within twelve months of the balance sheet date discounted at the same rate is presented as a short-term liability. The remainder of the amount is presented as a long-term liability.
17
Accounting for second tranche
The obligation to draw down the second tranche under the terms specified in the Facility Agreement has been accounted for as a derivative. The Company has used an independent valuation firm to assist in calculating the fair value of the derivative, which is based on the mean of values derived from application of the Hull and Goldman Sachs convertible bond pricing models. Key inputs for the valuation as of June 30, 2020 were as follows:
As of | ||||
June 30, 2020 | ||||
Exercise price, in USD | 28.50 | |||
Forced conversion price, in USD | 78.38 | |||
Share price in USD | 46.81 | |||
Risk-free interest rate | 0.3 | % | ||
Expected volatility | 75 | % | ||
Expected term | 11 months | |||
Dividend yield | - | |||
Recovery rate | 5 | % | ||
Implied bond yield | 9.9 | % |
In addition to the key inputs disclosed above for the second tranche, the Company estimated the probability of achieving regulatory approval for Lonca. For purposes of its June 30, 2020 valuation, the Company estimated it was highly probable that it would receive regulatory approval for Lonca. Significant changes which increase or decrease the probabilities of achieving the related regulatory events, or shorten or lengthen the time required to achieve such events would result in a corresponding increase or decrease in the fair value of this derivative liability. On this basis, the fair value of the derivative has been calculated as of June 30, 2020 at an amount of KUSD 21,811 and has been presented in the unaudited condensed consolidated interim balance sheet as a financial liability.
The value of the derivative is directly correlated with the estimate of probability. An increase or decrease of 10% in the estimated probability would have resulted in an increase or decrease in the value of the derivative of KUSD 2,181.
The increase in fair value of the derivative is primarily due to the increase in the fair value of the Company’s common shares from April 24, 2020 to June 30, 2020 and has been charged directly to the unaudited condensed consolidated interim statement of income.
Convertible loans, derivatives
The convertible loan derivative liabilities presented in the unaudited condensed consolidated interim balance sheet comprise:
As of | ||||||||
in KUSD | June 30, 2020 | December 31, 2019 | ||||||
First tranche, embedded derivative | 85,247 | - | ||||||
Second tranche, derivative | 21,811 | - | ||||||
107,058 | - |
Convertible loans, derivatives, increase in fair value
The increase in fair value of the convertible loan derivatives presented in the unaudited condensed consolidated interim statement of income for the three and six months ended June 30 comprises:
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Three and six months ended | ||||||||
in KUSD | June 30, 2020 | June 30, 2019 | ||||||
First tranche, embedded derivative | 57,450 | - | ||||||
Second tranche, derivative | 21,811 | - | ||||||
79,261 | - |
12. | Share-based compensation |
Share data have been revised to give effect to the share split and share consolidation as explained in note 2, “Share split and share consolidation”.
Share Purchase Plan 2013 and Share Purchase Plan 2016
Under the terms of the 2013 and 2016 promissory notes issued in connection with the share purchase plans, in the case of an IPO the relevant plan participants were required to repay the outstanding amounts under the promissory notes prior to the IPO by delivering such number of shares of equivalent value to cover the amount to be repaid. In anticipation of the IPO, each of the plan participants holding promissory notes entered into loan settlement agreements with the Company dated as of April 15, 2020 pursuant to which they repaid all amounts outstanding under the promissory notes, including accrued interest, by delivering such number of shares of equivalent value to cover the amount outstanding under the promissory notes.
After consideration of all relevant factors, the Board of Directors determined the value of such shares delivered pursuant to the loan settlement agreements as of the settlement date to be USD 18.75 per share, resulting in the delivery of an aggregate of 597,774 common shares by all plan participants for the settlement of the promissory notes. These shares were held by the Company as treasury shares.
These transactions resulted in the termination of both plans on May 15, 2020. All compensation expense relating to the ADC Therapeutics Ltd 2013 Share Purchase Plan (the “Share Purchase Plan 2013”) was recognized in prior periods. Unrecognized expense relating to the Share Purchase Plan 2016 amounting to KUSD 6,425 was charged to the unaudited condensed consolidated interim statement of income and credited to “Other reserves” on completion of these transactions.
Incentive Plan 2014
All existing awards under the Incentive Plan 2014 vested and were settled in shares upon the completion of the IPO. The Company calculated for each participant the gain arising from the difference between the exercise price and the USD 19 IPO price, undertook to settle in cash on behalf of the participant any associated tax and social charges liability, and transferred to the participant the remaining balance in treasury shares, valued at USD 19 per share. A total of 356,144 shares were transferred to participants and an amount of KUSD 5,343 was withheld for tax and social charges.
For participants whose awards had an exercise price greater than USD 19 — i.e., were “out-of-the-money” — the Company made an equal number of new awards under the Equity Incentive Plan 2019 (see below) with an exercise price of USD 19 and with a vesting period of only three years instead of the usual four years. These new awards have been accounted for as a modification of the previous awards under the Incentive Plan 2014. Accordingly, the original compensation expense calculated for the old awards that were “out-of-the-money” will continue to be recognized over their remaining vesting period while the expense to be recognized for the new awards under the Equity Incentive Plan 2019 will be limited to the incremental fair value of the new awards over the fair value, as of May 15, 2020, of the old awards.
Equity Incentive Plan 2019
The cumulative amount credited to “Other reserves” in respect of the Equity Incentive Plan 2019 is KUSD 9,094 as of June 30, 2020. The amounts of expense recognized for services received during the three and six months ended June 30, 2020 are KUSD 6,130 and KUSD 8,746, respectively.
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The following table summarizes the awards outstanding as of June 30, 2020:
Average strike price per share in USD | Number of awards | Weighted average remaining life in years | ||||||||||
December 31, 2019 | 18.75 | 1,020,434 | 9.96 | |||||||||
Granted | 21.26 | 2,247,074 | 9.76 | |||||||||
Forfeited | 18.83 | (19,985 | ) | - | ||||||||
June 30, 2020 | 20.55 | 3,247,523 | 9.69 |
The awards granted during the six months ended June 30, 2020 include 388,333 awards that were made to compensate holders of “out-of-the-money” awards under the Incentive Plan 2014 that expired on May 15, 2020. Awards outstanding as of June 30, 2020 and December 31, 2019, expire in 2029. There were no awards exercised during the six months ended June 30, 2020.
The fair values of the options granted during the three and six months ended June 30, 2020 and 2019 were determined on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||||||||||
Weighted average share price | $15.95 - $34.99 | - | $15.95 - $34.99 | - | ||||||||||||
Strike price | $18.75 - $34.99 | - | $18.75 - $34.99 | - | ||||||||||||
Expected volatility | 85% - 206 | % | - | 85% - 206 | % | - | ||||||||||
Award life | $5.02 - $5.85 | - | $5.02 - $5.85 | - | ||||||||||||
Expected dividends | 0 | % | - | 0 | % | - | ||||||||||
Risk-free interest rate | 0.36% - 0.47 | % | - | 0.36% - 0.70 | % | - |
The Company has used an independent valuation firm to assist in calculating the fair value of the award grants per participant.
The expected volatility was based on historical volatility and selected volatility was based on median values observed among comparable public companies.
The award life is based on the time interval between the date of grant and the date during the ten-year life after which, when making the grant, the Company expected on average that participants would exercise their options.
Share-based Compensation Reserves
The movement in the Share-based Compensation Reserves (included in “Other reserves”) is as follows:
Three months ended | Six months ended | |||||||||||||||
in KUSD | June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||||||||
Share Purchase Plan 2013 | - | - | - | - | ||||||||||||
Incentive Plan 2014 | 179 | 10 | 361 | 23 | ||||||||||||
Share Purchase Plan 2016 | 6,425 | 46 | 7,417 | 117 | ||||||||||||
Equity Incentive Plan 2019 | 6,130 | - | 8,746 | - | ||||||||||||
Tax and social charge deductions - Incentive Plan 2014 | (5,343 | ) | - | (5,343 | ) | - | ||||||||||
Total | 7,391 | 56 | 11,181 | 140 |
13. | Share Capital, share premium and treasury shares |
Share data have been revised to give effect to the share split and share consolidation as explained in note 2, “Share split and share consolidation”.
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The movements in the Company’s share capital, share premium and treasury shares accounts in the six months ended June 30, 2020 are set out in the following table:
Issued share capital | Share premium | Treasury shares | Increase / (Decrease) in net assets | Price per share | Issued share capital | Treasury shares | Outstanding share capital | |||||||||||||||||||||||||
In KUSD | Number of shares issued | Number of shares (held or received) / delivered | Number of shares outstanding | |||||||||||||||||||||||||||||
April 15, 2020 | Shares surrendered by Share Purchase Plan 2013 and Share Purchase Plan 2016 participants to settle share purchase plan promissory notes (see note 12) | - | 11,208 | (11,208 | ) | - | USD 18.75 | - | (597,774 | ) | (597,774 | ) | ||||||||||||||||||||
April 16, 2020 | Issuance of shares per shareholders' agreement addendum through capitalization of reserves | 393 | (393 | ) | - | - | CHF 0.08 | 4,777,996 | - | 4,777,996 | ||||||||||||||||||||||
April 24, 2020 | Elimination of fractional shareholdings | - | - | - | - | CHF 0.08 | - | 51 | 51 | |||||||||||||||||||||||
May 15, 2020 | Issuance of shares to be held as treasury shares | 34 | - | (34 | ) | - | CHF 0.08 | 408,873 | (408,873 | ) | - | |||||||||||||||||||||
May 15, 2020 | Grant of shares to settle Incentive Plan 2014 awards, net (see note 12) | - | (29 | ) | 29 | - | CHF 0.08 | - | 356,144 | 356,144 | ||||||||||||||||||||||
May 15, 2020 | Issuance of shares at IPO | 1,007 | 231,661 | - | 232,668 | USD 19.00 | 12,245,631 | - | 12,245,631 | |||||||||||||||||||||||
May 15, 2020 | Sale of shares under greenshoe option | - | 23,591 | 11,309 | 34,900 | USD 19.00 | - | 1,836,844 | 1,836,844 | |||||||||||||||||||||||
May 15, 2020 | Transaction costs, IPO and greenshoe option | - | (23,355 | ) | - | (23,355 | ) | - | - | - | ||||||||||||||||||||||
Movements in the period | 1,434 | 242,683 | 96 | 244,213 | 17,432,500 | 1,186,392 | 18,618,892 | |||||||||||||||||||||||||
December 31, 2019 | Balances reported at December 31, 2019, revised for share consolidation | 4,361 | 549,922 | (100 | ) | 53,337,500 | (1,240,540 | ) | 52,096,960 | |||||||||||||||||||||||
Balance at June 30, 2020 | 5,795 | 792,605 | (4 | ) | 70,770,000 | (54,148 | ) | 70,715,852 |
Upon the completion of the IPO, all of the Company’s issued Class B, C, D and E preferred shares were converted into common shares on a one-to-one basis.
14. | Related parties |
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.
A.T. Holdings II Sàrl (“AT Holdings II”) is a shareholder in the Company. AT Holdings II is in turn ultimately wholly owned by Auven Therapeutics Holdings, L.P. (“ATH”), a limited partnership registered in the British Virgin Islands. ATH’s General Partner is Auven Therapeutics General L.P., which itself is a limited partnership whose General Partner is Auven Therapeutics GP Ltd. The manager of ATH is Auven Therapeutics Management L.L.L.P. (“ATM”).
Services provided by the Company
The Company provides registered office and other simple administrative services to four subsidiaries of ATH. The amounts invoiced for the three months and six months ended June 30, 2020, recognized as general and administrative expense, amounted to KUSD 1 and KUSD 2 respectively (three and six months ended June 30, 2019: KUSD 1 and KUSD 2).
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Other transactions with related parties
Of the 597,774 shares surrendered by Share Purchase Plan 2013 and Share Purchase Plan 2016 participants to settle share purchase plan promissory notes on April 15, 2020 (see note 13, “Share capital, share premium and treasury shares”), 556,799 were surrendered by related parties.
Of the 4,777,996 shares issued by way of capitalization of reserves on April 16, 2020 (see note 13, “Share capital, share premium and treasury shares”), 1,222,966 shares were issued to related parties.
Chairman’s equity awards
The Company granted the Chairman, Mr. Squarer, options to acquire 1,125,545 common shares at $18.75 per share in connection with his election to the Board of Directors, representing approximately 2% of our then-outstanding share capital. These options are scheduled to vest upon Mr. Squarer’s continued service through designated dates over a three year period, or immediately upon a change in control. In accordance with its agreement with Mr. Squarer, the Company provided Mr. Squarer with an additional grant of 341,403 options on June 4, 2020 with an exercise price equal to the fair market value of the Company’s shares on that date, to bring Mr. Squarer’s total rights to acquire the Company’s shares to 2% of the then-outstanding share capital (measured without consideration of the shares underlying these grants).
Key management compensation
The compensation of key management is shown below:
Three months ended | Six months ended | |||||||||||||||
in KUSD | June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||||||||
Salaries and other short-term employee costs | 1,666 | 1,242 | 3,254 | 2,477 | ||||||||||||
Pension costs | 107 | 98 | 256 | 183 | ||||||||||||
Share-based compensation expense | 6,025 | 42 | 7,599 | 107 | ||||||||||||
Other compensation | 22 | - | 83 | - | ||||||||||||
Total | 7,820 | 1,382 | 11,192 | 2,767 |
15. | Loss per share |
Three Months Ended | Six Months Ended | |||||||||||||||
(in KUSD, except per share amounts) | June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||||||||
Loss attributable to owners | (126,557 | ) | (23,348 | ) | (170,033 | ) | (49,858 | ) | ||||||||
Weighted average number of shares outstanding 1 | 62,863,866 | 47,654,258 | 57,225,939 | 47,297,859 | ||||||||||||
Basic and diluted loss per share | (2.01 | ) | (0.49 | ) | (2.97 | ) | (1.05 | ) |
1 | Share data have been revised to give effect to the share split and share consolidation as explained in note 2, “Share split and share consolidation”. |
As all Class B, C, D and E preferred shares were converted into common shares upon the completion of the IPO, loss per share data are presented on that basis for all periods.
For the three and six months ended June 30, 2020 and 2019, basic and diluted loss per share are calculated on the weighted average number of shares issued and outstanding and exclude shares to be issued under the Equity Incentive Plan 2019, as the effect of including those shares would be anti-dilutive.
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:
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Share options under the Incentive Plan 2014 | - | 2,137,437 | - | 2,130,967 | ||||||||||||
Shares under the Share Purchase Plan 2016 | - | 962,500 | - | 962,500 | ||||||||||||
Share options under the Equity Incentive Plan 2019 | 2,784,467 | - | 1,999,022 | - | ||||||||||||
Conversion of the principal amount of convertible loans into the Company’s common shares | 1,766,917 | - | 888,340 | - | ||||||||||||
4,551,384 | 3,099,937 | 2,887,362 | 3,093,467 |
16. | Events after the reporting date |
The Company has evaluated its subsequent events through August 12, 2020, the date the unaudited condensed consolidated interim financial statements were available to be issued, and has concluded that there are no subsequent events requiring disclosure in these unaudited condensed consolidated interim financial statements.
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