ADC Therapeutics SA

05/09/2022 | Press release | Distributed by Public on 05/09/2022 05:17

Consolidated Financial Statements - Form 6-K
Exhibit 99.1
Unaudited IFRS Condensed Consolidated Interim Financial Statements as of and for the three months ended March 31, 2022.
1

ADC Therapeutics SA
Condensed Consolidated Interim Statement of Operations
(in KUSD except for share and per share data)
For the Three Months Ended
March 31,
Note 2022 2021
Product revenues, net 3, 5 16,498 -
License revenue 3, 5 30,000 -
Total revenue 46,498 -
Operating expense
Cost of product sales 7 (529) -
Research and development expenses 7 (48,952) (39,172)
Selling and marketing expenses 7 (18,370) (13,911)
General and administrative expenses 7 (19,011) (17,582)
Total operating expense (86,862) (70,665)
Loss from operations (40,364) (70,665)
Other income (expense)
Financial income 16 18,308 15
Financial expense 13, 14, 16 (9,217) (2,000)
Non-operating income 8 13,442 21,230
Total other income 22,533 19,245
Loss before taxes (17,831) (51,420)
Income tax benefit (expense) 1,170 (107)
Net loss (16,661) (51,527)
Net loss attributable to:
Owners of the parent (16,661) (51,527)
Net loss per share, basic and diluted 18 (0.22) (0.67)
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 Loss
(in KUSD)
For the Three Months Ended March 31,
2022 2021
Net Loss (16,661) (51,527)
Other comprehensive (loss) income
Items that may be reclassified to profit and loss
Currency translation differences (158) 36
Total items that may be reclassified to profit and loss (158) 36
Other comprehensive (loss) income for the period (158) 36
Total comprehensive loss for the period (16,819) (51,491)
Total comprehensive loss attributable to:
Owners of the parent (16,819) (51,491)
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)
Note March 31,
2022 		December 31,
2021
ASSETS
Current assets
Cash and cash equivalents 9 430,874 466,544
Accounts receivable, net 26,752 30,218
Inventory 10 11,838 11,122
Other current assets 18,246 17,298
Total current assets 487,710 525,182
Non-current assets
Property, plant and equipment 3,938 4,066
Right-of-use assets 13 6,726 7,164
Intangible assets 11 13,851 13,582
Interest in joint venture 12 38,734 41,236
Deferred tax asset 29,905 26,049
Other long-term assets 1,022 693
Total non-current assets 94,176 92,790
Total assets 581,886 617,972
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 16,453 12,080
Other current liabilities 40,411 50,497
Lease liabilities, short-term 13 981 1,029
Current income tax payable 6,380 3,754
Convertible loans, short-term 14 6,549 6,575
Total current liabilities 70,774 73,935
Non-current liabilities
Convertible loans, long-term 14 88,415 87,153
Convertible loans, derivatives 14 22,092 37,947
Deferred royalty obligation, long-term 16 204,104 218,664
Deferred gain of joint venture 12 23,539 23,539
Lease liabilities, long-term 13 6,614 6,994
Defined benefit pension liabilities 3,681 3,652
Total non-current liabilities 348,445 377,949
Total liabilities 419,219 451,884
Equity attributable to owners of the parent
Share capital 6,445 6,445
Share premium 981,818 981,827
Treasury shares (119) (128)
Other reserves 15 116,044 102,646
Cumulative translation adjustments 25 183
Accumulated losses (941,546) (924,885)
Total equity attributable to owners of the parent 162,667 166,088
Total liabilities and equity 581,886 617,972
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 Months Ended March 31, 2022

Note Share
Capital
Share
Premium
Other
Reserves
Treasury
Shares 		Cumulative
Translation
Adjustments 		Accumulated
Losses 		Total Equity
January 1, 2022 6,445 981,827 102,646 (128) 183 (924,885) 166,088
Loss for the period - - - - - (16,661) (16,661)
Translation adjustment - - - - (158) - (158)
Total other comprehensive loss - - - - (158) - (158)
Total comprehensive loss for the period - - - - (158) (16,661) (16,819)
Exercise of options and vestings of RSUs - (9) - 9 - - -
Share-based compensation expense 15 - - 13,398 - - - 13,398
Total transactions with owners - (9) 13,398 9 - - 13,398
March 31, 2022 6,445 981,818 116,044 (119) 25 (941,546) 162,667
For the Three Months Ended March 31, 2021
Note Share
Capital
Share
Premium
Other
Reserves
Treasury
Shares 		Cumulative
Translation
Adjustments 		Accumulated
Losses 		Total Equity
January 1, 2021 6,314 981,056 42,753 (4) 245 (694,859) 335,505
Loss for the period - - - - - (51,527) (51,527)
Translation adjustment - - - - 36 - 36
Total other comprehensive loss - - - - 36 - 36
Total comprehensive loss for the period - - - - 36 (51,527) (51,491)
Exercise of options and vestings of RSUs - 3 - - - - 3
Share-based compensation expense 15 - - 13,951 - - - 13,951
Total transactions with owners - 3 13,951 - - - 13,954
March 31, 2021 6,314 981,059 56,704 (4) 281 (746,386) 297,968



The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)



5

ADC Therapeutics SA
Condensed Consolidated Interim Statement of Cash Flows (in KUSD)
For the Three Months Ended
March 31,
Note 2022 2021
Cash used in operating activities
Loss for the period (16,661) (51,527)
Adjustments for non-monetary items:
Share-based compensation expense 15 13,398 13,951
Depreciation of property, plant and equipment 261 174
Amortization of intangible assets 11 26 25
Depreciation of right-of-use assets 13 307 379
Gain from reversal of inventory impairment charges (361) -
Share of results in joint venture 12 2,502 527
Deferred income taxes (3,856) -
Change in defined benefit pension liability 72 74
Convertible loans, derivatives, decrease in fair value 14 (15,855) (21,169)
Financial income 16 (18,307) (15)
Financial expense 14 9,165 1,982
Exchange differences (63) (366)
Operating loss before working capital changes (29,372) (55,965)
Decrease in accounts receivable, net 3,466 -
Increase in inventory (355) -
Increase (decrease) in other current assets (1,065) 1,075
Increase in accounts payable 4,383 5,914
Increase in income taxes 2,686 107
Decrease in other liabilities and other payables (10,666) (5,332)
Cash used in operating activities (30,923) (54,201)
Interest paid (1,838) (1,039)
Interest received 18 16
Interest expense on lease obligations 13 52 18
Payments made under royalty financing transaction 16 (1,191) -
Tax refund - 57
Net cash used in operating activities (33,882) (55,149)
Cash used in investing activities
Payment for purchase of property, plant and equipment (229) (657)
Payment for purchase of intangible assets 11 (889) -
Payment for deposits (330) -
Net cash used in investing activities (1,448) (657)
Cash from financing activities
Proceeds from the exercise of stock options - 3
Principal portion of lease obligation payments 13 (258) (300)
Net cash from financing activities (258) (297)
Net decrease in cash and cash equivalents (35,588) (56,103)
Exchange (losses) / gain on cash and cash equivalents (82) 30
Cash and cash equivalents at beginning of the period 466,544 439,195
Cash and cash equivalents at end of the period 430,874 383,122
Supplemental Non-Cash Investing Information
Capital expenditures recorded in Accounts payable - 265


The accompanying notes form an integral part of these condensed consolidated interim financial statements (Unaudited)
6

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 three wholly-owned subsidiaries: ADC Therapeutics America, Inc. ("ADCT America"), which was incorporated in Delaware, USA on December 10, 2014, ADC Therapeutics (UK) Ltd ("ADCT UK"), which was incorporated in England on December 12, 2014 and ADC Therapeutics (NL) B.V. which was incorporated in the Netherlands on February 25, 2022. The Company and its three subsidiaries form the ADCT Group (the "Group").
The Group is focused on the development of antibody drug conjugates ("ADCs"), including research, development, human clinical trials, regulatory approval and commercialization. On April 23, 2021, the U.S. Food and Drug Administration ("FDA") approved ZYNLONTA for the treatment of relapsed or refractory diffuse large B-cell lymphoma ("DLBCL") and the Company commenced recognizing revenue upon the sale of ZYNLONTA during the second quarter of 2021. 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 May 9, 2022.
Going concern basis
ADCT is a commercial-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;
•develop, gain regulatory approval and commercialize drug products;
•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, license agreements, the issuance of the Company's common shares, the issuance of convertible loans, and proceeds from a royalty purchase agreement (see notes 14, "Convertible loans" and 16, "Deferred royalty obligation"). During the first quarter of 2022, the Company entered into an exclusive license agreement with Mitsubishi Tanabe Pharma Corporation ("MTPC") for the development and commercialization of ZYNLONTA for all hematologic and solid tumor indications in Japan. 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 of March 31, 2022, the Group's cash and cash equivalents amounted to USD 430.9 million (December 31, 2021: USD 466.5 million).
Management 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
The Group continues to monitor the COVID-19 pandemic and its impact to operations. The Group is commercializing ZYNLONTA using hybrid launch plans. Recently, variants of the novel coronavirus have negatively impacted the Company's ability to have face-to-face interactions with physicians, which it believes is a key pillar of its continued success in driving the adoption of ZYNLONTA through ongoing dialogs with the healthcare provider community on
7

ZYNLONTA's differentiated product profile. The Group 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 response to the spread of COVID-19, the Group has also modified its business practices based on local guidelines. At this time, Group employees are meeting with investigators and site staff in person as allowed by institutions. The Group continues to closely monitor the potential effects of the COVID-19 pandemic on its clinical trials, commercialization efforts and supply chain, and will work closely with its clinical trial sites and principal investigators, contract research organizations, customers and distributors and contract manufacturing partners to mitigate such impact. As the COVID-19 pandemic continues to evolve, the Group believes the impact to its operations, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration, the impact on the U.S. and global economies, the timing, the availability, and acceptance and effectiveness of vaccines and treatments, particularly against emerging variants of the novel coronavirus, and the scope and effectiveness of national and local governmental responses to the pandemic. Those primary drivers are beyond the Group's knowledge and control, and as a result, the ultimate impact of the COVID-19 pandemic on the Group's results of operations, cash flows and financial position for the remainder of 2022 and thereafter cannot be reasonably predicted. However, on the basis of the risk mitigation measures undertaken, the Group has concluded that there is no material uncertainty that may cast a significant doubt upon the Group's ability to continue as a going concern.
2.Basis of preparation
Statement of Compliance
These unaudited condensed consolidated interim financial statements as of and for the three months ended March 31, 2022 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, 2021.
Functional and reporting currency
These unaudited condensed consolidated interim financial statements are presented in United States Dollars ("USD" or "$"), 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:
Three Months Ended March 31,
2022 2021
USD / GBP
Closing rate, GBP 1 1.31336 1.37665
Weighted average exchange rate, GBP 1 1.34361 1.38246
Basis of Consolidation
The unaudited condensed consolidated interim financial statements incorporate the financial statements of the Company and entities controlled by the Company which are the same as those contained in the audited consolidated financial statements as of and for the year ended December 31, 2021.
8

Use of estimates and judgements
The preparation of the unaudited condensed consolidated interim financial statements in conformity with IAS 34 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 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, 2021.

Other income (expense)
For periods prior to December 31, 2021, individual components of Non-operating income (expense) were reported separately within the statement of operations. Prior periods have been recast to conform to the current period presentation. See Note 8, "Non-operating income (expense)" for further information.
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, 2021 and have been applied consistently to all periods presented in these unaudited condensed consolidated interim financial statements, except for the following:
Revenue Recognition
License Arrangements
On January 18, 2022, the Company entered into an exclusive license agreement with MTPC for the development and commercialization of ZYNLONTA for all hematologic and solid tumor indications in Japan. In previous years, the Company had generated revenue from the sale of its product candidates and service revenues from a license and collaboration arrangement. See note 5 "License Revenue" for further information on the MTPC arrangement.
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 highly 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 separable, 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
9

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, sales milestones and royalties attributable to licenses 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.
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, 2022, that are relevant to the Group and that have had any impact in the interim period. 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.
4.Financial risk management
4.1Financial risk factors
The Group's activities are exposed to a variety of financial risks: market risk (including changes in the Company's share price, exposure to fluctuation in currency exchange rates and exposure to interest rate movements), 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 of December 31, 2021. 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 on the deferred royalty obligation does not depend on market performance, the exposure to interest rate and market risk is deemed low. See note 16, "Deferred royalty obligations" for further information. There have been no material changes in financial risk management since year-end.
4.2Fair value estimation
At March 31, 2022, the carrying amount is a reasonable approximation of fair value for the following financial assets and liabilities:
•Cash and cash equivalents
•Trade accounts receivable
•Trade accounts payable
In the three months ended March 31, 2022, 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 must be estimated at each grant date with regard to awards under the ADC Therapeutics SA 2019 Equity Incentive Plan (the "Equity Incentive Plan 2019") and with regard to the convertible loan conversion option derivative related to the first tranche and second tranche of the convertible loans. The approach to valuation follows the grant date fair value principle, and the key input factors are described for the share-based compensation awards in note 15, "Share-based compensation" and for the convertible loan derivatives in note 14, "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 and second tranche are 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.
10

There were no transfers between the respective levels during the period.
The embedded derivative conversion feature associated with the first and second tranche of the Company's convertible loans (see note 14, "Convertible loans") are re-measured to fair value at each reporting date. The Company utilizes a risk free rate, an implied bond yield and a selected volatility in determining the fair value of its embedded derivatives.
A hypothetical 10% increase (decrease) in the risk free rate as of March 31, 2022 would have decreased the derivative value associated with the first tranche of our convertible loans by KUSD 130 and KUSD 43. A hypothetical 10% increase (decrease) in the implied bond yield as of March 31, 2022 would have increased (decreased) the derivative value associated with the first tranche of our convertible loans by KUSD 109 and (KUSD 292). A hypothetical 10% increase (decrease) in the selected volatility as of March 31, 2022 would have increased (decreased) the derivative value associated with the first tranche of our convertible loans by KUSD 1,266 and (KUSD 1,545).
A hypothetical 10% increase (decrease) in the risk free rate as of March 31, 2022 would have increased (decreased) the derivative value associated with the second tranche of our convertible loans by KUSD 35 and (KUSD 35). A hypothetical 10% increase (decrease) in the implied bond yield as of March 31, 2022 would have increased (decreased) the derivative value associated with the second tranche of our convertible loans by KUSD 45 and (KUSD 50). A hypothetical 10% increase (decrease) in the selected volatility as of March 31, 2022 would have increased (decreased) the derivative value associated with the second tranche of our convertible loans by KUSD 857 and (KUSD 1,141).
5.Revenue recognition
Product revenue
On April 23, 2021, the Company received FDA accelerated regulatory and marketing approval for ZYNLONTA and launched in the U.S. shortly thereafter. 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. Product revenues, net were KUSD 16,498 for the three months ended March 31, 2022. The Company records its best estimate of GTN sales adjustments to which customers are likely to be entitled.
The table below provides a rollforward of the Company's accruals related to the GTN sales adjustments for the three months ended March 31, 2022.
(in KUSD) Three months ended March 31, 2022
Beginning balance 2,590
GTN sales adjustments for current period sales 3,491
GTN sales adjustments for prior period sales (192)
Credits, payments and reclassifications to Accounts payable (1,763)
Ending balance as of March 31, 2022 4,126

The table below provides the classification of the accruals related to the GTN sales adjustment included in the Company's unaudited condensed consolidated interim balance sheet as of March 31, 2022 and December 31, 2021.
(in KUSD)
As of March 31, 2022
As of December 31, 2021
Accounts receivable, net 2,451 1,204
Other current liabilities 1,675 1,386
4,126 2,590

Accounts receivable
Subsequent to December 31, 2021, as the Company's inventory is no longer held on consignment by the Company's third-party logistics and distribution provider, payment terms for new sales commencing in 2022 ranged from 30 to 120 days.
11

The Company received a permanent J-code for ZYNLONTA reimbursement which went into effect on April 1, 2022. After receipt of the permanent J-code, the Company's payment terms will range from 30 days to 90 days.

License revenue
On January 18, 2022, the Company entered into an exclusive license agreement with MTPC for the development and commercialization of ZYNLONTA for all hematologic and solid tumor indications in Japan. Under the terms of the agreement, the Company received an upfront payment of USD 30 million and may receive up to an additional USD 205 million in milestones if certain development and commercial events are achieved. The Company will also receive royalties ranging in percentage from the high teens to the low twenties based on net sales of ZYNLONTA in Japan. MTPC will conduct clinical studies of ZYNLONTA in Japan and will have the right to participate in any global clinical studies by bearing a portion of the study costs. In addition, the Company will supply ZYNLONTA to MTPC for its drug development and commercialization under a supply agreement.
The MTPC license arrangement includes a license and a performance obligation to supply product. The license and supply obligations are accounted for as separate performance obligations as they are considered distinct because MTPC 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.
The Company completed significant development work which resulted in FDA approval of ZYNLONTA in the U.S. for the treatment of relapsed or refractory DLBCL. As a result, the up-front license fee is recognized immediately at the time of license execution, as MTPC can use and benefit from the IP and the Company has no further performance obligation with respect to the IP upon commencement of the license term.
Although contingent development milestone amounts are assessed each period for the likelihood of achievement, they are typically constrained and recognized when the uncertainty is subsequently resolved for the full amount of the milestone and will be classified as license revenue. Sales milestones and royalties are recognized when the subsequent sales occur and classified as license revenue.
After considering the standalone selling prices, up-front fees, contingent development and sales-based milestone, amounts and royalties are allocated to the license and recognized in the manner described above. Consideration for the supply obligation is based upon stipulated contractual terms which represent a standalone selling price. The above fee allocation between the license and the supply represents the amount of consideration expected to be entitled to for the satisfaction of the separate performance obligations.
6.Segment information
The Company is managed and operated as one business. A single management team that reports to the chief executive officer comprehensively manages the entire business. Accordingly, the Company views its business and manages its operations as one operating segment.
12

7.Operating expense
The following table provides the unaudited condensed consolidated interim statement of operation classification of our total operating expense:
(in KUSD) Three months ended March 31,
2022 2021
Cost of product sales
529 -
R&D
External costs (1)
29,168 24,306
Employee expense (2)
19,784 14,866
R&D expenses 48,952 39,172
S&M
External costs (3)
8,911 5,290
Employee expense (2)
9,459 8,621
S&M expenses 18,370 13,911
G&A
External costs (1)
7,639 4,733
Employee expense(2)
11,372 12,849
G&A expenses 19,011 17,582
Total operating expense 86,862 70,665
(1)Includes depreciation expense
(2)Includes share-based compensation expense
(3)Includes depreciation expense for Property, plant and equipment for the three months ended March 31, 2022. All other depreciation expense was not material for the three months ended March 31, 2022. Depreciation expense was not material for the three months ended March 31, 2021.
The increase in R&D expense in the three months ended March 31, 2022 was primarily associated with higher headcount and an increase in share-based compensation expense. In addition, R&D expense increased due to clinical activities as we continued to expand the potential market opportunities for ZYNLONTA in earlier lines of therapies and new histologies, advance Cami to support BLA submission and build its pipeline. Also contributing to the increase were higher chemistry, manufacturing and controls ("CMC") expenses for Cami and a preclinical program as various manufacturing activities to support clinical activities occurred in during the three months ended March 31, 2022.
The increase in S&M expenses in the three months ended March 31, 2022 was primarily due to increased professional expenses relating to the commercial launch of ZYNLONTA.
The increase in G&A expenses in the three months ended March 31, 2022 was primarily due to higher professional fees associated with the license agreement entered into with MTPC. Share-based compensation expense decreased, partially offset by higher employee headcount.
13

8.Non-operating income (expense)
Three months ended March 31,
(in KUSD) Note 2022 2021
Convertible loans, derivatives, change in fair value income 14 15,855 21,169
Share of results with joint venture 12 (2,502) (527)
Exchange differences gain 81 394
R&D tax credit 8 194
Non-operating income 13,442 21,230
Convertible loans, derivatives, change in fair value income (expense)
Changes in derivative fair values are explained in note 14, "Convertible loans". Pursuant to the Facility Agreement with Deerfield, the Company drew down the first tranche of the convertible loans amounting to USD 65 million on May 19, 2020. Additionally, in connection with the FDA approval of ZYNLONTA, the Company drew down the second tranche of convertible loans amounting to USD 50 million.
Share of results with joint venture
In connection with the formation of Overland ADCT BioPharma in December 2020, the Company recorded its proportionate share of Overland ADCT BioPharma's net loss. See note 12, "Interest in joint venture".
Exchange differences
Also included in Other income (expense) are favorable or unfavorable Exchange differences. The Company's is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to British pounds, Euros and Swiss francs. Exchange differences represent gain or (loss) based on favorable or unfavorable changes in foreign currencies.
R&D tax credit
The Company recognizes as Other income (expense) amounts received and receivable by its subsidiary, ADCT UK, under the United Kingdom's R&D Expenditure Credit scheme ("UK R&D Credit Scheme"). The grants represent 12% of eligible expenditure. The claims are payable through the tax system, as a refund of corporation tax or of other taxes, including income tax and social security payments deducted at source from qualifying (research) employees' payroll and VAT. The relevant amounts have been therefore presented net in the balance sheet. As the credit is independent of ADCT UK's taxable profit, is clearly designed to incentivize companies to invest in R&D activities and is itself taxable income, the Group has recognized the income as government grants within Other income (expense) and not as a credit to income tax expense.
14

9.Cash and cash equivalents
Pursuant to the Facility Agreement entered into on April 24, 2020 (see note 14, "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.
10.Inventory
Inventory as of March 31, 2022 and December 31, 2021 consisted of the following:

(in KUSD)
As of March 31, 2022
As of December 31, 2021
Work in process 11,257 10,562
Finished goods (1)
581 560
Total inventory 11,838 11,122

(1)Subsequent to December 31, 2021, the Company's inventory is no longer held on consignment by the third-party logistics and distribution provider. Finished goods includes KUSD 3 relating to ZYNLONTA held on consignment by the Company's third-party logistics and distribution provider as of December 31, 2021.
In accordance with its accounting policy, the Company reversed KUSD 361 of previously recorded impairment charges based on the existence of inventory on hand and estimated demand, as well as expiration dating. The reversal of impairment charges was recorded as a gain to R&D expenses in the Company's unaudited condensed consolidated interim statement of operation.
11.Intangible assets
Licenses classified as definite-lived intangible assets 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. The Company classifies its licenses relating to product candidates for which regulatory approval has not been received as indefinite-lived intangible assets and did not recognize amortization expense relating to these licenses.
Internal development costs are classified as indefinite-lived intangible assets and are expected to be capitalized if they meet the criteria for recognition of an internally generated intangible asset, usually when marketing approval has been achieved from a regulatory authority in a major market. The Company began to capitalize internal development costs for ZYNLONTA as an internally generated intangible asset upon the FDA approval in the U.S. and if certain recognition criteria were met.
During the three months ended March 31, 2022, the Company capitalized the following license fees paid or accrued to third parties as intangible assets:
Milestone Payments
•An amount of KUSD 195 paid upon the successful completion of in-vivo efficacy studies related to a license with a third party to use their specific binding proteins in the development, manufacturing and commercialization of products. The amount was capitalized as an indefinite-lived intangible asset.
During the three months ended March 31, 2021, the Company did not capitalize any intangible assets.

15

The table below provides a rollforward of the Company's intangible assets as of March 31, 2022 and 2021.

(in KUSD) Indefinite lived Definite lived
Cost Licenses Internal development costs Licenses Software Total
January 1, 2022 12,985 631 1,052 176 14,844
Additions 195 82 - 19 296
Exchange differences - - - (1) (1)
March 31, 2022 13,180 713 1,052 194 15,139
Accumulated Amortization
January 1, 2022 (1,069) - (50) (143) (1,262)
Amortization charge - - (19) (7) (26)
March 31, 2022 (1,069) - (69) (150) (1,288)
Net book amount as of March 31, 2022 12,111 713 983 44 13,851
Cost
January 1, 2021 11,144 - - 168 11,312
Transfers - - - (6) (6)
March 31, 2021 11,144 - - 162 11,306
Accumulated Amortization
January 1, 2021 (1,069) - - (64) (1,133)
Amortization charge - - - (25) (25)
Exchange differences - - - (1) (1)
March 31, 2021 (1,069) - - (90) (1,159)
Net book amount as of March 31, 2021 10,075 - - 72 10,147
16


12.Interest in joint venture
On December 14, 2020, the Company announced the formation of a new joint venture company, Overland ADCT BioPharma, with Overland Pharmaceuticals ("Overland"), a fully integrated biopharmaceutical company backed by Hillhouse Capital. Overland ADCT BioPharma will develop and commercialize one of the Company's ADC products, ZYNLONTA, and three of the Company's ADC product candidates, ADCT-601, ADCT-602 and ADCT-901, in greater China and Singapore. The table below provides a rollforward of the Company's interest in Overland ADCT BioPharma as of March 31, 2022 and 2021, respectively.
(in KUSD)
Interest in joint venture
January 1, 2022 41,236
Share of results in joint venture (2,502)
March 31, 2022 38,734
January 1, 2021 47,908
Share of results in joint venture (527)
March 31, 2021 47,381
As of March 31, 2022, the deferred gain of USD 23.5 million arising from the Company's contribution for its equity investment in the joint venture remained unchanged from December 31, 2021. 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 less the carrying value of the deferred gain described below, 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 tables below provide summarized financial information for Overland ADCT BioPharma that is material to the Company. The following information reflects the amounts presented in the financial statements of Overland ADCT BioPharma and not the Company's share of those amounts.
(in KUSD) As of
Summarized Balance Sheet March 31, 2022 December 31, 2021
Cash and cash equivalents 34,324 39,318
Prepaid and other current assets 175 15
Intangible assets 48,040 48,040
Total liabilities 2,614 2,828
Net assets 79,925 84,545
Summarized Statement of Comprehensive Loss Three Months Ended March 31, 2022 Three Months Ended March 31, 2021
Operating expenses 4,791 1,162
Net loss 4,749 1,074
17

13.Leases
The table below provides a rollforward of the Company's right-of-use assets as of March 31, 2022 and 2021, respectively.
(in KUSD)
Right-of-Use Assets Properties (Offices) Vehicles Total
Cost
January 1, 2022 9,005 134 9,139
Exchange difference (145) - (145)
March 31, 2022 8,860 134 8,994
Accumulated depreciation
January 1, 2022 (1,925) (50) (1,975)
Depreciation charge (299) (8) (307)
Lease termination - - -
Exchange difference 14 - 14
March 31, 2022 (2,210) (58) (2,268)
Net book amount as of March 31, 2022 6,650 76 6,726
Cost
January 1, 2021 5,324 78 5,402
Additions 5,345 56 5,401
Exchange difference 9 - 9
March 31, 2021 10,678 134 10,812
Accumulated depreciation
January 1, 2021 (2,253) (20) (2,273)
Depreciation charge (374) (5) (379)
Exchange difference (8) - (8)
March 31, 2021 (2,635) (25) (2,660)
Net book amount as of March 31, 2021 8,043 109 8,152
During the first quarter of 2021, the Company entered into a new lease agreement with a ten-year term commencing in January 2021 for space in the iHub building on the Imperial University college campus in White City, West London. The primary function of the new facility, which consists of approximately 1,100 square meters, is R&D.
Depreciation of right-of-use assets have been charged to the following categories in the unaudited condensed consolidated interim statement of operations. Depreciation expense for S&M expenses was not material for any of the periods presented.

Three months ended March 31,
(in KUSD) 2022 2021
R&D expenses 245 324
G&A expenses 62 55
307 379

18

The table below provides a rollforward of the Company's lease liabilities as of March 31, 2022 and 2021, respectively.

(in KUSD)
Lease liabilities Properties (Offices) Vehicles Total
January 1, 2022 7,898 125 8,023
Cash outflow (including interest) (301) (9) (310)
Interest 51 1 52
Exchange difference (134) (36) (170)
March 31, 2022 7,514 81 7,595
January 1, 2021 3,402 65 3,467
Additions 5,345 56 5,401
Cash outflow (including interest) (313) (5) (318)
Interest 18 - 18
Exchange difference (133) (3) (136)
March 31, 2021 8,319 113 8,432
March 31, 2022
Lease liabilities (short-term) 946 35 981
Lease liabilities (long-term) 6,568 46 6,614
Total lease liabilities 7,514 81 7,595
March 31, 2021
Lease liabilities (short-term) 799 34 833
Lease liabilities (long-term) 7,520 79 7,599
Total lease liabilities 8,319 113 8,432
14.Convertible loans
Facility agreement
On April 24, 2020, the Company 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 initial public offering ("IPO"), and satisfaction of certain other conditions (the "first tranche") and
(ii)a subsequent disbursement of convertible loans in the amount of USD 50 million upon the receipt of regulatory approval for ZYNLONTA, 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 May 19, 2025. 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 and July 1, 2021 for the first tranche and second tranche, respectively.
19

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 and joint venture.
In accordance with the terms of the convertible notes, both the holders and the Company may elect to redeem the notes upon the occurrence of a major transaction and successor major transaction, respectively, as discussed in the Company's annual report for the period ended December 31, 2021 on Form 20-F.
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.
First tranche - Initial disbursement of convertible loans
The Company has accounted for the first tranche of convertible loans amounting to USD 65 million issued on May 19, 2020 as comprising two components: an embedded conversion option derivative and a loan.
Valuation of derivative embedded in first tranche
Since issuance, the embedded conversion option derivative is marked-to-market on a quarterly basis. During the three months ended March 31, 2022 and 2021, the Company recognized income of KUSD 9,518 and KUSD 15,268, respectively, as a result of changes in the fair value of the embedded derivative. The fair value of the embedded derivative associated with the first tranche was KUSD 13,707 and KUSD 23,226 as of March 31, 2022 and December 31, 2021, respectively. The decreases in the fair value of the embedded derivative during the three months ended March 31, 2022 and 2021 was primarily due to the decrease in the fair value of the underlying shares from December 31, 2021 to March 31, 2022 and from December 31, 2020 to March 31, 2021, respectively, which were charged directly to the unaudited condensed consolidated interim statement of operations.
The Company 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 March 31, 2022 and December 31, 2021 were as follows:
As of
March 31, 2022 December 31, 2021
Exercise price at 130% of the IPO price of 19.00, in USD
24.70 24.70
Forced conversion price, in USD (1)
67.93 67.93
Share price in USD 14.69 20.20
Risk-free interest rate 2.4 % 1.0 %
Expected volatility 76 % 77 %
Expected term 37 months 40 months
Dividend yield - -
Recovery rate 5 % 5 %
Implied bond yield 10.3 % 8.8 %
(1)In accordance with the terms of the convertible loans, under certain circumstances the Company has the right to force conversions of the convertible notes on and after the one- and three-year anniversaries of the date on which it has received regulatory approval of ZYNLONTA as discussed in the Company's annual report for the period ended December 31, 2021 on Form 20-F.
Residual convertible loan
The loan bears interest at a rate of 5.95% per annum, based on a 360-day year, with interest payable quarterly in arrears commencing on July 1, 2020. For the three months ended March 31, 2022 and 2021, the Company recorded interest
20

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 2,219 and KUSD 1,982, respectively. The Company's interest expense is based on the implied effective interest rate, which was computed at inception at 23%.
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 12 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. The carrying value of the convertible loan was KUSD 44,084 as of March 31, 2022, of which KUSD 3,614 was the current portion of the liability. The carrying value of the convertible loan was KUSD 42,874 as of December 31, 2021, of which KUSD 3,631 was the current portion of the liability.
Second tranche - Accounting for subsequent disbursement of convertible loans prior to FDA approval
Draw-down of the second tranche of the convertible loans was mandatory upon the April 23, 2021 receipt of regulatory approval for ZYNLONTA. Prior to drawing down the second tranche, the Company accounted for the second tranche as a derivative. During the three months ended March 31, 2021, the Company recognized income of KUSD 5,901 as a result of changes in the fair value of the derivative. The decrease in fair value of the derivative during the three months ended March 31, 2021 was primarily due to the decrease in the fair value of the underlying shares from December 31, 2020 to March 31, 2021, which was charged directly to the unaudited condensed consolidated interim statement of operations. The fair value of the derivative associated with the second tranche as of both March 31, 2022 and December 31, 2021 was nil as the derivative is now accounted for as an embedded conversion option derivative upon the draw-down of the subsequent disbursement. See "Second tranche - Accounting for subsequent disbursement of convertible loans after FDA approval" below for further details.
The Company used an independent valuation firm to assist in performing a fair value assessment of the derivative liability, 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 March 31, 2021 (prior to FDA approval of ZYNLONTA) was as follows:
As of
March 31, 2021
Exercise price at 150% of the IPO of 19.00, in USD (1)
28.50
Forced conversion price, in USD (2)
78.38
Share price in USD 24.41
Risk-free interest rate 0.7 %
Expected volatility(3)
90 %
Expected term 2 months
Dividend yield -
Recovery rate 5 %
Implied bond yield 7.9 %
(1)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, but in no event less than a floor equal to 81% of the IPO price.

(2)In accordance with the terms of the convertible loans, under certain circumstances the Company has the right to force conversions of the convertible notes on and after the one- and three-year anniversaries of the date on which it received regulatory approval of ZYNLONTA, as discussed in the Company's annual report for the period ended December 31, 2021 on Form 20-F.

(3) The expected volatility utilized for the pre-FDA approval valuations was higher than the post-approval valuations due to a change in the peer group. Prior to the FDA approval of ZYNLONTA, the Company utilized a peer group primarily comprised of clinical-stage companies. Upon receipt of FDA approval of ZYNLONTA, the Company updated the peer group to primarily comprise of commercial-stage companies, which lowered the expected volatility assumption utilized in the post-FDA approval valuations.

21

Second tranche - Accounting for subsequent disbursement of convertible loans after FDA approval
Upon receipt of FDA approval of ZYNLONTA, the Company accounted for the second tranche of convertible loans amounting to USD 50 million issued on May 17, 2021 as comprising two separate components: an embedded conversion option derivative and a loan.
Valuation of derivative embedded in second tranche
Upon receipt of FDA approval of ZYNLONTA, the Company used an independent valuation firm to assist in calculating the initial fair value of the entire instrument, including the embedded conversion option derivative. The fair value of the embedded conversion option derivative component was based on the mean of values derived from application of the Hull and Goldman Sachs convertible bond pricing models. Key inputs for the subsequent valuation of the embedded conversion option derivative as of March 31, 2022 and December 31, 2021, including both components described above, were as follows:
As of
March 31, 2022 December 31, 2021
Exercise price in USD (1)
28.07 28.07
Forced conversion price, in USD (2)
77.19 77.19
Share price in USD 14.69 20.20
Risk-free interest rate 2.4 % 1.0 %
Expected volatility 76 % 77 %
Expected term 37 months 40 months
Dividend yield - -
Recovery rate 5 % 5 %
Implied bond yield 10.3 % 8.8 %

(1)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, but in no event less than a floor equal to 81% of the IPO price. The conversion price for the second tranche of the convertible notes as of March 31, 2022 and December 31, 2021 was based on 120% of the average of the volume-weighted average process of the Company's shares on each of the 15 trading days prior to the disbursement date.

(2)In accordance with the terms of the convertible loans, under certain circumstances the Company has the right to force conversions of the convertible notes on and after the one- and three-year anniversaries of the date on which it received regulatory approval of ZYNLONTA, as discussed in the Company's annual report for the period ended December 31, 2021 on Form 20-F.
During the three months ended March 31, 2022, the Company recognized income of KUSD 6,337 as a result of changes in the fair value of the embedded derivative. The fair value of the embedded derivative associated with the second tranche was KUSD 8,385 as of March 31, 2022. There was no income or expense recognized as a result of changes in the fair value of the embedded derivative during the three months ended March 31, 2021 as the second tranche was drawn down on May 17, 2021. The fair value of the embedded derivative associated with the second tranche was KUSD 14,721 as of December 31, 2021. The decrease in fair value of the embedded derivative is primarily due to the decrease in the fair value of the underlying shares from December 31, 2021 to March 31, 2022.

Convertible loan
The loan bears interest at a rate of 5.95% per annum, based on a 360-day year, with interest payable quarterly in arrears commencing on July 1, 2021. For the three months ended March 31, 2022, the Company recorded interest expense related to the interest payable on the convertible loan (net of the value of the embedded conversion option derivative) in the amount of KUSD 803, based on the implied effective interest rate, which was computed at inception at 6.7%. There was no interest expense for the three months ended March 31, 2021 as the second tranche was drawn down in May 2021.
As described above, the Company used an independent valuation firm to assist in calculating the initial fair value of the entire instrument, including both components. The convertible loan is subsequently measured at its amortized cost in accordance with IFRS 9. 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
22

discounted at the implied effective interest rate. The net present value of those cash outflows occurring within 12 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. The carrying value of the convertible loan was KUSD 50,880 as of March 31, 2022, of which KUSD 2,935 was the current portion of the liability. The carrying value of the convertible loan was KUSD 50,854 as of December 31, 2021, of which KUSD 2,944 was the current portion of the liability.
15.Share-based compensation
Equity Incentive Plan 2019
In November 2019, the Company adopted the Equity Incentive Plan 2019. Under the Equity Incentive Plan 2019, 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 restricted share units ("RSUs"), share options, share appreciation rights, performance awards and other share-based awards. The Company has reserved 13,820,000 common shares for future issuance under the Equity Incentive Plan 2019 (including share-based equity awards granted to date less awards forfeited). As of March 31, 2022, the Company has 4,141,435 common shares available for the future issuance of share-based equity awards. On March 7, 2022, the Company issued its annual equity award, which was approved by the Compensation Committee of the Board of Directors and consisted of 1,867,076 share options and 570,340 RSUs. As of March 31, 2022, the Company has only granted share options, RSUs and performance awards under the Equity Incentive Plan 2019.
As of March 31, 2022, the cumulative amount recorded as an increase to Other Reserves within equity in the unaudited condensed consolidated interim balance sheet of the Equity Incentive Plan 2019 was KUSD 109,376. An amount of KUSD 512 was withheld for tax charges during the three months ended March 31, 2022. The amount of expense for all awards recognized for services received during the three months ended March 31, 2022 and 2021 were KUSD 13,910 and KUSD 13,951, respectively.
Share Options
Pursuant to the Equity Incentive Plan 2019, 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 is ten years. Under the grant, the options may be settled only in common shares of the Company. Therefore, the grants of share options under the Equity Incentive Plan 2019 have been accounted for as equity-settled under IFRS 2. 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 unaudited condensed consolidated interim statement of operations and a corresponding increase to Other Reserves within equity on the unaudited condensed consolidated interim balance sheet.
The expense recognized for services received during the three months ended March 31, 2022 and 2021 is KUSD 10,515 and KUSD 12,692, respectively.
The following table summarizes the share option awards outstanding as of March 31, 2022:
Average strike price per share in USD Number of awards Weighted average remaining life
in years
December 31, 2021 27.23 6,640,200 8.70
Granted 14.39 2,062,058 9.90
Forfeited 28.33 (272,752) N/A
March 31, 2022 24.05 8,429,506 8.79
Awards outstanding as of March 31, 2022 and December 31, 2021, expire through 2032. The options granted during 2022 include the Company's annual equity award discussed above. The grant-date fair value of the options relating to the annual equity awards was USD 8.85 per share. As of March 31, 2022, 2,741,045 awards are vested and exercisable out of the total
23

outstanding awards of 8,429,506 common shares. The weighted average strike price and weighted average remaining life for vested and exercisable awards is USD 25.70 and 8.21 years, respectively.
The fair values of the options granted were determined on the date of the grant using the Black-Scholes option-pricingmodel. TheCompany used an independent valuation firm to assist in calculating the fair value of the award grants per participant.
The fair valuesof the options granted duringthe three months ended March 31, 2022 were determined on the date of the grant using the following assumptions:
Three Months Ended Three Months Ended
March 31, 2022 March 31, 2021
Share price, in USD
14.00 - 19.69
27.32 - 32.22
Strike price, in USD
14.00 - 19.69
27.32 - 32.22
Expected volatility
70%
85%
Award life
6.08
5.5 - 6.08
Expected dividends - -
Risk-free interest rate
1.46% - 1.73%
0.51% - 1.12%
The expected volatility was based on the Company's historical volatility and selected volatility determined by median values observed among other comparable public companies. The expected volatility utilized after FDA approval of ZYNLONTA decreased from those used prior to FDA approval due to a change in the peer group. Prior to FDA approval, the Company utilized a peer group primarily comprised of clinical-stage companies. Upon receipt of FDA approval, the Company updated the peer group to primarily comprise of commercial-stage companies, which lowered the expected volatility assumption.
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.
RSUs
Pursuant to the Equity Incentive Plan 2019, 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 of three years commencing on the first anniversary of the date of grant. Under the grant, the RSUs may be settled only in common shares of the Company. Therefore, the grants of RSUs under the Equity Incentive Plan 2019 have been accounted for as equity-settled under IFRS 2. 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 unaudited condensed consolidated interim statement of operations and a corresponding increase to Other Reserves within equity on the unaudited condensed consolidated interim balance sheet.
The expense recognized for services received during the three months ended March 31, 2022 and 2021 is KUSD 3,395 and KUSD 1,259.
Number of awards Weighted average grant date fair value
December 31, 2021 663,055 30.95
Granted 579,636 14.10
Vested (137,908) 28.70
Forfeited (48,833) N/A
March 31, 2022 1,055,950 22.17
The RSUs granted during 2022 include the annual equity award discussed above.
24

Share-based Compensation Reserves
The movement in the Share-based Compensation Reserves (included in Other reserves within equity) is as follows:
Three months ended
(in KUSD) March 31, 2022 March 31, 2021
Equity Incentive Plan 2019 - Share Options 10,515 12,692
Equity Incentive Plan 2019 - RSUs 3,395 1,259
Tax and social charge deductions - Incentive Plan 2019 (512) -
Total 13,398 13,951
16.Deferred royalty obligation
On August 25, 2021, the Company entered into a royalty purchase agreement with HCR for up to USD 325.0 million of which the Company received gross proceeds of USD 225.0 million during 2021 and is eligible to receive an additional USD 100.0 million upon the occurrence of certain commercial milestones.
The table below provides a rollforward of the Company's debt obligation relating to the royalty purchase agreement.
(in KUSD)
January 1, 2022 225,477
Less: royalty payments 1,191
Plus: interest expense 6,142
Less : cumulative catch-up adjustment, Financial income 18,288
March 31, 2022 212,140
January 1, 2021 -
Proceeds from the sale of future royalties 225,000
Less: transaction costs 6,998
Less: royalty payments 213
Plus: interest expense 6,752
Plus: cumulative catch-up adjustment, Financial expense 936
December 31, 2021 225,477
The Company recorded a liability relating to the initial gross proceeds received less transaction costs. The Company will record additional liabilities upon the receipt of eligible amounts when such contingent events occur. 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. Based on the Company's initial revenue projections, the Company used an independent 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 will be accreted to the total amount of the royalty payments necessary to extinguish the Company's obligation under the agreement, which will be recorded as interest expense over the life of the royalty purchase agreement. The estimate of this total interest expense resulted in an effective interest rate of 10%. As royalty payments are made to HCR, the balance of the debt obligation will be effectively repaid over the life of the royalty purchase agreement.
Based on the Company's periodic review, 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 initial 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
25

achievement of the sales milestones as well as the timing of a change in control event. The Company will 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 it will record a cumulative catch-up adjustment.
Based on the Company's 2022 strategic planning decisions including updated development plans, the Company updated the valuation model which resulted in a cumulative catch-up adjustment of KUSD 18,288 recorded as Financial income within the unaudited condensed consolidated interim statement of operations for the three months ended March 31, 2022. Under the cumulative catch-up method, the effective interest rate 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 effective interest rate, 10%, as of the date on which the estimate changes.
17.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").
Based on the Company's contribution and equity interest in Overland ADCT BioPharma, certain of the Company's employees serve on its board of directors.
Services provided by the Company to related parties
The Company provides registered office and other simple administrative services to three subsidiaries of ATH. The amounts invoiced for the three months ended March 31, 2022 and recovered through G&A expenses, amounted to KUSD 1 (three months ended March 31, 2021: KUSD 1).
As contemplated by the license agreement with Overland ADCT BioPharma, Overland ADCT BioPharma has elected to participate in certain of the Company's global clinical trials, in exchange for which it reimburses the Company for a portion of the cost of those trials. Overland ADCT BioPharma also reimburses the Company for certain expenses in connection with technology transfer and assistance of clinical personnel. During the three months ended March 31, 2022, the Company incurred KUSD 320 of clinical trial and service costs to be reimbursed by Overland ADCT BioPharma, which is recorded as a reduction of R&D expenses in the Company's unaudited condensed consolidated interim statement of operations (three months ended March 31, 2021: nil).
In addition, the Company entered into a supply agreement with Overland ADCT BioPharma whereby the Company provides Overland ADCT BioPharma clinical supply for use in trials. For the three months ended March 31, 2022, KUSD 45 of clinical supply was provided to Overland ADCT BioPharma which is recorded as a reduction of R&D expenses in the Company's unaudited condensed consolidated interim statement of operation. There were no such sales to Overland ADCT BioPharma during the three months ended March 31, 2021.
Related party balances
The Company had a related party receivable balance with Overland ADCT BioPharma of KUSD 1,031 and KUSD 789 as of March 31, 2022 and December 31, 2021, respectively. There were no trade accounts payable with related parties as of March 31, 2022 and December 31, 2021.
26

Key management compensation
The compensation of key management is shown below:
Three months ended March 31,
(in KUSD) 2022 2021
Salaries and other short-term employee costs 2,144 2,032
Pension costs 133 134
Share-based compensation expense 5,574 5,217
Other compensation 10 13
Total 7,861 7,396
18.Loss per share
Three Months Ended March 31,
(in KUSD, except per share amounts) 2022 2021
Loss attributable to owners (16,661) (51,527)
Weighted average number of shares outstanding
76,821,726 76,721,667
Basic and diluted loss per share (0.22) (0.67)
For the three months ended March 31, 2022 and 2021, 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:
Three Months Ended March 31,
2022 2021
Equity Incentive Plan 2019 - Share Options 7,179,859 4,683,132
Equity Incentive Plan 2019 - RSUs 793,791 195,773
Conversion of the principal amount of convertible loans into the Company's common shares 4,412,840 2,631,579
12,386,490 7,510,484
19.Events after the reporting date
The Company has evaluated its subsequent events through May 9, 2022, 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.
27