SEC Filing | Adicet Bio

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38359

Adicet Bio, Inc.

(Exact name of registrant as specified in its charter)


Delaware		81-3305277
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
200 Berkeley Street, 19th Floor Boston, MA		02116
(Address of principal executive offices)		(Zip Code)

(650) 503-9095

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	ACET	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 5, 2023, the registrant had 42,957,586 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		2

PART I.	FINANCIAL INFORMATION	4
Item 1.	Consolidated Financial Statements (Unaudited)	4
	Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	4
	Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022	5
	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	8
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II.	OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3.	Defaults Upon Senior Securities	75
Item 4.	Mine Safety Disclosures	75
Item 5.	Other Information	75
Item 6.	Exhibits	75
Signatures		77

Summary of the Material Risks Associated with Our Business

•

We have a limited operating history and face significant challenges and expense as we build our capabilities.

•

Our business is highly dependent on the success of ADI-001. If we are unable to obtain regulatory approval for ADI-001 and effectively commercialize ADI-001 for the treatment of patients in our approved indications, our business would be significantly harmed.

•

Our gamma delta T cell candidates represent a novel approach to cancer treatment that creates significant challenges for us.

•

Our product candidates are based on novel technologies, which makes it difficult to predict the likely success of such product candidates and the time and cost of product candidate development and obtaining regulatory approval.

•

Our clinical trials may fail to demonstrate the safety and efficacy of any of our product candidates, which would prevent or delay regulatory approval and commercialization.

•

We may not be able to file investigational new drug (IND) applications to commence additional clinical trials on the timelines we expect, and even if we are able to, the U.S. Food and Drug Administration (FDA) may not permit us to proceed.

•

We may encounter substantial delays in our clinical trials, or may not be able to conduct our trials on the timelines we expect.

•

The market opportunities for our product candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.

•

We have not yet commenced manufacturing operations at our manufacturing facility and currently depend on the ability of our third-party suppliers and manufacturers with whom we contract to perform adequately, particularly with respect to the timely production and delivery of our product candidates, including ADI-001. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

•

We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

•

We will need substantial additional financing to develop our product candidates and implement our operating plans. If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates.

•

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

•

A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and operations.

•

The current conflict between Russia and Ukraine may increase the likelihood of supply interruptions which could impact our ability to find the materials we need to make our product candidates.

•

Failure to achieve and maintain effective internal control over financial reporting could harm our business and negatively impact the value of our common stock.

•

If our collaboration with Regeneron Pharmaceuticals, Inc. (Regeneron) is terminated, or if Regeneron materially breaches its obligations thereunder, our business, prospects, operating results, and financial condition would be materially harmed.

•

The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of our product candidates.

•

If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market.

•

We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

•

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and its financial condition and results of operations.

•

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

•

Our business is affected by macroeconomic conditions, including any potential recession, rising inflation, interest rates and supply chain constraints.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

•

The timing of and our ability to execute our clinical trials for ADI-001 in non-Hodgkin’s lymphoma (NHL), including the ability to successfully complete our Phase 1 clinical trial and the period during which the results of the trial will become available;

•

our expectations regarding our additional internal gamma delta T cell therapy programs, including ADI-925, in preclinical development and our ability to develop other oncology product candidates in our research pipeline;

•

our expectations regarding the availability, timing and announcement of data from our Phase 1 clinical trial;

•

our expectations regarding discussions with the FDA and the European Medicines Agency (EMA) of a potential path to support Biologics License Application (BLA) and Marketing Authorization Application (MAA) for ADI-001;

•

the anticipated timing of our submission of IND applications or equivalent regulatory filings and initiation of future clinical trials, including the timing of the anticipated results;

•

the impact of the COVID-19 pandemic on our continuing operations, clinical development plans, including the timing of initiation and completion of studies or trials, financial forecasts and expectations, and other matters related to our business and operations;

•

our expectations regarding the impact of unstable market and economic conditions, including impacts of inflation and adverse developments affecting the financial services industry, on our business, results of operations or financial conditions;

•

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

•

the rate and degree of acceptance and clinical utility of any products for which we receive regulatory approval;

•

our commercialization, marketing and manufacturing capabilities and strategy;

•

our intellectual property position and strategy;

•

our ability to identify additional product candidates with significant commercial potential;

•

our plans to enter into collaborations for the development and commercialization of product candidates;

•

the potential benefits of any current and future collaboration;

•

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

•

the success of competing therapies that are or may become available;

•

developments relating to our competitors and our industry;

•

our ability to retain the continued service of our key professionals and to identify, hire, and retain additional qualified professionals;

•

our financial performance;

•

our expectations related to the use of cash and cash equivalents;

•

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•

our ability to maintain effective internal control over financial reporting;

•

the impact of government laws and regulations; and

•

other risks and uncertainties, including those listed under the caption “Risk Factors.”

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or enter into.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed or incorporated by reference as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosure contained in this Quarterly Report on Form 10-Q, and we believe these industry publications and third-party research, surveys and studies are reliable.

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited).

ADICET BIO, INC.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)


	March 31, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	231,640		$	257,656
Prepaid expenses and other current assets		3,168			3,382
Total current assets		234,808			261,038
Property and equipment, net		29,886			28,710
Operating lease right-of-use asset		19,708			20,269
Goodwill		19,462			19,462
Other non-current assets		1,110			1,211
Total assets	$	304,974		$	330,690
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,747		$	4,404
Accrued and other current liabilities		12,399			12,811
Operating lease liability		2,949			2,492
Total current liabilities		18,095			19,707
Operating lease liability, net of current portion		20,548			18,531
Other non-current liabilities		116			114
Total liabilities		38,759			38,352
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; none issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		—			—
Common stock, $0.0001 par value, 150,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; 42,957,431 and 42,954,820 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		4			4
Additional paid-in capital		535,206			530,448
Accumulated deficit		(268,995	)		(238,114	)
Accumulated other comprehensive income		—			—
Total stockholders’ equity		266,215			292,338
Total liabilities and stockholders’ equity	$	304,974		$	330,690

The accompanying notes are an integral part of these consolidated financial statements.

ADICET BIO, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Revenue—related party	$	—		$	24,990
Operating expenses:
Research and development		26,756			13,483
General and administrative		6,566			6,801
Total operating expenses		33,322			20,284
Income (loss) from operations		(33,322	)		4,706
Interest income		2,666			32
Interest expense		(19	)		(18	)
Other expense, net		(206	)		(102	)
Income (loss) before income tax provision		(30,881	)		4,618
Income tax provision		—			—
Net income (loss)	$	(30,881	)	$	4,618
Net income (loss) per share attributable to common stockholders, basic	$	(0.72	)	$	0.12
Net income (loss) per share attributable to common stockholders, diluted	$	(0.72	)	$	0.10
Weighted-average common shares used in computing net income (loss) per share attributable to common stockholders, basic		42,955,688			39,823,246
Weighted-average common shares used in computing net income (loss) per share attributable to common stockholders, diluted		42,955,688			45,958,941

The accompanying notes are an integral part of these consolidated financial statements.

ADICET BIO, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)


	Common Stock					Additional Paid In			Accumulated			Total Stockholders'
	Shares			Amount		Capital			Deficit			Equity
Balance at December 31, 2022		42,954,820		$	4	$	530,448		$	(238,114	)	$	292,338
Issuance of common stock upon exercise of stock options		713			—		3			—			3
Issuance of common stock upon vesting of restricted stock		3,205			—		—			—			—
Shares withheld for taxes		(1,307	)		—		(10	)		—			(10	)
Stock-based compensation expense		—			—		4,765			—			4,765
Net loss		—			—		—			(30,881	)		(30,881	)
Balance at March 31, 2023		42,957,431		$	4	$	535,206		$	(268,995	)	$	266,215

ADICET BIO, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)


	Common Stock					Additional Paid In			Accumulated			Total Stockholders'
	Shares			Amount		Capital			Deficit			Equity
Balance at December 31, 2021		39,736,914		$	4	$	471,449		$	(168,324	)	$	303,129
Issuance of common stock upon exercise of stock options		10,099			—		93			—			93
Issuance of common stock upon vesting of restricted stock		224,000			—		—			—			—
Shares withheld for taxes		(85,197	)		—		(1,106	)		—			(1,106	)
Stock-based compensation expense		—			—		4,350			—			4,350
Net income		—			—		—			4,618			4,618
Balance at March 31, 2022		39,885,816		$	4	$	474,786		$	(163,706	)	$	311,084

The accompanying notes are an integral part of these consolidated financial statements.

ADICET BIO, INC.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities
Net income (loss)	$	(30,881	)	$	4,618
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization expense		1,254			352
Noncash lease expense		561			645
Stock-based compensation expense		4,765			4,350
Loss on disposal of property, plant, and equipment		—			18
Amortization of deferred debt issuance costs		17			18
Changes in operating assets and liabilities:
Accounts receivable - related party		—			185
Prepaid expenses and other current assets		214			1,077
Other non-current assets		84			117
Accounts payable		(2,333	)		(612	)
Contract liabilities — related party		—			(4,805	)
Operating lease liability		2,474			(361	)
Accrued and other current and non-current liabilities		(249	)		(1,497	)
Net cash provided by (used in) operating activities		(24,094	)		4,105
Cash flows from investing activities
Purchases of property and equipment		(1,915	)		(2,632	)
Net cash provided by (used in) investing activities		(1,915	)		(2,632	)
Cash flows from financing activities
Proceeds from exercise of stock options		3			94
Taxes withheld and paid related to net share settlement of equity awards		(10	)		(1,106	)
Deferred issuance costs		—			(122	)
Net cash provided by (used in) financing activities		(7	)		(1,134	)
Net change in cash, cash equivalents and restricted cash		(26,016	)		339
Cash, cash equivalents and restricted cash, at the beginning of period		257,656			277,694
Cash, cash equivalents and restricted cash, at the end of period	$	231,640		$	278,033
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	231,640		$	277,883
Restricted cash		—			150
Cash, cash equivalents and restricted cash	$	231,640		$	278,033
Supplemental cash flow information
Supplemental disclosures of noncash investing and financing activities
Purchases of property and equipment included in accounts payable and accrued expenses	$	1,081		$	1,481

The accompanying notes are an integral part of these consolidated financial statements.

ADICET BIO, INC.

Notes to Interim Consolidated Financial Statements (Unaudited)

1. Organization and Nature of the Business

Adicet Bio, Inc. (formerly resTORbio, Inc. (resTORbio), together with its subsidiaries, the Company) is a clinical stage biotechnology company discovering and developing allogeneic gamma delta T cell therapies for cancer. The Company is advancing a pipeline of “off-the-shelf” gamma delta T cells, engineered with chimeric antigen receptors (CARs) and adaptors (CAds), to enhance selective tumor targeting and facilitate innate and adaptive anti-tumor immune response for durable activity in patients. The Company's approach to activate, engineer, and manufacture allogeneic gamma delta T cell product candidates derived from the peripheral blood cells of unrelated donors allows it to generate new product candidates in a rapid and cost-efficient manner.

Adicet Bio, Inc. (when referred to prior to the merger, Former Adicet) was incorporated in November 2014 in Delaware. On September 15, 2020, Former Adicet completed a merger (Merger) with resTORbio, pursuant to which Former Adicet merged with a wholly owned subsidiary of resTORbio in an all-stock transaction with Former Adicet surviving as a wholly owned subsidiary of resTORbio and changing its name to “Adicet Therapeutics, Inc.” (Adicet Therapeutics). In connection with the Merger, the Company changed its name from “resTORbio, Inc.” to “Adicet Bio, Inc.” The Company’s principal executive offices are located in Boston, Massachusetts. The Company also has offices in Redwood City, California.

Adicet Bio Israel Ltd. (formerly Applied Immune Technologies Ltd.) (Adicet Israel) is a wholly owned subsidiary of the Company and is located in Haifa, Israel. Adicet Israel was founded in 2006. During 2019, the Company consolidated its operations, including research and development activities, in the United States and as a result, substantially reduced its operations in Israel.

Liquidity

The Company has incurred significant net operating losses and negative cash flows from operations and has an accumulated deficit of $269.0 million as of March 31, 2023. The Company has historically financed its operations primarily through a collaboration and licensing arrangement, public and private placements of equity securities and debt, and cash received in the Merger with resTORbio. To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from product sales. Management expects operating losses and negative cash flows to continue for the foreseeable future, until such time, if ever, that it can generate significant sales of its product candidates currently in development.

On March 12, 2021, the Company entered into a Capital On Demand™ Sales Agreement (the Sales Agreement) with JonesTrading Institutional Services LLC, as sales agent, to provide for the offering, issuance and sale of up to an aggregate amount of $75.0 million of shares of common stock from time to time in “at-the-market” (ATM) offerings under a registration statement on Form S-3 (File No. 333-254193) (2021 Shelf Registration Statement) filed with the U.S. Securities and Exchange Commission (the SEC), which was declared effective on March 30, 2021. In August 2022, pursuant to the Sales Agreement and subject to the limitations thereof, the Company sold an aggregate of 2,611,723 shares of common stock at $17.23 per share resulting in net proceeds to the Company of $43.4 million after deducting sales agent commissions and expenses. In November 2022, the Company filed a new prospectus supplement to the 2021 Shelf Registration Statement for the offer and sale of up to $100.0 million of shares of common stock from time to time through the sales agent, which includes the $30.0 million of shares of common stock not sold under the original prospectus and up to an additional $70.0 million of shares of common stock.

The Company expects that its cash and cash equivalents, including the net proceeds it received from its ATM offering, will be sufficient to fund its forecasted operating expenses, capital expenditure requirements and debt service payments for at least the next twelve months from the issuance of these interim consolidated financial statements.

All of the Company’s revenue to date has been generated from a collaboration and license agreement with Regeneron Pharmaceuticals Inc, (Regeneron). The Company does not expect to generate any significant product revenue until it obtains regulatory approval of and commercializes any of the Company’s product candidates or enters into additional collaborative agreements with third parties, and it does not know when, or if, either will occur. The Company expects to continue to incur significant losses for the foreseeable future, and it expects the losses to increase as the Company continues the development of, and seeks regulatory approvals for, its product candidates and begins to commercialize any approved products. The Company is subject to all of the risks typically related to the development of new product candidates, including, but not limited to, raising additional capital, development by its competitors of new technological innovations, risk of failure in preclinical and clinical studies, safety and efficacy of its product candidates in clinical trials, the risk of relying on external parties such as contract research organizations (CROs) and contract development and manufacturing organizations (CDMOs), the regulatory approval process, market acceptance of the Company’s products once approved, lack of marketing

and sales history, dependence on key personnel and protection of proprietary technology and it may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect its business.

Until such time as the Company can generate significant revenue from product sales, if ever, the Company expects to finance its operations through the sale of equity, debt financings, collaborative or other arrangements with corporate or other sources of financing. Adequate funding may not be available to the Company on acceptable terms or at all. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and the Company’s ability to pursue its business strategies. Although the Company continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited interim consolidated financial statements and related disclosures have been prepared in conformity with accounting principles generally accepted in the United States of America (United States GAAP or GAAP).

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, "Summary of Significant Accounting Policies," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to the significant accounting policies during the three months ended March 31, 2023.

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements as of March 31, 2023, and for the three months ended March 31, 2023, have been prepared by the Company, pursuant to the rules and regulations of the SEC, for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s consolidated financial position as of March 31, 2023 and consolidated results of operations for the three months ended March 31, 2023 and 2022 and consolidated cash flows for the three months ended March 31, 2023 and 2022 have been made. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents. The Company’s cash and cash equivalents are held at one financial institution in the U.S. and one financial institution in Israel and such amounts may, at times, exceed insured limits. The Company invests its cash equivalents in money market funds. The Company limits its credit risk associated with cash equivalents by placing them with banks and institutions it believes are highly creditworthy and in highly rated investments. The Company has not experienced any losses on its deposits of cash and cash equivalents to date.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies, clinical trials, and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting.

The Company’s product candidates are still in development and, to date, none of the Company’s product candidates have been approved for sale and, therefore, the Company has not generated any revenue from product sales.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This ASU replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. For SEC filers that are eligible to be smaller reporting companies, this ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted the provisions of ASU 2016-13 in the first quarter of 2023. There was no impact to the consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. SEC filers that are eligible to be smaller reporting companies should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2022. The amendment should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted the provisions of ASU 2017-04 in the first quarter of 2023. The impact on its consolidated financial statements and related disclosures was not material.

3. Fair Value Measurements

The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy which establishes three level of inputs that may be used to measure fair value, as follows:

Level 1 — Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):


	March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds (1) (2)	$	228,727	$	—	$	—	$	228,727
Total fair value of assets	$	228,727	$	—	$	—	$	228,727


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds (1) (2)	$	75,701	$	—	$	—	$	75,701
Total fair value of assets	$	75,701	$	—	$	—	$	75,701

(1)

Included in cash and cash equivalents in the consolidated balance sheets.

(2)

Money market funds are included within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Prepaid insurance	$	974	$	1,251
Prepaid software subscription and licensing fees		297		529
Interest receivable		567		435
Prepayments to CROs		273		427
Prepaid maintenance		445		295
Prepayments to CDMOs		101		65
Other prepaid expenses and current assets		511		380
Total prepaid expenses and other current assets	$	3,168	$	3,382

5. Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):


	Useful life (in years)	March 31, 2023			December 31, 2022
Laboratory equipment	3	$	10,614		$	7,503
Leasehold improvements	Lesser of useful life or lease term		25,965			19,959
Furniture and fixtures	3		951			184
Construction in progress	—		1,833			9,292
Computer equipment	3		177			172
Software	3		352			353
			39,892			37,463
Less: Accumulated depreciation and amortization			(10,006	)		(8,753	)
Property and equipment, net		$	29,886		$	28,710

Depreciation and amortization expense was $1.3 million and $0.4 million for the three months ended March 31, 2023 and 2022, respectively. The increase in expense is primarily due to the completion of the Company's good manufacturing practice (GMP) cell processing and vector manufacturing suite at the Company's office in Redwood City, California (1000 Bridge Parkway) in February 2023.

Construction in progress has decreased by $7.5 million during the three months ended March 31, 2023, compared to the balance at December 31, 2022 due to the Company's completion of the Company's GMP cell processing and vector manufacturing suite in February 2023. The remaining $1.8 million in construction in progress as of March 31, 2023 is primarily related to lab and computer equipment not yet placed into service.

6. Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Accrued compensation	$	3,755	$	5,703
Accrued CDMO costs		5,136		4,390
Accrued professional services		1,197		1,356
Accrued other research and development expenses		519		674
Accrued CRO costs		1,720		657
Accrued other liabilities		72		31
Total accrued and other liabilities	$	12,399	$	12,811

7. Term Loan

On April 28, 2020, the Company entered into a Loan and Security Agreement (the Loan Agreement) as amended on July 8, 2020, September 14, 2020, September 15, 2020, October 21, 2022 and December 2, 2022 (the 2022 Amendment) with Pacific Western Bank (PacWest).

On March 13, 2023, the Company and PacWest executed a letter agreeing that, notwithstanding the covenants included in the 2022 Loan Amendment, until June 30, 2023 (i) the Company and its subsidiaries will not be required to maintain the lesser of $200 million or seventy percent (70%) of its combined balances in demand deposit accounts, money market funds and/or insured cash sweep (ICS) accounts with PacWest and (ii) the Company must maintain its combined balances at PacWest or its affiliates, including Pacific Western Asset Management (the Letter). At all times following June 30, 2023, the Company will again be required to comply with the terms of the 2022 Loan Amendment. Upon executing this letter, the Company wired $187.2 million from its insured cash sweep (ICS) accounts at PacWest to Pacific Western Asset Management who subsequently invested the funds into money market funds held in custody with U.S. Bank National Association. The Company’s remaining balance of funds held in demand deposit accounts and ICS accounts with PacWest is approximately $2.9 million as of March 31, 2023.

As of March 31, 2023, the Company has $10.6 million available under the Loan Agreement. Additionally, as of the date of this Quarterly Report on Form 10-Q, the Company is in compliance with such covenants and had no indebtedness outstanding under the Loan Agreement.

8. Third Party Agreements

Regeneron

On July 29, 2016, the Company entered into a license and collaboration agreement with Regeneron, which was amended in April 2019, with such amendment becoming effective in connection with Regeneron’s investment in the Company’s Series B redeemable convertible preferred stock private placement transaction in July 2019 (as amended, the Regeneron Agreement).

Financial Terms. The Company received a non-refundable upfront payment of $25.0 million from Regeneron upon execution of the Regeneron Agreement and an aggregate of $20.0 million of additional payments for research funding from Regeneron as of March 31, 2023. In addition, Regeneron may have to pay the Company additional amounts in the future consisting of up to an aggregate of $80.0 million of option exercise fees, as specified in the Regeneron Agreement. Per the terms of the agreement, Regeneron must pay the Company high single digit royalties as a percentage of net sales for immune cell products (ICPs) to targets for which it has exclusive rights, and low single digit royalties as a percentage of net sales on any non-ICP product comprising a targeting moiety generated by the Company through the use of Regeneron’s proprietary mice. The Company must pay Regeneron mid-single to low double digit, but less than teens, of royalties as a percentage of net sales of ICPs to targets for which the Company has exercised exclusive rights, and low to mid-single digit of royalties as a percentage of net sales of targeting moieties generated from the Company’s license to use Regeneron’s proprietary mice. Royalties are payable until the longer of the expiration or invalidity of the licensed patent rights or twelve (12) years from first commercial sale. No royalties have been earned or paid under the Regeneron Agreement through March 31, 2023.

On January 28, 2022, Regeneron exercised its option to license the exclusive, worldwide rights to ADI-002, an allogeneic gamma delta chimeric antigen receptor (CAR) T cell therapy directed against Glypican-3, pursuant to the

Regeneron Agreement. In conjunction with the exercise of the option, Regeneron paid an exercise fee of $20.0 million to the Company on January 28, 2022, and the Company completed the transfer of the associated license rights to Regeneron during the first quarter of 2022. The $20.0 million option exercise fee, plus $5.0 million of revenue recognized relating to the combined performance obligation, resulted in an aggregate of $25.0 million recorded as revenue for the three months ended March 31, 2022. The Company's obligations under the combined performance obligation were completed during the year ended December 31, 2022.

Regeneron is responsible, at its sole cost, for all development, manufacturing and commercialization of ADI-002 and must pay the Company high single digit royalties as a percentage of any net sales of ADI-002 for a period commencing on the first commercial sale until the longer of (i) the expiration or invalidity of the licensed patent rights or (ii) a low double digit amount of years from first commercial sale.

As of March 31, 2023 and 2022, there were no contract assets related to the Regeneron Agreement. The following tables present changes in the Company’s contract liabilities for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31, 2023

Balance at
Beginning 
of Period

Deductions

Balance at
End of Period

Contract liability

—

—

—


Three Months Ended March 31, 2022	Balance at Beginning of Period		Deductions (1)			Balance at End of Period
Contract liability	$	4,805	$	(4,805	)	$	—

(1)

Deductions to contract liabilities relate to deferred revenue recognized as revenue during the reporting period.

Twist Bioscience

In March 2021, the Company entered into an Antibody Discovery Agreement (the Twist Agreement) with Twist Bioscience Corporation (Twist). Under the terms of the Twist Agreement, Twist will utilize its proprietary platform technology to assist the Company with the discovery of novel antibodies related to target antigens selected by the Company. The Company maintains the sole and exclusive rights to any program antibodies discovered under the Twist Agreement and has the right to patent, assign, license or transfer any work product under the agreement. Furthermore, the Company has the right to sublicense its rights to program antibodies to third parties. The Company may terminate the Twist Agreement at any time, with or without cause, upon a specified period advance written notice.

Per the terms of the agreement, the Company will pay Twist an upfront, non-refundable project initiation fee, a technology access fee, as well as a project fee for each project entered into under the agreement. Additionally, the Company will pay fees for development and regulatory milestones in the tens of millions of dollars and low single digit royalties on net sales to Twist for programs initiated under the agreement. In November 2022, the Company entered into an amendment to the Twist Agreement (the Twist Amendment). The Twist Amendment updates the language associated with Twist's audit rights as well as the amounts associated with technology access fees.

On a cumulative basis as of March 31, 2023, the Company has incurred and expensed $1.0 million related to project initiation fees, technology access fees and projects fees as research and development expense related to this agreement.

9. License, Funding and Other Agreements

National Institute of Health

In May 2019, the Company was awarded a 5-year grant for up to $1.5 million from the National Institutes of Health (the NIH) to study RTB101 and the regulation of antiviral immunity in the elderly. The Company is entitled to use the award solely to conduct the research. The Company is solely responsible for commencing and conducting the research and will furnish periodic progress updates to the NIH throughout the term of the award. After completing the research, the Company must provide the NIH with a formal report describing the work performed and the results of the research.

For funds received under the NIH funding agreement, the Company recognizes a reduction in research and development expenses in an amount equal to the qualifying expenses incurred in each period up to the amount funded by the NIH. Qualifying expenses incurred by the Company in advance of funding by the NIH are recorded in the consolidated balance sheets as other current assets. For the three months ended March 31, 2023, no qualifying expenses have been incurred and nothing has been funded by the NIH. On a cumulative basis as of March 31, 2023, $1.3 million has been incurred and $1.3 million has been funded by the NIH.

10. Commitments and Contingencies

Operating Leases

The Company leases office and laboratory space in Redwood City, California, and Boston, Massachusetts.

Redwood City

In 2018, Adicet Therapeutics executed a non-cancelable lease agreement, as amended in 2022, pursuant to which the Company leases office and laboratory facility at 1000 Bridge Parkway and a portion of 1200 Bridge Parkway in Redwood City, California (the Redwood City Lease).