ADC Therapeutics Cuts Price In Second IPO Attempt

May 11, 2020 12:29 PM ETADC Therapeutics SA (ADCT)ABBV, AZN, AZNCF, BNY, CELG, GLAXF, GSK, JNJ, NVS, NVSEF, PFE, SNY, SNYNF, TAK, TKPHF

Summary

  • ADC Therapeutics has filed revised terms for a $125 million U.S. IPO.
  • The firm is developing drug treatment candidates for blood cancers and solid tumors.
  • With a markedly lower price and very strong investor support, the IPO may be worth considering for patient life science investors.
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Quick Take

ADC Therapeutics (NYSE:ADCT) intends to raise $125 million from the sale of its common stock, per an amended registration statement.

The company is advancing a pipeline of drug candidates for the treatment of blood cancers and solid tumors.

ADCT is making a new attempt to go public at a reasonable valuation and with strong existing investor interest in supporting the IPO.

Company & Technology

Epalinges, Switzerland-based ADC was founded as a spin-off of Spirogen to develop antibody drug conjugates (ADCs - hence the company's name) for the treatment of hematological and solid tumor cancer conditions.

Management is headed by CEO Christopher Martin, who has been with the firm since its formation and was previously CEO of Spirogen, which was acquired by AstraZeneca (AZN) in 2013.

Below is a brief overview video of antibody drug conjugates:

Source: ADC Review

The firm's lead candidates are Lonca and Cami. Lonca has shown strong overall response rates for the treatment of refractory diffuse large B-cell lymphoma.

Cami, which it is developing in collaboration with Genmab A/S, has also shown a high overall response rate for the treatment of relapsed or refractory Hodgkin lymphoma.

Below is the current status of the company’s drug development pipeline:

Source: S-1

Investors in the firm have invested at least $550 million and include Auven Therapeutics, AstraZeneca (AZN) and HPWH TH AG.

Market & Competition

According to a 2017 market research report by Grand View Research, the market for blood cancer treatments was $35.6 billion in 2016.

This represents a forecast CAGR (Compound Annual Growth Rate) of 10.48% from 2018 to 2025.

Key elements driving this expected growth are an increasing number of elderly persons who account for a higher incidence of blood cancer conditions.Below is a chart showing the historical and expected future growth of blood cancer incidence in the U.S.:Additionally, increasing awareness of blood cancer symptoms and increased government funding of research initiatives will add to the expected growth of the industry.

Major competitive vendors that provide or are developing treatments include:

  • Pfizer (PFE)

  • F. Hoffman-La Roche

  • Sanofi (SNY)

  • Bristol-Myers Squibb (BNY)

  • AbbVie (ABBV)

  • Novartis AG (NVS)

  • GlaxoSmithKline (GSK)

  • Celgene (CELG)

  • Johnson & Johnson (JNJ)

  • Takeda Pharmaceuticals (TAK)

  • CytomX Therapeutics

  • Seattle Genetics

Financial Status

ADC’s recent financial results are typical of a development stage biopharma firm in that they feature little revenue and high R&D and G&A expenses associated with advancing its pipeline of drug treatment candidates.

Below are the company’s financial results for the past two years (Audited IFRS):

Source: Company registration statement

As of December 31, 2019, the company had $115.6 million in cash and $26.5 million in total liabilities. (Unaudited, interim)

IPO Details

ADCT intends to sell 7.355 million shares of common shares at a midpoint price of $17.00 per share for gross proceeds of approximately $125 million, not including the sale of customary underwriter options.

Certain existing shareholders have indicated an interest to purchase shares of up to $100 million in the aggregate at the IPO price.

This is a very strong signal of existing investor interest.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $971.3 million.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 11.5%.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

to advance Lonca through the completion of the ongoing pivotal Phase 2 clinical trial for the treatment of relapsed or refractory DLBCL, to advance Lonca through the completion of the ongoing Phase 1/2 combination clinical trial with ibrutinib for the treatment of relapsed or refractory DLBCL and MCL, to commence and advance a confirmatory clinical trial of Lonca in combination with rituximab for the treatment of relapsed or refractory DLBCL and to commence and advance a pivotal Phase 2 clinical trial of Lonca for the treatment of relapsed or refractory FLto advance Cami through the completion of the ongoing pivotal Phase 2 clinical trial for the treatment of relapsed or refractory HL, to advance Cami through the completion of the ongoing Phase 1b clinical trial for the treatment of selected advanced solid tumors and to commence and advance potential combination clinical trials for Cami in these and other indications;to advance ADCT-602 through the completion of the ongoing Phase 1/2 clinical trial for the treatment of relapsed or refractory ALL;

to further advance the clinical development of ADCT-601;to further build our commercial operations in the United States for Lonca and to fund our commercial-scale CMC plans for Lonca and Cami;

to fund the research and development of our preclinical product candidates and preclinical pipeline; and the remainder for working capital and other general corporate purposes.

Management’s presentation of the company roadshow is not available.

Listed underwriters of the IPO are Morgan Stanley, BofA Securities and Cowen.

Commentary

ADCT is making another attempt at an IPO, after having tried in September, 2019 at a much higher enterprise value.

For its lead candidate, the firm is in Phase 2 trial stage and management expects to report initial readouts in the second half of 2020 to the first half of 2021, assuming there are no delays due to Covid19 or other exigencies.

The market opportunity for the blood cancer conditions are significant and expected to grow in size due to the aging worldwide population in the years ahead.

The firm is collaborating with Genmab on its ADCT-301 lead product development.

As to valuation, management has sharply reduced its expected valuation, from an enterprise value of $1.6 billion in September 2019’s IPO attempt, to the current $971 million, for a reduction of 39%, quite a drop considering the firm is more than six months ahead of where it was during the last attempt.

Additionally, existing investors are intending to take 80% of the IPO allocation, a very strong signal of support for the IPO.

For life science investors with a patient hold time frame, the IPO may be worth considering.

Expected IPO Pricing Date: May 14, 2020.

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This article was written by

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