EX-99.2 3 dp127430_ex9902.htm EXHIBIT 99.2

Exhibit 99.2

 

Management’s Discussion and Analysis of Financial Condition
and Results of Operations

 

This management’s discussion and analysis is designed to provide you with a narrative explanation of our financial condition and results of operations. We recommend that you read this in conjunction with our unaudited interim condensed financial information as of and for the three months ended March 31, 2020 included as Exhibit 99.1 to this Report on Form 6-K. We also recommend that you read our management’s discussion and analysis and our audited financial statements and the notes thereto, which appear in our Annual Report on Form 20-F for the year ended December 31, 2019 on file with the U.S. Securities and Exchange Commission (the “SEC”).

 

Unless otherwise indicated or the context otherwise requires, all references to “AC Immune” or the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to AC Immune SA.

 

We prepare and report our financial statements and financial information in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). None of our financial statements were prepared in accordance with generally accepted accounting principles in the United States. We maintain our books and records in Swiss Francs (CHF). We have made rounding adjustments to some of the figures included in this management’s discussion and analysis. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them. Unless otherwise indicated, all references to currency amounts in this discussion and analysis are in Swiss Francs.

 

This discussion and analysis is dated as of May 4, 2020.

 

Results of Operations

 

The Covid-19 global pandemic has impacted various countries where we currently operate our clinical trials and business operations. The extent to which Covid-19 may impact us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the severity of Covid-19, or the effectiveness of actions to contain and treat for Covid-19.

 

The Company effected its business continuity plan in the three months ended March 31, 2020, and the Company was able to implement such plan quickly and continue to adapt as the situation evolves. Currently, we have only minimal, rotating staff conducting critical on-site activities while other functions of our business have continued remotely without substantial disruption to date. We are continuously assessing and adapting our working practices and business operations to ensure compliance with official guidance and orders related to the pandemic, and are working proactively with our partners and other stakeholders to take steps intended to mitigate and minimize any negative impact to our research, clinical programs and other business operations.

 

Many of our key trials are already fully enrolled and patient follow-up can continue remotely in most cases. However, the current pandemic may impact certain clinical trials as long as the pandemic is ongoing. Most notably:

 

ACI-3024: Our Phase 1 study for ACI-3024-1901 in Healthy Volunteers has completed the recruitment and treatment phases as planned. The Company is currently collecting safety, pharmacokinetic and biomarker data. The clinical data is currently anticipated to be communicated in H2 2020.

 

ACI-35 in Alzheimer’s disease: The Company continues to collect data from the Phase 1b/2a ACI-35-1802 study. The interim analysis of cohort 1.1 (safety, tolerability and immunogenicity) is anticipated to be available in Q2 2020. The initiation of cohort 1.2 and cohort 2 is set to commence upon the resolution of the Covid-19 outbreak.

 

 

ACI-24 in Down syndrome: The Company’s ACI-24-1301 Phase 1b trial recruitment and treatment phases have been completed. Several subjects are still being monitored during the safety follow-up period. The clinical data communication is anticipated by H2 2020.

 

The Regulatory submission of the ACI-24-DS-1902 Phase 2 trial is proceeding as planned. The initiation of the clinical trial is on track to commence in H2 2020.

 

ACI-24 in Alzheimer’s disease: The Company continues to collect safety, immunogenicity and biomarker data from patients in the ongoing Phase 2 study of ACI-24-1801. The 12-month interim data analysis will be performed as planned on a reduced patient data-set due to Covid-19.

 

crenezumab: In response to the government-imposed stay at home order in Colombia related to the Covid-19 pandemic, the dosing of participants in the Colombian API study has been temporarily interrupted.  The order has been extended until May 11, 2020. While the ultimate duration of the dosing interruption is not yet known, participants are receiving crenezumab or placebo for at least five years as part of the long-term prevention study, and we continue to expect data from the study in 2022.

 

The Company has drug supplies that are expected to be sufficient to complete ongoing trials as well as additional drug substance supplies expected to be sufficient to support ongoing cohorts of clinical trials for a period of at least three to six months. The Company will refrain from starting new clinical trials if a minimum of a six-months supply on hand cannot be secured. Finally, the Company currently does not expect delays to its clinical trials due to manufacturing or supply-chain issues.

 

Comparison of the three months ended March 31, 2020 and 2019

 

Revenues

 

AC Immune generated revenues of CHF 12.4 million in the three months ended March 31, 2020, a decrease of CHF 62.6 million over the comparable period in 2019. The following table summarizes our revenues during the three months ended March 31, 2020 and 2019:

 

    For the Three Months
Ended March 31,		    
    2020   2019   Change
    (in CHF thousands, unaudited)
Contract revenue  

12,411

    

75,042

    

(62,631

 )
Total revenues   12,411     75,042     (62,631 )

 

For the three months ended March 31, 2020, the Company recorded CHF 12.4 million. Although the Company recorded a CHF 10 million milestone in Q1 2020, the decrease predominantly relates to the recognition of a CHF 73.1 million upfront payment for a right-of-use license fee associated with our agreement to research and develop Morphomer Tau small molecules for the potential treatment of Alzheimer's disease (AD) and other neurodegenerative diseases. The difference was partially offset by the recognition of CHF 2.1 million for research and development activities in this agreement compared to CHF 0.8 million in the prior period.

 

Research and Development Expenses

 

Research and development activities are essential to our business and represent the majority of our costs incurred. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using information from the clinical sites and our vendors. Our collaboration arrangements share costs for the development of our product candidates differently. We have completed our research and development spending in both of our Genentech collaborations. Janssen will be responsible for the full development cost from Phase 2b and onwards. In addition to these arrangements, we expect that our total future research and development costs will continue to increase over current levels in line with our three-pillar strategy that focuses on Alzheimer’s disease, non-Alzheimer’s neurodegenerative diseases including NeuroOrphan indications and diagnostics.

 

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For the three months ended March 31, 2020, research and development expenses totaled CHF 15.2 million compared with CHF 11.6 million for the three months ended March 31, 2019. This represents an increase of CHF 3.6 million. The following table presents the research and development expenses during the three months ended March 31, 2020 and 2019:

 

    For the Three Months
Ended March 31,		    
    2020   2019   Change
    (in CHF thousands, unaudited)
Operating expenses(1)   11,446     8,452     2,994  
Salaries and related costs(2)  

3,763

    

3,140

    

623

  
Total research and development expenses  

15,209

    

11,592

    

3,617

  

(1)Includes depreciation expense
(2)Includes share-based compensation expense

 

The table below provides a breakdown of our research and development costs, including direct research and development costs and manufacturing costs related to research and development, by major development categories of our programs for the periods covered by this Form 6-K. The research and development costs not allocated to specific programs include employment costs, regulatory, quality assurance and intellectual property costs. We do not assign our internal costs, such as salary and benefits, stock-based compensation expense, laboratory supplies and other direct expenses and infrastructure costs to individual research and development projects, because the employees within our research and development groups typically are deployed across multiple research and development programs.

 

The following table summarizes our research and development expenses by major development program during the three months ended March 31, 2020 and 2019:

 

   

For the Three Months

Ended March 31,

    
    2020   2019   Change
     
Alzheimer’s disease   5,853     5,424     429  
Non-Alzheimer’s diseases   3,509     1,770     1,739  
Diagnostics   389     401     (12 )
New discovery programs   374     161     213  
Total programs   10,125     7,756     2,369  
R&D expenses not allocated to specific programs   5,084     3,836     1,248  
Total   15,209     11,592     3,617  

 

The CHF 0.4 million increase in investments in Alzheimer’s disease programs for the three months ended March 31, 2020 predominantly relates to a CHF 1.0 million increase in certain Phase 1 clinical activities completed for our lead Morphomer Tau compound. This is largely offset by a CHF 0.5 million decrease in spending on ACI-24 for Alzheimer’s disease primarily related to certain reductions in development of the second generation vaccine technology. The CHF 1.7 million increase in Non-Alzheimer’s disease programs is led by a CHF 1.3 million increase for ACI-24 for Down syndrome related costs primarily related to scaling up activities for a Phase 2 clinical study. We also incurred a CHF 0.3 million increase associated primarily with higher preclinical and manufacturing costs for our alpha-synuclein antibodies. This was offset by a decrease in various other programs.

 

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R&D Expenses not allocated to specific programs increased CHF 1.2 million predominantly driven by a CHF 0.6 million increase in salaries and related costs with the increase of 15 full time equivalents and CHF 0.6 million in regulatory and quality assurance and other unallocated research and development costs.

 

General and administrative expenses

 

General and administrative expenses consist primarily of salaries and related costs, including share-based compensation, professional fees including legal and accounting related services and other operating expenses.

 

 General and administrative expenses amounted to CHF 4.5 million for the three months ended March 31, 2020 compared with CHF 3.3 million for the three months ended March 31, 2019. This represents an increase of CHF 1.2 million. The increase is predominantly associated with increases in our payroll expense due to an increase of seven FTEs as well as a CHF 0.2 million increase in administrative expenses and depreciation expense, respectively. The following tables present the general and administrative expenses for the three months ended March 31, 2020 and 2019: 

 

    For the Three Months
Ended March 31,		    
    2020   2019   Change
    (in CHF thousands, unaudited)
Operating expenses(1)   1,737     1,420     317  
Salaries and related costs(2)   2,767     1,874     893  
Total general and administrative expenses   4,504     3,294     1,210  
(1)Includes depreciation expense
(2)Includes share-based compensation expense

 

Finance result, net

 

The following table presents the net financial income and expenses during the three months ended March 31, 2020 and 2019:

 

    For the Three Months
Ended March 31,		    
    2020   2019   Change
    (in CHF thousands, unaudited)
Interest income/(expense), net   6     (1,007 )   1,013  
Change in fair value of conversion feature   —     4,505     (4,505 )
Foreign currency remeasurement gain/(loss), net   (454 )   (45 )   (409 )
Other finance income/(expense)   61     (35 )    96  
Finance result, net   (387 )   3,418     (3,805 )

 

In the three months ended March 31, 2020 and 2019, the Company reported CHF 0.4 million and CHF 3.4 million in net financial losses and gains, respectively.

 

The key driver for the change in financial gains relates to items related to our Lilly agreement in the prior period. Notably, a CHF 4.5 million remeasurement gain associated with the change in fair value of the conversion feature for the convertible loan due to Lilly and CHF 1.0 million in effective interest to amortize the host debt for the convertible loan were not repeated in the current period.

 

The Company incurred a higher foreign currency loss of CHF 0.5 million in the first quarter of 2020 as a result of fluctuations predominantly between the USD and CHF. The Company held approximately 88% of its cash and cash equivalents and short-term financial assets in local currency, which is down from more than 90% as of March 31, 2019. Exchange rate volatility throughout Q1 2020 was greater than Q1 2019, negatively impacting our USD cash balances for the period.

 

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Liquidity and Capital Resources

 

To date, the Company has financed its cash requirements primarily from its public offerings, share issuances and revenues from collaboration agreements. The Company is a clinical stage company and is exposed to all the risks inherent to establishing a business. Inherent to the Company’s business are various risks and uncertainties, including the substantial uncertainty as to whether current projects will succeed. As of March 31, 2020, we had cash and cash equivalents of CHF 182.9 million and short-term financial assets of CHF 95 million for a total liquidity balance of CHF 277.9 million.

 

Our primary uses of capital are, and we expect will continue to be, research and development expenses, compensation and related expenses, and other operating expenses including rent. Cash used to fund operating expenses is impacted by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We expect to incur substantial expenses in connection with a number of our product candidates in various stages of clinical development. This includes co-funding ACI-35 to the end of the Phase 1b/2a clinical study, expenditures for clinical activities in accordance with our agreement with Lilly, material increases in spending on ACI-24 in AD to fund an ongoing Phase 2 study and for the preparation of a Phase 2 study in ACI-24 in Down syndrome, increased investment in our PET tracer candidates focused on alpha-synuclein and TDP-43 and a number of research initiatives focused on neurodegenerative orphan diseases other than AD.

 

We plan to continue to fund our operating and capital funding needs through proceeds received from licensing and collaboration agreements and through equity or other forms of financing. We may also consider entering into additional collaboration agreements and selectively partnering for clinical development and commercialization. 

 

Cash Flows

 

The following table summarizes our cash flows for the periods indicated:

 

    For the Three Months
Ended March 31,		    
    2020   2019   Change
    (in CHF thousands, unaudited)
Net cash provided by (used in):                  
Operating activities   (9,687 )   65,984     (75,671 )
Investing activities   (212 )   (50,511 )   50,299  
Financing activities   (374 )   50,248     (50,622 )
Net change in cash and cash equivalents   (10,273 )   65,721     (75,994 )

 

Operating activities

 

Net cash used in operating activities was CHF 9.7 million for the three months ended March 31, 2020 compared with net cash provided by operating activities of CHF 66.0 million for the three months ended March 31, 2019. The change in cash used in operating activities for the three months ended March 31, 2020 was due to the Company’s reporting net loss of CHF 7.7 million for the three months ended March 31, 2020 compared with net income of CHF 63.6 million for the same period in 2019 driven by (i) a decrease of CHF 62.6 million in revenues, principally due to recognition of CHF 73.9 million from the upfront payment for a right-of-use license fee and research and development activities associated with our agreement with Lilly in the prior period compared to CHF 12.1 million in Q1 2020 (ii) further increased by a CHF 3.6 increase in research and development costs for the three months ended March 31, 2020.

 

Investing activities

 

Net cash used in investing activities was CHF 0.2 million for the three months ended March 31, 2020 compared with net cash used in investing activities of CHF 50.5 million for the three months ended March 31, 2019. The Company made no additional investments in fixed-term deposits in Q1 2020 compared to CHF 50 million in the prior period.

 

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 Financing activities

 

Net cash used in financing activities was CHF 0.4 million for the three months ended March 31, 2020 compared with net cash provided by financing activities of CHF 50.2 million for the three months ended March 31, 2019. The decrease of CHF 50.6 million is predominantly related to CHF 50.3 million received from Lilly for a convertible loan in the prior period that was not repeated in the current period.

 

Operating Capital Requirements and Plan of Operations

 

We do not expect to generate revenues from royalties based on product sales unless and until our partners obtain regulatory approval of, and successfully commercialize, our current or any future product candidates. As of March 31, 2020, we had cash and cash equivalents of CHF 182.9 million and short-term financial assets of CHF 95 million totaling CHF 277.9 million in liquidity. The decrease relative to December 31, 2019 is due to the receipt of a CHF 10 million milestone payment from Lilly. There were corresponding offsets from an increase in research and development spending on our major discovery and development programs and the strengthening of the Company’s infrastructure, systems and organization. There can be no certainty as to the exact timing, or in fact, whether any future milestone payments will ever be made given that these milestone payments are contingent on clear milestones being reached. Accordingly, assuming we do not receive potential milestone payments and based upon our currently contemplated research and development strategy, we believe that our existing capital resources will be sufficient to meet our projected operating requirements through the first quarter of 2024.

 

We expect to generate losses for the foreseeable future, and these losses could increase as we continue product development until we successfully achieve regulatory approvals for our product candidates and begin to commercialize any approved products. We are subject to all the risks pertinent to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. We expect to incur additional costs associated with operating a public company and we anticipate that we will need substantial additional funding in connection with our continuing operations. If we need to raise additional capital to fund our operations and complete our ongoing and planned clinical studies, funding may not be available to us on acceptable terms, or at all.

 

Our future funding requirements will depend on many factors, including but not limited to the following:

 

  · The scope, rate of progress, results and cost of our pre-clinical and clinical studies and other related activities, according to our long-term strategic plan;

 

  · The cost of manufacturing clinical supplies and establishing commercial supplies of our product candidates and any other products we may develop;

 

  · The cost, timing and outcomes of regulatory approvals;

 

  · The costs and timing of establishing sales, marketing and distribution capabilities;

 

  · The terms and timing of any collaborative, licensing and other arrangements that we may establish, including any required milestone and royalty payments thereunder;

 

  · The emergence of competing technologies or other adverse market developments; and

 

  · The potential cost and timing of managing and protecting our portfolio of intellectual property.

 

Quantitative and Qualitative Disclosures about Market Risk

 

During the three months ended March 31, 2020, there were no significant changes to our quantitative and qualitative disclosures about market risk described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Quantitative and Qualitative Disclosures About Market Risk” in the Annual Report on Form 20-F.

 

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Critical Judgments and Accounting Estimates

 

There have been no material changes to the significant accounting policies and estimates described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Judgments and Accounting Estimates” in the Annual Report on Form 20-F.

 

JOBS Act Exemption

 

On April 5, 2012, the Jumpstart our Business Startups Act of 2012, or the JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an emerging growth company, we are not required to provide an auditor attestation report on our system of internal controls over financial reporting. This exemption will apply for a period of five years following the completion of our initial public offering (through 2021) or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier. We would also cease to be an emerging growth company if (i) we have more than USD 1.07 billion in annual revenue, (ii) we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common shares that are held by non-affiliates exceeds USD 700 million as of the most recently completed second fiscal quarter, or (iii) we have issued more than USD 1.0 billion in non-convertible debt during the prior three-year period.

 

Non-IFRS Financial Measures

 

In addition to our operating results, as calculated in accordance with International Financial Reporting Standards, or IFRS, as adopted by the International Accounting Standards Board, we use adjusted income/(loss) and adjusted earnings/(loss) per share when monitoring and evaluating our operational performance. Adjusted income/(loss) is defined as income/(loss) for the relevant period, as adjusted for certain items that we believe are not indicative of our ongoing operating performance. Adjusted earnings/(loss) per share is defined as adjusted income/(loss) for the relevant period divided by the weighted-average number of shares for such period.

 

We believe that these measures assist our shareholders because they enhance comparability of our results each period and provide more useful insight into operational results for the period. The Company’s executive management uses these non-IFRS measures to evaluate our operational performance. These non-IFRS financial measures are not meant to be considered alone or as substitutes for our IFRS financial measures and should be read in conjunction with AC Immune’s financial statements prepared in accordance with IFRS. The most directly comparable IFRS measure to these non-IFRS measures is net income/(loss). The following table reconciles net income/(loss) to adjusted income/(loss) and adjusted earnings/(loss) per share for the periods presented:

 

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Reconciliation of Income/(Loss) to Adjusted Income/(Loss) and
Earnings/(Loss) Per Share to Adjusted Earnings/(Loss) Per Share

 

    For the Three Months
Ended March 31,
    2020   2019
(in CHF thousands except for share and per share data)    
Income/(Loss)   (7,689 )   63,574  
Adjustments:            
Non-cash share-based payments (a)   852     584  
Foreign currency losses (b)   454     45  
Effective interest expense (c)   54     991  
Change in fair value of conversion feature (d)   —     (4,505 )
Adjusted Income/(Loss)   (6,329 )   60,689  
             
Earnings/(Loss) per share – basic   (0.11 )   0.94  
Earnings/(Loss) per share – diluted   (0.11 )   0.91  
Adjustment to earnings/(loss) per share – basic   0.02     (0.05 )
Adjustment to earnings/(loss) per share – diluted   0.02     (0.06 )
Adjusted earnings/(loss) per share – basic   (0.09 )   0.89  
Adjusted earnings/(loss) per share – diluted   (0.09 )   0.85  
Weighted-average number of shares outstanding Adjusted earnings/(loss)–basic   71,864,213     67,922,939  
Weighted-average number of shares outstanding Adjusted earnings/(loss)–diluted   71,882,607     71,276,000  

 

  (a) Reflects non-cash expenses associated with share-based compensation for equity awards issued to Directors, Management and employees of the Company. This expense reflects the awards’ fair value recognized for the portion of the equity award which is vesting over the period.

 

  (b) Reflects foreign currency remeasurement gains and losses for the period, predominantly impacted by the change in the exchange rate between the US Dollar and the Swiss Franc.

 

  (c) Effective interest expense for the period relates to the accretion of the Company’s convertible loan in accordance with the effective interest method.

 

  (d) Change in fair value of conversion feature that is bifurcated from the convertible loan host debt with Lilly.

 

Adjustments for the three months ended March 31, 2020 and March 31, 2019 were CHF 1.3 million in net losses and CHF 2.9 million in net gains, respectively. The Company recorded CHF 0.9 million for the three months, respectively, for share-based compensation expenses. There were foreign currency remeasurement losses of CHF 0.5 million and less than CHF 0.1 million, respectively, predominantly related to the increased foreign currency cash balance of the Company and movement in our forward contract. In Q1 2019, the Company recorded CHF 1.0 million for amortization of effective interest and recognized a CHF 4.5 million gain for the change in fair value of the liability related to the conversion feature. These were not repeated in the current period.

 

Cautionary Statement Regarding Forward Looking Statements

 

This discussion and analysis contains statements that constitute forward-looking statements. All statements other than statements of historical facts contained in this discussion and analysis, including statements regarding our future results of operations and financial position, business strategy, product candidates, product pipeline, ongoing and planned clinical studies, including those of our collaboration partners, regulatory approvals, research and development costs, timing and likelihood of success, as well as plans and objectives of management for future operations are forward-looking statements. Many of the forward-looking statements contained in this prospectus can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate,” “will” and “potential,” among others. Forward-looking statements appear in a number

 

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of places in this discussion and analysis and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the section entitled “Risk Factors” in our annual report on Form 20-F, including: the impact of Covid-19 on our business, suppliers, patients and employees and any other impact of Covid-19. These forward-looking statements speak only as of the date of this discussion and analysis and are subject to a number of risks, uncertainties and assumptions described under the sections in our annual report on Form 20-F entitled “Risk Factors” and this discussion and analysis. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time such as the global pandemic originating with Covid-19, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

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