6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2020

Commission File Number: 001-39071

ADC Therapeutics SA 

(Exact name of registrant as specified in its charter)

Biopôle

Route de la Corniche 3B 

1066 Epalinges 

Switzerland 

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒ Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ADC Therapeutics SA
By:	/s/ Jennifer Creel
Name:	Jennifer Creel
Title:	Chief Financial Officer

Date: November 12, 2020

EXHIBIT INDEX

Exhibit Number	Description
99.1	Unaudited IFRS Condensed Consolidated Interim Financial Statements as of and for the three and nine months ended September 30, 2020
99.2	Management’s Discussion and Analysis of Financial Condition and Results of Operations
99.3	Press Release dated November 12, 2020

EX-99.1

Exhibit 99.1

Unaudited IFRS Condensed Consolidated Interim Financial Statements as of and for the three and nine months ended September 30, 2020

Condensed Consolidated Interim Statement of Operations	2
Condensed Consolidated Interim Statement of Comprehensive Loss	3
Condensed Consolidated Interim Balance Sheet	4
Condensed Consolidated Interim Statement of Changes in Equity	5-6
Condensed Consolidated Interim Statement of Cash Flows	7
Notes to the Condensed Consolidated Interim Financial Statements	8-24

1 

ADC Therapeutics SA

Condensed Consolidated Interim Statement of Operations

(in KUSD except for share and per share data)

		For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	Note	2020	2019	2020	2019
Contract revenue	6	-	-	-	2,340
Operating expense
Research and development	7	(32,155)	(30,541)	(93,480)	(77,113)
General and administrative	8	(20,273)	(2,302)	(47,782)	(8,894)
Total operating expense		(52,428)	(32,843)	(141,262)	(86,007)
Loss from operations		(52,428)	(32,843)	(141,262)	(83,667)
Other income (expense)
Other income		145	1,433	423	1,433
Convertible loans, derivatives, change in fair value income (expense)	11	33,868	-	(45,393)	-
Convertible loans, first tranche, derivative, transaction costs	11	-	-	(1,571)	-
Financial income		163	729	732	2,035
Financial expense		(1,940)	(32)	(2,879)	(105)
Exchange differences		(139)	(360)	(210)	(428)
Total other income (expense)		32,097	1,770	(48,898)	2,935
Loss before taxes		(20,331)	(31,073)	(190,160)	(80,732)
Income tax benefit (expense)		3	(268)	(201)	(467)
Net loss		(20,328)	(31,341)	(190,361)	(81,199)
Net loss attributable to:
Owners of the parent		(20,328)	(31,341)	(190,361)	(81,199)
Net loss per share, basic and diluted	15	(0.29)	(0.62)	(3.09)	(1.68)

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 September 30,		For the Nine Months Ended September 30,
	2020	2019	2020	2019
Net Loss	(20,328)	(31,341)	(190,361)	(81,199)
Other comprehensive income
Items that will not be reclassified to profit and loss
Remeasurements of defined benefit plan	-	13	-	6
Total items that will not be reclassified to profit and loss	-	13	-	6
Items that may be reclassified to profit and loss
Currency translation differences	151	(86)	(64)	(94)
Total items that may be reclassified to profit and loss	151	(86)	(64)	(94)
Other comprehensive loss for the period	151	(73)	(64)	(88)
Total comprehensive loss for the period	(20,177)	(31,414)	(190,425)	(81,287)
Total comprehensive loss attributable to:
Owners of the parent	(20,177)	(31,414)	(190,425)	(81,287)

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)

		September 30,	December 31,
	Note	2020	2019
ASSETS
Current assets
Cash and cash equivalents	9	494,416	115,551
Other current assets		12,003	7,055
Total current assets		506,419	122,606
Non-current assets
Property, plant and equipment		1,502	1,376
Right-of-use assets	16	3,402	4,898
Intangible assets	10	9,814	8,434
Other long-term assets		389	368
Total non-current assets		15,107	15,076
Total assets		521,526	137,682
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable		6,146	3,329
Other current liabilities		22,633	15,430
Lease liabilities, short-term		1,051	1,132
Current income tax payable		91	52
Convertible loans, short-term	11	2,642	-
Total current liabilities		32,563	19,943
Non-current liabilities
Convertible loans, long-term	11	33,788	-
Convertible loans, derivatives	11	73,190	-
Lease liabilities, long-term	16	2,605	3,899
Defined benefit pension liabilities		3,113	2,684
Other non-current liabilities		208	-
Total non-current liabilities		112,904	6,583
Total liabilities		145,467	26,526
Equity attributable to owners of the parent
Share capital	13	6,314	4,361
Share premium	13	981,032	549,922
Treasury shares	13	(4)	(100)
Other reserves		27,642	5,473
Cumulative translation adjustment		5	69
Accumulated losses		(638,930)	(448,569)
Total equity attributable to owners of the parent		376,059	111,156
Total liabilities and equity		521,526	137,682

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

4 

ADC Therapeutics SA

Condensed Consolidated Interim Statement of Changes in Equity
(in KUSD)

For the Three and Nine Months Ended September 30, 2020

	Note	Share Capital	Share Premium	Other Reserves	Treasury Shares	Cumulative Translation Adjustments	Accumulated Losses	Total Equity
June 30, 2020		5,795	792,605	16,654	(4)	(146)	(618,602)	196,302
Loss for the period		-	-	-	-	-	(20,328)	(20,328)
Translation adjustment		-	-	-	-	151	-	151
Total other comprehensive loss		-	-	-	-	151	-	151
Total comprehensive loss for the period		-	-	-	-	151	(20,328)	(20,177)
Issuance of shares at follow-on offering	13	519	203,481	-	-	-	-	204,000
Transaction costs, follow-on offering	13	-	(15,054)	-	-	-	-	(15,054)
Share-based compensation expense	12	-	-	10,988	-	-	-	10,988
Total transactions with owners		519	188,427	10,988	-	-	-	199,934
September 30, 2020		6,314	981,032	27,642	(4)	5	(638,930)	376,059

	Note	Share Capital	Share Premium	Other Reserves	Treasury Shares	Cumulative Translation Adjustments	Accumulated Losses	Total Equity
January 1, 2020		4,361	549,922	5,473	(100)	69	(448,569)	111,156
Loss for the period		-	-	-		-	(190,361)	(190,361)
Translation adjustment		-	-	-	-	(64)	-	(64)
Total other comprehensive loss		-	-	-	-	(64)	-	(64)
Total comprehensive loss for the period		-	-	-	-	(64)	(190,361)	(190,425)
Shares surrendered to redeem share purchase plan promissory notes	13	-	11,208	-	(11,208)	-	-	-
Issuance of shares through capitalization of reserves	13	393	(393)	-	-	-	-	-
Issuance of shares to be held as treasury shares	13	34	-	-	(34)	-	-	-
Grant of shares to settle 2014 incentive plan awards	13	-	(29)	-	29	-	-	-
Issuance of shares at initial public offering	13	1,007	231,661	-	-	-	-	232,668
Sale of shares under greenshoe option	13	-	23,591	-	11,309	-	-	34,900
Transaction costs, initial public offering and greenshoe option	13	-	(23,355)	-	-	-	-	(23,355)
Issuance of shares at follow-on offering	13	519	203,481	-	-	-	-	204,000
Transaction costs, follow-on offering	13	-	(15,054)	-	-	-	-	(15,054)
Share-based compensation expense	12	-	-	22,169	-	-	-	22,169
Total transactions with owners		1,953	431,110	22,169	96	-	-	455,328
September 30, 2020		6,314	981,032	27,642	(4)	5	(638,930)	376,059

5 

For the Three and Nine Months Ended September 30, 2019

	Share	Share	Other	Shares to	Treasury	Cumulative Translation	Accumulated	Total
	Capital	Premium	Reserves	be issued	Shares	Adjustments	Losses	Equity
June 30, 2019	424	527,083	5,835	26,641	-	(51)	(381,943)	177,989
Loss for the period	-	-	-	-	-	-	(31,341)	(31,341)
Translation adjustment	-	-	-	-	-	(86)	-	(86)
Remeasurement of defined benefit pension liability	-	-	13	-	-	-	-	13
Total other comprehensive loss	-	-	13	-	-	(86)	-	(73)
Total comprehensive loss for the period	-	-	13	-	-	(86)	(31,341)	(31,414)
Issuance of share capital	148	26,944	-	(26,950)	-	-	-	142
Transaction costs	-	(316)	-	309	-	-	-	(7)
Transfer from share premium for par value increase	3,789	(3,789)	-	-	-	-	-	-
Purchase of treasury shares	-	-	-	-	(141)	-	-	(141)
Share-based compensation expense	-	-	216	-	-	-	-	216
Total transactions with owners	3,937	22,839	216	(26,641)	(141)	-	-	210
September 30, 2019	4,361	549,922	6,064	-	(141)	(137)	(413,285)	146,785

	Share	Share	Other	Treasury	Cumulative Translation	Accumulated	Total
	Capital	Premium	Reserves	Shares	Adjustments	Losses	Equity
January 1, 2019	401	452,268	5,702	-	(43)	(332,085)	126,243
Loss for the period	-	-	-	-	-	(81,199)	(81,199)
Translation adjustment	-	-	-	-	(94)	-	(94)
Remeasurement of defined benefit pension liability	-	-	6	-	-	-	6
Total other comprehensive loss	-	-	6	-	(94)	-	(88)
Total comprehensive loss for the period	-	-	6	-	(94)	(81,199)	(81,287)
Issuance of share capital	171	103,221	-	-	-	-	103,392
Transaction costs	-	(1,778)	-	-	-	-	(1,778)
Transfer from share premium for par value increase	3,789	(3,789)	-	-	-	-	-
Purchase of treasury shares	-	-	-	(141)	-	-	(141)
Share-based compensation expense	-	-	356	-	-	-	356
Total transactions with owners	3,960	97,654	356	(141)	-	-	101,829
September 30, 2019	4,361	549,922	6,064	(141)	(137)	(413,284)	146,785

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

6 

ADC Therapeutics SA

Condensed Consolidated Interim Statement of Cash Flows
(in KUSD)

		For the Nine Months Ended September 30,
	Note	2020	2019
Cash used in operating activities
Loss for the period		(190,361)	(81,199)
Adjustments for non-monetary items:
Share-based compensation expense	12	22,169	356
Depreciation of property, plant and equipment		480	357
Amortization of intangible assets		28	11
Depreciation of right-of-use assets		861	781
Change in defined benefit pension liability		287	238
Convertible loans, derivatives, increase in fair value	11	45,393	-
Financial income		(732)	(2,035)
Financial expense		14	-
Interest expense on convertible loans	11	2,781	-
Exchange differences		-	7
Income taxes		201	467
Changes in assets and liabilities:
Decrease in accounts receivable		-	42
(Increase) in other assets		(5,057)	(5,645)
(Decrease) in contract liability	6	-	(2,340)
(Decrease) / Increase in accounts payable		2,198	(1,741)
Increase in other liabilities		5,322	799
Cash used in operating activities		(116,416)	(89,902)
Interest paid		(1,452)	-
Interest received		747	2,135
Interest expense on lease obligations		84	105
Tax refund / (paid)		2	(264)
Net cash used in operating activities		(117,035)	(87,926)
Cash used in investing activities
Payment for purchase of property, plant and equipment		(627)	(189)
Payment for purchase of intangible assets	10	(1,408)	(1,765)
Net cash used in investing activities		(2,035)	(1,954)
Cash from financing activities
Proceeds from capital contributions, net of transaction costs		-	101,614
Proceeds from public offering of common shares, net of transaction costs	1, 13	435,868	-
Proceeds from convertible loans, net of transaction costs	11	62,898	-
Acquisition of treasury shares		-	(141)
Principal payments of lease obligations		(929)	(832)
Net cash from financing activities		497,837	100,641
Net increase in cash and cash equivalents		378,767	10,761
Exchange gain / (losses) on cash and cash equivalents		98	(51)
Cash and cash equivalents at beginning of the period		115,551	138,807
Cash and cash equivalents at end of the period		494,416	149,517
Supplemental Non-Cash Financing Information
Follow-on transaction costs recorded in Accounts Payable and Other Current Liabilities	1	2,709	-

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

7 

ADC Therapeutics SA 

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited) – in KUSD except for share and per share data

1. Corporate information

ADC Therapeutics SA (the “Company” or “ADCT”) was incorporated on June 6, 2011 under the laws of Switzerland. The registered office of the Company is located at Route de la Corniche 3B, 1066 Epalinges, Switzerland. The Company controls two wholly-owned subsidiaries: ADC Therapeutics America, Inc. (“ADCT America”), which was incorporated in Delaware, USA on December 10, 2014, and ADC Therapeutics (UK) Ltd (“ADCT UK”), which was incorporated in England on December 12, 2014. The Company and its two subsidiaries form the ADCT Group (the “Group”).

The Group is focused on the development of antibody drug conjugates (“ADCs”), including research, development, human clinical trials, regulatory approval and commercialization. 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 November 12, 2020.

Initial Public Offering (IPO)

On May 19, 2020, the Company completed an IPO on the New York Stock Exchange (“NYSE”) in which it issued and sold an aggregate of 14,082,475 common shares at $19.00 per share, which included 1,836,844 common shares issued and sold pursuant to the underwriters’ exercise in full of their option to purchase additional common shares. The gross proceeds from the IPO were $267.6 million, and net proceeds were $244.2 million after deducting underwriting discounts and commissions as well as fees and expenses payable by the Company. The IPO resulted in a gross increase of $255.3 million in the Company’s share premium account prior to transaction costs associated with the IPO share issuance of $4.7 million and underwriting discounts and commissions of $18.7 million, both of which were charged directly against the Company’s share premium account. Further details are contained in note 13, “Share capital, share premium and treasury shares”.

Follow-On Public Offering

On September 28, 2020, the Company completed a public offering on the NYSE in which it issued and sold 6,000,000 common shares at $34.00 per share. The gross proceeds of the public offering were $204.0 million, and net proceeds of $188.9 million after deducting underwriting discounts and commissions as well as fees and expenses payable by the Company. As of September 30, 2020, transaction costs of $2.7 million remained unpaid. Such costs are anticipated to be paid during the fourth quarter of 2020. The public offering resulted in a gross increase of $203.5 million in the Company’s share premium account prior to transaction costs associated with the public offering share issuance of $2.9 million and underwriting discounts and commissions of $12.2 million, both of which were charged directly against the Company’s share premium account. Further details are contained in note 13, “Share capital, share premium and treasury shares”.

Going concern basis

ADCT is a late-clinical-stage company developing innovative therapeutics. The Group is exposed to all risks inherent in establishing and developing its business, including the substantial uncertainty that current projects will succeed. The Group’s success may also depend on its ability to:

· establish and maintain a strong patent position and protection;

· enter into collaborations with partners in the pharmaceutical industry;

· acquire and retain key personnel; and

8 

· acquire additional funding to support its operations.

Since its incorporation, the Group has primarily funded its growth through capital increases and additional funds provided by research collaborations and, during the 2020 fiscal year, issuance of the Company’s common shares and the issuance of convertible loans (see note 11, “Convertible loans”). The Group does not have recourse to bank loans. As a result, the Group is not exposed to liquidity risk through requests for early repayment of loans, other than, pursuant to the convertible loans, it must maintain a balance of at least $50 million in cash and cash equivalents at the end of each quarter.

As of September 30, 2020, the Group’s cash and cash equivalents amounted to $494.4 million (December 31, 2019: $115.6 million).

The Board of Directors believes that the Group has sufficient financial resources to cover its operating costs for at least the next 12 months from the date of issuance of these unaudited condensed consolidated interim financial statements and, as a result, is presenting these unaudited condensed consolidated interim financial statements of the Group on a going concern basis.

COVID – 19

The COVID-19 pandemic has negatively impacted the economies of most countries around the world. The Group’s operations, similar to those of other life sciences companies, have been impacted by the COVID-19 pandemic. As the Group advances its clinical programs, it is in close contact with its principal investigators and clinical sites, which are located in jurisdictions affected by the COVID-19 pandemic, and is assessing the impact of the COVID-19 pandemic on its clinical trials, expected timelines and costs on an ongoing basis. In light of recent developments relating to the COVID-19 pandemic, the primary focus of healthcare providers and hospitals is currently on fighting the novel coronavirus. In addition, in response to the spread of COVID-19, the Group has modified its business practices, including restricting employee travel, developing social distancing plans for its employees and cancelling physical participation in meetings, events and conferences. In addition, certain of the Group’s clinical trials experienced delays or suspensions in patient enrollment during the first half of 2020 as a result of the COVID-19 pandemic. However, by the end of the third quarter, the Group no longer experienced delays in its clinical trials or suspensions in patient enrollments. As the COVID-19 pandemic continues to evolve, the Group believes the extent of the impact to its operations, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the pandemic, the pandemic’s impact on the U.S. and global economies and the timing, scope and effectiveness of national and local governmental responses to the pandemic, especially in areas where the conditions have recently worsened. Those primary drivers are beyond the Group’s knowledge and control, and as a result, at this time the ultimate impact on the Group's results of operations, cash flows and financial position in 2020 and thereafter cannot be reasonably predicted. Furthermore, the impact to the Group’s businesses, operating results, cash flows, liquidity and financial condition may be further impacted if the current circumstances continue to exist for a prolonged period of time. However, on the basis of the risk mitigation measures undertaken, the 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 September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) and should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2019.

9 

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:

	Nine Months Ended September 30,
	2020	2019
USD / GBP
Closing rate, GBP 1	1.28717	1.22986
Weighted average exchange rate, GBP 1	1.26423	1.26086

Basis of Consolidation

The unaudited condensed consolidated interim financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The consolidated entities include:

	Ownership Interest
	September 30, 2020	September 30, 2019
ADCT America	100%	100%
ADCT UK	100%	100%

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, 2019.

In addition, significant judgements were required in implementing the Company’s accounting policy for the convertible loans, as set out in note 3, “Significant accounting policies”. In particular, significant judgement was required in deciding whether the conversion option derivative embedded in the notes was of a liability or equity nature, in selecting the appropriate models to value the derivatives arising from the first and second tranches of the convertible notes and in identifying the appropriate key assumptions as inputs to the selected models. Details of the models and assumptions are set out in note 11, “Convertible loans”.

Share split and share consolidation

As explained in note 13, “Share capital, share premium and treasury shares”, on September 19, 2019, the Company effected a one-to-15,625 share split of its outstanding shares and, on April 24, 2020, the Company effected a five-to-four share consolidation of its outstanding shares. Accordingly, all share and per share amounts

10 

for all periods presented in these unaudited condensed consolidated interim financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the share split and share consolidation.

3. Significant accounting policies

The accounting policies applied by the Company in these unaudited condensed consolidated interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as of and for the year ended December 31, 2019 and have been applied consistently to all periods presented in these unaudited condensed consolidated interim financial statements, except as disclosed below.

Inventory 

The Company assessed its accounting policy for inventory costs, with the Company’s filing of its biologics license application (“BLA”) with the U.S. Food and Drug Administration (“FDA”) for Lonca for the treatment of relapsed or refractory diffuse large B-cell lymphoma (“DLBCL”). The Company believes that capitalization of inventory costs associated with certain products prior to regulatory approval of such products, or for inventory produced in new production facilities, is appropriate when management considers it highly probable that pre-approval inventory costs will be recoverable through future sales of the drug product. The determination to capitalize is based on the particular facts and circumstances relating to the expected regulatory approval of the product or production facility being considered and, accordingly, the time frame within which the determination is made varies from product to product. The assessment of whether or not the product is considered highly probable to be saleable will be made on a quarterly basis and includes, but is not limited to, how far a particular product or facility has progressed along the approval process, any known safety or efficacy concerns, potential labeling restrictions and other impediments. As of September 30, 2020, the Company believes it is highly probable that it will receive regulatory approval for Lonca; therefore, a commercialized drug product candidate. Accordingly, such costs incurred to manufacture pre-approved product would qualify to be capitalized as inventory. However, the Company has elected to wait until FDA approval is obtained before capitalizing its inventory costs associated with Lonca given the fact that Lonca is the Company’s first drug candidate seeking FDA approval. As such, before Lonca has received regulatory approval, this inventory is valued at a net realizable value of zero. Therefore, the Company has expensed all costs incurred related to the manufacture of Lonca as research and development expense because of the inherent risks associated with the development of a drug product candidate, uncertainty about the regulatory approval process as well as the timing of the associated commercial launch and market size for the drug product candidate, and lack of history for the Company of regulatory approval of drug product candidates. The Company anticipates that it will reverse impairments resulting from the write-down of its inventory to a net realizable value of zero upon receiving regulatory approval of Lonca based on a number of factors including the existence of inventory on hand and estimated demand as well as expiration of such product.

Convertible loans

The Company entered into a $115 million Facility Agreement (see note 11, “Convertible loans”) on April 24, 2020, pursuant to which the counterparty agreed to extend senior secured convertible term loans to the Company in two separate disbursements:

(i) an initial disbursement of convertible loans in the amount of $65 million upon the completion of the IPO, and satisfaction of certain other conditions (the “first tranche”) and

(ii) a subsequent disbursement of convertible loans in the amount of $50 million upon the receipt of regulatory approval for Lonca, and satisfaction of certain other conditions (the “second tranche”).

Accounting for the first tranche

On May 19, 2020 the Company received convertible loans in the amount of $65 million upon completion of the IPO. These convertible loans have been recognized as a hybrid financial instrument and accounted for as two separate components: (i) a loan and (ii) an embedded conversion option derivative.

(i) The embedded conversion option derivative was initially measured at fair value and is subsequently remeasured to fair value at each reporting date. Under IAS 32, this derivative could have been classified as a component of equity only if in all cases the contract would be settled by the Company delivering a fixed

11 

number of its own equity instruments in exchange for a fixed amount of cash or debt redemption. However, the agreement foresees, in the event of a major transaction, the payment of “make-whole” amounts that would have to be computed in the light of the circumstances and are therefore not fixed. As a result, the derivative is presented in the balance sheet as a liability and classified as non-equity in accordance with IFRS 9 and IAS 32. Changes in the fair value (gains or losses) of the derivative at the end of each period are recorded in the Condensed Consolidated Interim Statement of Operations.

(ii) The convertible loan’s initial fair value is the residual amount of the consideration received, net of attributable costs, after separating out the fair value of the embedded conversion option derivative. The loan is subsequently measured at its amortized cost in accordance with IFRS 9. It is presented as a financial liability in the Unaudited Condensed Consolidated Interim Balance Sheet.

Expenses and fees payable upon the issuance of the first tranche of convertible loans were allocated pro rata to the above two components. The share of expenses allocated to the embedded conversion option derivative was charged directly to the Condensed Consolidated Interim Statement of Operations, while the share of expenses allocated to the residual convertible loan was deducted from the loan.

Accounting for the second tranche

The Company is obligated to draw down the second tranche in the amount of $50 million upon receipt of regulatory approval for Lonca. However, the second tranche will automatically terminate if the Company has not received the regulatory approval on or prior to December 31, 2021. This obligation has been accounted for as a derivative, and presented in the Unaudited Condensed Consolidated Interim Balance Sheet as a financial liability. Changes in the fair value (gains or losses) of the derivative at the end of each period are recorded in the consolidated statement of operations.

New and amended IFRS standards

There are no new IFRS standards, amendments to standards or interpretations that are mandatory for the financial year beginning on January 1, 2020, that are relevant to the Group and that have had any impact in the interim periods. New standards, amendments to standards and interpretations that are not yet effective, which have been deemed by the Group as currently not relevant, are not listed here.

Income tax expense

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.

4. Financial risk management

4.1 Financial 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, 2019.

There have been no changes in financial risk management since year-end, except with regard to the issuance of the convertible loans, as set out in note 11, “Convertible loans”, in connection with liquidity risk. Under the related Facility Agreement, the Company is subject to a covenant that requires it to maintain a balance of at least $50 million in cash and cash equivalents at the end of each quarter.

4.2 Fair value estimation

At September 30, 2020, the carrying amount is a reasonable approximation of fair value for the following financial assets and liabilities:

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· Cash and cash equivalents

· Trade accounts payable

In the nine months ended September 30, 2020, there were no significant changes in the business or economic circumstances that affected the fair value of the Group’s financial assets and financial liabilities.

Fair values must be estimated on an ongoing basis with regard to awards under the ADC Therapeutics SA 2019 Equity Incentive Plan (the “Equity Incentive Plan 2019”), with regard to the convertible loan conversion option derivative related to the first tranche of the convertible loans and with regard to the derivative arising from the obligation related to the second tranche of the convertible loans. The approach to valuation and the key input factors are described for the share-based compensation awards in note 12, “Share-based compensation” and for the convertible loan derivatives in note 11, “Convertible loans”.

Commonly accepted pricing models (Hull and Goldman Sachs) have been used to calculate the fair value of the convertible loan derivatives. The valuation of the embedded derivative in the first tranche is classified as pertaining to level 2 of the valuation hierarchy set out below, and the valuation of the derivative relating to the second tranche is classified as pertaining to level 3 of the valuation hierarchy set out below.

The different levels of the valuation hierarchy have been defined as follows:

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

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

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

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

5. Segment information

Management considers the Group to have only a single segment: Research and Development (“R&D”). This is consistent with the way that information is reported internally within the Group for the purpose of allocating resources and assessing performance.

6. Contract Revenue

Contract revenue represents the amortization of upfront payments received under license and collaboration contracts in order to finance the research and development that is the subject of those contracts as well as associated milestone payments. In 2013, the Company entered into a license and joint collaboration agreement which was subsequently discontinued in June 2019. As a result of the discontinuance of this joint development program, the remaining balance of the non-refundable upfront payment (consisting of deferred revenue and presented as a contract liability) received under the related license and collaboration agreement was recognized in the first half of 2019 as contract revenue, and no additional contracts giving rise to current contract revenue have been entered into by the Company. As such, the Company recognized revenue of $2,340 KUSD associated with the remaining balance of the non-refundable upfront payment for the nine-month period ended September 30, 2019. There was no deferred revenue as of September 30, 2020 and December 31, 2019.

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7. Research and development expense

The following table summarizes R&D expense for the three months ended September 30, 2020 and 2019:

	Three months ended September 30,
in KUSD	2020	2019	Change
External costs 1	20,950	23,552	(2,602)
Employee expense 2	11,205	6,989	4,216
R&D expense	32,155	30,541	1,614
1 Includes depreciation expense
2 Includes share-based compensation expense

The following table summarizes R&D expense for the nine months ended September 30, 2020 and 2019:

	Nine months ended September 30,
in KUSD	2020	2019	Change
External costs 1	63,250	59,593	3,657
Employee expense 2	30,230	17,520	12,710
R&D expense	93,480	77,113	16,367
1 Includes depreciation expense
2 Includes share-based compensation expense

The increase in employee expense in the three months ended September 30, 2020 is due to an increased number of R&D employees and to increased share-based compensation expense. External costs decreased primarily due to lower expense associated with chemistry manufacturing and controls (“CMC”) and preclinical activities.

The increase in employee expense in the nine months ended September 30, 2020 is due to an increased number of R&D employees and to increased share-based compensation expense. External costs increased primarily due to the advancement of our clinical trials associated with our lead product candidates.

8. General and administrative expense

The following table summarizes general and administrative (“G&A”) expense for the three months ended September 30, 2020 and 2019:

	Three months ended September 30,
in KUSD	2020	2019	Change
External costs 1	7,248	1,048	6,200
Employee expense 2	13,025	1,254	11,771
G&A expense	20,273	2,302	17,971
1 Includes depreciation expense
2 Includes share-based compensation expense

The following table summarizes G&A expense for the nine months ended September 30, 2020 and 2019:

	Nine months ended September 30,
in KUSD	2020	2019	Change
External costs 1	15,649	5,110	10,539
Employee expense 2	32,133	3,784	28,349
G&A expense	47,782	8,894	38,888
1 Includes depreciation expense
2 Includes share-based compensation expense

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The increase in external costs for both the three and nine months ended September 30, 2020 is primarily due to higher professional fees associated with the Company’s preparation for the commercial launch of Lonca in 2021 as well as costs associated with being a public company.

The increase in employee expense for both the three and nine months ended September 30, 2020 is primarily due to increased share-based compensation expense and an increased number of employees, reflecting the recruitment of commercial employees as we prepare for the anticipated launch of Lonca in 2021.

Employee expense for the three and nine months ended September 30, 2020 includes share-based compensation expense relating to the ADC Therapeutics Incentive Plan dated May 1, 2014 and Amended and Restated as of October 1, 2015 (the “Incentive Plan 2014”) and the ADC Therapeutics Ltd 2016 Share Purchase Plan (the “Share Purchase Plan 2016”), both of which terminated upon the effectiveness of the registration statement for the IPO, with all awards vesting as of that date and with all outstanding charges relating to those plans, which were being amortized over the vesting period, being recognized at that moment. The amounts of expense recognized for these plans in the three and nine months ended September 30, 2020 were nil (2019: $216 KUSD) and $7,548 KUSD (2019: $356 KUSD), respectively.

9. Cash and cash equivalents

Pursuant to the Facility Agreement entered into on April 24, 2020 (see note 11, “Convertible loans”), the Company is subject to a covenant that requires it to maintain a balance of at least $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 consolidated balance sheet.

10. Intangible Assets

Licenses are amortized over their useful lives, which are determined on the basis of the expected pattern of consumption of the expected future economic benefits embodied in the licenses and which therefore commence only once the necessary regulatory and marketing approval has been received for the product candidates to which they relate. To date, the Group has not received any regulatory and marketing approval for any of its product candidates. Consequently, the Group did not recognize any amortization expense of licenses.

During the nine months ended September 30, 2020, the Company capitalized the following license payments as intangible assets:

· An amount of $1,000 KUSD relating to a license agreement with a third party to use their novel and proprietary conjugation technology with a variety of payload technologies in research, development, manufacturing and commercialization of antibody drug conjugates;

· An amount of $250 KUSD relating to a license agreement with a third party to acquire an antibody to be used in research, development, manufacturing and commercialization; and

· An amount of $125 KUSD relating to a license agreement with a third party to use their technology to generate antibody-drug conjugates for up to five antibodies

During the nine months ended September 30, 2019, the Company capitalized the following license payments as intangible assets:

· An amount of $1,000 KUSD relating to a license agreement with a third party to acquire an antibody to be used in pre-clinical formalization, clinical testing, manufacturing and commercialization;

· An amount of $500 KUSD relating to a license agreement with a third party to use their technology to generate antibody-drug conjugates for up to five antibodies; and

· An amount of $234 KUSD relating to a license agreement with a third party to use their technology for the production of antibodies.

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11. Convertible Loans

Facility agreement

On April 24, 2020, the Company entered into a $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 $65 million upon the completion of the IPO, and satisfaction of certain other conditions (the “first tranche”) and

(ii) a subsequent disbursement of convertible loans in the amount of $50 million upon the receipt of regulatory approval for Lonca, and satisfaction of certain other conditions (the “second tranche”).

The outstanding principal amount of the convertible loans is due to be repaid in full on the fifth anniversary of the date on which the first tranche was funded which occurred on May 19, 2020. However, any conversion of the convertible loans into common shares shall be deemed a repayment of the principal amount of the convertible loans so converted.

The convertible loans bear interest at a rate of 5.95% per annum, based on a 360-day year, with interest payable quarterly in arrears commencing July 1, 2020.

Upon any payment of the convertible loans or conversion of the convertible notes, whether upon redemption or at maturity or at any other time, the Company will be required to pay an exit charge equal to 2.0% of the amount of the loans so paid or converted.

The Company’s obligations under the Facility Agreement are guaranteed by the Company’s wholly-owned subsidiaries and secured by a perfected, first-priority security interest in substantially all of the Company’s and its wholly-owned subsidiaries’ personal property, including its intellectual property and the equity ownership interests directly and indirectly held by the Company in its wholly-owned subsidiaries.

Each convertible loan extended under the Facility Agreement is evidenced by a convertible note. The holder of each of the first tranche of convertible notes is entitled to convert the principal amount of convertible loans evidenced thereby, at its option, into the Company’s common shares at any time at a conversion price per share equal to 130% of the IPO share price, which was $19.00.

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. If the conversion price of the second tranche of convertible notes is less than the floor price but for the application of the floor, Deerfield will not be obligated to extend the second tranche.

Upon the occurrence of a major transaction, as defined below, the holders of the convertible notes may elect to require the Company to redeem all or any portion of the notes for an amount equal to the principal amount thereof (in addition to accrued and unpaid interest, the make-whole amount and the exit charge) or alternatively the holder may elect to require the Company to convert the unredeemed portion and, in addition, receive a number of additional common shares determined as set forth in the convertible notes (in addition to accrued and unpaid interest and the exit charge). In the case of a successor major transaction, as defined below, the Company may elect to require redemption of any portion of the convertible notes that the holder does not elect to convert in connection with such transaction.

Major transactions include (i) mergers and similar transactions as a result of which the holders of common shares before the transaction no longer hold a majority of the common shares after the transaction or the common shares are changed into the securities of another entity, (ii) sales of assets exceeding 50% of the Company’s enterprise value, (iii) any person or group acquiring beneficial ownership of more than 50% of the Company’s common shares or (iv) the delisting of the Company’s common shares, subject in each case

16 

to the more detailed provisions contained in the convertible notes. Successor major transactions include any major transaction in which the Company’s common shares are converted into the right to receive cash, securities of another entity and/or other assets, and any asset sale major transaction in which the Company distributes assets to its shareholders.

The Company will have the right to force conversions of the convertible notes on and after the one-year anniversary of the date on which it has received regulatory approval of Lonca if each of the following is greater than 275% of the conversion price (among other conditions specified in the convertible notes): (1) the volume weighted average price of the common shares on at least 20 trading days during any period of 30 consecutive trading days, (2) the volume weighted average price of the common shares on the last trading day of such period and (3) the closing price of the common shares on the last trading day of such period. The Company will have the right to force conversions of the convertible notes on and after the three-year anniversary of the date on which it has received regulatory approval of Lonca if the same conditions above are satisfied, except that the applicable price described in the preceding sentence need only be greater than 175% of the conversion price.

The Company is obligated to draw down the second tranche upon receipt of regulatory approval for Lonca. If the Company has not received the regulatory approval on or prior to December 31, 2021, the second tranche will automatically terminate on such date.

The Facility Agreement contains various covenants, including a requirement to retain $50 million in cash and cash equivalents as of the end of each fiscal quarter.

Bifurcation of first tranche

The first tranche of convertible loans amounting to $65 million issued on May 19, 2020 has been accounted for as comprising two components: an embedded conversion option derivative and a loan, as explained in note 3, “Significant accounting policies”.

Valuation of derivative embedded in first tranche

The Company has used an independent valuation firm to assist in calculating the fair value of the embedded conversion option derivative, which is based on the mean of values derived from application of the Hull and Goldman Sachs convertible bond pricing models. Key inputs for the valuations as of September 30, 2020 and April 24, 2020 were as follows:

	As of
	September 30, 2020	April 24, 2020
Exercise price, in USD	24.70	22.10
Forced conversion price, in USD	67.93	60.78
Share price in USD	32.99	17.00
Risk-free interest rate	0.3%	0.4%
Expected volatility	85%	82%
Expected term	55 months	61 months
Dividend yield	-	-
Recovery rate	5%	5%
Implied bond yield	14.5%	21.0%

On the basis of the valuation of the conversion option derivative as of April 24, 2020, the $65 million amount of the first tranche of convertible loans was accounted for on inception as follows:

in KUSD	Embedded derivative	Residual loan	Total
Gross proceeds	27,797	37,203	65,000
Less: transaction costs	(1,571)	(2,102)	(3,673)
Net	26,226	35,101	61,327

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The transaction costs of the embedded derivative were charged directly to the Unaudited Condensed Consolidated Interim Statement of Operations.

During the three and nine months ended September 30, 2020, the Company recognized income of $30,953 KUSD and a loss of $26,497 KUSD, 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 $54,294 KUSD and $27,797 KUSD as of September 30, 2020 and April 24, 2020, respectively. The decrease in fair value of the embedded derivative during the three-months ended September 30, 2020 is primarily due to the decrease in the fair value of the underlying shares from June 30, 2020 to September 30, 2020. The increase in fair value of the embedded derivative during the nine months ended September 30, 2020 is primarily due to the increase in the fair value of the underlying shares from April 24, 2020 to September 30, 2020, which was charged directly to the Unaudited Condensed Consolidated Interim Statement of Operations.

Accounting for residual loan of first tranche

As illustrated in the table above and in accordance with IFRS 9, the transaction costs of the residual convertible loan (net of the value of the embedded derivative) were deducted from the loan to arrive at the deemed net present value as of May 19, 2020 of all future cash outflows associated with the loan. The implied effective interest rate that would be needed to increase the book value of the loan to cover all future outflows, taking into account the deduction of transaction costs from the initial loan balance and based on a 365-day year, was computed at inception at 23% and will be applied over the life of the loan.

For both the three and nine months ended September 30, 2020, the Company recorded interest expense related to the interest payable on the residual convertible loan (net of the value of the embedded conversion option derivative) in the amount of $1,913 KUSD and $2,781 KUSD, respectively, based on the implied effective interest rate.

The amount at which the convertible loan is presented as a liability in the consolidated 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 $36,430 KUSD as of September 30, 2020, of which $2,642 KUSD was the current portion of the liability. As of September 30, 2020, the Company made an interest payment of $988 KUSD that was contractually due on October 1, 2020.

Accounting for second tranche

The obligation to draw down the second tranche under the terms specified in the Facility Agreement has been accounted for as a derivative. The Company has used an independent valuation firm to assist in calculating the fair value of the derivative, which is based on the mean of values derived from application of the Hull and Goldman Sachs convertible bond pricing models. Key inputs for the valuation as of September 30, 2020 were as follows:

	As of
	September 30, 2020
Exercise price, in USD	28.50
Forced conversion price, in USD	78.38
Share price in USD	32.99
Risk-free interest rate	0.3%
Expected volatility	85%
Expected term	8 months
Dividend yield	-
Recovery rate	5%
Implied bond yield	7.8%

In addition to the key inputs disclosed above for the second tranche, the Company estimated the probability of achieving regulatory approval for Lonca. For purposes of its September 30, 2020 valuation, the Company estimated it was highly probable that it would receive regulatory approval for Lonca. Significant changes which

18 

increase or decrease the probabilities of achieving the related regulatory events, or shorten or lengthen the time required to achieve such events would result in a corresponding increase or decrease in the fair value of this derivative liability.

During the three and nine months ended September 30, 2020, the Company recognized income of $2,915 KUSD and a loss of $18,896 KUSD, respectively, as a result of changes in the fair value of the derivative. The fair value of the derivative associated with the second tranche was $18,896 KUSD as of September 30, 2020, which was presented as a financial liability in the Unaudited Condensed Consolidated Interim Balance Sheet. The decrease in fair value of the derivative during the three months ended September 30, 2020 is primarily due to the decrease in the fair value of the underlying shares from June 30, 2020 to September 30, 2020. The increase in fair value of the derivative during the nine months ended September 30, 2020 is primarily due to the increase in the fair value of the underlying shares from April 24, 2020 to September 30, 2020, which was charged directly to the Unaudited Condensed Consolidated Interim Statement of Operations.

The value of the derivative is directly correlated with the probability estimate of obtaining regulatory approval for Lonca. An increase or decrease of 10% in the estimated probability would have resulted in an increase or decrease in the value of the derivative of $1,890 KUSD.

12. Share-based compensation

Share data have been revised to give effect to the share split and share consolidation as explained in note 2, “Share split and share consolidation”.

Share Purchase Plan 2013 and Share Purchase Plan 2016

Under the terms of the 2013 and 2016 promissory notes issued in connection with the Share Purchase Plan 2013 and Share Purchase Plan 2016, in the case of an IPO the relevant plan participants were required to repay the outstanding amounts under the promissory notes prior to the IPO by delivering a number of shares of equivalent value to cover the amount to be repaid. In anticipation of the IPO, each of the plan participants holding promissory notes entered into loan settlement agreements with the Company dated as of April 15, 2020 pursuant to which they repaid all amounts outstanding under the promissory notes, including accrued interest, by delivering a number of shares of equivalent value to cover the amounts outstanding under the promissory notes.

After consideration of all relevant factors, the Board of Directors determined the value of such shares delivered pursuant to the loan settlement agreements as of the settlement date to be $18.75 per share, resulting in the delivery of an aggregate of 597,774 common shares by all plan participants for the settlement of the promissory notes. These shares were held by the Company as treasury shares.

These transactions resulted in the termination of both plans on May 15, 2020. All compensation expense relating to the ADC Therapeutics Ltd 2013 Share Purchase Plan (the “Share Purchase Plan 2013”) was recognized in prior periods. During the quarter ended June 30, 2020, unrecognized expense relating to the Share Purchase Plan 2016 amounting to $6,425 KUSD was charged to the Unaudited Condensed Consolidated Interim Statement of Operations with a corresponding increase to Other reserves within equity on the Unaudited Condensed Consolidated Interim Balance Sheet on completion of these transactions. The amounts of expense for all awards recognized for services received during the three and nine months ended September 30, 2020 are nil and $7,417 KUSD (including the $6,425 KUSD discussed above), respectively.

Incentive Plan 2014

All existing awards under the Incentive Plan 2014 vested and were settled in shares upon the completion of the IPO. The Company calculated for each participant the gain arising from the difference between the exercise price and the $19.00 IPO price, undertook to settle in cash on behalf of the participant any associated tax and social charges liability, and transferred to the participant the remaining balance from treasury shares, valued at $19.00 per share. A total of 356,144 common shares were transferred to participants and an amount of $5,343 KUSD was withheld for tax and social charges.

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For participants whose awards had an exercise price greater than $19.00 — i.e., were “out-of-the-money” — the Company made an equal number of new awards under the Equity Incentive Plan 2019 (see below) with an exercise price of $19.00 and with a vesting period of only three years instead of the usual four years. These new awards have been accounted for as a modification of the previous awards under the Incentive Plan 2014. Accordingly, the original compensation expense calculated for the old awards that were “out-of-the-money” will continue to be recognized over their remaining vesting period while the expense to be recognized for the new awards under the Equity Incentive Plan 2019 will be limited to the incremental fair value of the new awards over the fair value, as of May 15, 2020, of the old awards. The amounts of expense for all awards recognized for services received during the three and nine months ended September 30, 2020 are nil and $361 KUSD, respectively.

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 7,820,000 common shares for future issuance under the Equity Incentive Plan 2019, which include common shares pursuant to share-based equity awards issued to date. As of September 30, 2020, the Company has 3,538,909 common shares available for the future issuance of share-based equity awards. As of September 30, 2020, the Company has only granted share options and RSUs under the Equity Incentive Plan 2019.

As of September 30, 2020, the cumulative amount recorded as an increase to Other Reserves within equity on the Unaudited Condensed Consolidated Interim Balance Sheet in respect of the Equity Incentive Plan 2019 was $20,082 KUSD. The amounts of expense for all awards recognized for services received during the three and nine months ended September 30, 2020 are $10,988 KUSD and $19,734 KUSD, 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 Consolidated Statement of Operations and a corresponding increase to Other Reserves within equity on the Consolidated Balance Sheet.

The following table summarizes the share option awards outstanding as of September 30, 2020:

	Average strike price per share in USD	Number of awards	Weighted average remaining life in years
December 31, 2019	18.75	1,020,434	9.96
Granted	28.33	3,148,240	9.58
Forfeited	18.84	(37,567)	-
September 30, 2020	26.05	4,131,107	9.53

The option awards granted during the nine months ended September 30, 2020 include 388,333 awards that were made to compensate holders of “out-of-the-money” awards under the Incentive Plan 2014 that expired on May 15, 2020. Awards outstanding as of September 30, 2020 and December 31, 2019, expire through 2030. There were no awards exercised during the nine months ended September 30, 2020.

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The Company used an independent valuation firm to assist in calculating the fair value of the award grants per participant.

The fair values of the options granted during the three and nine months ended September 30, 2020 and 2019 were determined on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended		Nine Months Ended
	September 30, 2020	September 30, 2019	September 30, 2020	September 30, 2019
Share price	$38.62 - $48.69	-	$15.95 - $48.77	-
Strike price	$38.62 - $48.59	-	$18.75 - $48.77	-
Expected volatility	80% - 85%	-	80% - 206%	-
Award life	6.08	-	5.02 - 6.08	-
Expected dividends	0%	-	0%	-
Risk-free interest rate	0.29% - 0.38%	-	0.29% - 0.70%	-

The expected volatility was based on the Company’s historical volatility as well as the selected volatility of other comparable public companies.

The award life is based on the time interval between the date of grant and the date during the ten-year life after which, when making the grant, the Company expected on average that participants would exercise their options.

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 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 Consolidated Statement of Operations and a corresponding increase to Other Reserves within equity on the Consolidated Balance Sheet.

	Number of awards	Weighted average grant date fair value
December 31, 2019	-	-
Granted	149,984	46.50
September 30, 2020	149,984	46.50

There were no vested RSUs during the nine months ended September 30. 2020.

Share-based Compensation Reserves

The movement in the Share-based Compensation Reserves (included in Other reserves within equity) is as follows:

	Three months ended		Nine months ended
in KUSD	September 30, 2020	September 30, 2019	September 30, 2020	September 30, 2019
Incentive Plan 2014	-	188	361	211
Share Purchase Plan 2016	-	28	7,417	145
Equity Incentive Plan 2019 - Share Options	10,266	-	19,012	-
Equity Incentive Plan 2019 - RSUs	722	-	722	-
Tax and social charge deductions - Incentive Plan 2014	-	-	(5,343)	-
Total	10,988	216	22,169	356

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13. Share Capital, share premium and treasury shares

Share data have been revised to give effect to the share split and share consolidation as explained in note 2, “Share split and share consolidation”.

The movements in the Company’s share capital, share premium and treasury shares accounts in the nine months ended September 30, 2020 are set out in the following table:

		Issued share capital		Share premium			Treasury shares			Increase / (Decrease) in net assets			Price per share	Issued share capital		Treasury shares			Outstanding share capital
		In KUSD												Number of shares issued		Number of shares (held or received) / delivered			Number of shares outstanding
April 15, 2020	Shares surrendered by Share Purchase Plan 2013 and Share Purchase Plan 2016 participants to settle share purchase plan promissory notes (see note 12)		-		11,208			(11,208	)		-		USD 18.75		-		(597,774	)		(597,774	)
April 16, 2020	Issuance of shares per shareholders' agreement addendum through capitalization of reserves		393		(393	)		-			-		CHF 0.08		4,777,996		-			4,777,996
April 24, 2020	Elimination of fractional shareholdings		-		-			-			-		CHF 0.08		-		51			51
May 19, 2020	Issuance of shares to be held as treasury shares		34		-			(34	)		-		CHF 0.08		408,873		(408,873	)		-
May 19, 2020	Grant of shares to settle Incentive Plan 2014 awards, net (see note 12)		-		(29	)		29			-		CHF 0.08		-		356,144			356,144
May 19, 2020	Issuance of shares at IPO		1,007		231,661			-			232,668		USD 19.00		12,245,631		-			12,245,631
May 19, 2020	Sale of shares under greenshoe option		-		23,591			11,309			34,900		USD 19.00		-		1,836,844			1,836,844
May 19, 2020	Transaction costs, IPO and greenshoe option		-		(23,355	)		-			(23,355	)			-		-			-
September 28, 2020	Issuance of shares at follow-on offering		519		203,481			-			204,000		USD 34.00		6,000,000		-			6,000,000
September 28, 2020	Transaction costs, follow-on offering		-		(15,054	)		-			(15,054	)			-		-			-
September 30, 2020	Other		-		-			-			-		CHF 0.08		-		2,796			2,796
	Movements in the period		1,953		431,110			96			433,159				23,432,500		1,189,188			24,621,688
December 31, 2019	Balances reported at December 31, 2019, revised for share consolidation		4,361		549,922			(100	)						53,337,500		(1,240,540	)		52,096,960
	Balance at September 30, 2020		6,314		981,032			(4	)						76,770,000		(51,352	)		76,718,648

Upon the completion of the IPO, all of the Company’s issued Class B, C, D and E preferred shares were converted into common shares on a one-to-one basis.

14. Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.

A.T. Holdings II Sàrl (“AT Holdings II”) is a shareholder in the Company. AT Holdings II is in turn ultimately wholly owned by Auven Therapeutics Holdings, L.P. (“ATH”), a limited partnership registered in the British Virgin Islands. ATH’s General Partner is Auven Therapeutics General L.P., which itself is a limited partnership whose General Partner is Auven Therapeutics GP Ltd. The manager of ATH is Auven Therapeutics Management L.L.L.P. (“ATM”).

22 

Services provided by the Company

The Company provides registered office and other simple administrative services to four subsidiaries of ATH. The amounts invoiced for the three months and nine months ended September 30, 2020, recognized as general and administrative expense, amounted to $1 KUSD and $3 KUSD respectively (three and nine months ended September 30, 2019: $1 KUSD and $2 KUSD).

Other transactions with related parties

Of the 597,774 shares surrendered by Share Purchase Plan 2013 and Share Purchase Plan 2016 participants to settle share purchase plan promissory notes on April 15, 2020 (see note 13, “Share capital, share premium and treasury shares”), 556,799 were surrendered by related parties.

Of the 4,777,996 shares issued by way of capitalization of reserves on April 16, 2020 (see note 13, “Share capital, share premium and treasury shares”), 1,222,966 shares were issued to related parties.

Out of the 3,687,500 class E shares issued in 2019, 809,107 shares were purchased by related parties.

Shares were issued to and repurchased at the same price from a related party in September 2019 in order to have available treasury shares to meet the demand for shares when share options are exercised.

In connection with the Company’s IPO, HPWH TH AG purchased 950,000 shares on the same terms as other investors.

In connection with the Company’s follow-on offering Auven Therapeutics GP Ltd., through A.T. Holdings II Sàrl and ADC Products Switzerland Sàrl (“the Selling Shareholders”) granted to the underwriters an option, to purchase up to 900,000 additional common shares at the public offering price of $34.00 per share, less underwriting discounts and commissions. On October 9, 2020, the underwriters exercised in full their option to purchase an additional 900,000 common shares from the Selling Shareholders at a price of $34.00, less underwriting discounts and commissions. The Company did not receive any proceeds or incur any costs related to the sale of these shares by the Selling Shareholders. The Selling Shareholders incurred all costs in addition to underwriting fees and commissions.

Chairman’s equity awards

The Company granted the Chairman, Mr. Squarer, options to acquire 1,125,545 common shares at $18.75 per share in connection with his election to the Board of Directors, representing approximately 2% of our then-outstanding share capital. These options are scheduled to vest upon Mr. Squarer’s continued service through designated dates over a three-year period, or immediately upon a change in control. In accordance with its agreement with Mr. Squarer, the Company provided Mr. Squarer with an additional grant of 341,403 options on June 4, 2020 with an exercise price equal to the fair market value of the Company’s shares on that date, to bring Mr. Squarer’s total rights to acquire the Company’s shares to 2% of the then-outstanding share capital (measured without consideration of the shares underlying these grants).

Key management compensation

The compensation of key management is shown below:

	Three months ended September 30,		Nine months ended September 30,
in KUSD	2020	2019	2020	2019
Salaries and other short-term employee costs	1,936	1,290	5,190	3,767
Pension costs	106	101	362	284
Share-based compensation expense	3,648	25	11,247	132
Other compensation	9	-	92	-
Total	5,699	1,416	16,891	4,183

23 

15. Loss per share

	Three Months Ended September 30,		Nine Months Ended September 30,
(in KUSD, except per share amounts)	2020	2019	2020	2019
Loss attributable to owners	(20,328)	(31,341)	(190,361)	(81,199)
Weighted average number of shares outstanding 1	70,914,300	50,626,246	61,613,177	48,448,085
Basic and diluted loss per share	(0.29)	(0.62)	(3.09)	(1.68)
1 Share data have been revised to give effect to the share split and share consolidation as explained in note 2, “Share split and share consolidation”

As all Class B, C, D and E preferred shares were converted into common shares upon the completion of the IPO, loss per share data are presented on that basis for all periods.

For the three and nine months ended September 30, 2020 and 2019, basic and diluted loss per share are calculated on the weighted average number of shares issued and outstanding and exclude shares to be issued under the Equity Incentive Plan 2019, as the effect of including those shares would be anti-dilutive.

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

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Incentive Plan 2014	-	2,197,852	-	2,153,507
Share Purchase Plan 2016	-	962,500	-	962,500
Equity Incentive Plan 2019 - Share Options	3,862,347	-	2,449,135	-
Equity Incentive Plan 2019 - RSUs	101,076	-	34,062	-
Conversion of the principal amount of convertible loans into the Company’s common shares	2,631,579	-	1,339,888	-
	6,595,002	3,160,352	3,823,085	3,116,007

16. Leases

As the Company continues to grow its operations, prepares for product commercialization and further develops its pipeline, it is looking to expand its facilities. During the third quarter of 2020, the Company concluded it was reasonably certain that it would modify the terms of various existing lease agreements in accordance with the underlying terms of the agreements, which would reduce the Company’s future minimum lease obligations. As a result, the Company reduced its Right of use assets and Leased liability, long term by $628 KUSD as of September 30, 2020.

17. Events after the reporting date

The Company has evaluated its subsequent events through November 12, 2020, the date the unaudited condensed consolidated interim financial statements were available to be issued.

On October 30, 2020, the Company announced that it amended its existing collaboration and license agreement with Genmab A/S (“Genmab”) for the continued development and commercialization of camidanlumab tesirine (“Cami”). Under the terms of the amended and restated license agreement, the parties have agreed to eliminate the defined divestment process which was agreed in 2013 and that envisaged, among other things, offering the opportunity for third parties to continue the development and commercialization of Cami. The parties have also agreed, among other things, that Genmab will convert its economic interest in Cami into a mid-to-high single-digit tiered royalty on net sales.

24 

EX-99.2

Exhibit 99.2

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

1 

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. You should read this discussion and analysis in conjunction with our unaudited condensed consolidated interim financial statements, including the notes thereto, as of and for the three and nine months ended September 30, 2020 included as Exhibit 99.1 to the Report on Form 6-K to which this discussion and analysis is included as Exhibit 99.2. You should also read this discussion and analysis in conjunction with our audited consolidated financial statements, including the notes thereto, included in our Registration Statement on Form F-1, as amended (Registration No. 333-248941) (the “Registration Statement”).

Our unaudited condensed consolidated interim financial statements were prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Our audited consolidated financial statements were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). None of our financial statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The terms “dollar,” “USD” or “$” refer to U.S. dollars and the term “Swiss franc” and “CHF” refer to the legal currency of Switzerland, unless otherwise indicated. We have made rounding adjustments to some of the figures included in this discussion. Accordingly, any numerical discrepancies in any table between totals and sums of the amounts listed are due to rounding.

Unless otherwise indicated or the context otherwise requires, all references in this discussion and analysis to “ADC Therapeutics” or “ADCT,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to ADC Therapeutics SA and its consolidated subsidiaries.

Overview

We are a late clinical-stage oncology-focused biotechnology company evolving into a commercial-stage company as we prepare for the launch of our lead product candidate, if approved. We are a pioneer in the development of highly potent and targeted antibody drug conjugates (“ADCs”) for patients suffering from hematological malignancies and solid tumors. We develop our ADCs by applying our decades of experience in this field and using next-generation pyrrolobenzodiazepine (“PBD”) technology to which we have proprietary rights for our targets. We are leveraging our R&D strengths, our disciplined approach to target selection and our preclinical and clinical development strategy to generate a diverse and balanced portfolio and research pipeline. Our hematology franchise comprises three clinical-stage product candidates, loncastuximab tesirine (“Lonca” and previously known as ADCT-402), camidanlumab tesirine (“Cami” and previously known as ADCT-301) and ADCT-602. Our solid tumor franchise comprises two clinical-stage product candidates, Cami and ADCT-601, and two preclinical product candidates, ADCT-901 and ADCT-701. We retain exclusive worldwide development and commercialization rights to all of our product candidates other than Cami, for which we have a collaboration and license agreement with Genmab A/S. Our commercial organization has initiated pre-launch market activities and is leveraging our team’s deep industry experience to maximize the commercial potential of any approved products.

Our two lead product candidates, Lonca and Cami, have demonstrated significant clinical activity across a broad population of heavily pre-treated patients, while maintaining tolerability profiles that we believe are manageable. We have evaluated Lonca in a 145-patient pivotal Phase 2 clinical trial for the treatment of relapsed or refractory diffuse large B-cell lymphoma (“DLBCL”) that showed a 48.3% overall response rate (“ORR”) and a 24.1% complete response rate (“CRR”) and a manageable tolerability profile, as of April 2020. On September 21, 2020, we submitted a biologics license application (“BLA”) to the U.S. Food and Drug Administration (“FDA”) for Lonca for the treatment of relapsed or refractory DLBCL. We expect to receive a response from the FDA in November 2020.

In addition, we have initiated a confirmatory Phase 3 clinical trial of Lonca in combination with rituximab that, if successful, may serve as the basis for a supplemental BLA for Lonca for the treatment of second-line, transplant-ineligible DLBCL.

We are also conducting a Phase 1/2 clinical trial of Lonca in combination with ibrutinib for the treatment of relapsed or refractory DLBCL and mantle cell lymphoma (“MCL”) that showed a 75.0% ORR and a 58.3% CRR with a manageable tolerability profile as of April 6, 2020 at the dose being used in the pivotal Phase 2 portion of the clinical trial. In July 2020, we dosed the first patient in the pivotal Phase 2 portion of this clinical trial. We also had an end-of-Phase 1 meeting with the FDA in the second quarter of 2020 to discuss a potential pivotal Phase 2 clinical trial of Lonca for the treatment of relapsed or refractory follicular lymphoma (“FL”) that we expect to commence in the first half of 2021.

2 

We have completed enrollment of a 133-patient Phase 1 clinical trial of Cami for the treatment of relapsed or refractory Hodgkin lymphoma (“HL”) and non-Hodgkin lymphoma (“NHL”), including 77 patients with relapsed or refractory HL. In this Phase 1 clinical trial, Cami demonstrated significant clinical activity across a broad patient population and demonstrated a manageable tolerability profile. At the initial dose being used in our pivotal Phase 2 clinical trial, we observed an 86.5% ORR and a 48.6% CRR in heavily pre-treated patients with HL who had received a median of five prior lines of therapy including patients who were relapsed or refractory to any or all of brentuximab vedotin, checkpoint inhibitors and stem cell transplant and we also observed a 44.0% ORR and an 8.0% CRR in heavily pre-treated patients with relapsed or refractory T-cell lymphoma who had received a median of four prior lines of therapy.

In addition, we are evaluating Cami in a 100-patient pivotal Phase 2 clinical trial for the treatment of relapsed or refractory HL. In July 2020, we announced that the FDA had lifted the partial clinical hold that was placed on this clinical trial, and we have resumed patient enrollment and have enrolled 56 patients as of September 30, 2020. We anticipate reporting top-line response rate data from our pivotal Phase 2 clinical trial of Cami for the treatment of HL in the first half of 2021, and believe that this clinical trial, if successful, will support a BLA submission.

We are also evaluating Cami in a Phase 1b clinical trial as a novel immuno-oncology approach for the treatment of various advanced solid tumors. We also expanded our Phase 1b clinical trial to evaluate Cami in combination with pembrolizumab, a checkpoint inhibitor, to better understand its potential as both a monotherapy and in combination. In October 2020, we dosed the first patient in this clinical trial.

Recent Developments

Follow-On Public Offering

On September 28, 2020, we completed a public offering on the New York Stock Exchange (“NYSE”) in which we issued and sold 6,000,000 common shares at $34.00 per share. The gross proceeds of the offering were $204.0 million before deducting underwriting discounts and commissions and offering expenses payable by us and net proceeds of $188.9 million after deducting underwriting discounts and commissions and offering expenses payable by us.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic has negatively impacted the economies of most countries around the world. Our operations, similar to those of other life sciences companies, have been impacted by the COVID-19 pandemic. As the COVID-19 pandemic continues to evolve, we believe the extent of the impact to our operations, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the pandemic, the pandemic’s impact on the U.S. and global economies and the timing, scope and effectiveness of national and local governmental responses to the pandemic, especially in areas where the conditions have recently worsened. Those primary drivers are beyond our knowledge and control, and as a result, at this time the ultimate impact on our results of operations, cash flows and financial position in 2020 and thereafter cannot be reasonably predicted. We are continuously assessing and adapting our working practices and business operations to ensure compliance with official guidance and containment measures related to the pandemic, and we are working proactively with our partners and other stakeholders to take steps to mitigate and minimize any negative impact of the COVID-19 pandemic on our research and development programs, clinical trials, regulatory submissions, commercialization preparations and other business operations. With respect to our clinical-stage product candidates:

· Pivotal Phase 2 Clinical Trial of Lonca in Relapsed or Refractory DLBCL: This clinical trial has completed enrollment. Patients continue in follow-up, and data are being collected. On September 21, 2020, we submitted a BLA to the FDA for Lonca for the treatment of relapsed or refractory DLBCL. We have not experienced any material impact of the COVID-19 pandemic on this clinical trial.

· Other Clinical Programs: We have not experienced any material impact of the COVID-19 pandemic on our clinical trial enrollment, timelines or expenses. However, the ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change.

3 

BLA Submission and Confirmatory Phase 3 Clinical Trial of Lonca in Combination with Rituximab in Relapsed or Refractory DLBCL

On September 21, 2020, we submitted a BLA to the FDA for Lonca for the treatment of relapsed or refractory DLBCL. In addition, we commenced a Phase 3 randomized confirmatory clinical trial of Lonca in combination with rituximab for the treatment of relapsed or refractory DLBCL. We believe that this clinical trial, if successful, will support a supplemental BLA for Lonca to be used as a second-line therapy for the treatment of relapsed or refractory DLBCL in transplant-ineligible patients.

Dosed First Patient in Phase 1b Clinical Trial of Cami in Combination with Pembrolizumab in Solid Tumors

In October 2020, we dosed the first patient in our ongoing Phase 1b clinical trial of Cami in combination with pembrolizumab for the treatment of selected advanced solid tumors.

Executed amended collaboration and license agreement with Genmab A/S for Cami

On October 30, 2020, we announced that we amended our existing collaboration and license agreement with Genmab A/S (“Genmab”) for the continued development and commercialization of Cami. Under the terms of the amended and restated license agreement, the parties have agreed to eliminate the defined divestment process which was agreed in 2013 and that envisaged, among other things, offering the opportunity for third parties to continue the development and commercialization of Cami. The parties have also agreed, among other things, that Genmab will convert its economic interest in Cami into a mid-to-high single-digit tiered royalty on net sales.

Results of Operations

Comparison of the Three Months Ended September 30, 2020 and 2019

The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019:

	For the Three Months Ended September 30,
in KUSD	2020	2019	Change
Contract revenue	-	-	-
Operating expense
Research and development	(32,155)	(30,541)	(1,614)
General and administrative	(20,273)	(2,302)	(17,971)
Total operating expense	(52,428)	(32,843)	(19,585)
Loss from operations	(52,428)	(32,843)	(19,585)
Other income (expense)
Other income	145	1,433	(1,288)
Convertible loans, derivatives, change in fair value income (expense)	33,868	-	33,868
Financial income	163	729	(566)
Financial expense	(1,940)	(32)	(1,908)
Exchange differences	(139)	(360)	221
Total other income (expense)	32,097	1,770	30,327
Loss before taxes	(20,331)	(31,073)	10,742
Income tax benefit (expense)	3	(268)	271
Net loss	(20,328)	(31,341)	11,013

4 

Notable items impacting the results of operations for the three months ended September 30 included:

	Three months ended September 30,
in KUSD	2020	2019	Change
Research and development - share-based compensation	2,654	161	2,493
General and administrative - share-based compensation	8,334	55	8,279
Convertible loans, derivatives, change in fair value (income) expense	(33,868)	-	(33,868)

Research and development expense

The following table summarizes our research and development expense for the three months ended September 30, 2020 and 2019:

	Three months ended September 30,
in KUSD	2020	2019	Change
External costs 1	20,950	23,552	(2,602)
Employee expense 2	11,205	6,989	4,216
R&D expense	32,155	30,541	1,614
1 Includes depreciation expense
2 Includes share-based compensation expense

Our research and development expense increased to $32.2 million for the three months ended September 30, 2020 from $30.5 million for the three months ended September 30, 2019, an increase of $1.6 million, or 5.3%. R&D expense increased as we continue to expand the potential market opportunities for Lonca in earlier lines of therapy and multiple indications, advance Cami to support the solid tumor program, and build our pipeline. As a result of these initiatives, employee expense has increased due to higher employee headcount, as well as increased share-based compensation expense of $2.5 million. External costs decreased primarily as a result of lower costs associated with chemistry manufacturing and controls (“CMC”) activities due to the timing for the manufacturing of pre-commercial product relating to Lonca as well as the completion of various developmental activities including drug substance and product qualification and stability testing prior to September 30, 2020.

The following table summarizes our research and development expense for our major development programs for the three months ended September 30, 2020 and 2019:

	Three months ended September 30,
in KUSD	2020	2019	Change
Lonca	16,117	10,562	5,555
Cami	9,067	10,307	(1,240)
ADCT-602	480	1,236	(756)
ADCT-601	766	1,945	(1,179)
Preclinical product candidates, research pipeline	4,381	5,798	(1,417)
Not allocated to specific programs	1,344	693	651
R&D expense	32,155	30,541	1,614

Research and development expense for our major development programs will fluctuate from period to period primarily due to the nature and timing associated with the various lifecycle stages of each program, including but not limited to early research and development activities; manufacturing of clinical drug product; clinical trial activity; costs associated with the regulatory approval process; and, manufacturing costs associated with commercialization activities prior to the receipt of regulatory approval.

The increase in research and development expense related to Lonca was due to ongoing activities for the pivotal Phase 2 trial for the treatment of relapsed or refractory DLBCL, increased activities in support of the BLA submission, including CMC, and combination clinical trials.

The decrease in research and development expense related to Cami from 2019 was due to the variability in the timing of the manufacturing schedule in place to support ongoing clinical trial activity.

5 

The decrease in research and development expense relating to ADCT-601 relates to the completion of the dose escalation stage of the Phase 1 clinical trial. We are preparing for the Phase 1b clinical trial.

The decrease in research and development expense related to preclinical product candidates and research pipeline was primarily due to the decline of CMC costs as a result of lower manufacturing activity associated with preclinical product candidates during the three months ended September 30, 2020 as compared to the same period in 2019. Also contributing to the decrease was the impact of COVID-19 and the temporary closing of our laboratories in the UK, which have since reopened but are not at full capacity.

General and administrative expense

The following table summarizes our general and administrative expense for the three months ended September 30, 2020 and 2019:

	Three months ended September 30,
in KUSD	2020	2019	Change
External costs 1	7,248	1,048	6,200
Employee expense 2	13,025	1,254	11,771
G&A expense	20,273	2,302	17,971
1 Includes depreciation expense
2 Includes share-based compensation expense

Our general and administrative expense increased to $20.3 million for the three months ended September 30, 2020 from $2.3 million for the three months ended September 30, 2019, an increase of $18.0 million, or 780.7%. General and administrative expense increased primarily due to higher employee expense associated with increased share-based compensation expense of $8.3 million. Employee expense increased as a result of additional headcount relating to the recruitment of commercial employees as we prepare for the anticipated launch of Lonca in 2021, which resulted in additional expense of $2.0 million. External costs increased primarily as a result of higher professional fees associated with our preparation for the commercial launch of Lonca in 2021 as well as costs associated with being a public company.

Other income and expense

The following table summarizes our other income and expense for the three months ended September 30, 2020 and 2019:

	For the Three Months Ended September 30,
in KUSD	2020	2019	Change
Other income	145	1,433	(1,288)
Convertible loans, derivatives, change in fair value income (expense)	33,868	-	33,868
Financial income	163	729	(566)
Financial expense	(1,940)	(32)	(1,908)
Exchange differences	(139)	(360)	221
Total other income (expense)	32,097	1,770	30,327

Other income

We recognize as other income amounts received and receivable by our subsidiary, ADC Therapeutics (UK) Limited, under the United Kingdom’s Research and Development Expenditure Credit scheme. For the three months ended September 30, 2020 and 2019, we recognized $0.1 million and $1.4 million in Other income, respectively. We recognized this income for the first time during the quarter ended September 30, 2019, which represented fiscal years 2016 through September 30, 2019.

Convertible loans, derivatives, increase in fair value

This income is explained in note 11, “Convertible loans”, to the unaudited condensed consolidated interim financial statements. Pursuant to the Facility Agreement, dated April 24, 2020 (the “Facility Agreement”), with

6 

Deerfield Partners, L.P. and certain of its affiliates (collectively, “Deerfield”), we have drawn down the first tranche of the convertible loans amounting to $65 million on May 19, 2020 and are obligated to draw down the second tranche amounting to $50 million upon the receipt of regulatory approval for Lonca. The conversion option derivative embedded in the first tranche is remeasured at fair value at the end of each accounting period. The obligation arising from the second tranche is accounted for as a derivative and is also remeasured at fair value at the end of each accounting period. Any movement in these fair values is recognized in the Consolidated Statement of Operations. The significant decrease in the fair values in the period is due to the decrease in the price of our common shares since June 30, 2020.

Financial income

Our financial income decreased to $0.2 million for the three months ended September 30, 2020 from $0.7 million for the three months ended September 30, 2019. The decrease was primarily due to decreases in amounts placed on short-term deposit and in interest rates.

Financial expense

Our financial expense increased to $1.9 million for the three months ended September 30, 2020 from nil for the three months ended September 30, 2019. The increase was primarily due to interest on the convertible loans, calculated at the implied effective interest rate, from May 19, 2020. This expense is explained in note 11, “Convertible loans”, to the unaudited condensed consolidated interim financial statements.

Exchange differences

Due to our international operations, we are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to British pounds, Euros and Swiss francs. Our exchange differences represent income or (loss) based on changes in foreign currencies. Favorable or unfavorable changes in foreign currencies resulted in a loss of $0.1 million for the three months ended September 30, 2020, as compared to a loss of $0.4 million the three months ended September 30, 2019.

Income tax benefit (expense)

Our income tax expense is primarily due to our internal arrangements to reimburse our foreign subsidiaries in the United States and the United Kingdom for the services they render on a cost-plus-margin basis. The net profit at each subsidiary is subject to local income tax and gives rise to minimal amounts of tax expense. During the quarter ended September 30, 2020, we recorded an income tax benefit adjustment relating to fiscal year 2019 as a result of finalizing our 2019 income tax returns.

7 

Comparison of the Nine Months Ended September 30, 2020 and 2019

The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019:

	For the Nine Months Ended September 30,
in KUSD	2020	2019	Change
Contract revenue	-	2,340	(2,340)
Operating expense
Research and development	(93,480)	(77,113)	(16,367)
General and administrative	(47,782)	(8,894)	(38,888)
Total operating expense	(141,262)	(86,007)	(55,255)
Loss from operations	(141,262)	(83,667)	(57,595)
Other income (expense)
Other income	423	1,433	(1,010)
Convertible loans, derivatives, change in fair value income (expense)	(45,393)	-	(45,393)
Convertible loans, first tranche, derivative, transaction costs	(1,571)	-	(1,571)
Financial income	732	2,035	(1,303)
Financial expense	(2,879)	(105)	(2,774)
Exchange differences	(210)	(428)	218
Total other income (expense)	(48,898)	2,935	(51,833)
Loss before taxes	(190,160)	(80,732)	(109,428)
Income tax benefit (expense)	(201)	(467)	266
Net loss	(190,361)	(81,199)	(109,162)

Notable items impacting the results of operations for the nine months ended September 30 included:

	Nine months ended September 30,
in KUSD	2020	2019	Change
Research and development - share-based compensation	6,628	254	6,374
General and administrative - share-based compensation	20,884	102	20,782
Convertible loans, derivatives, change in fair value expense (income)	45,393	-	45,393
Convertible loans, first tranche, derivative, transaction costs	1,571	-	1,571

Contract revenue

Contract revenue decreased to nil for the nine months ended September 30, 2020 from $2.3 million for the nine months ended September 30, 2019, a decrease of $2.3 million, or 100.0%. The decrease was due to the discontinuance of the joint clinical development of MEDI3726 and the recognition during the nine months ended September 30, 2019 of the remaining non-refundable upfront payment (consisting of deferred revenue and presented as a contract liability in our consolidated balance sheet) of $2.3 million that existed as of December 31, 2018.

8 

Research and development expense

The following table summarizes our research and development expense for the nine months ended September 30, 2020 and 2019:

	Nine months ended September 30,
in KUSD	2020	2019	Change
External costs 1	63,250	59,593	3,657
Employee expense 2	30,230	17,520	12,710
R&D expense	93,480	77,113	16,367
1 Includes depreciation expense
2 Includes share-based compensation expense

Our research and development expense increased to $93.5 million for the nine months ended September 30, 2020 from $77.1 million for the nine months ended September 30, 2019, an increase of $16.4 million, or 21.2%. R&D expense increased as we continue to expand the potential market opportunities for Lonca in earlier lines of therapies and multiple indications, advance Cami to support BLA submission, and build our pipeline. As a result of these initiatives, employee expense has increased due to higher employee headcount, as well as share-based compensation expense of $6.4 million. External costs increased primarily due to the advancement of our clinical trials associated with our lead product candidates. The increase in external costs were partially offset by a decrease in CMC costs as a result of the completion of various developmental activities as described in the quarter to date discussion above.

The following table summarizes our research and development expense for our major development programs for the nine months ended September 30, 2020 and 2019:

	Nine months ended September 30,
in KUSD	2020	2019	Change
Lonca	43,870	29,382	14,488
Cami	28,722	24,187	4,535
ADCT-602	1,951	1,799	152
ADCT-601	3,166	4,882	(1,716)
Preclinical product candidates, research pipeline	12,360	14,975	(2,615)
Not allocated to specific programs	3,411	1,888	1,523
R&D expense	93,480	77,113	16,367

Research and development expense for our major development programs will fluctuate from period to period primarily due to the nature and timing associated with the various lifecycle stages of each program, including but not limited to early research and development activities; manufacturing of clinical drug product; clinical trial activity; costs associated with the regulatory approval process; and, manufacturing costs associated with commercialization activities prior to the receipt of regulatory approval.

The increase in research and development expense related to Lonca was due to ongoing activities for the pivotal Phase 2 trial for the treatment of relapsed or refractory DLBCL, increased activities in support of the BLA submission, including CMC, and combination clinical trials.

The increase in research and development expense related to Cami was due to an increase in ongoing development activities, as well as the ramp-up related to the Phase 1b clinical trial of Cami for the treatment of selected advanced solid tumors.

The decrease in research and development expense relating to ADCT-601 relates to the completion of the dose escalation stage of the Phase 1 clinical trial. We are preparing for the Phase 1b clinical trial.

The decrease in research and development expense related to preclinical product candidates and research pipeline was due to a decrease in CMC costs as a result of lower manufacturing costs associated with preclinical product candidates during the nine months ended September 30, 2020 as compared to the same period in 2019. Also contributing to the decrease was the impact of COVID-19 and the temporary closing of our laboratories in the UK, which have since reopened but are not at full capacity.

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General and administrative expense

The following table summarizes our general and administrative expense for the nine months ended September 30, 2020 and 2019:

	Nine months ended September 30,
in KUSD	2020	2019	Change
External costs 1	15,649	5,110	10,539
Employee expense 2	32,133	3,784	28,349
G&A expense	47,782	8,894	38,888
1 Includes depreciation expense
2 Includes share-based compensation expense

Our general and administrative expense increased to $47.8 million for the nine months ended September 30, 2020 from $8.9 million for the nine months ended September 30, 2019, an increase of $38.9 million, or 437.2%. General and administrative expense increased primarily due to higher employee expense associated with increased share-based compensation expense of $20.8 million. Employee expense increased as a result of additional headcount relating to the recruitment of commercial employees as we prepare for the anticipated launch of Lonca in 2021 which resulted in additional expense of $3.8 million. External costs increased primarily as a result of higher professional fees associated with our preparation for the commercial launch of Lonca in 2021 as well as costs associated with being a public company. These increases were partially offset by a decrease in office and travel expense as a result of our response to COVID-19, which included a work from home policy for our employees and restricted travel.

Employee expense for the nine months ended September 30, 2020 includes share-based compensation expense relating to the 2014 Incentive Plan and the 2016 Share Purchase Plan, both of which terminated upon the effectiveness of the registration statement for our initial public offering, with all awards vesting as of that date and with all outstanding charges relating to those plans, which were being amortized over the vesting period, having to be recognized at that time. The amount of expense recognized for these plans in the nine months ended September 30, 2020 was $7.5 million, which is included in the share-based compensation expense noted above. Share-based compensation expense under the 2019 Equity Incentive Plan was also recognized in the nine months ended September 30, 2020 and will continue to arise in the future.

Other income and expense

The following table summarizes our other income and expense for the nine months ended September 30, 2020 and 2019:

	For the Nine Months Ended September 30,
in KUSD	2020	2019	Change
Other income	423	1,433	(1,010)
Convertible loans, derivatives, change in fair value income (expense)	(45,393)	-	(45,393)
Convertible loans, first tranche, derivative, transaction costs	(1,571)	-	(1,571)
Financial income	732	2,035	(1,303)
Financial expense	(2,879)	(105)	(2,774)
Exchange differences	(210)	(428)	218
Total other income (expense)	(48,898)	2,935	(51,832)

Other income

We recognize as other income amounts received and receivable by our subsidiary, ADC Therapeutics (UK) Limited, under the United Kingdom’s Research and Development Expenditure Credit scheme. For the nine months ended September 30, 2020 and 2019, we recognized $0.4 million and $1.4 million in Other income, respectively. We recognized this income for the first time during the quarter ended September 30, 2019, which represented fiscal years 2016 through September 30, 2019.

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Convertible loans, derivatives, increase in fair value

This charge is explained in note 11 “Convertible loans” to the unaudited condensed consolidated interim financial statements. Pursuant to the Facility Agreement with Deerfield we have drawn down the first tranche of the convertible loans amounting to $65 million on May 19, 2020 and are obligated to draw down the second tranche amounting to $50 million upon the receipt of regulatory approval for Lonca. The conversion option derivative embedded in the first tranche is remeasured at fair value at the end of each accounting period. The obligation arising from the second tranche is accounted for as a derivative and is also remeasured at fair value at the end of each accounting period. Any movement in these fair values is recognized in the Consolidated Statement of Operations. The significant increase in the fair values in the period is due to the increase in the price of our common shares since our initial public offering.

Convertible loans, first tranche, derivative, transaction costs

As explained in note 11, “Convertible loans”, to the unaudited condensed consolidated interim financial statements, transaction costs incurred on the issuance of the first tranche of the convertible loans have been allocated pro rata to the embedded conversion option derivative and to the residual convertible loan. The costs allocated to the loan have been deducted from the initial book value of the loan and will therefore be recognized over the life of the loan as part of the effective interest cost (see “Financial Expense” below). The costs allocated to the embedded derivative of the first tranche have been recognized directly in the Unaudited Condensed Consolidated Interim Statement of Operations.

Financial income

Our financial income decreased to $0.7 million for the nine months ended September 30, 2020 from $2.0 million for the nine months ended September 30, 2019. The decrease was primarily due to decreases in amounts placed on short-term deposit and in interest rates.

Financial expense

Our financial expense increased to $2.9 million for the nine months ended September 30, 2020 from $0.1 million for the nine months ended September 30, 2019. The increase was primarily due to interest on the convertible loans, calculated at the implied effective interest rate from May 19, 2020. This expense is explained in note 11, “Convertible loans”, to the unaudited condensed consolidated interim financial statements.

Exchange differences

Due to our international operations, we are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to British pounds, Euros and Swiss francs. Our exchange differences represent income or (loss) based on changes in foreign currencies. Favorable or unfavorable changes in foreign currencies resulted in a loss of $0.2 million for the nine months ended September 30, 2020 as compared to a loss of $0.4 million the nine months ended September 30, 2019.

Income tax expense

Our income tax expense is primarily due to our internal arrangements to reimburse our foreign subsidiaries in the United States and the United Kingdom for the services they render on a cost-plus-margin basis. The net profit at each subsidiary is subject to local income tax and gives rise to minimal amounts of tax expense. During the three and nine months ended September 30, 2020, we recorded an income tax benefit adjustment relating to fiscal year 2019 as a result of finalizing our 2019 income tax returns.

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Liquidity and Capital Resources

Since inception, we have incurred significant net losses. To date, we have not generated any product revenue and we have financed our operations through equity financings, including our initial public offering and follow-on offering, convertible debt financings, and additional funds provided by collaborations. As of September 30, 2020, we had cash and cash equivalents of $494.4 million.

In September 2020, we completed a follow-on offering on the NYSE in which we issued and sold an aggregate 6,000,000 common shares at $34.00 per share and net proceeds of $188.9 million, after deducting underwriting discounts and commissions and offering expenses payable by us, of which $2.7 million remained unpaid as of September 30, 2020. Such costs are anticipated to be paid during the fourth quarter of 2020.

In May 2020, we completed our initial public offering, in which we issued and sold an aggregate of 14,082,475 common shares, including those issued and sold pursuant to the exercise in full of the underwriters’ option to purchase additional common shares. We received net proceeds of $244.2 million from the IPO, after deducting underwriting discounts and commissions and offering expenses payable by us.

In addition, in May 2020, we received net proceeds of $61.3 million, after deducting fees and expenses payable by us, of the first disbursement of convertible loans to us in the amount of $65.0 million under the Facility Agreement. Pursuant to the Facility Agreement, Deerfield agreed to extend a subsequent disbursement of convertible loans to us in the amount of $50.0 million upon receipt of regulatory approval for Lonca and satisfaction of certain other conditions. If we have not received regulatory approval on or prior to December 31, 2021, the second tranche will automatically terminate on such date.

Our primary uses of capital are, and we expect will continue to be, research and development expenses, expenses associated with commercial launch preparations, 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 the advancement of clinical trials, including our pivotal clinical trials, and BLA preparations for our lead product candidates, Lonca and Cami, and the development of our other product candidates and our research pipeline. In addition, as we prepare for the potential approval of Lonca, we expect to incur substantial expense for commercial launch preparations.

We plan to continue to fund our operating needs through the net proceeds of our initial public offering, follow-on offering, the Facility Agreement, additional equity financings and/or other forms of financing. We may also pursue strategic collaborations or licensing opportunities for clinical development and commercialization of our product candidates in various geographical markets. The sale of additional equity and the issuance of senior secured convertible notes under the Facility Agreement and the conversion of such notes into common shares would result in additional dilution to our shareholders.

Cash Flows

Comparison of the Nine Months Ended September 30, 2020 and 2019

The following table summarizes our cash flows for the nine months ended September 30, 2020 and 2019:

	Nine months ended September 30,
Net cash provided by (used in) in KUSD:	2020	2019	Change
Operating activities	(117,035)	(87,926)	(29,109)
Investing activities	(2,035)	(1,954)	(81)
Financing activities	497,837	100,641	397,196
Net change in cash and cash equivalents	378,767	10,761	368,006

Net cash used in operating activities

Net cash used in operating activities increased to $117.0 million for the nine months ended September 30, 2020 from $87.9 million for the nine months ended September 30, 2019, an increase of $29.1 million, or 33.1%. The increase was primarily due to increased cash expenditure in the period on research and development, general and administrative costs and preparing for the commercial launch of Lonca.

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Net cash used in investing activities

Net cash used in investing activities remained flat at $2.0 million for both the nine months ended September 30, 2020 and 2019. During the nine months ended September 30, 2020, increased capital expenditures were partially offset by a reduction in the amount of purchased intangible assets.

Net cash provided by financing activities

Net cash provided by financing activities increased to $497.8 million for the nine months ended September 30, 2020 from $100.6 million for the nine months ended September 30, 2019, an increase of $397.2 million, or 394.7%. The increase was primarily due to the completion of our initial public offering, the receipt of the first tranche of the convertible loans under the Facility Agreement and the completion of our follow-on offering.

Operating Capital Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or commence clinical trials of, and seek regulatory approval for, our product candidates, including confirmatory clinical trials following any conditional or accelerated approval that our product candidates may receive, and engage in commercial launch preparations. In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. Our future capital requirements will depend on many factors, which are outlined in our Registration Statement and this discussion and analysis.

JOBS Act

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies. This provision allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. This transition period is only applicable under U.S. GAAP. As a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required or permitted by the International Accounting Standards Board.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the previous three years; and (iv) the date on which 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 $700.0 million as of the prior June 30th.

Contractual Obligations and Other Commitments

As of September 30, 2020 and during the periods presented, we did not have, and we do not currently have, any contractual obligations and other commitments, other than those described in the section in the Registration Statement titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Other Commitments” with the exception of the obligations arising under the Facility Agreement. Obligations arising under the Facility Agreement are comprised of $2.6 million in current liabilities and $107.0 million in non-current liabilities as of September 30, 2020.

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Off-Balance Sheet Arrangements

As of September 30, 2020 and during the periods presented, we did not have, and we do not currently have, any off-balance sheet arrangements, other than those described in the section in the Registration Statement titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Off-Balance Sheet Arrangements.”

Quantitative and Qualitative Disclosures about Market Risk

During the periods presented, there were no significant changes to our quantitative and qualitative disclosures about market risk from those described in the section in the Registration Statement titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures about Market Risk” with the exception of a hypothetical 10% increase (decrease) in our share price as of September 30, 2020 would have increased (decreased) the derivative values associated with the first and second tranches by $5.9 million ($7.2 million) and $2.5 million ($1.8 million), respectively.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no material changes to the significant accounting policies and significant judgments and estimates from those described in the section in the Registration Statement titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” with the exception of the accounting for the convertible loans as described in note 3, “Significant accounting policies” in the notes to our unaudited condensed consolidated interim financial statements.

Recent Accounting Pronouncements

See note 3, “Significant accounting policies”, to our unaudited condensed consolidated interim financial statements for a description of recent accounting pronouncements applicable to our unaudited condensed consolidated interim financial statements as well as the significant accounting policies and significant judgments and estimates from those described in the section in the Registration Statement titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates”.

Cautionary Statement Regarding Forward-Looking Statements

This discussion contains statements that constitute forward-looking statements. All statements other than statements of historical facts contained in this discussion, including statements regarding our future results of operations and financial position, business strategy, product candidates, research pipeline, ongoing and planned preclinical studies and clinical trials, regulatory submissions and 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 discussion 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 of places in this discussion 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 in the Registration Statement titled “Risk Factors.” These forward-looking statements include, among others:

• the commencement, timing, progress and results of our research and development programs, preclinical studies and clinical trials;

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• the timing of IND, BLA, sBLA, MAA and other regulatory submissions with the FDA, EMA or comparable regulatory authorities in other jurisdictions;

• the proposed clinical development pathway for our lead product candidates, Lonca and Cami, and our other product candidates, and the acceptability of the results of clinical trials for regulatory approval of such product candidates by the FDA, EMA or comparable regulatory authorities in other jurisdictions;

• assumptions relating to the identification of serious adverse, undesirable or unacceptable side effects related to our product candidates;

• the timing of and our ability to obtain and maintain regulatory approval for our product candidates;

• our plan for the commercialization of Lonca and, subject to our collaboration and license agreement with Genmab, of Cami, if approved;

• our expectations regarding the size of the patient populations amenable to treatment with our product candidates, if approved, as well as the treatment landscape of the indications that we are targeting with our product candidates;

• assumptions relating to the rate and degree of market acceptance of any approved product candidates;

• the pricing and reimbursement of our product candidates;

• our ability to identify and develop additional product candidates;

• the ability of our competitors to discover, develop or commercialize competing products before or more successfully than we do;

• our competitive position and the development of and projections relating to our competitors or our industry;

• our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additional financing;

• our ability to raise capital when needed in order to continue our research and development programs or commercialization efforts;

• assumptions regarding the receipt of the disbursements under the Facility Agreement;

• our ability to identify and successfully enter into strategic collaborations or licensing opportunities in the future, and our assumptions regarding any potential revenue that we may generate thereunder;

• our ability to obtain, maintain, protect and enforce intellectual property protection for our product candidates, and the scope of such protection;

• our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of third parties;

• our expectations regarding the impact of the COVID-19 pandemic;

• our ability to attract and retain qualified key management and technical personnel; and

• our expectations regarding the time during which we will be an emerging growth company under the JOBS Act and a foreign private issuer.

These forward-looking statements speak only as of the date of this discussion and are subject to a number of risks, uncertainties and assumptions described under the section in the Registration Statement titled “Risk Factors” and elsewhere in this discussion. 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, 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

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statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this discussion, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

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EX-99.3

Exhibit 99.3

ADC Therapeutics Reports Third Quarter 2020 Financial Results and Provides Recent Business Highlights

- Submitted BLA for lead program, Lonca, for treatment of relapsed or refractory DLBCL on September 21, 2020

- Commercial launch activities on track for potential U.S. launch of Lonca in mid-2021

- Initiated Phase 3 confirmatory trial of Lonca in combination with rituximab in second-line DLBCL 

- Strong balance sheet with $494 million in cash and cash equivalents as of September 30, 2020 after completing an upsized follow-on public offering in September 2020

- Company to host conference call today at 8:30 a.m. ET

Lausanne, Switzerland, November 12, 2020 – ADC Therapeutics SA (NYSE: ADCT), a late clinical-stage oncology-focused biotechnology company pioneering the development and commercialization of highly potent and targeted antibody drug conjugates (ADCs) for patients with hematological malignancies and solid tumors, today reported financial results for the third quarter ended September 30, 2020 and provided recent business highlights.

“The third quarter was one of tremendous execution as we prepare for the U.S. launch of our first drug, Lonca, for the treatment of relapsed or refractory diffuse large B-cell lymphoma,” said Chris Martin, Chief Executive Officer of ADC Therapeutics. “We have submitted our Biologics License Application to the U.S. Food and Drug Administration and are now working diligently to prepare for a planned commercial launch in mid-2021, including U.S. organizational build-out, the establishment of U.S. operations to ensure distribution, access and reimbursement of Lonca, and significant appropriate physician engagement. In addition to our commercial preparations, we are expanding our Lonca development activities, having initiated our Phase 3 LOTIS 5 clinical trial evaluating Lonca in combination with rituximab as a second-line therapy in DLBCL and are preparing to initiate our Phase 2 trial of Lonca in follicular lymphoma next year.”

Dr. Martin continued, “Across our Cami programs, we have now enrolled more than half of the 100-patient pivotal Phase 2 trial in Hodgkin lymphoma and continue to see promising preliminary data from our Phase 1b trial in solid tumors that show robust immune activity following treatment, as well as recently published preclinical data highlighting the anti-tumor activity of CD25-targeted antibody drug conjugates. With these promising data, we expanded our Phase 1b trial to evaluate Cami in combination with pembrolizumab to better understand its potential as both a monotherapy and in combination and have dosed the first patient in the combination arm. To support these exciting developments and ensure continued growth across our pipeline, we completed an upsized public offering in September. With these additional funds, we look forward to continuing to deliver on our vision to bring transformative therapies to cancer patients as quickly and effectively as possible.”

Recent Clinical and Business Highlights:

· Submitted a BLA to the FDA for Lonca for treatment of relapsed or refractory DLBCL: On September 21, 2020, the Company announced the submission of a Biologics License Application (BLA) to the U.S. Food and Drug Administration (FDA) for Lonca for the treatment of patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL). The submission is based on data from LOTIS 2, a pivotal Phase 2 multi-center, open-label, single-arm clinical

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trial evaluating the efficacy and safety of Lonca in patients with relapsed or refractory DLBCL following two or more lines of prior systemic therapy.

· Opened Phase 3 LOTIS 5 clinical trial of Lonca in combination with rituximab for enrollment: This Phase 3 confirmatory trial will evaluate the efficacy of Lonca in combination with rituximab in patients with relapsed or refractory DLBCL who are not eligible for autologous stem cell transplant (ASCT). The trial will evaluate the safety and efficacy of Lonca in combination with rituximab versus standard immunochemotherapy, and the primary endpoint will be progression-free survival. LOTIS 5 is designed to fulfill the Company’s post-marketing requirement to the FDA for full approval, if accelerated approval is received for relapsed or refractory DLBCL, and is intended to support a supplemental Biologics License Application (sBLA) for Lonca as a second-line therapy for patients with DLBCL who have relapsed or refractory disease following at least one multi-agent systemic treatment regimen.

· Actively enrolling patients in the pivotal Phase 2 portion of LOTIS 3 clinical trial of Lonca in combination with ibrutinib: Enrollment continues in the pivotal Phase 2 portion of LOTIS 3, a 161-patient Phase 1/2 clinical trial of Lonca in combination with ibrutinib, which is being evaluated in patients with relapsed or refractory DLBCL or mantle cell lymphoma (MCL). The first patient was dosed in the pivotal Phase 2 portion of this trial in July 2020.

· Planning to initiate a pivotal Phase 2 clinical trial of Lonca in follicular lymphoma (FL) in H1 2021: The Company continues to consider rapid expansion opportunities for Lonca across other non-Hodgkin lymphoma indications. Following consultation with the FDA, the Company plans to initiate a pivotal Phase 2 trial to evaluate the safety and efficacy of Lonca in patients with relapsed or refractory FL.

· Dosed first patient in Phase 1b clinical trial of Cami in combination with pembrolizumab for treatment of solid tumors: Earlier this month, the Company announced that the first patient was dosed with Cami in combination with pembrolizumab, a checkpoint inhibitor, in an ongoing Phase 1b trial in patients with selected advanced solid tumors. Based on preclinical data and initial pharmacodynamic data from the Phase 1b monotherapy trial, the Company has expanded the Phase 1b trial to evaluate the safety, tolerability, pharmacokinetics and antitumor activity of Cami in combination with pembrolizumab in select solid tumors. Pharmacokinetic and biomarker data from the Phase 1b trial were presented at the European Society for Medical Oncology (ESMO) Virtual Congress 2020, and preclinical data were published in the Journal for ImmunoTherapy of Cancer.

· Announced multiple abstracts accepted for presentation at ASH: The Company announced earlier in November that six clinical abstracts and two preclinical abstracts have been accepted for presentation at the 62^nd American Society of Hematology (ASH) Annual Meeting, including an oral presentation of Cami Phase 2 data in Hodgkin lymphoma (HL) and poster presentations of Lonca subgroup data from the pivotal Phase 2 LOTIS 2 trial in relapsed or refractory DLBCL and the Phase 1b pivotal trial of Lonca combined with ibrutinib in relapsed or refractory DLBCL and MCL.

· Amended 2013 collaboration and license agreement with Genmab for Cami: In October 2020, the Company and Genmab agreed to amend their original 2013 agreement to allow the Company to continue the development and commercialization of Cami. Under the

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amendment, Genmab agreed, among other things, to convert its economic interest into a mid-to-high single-digit royalty on net sales.

· Completed upsized public offering: In September 2020, the Company completed an upsized public offering of 6,000,000 common shares at a price of $34.00 per share. Gross proceeds from the public offering, before deducting underwriting discounts and commissions and offering expenses payable by the Company, were approximately $204 million.

Anticipated Upcoming Milestones:

· FDA feedback on BLA submission for Lonca for the treatment of patients with relapsed or refractory DLBCL.

· Initiation of a pivotal Phase 2 trial of Lonca in relapsed refractory FL in the first half of 2021.

· Reporting of interim results from the pivotal Phase 2 trial of Cami in HL in the first half of 2021.

· Potential FDA approval and launch of Lonca in mid-2021.

Third Quarter 2020 Financial Results

Cash and Cash Equivalents

Cash and cash equivalents were $494.4 million as of September 30, 2020, compared to $115.6 million as of December 31, 2019.

Research and Development (R&D) Expenses

R&D expenses were $32.2 million for the quarter ended September 30, 2020, compared to $30.5 million for the same quarter in 2019. The increase was primarily due to increased share-based compensation expense.

General and Administrative (G&A) Expenses

G&A expenses were $20.3 million for the quarter ended September 30, 2020, compared to $2.3 million for the same quarter in 2019. The increase was primarily due to an increased number of Commercial employees, increased costs due to new commercial activities and increased share-based compensation expense.

Net Loss and Adjusted Net Loss

Net loss was $20.3 million, or a net loss of $0.29 per basic and diluted share, for the quarter ended September 30, 2020, compared to $31.3 million, or a net loss of $0.62 per basic and diluted share, for the same quarter in 2019. The net loss for the quarter ended September 30, 2020 includes a $33.9 million non-cash gain related to the changes in fair value of derivatives associated with the convertible loans under the Convertible Credit Facility with Deerfield. The decrease in fair value was driven by the decrease in the Company’s share price from June 30, 2020. In addition, net loss included share-based compensation expense of $11.0 million for the quarter ended September 30, 2020, compared to $0.2 million for the same quarter in 2019.

Adjusted net loss was $41.3 million, or an adjusted net loss of $0.58 per basic and diluted share, for the quarter ended September 30, 2020, compared to $31.1 million, or an adjusted net loss of $0.62

3 

per basic and diluted share, for the same quarter in 2019. The increase in adjusted net loss was primarily driven by higher employee headcount across the organization and costs associated with the build out of the Company’s commercial organization in preparation for the anticipated launch of Lonca in 2021.

Conference Call Details

ADC Therapeutics management will host a conference call and live audio webcast to discuss third quarter 2020 financial results and provide a company update today at 8:30 a.m. Eastern Time. To access the call, please dial +41 225 675632 (international) or (833) 249-8403 (U.S.). A live webcast of the presentation will be available on the Investors section of the ADC Therapeutics website at www.ir.adctherapeutics.com. The archived webcast will be available after the completion of the event.

About ADC Therapeutics

ADC Therapeutics SA (NYSE:ADCT) is a late clinical-stage oncology-focused biotechnology company pioneering the development and commercialization of highly potent and targeted antibody drug conjugates (ADCs) for patients with hematological malignancies and solid tumors. The Company develops ADCs by applying its decades of experience in this field and using next-generation pyrrolobenzodiazepine (PBD) technology to which ADC Therapeutics has proprietary rights for its targets. Strategic target selection for PBD-based ADCs and substantial investment in early clinical development have enabled ADC Therapeutics to build a deep clinical and research pipeline of therapies for the treatment of hematological and solid tumor cancers. The Company has multiple PBD-based ADCs in ongoing clinical trials, ranging from first in human to confirmatory Phase 3 clinical trials, in the USA and Europe, and numerous preclinical ADCs in development.

Loncastuximab tesirine (Lonca, formerly ADCT-402), the Company’s lead product candidate, has been evaluated in a 145-patient pivotal Phase 2 clinical trial for the treatment of relapsed or refractory diffuse large B-cell lymphoma (DLBCL) that showed a 48.3% overall response rate (ORR), which exceeded the target primary endpoint. In September 2020, ADC Therapeutics submitted a Biologics License Application to the U.S. Food and Drug Administration seeking accelerated approval for Lonca for the treatment of patients with relapsed or refractory DLBCL. Camidanlumab tesirine (Cami, formerly ADCT-301), the Company’s second lead product candidate, is being evaluated in a 100-patient pivotal Phase 2 clinical trial for the treatment of relapsed or refractory Hodgkin lymphoma (HL) after having shown in a Phase 1 clinical trial an 86.5% ORR in HL patients at the dose selected for Phase 2. The Company is also evaluating Cami as a novel immuno-oncology approach for the treatment of various advanced solid tumors.

ADC Therapeutics is based in Lausanne (Biopôle), Switzerland and has operations in London, the San Francisco Bay Area and New Jersey. For more information, please visit https://adctherapeutics.com/ and follow the Company on Twitter and LinkedIn.

Use of Non-IFRS Financial Measures

In addition to financial information prepared in accordance with IFRS, this document also contains certain non-IFRS financial measures based on management’s view of performance including:

· Adjusted net loss

· Adjusted net loss per share

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Management uses such measures internally when monitoring and evaluating our operational performance, generating future operating plans and making strategic decisions regarding the allocation of capital. We believe that these adjusted financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and facilitate operating performance comparability across both past and future reporting periods. These non-IFRS measures have limitations as financial measures and should be considered in addition to, and not in isolation or as a substitute for, the information prepared in accordance with IFRS. When preparing these supplemental non-IFRS measures, management typically excludes certain IFRS items that management does not believe are indicative of our ongoing operating performance. Furthermore, management does not consider these IFRS items to be normal, recurring cash or non-cash operating expenses; however, these items may not meet the IFRS definition of unusual or non-recurring items. Since non-IFRS financial measures do not have standardized definitions and meanings, they may differ from the non-IFRS financial measures used by other companies, which reduces their usefulness as comparative financial measures. Because of these limitations, you should consider these adjusted financial measures alongside other IFRS financial measures.

The following items are excluded from adjusted net loss and adjusted net loss per share:

Shared-Based Compensation Expense: We exclude share-based compensation from our adjusted financial measures because share-based compensation expense, which is non-cash, fluctuates from period to period based on factors that are not within our control, such as our stock price on the dates share-based grants are issued. Share-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy.

Certain Other Items: We exclude certain other significant items that may occur occasionally and are not normal, recurring operating expenses, cash or non-cash, from our adjusted financial measures. Such items are evaluated by management on an individual basis based on both quantitative and qualitative aspects of their nature and generally represent items that, either as a result of their nature or significance, management would not anticipate occurring as part of our normal business on a regular basis. While not all-inclusive, examples of certain other significant items excluded from our adjusted financial measures would be: changes in the fair value of derivatives, and the effective interest expense, associated with the Convertible Credit Facility with Deerfield, as well as transaction costs associated with debt or equity issuances that are expensed pursuant to IFRS.

See the attached Reconciliation of IFRS Measures to Non-IFRS Measures for explanations of the amounts excluded and included to arrive at the non-IFRS financial measures for the three- and nine-month periods ended September 30, 2020 and 2019.

Forward-Looking Statements

This press release contains statements that constitute forward-looking statements. All statements other than statements of historical facts contained in this press release, including statements regarding our future results of operations and financial position, business strategy, product candidates, research pipeline, ongoing and planned preclinical studies and clinical trials, regulatory submissions and 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. 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

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forward-looking statements due to various factors, including those described in our filings with the U.S. Securities and Exchange Commission. No assurance can be given that such future results will be achieved. Such forward-looking statements contained in this document speak only as of the date of this press release. We expressly disclaim any obligation or undertaking to update these forward-looking statements contained in this press release to reflect any change in our expectations or any change in events, conditions, or circumstances on which such statements are based unless required to do so by applicable law. No representations or warranties (expressed or implied) are made about the accuracy of any such forward-looking statements.

CONTACTS:

Investors
Amanda Hamilton
ADC Therapeutics

amanda.hamilton@adctherapeutics.com

Tel.: +1 917-288-7023

EU Media
Alexandre Müller
Dynamics Group
amu@dynamicsgroup.ch
Tel: +41 (0) 43 268 3231

USA Media
Annie Starr
6 Degrees
astarr@6degreespr.com
Tel.: +1 973-415-8838

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ADC Therapeutics SA

Condensed Consolidated Interim Statement of Operations (Unaudited)

(in KUSD except for share and per share data)

	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2020	2019	2020	2019
Contract revenue	-	-	-	2,340
Operating expense
Research and development	(32,155)	(30,541)	(93,480)	(77,113)
General and administrative	(20,273)	(2,302)	(47,782)	(8,894)
Total operating expense	(52,428)	(32,843)	(141,262)	(86,007)
Loss from operations	(52,428)	(32,843)	(141,262)	(83,667)
Other income (expense)
Other income	145	1,433	423	1,433
Convertible loans, derivatives, change in fair value income (expense)	33,868	-	(45,393)	-
Convertible loans, first tranche, derivative, transaction costs	-	-	(1,571)	-
Financial income	163	729	732	2,035
Financial expense	(1,940)	(32)	(2,879)	(105)
Exchange differences	(139)	(360)	(210)	(428)
Total other income (expense)	32,097	1,770	(48,898)	2,935
Loss before taxes	(20,331)	(31,073)	(190,160)	(80,732)
Income tax benefit (expense)	3	(268)	(201)	(467)
Net loss	(20,328)	(31,341)	(190,361)	(81,199)
Net loss attributable to:
Owners of the parent	(20,328)	(31,341)	(190,361)	(81,199)
Net loss per share, basic and diluted	(0.29)	(0.62)	(3.09)	(1.68)

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ADC Therapeutics SA

Condensed Consolidated Interim Balance Sheet (Unaudited)
(in KUSD)

	September 30,	December 31,
	2020	2019
ASSETS
Current assets
Cash and cash equivalents	494,416	115,551
Other current assets	12,003	7,055
Total current assets	506,419	122,606
Non-current assets
Property, plant and equipment	1,502	1,376
Right-of-use assets	3,402	4,898
Intangible assets	9,814	8,434
Other long-term assets	389	368
Total non-current assets	15,107	15,076
Total assets	521,526	137,682
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	6,146	3,329
Other current liabilities	22,633	15,430
Lease liabilities, short-term	1,051	1,132
Current income tax payable	91	52
Convertible loans, short-term	2,642	-
Total current liabilities	32,563	19,943
Non-current liabilities
Convertible loans, long-term	33,788	-
Convertible loans, derivatives	73,190	-
Lease liabilities, long-term	2,605	3,899
Defined benefit pension liabilities	3,113	2,684
Other non-current liabilities	208	-
Total non-current liabilities	112,904	6,583
Total liabilities	145,467	26,526
Equity attributable to owners of the parent
Share capital	6,314	4,361
Share premium	981,032	549,922
Treasury shares	(4)	(100)
Other reserves	27,642	5,473
Cumulative translation adjustment	5	69
Accumulated losses	(638,930)	(448,569)
Total equity attributable to owners of the parent	376,059	111,156
Total liabilities and equity	521,526	137,682

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ADC Therapeutics SA

Reconciliation of IFRS Measures to Non-IFRS Measures (Unaudited)

(in KUSD except for share and per share data)

	Three months ended September 30,		Nine months ended September 30,
in KUSD (except for share and per share data)	2020	2019	2020	2019
Net loss	(20,328)	(31,341)	(190,361)	(81,199)
Adjustments:
Share-based compensation expense (i)	10,988	216	27,512	356
Convertible loans, derivatives, change in fair value (income) expense (ii)	(33,868)	-	45,393	-
Convertible loans, first tranche, derivative, transaction costs (iii)	-	-	1,571	-
Effective interest expense (iv)	1,913	-	2,781	-
Adjusted net loss	(41,295)	(31,125)	(113,104)	(80,843)
Net loss per share, basic and diluted	(0.29)	(0.62)	(3.09)	(1.68)
Adjustment to net loss per share, basic and diluted	(0.29)	-	1.25	0.01
Adjusted net loss per share, basic and diluted	(0.58)	(0.62)	(1.84)	(1.67)
Weighted average shares outstanding, basic and diluted	70,914,300	50,626,246	61,613,177	48,448,085

(i) Share-based compensation expense represents the cost of equity awards issued to our directors, management and employees. The fair value of awards is computed at the time the award is granted and is recognized over the vesting period of the award by a charge to the income statement and a corresponding increase in other reserves within equity. These accounting entries have no cash impact.

(ii) Change in the fair value of the convertible loan derivatives results from the valuation at the end of each accounting period of the derivatives associated with the convertible loans, as explained in note 11 “Convertible notes” to the unaudited condensed consolidated interim financial statements. There are several inputs to these valuations, but those most likely to provoke significant changes in the valuations are changes in the value of the underlying instrument (i.e., changes in the price of our common shares) and changes in expected volatility in that price. Any change in the estimated probability of the regulatory approval of Lonca would directly affect the valuation related to the second tranche. These accounting entries have no cash impact.

(iii) The transaction costs allocated to the convertible loan first tranche derivative represent actual costs. These are not expected to recur on an ongoing basis.

(iv) Effective interest expense relates to the increase in the value of our convertible loan in accordance with the effective interest method. As the initial value of the loan is recorded net of the value of the embedded derivative, the increase in the loan value necessary to attain the amount necessary to fund the cash outflows of interest payments, repayment of capital and exit fee is considerably higher than the payments of interest at coupon rate and of the exit fee.

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